SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
Scan-Optics, Inc.
(Name of Registrant as Specified In Its Charter)
- -------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(j)(2)
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3)
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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<PAGE>
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date of its
filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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DBH806/usr2/id29/work/SCAN/SecureExch
April 11, 1995; 11:09am
<PAGE>
April 12, 1995
Dear Stockholders:
You are cordially invited to the Annual Meeting of Stockholders of
Scan-Optics, Inc., scheduled to be held Monday, May 15, 1995, at the
Holiday Inn, 363 Roberts Street, East Hartford, Connecticut, commencing at
1:30 p.m. Your Board of Directors and management look forward to greeting
you personally.
At the Meeting you will be asked to elect two directors, to appoint
independent auditors for the fiscal year ending December 31, 1995 and to
transact such other business as may properly be brought before the Meeting.
In addition to the specific matters to be acted upon, there will be a
report on the progress of the Company and an opportunity for questions of
general interest to the stockholders. Important information is contained in
the accompanying proxy statement which you are urged to read carefully.
Regardless of the number of shares you own, it is important that they
are represented and voted at the Meeting, whether or not you plan to
attend. Accordingly, you are requested to mark, sign, date and return the
enclosed proxy in the envelope provided at your earliest convenience.
Your interest and participation in the progress of the Company are
greatly appreciated.
Sincerely,
Richard I. Tanaka
Chairman of the Board,
Chief Executive Officer and
President
<PAGE>
SCAN-OPTICS, INC.
Notice of Annual Meeting of Stockholders
The Annual Meeting of Stockholders of Scan-Optics, Inc. (the
"Company") will be held at the Holiday Inn, 363 Roberts Street, East
Hartford, Connecticut, on Monday, May 15, 1995 at 1:30 p.m. (EDT) to
consider and take action on the following items:
1. To elect two directors to serve until the Annual Meeting of
Stockholders in 1998;
2. To appoint independent auditors for the fiscal year ending
December 31, 1995; and
3. To transact such other business as may properly come before said
meeting or any adjournment thereof.
Only holders of Common Stock at the close of business on March 31,
1995 are entitled to notice of and to vote at the meeting or any
adjournment thereof. A list of the stockholders entitled to vote at the
meeting will be available for examination by any stockholder for any
purpose germane to the meeting during ordinary business hours for ten days
prior to the meeting at the offices of the Company, 22 Prestige Park
Circle, East Hartford, Connecticut.
By Order of the Board of Directors
William H. Cuddy
Secretary
East Hartford, Connecticut
April 12, 1995
YOUR VOTE IS IMPORTANT. EVEN IF YOU PLAN TO ATTEND THE MEETING IN
PERSON, PLEASE MARK, SIGN AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE AS
PROMPTLY AS POSSIBLE.
<PAGE>
SCAN-OPTICS, INC.
22 Prestige Park Circle
East Hartford, Connecticut 06108
PROXY STATEMENT
This statement is furnished in connection with the solicitation of
proxies to be used at the Annual Meeting of Stockholders of Scan-Optics,
Inc., a Delaware corporation, to be held at the Holiday Inn, 363 Roberts
Street, East Hartford, Connecticut, on Monday, May 15, 1995 at 1:30 p.m.
The solicitation of proxies in the enclosed form is made on behalf of
the Board of Directors of the Company.
The cost of soliciting proxies on the accompanying form has been or
will be borne by the Company. In addition to solicitation by mail, the
Company will request banks, brokers and other custodians, nominees, and
fiduciaries to send proxy material to the beneficial owners and to secure
their voting instructions, if necessary. The Company will reimburse them
for their expenses in so doing. Directors, officers, and regular employees
of the Company, who will receive no compensation for their services other
than their regular salaries, may solicit proxies personally, by telephone
and by telegram from stockholders. These proxy materials are first being
mailed to stockholders on or about April 12, 1995.
A stockholder signing and returning a proxy on the enclosed form has
the power to revoke it at any time before the shares subject to it are
voted by notifying the Secretary of the Company in writing of such
revocation, or by filing a duly executed proxy bearing a later date, or by
attending the meeting and voting in person. Properly executed proxies, not
revoked, will be voted in accordance with the instructions contained
thereon. Unless a contrary specification is made thereon, it is the
intention of the attorneys named in the enclosed proxy to vote FOR the
nominees for election to the Board of Directors and FOR the appointment of
Ernst & Young LLP as auditors for the fiscal year ending December 31, 1995.
OUTSTANDING VOTING SECURITIES
Only holders of Common Stock at the close of business on March 31,
1995 are entitled to notice of and to vote at the meeting. On March 31,
1995, the record date, there were 6,914,013 shares of Common Stock, $.02
par value outstanding. Each share of Common Stock is entitled to one vote
per share.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information with respect to
each person known to the Company to be deemed to have beneficial ownership
of more than 5% of a class of the Company's outstanding voting stock as of
March 31, 1995. In preparing the following table, the Company relied on
information filed with the Securities and Exchange Commission pursuant to
Section 13(d) or 13(g) of the Securities Exchange Act of 1934, as amended,
or information supplied to the Company by such person or the representative
of such person. Each person listed below has sole voting and investment
powers as to the shares the person beneficially owns, except as otherwise
indicated.
<PAGE>
<TABLE>
<CAPTION>
Number of
of Shares
Name and Address of Title of Class Beneficially Percent of
Beneficial Owner Class Owned Owned Class
<S> <S> <C> <C>
Dimensional Fund Advisors Inc. Common Stock 398,800(1) 5.8%
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401
The Killen Group, Inc. Common Stock 386,500(2) 5.6%
1189 Lancaster Avenue
Berwyn, PA 19312
Edwin W. Schloss Common Stock 44,200(3) .6%
52 Vanderbilt Avenue
New York, NY 10017
Walter J. Schloss Common Stock 17,000(4) .2%
52 Vanderbilt Avenue
New York, NY 10017
Walter & Edwin Schloss Common Stock 336,500(5) 4.9%
Associates, L. P.
52 Vanderbilt Avenue
New York, NY 10017
The Prudential Leveraged Asset Trust 1990A Common Stock 517,877(6) 7.5%
c/o The Prudential Insurance Company
of America
4 Gateway Center
Newark, NJ 07102-4069
</TABLE>
(1) Dimensional Fund Advisors Inc. ("Dimensional"), a registered
investment adviser, is deemed to have beneficial ownership of 398,800
shares of Common Stock as of December 31, 1994, all of which shares are
held in portfolios of DFA Investment Dimensions Group Inc., a registered
open-end investment company, or in series of The DFA Investment Trust
Company, a Delaware business trust, or the DFA Group Trust and the DFA
Participating Group Trust, investment vehicles for qualified employee
benefit plans, all of which Dimensional serves as investment manager.
Dimensional has sole voting power as to 225,900 shares and sole dispositive
power as to all of such shares. Dimensional disclaims beneficial ownership
of all such shares.
(2) The Killen Group, Inc. has discretionary trading authority over
386,500 shares of Common Stock owned by clients which shares are included
in the table.
(3) Edwin W. Schloss has sole voting and investment powers with respect to
the 44,200 shares of Common Stock, which he individually owns. In addition,
by reason of his position as one of the general partners of Schloss
Management Company ("SMC") which is the general partner of Walter & Edwin
Schloss Associates, L.P. ("Associates") (listed in the above table), Edwin
W. Schloss may be deemed to have shared voting and investment powers with
respect to the 336,500 shares of Common Stock owned by Associates, thereby
increasing his beneficial ownership of the Common Stock to 380,700 shares,
or 5.5% of the Common Stock outstanding.
<PAGE>
(4) Walter J. Schloss has sole voting and investment powers with respect
to the 17,000 shares of Common Stock, which he individually owns. In
addition, by reason of his position as one of the general partners of SMC
which is the general partner of Associates (listed in the above table),
Walter J. Schloss may be deemed to have shared voting and investment powers
with respect to the 336,500 shares of Common Stock owned by Associates,
thereby increasing his beneficial ownership of the Common Stock to 353,500
shares, or 5.1% of the Common Stock outstanding. In addition, Walter J.
Schloss from time to time possesses certain indicia of investment
discretion over 29,000 shares of Common Stock held in the accounts of his
clients, but he has no voting power, and he disclaims beneficial ownership,
with respect to such shares. If he were deemed to have beneficial ownership
of such 29,000 shares, his total beneficial ownership of the Common Stock
would be 382,500 shares, or 5.5% of the Common Stock outstanding.
(5) Such entity may be deemed to have shared voting and investment powers
with Walter J. Schloss and Edwin W. Schloss with respect to the shares
owned by it. See footnotes 3 and 4 above.
(6) The Prudential Insurance Company of America ("Prudential") shares
voting and dispositive power over 514,464 shares of Common Stock, which are
held in The Prudential Leveraged Asset Trust 1990A. Prudential shares these
powers with the investment manager of the Trust, PruSupply Inc., which is a
wholly-owned subsidiary of Prudential and a functional part of its
insurance operation.
See "Share Ownership of Management" for information on beneficial
ownership of Common Stock by directors and officers of the Company.
<PAGE>
GOVERNANCE OF THE COMPANY
In accordance with the Company's By-Laws and the applicable laws of
Delaware, responsibility for the management of the Company is vested in its
Board of Directors. During 1994, the Board of Directors met ten times. All
directors attended at least 75% of the aggregate of the number of meetings
of the Board of Directors and of committees of the Board on which they
served.
The Board has delegated responsibilities with respect to management
compensation and employee stock option plans to the Stock Options and
Executive Compensation Committee, responsibilities with respect to certain
audit matters to the Audit Committee and responsibilities with respect to
recommending candidates to serve on the Board to the Nominating Committee.
The Stock Options and Executive Compensation Committee is composed of
E. Bulkeley Griswold (Chairman), Robert H. Steele and Lyman C. Hamilton,
Jr. The Audit Committee is composed of Richard Hodgson (Chairman), Logan
Clarke, Jr. and Richard J. Coburn. The Nominating Committee is composed of
Messrs. Hamilton (Chairman), Coburn and Steele.
The Stock Options and Executive Compensation Committee is responsible
for reviewing and supervising all ordinary and incentive compensation
payments and plans for certain officers of the Company and for
approving grants of stock options to employees under the Company's
employee stock option plans. During 1994, the Stock Options and Executive
Compensation Committee met four times. The Audit Committee is responsible
for reviewing the adequacy of financial controls and the adequacy and
accuracy of financial reporting. The Audit Committee met four times during
1994. The Nominating Committee is responsible for screening and
recommending candidates to serve on the Board. The Nominating Committee met
once in 1994.
Pursuant to the Company's By-Laws, nominations for directors may be
made by any stockholder entitled to vote for the election of directors at
the meeting who complies with the following notice procedures and who is a
stockholder of record at the time of giving such notice. To be timely, a
stockholder's notice must be delivered to or mailed to and received at the
principal executive offices of the Company not less than 40 days nor more
than 90 days prior to the meeting; provided, however, that if less than 50
days' notice or prior public disclosure of the date of the meeting is given
or made to stockholders, notice by the stockholder to be timely must be so
delivered or received not later than the close of business on the tenth day
following the earlier of the day on which such notice of the date of the
meeting was mailed or the day on which such public disclosure was made. A
stockholder's notice to the Secretary must set forth (a) as to each person
the stockholder proposes to nominate for election or re-election as a
director, all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is
otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended; (b) such person's written
consent to being named in a proxy statement as a nominee and to serving as
a director if elected; and (c) as to the stockholder giving the notice, (i)
<PAGE>
the name and address, as they appear on the Company's books, of such
stockholder and any other stockholder known by such stockholder to be
supporting such nomination and (ii) the class and number of shares of the
Company which are beneficially owned by such stockholder. A stockholder
making such a nomination must also comply with all applicable requirements
of the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder with respect to such matter.
Directors, other than those who are full-time employees of the Company
or a subsidiary, each receive a monthly fee of $500 and additional fees of
$500 per Board meeting attended and $300 per committee meeting attended;
provided, however, that no fee is paid for attendance at any committee
meeting or meetings held on the same day as a Board meeting nor is a
director paid for attendance at more than one committee meeting held on a
single day. Directors who are full-time employees of the Company receive no
remuneration for serving on the Board of Directors or committees. Under the
Scan-Optics, Inc. 1990 Stock Option Plan for Outside Directors, each
non-employee director received an option to purchase 5,000 shares of Common
Stock on June 12, 1990, the effective date of the plan, and on June 12,
1991, 1992, 1993 and 1994. On the next anniversary of the effective date,
each will receive a final, additional option to purchase 5,000 shares of
Common Stock.
1. ELECTION OF DIRECTORS
The Certificate of Incorporation of the Company provides for a Board
of Directors which is divided into three classes, as nearly equal in size
as possible, with one class elected each year for a three-year term, to
hold office until the end of such term and until successors have been
elected and qualified. Pursuant to the Certificate of Incorporation, the
Board of Directors has determined that the Company will have seven
directors, two in the class whose term will expire in 1996, three in the
class whose term will expire in 1997, and two in the class whose term will
expire in 1998. At the 1995 Annual Meeting, two directors are to be elected
to constitute the class whose term will expire in 1998.
It is intended that the shares represented by the accompanying proxy
will be voted for the election of Logan Clarke, Jr. and Richard J. Coburn,
unless the proxy indicates that authority to vote for such nominees is
withheld. In case a nominee is unable or declines to serve, which the Board
of Directors of the Company has no reason to expect, the attorneys named in
the proxy intend to vote for another person designated by the Board of
Directors.
Under state law, votes withheld and broker non-votes are not counted
as having voted in favor of any nominee.
The following table sets forth the nominees for election at this
meeting and each director continuing in office, their ages, business
experience over at least the last five years, other directorships and
period of time as a Director of the Company.
Information Regarding Nominees and Continuing Directors
Nominees for election to Class II at this meeting to terms expiring in
1998:
Mr. Logan Clarke, Jr., age 67, is an Independent Management
Consultant. He had previously served as acting President of Hartford
College for Women from 1990 to 1991 and as Executive Vice President of
Society for Savings, a savings bank, from 1986 to 1990. He has been a
Director since 1981.
Mr. Richard J. Coburn, age 63, is Chief Executive Officer and
President of Accent Color Sciences, Inc., a manufacturer of color printing
systems. Previously he served as President of KCR Technology, Inc., a
manufacturer of high-speed printers, from 1983 to 1991. Except for a short
<PAGE>
period in 1980, he has been a Director since 1968.
Class I Directors whose present terms continue until 1996:
Mr. E. Bulkeley Griswold, age 56, is Managing General Partner of
MarketCorp Venture Associates L.P., a venture capital limited partnership
with which he has been associated since 1984. Mr. Griswold is also a
director of Bertucci's, and a director of a number of other privately held
companies. He has been a Director since 1989.
Mr. Robert H. Steele, age 56, is Senior Vice President of the John
Ryan Company, a banking services company. He was President of RHS
Consulting from 1990 to 1991 and from 1985 to 1990 was Chairman and CEO of
Dollar Dry Dock Bank. Mr. Steele is also a Director of Moore Medical Corp.,
NLC Insurance Companies, and New York Mercantile Exchange. He has been a
Director since 1978.
Class III Directors whose present terms continue until 1997:
Mr. Lyman C. Hamilton, Jr., age 68, is an Investment Manager and was
formerly Chief Executive Officer and President of InterDigital
Communications Corp., a specialized communications company, from 1993 to
1994. He had served as Chairman and Chief Executive Officer of Alpine
PolyVision, Inc., a flat panel display manufacturer, from 1991 to 1993 and
of Imperial Corporation of America, a financial services organization, from
1989 to 1990 and as Chairman and President of Tamco Enterprises, Inc., an
investment company, from 1980 to 1989. He had previously served in various
positions during a 17 year association at ITT Corporation including
President during 1977 and Chief Executive Officer from 1978 to 1979. Mr.
Hamilton is also a Director of Marine Management Systems, Inc.,
InterDigital Communications Corp. and Compuflex. He has been a Director
since 1985.
Mr. Richard Hodgson, age 78, is an Investment Manager and was formerly
Senior Vice President and Product Group Manager of ITT Corporation from
1968 to 1980. Mr. Hodgson is also a Director of Intel Corp., I-Stat Corp.
and IBIS Tech Corp. He has been a Director since 1987.
Mr. Richard I. Tanaka, age 66, joined the Company in 1989 as Chairman
of the Board, Chief Executive Officer, and President. From 1987 to 1989 Mr.
Tanaka was President of Lundy Electronics and Systems, Inc., a computer and
communications product manufacturer. He has been a Director since 1989.
Share Ownership Of Management
The following table sets forth certain information regarding the
beneficial ownership of shares of Common Stock as of March 31, 1995 of each
director, nominee and executive officer named in the Summary Compensation
Table contained elsewhere in this proxy statement.
<TABLE>
<CAPTION>
Name Number of Shares (1)
<S> <C>
Robert L. Bell 8,333
Logan Clarke, Jr. 25,600
Richard J. Coburn 36,200
E. Bulkeley Griswold 44,000
Lyman C. Hamilton, Jr. 27,000
Richard Hodgson 25,000
Clarence W. Rife 52,246
Robert H. Steele 39,000 (2)
Richard I. Tanaka 191,664
</TABLE>
(1) Includes the following number of shares subject to options exercisable
within 60 days of March 31, 1995: Robert L. Bell, 8,333 shares; Logan
Clarke, Jr., 25,000 shares; Richard J. Coburn, 25,000 shares; E. Bulkeley
Griswold, 25,000 shares; Lyman C. Hamilton, Jr., 25,000 shares; Richard
Hodgson, 25,000 shares; Clarence W. Rife, 39,333 shares; Robert H. Steele,
25,000 shares, Richard I. Tanaka, 189,460 shares.
<PAGE>
(2) Mr. Steele disclaims beneficial ownership of 6,500 shares of stock
owned by his spouse, which shares are included in the table.
No director beneficially owned more than one percent of the Common
Stock, except Mr. Tanaka who beneficially owns 2.7% of the Common Stock
outstanding. All directors and executive officers as a group (11 persons)
beneficially owned 492,750 shares of the Company's Common Stock, including
429,008 shares subject to options exercisable within 60 days, which
constituted 6.7% of the outstanding Common Stock as of March 31, 1995.
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning the cash and non
cash compensation paid by the Company to the CEO and the executive officers
of the Company whose salary and bonus exceeded $100,000 in 1994 for
services rendered in all capacities during the fiscal years ended December
31, 1994, 1993 and 1992.
<TABLE>
Summary Compensation Table
Long Term
Compensation
Annual Compensation Awards
------------------- ------
<CAPTION>
Securities
Underlying All Other
Name and Salary Bonus Options Compensation
Principal Position Year ($) ($) (#) ($)(1)
<S> <C> <C> <C> <C> <C>
Robert L. Bell 1994 115,000 0 0 3,101
Vice President 1993 43,125 0 25,000 397
Product Development
Clarence W. Rife 1994 119,403 0 6,000 3,975
Vice President 1993 120,337 0 5,000 3,506
Systems and Service 1992 120,838 0 0 3,011
Richard I. Tanaka 1994 200,000 0 0 11,167
Chairman, CEO 1993 200,000 0 0 9,500
and President 1992 200,000 0 0 9,032
</TABLE>
(1) Includes employer match under the Company's Retirement Savings Plan, a
section 401 plan under the Internal Revenue Code of 1986, as amended, the
stock allocation under the Company's Employee Stock Ownership Plan and term
life insurance premiums paid by the Company for the benefit of the executive
officer.
Executive Employment Agreement
Under an employment agreement with Richard I. Tanaka, Chairman and
Chief Executive Officer of the Company (the "Employment Agreement"), Mr.
Tanaka receives a base annual salary of $200,000, or such greater amount as
the Board of Directors may from time to time determine, and incentive
compensation not exceeding $200,000 per year, payable if certain management
goals are met, as well as health and disability insurance benefits, life
insurance in the face amount of $500,000, use of an automobile and certain
other personal benefits. Mr. Tanaka's employment under the Employment
Agreement terminates automatically upon death or after three months of
disability and may also be terminated by the Company or Mr. Tanaka.
Generally, upon termination, Mr. Tanaka or his beneficiary (as applicable)
would be entitled to receive accrued and unpaid amounts under the
Employment Agreement, unless termination was due to willful or reckless
misconduct, gross negligence, misappropriation, fraud or embezzlement
(Cause). Moreover, severance benefits consisting of one year's base salary
and participation in the Company's health and disability plans are payable
upon termination of Mr. Tanaka's employment by the Company without Cause
prior to a change in control of the Company or termination of employment by
Mr. Tanaka for certain reasons prior to a change in control.
<PAGE>
Executive Severance Agreements
The Company has adopted severance agreements for Executive Officers.
These agreements require the Company to provide certain benefits to
Executive Officers in the event of an involuntary termination of
employment with the Company (except on account of death, disability or
cause) or a voluntary termination of employment with the Company where good
reason exists, in either case following a "change in control" of the
Company. A "change in control" is defined as a change that would be
required to be reported pursuant to the proxy regulations under the
Securities Exchange Act of 1934, as amended, whether or not the Company is
then subject to such reporting requirement. A "change in control" will also
occur if any person or entity acquires 22% or more of the Company's
outstanding securities, or if during any two-year period the directors on
the Company's Board of Directors who were such at the beginning of the
period and directors nominated or elected by a two-thirds majority of such
directors cease to constitute a majority of the Board. The benefits to be
provided in the event of an involuntary or voluntary termination following
a change in control are (1) a lump sum payment equal to the sum of (a) two
and a half times the sum of the Executive Officers base pay and commission
pay and two and a half times the preceding year's (or the second or third
preceding year's, if greater) executive incentive payments, (b) two and a
half times the Company matching contribution to the Scan-Optics, Inc.
Retirement Savings Plan that would be made if the Executive Officer
deferred under such Plan four percent (or such higher percentage as may be
eligible for matching contributions) of the amount of base pay, commission
pay and incentive pay considered in (a) above, and (c) the value of all
options to acquire Company common stock that will not become exercisable on
account of the Executive Officer's termination, such lump sum payment being
subject to certain federal income tax law limitations, and (2) the
continuation of insurance coverage for a period of 24 months following
termination. These benefits generally will be in addition to any other
benefits that Executive Officers are entitled to receive from the Company.
Executive Insurance Agreement
Under an insurance agreement with Mr. Rife, the Company is obligated
to provide certain benefits upon the happening of certain specified events.
The principal obligations of the Company under the agreement consist of the
following: (a) if Mr. Rife dies while in the employ of the Company but
prior to attaining the age of 65, the Company is obligated to pay his
beneficiary $50,000 per annum for each of the ten years following such
death, with payment to commence in the year of death; (b) if he retires
from the Company upon attaining the age of 65, or thereafter, the Company
is obligated to pay him (or his beneficiary in the event that he dies
during the retirement period) $50,000 per annum for each of the ten years
following such retirement, with payment to commence in the year of
retirement; (c) to provide for the adequate funding of its obligations
under the agreement, the Company has purchased and is obligated to maintain
at its expense an insurance policy on Mr. Rife's life in the face amount of
$310,000; and (d) the Company has purchased and is obligated to maintain
for the benefit of Mr. Rife, at the Company's expense, a disability income
policy which would provide disability benefits to him in the amount of
$2,500 per month. The agreement provides that payments under the disability
policy shall commence six months after a determination of disability has
been made and shall continue until Mr. Rife reaches the age of 65. The
agreement provides for automatic termination if (a) Mr. Rife resigns or
otherwise voluntarily terminates his employment other than by reason of
disability or retirement upon attaining the age of 65 or (b) his employment
is terminated by reason of gross misconduct.
<PAGE>
Options Granted in Last Fiscal Year
The following table sets forth information on options granted in 1994
to the executive officers listed in the summary compensation table:
<TABLE>
Grant Date
Individual Grants Value
----------------- -----
<CAPTION>
% of Total
Options Exercise
Options Granted to or Grant Date
Granted Employees in Base Price Expiration Present Value
Name # Fiscal Year ($/Sh) Date ($)
<S> <C> <C> <C> <C> <C>
Robert L. Bell 0
Clarence W. Rife 6,000 4.9 5.75 2/3/04 3.93(1)
Richard I. Tanaka 0
</TABLE>
(1) Present value determination was made using a Black-Scholes option
pricing model. The actual value, if any, an executive may realize will
depend on the excess of the stock price over the exercise price on the date
the option is exercised, so that there is no assurance the value realized
by an executive will be at or near the value estimated by the Black-Scholes
model. The estimated values under that model are based on the following
assumptions:
1. Volatility .487
2. Interest rate 6.17%
3. Time to exercise 10 years
In general, options granted under the Company's Stock Option Plans
vest in installments of one-third commencing one year after grant. The
option exercise price is equal to the fair market value of a share of
Common Stock on the date of grant. Options vest in full upon a
reorganization, merger or consolidation in which the Company is not the
surviving corporation and upon other specified events.
<PAGE>
Aggregated Options Exercises in Last Fiscal Year and
Fiscal Year-End Options Values
The following table summarizes options exercised during 1994 and
presents the value of unexercised options held by the named executives
at fiscal year-end:
<TABLE>
<CAPTION>
Number of Value
Securities of
Shares Unexercised In-the-Money
Acquired Value Options Options
on Exercise Realized * at Fiscal at Fiscal
Name (#) ($) Year-End Year-End
<S> <C> <C> <C> <C>
Robert L. Bell 0 0 8,333 (1) $ 46,873 (1)
16,667 (2) $ 93,752 (2)
Clarence W. Rife 0 0 39,333 (1) $ 209,998 (1)
5,667 (2) $ 9,377 (2)
Richard I. Tanaka 0 0 189,640 (1) $1,066,725 (1)
</TABLE>
(1) Exercisable
(2) Unexercisable
* Values are calculated by subtracting the exercise or base price
from the fair market value of the stock as of the exercise date.
<PAGE>
Performance Graph
The following is a graph which compares the five year cumulative
return from investing $100 on December 31, 1989 in each of the Company's
Common Stock, the NASDAQ Computer Index and the Russell 2000 index with
dividends assumed to be reinvested when received.
<TABLE>
COMPARISON OF FIVE YEAR CUMULATIVE RETURN
AMONG SCAN-OPTICS, INC., THE RUSSELL 2000 INDEX
AND THE NASDAQ COMPUTER & DATA PROCESSING INDEX
<CAPTION>
1989 1990 1991 1992 1993 1994
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Scan-Optics, Inc. 100 50 150 109 182 205
Russell 2000 Index 100 80 117 139 166 163
NASDAQ Computer Index 100 107 215 231 245 298
</TABLE>
SCAN-OPTICS, INC. RUSSELL 2000 NASDAQ COMPUTER & DP
* $100 INVESTED ON 12/31/88 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31.
<PAGE>
Report of the Stock Options and Executive Compensation Committee
The Stock Options and Executive Compensation Committee is responsible
for making recommendations to the full Board with respect to the
compensation of the Company's Chief Executive Officer and other Executive
Officers of the Company, and with respect to long-and short-term incentive
compensation awards. It also makes grants under the Company's stock option
plans for employees. The members of the Stock Options and Executive
Compensation Committee are E. Bulkeley Griswold (Chairman), Robert H.
Steele and Lyman C. Hamilton, Jr. All members are non-employee directors,
and none has any direct or indirect material interest in or relationship
with the Company outside of his position as director.
The Company's executive compensation program is divided into four
parts: base salary, bonus, commissions, and stock compensation. Actual
salary changes are based on performance. Bonus awards for Executive
Officers are based on the Company meeting specified goals, which are
described below.
Sales volume and service revenue are important factors in the
Company's success. Therefore, commissions constitute a significant portion
of the compensation of those executives who have direct responsibility for
sales and service. In 1994, commission payments for the named executive
with significant service responsibilities, Mr. Rife, constituted
approximately 20% of cash compensation, placing a substantial portion of
that executive's compensation at risk.
Stock compensation in the form of stock options is meant to align
interests of top management with that of shareholders. The Committee has
the authority to determine the individuals to whom stock options are
awarded, the terms at which option grants shall be made and the number of
shares subject to each option.
Compensation of the Company's Chief Executive Officer is a combination
of base salary and incentive bonus awards, both cash and stock options.
The amount of the bonus for 1994 was based entirely on quantitative
objectives, the Company meeting specified pre-tax earnings targets, as more
fully described below.
The Committee meets with the Chief Executive Officer to evaluate the
performance of other executive officers and meets in the absence of the
Chief Executive to evaluate his performance. The Committee reports the
results of all evaluations to the full Board.
The Committee's overall objective in its discussions of compensation
is to reward performance in a manner that is competitive with comparable
companies and which provides incentives to managers to produce steadily
improved results.
<PAGE>
In July 1994, after extensive deliberation, the Committee adopted a
new cash bonus and contingent stock option program for executives. Under
this program, bonus awards and option grants subsequent to July 1994 for
Executive Officers, including the Chief Executive Officer, were contingent
on the Company meeting specified pre-tax earnings targets. These pre-tax
earnings targets were approved by the full Board. Bonus eligibility for
1994 commenced with the achievement of 70% of the earnings goals with
awards to be in proportion to the total achieved. Contingent stock options
were to be earned on the same basis as cash bonus awards.
The Company failed to achieve the pre-tax earnings goals established
by the Board for the 1994 bonus and contingent stock option program and,
therefore, no bonus payments are to be made in 1995 for 1994 performance
and no contingent stock options were earned for 1994.
Stock Options and Executive
Compensation Committee
E. Bulkeley Griswold, Chairman
Lyman C. Hamilton, Jr.
Robert H. Steele
CERTAIN TRANSACTIONS
During 1994, legal services were rendered to the Company by a law firm
of which William H. Cuddy, Secretary of the Company, is a partner.
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 directors and executive officers, and persons who own more than
10% of the Company's Common Stock, to file reports of ownership and changes
in ownership of the Company's Common Stock (Forms 3, 4 and 5) with the
Securities and Exchange Commission. Executive officers, directors and
greater than 10% stockholders are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file.
Based on a review of the copies of such forms furnished to the Company
and written representations from the executive officers and directors, the
Company believes that all Section 16(a) filing requirements applicable to
its executive officers and directors were complied with, with the exception
of the following: The Form 3, "Initial Statement of Beneficial Ownership of
Securities" for Philip M. Struve, a former executive officer of the
Company, was not timely filed. Additionally, William J. Kliss, a former
executive officer, failed to timely report three sales of Common Stock in
April and May 1994. These sales were reported to the SEC on Mr. Kliss's
Form 5 "Annual Statement of Changes in Beneficial Ownership" for the year
ended December 31, 1994.
2. APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors recommends that proxies be voted in favor of
the appointment of Ernst & Young LLP, certified public accountants, as
independent auditors for the fiscal year ending December 31, 1995. Ernst &
Young LLP has been the Company's independent auditor since 1979.
Representatives of Ernst & Young LLP are expected to be present at the
Annual Meeting where they will have an opportunity to make a statement if
they desire to do so and are expected to be available to answer appropriate
questions.
<PAGE>
OTHER BUSINESS
The Board of Directors does not know of any matters to be presented at
the Annual Meeting other than those set forth in the Notice of Annual
Meeting of Stockholders. However, if any other matters properly come before
such meeting, the persons named in the enclosed proxy will have
discretionary authority to vote all proxies on such matters in accordance
with their judgment.
STOCKHOLDER PROPOSALS
Pursuant to the Company's By-Laws, only such business shall be
conducted, and only such proposals shall be acted upon, at an annual
meeting as shall be brought before the meeting by or at the direction of
the Board of Directors or by a stockholder who has given timely and proper
notice thereof in writing to the Secretary of the Company. To be timely, a
stockholder's notice must be delivered to or mailed to and received at the
principal executive offices of the Company not less than 40 days nor more
than 90 days prior to the scheduled annual meeting; provided, however, that
if less than 50 days' notice or prior public disclosure of the date of the
annual meeting is given or made, notice by the stockholder to be timely
must be so delivered or received not later than close of business on the
tenth day following the earlier of the day on which such notice of the date
of the annual meeting was mailed or the day on which such public disclosure
was made. A stockholder's notice to the Secretary must set forth as to each
matter the stockholder proposes to bring before the annual meeting (i) a brief
description of the proposal and the reasons for conducting such business at
the annual meeting, (ii) the name and address, as they appear on the Company's
books, of the stockholder, (iii) the class and number of shares of the Company
which are beneficially owned by the stockholder and (iv) any material interest
of the stockholder in such proposal.
Stockholder proposals intended to be presented at the Annual Meeting
of Stockholders in 1996 must be received by the Company no later than
December 14, 1995 in order to be considered for inclusion in the Company's
proxy statement and form of proxy relating to the Annual Meeting of
Stockholders in 1996. Any such proposal must comply with Rule 14a-8
promulgated by the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934, as amended.
WILLIAM H. CUDDY
Secretary
April 12, 1995
PROXY SCAN-OPTICS, INC. PROXY
22 Prestige Park Circle
East Hartford, Ct. 06108
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS ON MAY 15, 1995.
The undersigned hereby appoints as proxies, Richard I. Tanaka and Michael
J. Villano, or either of them, each with the power to appoint his
substitute, and hereby authorizes them to represent and to vote, as
designated on the reverse side, all shares of capital stock of Scan-Optics,
Inc. (the "Company") held of record by the undersigned on March 31, 1995 at
the Annual Meeting of Stockholders to be held on May 15, 1995 and any
adjournments thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED BY THE
UNDERSIGNED. IF NO DIRECTION IS GIVEN WITH RESPECT TO A PARTICULAR
PROPOSAL, THIS PROXY WILL BE VOTED FOR SUCH PROPOSAL. THE BOARD OF
DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSALS.
PLEASE MARK, DATE, SIGN, AND RETURN THIS PROXY CARD PROMPTLY, USING THE
ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES
OF AMERICA.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
<PAGE>
PLEASE MARK VOTES AS IN
[X] THIS EXAMPLE
1. Election of Directors. [ ] [ ] [ ]
For Withhold For All Except
Logan Clarke, Jr. and Richard J. Coburn
NOTE: If you do not wish your shares voted "FOR" a particular nominee, mark
the "FOR ALL EXCEPT" box and strike a line through that nominee's name.
Your shares will be voted for the remaining nominee.
2. Proposal to appoint Ernst & Young LLP [ ] [ ] [ ]
as independent auditors for the fiscal year For Against Abstain
ending December 31, 1995.
In their discretion, the proxies are authorized to vote upon any other
business that may properly come before the meeting.
Please be sure to sign and date this Proxy.
- ---------------------------------------------------------------------------
Stockholder sign here Co-owner sign here Date
Mark box at right if comments or address change [ ]
have been noted on the reverse side of this card.
DETACH CARD
SCAN-OPTICS, INC.
Dear Stockholder:
Please take note of the important information enclosed with this Proxy
Ballot. There are a number of issues related to the management and
operation of your Corporation that require your immediate attention and
approval. These are discussed in detail in the enclosed proxy statement.
Your vote counts, and you are strongly encouraged to exercise your right to
vote your shares.
Please mark the boxes on the proxy card to indicate how your shares are to
be voted. Then sign the card, detach it and return your proxy vote in the
enclosed postage paid envelope.
Your vote must be received prior to the Annual Meeting of Stockholders, May
15, 1995.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
Scan-Optics, Inc.
