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 Rule 14a-11(c) or Rule 14a-12
- ------------------------------------------------------------------------------
Valley Systems, Inc.
- ------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
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(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $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:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously 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:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
1
VALLEY SYSTEMS, INC.
Canal Fulton, Ohio
------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
to be held
November 4, 1996
To the Stockholders:
The Annual Meeting of Stockholders of Valley Systems, Inc., a Delaware
corporation (Company), will be held at the Atlanta Airport Marriott, 4711 Best
Road, College Park, Georgia, on Monday, November 4, 1996, at 8:00 A.M., for the
purpose of considering and acting upon the following:
1. The election of two directors to the Board of Directors;
2. The approval of the appointment of Coopers & Lybrand L.L.P. as
independent auditors to audit the financial statements of the Company
and its subsidiaries for fiscal year 1997; and
3. To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on October 4,
1996 as the record date for determination of stockholders of the Company
entitled to receive notice of and to vote at the Annual Meeting or any
adjournments thereof.
By Order of the Board of Directors
\s\ Dennis D. Sheets
Secretary
Canal Fulton, Ohio
October 4, 1996
YOUR VOTE IS IMPORTANT
Whether you expect to attend the meeting or not, please date, sign,
complete, and return the accompanying proxy in the enclosed self addressed
envelope as promptly as possible.
<PAGE>
2
VALLEY SYSTEMS, INC.
11580 Lafayette Drive, NW
Canal Fulton, Ohio 44614
PROXY STATEMENT
GENERAL INFORMATION CONCERNING SOLICITATION
This proxy statement is furnished in connection with the solicitation
of proxies by and on behalf of the Board of Directors of Valley Systems, Inc.
(Company), for its Annual Meeting of Stockholders (Meeting) to be held on the
4th day of November, 1996, or any adjournments thereof. Shares cannot be voted
at the meeting unless their owner is present in person or represented by proxy.
On or about October 4, 1996, copies of this proxy statement and the accompanying
form of proxy shall be mailed to the stockholders of record of the Company as of
October 4, 1996, accompanied by a copy of the Annual Report on Form 10-K of the
Company containing financial statements as of and for the fiscal year ended June
30, 1996. The principal executive offices of the Company are located at the
address indicated above.
If a proxy is properly executed and returned, the shares represented
thereby will be voted in accordance with the specifications made, or if no
specification is made, the shares will be voted to approve each proposal and to
elect each nominee for director identified on the Proxy. A stockholder may,
without affecting any vote previously taken, revoke a proxy previously given by
a later proxy received by the Company, or by giving notice to the Secretary of
the Company either in writing or at the Meeting.
All expenses in connection with the solicitation of proxies, including
the cost of preparing, handling, printing and mailing the Notice of Annual
Meeting, Proxies and Proxy Statements will be borne by the Company. Directors,
officers and regular employees of the Company, who will receive no additional
compensation therefor, may solicit proxies by telephone or personal call, the
cost of which will be nominal and will be borne by the Company. In addition, the
Company will reimburse brokerage houses and other institutions and fiduciaries
for their expenses in forwarding proxies and proxy soliciting material to their
principals.
At the close of business on October 4, 1996, there were outstanding
8,512,073 shares of Common Stock of the Company (Common Stock) and 55,000 shares
of Series C Preferred Stock (Preferred Stock), which constituted all of the
voting securities of the Company. Each stockholder is entitled to cast one vote
for each share of Common Stock and each share of Preferred Stock held by him or
her who is present at the Meeting either in person or by proxy. Only holders of
record of the outstanding shares of the Common Stock and Preferred Stock at the
close of business on October 4, 1996 will be entitled to receive notice of and
to vote at the Meeting.
BENEFICIAL OWNERSHIP OF VOTING SECURITIES
The following table sets forth certain information as of August 31,
1996 with respect to the beneficial ownership of the Common Stock and Preferred
Stock of the Company by each beneficial owner of more than 5% of the outstanding
shares of each class. In addition, this table includes the outstanding voting
securities beneficially owned by the executive officers listed in the Summary
Compensation Table, Directors and Director nominees, and the number of shares
<PAGE>
3
owned by Directors and executive officers as a group. Unless otherwise
indicated, the owners have sole voting and investment power with respect to
their respective shares.
<TABLE>
<CAPTION>
Name and Address Number of Shares Percentage of
of Beneficial Owner Position Beneficially Owned Class Owned
- ------------------- -------- ------------------ -----------
<S> <C> <C> <C>
COMMON STOCK:
Rollins Investment Fund (1) . Stockholder 7,896,027 72.1%
R. Randall Rollins (1) ...... Stockholder 7,896,027 72.1%
Gary W. Rollins (1) ......... Stockholder 7,896,027 72.1%
Ed Strickland (4) ........... President/CEO 105,000 1.0%
Dennis D. Sheets (4) ........ Vice President/CFO (5) (5)
Joe M. Young (1) ............ Director (5)(6) (5)(6)
Allen O. Kinzer (4) ......... Director (5) (5)
All officers and directors
as a group (4 persons) ..... 8,043,227 73.5%
SERIES C PREFERRED STOCK:
Rollins Holding
Company, Inc. (1)(7) Stockholder 55,000 100.0%
</TABLE>
(1) Addresses are c/o Rollins Investment Fund, P.O. Box 647, Atlanta,
Georgia 30301.
(2) Includes 2,314,000 shares which are subject to outstanding warrants
currently exercisable by Rollins Investment Fund (RIF). Does not
include (a) 107,918 additional shares which Eugene R. Valentine is
obligated to, but has not yet, delivered pursuant to the terms of his
June 1992 Agreement with RIF; and (b) 262,805 shares which Nicholas J.
Pace is obligated to deliver pursuant to the terms of his June 1992
Agreement with RIF.
(3) RIF beneficially owns an aggregate 7,896,027 shares (including the
2,314,000 shares subject to outstanding warrants currently exercisable
by RIF) of the Company's Common Stock with respect to which RIF has
sole voting and dispositive power. Given his respective interest in
RIF as a general partner thereof, as co-executor of the Estate of O.
Wayne Rollins (Estate) (with the power to control the Estate in its
entirety), and as sole trustee of five trusts of which his five
children are beneficiaries, R. Randall Rollins has shared voting and
dispositive power with respect to the entire 7,896,027 shares held by
RIF. Given his respective interest in RIF as a general partner
thereof, as co-executor of the Estate (with the power to control the
Estate in its entirety), and as sole trustee of four trusts of which
his four children are beneficiaries, Gary W. Rollins has shared voting
and dispositive power with respect to the entire 7,896,027 shares held
by RIF. Given each individual's ability to influence the disposition
of all of RIF's holdings, they have deemed it appropriate to report
beneficial ownership on a shared basis for the entire number of shares
held by RIF.
(4) Addresses are c/o Valley Systems, Inc., P.O. Box 603, Canal Fulton,
Ohio, 44614.
(5) Owns less than 1% of the Company's Common Stock.
(6) Joe M. Young, presently a director of the Company, and a nominee for
director of the Company, is General Manager of RIF and was appointed
to the Board of Directors of the Company pursuant to a right
guaranteed to RIF in connection with its purchase of Common Stock of
the Company in December 1991. Mr. Young disclaims beneficial ownership
of the shares held by RIF, although due to his affiliation with RIF,
and RIF's right to name a director of the Company, those shares are
included in the total reported for all officers and directors as a
group.
(7) Rollins Holding Company, Inc. is an affiliate of RIF.
<PAGE>
4
ELECTION OF DIRECTORS
At the Meeting, it is intended to elect a Board of two Directors, each
to hold office until the next Annual Meeting of Stockholders or until their
respective successors are elected and qualified. The nominees are presently
serving as Directors of the Company. Each of the nominees listed below consented
to serve as a Director if elected. Unless authority to vote for one or more
nominees is withheld, it is intended that shares represented by proxies in the
accompanying form will be voted for the election of the following nominees.
The following table is based in part on information received from the
respective nominees and in part on the records of the Company and sets forth
certain information regarding each nominee as of August 31, 1996.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ---- --- ----- -------------------------------------------
<S> <C> <C> <C>
Allen O. Kinzer 55 1991 President of BMW Manufacturing Corp.; formerly
Senior Vice President and Plant Manager of the
Engine Division of Honda of America Mfg., Inc.
Joe M. Young 67 1992 General Manager of Rollins Investment Fund.
</TABLE>
The Board of Directors of the Company recommends that stockholders vote
IN FAVOR OF both nominees for Director.
COMMITTEES AND MEETINGS OF THE BOARD
At present, the Board of Directors has provided for three committees,
the Audit Committee, the Stock Option Committee, and the Compensation Committee.
However, the Board as a whole now performs the functions of these three
committees. The function of the Audit Committee includes the recommendation of
the independent auditors to be engaged to audit the Company's financial
statements, and also generally monitoring the audit of the Company's financial
statements. The function of the Stock Option Committee includes responsibility
for the granting of stock options under all of the Company's employee stock
option plans that may exist and be in effect from time to time. The function of
the Compensation Committee includes the setting of the compensation levels for
the Company's officers. During the fiscal year ended June 30, 1996, the Board of
Directors met four times, including actions taken by unanimous written consent
of the directors. All of the Company's current Directors attended 100% of the
meetings of the Board during fiscal year 1996.
Each non-employee Director receives $1,000 for each Board meeting
actually attended, plus reimbursement for actual expenses of such attendance.
Messrs. Kinzer and Young have received options to purchase 20,000 and 30,000
shares of Common Stock, respectively. The options were granted on October 5,
1994 at an exercise price of $1.50 per share, market value on that date. The
options are exercisable as to 20% of the total on or after each of the first
five anniversary dates of the grants, and terminate on the tenth anniversary of
the grants. The options are fully vested and exercisable upon a change in
control of the Company.
<PAGE>
5
VOTING PROCEDURES AND VOTE REQUIRED
The Board of Directors of the Company will select an Inspector of the
Election, to determine the eligibility of persons present at the Meeting to vote
and to determine whether the name signed on each proxy card corresponds to the
name of a stockholder of the Company. The Inspector shall also determine whether
or not a quorum of the shares of the Company (consisting of a majority of the
votes entitled to be cast at the Meeting) exists at the Meeting. A majority of
the outstanding shares will constitute a quorum at the meeting. Abstentions and
broker non-votes are counted for purposes of determining the presence or absence
of a quorum for the transaction of business. If a quorum exists and a vote is
taken at the meeting, the Inspector shall tabulate (a) the votes cast for or
against each proposal and (b) the abstentions in respect of each proposal.
In accordance with the Delaware General Corporation Law, the election
of the nominees named herein as directors will require the affirmative vote of a
plurality of the votes cast by the Common Stockholders and Series C Preferred
Stockholders of the Company entitled to vote, voting together and not as
separate classes, in the election provided that a quorum is present at the
Meeting. In the case of a plurality vote requirement (as in the election of
directors), where no particular percentage vote is required, the outcome is
solely a matter of comparing the number of votes cast in favor of a proposal to
the number of votes cast against the proposal, and hence only votes for or
against the proposal (and not abstentions or broker non-votes) are relevant to
the outcome.
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the Chief
Executive Officer of the Company at June 30, 1996 and the other executive
officer at the end of the 1996 fiscal year whose total compensation exceeded
$100,000 for that year.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Annual Compensation Long Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
Securities
Other Under- All
Annual lying LTIP Other
Name and Principal Salary Bonus Compens- Options Payouts Compens-
Position Year ($) ($) ation($) /SARs(#) ($) ation($)
- -------- ---- --- --- -------- -------- --- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Ed Strickland (1) 1996 40,000 -0- -0- -0- -0- -0-
President and Chief 1995 28,462 -0- -0- 100,000 -0- -0-
Executive Officer 1994 -0- -0- -0- -0- -0- -0-
Dennis D. Sheets (2) 1996 107,885 10,000 -0- -0- -0- -0-
Vice President and 1995 99,231 5,000 -0- 25,000 -0- -0-
Chief Financial 1994 80,769 -0- 10,836 -0- -0- -0-
Officer
</TABLE>
(1) Mr. Strickland, age 49, was appointed President and Chief
Executive Officer in October 1993. He is also an officer of LOR, Inc.,
which is owned by RIF, the majority owner of the Common Stock of the
Company, and has held this position for the past five years. Mr.
Strickland manages several other companies for LOR, Inc. He was not
compensated by the Company during the 1994 fiscal year. The Company
does not pay RIF or LOR, Inc. a management fee for his services.
(2) Mr.Sheets, age 41, joined the Company in April 1993 as Controller.
Previously, he served as Chief Financial Officer for Hyper Shoppes,
Inc. Mr. Sheets was appointed Vice President, Treasurer, and Chief
Financial Officer of the Company in July 1993, and Secretary in
September 1994. Other Annual Compensation in the 1994 fiscal year
consisted of gross-up payments for ta liabilities incurred by Mr.
Sheets due to his relocation.
<PAGE>
6
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
There were no option/SAR grants made during the 1996 fiscal year to the
named executives.
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTIONS/SAR VALUES
There were no option/SAR exercises in the 1996 fiscal year. The
following table summarizes the number and value of unexercised options/SAR's
held by the named executives at June 30, 1996:
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Shares Options/SARs at Options/SARs
Acquired Value Fiscal Year-end(#) at Fiscal Year-End($)
on Exercise Realized Exercisable (E) Exercisable (E)
Name (#) ($) Unexercisable (U) Unexercisable (U)
---- --- --- ----------------- -----------------
<S> <C> <C> <C> <C>
Ed Strickland -0- -0- 20,000 E -0- E
80,000 U -0- U
Dennis D. Sheets -0- -0- 5,000 E -0- E
20,000 U -0- U
</TABLE>
LONG TERM INCENTIVE PLANS AND RETIREMENT PLANS
The Company has never had any long term incentive plans or retirement plans.
JOINT REPORT OF THE BOARD OF DIRECTORS AND STOCK OPTION COMMITTEE
ON EXECUTIVE COMPENSATION
The functions of the Compensation Committee were performed by the Board
of Directors throughout the 1996 fiscal year. The Company's overall executive
compensation policy is as follows:
o Attract and retain quality talent, which is critical to both the short
term and long term success of the Company.
o Create a mutuality of interest between executive officers and
shareholders through compensation structures that share the rewards and
risks of strategic decision-making.
The Board has made subjective salary decisions in an annual review.
This annual review considers the decision-making responsibilities of each
position, the Company's revenues and net earnings, and the experience, work
performance, and team-building skills of position incumbents. The Board
subjectively views work performance and Company revenues and net earnings as the
most important measurement factors. The remaining measurement factors,
decision-making responsibilities, experience and team-building skills, are
weighted equally.
CEO Compensation - The Company's total compensation program for the CEO
and the other executive officers is determined in accordance with the prior
paragraph. Mr. Strickland was named CEO in October 1993. Previously, the
position was vacant. Mr. Strickland was not compensated for his services by the
<PAGE>
7
Company in Fiscal 1994. Beginning in October 1994, Mr. Strickland began drawing
a nominal salary. In accordance with the above policy, the Board determined that
the bulk of his compensation would be in the form of stock options, which were
granted at market and vest over the next five years.
BOARD OF DIRECTORS
Joe M. Young, Member
Allen O. Kinzer, Member
STOCK PERFORMANCE GRAPH
The following graph sets forth the cumulative stockholder return to the
Company's stockholders during the five years ended June 30, 1996, as well as an
overall stock market index (CRSP Total Return Index for The Nasdaq Stock Market:
US Companies) and the Company's peer group index (CRSP Total Return Index for
The Nasdaq Stock Market: Non-Financial Stocks). The stock performance graph
assumes $100 was invested on June 30, 1991.
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
CRSP Total Return Index for
The Nasdaq Stock Market
-----------------------
Valley
Date Systems, Inc. US Companies Non-Financial Stocks
- ---- ------------- ------------ --------------------
<S> <C> <C> <C>
June 30, 1991 $100 $100 $100
June 30, 1992 352 120 115
June 30, 1993 61 151 143
June 30, 1994 35 153 140
June 30, 1995 20 204 192
June 30, 1996 20 261 244
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On December 16, 1991, the Company entered into a Securities Purchase
Agreement with RIF pursuant to which the Company sold 358,000 shares of
unregistered Common Stock to RIF at $14.00 per share, or a purchase price of
$5,012,000 before related expenses. In addition, RIF received a warrant (RIF
Warrant), exercisable at any time commencing December 16, 1992 and ending
December 15, 1994, entitling RIF to purchase that number of shares of Company
Common Stock as shall be determined by dividing $5,000,000 by 75% of the average
closing prices of the Company's Common Stock, as reported on NASDAQ for the 10
consecutive days immediately prior to RIF's giving notice of intent to exercise
<PAGE>
8
the RIF Warrant. The RIF Warrant permitted the Company's Board of Directors to
accelerate the commencement date of exercise of the RIF Warrant. On October 11,
1992, the Board of Directors of the Company agreed to permit the immediate
exercise of the RIF Warrant.
Under the Securities Purchase Agreement, RIF is entitled to certain
registration rights in respect of their Company shares. RIF is also entitled to
nominate one designee to serve on the Company's Board of Directors. Joe M. Young
has been the RIF designee since December 1991.
On June 12, 1992, RIF purchased from Eugene R. Valentine, then the
Chairman and Chief Executive Officer of the Company and its principal
stockholder (as to 273,000 shares) and Nicholas J. Pace, then the Chief
Financial Officer and a Director (as to 50,000 shares) an aggregate of 323,000
shares of their Company Common Stock, for a purchase price of $18.60 per share,
or an aggregate of $5,077,800 paid to Mr. Valentine and $930,000 paid to Mr.
Pace. As a result of such purchases, RIF's ownership in Company Common Stock was
increased to an aggregate of 681,000 shares or 19.4% of the Company's
outstanding Common Stock.
On November 9, 1992, RIF exercised the RIF Warrant and paid the Company
an aggregate of $5,000,000 as a result thereof. Based upon 75% of the average
closing prices of the Company's Common Stock, as reported on NASDAQ for the 10
consecutive days immediately prior to RIF's notice to exercise the RIF Warrant
($4.2625 per share), the exercise price of the RIF Warrant was $3.196875 per
share. Accordingly, RIF received an additional 1,564,027 shares of Common Stock.
As a result of the RIF Warrant exercise, RIF's ownership in the
Company's Common Stock increased from an aggregate of 681,000 shares to an
aggregate of 2,245,027 shares, and the number of shares of outstanding Company
Common Stock increased from 3,555,976 shares of Common Stock to an aggregate of
5,120,000 shares of Common Stock.
In connection with its June 12, 1992 purchase of 323,000 shares from
Messrs. Valentine and Pace, RIF also acquired the right to have additional
shares delivered to it by Messrs. Valentine and Pace (pro-rata as between them)
if at any time or times prior to June 12, 1993, the Company were to sell more
than 250,000 shares of its Common Stock at a per share purchase price of less
than $20.00 per share. On November 16, 1992, Eugene and Cynthia Valentine
(Valentines) acknowledged to RIF that, as a result of the exercise of the RIF
Warrant and the sale of additional shares of Company Common Stock, under the
terms of the June 12, 1992 stock purchase agreement (a) the Valentines and
Nicholas J. Pace are obligated to deliver an aggregate of 1,697,723 of their
Company shares to RIF, of which 1,434,918 shares are to be transferred by the
Valentines; and (b) the Valentines authorized the transfer to RIF 1,327,000
shares of their Company Common Stock. Prior to such transfer, Mr. Valentine
owned of record an aggregate of 1,627,000 shares of Common Stock, 300,000 of
which shares were pledged by the Valentines to unaffiliated third parties, and
the remaining 1,327,000 shares were pledged and delivered to RIF in October 1992
as collateral for a $2,500,000 demand loan previously made by RIF to Mr.
Valentine.
Under the terms of their June 12, 1992 agreement with RIF, Messrs.
Valentine and Pace are obligated to deliver to RIF an additional 107,918 and
262,805 of their Company shares, respectively. If such additional shares are
delivered to RIF by Messrs. Valentine and Pace, RIF's ownership will increase to
75.5%.
Beginning on April 29, 1993, RIF made a series of unsecured loans to
the Company for working capital purposes. These loans totaled $7,200,000 in
<PAGE>
9
aggregate principal amount, provided for payment of interest at one half (.5)
percent over the prime rate, and were all due in a single payment of principal
and interest on July 5, 1994. In addition, in July 1993, RIF provided a
$2,150,000 letter of credit to secure indebtedness of the Company to The Fifth
Third Bank.
On June 29, 1994 the Company consummated a transaction with RIF
pursuant to which: (a) RIF loaned the Company $12,000,000, of which $7,000,000
was in the form of a term loan maturing July 1, 1999 and up to $5,000,000 was
made available pursuant to a revolving credit facility terminating on June 1,
1996, each bearing interest at one half (.5) percent over the prime rate and
secured by all of the personal property of the Company; (b) proceeds of the
loans were used to pay all of the Company's indebtedness to The Fifth Third
Bank, and $3,200,000 of principal and all accrued interest on the unsecured
loans made by RIF described above, all of which were due and payable on July 5,
1994; (c) the Company issued 2,000,000 shares of Common Stock to RIF for a
purchase price of $2.00 per share in exchange for cancellation of the $4,000,000
remaining principal of the unsecured loans made by RIF described above; (d) the
Company issued a warrant to RIF for the purchase of 2,314,000 shares of Common
Stock at a price of $3.0875 per share, which warrant expires on May 31, 2000;
and (e) the $2,150,000 letter of credit described in the preceding paragraph was
canceled.
On September 2, 1994, the Company sold 55,000 shares of newly
authorized Series C Preferred Stock (Preferred Stock), par value $.10 per share,
to RIF for $5,500,000. The purchase price was paid by: (a) cancellation of
$3,000,000 of the $7,000,000 term loan described above, and; (b) payment of
$2,500,000 in cash by RIF to the Company. Proceeds of the sale are being used by
the Company to buy out various equipment leases and for working capital. The
Preferred Stock, which was subsequently transferred by RIF to an affiliate, pays
cumulative cash dividends quarterly at the rate of $1.75 per share ($7.00 per
share annually). If at any time dividends are in arrears by $3.50 per share or
more, the holders of the Preferred Stock may elect one additional member of the
Board of Directors to serve until full cumulative dividends on the Preferred
Stock have been paid. The holders of the Preferred Stock are entitled to one
vote per share on any matter on which holders of the Common Stock are entitled
to vote. As to any such matter, the holders of the Preferred Stock shall vote
with the holders of the Common Stock and not as a separate class.
In respect of dividends or other distributions, upon liquidation, or
otherwise, Preferred Stock shall rank (a) senior to all shares of Common Stock
and to all other series of preferred stock of the Company authorized and issued
subsequently and (b) junior to all presently outstanding shares of the Company's
Series A Preferred Stock and on a parity with any outstanding shares of Series B
Preferred Stock. The liquidation price of the Preferred Stock is $100 per share
("Liquidation Price"). In the event of a merger or consolidation of the Company
that results in a change in control, the Company, or its successor in interest,
shall be required to redeem the Preferred Stock. The redemption price for each
share of Preferred Stock shall be an amount equal to the Liquidation Price plus
all accrued and unpaid cumulative dividends thereon to the date fixed for
redemption.
APPROVAL OF THE APPOINTMENT OF INDEPENDENT AUDITORS
FOR THE FISCAL YEAR ENDING JUNE 30, 1997
Subject to stockholder approval, the Board of Directors has appointed
the firm of Coopers & Lybrand L.L.P., Certified Public Accountants, as
independent auditors to make an examination of the financial statements of the
<PAGE>
10
Company for the fiscal year ending June 30, 1997. Representatives of Coopers &
Lybrand L.L.P. will not be present at the Annual Meeting of Stockholders.
The Board of Directors of the Company believes the appointment of
Coopers & Lybrand L.L.P. for the 1997 fiscal year to be in the best interest of
the Company and recommends that it be approved. If the stockholders do not
approve this appointment, other certified public accountants will be appointed
by the Board.
OTHER BUSINESS
While management of the Company does not know of any matters which may
be brought before the Meeting, other than as set forth in the Notice of Meeting,
the proxy confers discretionary authority with respect to the transaction of any
other business. It is expected that the proxies will be voted in support of
management on any question which may properly be submitted to the Meeting.
STOCKHOLDER PROPOSALS
Appropriate proposals of stockholders intended to be presented at the
Company's 1997 Annual Meeting of Stockholders must be received by the Company by
August 15, 1997 for inclusion in its Proxy Statement and form of proxy relating
to that meeting.
SECTION 16 COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who beneficially own
more than ten percent of the Company's stock, to file initial reports of
ownership and reports of changes in ownership with the Securities and Exchange
Commission (SEC) and the Nasdaq National Market System. Executive officers,
directors and greater than ten percent beneficial owners are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely on a review of the copies of reports furnished to the
Company and written representations that no other reports were required, the
Company believes that during the fiscal year ended June 30, 1996 all of such
filing requirements were timely satisfied.
ANNUAL REPORT ON FORM 10-K
The Annual Report on Form 10-K for the fiscal year ended June 30, 1996
is being mailed to each stockholder of record together with this Notice of
Annual Meeting of Stockholders, Proxy Statement and Proxy on or about October 4,
1996.
By Order of the Board of Directors
\s\ Dennis D. Sheets
Secretary
Canal Fulton, Ohio
October 4, 1996
