UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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 ss. 240.14a-11(c) or ss. 240.14a-12
QUAD SYSTEMS CORPORATION-
(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] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
N/A
(2) Aggregate number of securities to which transaction applies:
N/A
(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):
N/A
(4) Proposed maximum aggregate value of transaction:
N/A
(5) Total fee paid:
N/A
[ ] 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>
Quad Systems Corporation
2405 Maryland Road * Willow Grove, Pennsylvania 19090
----------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, MARCH 12, 1998
----------
The Annual Meeting of Stockholders (the "Meeting") of Quad Systems
Corporation, a Delaware corporation (the "Company"), will be held on Thursday,
March 12, 1998 at 10:00 a.m., local time, at Williamson's Restaurant, Route 611
and Blair Mill Road, Horsham, Pennsylvania, for the following purposes:
1. To elect five directors to hold office until the Annual Meeting of
Stockholders in 1999 and until their respective successors are duly elected
and qualified.
2. To transact such other business as may properly come before the
meeting and any and all adjournments and postponements thereof.
The Board of Directors has fixed the close of business on January 14, 1998
as the record date for the meeting. Only stockholders of record at that time are
entitled to notice of and to vote at the Meeting and any adjournment or
postponement thereof.
The enclosed proxy is solicited by the Board of Directors of the Company.
Reference is made to the accompanying Proxy Statement for further information
with respect to the business to be transacted at the meeting.
A complete list of the stockholders entitled to vote at the Meeting will be
open to the examination of any stockholder, for any purpose germane to the
Meeting, during ordinary business hours, for a period of at least 10 days prior
to the Meeting, at the principal executive offices of the Company, 2405 Maryland
Road, Willow Grove, Pennsylvania 19090.
The Board of Directors urges you to date, sign and return the enclosed
proxy promptly. The return of the enclosed proxy will not affect your right to
vote in person if you do attend the Meeting.
By Order of the Board of Directors,
ROBERT P. PINKAS
Secretary
February 10, 1998
<PAGE>
Quad Systems Corporation
2405 Maryland Road * Willow Grove, Pennsylvania 19090
----------
PROXY STATEMENT
----------
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Quad Systems Corporation, a Delaware
corporation (the "Company"), for use at the Company's Annual Meeting of
Stockholders (the "Meeting"), which is scheduled to be held at 10:00 a.m., local
time, on Thursday, March 12, 1998, at Williamson's Restaurant, Route 611 and
Blair Mill Road, Horsham, Pennsylvania, for the purposes set forth in the
accompanying notice of the Meeting. This Proxy Statement, the foregoing notice
and the enclosed proxy are being sent to stockholders on or about February 4,
1998.
The Board of Directors knows of no matters that are likely to be brought
before the Meeting, other than the matters specifically referred to in the
notice of the Meeting. If any other matter properly comes before the Meeting,
however, the persons named in the enclosed proxy, or their duly constituted
substitutes acting at the Meeting, will be authorized to vote or otherwise act
thereon in accordance with their judgment on such matters. If the enclosed proxy
is properly executed and returned prior to voting at the Meeting, the shares
represented thereby will be voted in accordance with the instructions marked
thereon. In the absence of instructions, executed proxies will be voted "FOR"
the five nominees of the Board of Directors for election as directors.
Any proxy may be revoked at any time prior to its exercise by notifying the
Secretary of the Company in writing, by delivering a duly executed proxy bearing
a later date, or by attending the Meeting and voting in person.
VOTING SECURITIES AND SECURITY OWNERSHIP
VOTING SECURITIES
At the close of business on January 14, 1998, the record date fixed for the
determination of stockholders entitled to notice of and to vote at the Meeting,
there were outstanding 4,354,491 shares of the Company's Common Stock, $.03 par
value ("Common Stock"). Each stockholder of record at the close of business on
January 14, 1998 is entitled to one vote for each share held. The presence at
the meeting, in person or by proxy, of stockholders entitled to cast at least a
majority of the votes that all stockholders are entitled to cast will constitute
a quorum for the Meeting.
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The table below sets forth certain information as of January 14, 1998
regarding the beneficial ownership (as defined in regulations issued by the
Securities and Exchange Commission) of Common Stock of (i) each director and
executive officer of the Company; (ii) each nominee for director; (iii) all
directors and executive officers as a group; and (iv) each person known to the
Company to own beneficially 5% or more of the outstanding Common Stock. Unless
otherwise specified, the named beneficial owner has sole voting and investment
power. The information in the table below was furnished by the owners listed.
Shares issuable pursuant to the exercise of stock options are included in the
table below if such options are currently exercisable or exercisable by March
15, 1998 (60 days after the date above).
NUMBER PERCENT
NAME OF SHARES OF CLASS
---- --------- --------
James R. Bergman(1) ........................... 53,254 1.2%
Anthony R. Drury(1) ........................... 76,865 1.8%
Terry D. Ellis(1).............................. 1,000 *
Vahram V. Erdekian............................. 2,000 *
Joseph L. Gasper(1)............................ 41,500 1.0%
Ian H. Henderson(1)............................ 16,667 *
Lorin J. Randall(1) ........................... 32,338 *
Robert P. Pinkas(1)............................ 38,890 *
David W. Smith(1).............................. 171,008 3.9%
David H. Young(1).............................. 36,000 *
All Directors and Executive Officers
as a group(1) (9 persons).................... 469,522 10.8%
Heartland Advisors, Inc.(4,5)
790 N. Milwaukee Street
Milwaukee, WI 53202.......................... 450,000 10.3%
FMR Corp.(2,5)
82 Devonshire Street
Boston, MA 02109............................. 421,700 9.7%
Cowen & Company(3,5)
Financial Square
New York, NY 10005........................... 259,800 6.0%
- ----------
* Less than 1%.
(1) The amounts shown include shares covered by options exercisable within 60
days of January 14, 1998, as follows: 4,000 shares each, Messrs. Bergman,
Randall, Pinkas and Young; 1,000 shares each, Messrs. Erdekian and Ellis;
60,300 shares, Mr. Drury; 41,500 shares, Mr. Gasper; 13,334 shares, Mr.
Henderson; 160,000 shares, Mr. Smith; and 289,134 shares, all directors and
executive officers as a group.
(2) FMR Corp., as the parent holding company of Fidelity Management and
Research Company, its wholly-owned subsidiary, owns the shares reported.
FMR Corp. has sole dispositive and voting power with respect to all of the
shares reported.
(3) Cowen and Company has both shared dispositive and voting power with respect
to all of the shares reported.
(4) Heartland Advisors, Inc. has both sole dispositive and voting power with
respect to all of the shares reported.
(5) Based solely on information contained in filings with the Securities and
Exchange Commission pursuant to Section 13(d) or 13(g) of the Securities
Exchange Act of 1934, as amended.
2
<PAGE>
ELECTION OF DIRECTORS
NOMINEES FOR ELECTION
At the Meeting, the stockholders will elect five directors to hold office
until the Annual Meeting of Stockholders in 1999 and until their respective
successors are duly elected and qualified. Unless contrary instructions are
given, the shares represented by a properly executed proxy will be voted "FOR"
the election of the following nominees: Vahram V. Erdekian, Robert P. Pinkas,
Lorin J. Randall, David W. Smith and David H. Young. All of the nominees are
currently members of the Company's Board of Directors.
The Board of Directors believes that the nominees will be able to serve as
directors. If any nominee is unable to serve, the persons named in the enclosed
proxy will vote the shares they represent for the election of such other persons
as the Board of Directors may recommend, unless the Board of Directors reduces
the number of directors.
Directors will be elected by a plurality of votes cast. Abstentions and
broker non-votes are not treated as votes cast, and thus are not the equivalent
of votes against.
Set forth below is certain information concerning the nominees for election
as directors:
DIRECTOR
NAME AGE SINCE POSITION WITH THE COMPANY
- ---- --- ----- -------------------------
David W. Smith............. 55 1992 President, Chief Executive Officer
and Director
Vahram V. Erdekian(1)...... 49 1996 Director
Robert P. Pinkas........... 44 1982 Director, Secretary
Lorin J. Randall(2)........ 54 1988 Director
David H. Young(2).......... 50 1980 Director
- ----------
(1) Member of Stock Option and Compensation Committee.
(2) Member of Audit Committee.
Mr. Smith has been President and Chief Executive Officer of the Company
since May 1992.
Mr. Erdekian has served on the Board of Directors of the Company since July
1996. Since October 1996, he has been Vice President, Worldwide Manufacturing
Operations of Bay Networks, Inc. ("Bay Networks"), a leader in the computer
network industry. From October 1994 until October 1996, he was Vice President,
Manufacturing Product Operations of Bay Networks. From September 1993 until
October 1994, Mr. Erdekian was the Vice President, Manufacturing Operations of
Wellfleet Communications, which merged with Synoptics Corporation to form Bay
Networks in August 1994. Prior to September 1993, he was an operations
consultant to private and public corporations.
Mr. Pinkas has served on the Board of Directors of the Company since 1982.
Mr. Pinkas has been a general partner of Brantley Venture Partners, L.P. a
venture capital firm, for more than five years. Since August 1996, Mr. Pinkas
has also been a general partner of Brantley Venture Management, L.P. Mr. Pinkas
is also a director of Gliatech, Inc., Pediatric Services of America, Inc.,
Medirisk, Inc. and Waterlink, Inc. Since November 1996, Mr. Pinkas has also been
the Chairman of the Board, Chief Executive Officer, Treasurer and Director of
Brantley Capital Corporation. Mr. Pinkas was the Company's Treasurer from March
1982 until October 1987.
Mr. Randall has served on the Board of Directors of the Company since
January 1988. Since January 1995, he has been the Vice President, Finance and
Chief Financial Officer of CFM Technologies, Inc. From May 1994 until June 1995,
Mr. Randall was the President and Chief Executive Officer of Greenwich
Pharmaceuticals Incorporated ("GPI") (now known as Boston Life Sciences, Inc.).
From September 1991 until May 1994, he was the Chief Financial Officer and Vice
President of GPI. Mr. Randall was the Company's President and Chief Executive
Officer from August 1988 until January 1990 and was the Company's Vice
President, Operations and Chief Financial Officer from May 1985 until July 1988.
Mr. Young is the founder of the Company and has served on the Company's
Board of Directors since its inception. Mr. Young has been the President of Two
Technologies, Inc., a company which manufactures hand-held computers, for more
than five years. Mr. Young served as the Company's President from its inception
until October 1985.
3
<PAGE>
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Company has an Audit Committee and a Stock Option and Compensation
Committee, but does not have an Executive Committee or a Nominating Committee.
The Audit Committee, which held two meetings in the fiscal year ended
September 30, 1997, consists of Messrs. Randall and Young. The functions of the
Audit Committee generally include reviewing with the Company's independent
auditors the scope and results of their engagement and reviewing the adequacy of
the Company's system of internal accounting controls.
The Stock Option and Compensation Committee held six meetings in the fiscal
year ended September 30, 1997, which consisted of Messrs. Bergman and Erdekian.
The Stock Option and Compensation Committee is responsible for establishing
salaries, bonuses and other compensation, including the grant of stock options
under the Company's stock option plans.
The Board of Directors held nine meetings in the fiscal year ended
September 30, 1997.
COMPENSATION OF DIRECTORS
Non-employee directors of the Company are paid a $1,000 fee for attending
each meeting and a $250 fee for participating in each telephonic meeting of the
Board of Directors. The directors are also reimbursed for their out-of-pocket
expenses incurred in connection with the meetings. Effective July 24, 1997, each
non-employee director in office on each October 1 commencing October 1, 1998
will be paid a $5,000 retainer for services provided to the Company for the
prior year or, to the extent such person did not so serve for the entire prior
year, such retainer payment will be made on a pro rata basis for the period
served.
Pursuant to the terms of the Company's 1993 Stock Option Plan (the "Plan"),
as amended on July 24, 1997, each non-employee director, upon first being
elected to the Board of Directors after July 24, 1997, shall be granted an
option to purchase 6,000 shares of Common Stock exercisable in three equal
installments on the first three anniversary dates of the date of grant, at an
exercise price equal to the fair market value of the shares on the date of
grant. In addition, each such director will receive a grant of 2,000 shares with
an exercise price determined on the same basis every year thereafter, which
options become exercisable on the third anniversary of the date of grant. Also
on July 24, 1997, each non-employee director was granted an option to purchase
an additional 3,000 shares exercisable over three years, so that the optionee
shall have the right to exercise the option with respect to one third of the
shares covered thereby commencing on the first anniversary of the date of grant
with respect to the initial grant received upon first being elected to the Board
of Directors.
To date, each of Messrs. Pinkas, Randall and Young has received, under the
Plan, 10,000 options for their service as directors, at exercise prices ranging
from $7.00 to $11.25 and Mr. Erdekian has received a total of 7,000 options for
his services, at exercise prices ranging from $7.50 to $10.00.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal 1997, the Company purchased from Two Technologies, Inc. ("Two
Technologies") certain hand-held computers used in the Company's products. David
H. Young, a director of the Company, is the President of Two Technologies. The
Company paid a total of $38,837. Also during fiscal 1997, Two Technologies
purchased SMT process equipment from the Company in amounts totaling $243,421.
The Company's transactions with Two Technologies were made at prices and on
terms comparable to other arms'-length purchases and sales by the Company and
the Company believes that such was also the case with respect to Two
Technologies' transactions with the Company.
During fiscal 1997, the Company received general contracting services for
leasehold improvements at its Willow Grove facility from a son of Joseph L.
Gasper, the Senior Vice President, Operations of the Company. The amount paid
for such services in fiscal 1997 totaled $70,855. Mr. Gasper has informed the
Company that, other than his familial relationship with his son, who does not
reside in Mr. Gasper's household, Mr. Gasper has no direct or indirect interest
in the services provided by his son to the Company.
4
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
paid and accrued during each of the last four fiscal years to the Company's
Chief Executive Officer and each of the Company's other executive officers
during such periods.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------- -------------------
SECURITIES ALL OTHER
NAME AND UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) ($)(1)
- ------------------ ---- ---------- --------- ----------- ------
<S> <C> <C> <C> <C> <C>
David W. Smith 1997 195,700 45,000 10,000 1,000
President and Chief 1996 190,000 154,875 20,000 1,000
Executive Officer 1995 169,731 22,500 10,000 1,000
Joseph L. Gasper 1997 133,900 15,000 5,000 1,000
Senior Vice President, 1996 130,000 88,500 10,000 1,000
Operations 1995 119,885 20,000 5,000 1,000
Anthony R. Drury 1997 128,750 20,000 5,000 1,000
Senior Vice President, 1996 125,000 88,500 10,000 1,000
Finance and Chief 1995 113,885 11,000 5,000 1,000
Financial Officer
Ian H. Henderson 1997 98,980 18,588 4,000 6,124
Senior Vice President, 1996 80,828 12,507 7,000 674
European Operations 1995 73,480 31,268 5,000 --
Terry D. Ellis (2) 1997 90,000 12,000 21,000 --
Vice President, 1996 25,309 5,000 5,000 --
North American Sales
and Customer Support
</TABLE>
- ----------
(1) Consists of the Company's matching payments under its 401(k) Plan, except
for Mr. Henderson for whom the amounts shown represent the Company's
contribution under an English personal pension plan.
(2) Mr. Ellis joined the Company in June 1996, and his annualized base salary
was then expected to be approximately $80,000.
5
<PAGE>
STOCK OPTION GRANTS
The following table sets forth certain information with respect to
individual grants of stock options during the fiscal year ended September 30,
1997, to the Company's Chief Executive Officer and each of the Company's four
other executive officers during such periods.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM (1)
------------------------------------------------------- ---------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#)(2) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ---- -------------- ----------- ------ ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
David W. Smith 10,000 4.5% $ 8.625 09/11/07 $ 54,242 $137,460
Joseph L. Gasper 5,000 2.2% $ 8.625 09/11/07 $ 27,121 $ 68,730
Anthony R. Drury 5,000 2.2% $ 8.625 09/11/07 $ 27,121 $ 68,730
Ian H. Henderson 4,000 1.8% $ 8.625 09/11/07 $ 21,697 $ 54,984
Terry D. Ellis 15,000 6.7% $10.625 03/05/07 $100,230 $254,003
5,000 2.2% $10.000 07/24/07 $ 31,445 $ 79,687
1,000 0.4% $ 8.625 09/11/07 $ 5,424 $ 13,746
------ ---- -------- --------
21,000 9.3% $137,099 $347,436
</TABLE>
- ----------
(1) Potential realizable value is based on the assumed annual growth rates
compounded annually for the ten-year option term. The dollar amounts set
forth under this heading are the result of calculations at the 5% and 10%
assumed rates set by the Securities and Exchange Commission and are not
intended to forecast possible future appreciation, if any, of the stock
price of the Company.
(2) The options granted in September 1997, with terms of 10 years, vest and
become exercisable on September 11, 2002. The 15,000 options and the 5,000
options granted to Mr. Ellis in March 1997 and July 1997, respectively, vest
in five annual installments beginning one year after the date of grant.
STOCK OPTION EXERCISES AND HOLDINGS
The following table sets forth information relating to options exercised
during the fiscal year ended September 30, 1997 by the Company's Chief Executive
Officer and each of the Company's four other executive officers during the
period and presents the value of unexercised options held by such individuals as
of September 30, 1997:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
YEAR END (#) FISCAL YEAR END ($) (2)
---------------------------- ---------------------------
SHARES VALUE
ACQUIRED REALIZED
NAME ON EXERCISE ($) (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David W. Smith 5,000 $ 35,205 150,000 62,500 $428,750 $23,125
Joseph L. Gasper 16,000 $137,996 37,500 29,750 $ 56,188 $ 9,875
Anthony R. Drury -- $ -- 56,300 29,750 $152,538 $ 9,875
Ian H. Henderson -- $ -- 13,334 21,333 $ 15,001 $ 6,250
Terry D. Ellis -- $ -- 1,000 25,000 $ 625 $ 2,500
</TABLE>
- ----------
(1) Value realized is based upon the difference between the last sale price of
the Company's Common Stock on The Nasdaq Stock Market on the dates of
exercise and the exercise price of the options, multiplied by the number of
shares acquired on exercise of the option.
(2) Total value of "in-the-money" unexercised options is based upon the
difference between the last sale price of the Company's Common Stock on The
Nasdaq Stock Market on September 26, 1997 ($8.125 per share) and each
exercise price of the various "in-the-money options" held by such person,
multiplied by the number of "in-the-money" option shares.
6
<PAGE>
REPORT OF THE STOCK OPTION AND COMPENSATION COMMITTEE
The Company's compensation policy with respect to its executive officers
reflects two basic principles. First, compensation should, to a significant
extent, reflect the financial performance of the Company. Second, a portion of
an executive officers' compensation should provide long-term incentives that
will tie long-term rewards for the executive officers to increases in
stockholder values. The Company has traditionally attempted to effect its
compensation policy through three separate components: salary, bonus and stock
options.
Annual Compensation
Annual cash compensation is comprised of a base salary and a bonus award.
The Committee establishes annual salaries by evaluating individual performances
and the level of the executive's responsibility and experience. In addition, the
Committee considers marketplace valuations of comparable executives of other
companies in related industries, comparable in size with the Company, although
salary determinations have not been based upon any specific criteria of
compensation. Nevertheless, the members of the Stock Option and Compensation
Committee, who either are affiliated with venture capital firms (Mr. Bergman) or
a NYSE company (Mr. Erdekian) and have experience in setting compensation for
companies in similar stages of development, believe that salaries of the
executive officers in fiscal 1997 were modest, considering the scope of the
Company's operations and the respective responsibilities and achievements of the
executive officers. Annual adjustments in base salaries typically are made
effective at the beginning of the fiscal year for which they are intended to
apply and therefore reflect in large part prior year's business and individual
performance achievements. During fiscal 1997, salary increases for the executive
officers (except for Mr. Ellis and Mr. Henderson) were three percent. The
increases in salary for Mr. Ellis and Mr. Henderson reflect their promotions to
Vice President of North American Sales and Customer Support and Senior Vice
President of European Operations, respectively.
Bonus awards are made pursuant to criteria established toward the beginning
of each fiscal year. A portion of the bonus, which comprised approximately 70%
of the maximum bonus payable during the 1997 fiscal year, is non-discretionary
and in 1997 is based upon the Company's achievement of specified levels of net
income determined by the Committee in the relevant fiscal year. The amount of
bonus is subject to minimum and maximum specified levels of net income. The
Company's net income was less than the minimum net income level previously
determined by the Committee; accordingly, the non-discretionary bonuses were not
paid to any of the executives.
The remaining portion of the bonus is discretionary and is based on the
Committee's judgment concerning the achievement by the executive officer of
certain stated objectives specifically related to that executive's functional
responsibilities. The executive officers received a range from 50% to 86% of the
discretionary bonuses, based upon the Committee's assessment of the level of
achievement with respect to the stated objectives. Bonus payments are reduced by
the amount of the Company's profit sharing contributions to its 401(k) for the
officers. The discretionary bonus for Mr. Smith was based on criteria that
included, among others, (i) improvement of customer satisfaction and reduction
in warranty costs; (ii) completion of the semiconductor strategic plan and (iii)
joint venture for development of new products.
Long Term Compensation -- Stock Options
The stock option component of the executive officers' compensation package
is designed to provide incentive for the enhancement of stockholder value, since
the full benefit of stock option grants will not be realized unless there has
been appreciation in per share values over several years. In this regard,
options have been granted at fair market value on the date of grant and vest in
five years, except for certain options granted to Mr. Ellis which vest in equal
annual installments over five years. The number of shares subject to each grant
is set at a level intended to create an opportunity for stock ownership based on
the officer's current position with the Company and the individual's personal
performance in recent periods. The Committee also takes into account the number
of vested and unvested options held by the executive officer in order to
maintain an appropriate level of equity incentive for that individual. However,
the Committee does not adhere to any specific guidelines as to the relative
option holdings of the Company's executive officers. The options granted to each
executive officer is detailed in the Option Grants in Last Year table.
Deferred Compensation Plan
The Company maintains a deferred compensation plan, pursuant to which
certain executive officers may elect to defer a portion of their annual
compensation. The participant's funds are invested among various
7
<PAGE>
investment vehicles designated by the plan administrators. Upon the death or
retirement of a participant, the funds attributable to the participant
(including any earnings on contributions) are distributed to the participant or
the participant's beneficiary in a lump sum or in annual installments over
various selected periods.
Qualifying Executive Compensation for Deductibility Under Provisions of the
Internal Revenue Code
The Internal Revenue Code of 1986, as amended (the "Code"), provides that a
publicly held corporation generally may not deduct compensation for its chief
executive officer or each of certain other executive officers to the extent that
such compensation exceeds $1,000,000 for the executive. The Committee intends to
take such actions as are possible and appropriate to qualify compensation paid
to executives for deductibility under the Code. In this regard, the Committee
notes, however, that base salary and bonus levels are expected to remain well
below the $1,000,000 limitation in the foreseeable future.
JAMES R. BERGMAN VAHRAM V. ERDEKIAN
SECTION 16(A) BENEFICIAL OWNERSHIP COMPLIANCE
Section 16(a) of the 1934 Act requires the Company's officers and directors
and persons who own more than ten percent of its Common Stock to file reports
with the Securities and Exchange Commission disclosing their ownership of stock
in the Company and changes in such ownership. Copies of such reports are also
required to be furnished to the Company. Based solely on a review of the copies
of such reports received by it, the Company believes that, during fiscal 1997,
all such filing requirements were complied with, except that Mr. Smith filed one
late Form 4 to report a sale of 351 shares of Common Stock.
STOCK PERFORMANCE GRAPH
The graph below compares the cumulative total stockholder return of the
Company with the cumulative total return on the S & P 500 Stock Index and the
Hambrecht & Quist Technology Index. Information relating to the Company begins
on May 12, 1993 (the first date on which the Company's Common Stock was publicly
traded).
COMPARISON OF 53 MONTH CUMULATIVE TOTAL RETURN* AMONG QUAD SYSTEMS
CORPORATION, THE S & P 500 INDEX AND THE HAMBRECHT & QUIST TECHNOLOGY INDEX
[GRAPH]
<TABLE>
<CAPTION>
5/12/93 9/93 9/94 9/95 9/96 9/97
------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Quad Systems Corporation........... 100 197 200 126 128 113
S & P 500.......................... 100 104 108 140 169 237
H & Q TECHNOLOGY................... 100 104 119 199 220 341
</TABLE>
- ----------
* $100 invested on 5/12/93 in stock or on 4/30/93 in index-including
reinvestment of dividends.
8
<PAGE>
INFORMATION CONCERNING INDEPENDENT AUDITORS
The Board of Directors has selected the firm of Ernst & Young LLP to serve
as independent auditors for the Company for the current fiscal year.
Representatives of Ernst & Young LLP are expected to be present at the meeting
and will have the opportunity to make a statement if they so desire and will be
available to respond to appropriate questions.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the Annual Meeting of
Stockholders in 1999 must be received by the Company at its principal office in
Willow Grove, Pennsylvania, no later than October 1, 1998 in order to be
considered for inclusion in the Company's proxy statement and form of proxy
relating to that meeting.
SOLICITATION OF PROXIES
The accompanying form of proxy is being solicited on behalf of the Board of
Directors of the Company. The expense of solicitation of proxies for the meeting
will be paid by the Company. In addition to the mailing of the proxy material,
such solicitation may be made in person or by telephone or telecopy by
directors, officers or regular employees of the Company.
By Order of the Board of Directors
ROBERT P. PINKAS
Secretary
February 10, 1998
<PAGE>
PROXY
QUAD SYSTEMS CORPORATION
2405 Maryland Road, Willow Grove, Pennsylvania 19090
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned stockholder of QUAD SYSTEMS CORPORATION hereby constitutes
and appoints DAVID W. SMITH and ANTHONY R. DRURY, and each of them acting
individually, as the attorney and proxy of the undersigned, with full power of
substitution, for and in the name and stead of the undersigned, to attend the
Annual Meeting of Stockholders (the "Meeting") to be held at Williamson's
Restaurant, Route 611 and Blair Mill Road, Horsham, Pennsylvania, on March 12,
1998, at 10:00 a.m., and any adjournment or postponement thereof, and thereat to
vote all shares of Common Stock of QUAD SYSTEMS CORPORATION held by the
undersigned which the undersigned would be entitled to vote if personally
present, with respect to the matters described on the reverse side of this proxy
card:
(To be Signed on Reverse Side)
Please mark your votes as in this example. [ X ]
1. ELECTION OF DIRECTORS
[ ] FOR all nominees listed at right
[ ] WITHHOLD AUTHORITY to vote for nominee(s)
Nominee(s):
Vahram V. Erdekian, Robert P. Pinkas, Lorin J. Randall,
David W. Smith, David H. Young
INSTRUCTIONS: To withhold your vote for any individual nominee(s), write the
name of the person(s) for whom your vote is withheld on the line immediately
below. If the "Withhold Authority" box is marked and you do not provide any
individual name(s) below, you will withhold authority to vote for all nominees
as a group.
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2. Upon such other matters as may properly come before the Meeting or any
adjournment or postponements thereof.
This proxy, when properly executed, will be voted in the manner directed herein
by the undersigned. If no direction is made, the shares will be voted "FOR" the
election of the listed nominees for director. This Proxy also delegates
discretionary authority to vote with respect to any other business that may
properly come before the Meeting or any adjournment or postponement thereof.
PLEASE SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING,
PROXY STATEMENT AND ANNUAL REPORT OF QUAD SYSTEMS CORPORATION.
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SIGNATURE DATED
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SIGNATURE IF JOINTLY OWNED DATED
Note: Please sign your name exactly as it appears hereon. When signing as
attorney-in-fact, executor, administrator, trustee or guardian, please add
your title as such. When signing as joint tenants, all parties in the
joint tenancy must sign. If signer is a corporation, please sign in full
corporate name by duly authorized officer or officers and affix the
corporate seal.
