STOCKER & YALE, INC.
32 Hampshire Road
Salem, New Hampshire 03079
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The annual general meeting (the "Meeting") of Stocker & Yale, Inc. (the
"Company"), a Massachusetts corporation, will be held at the Company's
headquarters, 32 Hampshire Road, Salem, New Hampshire 03079, on Tuesday,
May 5, 1998 at 10 a.m., local time, for the following purposes:
1. to elect six directors to serve until the next annual meeting and until
their successors are duly elected and qualified;
2. to increase by 150,000 shares the number of shares of common stock of
the Company, par value $0.001 per share (the "Common Stock"), authorized
and available for issuance under the Stocker & Yale 1996 Stock Option and
Incentive Plan (the "1996 Stock Option Plan");
3. to appoint Arthur Andersen LLP as the Company's independent public
accountants; and
4. to transact such other business as may properly come before the Meeting
and any adjournments or postponements thereof.
Accompanying this notice of meeting is a proxy statement and a form of proxy,
together with the 1997 annual report of the Company incorporating the report
of the Chairman of the Board of Directors and the audited consolidated
financial statements for the year ended December 31, 1997.
Shareholders of record at the close of business on March 25, 1998 are
entitled to notice of, and to vote at the Meeting and any adjournments or
postponements thereof.
Whether or not you plan to attend the Meeting in person, you are asked to
complete, sign, date, and return the enclosed form of proxy. A proxy may
not be effective unless it is received at the Office of the Company's
transfer agent and registrar, Bank of Boston Proxy Services, P. O. Box
9381, Boston, MA 02205 not less than 48 hours before the time fixed for
the Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
April 8, 1998 Stuart M. Cable, Clerk
<PAGE>
STOCKER & YALE, INC.
PROXY STATEMENT
as of April 1, 1998
Solicitation of Proxies
This proxy statement (the "Proxy Statement") is furnished in connection with
the solicitation of proxies by the management of Stocker & Yale, Inc.
(the "Company"), a Massachusetts corporation, for use at the annual general
meeting of shareholders (the "Meeting") of the Company to be held at 10:00
a.m., local time, on May 5, 1998, at the Company's headquarters located at
32 Hampshire Road, Salem, New Hampshire, for the purposes set forth in the
Notice of Annual Meeting of Shareholders. The approximate date on which
this Proxy Statement and form of proxy are first being sent to shareholders
is April 1, 1998.
Appointment of Proxyholders
The persons named in the accompanying form of proxy are designated as
proxyholders by management of the Company.
A shareholder desiring to appoint some other person (who need not be a
shareholder) to represent him/her at the Meeting may do so by striking out
the printed names and inserting the desired person's name in the blank space
provided in the form of proxy. To be valid, the completed, signed, and
dated form of proxy should be received at the Office of the Company's
transfer agent and registrar, Bank of Boston Proxy Services, P. O. Box 9381,
Boston, Massachusetts 02205 not less than 48 hours before the time fixed for
the Meeting.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, HOLDERS OF COMMON
STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY
CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
Voting and Proxies
The shares of the Company's common stock, par value US $.001 per share
(the "Common Stock") represented by a properly executed and deposited proxy
will be voted on any matter to come before the Meeting or any adjournments
or postponements thereof that may be called for or required by law and, if
the shareholder specifies a choice with respect to any matter to be acted
upon, such shares of Common Stock will be voted accordingly at the Meeting
or any adjournments or postponements thereof. If a choice with respect to
such matters is not clearly specified at the Meeting or any adjournments or
postponements thereof, the persons designated by management in the form of
proxy will vote the shares represented by the proxy (i) "FOR" the election
to the Board of Directors of the nominees, (ii) "FOR" the increase by
150,000 shares in the number of shares of Common authorized and available
for issuance under the Stocker & Yale 1996 Stock Option Plan, (iii) "FOR"
the appointment of Arthur Andersen LLP as the Company's independent public
accountants, and (iv) in the discretion of the persons named as proxies,
upon such other matters as may properly come before the Meeting.
The proxy confers discretionary authority upon the named proxyholder with
respect to amendments to or variations in matters identified in the
accompanying Notice of Meeting and other matters that may properly come
before the Meeting. As of the date of this Proxy Statement, management is
not aware of any amendment, variations or other matter. If such should
occur, the persons designated by management will vote thereon in accordance
with their best judgment, exercising discretionary authority.
<PAGE>
The presence, in person or by proxy, of at least a majority of the total
number of shares of Common Stock issued and outstanding and entitled to
vote is necessary to constitute a quorum for the transaction of business
at the Meeting. Abstentions, votes withheld from Director nominees and
"broker non-votes" (i.e., shares represented at the Meeting which are held
by a broker or other nominee as to which (i) voting instructions have not
been received from the beneficial owners or persons entitled to vote such
shares and (ii) the broker does not have discretionary authority to vote
such shares) shall be treated as shares that are present and entitled to
vote for purposes of determining whether a quorum is present. With
respect to the election of Directors, the By-Laws of the Company provide
that such election shall be determined by a plurality of the votes cast
by the stockholders. Therefore, abstentions and broker non-votes will
have no effect on the outcome of the election of Directors. With respect
to the proposed amendment of the 1996 Stock Option Plan, the affirmative
vote of a majority of the shares of Common Stock present or represented
and entitled to vote at the Meeting is necessary to approve such an
amendment. Accordingly, abstentions will have the effect of votes cast
against such proposal and broker non-votes will have no effect.
Revocation of Proxies
A shareholder who has given a proxy may revoke it as to any matter on which
a vote has not already been cast pursuant to the authority conferred on
the proxy, by delivering a later-dated proxy, by delivering to the Clerk
of the Company a written revocation of such proxy, or by appearing and
voting in person at the meeting.
Annual Report
All holders of record are being sent herewith a copy of the Company's 1997
Annual Report (the "Annual Report"), which contains audited financial
statements of the Company for the fiscal year ended December 31, 1997.
The Annual Report, however, is not part of the proxy soliciting material.
Principal Executive Office
The Company's principal executive office is located at 32 Hampshire Road,
Salem, New Hampshire 03079, and its telephone number is (603) 893-8778.
Voting Securities and Principal Holders Thereof
The voting securities of the Company consist of its Common Stock. As of
March 25, 1998, there were 2,570,194.6 shares of common stock issued and
outstanding, each share carrying the right to one vote. The Directors of
the Company have fixed March 25, 1998 as the record date (the "Record Date")
for determining shareholders entitled to receive notice of, to attend and
to vote at the Meeting or any adjournment or postponement thereof.
Transferees of Common Stock after the Record Date will not be
entitled to notice of, or to vote at, the Meeting.
Security Ownership of Principal Shareholders and Management
The following table sets forth, to the best knowledge of the Company,
certain information regarding the beneficial ownership of the Company's
Common Stock, as of March 25, 1998, by each person known to
the Company to be the beneficial owner of more than 5% of any class of the
voting stock of the Company, each Director of the Company, current
executive officers named in the Summary Compensation Table below (the
"Named Executive Officers"), and all of the Company's Directors and
Named Executive Officers as a group.
<PAGE>
Name and Address (1) Number of Shares of Common Stock Percentage
Mark W. Blodgett 730,924.1 (2) 27.6%
Hoover Capital Management, Inc. 756,469.8 (3) 28.2%
50 Congress Street
Boston, MA 02109
Chilton Investment Partners LP 257,520.0 (4) 10.0%
399 Park Avenue 28th Floor
New York, NY 10022
Trainer Wortham & Co. 177,352.8 6.9%
845 Third Avenue 6th Floor
New York, NY 10022
Blodgett 1989 Family Trust 141,607.2 (9) 5.5%
Daniel L. Mosely, Trustee
c/o Cravath, Swaine & Moore
825 Eighth Avenue
New York, NY 10017
James Bickman 53,882.2 (5) 2.1%
Clifford L. Abbey 10,000.0 (6) *
Alex W. Blodgett 57,200.0 (7) 2.2%
Steven E. Karol --- --
John M. Nelson 14,000.0 (6) *
Susan A. Hojer Sundell 20,330.0 (8) *
Kenneth A. Ribeiro 1,560.0 *
Directors and Named Executive
Officers as a Group (8 persons) 886,996.3 32.7 %
* Less than one percent.
1) Unless otherwise stated, the address for the named party is c/o Stocker &
Yale, Inc., 32 Hampshire Road Salem, NH 03079
2) 635,230.8 shares owned directly and 19,600 shares owned indirectly
through the Helen W. Blodgett Trust, of which Mark W. Blodgett is a Trustee.
Total also includes 62,534 shares which may be acquired upon the exercise
of stock options that are currently exercisable or that will be exercisable
within 60 days of March 25, 1998, and 13,559.3 shares which may be
acquired by the Helen W. Blodgett Trust within 60 days of March 25, 1998
pursuant to 7.25% Convertible Subordinated Notes due May 1, 2001. Total
excludes 141,607.2 shares owned by the Blodgett 1989 Family Trust, of which
Mark W. Blodgett is the Settlor. Mr. Blodgett disclaims beneficial
ownership of the shares held by the Blodgett 1989 Family Trust and the
Helen W. Blodgett Trust.
<PAGE>
3) As reported in a Schedule 13G filed on February 28, 1998 with the
Securities and Exchange Commission by Hoover Capital Management, Inc.
Includes 607,095 shares beneficially owned by various clients of Hoover
Capital Management, Inc. ("HCM"), for which HCM exercises sole dispositive
and sole voting power. Also includes 94,915.1 shares which may be acquired
by such clients of HCM within 60 days of March 25, 1998 pursuant to 7.25%
Convertible Subordinated Notes due May 1, 2001. HCM is a registered
investment adviser under the Investment Advisers Act of 1940, as amended,
and disclaims beneficial ownership of these Notes and these shares. HCM
also provides investment advisory services to the Helen W. Blodgett Trust
of which Mark W. Blodgett is a Trustee. HCM shares dispositive and voting
power with respect the to the Helen W. Blodgett Trust, which holds a total
of 33,159.3 shares, consisting of 19,600 shares owned directly and 13,559.3
shares which may be acquired by The Helen W. Blodgett Trust within
60 days of March 25, 1998 pursuant to 7.25% Convertible Subordinated Notes
due May 1, 2001. Steven R. Hoover, Chairman and CEO of HCM, directly
holds 21,300 shares.
4) As reported in a Schedule 13D filed on January 10, 1997 and amended
on July 29, 1997 with the Securities and Exchange Commission by Chilton
Investment Co., Inc.
5) Includes 7,506 shares which may be acquired upon the exercise of stock
options that are currently exercisable or that will be exercisable within
60 days of March 25, 1998.
6) Includes 9,000 shares which may be acquired upon the exercise of stock ]
options that are currently exercisable or that will be exercisable within
60 days of March 25, 1998.
7) Includes 21,000 shares which may be acquired upon the exercise of stock
options that are currently exercisable or that will be exercisable within
60 days of March 25, 1998.
8) Includes 19,000 shares which may be acquired upon the exercise of stock
options that are currently exercisable or that will be exercisable within
60 days of March 25, 1998.
9) As reported in a Schedule 13G filed on March 17, 1998 with the Securities
& Exchange Commission by the Blodgett Family Trust.
Matters to be Acted Upon
Item 1 - Election of Directors
The persons named in the following table are proposed by management for
election as Directors of the Company. Each Director elected will hold
office until the next annual general meeting and until his successor,
if any, is elected and qualified, unless he resigns or he becomes
disqualified to act as a Director. Each nominee is currently a Director
of the Company. The affirmative vote of a plurality of the shares present
and voting in person or by proxy at the Meeting is necessary to elect
these individuals as Directors. The Company believes that each of the
nominees will stand for election and, if elected, will serve as a Director.
owever, if any nominee fails to stand for election, the proxies will be
voted for the election of such other person(s) as the Board of Directors
may nominate and recommend. The following information concerning the
respective nominees has been confirmed by each of them as of
March 25, 1998:
<PAGE>
Proposed Nominee and Principal Occupation Age Director Since
Mark W. Blodgett 41 1989
Chairman of the Board and Chief Executive Officer
James Bickman 81 1989
President and Director
Alex W. Blodgett 39 1994
President of Watersave Logic Corporation and Director
Clifford L. Abbey 52 1994
Chief Executive Officer of San Francisco 415 Corporation and Director
John M. Nelson 66 1995
Chairman of The TJX Companies, Inc. and Director
Steven E. Karol 43 1997
President of HMK Enterprises, Inc. and Director
The Board of Directors recommends that you vote "FOR" the nominees named
above.Unless otherwise specified in the enclosed proxy, the persons names
in the enclosed proxy intend to vote the shares of Common Stock represented
by each properly executed proxy "FOR" each of the nominees named above.
<PAGE>
Information Regarding Directors
The principal occupation and business experience of each director is set
forth below:
ark W. Blodgett purchased a majority of the shares of the Common Stock of
the Company in 1989 and since then he has maintained overall responsibility
for daily operations and strategic planning. Prior to joining the Company
in 1989, Mr. Blodgett worked for a private merchant bank (1988-1989); was a
corporate vice president at Drexel Burnham Lambert, Inc. in New York
(1980-1988); and was a merger and acquisition associate for European
American Bank in New York (1979-1980). Mr. Blodgett is actively involved
in the Young Presidents Organization. Mark Blodgett is the brother of
Alex W. Blodgett, a Director of the Company.
James Bickman presently serves as President of the Company's Salem Division.
Mr. Bickman has been a Director of the Company and its predecessor entities
since 1961, and joined as its President and Chief Executive Officer in 1964.
Mr. Bickman has an extensive background in manufacturing and engineering,
and has been responsible for the growth of the Company over the past thirty
years from a small manufacturer of optical metrology instruments. Prior to
joining the Company, Mr. Bickman was a co-founder and operator of a
successful engineering sales and manufacturing business.
Alex W. Blodgett is President of Watersave Logic Corporation, a
manufacturing company. He was elected Director in June 1994 and also served
as President of the Company's Stilson Division from February 1994 through
May 1997. From January 1993 until December 1993, he was Vice President of
Corporate Development for Brassie Golf Corporation, a corporation engaged
primarily in the development of golf courses, and a partner with
Pacificbridge Investments, a real estate development firm. From April 1986
until November 1991, he was a partner with Gordon Capital Corporation, a
private investment bank. Alex W. Blodgett is the brother of Mark W. Blodgett.
Clifford L. Abbey is the Chief Executive Officer and principal shareholder
of San Francisco 415 Corporation, a manufacturer and distributor of
designer jeans. Mr. Abbey has an established reputation as a successful
entrepreneur, having founded, operated and ultimately sold a number of small
and middle-market businesses. Mr. Abbey has been a Director of the Company
since 1994.
John M. Nelson is the Chairman of The TJX Companies, Inc., a retailer of
off-price fashion goods. From 1991 to 1997, Mr. Nelson was Chairman of
Wyman-Gordon, Inc., a manufacturer of forgings, investment castings and
composite structures for the commercial transportation, commercial power
and defense industries, and from 1991 through 1994, he also served as
Wyman-Gordon Company's Chief Executive Officer. Prior to that time,
Mr. Nelson served for many years in a series of executive positions with
Norton Company, a diversified industrial products manufacturer, and was
Norton Company's Chairman and Chief Executive Officer from 1988 to 1990,
and its President and Chief Operating Officer from 1986 to 1988. Mr.
Nelson is also a Director of Browne & Sharpe Manufacturing Company, Eaton
Vance, Aquila Biopharmaceuticals, Inc., and Commerce Holdings, Inc.
Mr. Nelson has been a Director of the Company since February 1995.
Steven E. Karol is President and CEO of HMK Enterprises, Inc., a
diversified manufacturing group which includes a steel mini-mill/integrated
mill. Mr. Karol received his B.S. at Tufts University, and he is a graduate
of the President's Program on Leadership (PPL) at the Harvard University
Graduate School of Business Administration.
<PAGE>
Board of Directors and its Committees
Board of Directors. The Company is managed by a six member Board of
Directors. The Board met by person or by telephone on two occasions and
executed consent votes in lieu of a meeting two times during fiscal 1997.
ach of the Directors attended at least 75% of the total number of meetings
of the Board of Directors and of meetings of the committees of the Board of
Directors of which he was a member.
Audit Committee. The Board has established an Audit Committee consisting
of James Bickman and Clifford L. Abbey. The Audit Committee meets with the
Company's independent auditors to review the adequacy of the Company's
internal control systems and financial reporting procedures; review the
general scope of the Company's annual audit and the fees charged by the
independent auditors; review and monitor the performance of non-audit
services by the Company's auditors; review the fairness of any proposed
transaction between recommendations to full Board of Directors; and perform
such other functions as may be required by any stock exchange or over-the-
counter market upon which the Company's securities may be listed. The
Audit Committee met once during fiscal 1997.
Compensation Committee. The Company's Board of Directors has established
a Compensation Committee to determine the compensation of the Company's
executive officers and to grant options and stock awards under the Company's
stock option and incentive plans. The Compensation Committee, which consists
of John M. Nelson and Clifford L. Abbey, met once during fiscal 1997.
The Board of Directors does not have a standing nominating committee or a
committee performing such functions. The full Board of Directors performs
the function of such a committee.
<PAGE>
Compensation of Directors
Directors are not compensated by the Company in cash for their services in
their capacity as Directors. Under the 1996 Stock Option Plan, each Director
who is not an officer or employee of the Company (an "Independent Director"),
upon initial election to the Board of Directors will be granted an option to
purchase 4,000 shares of the Company's Common Stock and will also receive an
annual stock option grant to purchase 2,000 shares of Common Stock, beginning
with the annual meeting following such Director's initial election to the
Board. Unless earlier terminated, all options granted to Independent
Directors under the 1996 Stock Option Plan vest on the date that is two
years after the grant of such options.
Named Executive Officers and Significant Employees
The names and ages of all current Named Executive Officers of the Company
and the principal occupation and business experience during the last five
years are as set forth below.
Name Age Position
Mark W. Blodgett (1) 41 Chief Executive Officer
James Bickman (1) 81 President
Susan A. Hojer Sundell 48 Senior Vice President, Finance and
Treasurer
Kenneth A. Ribeiro 51 Vice President of Engineering of
Salem Division
(1) For descriptions of business experience, please refer to "Information
Regarding Directors" above.
usan A. Hojer Sundell is Senior Vice President of Finance and Treasurer of
the Company and is responsible for all aspects of financial management,
including accounting and treasury functions, corporate compliance and human
resources. Ms. Sundell advanced to Vice President in 1992 from the
MFE Division, where she served in a variety of positions including
Operations Manager and Controller. Ms. Sundell joined MFE in 1981.
Kenneth A. Ribeiro is Vice President-Engineering for the Salem Division,
responsible for both product development and existing product line support.
Mr. Ribeiro has 18 years of design experience in the areas of electronics,
optics, acoustics, thermodynamics and pneumatics, with in-depth experience in
both hardware and software. Prior to joining the Company in June of 1996,
Mr. Ribeiro was employed by American Optical Corporation, Merrimack
Laboratories, Inc., Ion Track Instruments, Inc., and Kaye Instruments, Inc.
George A. Fryburg, age 46, is Senior Vice President and General Manager of
the Salem Division, responsible for plant operations including manufacturing,
procurement, fulfillment, and distribution. Mr. Fryburg has twenty years of
manufacturing experience. He previously held plant manager and operations
manager positions with Norton Company (1986-1997) and engineering and
manufacturing management positions with GTE Sylvania (1977-1986). Mr.
Fryburg joined the Company in May of 1997.
<PAGE>
Compensation of Executive Officers and Directors
Summary Compensation Information
The table below sets forth summary compensation information for the last
three completed fiscal years ended December 31, 1997, 1996 and 1995, with
respect to those of the Company's employees who received total salary and
bonus in excess of $100,000 for the fiscal year ended December 31, 1997.
Annual Compensation Long-Term Compensation
Other All
Annual Restricted Securities Other
Name and Compen- Stock Underlying Compen-
Principal Year Salary (1) Bonus sation Awards Options sation
Position
Mark W. Blodgett 1997 $297,862 -- -- -- 20,000 --
Chairman and Chief1996 $227,611 -- -- -- 20,000 --
Executive Officer 1995 $255,954 -- -- -- -- --
Susan A. Hojer
Sundell
Senior Vice 1997 $110,296 -- -- -- 10,000 --
President - 1996 $100,303 -- -- -- 6,000 --
Finance and 1995 $96,684 -- -- -- 7,000 --
Treasurer
Kenneth A.
Ribeiro
Vice President 1997 $109,972 -- -- -- 7,000 --
Engineering, 1996 $ 56,853 -- -- -- 6,000 --
Salem 1995 $ -- -- -- -- -- --
William J.
Michaud
Vice President
Sales 1997 $130,315 -- -- -- 5,000 --
and Marketing, 1996 $ 47,146 -- -- -- 7,000 --
Salem
(1) Salary includes amounts, if any, deferred pursuant to the Company's
401(k) Plan.
(2) Kenneth A. Ribeiro became an employee of the Company on June 10, 1996.
(3) William J. Michaud was employed by the Company from August 15, 1995
through December 12, 1997.
<PAGE>
Option Grants in Last Fiscal Year
The table below sets forth grants of options to purchase shares of Common
Stock pursuant to the 1996 Stock Option Plan made during the last completed
fiscal year to the named executive officers:
Number of Securities Percent of Total Options Exercise Expiration
Name Underlying Options Granted to Employees Price Date
Mark W. 20,000 (non-qualified) 27.2 % $5.38 4/1/2007
Blodgett
Susan A. Sundell 10,000 13.6 % $5.38 4/1/2007
William J. Michaud * 10,000 13.6 % $5.38 4/1/2007
Kenneth A. Ribeiro 7,000 9.5 % $5.38 4/1/2007
*William J. Michaud terminated employment with the Company on December 12,
1997. On January 27 and February 3, 1998, Mr. Michaud exercised previously
granted options to purchase 2,300 shares of Common Stock at a price of $4.40
per share. All other options granted to Mr. Michaud, including 10,000 granted
in 1997, were forfeited by Mr. Michaud.
Termination of Employment Change in Responsibilities and Employment Contracts
The Company has no plan or arrangement with respect to the compensation of
its executive officers which would be payable upon the resignation, retirement
or any other termination of any executive officer's employment with the
Company or its subsidiaries or in connection with a change of control of the
Company or any subsidiary of the Company or a change in the executive
officer's responsibilities following a change in control. However,
options to purchase shares of Common Stock granted pursuant to the 1994
Stock Option Plan (the "1994 Plan") become fully vested upon a change of
control as defined in the 1994 Plan. Under the 1996 Stock Option Plan, in
the event of a change of control, as defined in the 1996 Stock Option Plan,
the Board of Directors, in its discretion, may provide for substitution or
adjustmnts of outstanding options granted under the 1996 Stock Option Plan,
or may terminate all unexercised options granted under the 1996 Stock Option
Plan with or without payment of cash consideration. In addition, certain
options granted to outside Directors of the Company vest upon such a change
of control. There are no employment contracts between the Company and any of
the named executive officers.
Certain Relationships and Related Transactions
Family Relationships
Mark W. Blodgett, Chairman of the Board of Directors and Chief Executive
Officer of the Company, is the brother of Alex W. Blodgett, a Director of
the Company.
<PAGE>
Compliance with 16(a) of the Exchange Act
Section 16(a) of the Securities and Exchange Act of 1934, as amended, (the
"Exchange Act") requires the Company's executive officers and Directors,
and persons who are beneficial owners of more than 10% of a registered
class of the Company's equity securities to file reports of ownership and
changes in ownership with the Securities and Exchange Commission ("SEC").
Officers, Directors and greater than 10% beneficial owners are required by
SEC regulations to furnish the Company with copies of all Section 16(a)
forms they file. To the Company's knowledge, based solely on review of
the copies of such reports furnished to the Company, and written
representations that no other reports were required, all Section 16(a)
filing requirements applicable to its executive officers, Directors and
greater than 10% beneficial owners were satisfied, except that an initial
Form 3 was inadvertently not filed timely for Steven E. Karol and for
George A. Fryburg, and that Clifford L. Abbey failed to timely file a report
regarding the purchase of Common Stock by a member of his family; each such
report was subsequently filed.
Item 2 - Increase Authorized Shares Available for Issuance under the 1996
Stock Option Plan
The Board of Directors has voted that, subject to approval by the
stockholders, the number of shares of Common Stock authorized and available
for issuance under the 1996 Stock Option Plan be increased by 150,000 shares
of Common Stock from 150,000 shares of Common Stock to a total of 300,000
shares of Common Stock.
The Board of Directors believes that stock options and other stock-based
incentive awards play an important role in the success of the Company by
encouraging and enabling officers and other employees of the Company and
its subsidiaries upon whose judgement, initiative and efforts the Company
largely depends for the successful conduct of its business to acquire a
proprietary interest in the Company. As of March 25, 1998, 145,040 shares
of Common Stock have been granted under the 1996 Stock Option Plan, leaving
only 4,960 shares remaining available for grant.
f the number of shares available for issuance under the 1996 Stock Option
Plan is increased, subject to adjustment for stock splits, stock dividends
and similar events, the total number of shares of Common Stock that will
be available for issuance under the 1996 Stock Option Plan is 154,960 shares.
Based solely upon the closing price of the Common Stock as reported by
NASDAQ SmallCap Market on March 17, 1998, the maximum aggregate market value
of the securities yet to be issued under the 1996 Stock Option Plan would
be $968,500. In order to satisfy the performance-based compensation
exception to the $1 million cap on the Company's tax deduction imposed by
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
the 1996 Stock Option Plan also provides that stock options with respect to
no more than 40,000 shares of Common Stock may be granted to any one
individual in any one calendar year. The shares issued by the Company
under the 1996 Stock Option Plan may be authorized but unissued shares, or
shares reacquired by the Company. To the extent that the awards under the
1996 Stock Option Plan do not vest or otherwise revert to the Company, the
shares of Common Stock represented by such awards may be the subject of
subsequent awards.
Summary of the 1996 Stock Option Plan
The following description of certain features of the 1996 Stock Option Plan
is intended to be a summary only. The summary is qualified in its entirety
by the full text of the 1996 Stock Option Plan.
Plan Administration: Eligibility. The 1996 Stock Option Plan is
administered by the Compensation Committee of the Board of Directors (the
"Committee"). All members of the committee must be "disinterested persons"
as that term is defined under the rules promulgated by the Securities and
Exchange Commission.
The Committee has full power to select, from among the individuals eligible
for awards, the individuals to whom awards will be granted, to make any
combination of awards to participants, and to determine the specific terms
and conditions of each award, subject to the provisions of the 1996 Stock
Option Plan. The Committee also has the power to delegate to the Chairman
of the Board the authority to grant options to certain new hires. The
Committee may permit Common Stock, and other amounts payable pursuant to
an award, to be deferred. In such instances, the Committee may permit
dividends or deemed dividends to be credited to the amount of deferrals.
<PAGE>
Persons eligible to participate in the 1996 Stock Option Plan are those
officers or other employees and consultants of the Company and any
subsidiaries who are responsible for or contribute to the management,
growth or profitability of the Company and its subsidiaries, as selected
from time to time by the Committee. Directors of the Company who are not
employed by the Company or its subsidiaries are also eligible for certain
awards under the 1996 Stock Option Plan.
Stock Options. The 1996 Stock Option Plan permits the granting of (i)
options to purchase Common Stock intended to qualify as incentive stock
options under Section 422 of the Code ("Incentive Options") and (ii)
options that do not so qualify ("Non-Qualified Options"). Only employees of
the Company (and any subsidiaries) may be granted Incentive Stock Options.
The option exercise price of each option will be determined by the Committee
but may not be less than 100% of the fair market value of the Common Stock
on the date of grant in the case of Incentive Options, and may not be
less than 85% of the fair market value of the Common Stock on the date
of grant in the case of Non-Qualified Options. However, employees
participating in the 1996 Stock Option Plan may be granted, in the
discretion of the Committee, discounted Non-Qualified Options in lieu of
cash bonuses. In the case of such grants, the option exercise price must
be at least 50% of the fair market value of the Common Stock on the date
of grant.
The term of each option will be fixed by the Committee and may not exceed
ten years from the date of grant in the case of an Incentive Option. The
Committee will determine at what time or times each option may be exercised
and, subject to the provisions of the 1996 Stock Option Plan, the period of
time, if any, after retirement, death, disability or termination of
employment during which options may be exercised. Options may be made
exercisable in installments, and the exercisability of options
(including options granted under predecessor plans) may be accelerated by
the Committee.
Upon exercise of options, the option exercise price must be paid in full
either in cash or by certified check or other instrument acceptable to
the Committee or, if the Committee so permits, by delivery of shares of
Common Stock already owned by the optionee. The exercise price may also
be delivered to the Company by a broker pursuant to irrevocable instructions
to the broker from the optionee.
At the discretion of the Committee, stock options granted under the 1996
Stock Option Plan may include a "reload" feature pursuant to which an
optionee exercising an option by delivery of shares of Common Stock would
automatically be granted an additional stock option (with an exercise
price equal to the fair market value of the Common Stock on the date the
additional stock is granted) to purchase that number of shares of Common
Stock equal to the number delivered to exercise the original stock option.
The purpose of this feature is to enable participants to maintain any
equity interest in the Company without dilution.
To qualify as Incentive Options, options must meet additional federal tax
requirements, including limits in the value of shares subject to Incentive
Options which first become exercisable in any one calendar year, and a
shorter term and higher minimum exercise price in the case of certain large
stockholders.
Stock Options Granted to Independent Directors. The 1996 Stock Option Plan
provides for the automatic grant of Non-Qualified Options to Independent
Directors. Each Independent Director is granted an option to purchase
4,000 shares on the fifth business day after his initial election to the
Board. Each Independent Director who is serving as a Director of the
Company on the fifth business day after each annual meeting of shareholders,
beginning with the latter of (i) the 1996 annual meeting or (ii) the annual
meeting that follows his grant of a stock option upon initial election,
will automatically be granted on such day a Non-Qualified Option to acquire
2,000 shares of Common Stock. The exercise price of each such Non-Qualified
Option is the fair market value of the Common Stock on the day of grant.
Such Non-Qualified Option may not be exercised before the second anniversary
of the date of grant.
<PAGE>
Restricted Stock. The Committee may award shares of Common Stock subject to
such conditions and restrictions as the Committee may determine ("Restricted
Stock"). These conditions and restrictions may include the achievement of
certain performance goals and/or continued employment with the Company
through a specified restricted period. The purchase price, if any, of
Restricted Stock will be determined by the Committee. If the performance
goals and other restrictions are not attained, the recipients will
forfeit their awards of restricted Stock.
Unrestricted Stock. The Committee may also grant shares (at no cost or for
a purchase price determined by the Committee) which are free from any
restrictions under the 1996 Stock Option Plan ("Unrestricted Shares").
Unrestricted Stock may be issued in recognition of past services or other
valid consideration, and may be issued in lieu of cash compensation due to
the recipient.
An employee, subject to the consent of the Committee, may, pursuant to an
irrevocable election, receive a portion of his compensation in Unrestricted
Stock (valued at fair market value on the date the cash compensation would
otherwise be paid).
An Independent Director may, pursuant to an irrevocable written election at
least six months before any directors' fees would otherwise be paid, receive
all or a portion of such fees in Unrestricted Stock, valued at fair market
value on the date the directors' fees would otherwise be paid. In certain
instances, an Independent Director may, pursuant to an irrevocable written
election, also elect to defer a portion of any directors' fees payable in
the form of Unrestricted Stock, in accordance with such rules and
procedures as may from time to time be established by the Company. During
the period of deferral, the deferred Unrestricted Stock would receive
dividend equivalent rights.
Performance Share Awards. The Committee may also grant performance share
awards entitling the recipient to receive shares of Common Stock upon the
achievement of individual or Company performance goals and other such
conditions as the Committee shall determine ("Performance Share Award").
ividend Equivalent Rights. The Committee may grant dividend equivalent
rights, which give the recipient the right to receive credits for dividends
that would be paid if the grantee had held specified shares of Common Stock.
Dividend equivalent rights may be granted as a component of another award
or as a freestanding award. Dividend equivalents credited under the 1996
Stock Option Plan may be paid concurrently or be deemed to be reinvested
in additional shares of Common Stock, which may thereafter accrue additional
dividend equivalents at fair market value at the time of deemed reinvestment
or on the terms then governing the reinvestment of dividends under the
Company's dividend reinvestment plan, if any. Dividend equivalent rights
may be settled in cash, shares, or a combination thereof, in a single
installment or installments, as specified in the award. Awards payable in
cash on a deferred basis may provide for crediting and payment of interest
equivalents.
Adjustments for Stock Dividends, Mergers, etc. The Committee will make
appropriate adjustments in outstanding awards to reflect stock dividends,
stock splits and similar events. In the event of a merger, liquidation,
sale of the Company or similar event, the Committee, in its discretion,
may provide for substitution or adjustments of outstanding options, or
may terminate all unexercised options with or without payment of cash
consideration.
<PAGE>
Amendments and Termination. The Board of Directors may at any time amend
or discontinue the 1996 Stock Option Plan, and the Committee may at any
time amend or cancel outstanding awards for the purpose of satisfying
changes in the law or for any other lawful purpose. However, no such action
may be taken which adversely affects any rights under outstanding awards
without the holder's consent. Further, amendments to the 1996 Stock Option
Plan shall be subject to approval of the Company's stockholders if and to
the extent required by the Securities Exchange Act of 1934, as amended (the
"1934 Act"), to ensure that awards granted under the 1996 Stock Option Plan
are exempt under the Rule 16b-3 promulgated under the 1934 Act, or required
by the Code to preserve the qualified status of Incentive Options.
Change of Control Provisions. The 1996 Stock Option Plan provides that in
the event of a "Change of Control" (as defined in the 1996 Stock Option Plan)
of the Company, all stock options granted under the 1996 Stock Option Plan
shall automatically become fully exercisable. In addition, at any time prior
to or after a Change of Control, the Committee may accelerate awards and
waive conditions and restrictions on any awards to the extent it may
determine appropriate.
The 1996 Stock Option Plan became effective on May 7, 1996. Awards of
Incentive Stock Options may be granted under the 1996 Stock Option Plan
until March 19, 2006. Other awards are not limited as to the time of grant.
New Plan Benefits.
Approximately 100 employees and four Independent Directors are currently
eligible to participate in the 1996 Stock Option Plan. The table below shows
the aggregate number of Non-Qualified Options that will be granted to
Independent Directors in 1998, assuming approval of the amendment to the 1996
Stock Option Plan. Each Non-qualified Option granted to an Independent
Director will have an option exercise price equal to the fair market value
of the Common Stock on the date of grant. The number of shares that may be
granted to executive officers and non-executive officers is undeterminable
at this time, as such grants are subject to the discretion of the Committee.
1996 Stock Option Plan
Number of Shares
Name and Position Underlying Stock Options
Independent Director Group (4 persons) 8,000
<PAGE>
Tax Aspects Under the U.S. Internal Revenue Code
The following is a summary of the current principal federal income tax
consequences of option grants to U.S. employees under the 1996 Stock Option
Plan. It does not describe all federal tax consequences under the 1996 Stock
Option Plan, nor does it describe state or local tax consequences.
Incentive Options. Under the Code, an employee generally will not realize
taxable income by reason of the grant or the exercise of an Incentive Option.
If an employee exercises an Incentive Option and does not dispose of the
shares until after the later of (a) two years from the date the option was
granted and (b) one year from the date the shares were transferred to the
employee, the entire gain, if any, realized upon disposition of such shares
will be taxable to the employee as a long-term capital gain, and the
Company will not be entitled to any deduction. If an employee disposes of
the shares within such one-year or two-year period in a manner so as to
violate the holding period requirements (a "disqualifying disposition"),
the employee generally will realize ordinary income in the year of
disposition, and, provided that the Company complies with applicable IRS
reporting requirements, the Company will receive a corresponding deduction,
in an amount equal to the excess of (1) the lesser of (x) amount, if
any, realized on the disposition and (y) the fair market value of the
shares on the date the option was exercised over (2) the option price.
Any additional gain realized by the employee on the disposition of
the shares acquired upon exercise of the option will be long-term,
mid-term or short-term capital gain and any loss will be long-term,
mid-term or short-term capital loss depending upon the holding period
for such shares. The employee will be considered to have disposed of his
shares if he sells, exchanges, makes a gift of or transfers legal title to
the shares (except by pledge or by transfer on death). If the disposition
of shares is by gift and violates the holding period requirements, the
amount of the employee's ordinary income (and the Company's deduction)
is equal to the fair market value of the shares on the date of exercise
less the option price. If the disposition is by sale or exchange, the
employee's tax basis will equal the amount paid for the shares plus any
ordinary income realized as a result of the disqualifying distribution.
The exercise of an Incentive Option may subject the employee to the
alternative minimum tax in the year of exercise.
If any employee surrenders shares of Common Stock in payment of the exercise
price of his Incentive Option, generally the employee will not, under
proposed income tax regulations under the Code, recognize gain or loss on
the surrender of such shares. However, the surrender of shares previously
acquired upon exercise of an Incentive Option in payment of the exercise
price of another Incentive Option is considered a "disposition" of such
stock. If the Incentive Option holding period requirements described above
have not been satisfied with respect to such stock, such disposition will
be a disqualifying disposition that may cause the employee to recognize
ordinary income as discussed above.
All of the shares received by an employee upon exercise of an Incentive
Option by surrendering shares of Common Stock will be subject to the
Incentive Option holding period requirements. Of those shares, a number of
shares (the "Exchange Shares") equal to the number of shares of Common Stock
surrendered by the employee will have the same tax basis for capital gains
purposes (increased by any ordinary income recognized as a result of any
disqualifying disposition of the surrendered shares if they were Incentive
Option shares) and the same capital gains holding period as the shares
surrendered. For purposes of determining ordinary income upon a subsequent
disqualifying disposition of the Exchange Shares, the amount paid for such
shares will be deemed to be the fair market value of the shares
surrendered. The balance of the shares received by the employee will have a
tax basis (and a deemed purchase price) of zero and a capital gains holding
period beginning on the date of exercise. The Incentive Option holding
period for all shares will be the same as if the Incentive Option had been
exercised for cash.
An Incentive Option that is exercised more than three months after the
optionee's employment terminated will generally be treated as a
Non-Qualified Option for federal income tax purposes. Where employment
terminates as a result of disability, the three-month period is extended
to one year, and in the case of an employee who dies, the limitation does
not apply.
<PAGE>
Non-Qualified Options. There are no federal income tax consequences to
either the optionee or the Company on the grant of a Non-Qualified Option.
On the exercise of a Non-Qualified Option, the optionee generally has a
taxable ordinary income equal to the excess of the fair market value of the
Common Stock received on the exercise date over the option price of the
shares. The optionee's tax basis for the shares acquired upon exercise of a
Non-Qualified Option is increased by the amount of such taxable income.
The Company generally will be entitled to a federal income tax deduction in
an amount equal to such excess. Upon the sale of the shares acquired by
exercise of a Non-Qualified Option, optionees will realize long-term,
mid-term or short-term capital gain or loss depending upon their holding
period for such shares.
Section 83 of the Code and the regulations thereunder provide that the date
for recognition of ordinary income (and the Company's equivalent deduction)
upon exercise of a Non-Qualified Option and for the commencement of the
holding period of the shares thereby acquired by a person who is subject to
Section 16 of the 1934 Act will be delayed until the date that is the
earlier of (i) six months after the date of exercise and (i) such time as
the shares received upon exercise could be sold at again without the
person being subject to such potential liability.
An optionee who surrenders shares of Common Stock in payment of the exercise
price of a Non-Qualified Option will not recognize gain or loss on his
surrender of such shares. (Such an optionee will recognize ordinary income
on the exercise of the Non-Qualified Option as described above.) Of the
shares received in such an exchange, that number of shares equal to the
number of shares surrendered will have the same tax basis and capital gains
holding period as the shares surrendered. The balance of the shares received
will have a tax basis equal to their fair market value on the date of
exercise, and the capital gains holding period will begin on the date of
exercise.
<PAGE>
Parachute Payments
The accelerated vesting of any option due to the occurrence of a change in
control may cause payments with respect to such accelerated vesting to be
treated as "parachute payments" as defined in the Code. Any such parachute
payments may be non-deductible to the Company, in whole or in part, and may
subject the recipient to a non-deductible 20% federal excise tax on all or
a portion of such payment (in addition to other taxes ordinarily payable).
Limitation on Company's Deductions
As a result of Section 162(m) of the Code, the Company's deduction for
certain awards under the Plan may be limited to the extent that a "covered
employee" (i.e. the Chief Executive Officer or other executive officer whose
compensation is required to be reported in the summary compensation table)
receives compensation (other than performance-based compensation) in excess
of $1,000,000 a year.
For transactions occurring after July 28, 1997, the Taxpayer Relief Act of
1997 has created three different types of capital gains for individuals:
short-term capital gains (from the sale of assets held for one year or less)
which are taxed as ordinary income rates; mid-term capital gains (from the
sale of assets held more than one year but not more than 18 months) which are
taxed at a maximum rate of 28%; and long-term capital gains (from the sale
of assets held more than 18 months) which are taxed at a maximum rate of 20%.
State and foreign tax consequences vary from jurisdiction to jurisdiction,
and each participant should consult his or her own tax advisor as to the
effects of these taxes, as well as the effects of the federal income tax,
in his or her own particular case.
The Board of Directors recommends that the increase in authorized shares
available for issuance under the 1996 Stock Option Plan and reserved for
such purpose be approved, and therefore recommends a vote FOR this proposal.
Item 3 - Appointment of Auditor
Arthur Andersen LLP, Independent Public Accountants, and its predecessors
have been the auditor of the Company for at least twenty-five years.
Management of the Company proposes to appoint Arthur Andersen LLP as auditor
of the Company until the next annual general meeting of shareholders.
The Board of Directors recommends a vote "FOR" the appointment of Arthur
Andersen LLP as auditor of the Company until the next annual general meeting.
<PAGE>
Item 4 - Other Matters
Management does not know of any other matters to come before the Meeting
other than as set forth in the Notice of Annual General Meeting and this
Proxy Statement. If other matters are presented, proxies will be voted
in accordance with the best judgment of the proxy holder.
Shareholder Proposals for Annual Meetings
For a proposal of a shareholder (including Director nominations) submitted
pursuant to Exchange Act Rule 14a-8 to be included in the Company's proxy
statement and form of proxy for the Company's 1999 Annual Meeting of
Shareholders, it must be received at the principal offices of the Company
on or before December 2, 1998. Such a proposal must also comply with the
requirements as to form and substance established by the SEC for such a
proposal to be included in the proxy statement.
Independent Public Accountants
The Board of Directors engaged Arthur Andersen LLP, Independent Public
Accountants, to serve as the Company's independent public accountants for
the fiscal year ended December 31, 1997. A representative of Arthur Andersen
LLP is expected to be present at the Meeting, will have an opportunity to
ake a statement if he or she desires to do so, and will be available to
answer appropriate questions.
Expense of Solicitation
The Company will bear the expense of this solicitation. It is expected that
the solicitation will be made primarily by mail, but regular employees or
representatives of the Company (none of whom shall receive any extra
compensation for their activities) may also solicit proxies by telephone,
telegraph and in person and arrange for Intermediaries to send this Proxy
Statement and form of proxy to their principals at the expense of the Company.
Directors' Approval
The Contents of this Proxy Statement have been approved and its mailing
has been authorized by the Directors of the Company.
BY ORDER OF THE BOARD OF DIRECTORS
April 8, 1998 Stuart M. Cable, Clerk
