SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
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Microfluidics International Corporation
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Microfluidics International Corporation
------------------------------------------------
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MICROFLUIDICS INTERNATIONAL CORPORATION
30 OSSIPEE ROAD
NEWTON, MASSACHUSETTS 02164
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
----------------
To Our Shareholders:
The Annual Meeting of Shareholders of Microfluidics International
Corporation, a Delaware corporation (the "Company"), will be held on Tuesday,
May 26, 1998, at 10:00 a.m., local time, at the offices of the Company located
at 30 Ossipee Road, Newton, Massachusetts 02164, for the following purposes:
1. To elect a Board of Directors to serve for the ensuing year and until
their respective successors have been duly elected and qualified.
The nominees the Board of Directors proposes to present for election
are: Irwin J. Gruverman, James N. Little, Michael A. Lento and Vincent
B. Cortina.
2. To ratify the selection of the firm of Deloitte & Touche LLP as auditors
for the Company for the fiscal year ending December 31, 1998.
3. To transact such other business as may properly come before the meeting
and any adjournments thereof.
Only shareholders of record on the transfer books of the Company at the
close of business on April 6, 1998 are entitled to notice of, and to vote at,
the meeting.
Please sign, date and return the enclosed proxy in the enclosed envelope at
your earliest convenience. If you return your proxy, you may nevertheless
attend the meeting and vote your shares in person.
All shareholders are cordially invited to attend the meeting.
By Order of the Board of Directors
Irwin J. Gruverman
Chairman of the Board of Directors,
Chief Executive Officer and
Secretary
Newton, Massachusetts
April 28, 1998
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. WHETHER OR
NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN, DATE AND MAIL THE ENCLOSED
PROXY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IN THE UNITED
STATES.
PROXY STATEMENT
MEETING OF SHAREHOLDERS
OF MICROFLUIDICS INTERNATIONAL CORPORATION
MAY 26, 1998
Proxies in the form enclosed with this proxy statement are solicited by the
Board of Directors of Microfluidics International Corporation, a Delaware
corporation (the "Company"), for use at the Annual Meeting of Shareholders to
be held on Tuesday, May 26, 1998, at 10:00 a.m., local time, at the offices of
the Company located at 30 Ossipee Road, Newton, Massachusetts 02164, and at
any adjournments thereof (the "Meeting").
Only shareholders of record as of the close of business on April 6, 1998
will be entitled to notice of and to vote at the Meeting. As of that date,
5,142,054 shares of common stock, par value $.01 per share (the "Common
Stock"), of the Company were issued and outstanding and entitled to vote at
the Meeting. The shares of Common Stock are the only outstanding voting
securities of the Company. Shareholders are entitled to cast one vote for each
share held of record.
All properly executed proxies returned in time to be counted at the Meeting
will be voted as stated below under "Voting Procedures." Any shareholder
giving a proxy has the right to withhold authority to vote for any individual
nominee to the Board of Directors by writing that nominee's name in the space
provided on the proxy.
Execution of a proxy will not in any way affect a shareholder's right to
attend the Meeting and vote in person. A proxy may be revoked at any time
before it is voted at the Meeting by notifying the Secretary of the Company in
writing at the address set forth above, by submitting a properly executed
proxy bearing a later date, or by revoking the proxy at the Meeting.
Attendance at the Meeting will not by itself constitute the revocation of a
proxy.
In addition to the election of directors, the shareholders will consider and
vote upon a proposal to ratify the selection of auditors as further described
in this proxy statement. Where a choice has been specified on the proxy with
respect to these matters, the shares represented by the proxy will be voted in
accordance with the specification and will be voted FOR these matters if no
specification is indicated.
The Board of Directors of the Company knows of no other matters to be
presented at the Meeting. If any other matter should be presented at the
Meeting upon which a vote properly may be taken, shares represented by all
proxies received by the Board of Directors will be voted with respect thereto
in accordance with the judgment of the persons named as attorneys in the
proxies.
An Annual Report to Shareholders, containing financial statements for the
fiscal year ended December 31, 1997, is being mailed together with this proxy
statement to all shareholders entitled to vote. This proxy statement and the
form of proxy enclosed with this proxy statement were first mailed to
shareholders on or about April 28, 1998.
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth as of April 6, 1998, the name of each person
who, to the knowledge of the Company, owned beneficially more than 5% of the
shares of Common Stock of the Company outstanding at such date, the number of
shares owned by each of such persons and the percentage of the class
represented thereby.
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) OF CLASS(2)
------------------------------------ ------------ -----------
Irwin J. Gruverman(3)............................... 864,305 16.2%
30 Ossipee Road
Newton, Massachusetts 02164
G.D. Searle & Co.(4)................................ 600,000 11.7%
Box 5110
Chicago, Illinois 60680
- --------
(1) Information with respect to beneficial ownership is based upon information
furnished by such shareholder.
(2) Shares of Common Stock that a person or entity has the right to acquire
within 60 days of April 6, 1998, pursuant to the exercise of options or
warrants or pursuant to stock purchase agreements are deemed to be
outstanding for the purpose of computing the percentage ownership of such
person or entity, but are not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person or entity shown in
the table.
(3) Consists of (i) 242,300 shares of Common Stock, (ii) 197,500 shares of
Common Stock subject to currently exercisable options, (iii) 324,505
shares of Common Stock owned jointly by Mr. Gruverman and his wife and
(iv) 100,000 shares of Common Stock owned by Mr. Gruverman's wife. Mr.
Gruverman disclaims beneficial ownership of the 100,000 shares of Common
Stock owned by his wife.
(4) Information with respect to beneficial ownership is based upon information
furnished by G.D. Searle & Co. in a Form 4 filed with the Securities and
Exchange Commission on January 5, 1994.
ELECTION OF DIRECTORS
The directors of the Company are elected annually and hold office for the
ensuing year and until their successors have been elected and qualified. The
Company's By-laws state that the number of directors constituting the entire
Board of Directors shall be determined by resolution of the Board of
Directors. The number of directors currently fixed by the Board of Directors
is four. This number may be changed by resolution of the Board of Directors.
Shares represented by all proxies received by the Board of Directors and not
marked as withholding authority to vote for any individual director or for all
directors will be voted FOR the election of all the nominees, unless one or
more nominees is unable or unwilling to serve. The Board of Directors knows of
no reason why any such nominee would be unable or unwilling to serve as a
director, but if such should be the case, proxies may be voted for the
election of some other person as the Board of Directors may recommend in his
place, or for fixing the number of directors at a lesser number. The
affirmative vote of a majority of the shares present, in person or by proxy,
and entitled to vote on the election of directors is required to elect each
member of the Board of Directors. See "Voting Procedures."
2
THE BOARD OF DIRECTORS RECOMMENDS THE ELECTION OF MR. GRUVERMAN, MR. LITTLE,
MR. LENTO AND MR. CORTINA AS DIRECTORS, AND PROXIES SOLICITED BY THE BOARD
WILL BE VOTED IN FAVOR THEREOF UNLESS A SHAREHOLDER HAS INDICATED OTHERWISE ON
THE PROXY.
OCCUPATIONS OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth as to the present directors, the nominees for
election at the Meeting and each executive officer: (i) name; (ii) age; and
(iii) present position(s) with the Company:
NAME AGE TITLE
---- --- -----
Irwin J. Gruverman*.................. 64 Chairman of the Board, Chief Executive Officer
and Secretary
Michael A. Lento*.................... 47 President, Treasurer and Director
James N. Little*..................... 57 Director
Vincent B. Cortina*.................. 60 Director
- --------
* Nominee for Director
IRWIN J. GRUVERMAN has served as the Chairman of the Board of Directors,
Chief Executive Officer and Secretary of the Company since its inception in
1983. From the Company's inception in 1983 to February 1993, Mr. Gruverman
served as its President. He also currently serves as the President of G&G
Diagnostics Corp., an administrative services company, and as the General
Partner of each of G&G Diagnostics Limited Partnerships I, II & III, human
medical diagnostics venture capital investment partnerships, positions which
he has held since 1990. See "Related Transactions." In addition, Mr. Gruverman
currently serves on the Board of Directors of the following public companies:
North American Scientific, Inc.; InVitro International, Inc.; FiberChem
International, Inc. and Endogen, Inc.
MICHAEL A. LENTO has served as the President and Treasurer of the Company
since September 1995 and has served as a director of the Company since May
1997. From August 1994 until August 1995, Mr. Lento served as the Vice
President of Marketing of the Company. From November 1993 until August 1994,
Mr. Lento, on a consulting basis, acted as the manager of the Company's
cooperative venture with Catalytica, Inc. From 1992 until October 1993, Mr.
Lento was the Chief Executive Officer of Medical & Scientific Enterprises,
Inc., a developer and manufacturer of medical scanning and imaging equipment.
JAMES N. LITTLE has served as a director of the Company since December 1995.
Since 1981, Mr. Little has served as a Senior Vice President of Sales,
Marketing and Business Development for Zymark Corporation, a manufacturer of
scientific robotics equipment.
VINCENT B. CORTINA has served as a director of the Company since May 1997.
Mr. Cortina currently serves as a director of Advanced Monitors, Inc., a
company which develops and manufactures a variety of medical equipment and
instruments, a position he has held since 1990. In addition, since 1996, Mr.
Cortina has been self-employed as a business consultant. Prior to that he
served as President of Advanced Monitors, Inc. from 1990 to 1996.
3
COMPENSATION OF DIRECTORS
Directors, with the exception of Mr. Gruverman and Mr. Lento, receive $1,000
per diem for each formal meeting of the Board of Directors and committee
thereof for which they attend and are reimbursed for reasonable expenses
incurred in attending such meetings. Mr. Little holds options to purchase
47,500 shares of Common Stock at an average exercise price of $1.85 per share.
Mr. Cortina holds options to purchase 32,500 shares of Common Stock at an
average exercise price of $2.10 per share. Messrs. Little and Cortina were
granted the foregoing options pursuant to the 1989 Non-Employee Directors
Stock Option Plan (the "1989 Plan"), which automatically grants to each non-
employee director of the Company who holds office at the beginning of each
fiscal year an option to purchase 7,500 shares of the Company's Common Stock.
Upon any non-employee director's first appointment to the Board of Directors,
that director receives an automatic grant of an option to purchase 25,000
shares of the Company's Common Stock. Options granted pursuant to the 1989
Plan vest in four equal installments commencing six months from the date of
grant and thereafter on the next three anniversaries of the date of grant.
Options granted to Messrs. Lento and Gruverman under the Company's 1988 Stock
Plan (the "1988 Plan") during the fiscal year ended December 31, 1997 are
reported under "Executive Compensation--Option Grants in Last Fiscal Year."
Additionally, pursuant to a Consulting Agreement (the "Consulting
Agreement") dated as of January 1, 1997, Mr. Little was compensated in the
amount of $7,500 for technical sales and marketing consulting services
provided to the Company in 1997. The Company paid Mr. Little an additional
$2,500 for other consulting services provided to the Company in 1997 which
were not performed in connection with the Consulting Agreement.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
The Board of Directors of the Company held two (2) meetings and acted by
unanimous written consent on two (2) occasions during the fiscal year ended
December 31, 1997. The Board of Directors of the Company has no standing
nominating committee. Currently, the Compensation Committee, of which Messrs.
Cortina, Little, and Gruverman are members, determines who should receive
stock options under the Company's stock plans (except for the 1989 Plan, under
which all grants are automatically made) and also reviews and approves
employee remuneration. The Audit Committee, which currently consists of
Messrs. Cortina, Little and Gruverman, oversees the accounting and tax
functions of the Company, including matters relating to the appointment and
activities of the Company's independent auditors. The Compensation Committee
held three (3) meetings and the Audit Committee held one (1) meeting during
the fiscal year ended December 31, 1997. Ratification of the full Board of
Directors is required with respect to decisions taken by either committee.
During the fiscal year ended December 31, 1997, each of the directors attended
more than 75% of the aggregate of (i) the total number of meetings of the
Board of Directors, and (ii) the total number of meetings held by all
committees on which each director served.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is composed of Messrs. Cortina, Little and
Gruverman. Messrs. Cortina and Little are not employees of the Company. No
executive officer of the Company serves as a member of the board of directors
or compensation committee of any entity that has one or more executive
officers serving as a member of the Company's Board of Directors or
Compensation Committee.
4
BENEFICIAL OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth current directors, nominees for director to
be elected at the Meeting and each executive officer named in the Summary
Compensation Table set forth on page 5, the positions currently held by each
such person with the Company and the number and percentage of outstanding
shares of Common Stock beneficially owned by each such person and by all
current directors and executive officers as a group as of April 6, 1998.
AMOUNT AND NATURE
POSITIONS AND OFFICES OF BENEFICIAL PERCENT OF
WITH THE COMPANY(1) OWNERSHIP(2)(3) CLASS
--------------------- ----------------- ----------
Irwin J. Gruverman...... Chief Executive Officer, 864,305(4) 16.2%
Chairman of the Board of
Directors and Secretary
Michael A. Lento........ President, Treasurer and 133,155(5) 2.5%
Director
James N. Little......... Director 26,250(6) *
Vincent B. Cortina...... Director 12,500(7) *
All current directors 1,036,210(8) 18.8%
and executive officers
as a group (4 persons).
- --------
* Less than 1%.
(1) Each individual is also a nominee for Director to be elected at the
Meeting.
(2) Unless otherwise indicated, each person possesses sole voting and
investment power with respect to the shares.
(3) Shares of Common Stock that a person has the right to acquire within 60
days of April 6, 1998, pursuant to the exercise of options are deemed to
be outstanding for the purpose of computing the percentage ownership of
such person, but are not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person shown in the table.
The inclusion herein of any shares of Common Stock deemed beneficially
owned does not constitute an admission of beneficial ownership of those
shares.
(4) Consists of (i) 242,300 shares of Common Stock, (ii) 197,500 shares of
Common Stock subject to currently exercisable options, (iii) 324,505
shares of Common Stock owned jointly by Mr. Gruverman and his wife and
(iv) 100,000 shares of Common Stock owned by his wife. Mr. Gruverman
disclaims beneficial ownership of the 100,000 shares of Common Stock owned
by his wife.
(5) Consists of (i) 129,750 shares of Common Stock subject to currently
exercisable options and (ii) 3,405 shares of Common Stock owned jointly by
Mr. Lento and his wife.
(6) Consists of 26,250 shares of Common Stock subject to currently exercisable
options.
(7) Consists of 12,500 shares of Common Stock subject to currently exercisable
options.
(8) Includes 366,000 shares of Common Stock subject to currently exercisable
options. See footnotes 4 through 7.
5
EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION SUMMARY TABLE
The Summary Compensation table shows compensation information for (i) the
Chief Executive Officer, and (ii) the other executive officer of the
Corporation who earned more than $100,000 in salary and bonus in 1997
(together with the Chief Executive Officer, the "Named Executive Officers")
for services rendered in all capacities during the three fiscal years most
recently ended.
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION(1)
--------------------- ---------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL STOCK ALL OTHER
POSITION YEAR SALARY BONUS OPTIONS(#) COMPENSATION(2)
------------------ ---- -------- ------- --------------- ---------------
Irwin J. Gruverman...... 1997 $ 95,000 $ 0 20,000 $800
Chairman of the Board
of 1996 75,040 0 41,000 --
Directors, Chief
Executive 1995 76,000 0 75,000 --
Officer and Secretary
Michael A. Lento(3)..... 1997 125,000 10,000 0 $800
President and Treasurer 1996 98,000 5,000 25,000 --
1995 91,227 0 180,000 --
- --------
(1) The Corporation did not grant any restricted stock awards or stock
appreciation rights or make any long-term incentive plan payouts during
fiscal years 1995, 1996 or 1997.
(2) Consists of the Company's matching contributions made under its 401(k)
plan on behalf of each Named Executive Officer.
(3) Mr. Lento became an executive officer of the Company in September 1995.
6
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding each stock option
granted during the fiscal year 1997 to each of the Named Executive Officers.
The potential realizable values that would exist for the respective options
are based on assumed rates of annual compound stock price appreciation of 0%,
5% and 10% from the date of grant over the full term of the option.
INDIVIDUAL GRANTS
----------------------------------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED ANNUAL
NUMBER OF TOTAL OPTIONS RATES OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES IN EXERCISE OPTION TERM(2)
OPTIONS FISCAL PRICE PER EXPIRATION -----------------------
NAME GRANTED (#) YEAR(1) SHARE DATE 0% 5% 10%
---- ----------- ------------- --------- ---------- ------- ------- -------
Irwin J. Gruverman...... 20,000(3) 39.6% 1.50 2/11/2001 $14,400 $24,000 $35,000
Michael A. Lento........ -- -- -- -- -- -- --
- --------
(1) The Company granted options to purchase 50,500 shares of Common Stock to
employees in the year ended December 31, 1997.
(2) Amounts reported in this column represent hypothetical values that may be
realized upon exercise of the options immediately prior to the expiration
of their term, assuming that the stock price on the date of grant
appreciates at the specified annual rates of appreciation, compounded
annually over the term of the options. These numbers are calculated based
on rules promulgated by the Securities and Exchange Commission. Actual
gains, if any, on stock option exercises and Common Stock holdings are
dependent on the time of such exercise and the future performance of the
Company's Common Stock.
(3) Options were granted pursuant to the 1988 Plan and vested immediately.
Options terminate four years after the grant date, subject to earlier
termination in accordance with the 1988 Plan and the applicable option
agreement. The fair market value of the Company's Common Stock on the date
of grant, as determined by the closing price of The Nasdaq Stock Market on
the trading day immediately preceding the grant date was $2.22 per share.
7
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table summarizes for each of the Named Executive Officers
unexercised options held at December 31, 1997. None of the Named Executive
Officers exercised or held any stock appreciation rights. The value of
unexercised in-the-money options at the fiscal year end is the difference
between the exercise price and the fair market value of the underlying stock
on December 31, 1997 the last business day of the fiscal year. The closing
price of the Company's Common Stock on the Nasdaq National Market on such date
was $2.438.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND DECEMBER 31, 1997 OPTION VALUES
VALUE OF
UNEXERCISED
NUMBER OF IN-THE-MONEY
UNEXERCISED OPTIONS AT
OPTIONS AT FISCAL YEAR
FISCAL YEAR END END(1)
---------------- ---------------
SHARES
ACQUIRED VALUE
NAME ON EXERCISE REALIZED VESTED UNVESTED VESTED UNVESTED
- ---- ----------- -------- ------- -------- ------ --------
Irwin J. Gruverman........ 20,000 $14,400 197,500 62,500 N/A $31,788
Michael A. Lento.......... 0 $ 0 129,750 116,250 N/A $66,650
- --------
(1) These values have not been and may never be realized. Actual gains, if
any, on exercise will depend on the value of the Common Stock on the date
of sale of any shares acquired upon exercise of the option.
EMPLOYMENT AGREEMENTS
The Company entered into a letter agreement dated December 31, 1997 (the
"Letter Agreement") with Irwin J. Gruverman, the Company's Chief Executive
Officer, Chairman of the Board and Secretary, pursuant to which Mr.
Gruverman's compensation for the 1998 fiscal year was established at $95,000.
COMPENSATION COMMITTEE REPORT
This report is submitted by the Compensation Committee (the "Committee"),
which is responsible for establishing and administering the Company's
executive compensation policies and the Company's stock option and other
employee equity plans. The Committee is composed of Messrs. Cortina, Little
and Gruverman. Messrs. Cortina and Little are not employees of the Company.
This report addresses the compensation policies for fiscal year 1997 as they
affected Mr. Gruverman, in his capacity as Chief Executive Officer and
Secretary of the Company, Mr. Lento, in his capacity as President and
Treasurer of the Company and other executive officers of the Company.
General Compensation Policy
The Company's compensation policy for executive officers is designed to
achieve the following objectives: (i) to enhance profitability of the Company
and increase stockholder value (ii) to reward executives consistent with the
Company's annual and long-term performance goals; (iii) to recognize
individual initiative, leadership and achievement; and (iv) to provide
competitive compensation that will attract and retain qualified executives.
8
Executive Officer Compensation Program
The Committee performs annual reviews of executive compensation to confirm
the competitiveness of the overall executive compensation packages as compared
with other local companies who compete with the Company for prospective
employees. The compensation program for executive offices consists of three
elements: (1) base salary, which is set on an annual basis; (2) annual
incentive compensation, in the form of cash bonuses, which is based on
achievement of predetermined financial objectives of the Company and
individual objectives; and (3) long-term incentive compensation, in the form
of stock options, that are granted with the objective of aligning the
executive officers' long-term interests with those of the stockholders and
encouraging the achievement of superior results over an extended period.
Base Salary
Base salaries for executive officers are targeted at competitive market
levels for their respective positions, levels of responsibility and
experience. In addition to external market data, the Committee also reviews
the Company's financial performance and individual performance when adjusting
base salary annually.
Bonus and Commission Compensation
Bonus compensation is based on the Company's achievement of predetermined
financial, operational and strategic objectives. Giving greatest weight to
attainment of financial targets, the Committee also awards bonuses based on
various operational and strategic objectives, such as management efficiency,
and the ability to motivate others and build a strong management team, develop
and maintain the skills necessary to work in a high-growth company, recognize
and pursue new business opportunities and initiate programs to enhance the
Company's growth and successes. Bonuses are awarded on an annual basis.
Long Term Incentive Compensation
Long-term incentive compensation, in the form of stock options, allows the
executive officers to share in any appreciation in the value of the Company's
Common Stock. The Committee believes that stock option participation aligns
executive officers' interests with those of the stockholders. In addition, the
Committee believes that equity ownership by executive officers helps to
balance the short term focus of annual incentive compensation with a longer
term view and may help to retain key executive officers.
When establishing stock option grant levels, the Committee considers general
corporate performance, the Chief Executive Officer's recommendations, level of
seniority and experience, existing levels of stock ownership, previous grants
of stock options, vesting schedules of outstanding options and the current
stock price. The Committee may make performance-based grants throughout the
year. In making such performance-based grants, the Committee considers
individual contributions to the Company's financial, operational and strategic
objectives.
Chief Executive Officer Compensation
In fiscal year 1997, the Company's Chief Executive Officer and Secretary,
Irwin J. Gruverman, received a base salary of $95,000, which represents an
increase of $19,960 over this 1996 base salary. This is consistent with the
range of salary levels received by his counterparts in other local companies
of comparable size and stage of development. Mr. Gruverman was granted an
immediately exercisable stock option to purchase 20,000 registered shares of
Common Stock of the Company at an exercise price of $1.50 per share. Mr.
Gruverman did not receive a bonus for fiscal year 1997.
9
In fiscal year 1997, the Company's President and Treasurer, Michael A.
Lento, received a base salary of $125,000, which represents an increase of
$27,000 over this 1996 base salary. This is consistent with the range of
salary levels received by his counterparts in other local companies of
comparable size and stage of development. Mr. Lento received bonus
compensation of $10,000, which was determined based on corporate performance.
Mr. Lento was not granted any stock options for fiscal year 1997.
Certain Tax Considerations
The Company does not believe Section 162(m) of the Internal Revenue Code of
1986, as amended, which generally disallows a tax deduction for compensation
in excess of $1 million to any of the executive officers appearing in the
Summary Compensation Table above will have an effect on the Company. The
Committee has considered the requirements of Section 162(m) of the Code and
its related regulations. It is the Committee's present intention that, so long
as it is consistent with its overall compensation objections, substantially
all executive compensation will be deductible for Federal income tax purposes.
THE COMPENSATION COMMITTEE:
Vincent B. Cortina
James N. Little
Irwin J. Gruverman
10
PERFORMANCE GRAPH
The following graph compares the annual percentage change in the Company's
cumulative total stockholder return on its Common Stock during a period
commencing on December 31, 1992 and ending on December 31, 1997 (as measured by
dividing (i) the sum of (A) the cumulative amount of dividends for the
measurement period, assuming dividend reinvestment and (B) the difference
between the Company's share price at the end and the beginning of the
measurement period; by (ii) the share price at the beginning of the measurement
period) with the cumulative total return of Nasdaq and the line of business
index based on Standard Industry Classification Number 3559, Special Industry
Machinery, N.E.C. (the "SIC Code Index"), which consists of other companies in
the Special Industry Machinery group during such period. It should be noted
that the Company has not paid any dividends on the Common Stock, and no
dividends are included in the representation of the Company's performance. The
stock price performance on the graph below is not necessarily indicative of
future price performance.
[PERFORMANCE GRAPH APPEARS HERE]
ASSUMES $100 INVESTED ON JAN. 1, 1993
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 1997
1992 1993 1994 1995 1996 1997
------- ------- ------- ------- ------- -------
Microfluidics International
Corp.......................... $100.00 $200.00 $103.33 $ 51.67 $ 50.00 $ 65.00
SIC Code Index................. $100.00 $167.09 $204.97 $330.16 $304.79 $415.21
NASDAQ Market Index............ $100.00 $119.95 $125.94 $163.35 $202.99 $248.30
11
RELATED TRANSACTIONS
The Company and G&G Diagnostics Corp. ("G&G"), a corporation of which Mr.
Gruverman is the President, sole employee and sole stockholder, have entered
into an agreement (the "Letter Agreement") whereby G&G leases space from, and
makes payments to, the Company for rent and direct expenses based on quarterly
invoices provided by the Company. The total amount paid to the Company by G&G
for reimbursement of expenses in 1997 was approximately $74,125. Pursuant to
the Letter Agreement, in 1998 G&G will lease space from, and make payments to,
the Company for rent and direct expenses, and will reimburse the Company for
services to be provided to G&G by an employee of the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of the Company's Common Stock ("Reporting Persons"), to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission (the "SEC"). Reporting Persons 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 a review of the copies of such
forms received by the Company and on written representations from certain
Reporting Persons, the Company believes that during the year ended December
31, 1997, all Section 16(a) filing requirements applicable to its directors,
executive officers and greater than ten percent beneficial owners were met,
except for the following: (i) one late Form 3, filed by Vincent B. Cortina,
(ii) Irwin J. Gruverman failed to report the exercise of an option to purchase
20,000 shares of the Company's Common Stock in a timely filed Form 4; however,
Mr. Gruverman has subsequently reported this transaction in a Form 5 for the
year-ended December 1997; and (iii) Michael K. Hooker failed to report the
grant of an option to purchase 7,500 shares of the Company's Common Stock;
however, Mr. Hooker resigned from the Board of Directors on May 27, 1997 and
this option terminated prior to any vesting.
RATIFICATION OF SELECTION OF AUDITORS
On December 8, 1997, the Company dismissed Coopers & Lybrand L.L.P.
("Coopers & Lybrand") as the Company's independent auditor. Such decision was
approved by the Company's Board of Directors and Audit Committee.
Coopers & Lybrand's reports on the financial statements for the Company's
fiscal years ended December 31, 1996 and December 31, 1995 did not contain an
adverse opinion or a disclaimer of opinion, and were not qualified or modified
as to uncertainty, audit scope or accounting principles. There were no
disagreements between the Company and Coopers & Lybrand during the 1995 and
1996 fiscal years and the subsequent interim periods on any matters of
accounting principles or practices, financial statements disclosure, or
auditing scope of procedure, which disagreements, if not resolved to the
satisfaction of Coopers & Lybrand, would have caused Coopers & Lybrand to make
reference to the subject matter of the disagreements in connection with its
reports. In addition, there were no "reportable events," as such term is
defined in Item 304(a)(1)(v) of Regulation S-K, during the 1995 and 1996
fiscal years and the subsequent interim periods.
12
On December 8, 1997, the Company engaged Deloitte & Touche LLP ("Deloitte &
Touche") as its new independent accountants for the Company's fiscal year
ending December 31, 1997. During the 1995 and 1996 fiscal years and the
subsequent interim periods, the Company did not consult with Deloitte & Touche
on items which involved (i) the application of accounting principles to a
specified transaction, either completed or proposed, (ii) the type of audit
opinion that might be rendered on the Company's financial statements, or
(iii) the subject matter of a disagreement or "reportable event."
The Board of Directors has selected the firm of Deloitte & Touche LLP,
independent certified public accountants, to serve as auditors for the fiscal
year ending December 31, 1998. The Board of Directors proposes that the
shareholders approve this appointment, although such ratification is not
required under Delaware law or the Company's Certificate of Incorporation or
By-Laws. The affirmative vote of a majority of the shares, in person or
represented by proxy, and entitled to vote at the Meeting is required to
ratify such appointment. It is expected that a member of the firm of Deloitte
& Touche LLP will be present at the Meeting. The representative will be given
the opportunity to make a statement if he or she desires to do so and will be
available to respond to appropriate questions.
In the event that ratification of the appointment of Deloitte & Touche LLP
is not obtained at the Meeting, the Board of Directors will reconsider its
appointment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY'S AUDITORS, AND PROXIES
SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED IN FAVOR OF SUCH
RATIFICATION UNLESS A SHAREHOLDER HAS OTHERWISE INDICATED ON THE PROXY CARD.
VOTING PROCEDURES
The presence, in person or by proxy, of at least a majority of the
outstanding shares of Common Stock entitled to vote at the Meeting is
necessary to establish a quorum for the transaction of business. Shares
represented by proxies pursuant to which votes have been withheld from any
nominee for director, or which contain one or more abstentions or broker "non-
votes," are counted as present for purposes of determining the presence or
absence of a quorum for the Meeting. A "non-vote" occurs when a broker or
other nominee holding shares for a beneficial owner votes on one proposal, but
does not vote on another proposal because the broker does not have
discretionary voting power and has not received instructions from the
beneficial owner.
For all matters being submitted to stockholders at this Meeting, the
affirmative vote of a majority of shares present, in person or represented by
proxy, and entitled to vote on that matter is required for approval. Shares
voted to abstain, since they are not affirmative votes for the matter, will
have the same effect as votes against the matter, while broker "non-votes",
since they are not entitled to vote for the matter, have no effect on the
vote.
OTHER BUSINESS
The Board of Directors knows of no business which will be presented for
consideration at the Meeting other than that stated above. If any other
business should come before the Meeting, votes may be cast pursuant to proxies
in respect to any such business in the best judgment of the person or persons
acting under the proxies.
13
SHAREHOLDER PROPOSALS
If a shareholder desires to present a proposal for inclusion in the proxy
statement to be furnished to all shareholders entitled to vote at the next
annual meeting of the Company, such shareholder must submit such proposal in
writing to the Company at the Company's principal executive offices not later
than December 29, 1998. In order to curtail controversy as to the date on
which a proposal was received by the Company, it is suggested that proponents
submit their proposals by Certified Mail-Return Receipt Requested.
ANNUAL REPORT ON FORM 10-K
THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER
31, 1997 (OTHER THAN EXHIBITS THERETO) FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, WHICH PROVIDES ADDITIONAL INFORMATION ABOUT THE COMPANY, IS
AVAILABLE TO BENEFICIAL OWNERS OF THE COMMON STOCK WITHOUT CHARGE UPON WRITTEN
REQUEST TO THE SECRETARY, MICROFLUIDICS INTERNATIONAL CORPORATION, 30 OSSIPPEE
ROAD, NEWTON, MASSACHUSETTS 02164.
EXPENSES AND SOLICITATION
The cost of solicitation of proxies will be borne by the Company. Proxies
will be solicited principally through the mails. Further solicitation of
proxies from some shareholders may be made by directors, officers and regular
employees of the Company personally, by telephone, telegraph or special
letter. No additional compensation, except for reimbursement of reasonable
out-of-pocket expenses, will be paid for any such further solicitation. In
addition, the Company may request banks, brokers, and other custodians,
nominees and fiduciaries to solicit customers of theirs who have shares of the
Company registered in the name of the nominee. The Company will reimburse any
such persons for their reasonable out-of-pocket expenses.
14
MICROFLUIDICS INTERNATIONAL CORPORATION
THIS PROXY IS BEING SOLICITED BY MICROFLUIDICS BOARD OF DIRECTORS
The undersigned, revoking any previous proxies relating to these shares,
hereby acknowledges receipt of the Notice and Proxy Statement dated April
28, 1998, in connection with the Annual Meeting to be held at 10:00 a.m. on
Tuesday, May 26, 1998, at the offices of the Corporation located at
30 Ossipee Road, Newton, MA, and hereby appoints Irwin J. Gruverman and
Michael A. Lento, and each of them (with full power to act alone), the
attorneys and proxies of the undersigned, with power of substitution to
each, to vote all shares of the Common Stock of Microfluidics International
Corporation registered in the name provided herein which the undersigned is
entitled to vote at the 1998 Annual Meeting of Stockholders, and at any
adjournments thereof, with all the powers the undersigned would have if
personally present. Without limiting the general authorization hereby
given, said proxies are, and each of them is, instructed to vote or act as
follows on the proposals set forth in said Proxy.
THIS PROXY WHEN EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF
NO DIRECTION IS MADE THIS PROXY WILL BE VOTED FOR THE ELECTION OF DIRECTORS
AND FOR PROPOSAL 2.
IN THEIR DISCRETION THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENTS
THEREOF.
ELECTION OF DIRECTORS (OR IF ANY NOMINEE IS NOT AVAILABLE FOR ELECTION,
SUCH SUBSTITUTE AS THE BOARD OF DIRECTORS MAY DESIGNATE)
NOMINEES: IRWIN J. GRUVERMAN MICHAEL A. LENTO JAMES N. LITTLE
VINCENT B. CORTINA
SEE REVERSE SIDE FOR BOTH PROPOSALS. If you wish to vote in accordance
with the Board of Directors' recommendations, just sign on the reverse
side. You need not mark any boxes.
(SEE REVERSE SIDE)
------------------
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE.
The Board of Directors recommends a vote FOR Proposals 1 and 2.
1. ELECTION OF DIRECTORS FOR [ ] WITHHELD [ ]
NOMINEES: IRWIN J. GRUVERMAN MICHAEL A. LENTO JAMES N. LITTLE
VINCENT B. CORTINA
_____________________________________________________
FOR ALL NOMINEES EXCEPT AS NOTED ABOVE.
2. PROPOSAL TO RATIFY THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE
CORPORATION'S INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING
DECEMBER 31, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
PLEASE SIGN EXACTLY AS NAME(S) APPEARS HEREON.
JOINT OWNERS SHOULD EACH SIGN. WHEN SIGNING AS
ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
SIGNATURE:__________________________ DATE________________
SIGNATURE:__________________________ DATE________________