SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
FERROFLUIDICS CORPORATION
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
Ferrofluidics Corporation
40 Simon Street
Nashua, New Hampshire 03061
(603) 883-9800
October 24, 1996
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Ferrofluidics Corporation (the "Company") to be held on Thursday, November
21, 1996, at 10:00 a.m., local time, at the Marriott Hotel, Nashua, New
Hampshire (the "Annual Meeting").
The Annual Meeting has been called for the purpose of electing three Class
I Directors, each for a three-year term and considering and voting upon such
other business as may properly come before the meeting or any adjournments or
postponements thereof.
The Board of Directors has fixed the close of business on October 10,
1996, as the record date for determining stockholders entitled to notice of
and vote at the Annual Meeting and any adjournments or postponements thereof.
The Board of Directors of the Company recommends that you vote "FOR" the
election of the three nominees of the Board of Directors as Directors of the
Company.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE ANNUAL MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE REQUESTED TO
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED
ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU
ATTEND THE ANNUAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU
HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
Very truly yours,
[Signature Block]
Paul F. Avery, Jr.
Chairman of the Board and
Treasurer
[Signature Block]
Salvatore J. Vinciguerra
President and Chief
Executive Officer
FERROFLUIDICS CORPORATION
40 Simon Street
Nashua, New Hampshire 03061
(603) 883-9800
-------------
NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS
To Be Held on November 21, 1996
-------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Ferrofluidics Corporation (the "Company") will be held on Thursday, November
21, 1996, at 10:00 a.m., local time, at the Marriott Hotel, Nashua, New
Hampshire (the "Annual Meeting"), for the purpose of considering and voting
upon:
1. The election of three Class I Directors of the Company, each for a
three-year term; and
2. Such other business as may properly come before the meeting and any
adjournments or postponements thereof.
Under the provisions of the Company's By-Laws, the Board of Directors has
fixed the close of business on October 10, 1996 as the record date for the
determination of stockholders entitled to notice of and vote at the Annual
Meeting and any adjournments or postponements thereof. Only holders of common
stock of record at the close of business on that date will be entitled to
notice of and vote at the Annual Meeting and any adjournments or
postponements thereof.
In the event there are not sufficient votes with respect to the foregoing
proposals at the time of the Annual Meeting, the Annual Meeting may be
adjourned in order to permit further solicitation of proxies.
By Order of the Board of Directors,
Stuart M. Cable, Clerk
October 24, 1996
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE
REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
IF YOU ATTEND THE ANNUAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF
YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
FERROFLUIDICS CORPORATION
40 Simon Street
Nashua, New Hampshire 03061
(603) 883-9800
-------------
PROXY STATEMENT
-------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, NOVEMBER 21, 1996
This Proxy Statement and the enclosed Proxy Card are being furnished in
connection with the solicitation of proxies by the Board of Directors of
Ferrofluidics Corporation (the "Company") for use at the Annual Meeting of
Stockholders of the Company to be held on Thursday, November 21, 1996, at
10:00 a.m., local time, at the Marriott Hotel, Nashua, New Hampshire, and any
adjournments or postponements thereof (the "Annual Meeting").
At the Annual Meeting, the stockholders of the Company will be asked to
consider and vote upon the following matters:
1. The election of three Class I Directors of the Company, each for a
three-year term; and
2. Such other business as may properly come before the meeting and any
adjournments or postponements thereof.
The Notice of Annual Meeting, Proxy Statement and Proxy Card are first
being mailed to stockholders of the Company on or about October 24, 1996 in
connection with the solicitation of proxies for the Annual Meeting. The Board
of Directors has fixed the close of business on October 10, 1996 as the
record date for the determination of stockholders entitled to notice of and
vote at the Annual Meeting and any adjournments or postponements thereof (the
"Record Date"). Only holders of common stock of record at the close of
business on the Record Date will be entitled to notice of and vote at the
Annual Meeting. As of the Record Date, there were 6,074,854 shares of the
Company's common stock, par value $.004 per share ("Common Stock"),
outstanding and entitled to vote at the Annual Meeting and 3,339 stockholders
of record. Each share of Common Stock outstanding as of the close of business
on the Record Date entitles the holder thereof to one vote on each matter
properly submitted at the Annual Meeting.
Voting
The representation in person or by proxy of at least a majority of the
outstanding shares of Common Stock of the Company is necessary to provide a
quorum at the Annual Meeting. Each share of Common Stock of the Company
outstanding on the Record Date is entitled to one vote. A quorum being
present, the affirmative vote of a plurality of the votes cast at the Annual
Meeting is required to elect Directors, and, generally, the affirmative vote
of a majority of the votes cast at the Annual Meeting is required to approve
any proposal properly submitted at the Annual Meeting. An automated system
administered by the Company's transfer agent tabulates the votes. Shares that
reflect abstentions or "broker non-votes" (i.e., shares represented at the
Annual Meeting held by brokers or nominees as to which instructions have not
been received from the beneficial owners or persons entitled to vote such
shares and the broker or nominee does not have discretionary voting power to
vote such shares) will be counted for purposes of determining whether a
quorum is present for the transaction of business at the Annual Meeting.
Generally, abstentions and broker non-votes will have no impact on the
outcome of the vote on a particular proposal presented at the Annual Meeting.
With respect to the election of Directors, votes may be cast in favor of or
withheld from each nominee; votes that are withheld will be excluded entirely
from the vote and will have no effect. Broker non-votes also will have no
effect on the outcome of the election of Directors.
Proxies; Revocation of Proxies
Stockholders of the Company are requested to complete, date, sign and
return the accompanying Proxy Card in the enclosed envelope. Common Stock
represented by properly executed proxies received by the Company and not
revoked will be voted at the Annual Meeting in accordance with the
instructions contained
therein. If instructions are not given therein, properly executed proxies
will be voted "FOR" the election of the three nominees for Director set forth
in Proposal Number 1 of this Proxy Statement. It is not anticipated that any
matters other than those set forth in this Proxy Statement will be presented
at the Annual Meeting. If other matters are presented, proxies will be voted
in accordance with the discretion of the proxy holders.
Any properly completed proxy may be revoked at any time before it is voted
on any matter (without, however, affecting any vote taken prior to such
revocation) by giving written notice of such revocation to the Clerk of the
Company, or by signing and duly delivering a proxy bearing a later date, or
by attending the Annual Meeting and voting in person. Attendance at the
Annual Meeting will not, by itself, revoke a proxy.
Expenses of Solicitation
All expenses of this solicitation will be borne by the Company. Brokerage
firms, nominees, fiduciaries and other custodians have been requested to
forward proxy solicitation materials to the beneficial owners of shares of
Common Stock held of record by such persons, and the Company will reimburse
such brokerage firms, nominees, fiduciaries and other custodians for
reasonable out-of-pocket expenses incurred by them in connection therewith.
In addition to solicitation of proxies by mail, directors, officers and
employees of the Company, without receiving additional compensation therefor,
may solicit proxies from stockholders of the Company by telephone, telefax,
letter, in person or by other means.
PROPOSAL NUMBER 1
ELECTION OF DIRECTORS
Nominees
The Board of Directors of the Company consists of seven members and is
divided into three classes, with three directors in Class I and two directors
in each of Class II and Class III. Directors serve for three-year terms with
one class of Directors being elected by the Company's stockholders at each
annual meeting.
At the Annual Meeting, three Class I Directors will be elected to serve
until the 1999 annual meeting of stockholders and until their successors are
duly elected and qualified. The Board of Directors has nominated Stephen B.
Hazard, Dennis R. Stone and Salvatore J. Vinciguerra for re-election as Class
I Directors. Certain information with respect to the persons nominated by the
Board of Directors for election as Directors is shown below under
"Information Regarding Directors." Unless otherwise specified in the proxy,
it is the intention of the persons named in the proxy to vote the shares
represented by each properly executed proxy for the election as Directors of
each of the nominees. Each of the nominees has agreed to stand for
re-election and to serve if re-elected as a Director. If any of the persons
nominated by the Board of Directors fails to stand for re-election or is
unable to accept re-election, however, proxies not marked to the contrary
will be voted in favor of the election of such other person as the Board of
Directors may recommend.
Vote Required For Approval
A quorum being present, the affirmative vote of a plurality of the votes
cast is necessary to elect a nominee as a Director of the Company.
The Board of Directors of the Company recommends that the Company's
stockholders vote "FOR" the election of the three nominees of the Board of
Directors as Directors of the Company.
INFORMATION REGARDING DIRECTORS
Meetings of Board of Directors and Committees
During the fiscal year ended June 30, 1996 ("fiscal 1996"), the Board of
Directors of the Company held four meetings. Each Director who was a Director
during fiscal 1996 attended at least 75% of the aggregate of the total number
of meetings of the Board of Directors and meetings held by all committees of
the Board of Directors on which such Director served, except Mr. Kamen.
The Board of Directors has established an Audit Committee and a
Compensation Committee. The members of the Audit Committee are Messrs.
Nichols and Stone. The Audit Committee reviews the financial statements of
the Company and the scope of the annual audit, monitors the Company's
internal financial and accounting controls and recommends to the Board of
Directors the appointment of independent certified public accountants. The
Audit Committee met four times during fiscal 1996. The members of the
Compensation Committee are Messrs. Rittereiser and Hazard. The Compensation
Committee recommends the compensation levels of executive officers of the Com-
2
pany to the Board of Directors. The Compensation Committee met six times
in fiscal 1996. The Board of Directors does not have a nominating committee.
Compensation of Directors
Directors who are officers or employees of the Company receive no
compensation for their service as Directors. Directors who are not officers
or employees of the Company receive such compensation for their services as
the Board of Directors may from time to time determine. Non-employee
Directors each receive an annual retainer of $16,000, payable quarterly. In
addition, non-employee Directors receive $1,000 for each Board of Directors
meeting or committee meeting attended or $600 for attending each committee
meeting that is held on the same day as a Board of Directors meeting or
meeting of another committee on which such Director serves.
Pursuant to the Ferrofluidics Corporation Amended and Restated 1995 Stock
Option and Incentive Plan (the "1995 Incentive Plan"), eligible non-employee
Directors are entitled to receive options to purchase shares of Common Stock in
accordance with the formula provisions thereof. Pursuant to the 1995 Incentive
Plan, on the date of approval of the 1995 Incentive Plan by stockholders at the
annual meeting of stockholders on November 15, 1995 (the "1995 Annual Meeting")
(i) Mr. Nichols was granted an option to purchase 8,350 shares of Common Stock
at an exercise price of $9.63 per share (100% of the fair market value of a
share of Common Stock on that date) and (ii) each of Messrs. Kamen and
Rittereiser was granted an option to purchase 6,100 shares of Common Stock at an
exercise price of $9.63 per share (100% of the fair market value of a share of
Common Stock on that date). These options vested and became immediately
exercisable upon the date of grant. In addition, under the 1995 Incentive Plan,
eligible non-employee Directors automatically receive an option to purchase
3,000 shares of Common Stock on the fifth business day after each annual meeting
of stockholders of the Company, commencing with the 1995 Annual Meeting.
Accordingly, on November 22, 1995, each of Messrs. Hazard, Stone, Nichols,
Rittereiser and Kamen were granted an option to purchase 3,000 shares of Common
Stock at an exercise price of $11.88. All such options vest and become
immediately exercisable upon grant and have an exercise price equal to 100% of
the fair market value of a share of Common Stock on the grant date.
Set forth below is certain information regarding the Directors of the
Company, including the three Class I Directors who have been nominated for
election at the Annual Meeting, based on information furnished by them to the
Company.
Director
Name Age Since
- ---- --- --------
Class I
Stephen B. Hazard* 51 1994
Dennis R. Stone* 49 1994
Salvatore J. Vinciguerra* 58 1996
Class II
Howard F. Nichols 68 1979
Robert P. Rittereiser 58 1989
Class III
Paul F. Avery, Jr. 67 1989
Dean Kamen 45 1989
- -------------
* Nominee for election.
Mr. Avery has been the Chairman of the Board of Directors of the Company
since October 1, 1993 and the Treasurer of the Company since October 7, 1993. He
served as Chief Executive Officer of the Company from October 1, 1993 until June
25, 1996 and as President of the Company from October 1, 1993 to January 1,
1995. He is also President of P.F. Avery Corporation, a management consulting
firm, a position he has held since 1983. From 1967 to 1983 he was President and
Treasurer of C.E. Avery, a wholly-owned subsidiary of Combustion Engineering,
Inc., and President and Chief Executive Officer of CE-KSB Pump Company, Inc.
Both companies were involved in the design and fabrication of pumps and reactor
internals for the utility industry. Mr. Avery is also general partner of a 3MW
hydro-electric facility in Nashua, New Hampshire, and serves as a director of
several privately held companies and as a trustee of New Hampshire Public Radio,
WEVO.
Mr. Vinciguerra has been the Chief Executive Officer of the Company since
June 26, 1996 and the President of the Company since January 1, 1995. He
served as the Chief Operating Officer of the Company from January
3
1, 1995 until June 25, 1996. Prior to January 1995, Mr. Vinciguerra was
President and Chief Executive Officer of Staveley, Inc., the United States
and Measurement Group headquarters of Staveley Industries, plc, a British
conglomerate. Until 1991, Mr. Vinciguerra was the President and Chief
Executive Officer of Weightronix, Inc., a manufacturer of industrial weighing
products. From 1968 until 1990, Mr. Vinciguerra held various positions at
Instron Corporation, including President and Chief Operating Officer from
1985 until 1990. Instron is a manufacturer of materials testing
instrumentation for international markets. Mr. Vinciguerra is a director of
Lytron Corporation, Holometrix Corporation and Saphikon, Inc., and is a
Director and former President of The Japan Society of Boston.
Mr. Hazard is founder and managing partner of the law firm of Pepe &
Hazard, Hartford, Connecticut. He is a director of First New England Capital,
L.P., a closely-held small business investment company. He is also a trustee
and a member of the executive committee of the Kingswood-Oxford School.
Mr. Kamen is the founder and Chairman and Chief Executive Officer of DEKA
Research and Development Corporation, which develops highly specialized medical
equipment. Mr. Kamen was the founder and, from 1976 to 1982, was the Chief
Executive Officer of Auto-Syringe, Inc., a manufacturer of medical devices that
was acquired by Baxter Healthcare Corporation. He is a member of the Board of
Directors of Sander's Prototype, Inc. and Zero Emissions Technology. He also
serves as a director of several privately-held companies.
Mr. Nichols is a consultant. Until July 1989, he was a Vice President of
The First National Bank of Boston, Trust Department. He also serves as a
director of several privately-held companies.
Mr. Rittereiser is Chairman of the Board of Directors and Chief Executive
Officer of Gruntal Financial Corp. He served as Chairman of the Board since
November 1992, a Director since 1990 and President and Chief Executive
Officer of Nationar, a banking services corporation, from March 1993 until
February 1995. Prior to March 1993, he was Chief Executive Officer and
President of the E.F. Hutton Group, Inc. until its merger with Shearson
Lehman Bros. Until June 1985, he was Executive Vice President, Chief
Administrative Officer and Chief of Staff to the President at Merrill Lynch &
Co., Inc., where he spent 26 years performing a wide range of management and
other responsibilities. He is also a member of the Board of Directors of
Wallace Computer Services Inc., CUC International, and Interchange Financial
Services.
Mr. Stone has been a practicing certified public accountant for 19 years.
Since 1989 he has been a principal in the firm of Dennis R. Stone, CPA,
Portsmouth, New Hampshire. From 1989 to 1991 he also served as Executive Vice
President and Chief Financial Officer of The Blake Insurance Group, Inc., of
Portsmouth, New Hampshire. From January 1980 to April 1989 he served as a
certified public accountant for Stone & Hart, P.A., Exeter, New Hampshire.
Mr. Stone has also served for the past 14 years as investigative auditor for
the New Hampshire Supreme Court Professional Conduct Committee. He is a
member of the Board of Directors of Odyssey House, Inc.
INFORMATION REGARDING EXECUTIVE OFFICERS
The names and ages of all executive officers of the Company and principal
occupation and business experience during at least the last five years for
each are set forth below.
Name Age Position
- ------------------------- --- ----------------------------------------------
Paul F. Avery, Jr. 67 Chairman of the Board and Treasurer
Salvatore J. Vinciguerra 58 President and Chief Executive Officer
William B. Ford 56 Vice President and Chief Financial Officer
Alvan F. Chorney 51 Vice President and General Manager--Components
Division
Thomas J. Uhlig 46 Vice President and General Manager--Systems
Division
Mr. Avery has held the position of Chairman of the Board of Directors of
the Company since October 1, 1993 and Treasurer of the Company since October
7, 1993. Mr. Avery served as Chief Executive Officer of the Company from
October 1, 1993 until June 25, 1996 and as President of the Company from
October 1, 1993 until January 1, 1995. Mr. Avery has also been a Director of
the Company since 1989. See "Information Regarding Directors" above.
Mr. Vinciguerra has held the position of Chief Executive Officer of the
Company since June 26, 1996, and the position of President of the Company
since January 1, 1995. Mr. Vinciguerra served as Chief Operating Officer of
the Company from January 1, 1995 until June 25, 1996. See "Information
Regarding Directors" above.
4
Mr. Ford has held the position of Vice President and Chief Financial
Officer of the Company since September 23, 1996. From November 1993 until
April 1995, Mr. Ford was Vice President and Chief Financial Officer of
Versyss Incorporated, a software developer and distributor of integrated
hardware and software systems for medical practice management and other small
business applications. From 1987 to November 1993, he was a Director in the
Financial Advisory Services consulting practice of Coopers & Lybrand L.L.P.
Mr. Chorney has held the position of Vice President and General
Manager--Components Division since April 19, 1996. Prior to that, Mr. Chorney
served as Senior Vice President of the Company from November 1991 to April
19, 1996. Mr. Chorney was also a Director of the Company from 1986 to April
1994.
Mr. Uhlig has held the position of Vice President and General
Manager--Systems Division since April 22, 1996. Before then, he served as
President of Johnstown America Corporation, a manufacturer of railroad
freight cars and components, from 1993 until April 22, 1996. From 1992 to
1993, he was Director of Manufacturing of The Timken Company, a manufacturer
of tapered roller bearings, and before that he was President of MPB
Corporation, a subsidiary of The Timken Company and a manufacturer of
precision ball and roller bearings.
EXECUTIVE COMPENSATION
The following sections of this Proxy Statement set forth and discuss the
compensation paid or awarded during the last three years to the Company's
Chief Executive Officer and the four most highly compensated executive
officers who earned in excess of $100,000 during fiscal 1996.
Summary Compensation Table
The following table shows for the fiscal years ended June 30, 1994, 1995
and 1996, the annual compensation paid by the Company to the Chief Executive
Officer and the four most highly compensated executive officers who earned in
excess of $100,000 during fiscal 1996.
Annual compensation
------------------------------------------------------------
(a) (b) (c) (d) (e)
Other Annual
Name and Compensation
Principal Position Year Salary($) (3) Bonus($) ($)
------------------------------------ ------------ -------------- ------------ ------------------
Salvatore J. Vinciguerra 1996 202,938 -- 6,839 (4)
Chief Executive Officer, 1995 92,500 -- --
President and Chief 1994 -- -- --
Operating Officer (1)
Paul F. Avery, Jr. 1996 223,931 -- 8,774 (4)
Chief Executive Officer, 1995 258,521 -- 8,207 (4)
Chairman of the Board 1994 255,760 -- 7,399 (4)
and Treasurer (2)
Alvan F. Chorney 1996 164,097 5,152 1,000 (5)
Vice President and 1995 150,000 8,000 1,000 (5)
General Manager-- 1994 150,000 -- 1,000 (5)
Components Division
Long Term Compensation
-----------------------------------------
Awards Payouts
--------------------------- ------------
(a) (f) (g) (h) (i)
Restricted Securities
Stock Underlying LTIP All Other
Name and Award(s) Warrants/ Payouts Compensation
Principal Position ($) Options(#) ($) ($)
------------------------------------ ------------ -------------- ------------ ------------------
Salvatore J. Vinciguerra -- 50,000(10) -- --
Chief Executive Officer, 450,000 (6) 50,000(10) -- --
President and Chief -- -- -- --
Operating Officer (1)
Paul F. Avery, Jr. -- 65,000(10) -- 16,400(11)
Chief Executive Officer, 106,875 (7) 65,000(10) -- 14,520(12)
Chairman of the Board 125,000 (8) -- -- 14,350(13)
and Treasurer (2)
Alvan F. Chorney -- -- -- --
Vice President and -- 25,000(10) -- --
General Manager-- 45,000 (9) -- -- --
Components Division
- -------------
5
(1) Salvatore J. Vinciguerra was the Chief Operating Officer from January 1,
1995 until June 25, 1996 and became the Chief Executive Officer on June
26, 1996.
(2) Paul F. Avery, Jr. held the position of Chief Executive Officer of the
Company from October 1, 1993 until June 25, 1996.
(3) Includes all voluntary pre-tax contributions to the Ferrofluidics
Corporation Tax Savings and Deposit and Investment Plan.
(4) This amount represents an automobile allowance.
(5) This amount represents an allowance for medical and health expenses
incurred by Mr. Chorney in excess of amounts covered by the Company's
group health plan.
(6) Represents 75,000 shares of restricted stock which had a market value as
of the date of grant of $450,000. The shares vest ratably over three
years beginning on January 1, 1996. If the Company pays dividends on its
Common Stock, dividends will also be paid on these shares. As of June
30, 1996, 50,000 of Mr. Vinciguerra shares remained restricted shares.
Based on the closing sale price of a share of Common Stock on the Nasdaq
National Market on June 30, 1996, Mr. Vinciguerra's 75,000 shares of
restricted stock had a market value of $1,012,500.
(7) Represents 15,000 shares of restricted stock which had a market value as
of the date of grant of $106,875. The shares vest ratably over three
years beginning on January 1, 1996. If the Company pays dividends on its
Common Stock, dividends will also be paid on these shares. As of June
30, 1996, 10,000 of Mr. Avery's shares remained restricted shares. Based
on the closing sale price of a share of Common Stock on the Nasdaq
National Market on June 30, 1996, Mr. Avery's 15,000 shares of
restricted stock had a market value of $202,500.
(8) Represents 25,000 shares of restricted stock which had a market value on
the date of grant of $125,000. The shares vest ratably over three years
beginning on April 5, 1995. If the Company pays dividends on its Common
Stock, dividends will also be paid on these shares. As of June 30, 1996,
8,333 of Mr. Avery's shares remained restricted shares. Based on the
closing sale price of a share of Common Stock on the Nasdaq National
Market on June 30, 1996, Mr. Avery's 25,000 shares of restricted stock
had a market value of $337,500.
(9) Represents 9,000 shares of restricted stock which had a market value on
the date of grant of $45,000. The shares vest ratably over three years
beginning on April 5, 1995. If the Company pays dividends on its Common
Stock, dividends will also be paid on these shares. As of June 30, 1996,
3,000 of Mr. Chorney's shares remained restricted shares. Based on the
closing sale price of a share of Common Stock on the Nasdaq National
Market on June 30, 1996, the market value of Mr. Chorney's 3,000 unsold
shares of restricted stock was $40,500.
(10) Represents stock options.
(11) This amount represents the full dollar value of insurance premiums paid
by the Company during the fiscal year ended June 30, 1996 on behalf of Mr.
Avery with respect to term life insurance.
(12) This amount represents the full dollar value of insurance premiums paid
by the Company during the fiscal year ended June 30, 1995 on behalf of Mr.
Avery with respect to term life insurance.
(13) This amount represents the full dollar value of insurance premiums paid
by the Company during the fiscal year ended June 30, 1994 on behalf of Mr.
Avery with respect to term life insurance.
6
Option Grants in Last Fiscal Year
The following table sets forth each grant of stock options during fiscal
1996 to the Chief Executive Officer and each other executive officer named in
the Summary Compensation Table. No stock appreciation rights ("SARs") have
been granted.
Potential
Realizable Value
at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term (3)
----------------------------------------------------------------------- -----------------------
(a) (b) (c) (d) (e) (f) (g)
Number of
Securities
Underlying
Options % of Total Options/SARs Exercise or
Granted Granted to Employees in Base Price Expiration
Name (#) (1) Fiscal Year (2) ($/Sh) Date 5%($) 10%($)
---------------------- ------------ ----------------------- ----------- ---------- --------- ------------
Salvatore J.
Vinciguerra 50,000 (4) 24.15% $13.00 5/17/2006 408,782 1,035,933
Paul F. Avery, Jr. 65,000 (4) 31.39% $13.00 5/17/2006 531,416 1,346,712
Alvan F. Chorney -- -- -- -- -- --
- -------------
(1) All options were granted pursuant to the 1995 Incentive Plan.
(2) Percentages are based on a total of 207,050 shares of Common Stock
underlying all options granted to employees of the Company in fiscal
1996.
(3) Represents the value of the options granted at the end of the option
terms if the price of the Company's Common Stock were to appreciate
annually by 5% and 10% respectively. There is no assurance that the stock
price will appreciate at the rates shown in the table. If the stock price
appreciates, the value of stock held by all shareholders will increase.
(4) Such option vests and becomes exercisable ratably over four years
beginning on May 17, 1998.
Aggregated Option/Warrant Exercises in Last Fiscal Year and Fiscal Year End
Values
The following table sets forth the shares acquired and the value realized
upon exercise of stock options and stock purchase warrants during fiscal 1996
by the Chief Executive Officer and each other executive officer named in the
Summary Compensation Table and certain information concerning the number and
value of unexercised stock options and warrants. There are currently no
outstanding SARs.
(a) (b) (c) (d) (e)
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/Warrants at Options/Warrants at FY-End($)
FY-End(#) (1)
--------------------------- -------------------------------
Shares
Acquired on Value
Name Exercise (#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
---------------------- ------------ ----------- ------------ -------------- -------------- ----------------
Salvatore J.
Vinciguerra -- -- 12,500 (3) 87,500 (3) 48,375 170,125
Paul F. Avery, Jr. -- -- 3,500 (2) -- 0 0
20,000 (3) 110,000 (3) 77,400 206,650
Alvan F. Chorney -- -- 90,000 (2) -- 87,500 0
6,250 (3) 18,750 (3) 24,188 72,563
- -------------
(1) Equal to the market value of shares covered by in-the-money
options/warrants on June 30, 1996, less the aggregate options/warrant
exercise price. Options/warrants are in-the-money if the market value of
the shares covered thereby is greater than the options/warrant exercise
price.
(2) Represents stock purchase warrants.
(3) Represents stock options granted pursuant to the 1995 Incentive Plan.
7
Report of the Compensation Committee of the Board of Directors on Executive
Compensation
The members of the Compensation Committee of the Board of Directors of the
Company, whose names are set forth below, have prepared the following report
on the Company's executive compensation policies and philosophy for fiscal
1996.
General
The Compensation Committee consists of Mr. Rittereiser and Mr. Hazard,
both of whom are non-employee Directors. The Compensation Committee is
generally responsible for developing the Company's executive and management
compensation policies, including awards of equity-based compensation. The
Company's executive compensation program is designed to provide competitive
levels of compensation, reward above-average individual performance and
assist the Company in attracting and retaining qualified management. Where
applicable, the Compensation Committee takes into account employment
agreements between an executive officer and the Company. See "Employment
Agreements" below. Mr. Avery, the Chief Executive Officer of the Company from
October 1, 1993 until June 25, 1996 and the Chairman of the Board of
Directors and Treasurer of the Company, and Mr. Vinciguerra, the current
Chief Executive Officer and President of the Company, make general
recommendations to and review with the Compensation Committee salary
increases and bonus compensation of executive officers and employees other
than themselves.
Compensation Policy Review
During fiscal 1995, the Compensation Committee, together with certain
members of management and the Board of Directors, completed a review of the
Company's policies regarding executive compensation. The Compensation
Committee's primary objectives in evaluating the executive compensation
philosophy were to (i) review base salaries, cash bonuses and short-term and
long-term incentives for executive officers based upon a survey of
compensation for executive officers in a group of comparable high-technology
companies, and (ii) to develop an appropriate methodology for structuring
long-term incentive awards to ensure that such awards more closely align the
interests of the executive officers with those of the Company's stockholders.
To accomplish the aforementioned objectives and goals, the Compensation
Committee retained an independent compensation consulting firm (the
"Consultant") which conducted a survey of executive compensation levels and
practices of companies within a proxy peer group (the "Peer Group") of
companies of similar size to the Company. The Peer Group consisted of seven
companies in the specialty machinery industry having annual revenues of $30
million to $50 million. Based upon the results of the Consultant's survey,
the Compensation Committee made certain adjustments to the Company's
compensation policies during fiscal 1996 which are discussed below.
Compensation Policies for Executive Officers
Base Salary. The annual base salary and base salary adjustments for
executive officers are determined by the Compensation Committee in its
discretion and are targeted according to the salaries of executives holding
similar offices and having similar responsibilities within the Company's
industry segment. The Compensation Committee also considers factors such as
industry experience and executive retention. Annual salary adjustments for
executive officers are determined by evaluating the competitive marketplace, the
performance of the Company, the performance of the executive officer and any
change in the responsibilities assumed by the executive officer. Salary
adjustments are normally determined and made on an annual basis. The base
salaries of Paul F. Avery, Jr., the Chief Executive Officer of the Company from
October 1, 1993 until June 25, 1996, and Salvatore J. Vinciguerra, the current
Chief Executive Officer and the President of the Company, were established
pursuant to employment agreements with the Company, which are described below in
"Employment Agreements," and were based on the foregoing criteria.
Cash Bonuses. As a result of the Compensation Committee's review of
executive compensation policies, the Compensation Committee recommended that
the Company adopt a cash incentive program (the "Cash Incentive Plan") to
better align the Company's total cash compensation for its executives with
the median of the Consultant's survey of the Peer Group. The Cash Incentive
Plan, which became effective on July 1, 1995, is intended to encourage,
recognize and reward performance by executives by providing cash compensation
based upon the achievement of a pre-determined annual operating budget and a
combination of quantitative and qualitative measures (the relative weights of
which are determined in the sole discretion of the Compensation Committee
when it performs its performance review), including orders received (for
marketing managers), percent defect rate (for production managers),
timeliness and quality of monthly reporting (for accounting managers) and
effectiveness of improvement projects (for all managers). The annual
operating budget is determined by the Compensation Committee and the Board of
Directors prior to the beginning of the fiscal year and the total pool from
which cash incentives may be awarded under the plan is formed based upon the
achievement of the operating profits contained in the annual operating
budget. The Chairman of the Board of Directors and the Chief Executive
Officer are eligible to receive up
8
to 35% of their respective base salaries depending upon the extent to which
the operating profits contained in the annual operating budget are achieved,
while executive officers other than the Chairman of the Board of Directors and
the Chief Executive Officer are eligible to receive up to either 20% or 25% of
their respective base salaries depending upon the extent to which the operating
profits contained in the annual operating budget are achieved.
Based upon the foregoing criteria, no executive officers of the Company
received a cash bonus for fiscal 1996 performance. Although cash bonuses
generally are awarded pursuant to the Cash Incentive Plan, the Compensation
Committee, in its discretion, may award a cash bonus to an executive officer for
outstanding performance based upon individual performance reviews (which may or
may not take into account specific performance measures relative to that
executive officer), retention considerations and general industry practice.
During fiscal 1996, the Compensation Committee exercised its discretion and
awarded cash bonuses outside of the Cash Incentive Plan in the amount of $5,152
to Mr. Chorney and $2,344 to Mr. Uhlig in view of their individual performances
in fiscal 1996.
Equity and Equity-Based Incentives. Equity and equity-based incentive
awards are designed to attract and retain executives who can make significant
contributions to the Company's success; reward executives for such
significant contributions; and give executives a longer-term incentive to
increase shareholder value. The size and frequency of equity and equity-based
incentive awards are determined by the Compensation Committee in its
discretion, taking into account individual performance and responsibilities,
but without any specific performance measures. The Compensation Committee
also may grant stock options for executive retention purposes, taking into
account, among other things, general industry practice. To ensure that high
levels of performance occur over the long-term, stock options granted to
executives typically vest over a period of time. All outstanding options have
been granted with an exercise price equal to 100% of the fair market value of
the Company's Common Stock on the grant date.
The 1995 Incentive Plan is the principal vehicle by which the Company
intends to achieve the executive compensation policy objective of providing
long-term incentives to executive officers that will more closely align the
interests of such executives with those of the Company's stockholders.
Pursuant to the 1995 Incentive Plan, the Compensation Committee may grant a
variety of long-term incentive awards based on the Common Stock of the
Company, including stock options (both incentive options and non-qualified
options), SARs, restricted stock, unrestricted stock, performance shares and
dividend equivalent rights. In fiscal 1996, Mr. Vinciguerra and Mr. Avery
were granted options to purchase 50,000 and 65,000 shares of Common Stock,
respectively. These options vest and become exercisable ratably over four
years beginning on May 17, 1998. In recognition of Mr. Vinciguerra's and Mr.
Avery's performance during fiscal 1996, the Compensation Committee viewed
these awards as appropriate to their compensation and retention by the
Company. In addition, in fiscal 1996, Mr. Uhlig was granted an option to
purchase 15,000 shares of Common Stock in connection with the commencement of
his employment with the Company. This option vests and becomes exercisable
ratably over four years beginning on April 22, 1997.
At its discretion, under the Ferrofluidics Corporation Amended and
Restated 1994 Restricted Stock Plan (the "1994 Restricted Stock Plan"), the
Compensation Committee may also award restricted stock bonuses to executive
officers and other key employees. Shares of restricted stock granted to
executive officers under the 1994 Restricted Stock Plan vest over a period of
time and are subject to forfeiture in the event an officer's employment with
the Company terminates prior to vesting. Shares of restricted stock are not
transferable prior to vesting. During fiscal 1996, Mr. Uhlig was granted
10,000 shares of restricted stock in connection with the commencement of his
employment with the Company. These shares vest ratably over three years
beginning on April 22, 1997.
Any value received by an executive officer from a stock option grant and
any increase in the value of stock received as a bonus depends entirely on
increases in the price of the Company's Common Stock.
Other Compensation. The Company provides executive officers and management
with health, retirement and other benefits under plans that are generally
available to the Company's employees.
Compensation of the Chief Executive Officer
Mr. Paul F. Avery, Jr., former Chief Executive Officer. Mr. Avery, who was
the Chief Executive Officer of the Company from October 1, 1993 until June
25, 1996, has an employment agreement with the Company, the terms of which
are described below under "Employment Agreements." Mr. Avery's base salary
was established pursuant to the criteria described above in "Base Salary." As
a result of favorable performance reviews, in fiscal 1996, the Compensation
Committee awarded Mr. Avery an option to purchase 65,000 shares of Common
Stock which vests and becomes exercisable ratably over four years beginning
on May 17, 1998.
Mr. Salvatore J. Vinciguerra, current Chief Executive Officer. Mr.
Vinciguerra, who became the Chief Executive Officer of the Company on June
26, 1996, has an employment agreement with the Company, the terms of which
9
are described below under "Employment Agreements." Mr. Vinciguerra's base
salary was established pursuant to the criteria described above in "Base
Salary." As a result of favorable performance reviews, in fiscal 1996, the
Compensation Committee awarded Mr. Vinciguerra an option to purchase 50,000
shares of Common Stock which vests and becomes exercisable ratably over four
years beginning on May 17, 1998.
Federal Tax Regulations Applicable to Executive Compensation
As a result of Section 162(m) of the Internal Revenue Code (the "Code"),
the Company's deduction of executive compensation may be limited to the
extent that a "covered employee" (i.e., the chief executive officer or one of
the four highest compensated officers who is employed on the last day of the
Company's taxable year and whose compensation is reported in the summary
compensation table in the Company's proxy statement) receives compensation in
excess of $1,000,000 in such taxable year of the Company (other than
performance-based compensation that otherwise meets the requirements of
Section 162(m) of the Code). The Company intends to take appropriate action
to comply with such regulations, if applicable, in the future.
Robert P. Rittereiser, Chairman Stephen B. Hazard
Compensation Committee Interlocks and Insider Participation
Mr. Vinciguerra, the President and Chief Executive Officer of the Company,
and Mr. Avery, the Chairman of the Board of Directors and Treasurer of the
Company, make general recommendations to and review with the Compensation
Committee the salary increases and bonus compensation of executives and
management other than themselves.
Employment Agreements
Avery Employment Agreements
---------------------------
The Company and Mr. Avery, who was the Chief Executive Officer of the
Company from October 1, 1993 until June 25, 1996, entered into an employment
agreement on April 1, 1995 (the "1995 Avery Employment Agreement") that
provided for Mr. Avery's employment as Chief Executive Officer of the Company
for two years at a salary of $225,000 per year through March 31, 1996, and a
salary of $200,000 per year from April 1, 1996 through March 31, 1997,
subject to (i) automatic one-year extensions unless either Mr. Avery or the
Company provides 60 days' notice prior to the end of the initial term or any
subsequent one-year term, and (ii) earlier termination for death, disability,
cause, upon 60 days' notice by Mr. Avery, or at any time by the Company upon
60 days' notice. Pursuant to the 1995 Avery Employment Agreement, the Company
is required to, among other things, (i) reimburse Mr. Avery for all
reasonable business expenses incurred by Mr. Avery in the performance of his
duties, (ii) provide Mr. Avery with an automobile for business and personal
use and pay or reimburse Mr. Avery for all expenses associated therewith, and
(iii) maintain insurance on Mr. Avery's life in the amount of $2,000,000,
payable as directed by Mr. Avery, until April 1, 1997. Pursuant to the 1995
Avery Employment Agreement, Mr. Avery received 15,000 shares of restricted
stock on April 1, 1995. In addition, Mr. Avery is entitled to participate in
the health, welfare, retirement and other fringe benefit plans which the
Company makes available to management from time to time.
Pursuant to the 1995 Avery Employment Agreement, if Mr. Avery's employment
is terminated for reasons other than for cause or other than in the event of
a change in control of the Company, Mr. Avery is entitled to an amount equal
to the greater of (i) the aggregate base salary which Mr. Avery would have
received had he been employed by the Company through March 31, 1997 and (ii)
twelve months' base salary at the rate then in effect under the 1995 Avery
Employment Agreement. If Mr. Avery dies or becomes disabled during the term
of the 1995 Avery Employment Agreement, Mr. Avery's employment immediately
terminates and he is entitled to any earned but unpaid salary. If the Company
undergoes a change in control (as defined in the 1995 Avery Employment
Agreement), and Mr. Avery is terminated, voluntarily or involuntarily, other
than for cause within twenty-four months after the date such change in
control occurs, Mr. Avery is entitled to receive an amount equal to
twenty-four months' base salary at the rate then in effect under the 1995
Avery Employment Agreement.
On May 17, 1996, the Company and Mr. Avery entered into an Amended and
Restated Employment Agreement (the "Amended and Restated Avery Employment
Agreement") which amended and restated the 1995 Avery Employment Agreement.
Pursuant to the Amended and Restated Avery Employment Agreement, Mr. Avery
maintains his positions as Chairman of the Board of Directors and Treasurer
of the Company, but is no longer the Chief Executive Officer of the Company.
In addition, pursuant to the Amended and Restated Avery Employment Agreement,
Mr. Avery received an option to purchase 65,000 shares of the Company's
Common Stock which vests and becomes exercisable ratably over four years
beginning on May 17, 1998. See "Report of the Compensation Committee of the
Board of Directors on Executive Compensation--Compensation of the Chief
Executive Officer." All other provisions of the 1995 Avery Employment Agreement
remain in effect.
10
Vinciguerra Employment Agreements
---------------------------------
The Company and Mr. Vinciguerra, who became President and Chief Operating
Officer of the Company on January 1, 1995, entered into an employment
agreement (the "Vinciguerra Employment Agreement") that provides for Mr.
Vinciguerra's employment as President and Chief Operating Officer of the
Company at a salary of $185,000 per year, subject to an increase to $200,000
per year upon six (6) months of satisfactory performance, as determined by
the Chief Executive Officer. Pursuant to the Vinciguerra Employment
Agreement, Mr. Vinciguerra received 75,000 shares of restricted stock on
January 1, 1995, which vest ratably over three years beginning January 1,
1996. Pursuant to the Vinciguerra Employment Agreement, the Company is
required to reimburse Mr. Vinciguerra for all reasonable business expenses
incurred by Mr. Vinciguerra in the performance of his duties. In addition,
Mr. Vinciguerra is entitled to participate in the health, welfare, retirement
and other fringe benefit plans which the Company makes available to
management from time to time.
Pursuant to the Vinciguerra Employment Agreement, Mr. Vinciguerra is
entitled to a severance payment of six months' salary if he was employed for
less than six months and twelve months' salary if he was employed for more
than six months. If Mr. Vinciguerra dies or becomes disabled during the term
of the Vinciguerra Employment Agreement, Mr. Vinciguerra's employment
immediately terminates and he is entitled to any earned but unpaid salary. If
the Company undergoes a change in control (as defined in the Vinciguerra
Employment Agreement) and Mr. Vinciguerra (i) is terminated by the Company or
its successor for any reason other than death, disability or cause, or (ii)
resigns because (A) there occurs a significant change in the nature or scope
of Mr. Vinciguerra's responsibilities, authorities, powers, functions or
duties as compared to the responsibilities, authorities, powers, functions or
duties exercised by Mr. Vinciguerra prior to the change in control, (B) Mr.
Vinciguerra is required to relocate outside of his current county of
residence in order to maintain his employment after the change in control or
(C) there is a decrease in the total annual compensation payable to Mr.
Vinciguerra after the change in control, then Mr. Vinciguerra is entitled to
an amount equal to eighteen months' base salary at the rate then in effect
under the Vinciguerra Employment Agreement. If terminated for reasons other
than for cause, the Company is required to continue to pay Mr. Vinciguerra
his salary and other benefits through the end of the term.
On May 17, 1996, the Company and Mr. Vinciguerra entered into an Amended
and Restated Employment Agreement (the "Amended and Restated Vinciguerra
Employment Agreement") which amended and restated the Vinciguerra Employment
Agreement. Pursuant to the Amended and Restated Vinciguerra Employment
Agreement, Mr. Vinciguerra was named as the Chief Executive Officer of the
Company, but is no longer the Chief Operating Officer of the Company. In
addition, pursuant to the Amended and Restated Vinciguerra Employment
Agreement, Mr. Vinciguerra received an option to purchase 50,000 shares of
the Company's Common Stock which vests and becomes exercisable ratably over four
years beginning on May 17, 1998. See "Report of the Compensation Committee of
the Board of Directors on Executive Compensation--Compensation of the Chief
Executive Officer." All other provisions of the Vinciguerra Employment Agreement
remain in effect.
Chorney Severance Agreement
---------------------------
The Company has an agreement with Mr. Chorney, dated October 1, 1993, that
provides Mr. Chorney with certain severance benefits in the event that his
employment is terminated by the Company other than by reason of death,
disability or cause. Pursuant to this agreement, if Mr. Chorney's employment
is terminated other than for any of the aforementioned reasons, he is
entitled to receive for a period of eighteen months an aggregate amount equal
to the greater of (i) $225,000 and (ii) the annual base salary which he would
have received over an eighteen-month period commencing on the date of such
termination.
11
Stockholder Return Performance Graph
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total stockholder return on the Company's Common Stock, based
on the market price of the Company's Common Stock and assuming reinvestment
of dividends, with the cumulative total return of companies within the Nasdaq
Stock Market and the companies within the Dow Jones Industrial Technology
Index. The calculation of total cumulative return assumes a $100 investment
in the Company's Common Stock, the Nasdaq Stock Market and the Dow Jones
Industrial Technology Index on July 1, 1991. The comparisons in this table
are historical and are not intended to forecast or be indicative of possible
future performance of the Common Stock of the Company.
[DATA FOR STOCKHOLDER RETURN PERFORMANCE GRAPH]
DJIT NASDAQ FERO
"6/28/91" 100 100 100
97.38 111.6 128.89
"12/31/91" 101.4 125.03 124.44
104.86 128.95 157.78
"6/30/92" 98.05 120.13 155.56
100.71 125.07 120
"12/31/92" 103.11 145.5 153.33
93.84 148.23 148.89
"6/30/93" 93.6 151.08 120
98.55 163.81 71.11
"12/30/93" 100.66 167.03 55.56
98.56 160 45.56
"6/30/94" 101.47 152.52 46.67
110.19 165.15 51.11
"12/30/94" 107.36 163.27 53.33
125.24 177.99 63.33
"6/30/95" 144.54 203.59 85.56
138.33 228.1 106.67
"12/29/95" 149.58 230.87 93.33
142.28 241.63 88.89
"6/28/96" 142.97 261.37 120
12
LEGAL PROCEEDINGS
On February 19, 1993, the Company received an informal inquiry letter from
the Securities and Exchange Commission (the "SEC") requesting that the
Company provide the SEC with all documents concerning publicity relating to
the Company for the period of January 1, 1992 to February 19, 1993. In August
1993, the SEC issued an order directing a private investigation to determine
whether certain unnamed persons had violated or caused the Company to violate
the federal securities laws. Among the areas of inquiry identified in the
order was whether publicity about the Company, including research reports,
were published without fully disclosing consideration given or received
therefor. The order also indicates that the inquiry would examine possible
manipulation by certain unnamed persons of the Company's securities, payment
in connection therewith, and failure to disclose such activities in public
filings made by the Company, including the financial statements contained or
incorporated therein, as well as possible nondisclosure of transactions with
the Company in which such persons may have had a material interest. The
Company continues to cooperate fully with the SEC's investigation.
PRINCIPAL AND MANAGEMENT STOCKHOLDERS
The following table sets forth, to the best knowledge and belief of the
Company, certain information regarding the beneficial ownership of the
Company's Common Stock as of October 2, 1996 by (i) each person known by the
Company to be the beneficial owner of more than 5% of the outstanding Common
Stock, (ii) each of the Company's Directors and nominees, (iii) each of the
named executive officers in the Summary Compensation Table and (iv) all of
the Company's executive officers and Directors as a group.
Shares
Beneficially Percent of
Directors, Executive Officers and 5% Stockholders Owned (1) Class (2)
- ----------------------------------------------------------------- -------------- ------------
Pioneering Management Corporation 613,800 (3) 10.12%
60 State Street
Boston, MA 02114
Paul F. Avery, Jr. 71,500 (4) 1.17%
Salvatore J. Vinciguerra 107,500 (5) 1.77%
Alvan F. Chorney 99,250 (6) 1.61%
Howard F. Nichols 32,725 (7) *
Dean Kamen 13,350 (8) *
Robert P. Rittereiser 13,350 (9) *
Stephen B. Hazard 6,000 (10) *
Dennis R. Stone 8,100 (11) *
All directors and executive officers as a group (10 persons) 361,775 (12) 5.78%
- -------------
* Less than 1%.
(1) Beneficial share ownership is determined pursuant to Rule 13d-3 under
the Securities Exchange Act of 1934, as amended. Accordingly, a beneficial
owner of a security includes any person who, directly or indirectly,
through any contract, arrangement, understanding, relationship or otherwise
has or shares the power to vote such security or the power to dispose of
such security. The amounts set forth above as beneficially owned include
shares of Common Stock owned, if any, by spouses and relatives living in
the same home as to which beneficial ownership may be disclaimed. The
amounts set forth above as beneficially owned also include shares of Common
Stock which such persons had the right to acquire within 60 days of October
2, 1996, pursuant to stock purchase warrants and stock options.
(2) Percentages are calculated on the basis of 6,064,708 shares of Common
Stock outstanding of October 2, 1996, together with applicable stock
options and stock purchase warrants for each stockholder.
(3) Based on a Schedule 13G, dated January 8, 1996, filed with the SEC and
other information available to the Company. Pioneering Management
Corporation has sole voting power with respect to all 613,800 shares.
(4) Includes 18,334 shares of restricted stock which are subject to vesting
and certain other restrictions pursuant to the 1994 Restricted Stock
Plan. Also includes 3,500 shares of Common Stock which Mr. Avery may
acquire upon the exercise of stock purchase warrants, and 20,000 shares
of Common Stock which Mr. Avery may acquire upon the exercise of stock
options, within 60 days of October 2, 1996.
(5) Includes 50,000 shares of restricted stock which are subject to vesting
and certain other restrictions pursuant to the 1994 Restricted Stock
Plan. Also includes 12,500 shares of Common Stock which Mr. Vinciguerra
may acquire upon the exercise of stock options within 60 days of October
2, 1996.
13
(6) Includes 3,000 shares of restricted stock which are subject to vesting
and certain other restrictions pursuant to the 1994 Restricted Stock
Plan. Also includes 90,000 shares of Common Stock which Mr. Chorney may
acquire upon the exercise of stock purchase warrants, and 6,250 shares
of Common Stock which Mr. Chorney may acquire upon the exercise of stock
options, within 60 days of October 2, 1996.
(7) Includes 16,000 shares of Common Stock which Mr. Nichols may acquire
upon the exercise of stock purchase warrants, and 11,350 shares of
Common Stock which Mr. Nichols may acquire upon the exercise of stock
options, within 60 days of October 2, 1996.
(8) Includes 3,500 shares of Common Stock which Mr. Kamen may acquire upon
the exercise of stock purchase warrants, and 9,100 shares of Common
Stock which Mr. Rittereiser may acquire upon the exercise of stock
options, within 60 days of October 2, 1996.
(9) Includes 3,500 shares of Common Stock which Mr. Rittereiser may acquire
upon the exercise of stock purchase warrants, and 9,100 shares of Common
Stock which Mr. Rittereiser may acquire upon the exercise of stock
options, within 60 days of October 2, 1996.
(10) Includes 3,000 shares of Common Stock which Mr. Hazard may acquire upon
the exercise of stock options within 60 days of October 2, 1996.
(11) Includes 3,000 shares of Common Stock which Mr. Stone may acquire upon
the exercise of stock options within 60 days of October 2, 1996.
(12) Includes 81,334 shares of restricted stock which are subject to vesting
and certain other restrictions pursuant to the 1994 Restricted Stock
Plan. Also includes 116,500 shares of Common Stock which may be acquired
by such persons upon the exercise of stock purchase warrants, and 74,300
shares of Common Stock which may be acquired by such persons upon the
exercise of stock options, within 60 days of October 2, 1996.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company's Directors, executive officers and beneficial owners of more
than 10% of its Common Stock are required under Section 16(a) of the Securities
Exchange Act of 1934, as amended, to file reports of ownership and changes in
ownership with the SEC. Copies of those reports must also be furnished to the
Company. Based solely on a review of the copies of reports furnished to the
Company and written representations that no other reports were required, the
Company believes that during fiscal 1996 no person who was a Director, executive
officer or greater than 10% beneficial owner of the Company's Common Stock
failed to file on a timely basis all reports required by Section 16(a), except
in the case of certain reports of Dennis R. Stone, which were inadvertently
filed late.
MARKET VALUE
On October 2, 1996, the closing sale price of a share of the Company's
Common Stock on the Nasdaq National Market was $8.75.
SUBMISSION OF STOCKHOLDER PROPOSALS FOR THE 1996 ANNUAL MEETING
Stockholder proposals intended to be presented at the next annual meeting
of stockholders must be received by the Company on or before June 18, 1997 in
order to be considered for inclusion in the Company's proxy statement. Such a
proposal must also comply with the requirements as to form and substance
established by the SEC in order to be included in the proxy statement and
should be directed to: Clerk, Ferrofluidics Corporation, 40 Simon Street,
Nashua, New Hampshire 03061.
The Company's By-laws provide that any stockholder of record wishing to
have a stockholder proposal considered at an annual meeting must provide
written notice of such proposal and appropriate supporting documentation, as
set forth in the By-laws, to the Company at its principal executive office
not less than 75 days nor more 120 days prior to the anniversary date of the
immediately preceding annual meeting (the "Anniversary Date"); provided,
however, that in the event the annual meeting is scheduled to be held on a
date more than 30 days before or more than 60 days after the Anniversary
Date, notice must be so delivered not later than the close of business on the
later of (i) the 75th day prior to the scheduled date of such annual meeting
or (ii) the 15th day after public disclosure of the date of such meeting.
14
INDEPENDENT AUDITORS
The Board of Directors has selected the firm of Ernst & Young LLP,
independent auditors, as the auditors of the financial statements of the
Company and its subsidiaries for its current year ending June 30, 1997. The
firm of Coopers & Lybrand L.L.P. served as the auditors of the Company for
fiscal 1996 until November 21, 1995, at which time their engagement was
terminated. On December 13, 1995, the Company engaged Ernst & Young LLP as
their independent auditors for the remainder of fiscal 1996. A member of
Ernst & Young LLP will be present at the Annual Meeting and will be given the
opportunity to make a statement and to answer any questions any stockholder
may have with respect to the financial statements of the Company for the
fiscal year ended June 30, 1996.
The following disclosure appeared in the Company's Current Report on Form
8-K filed with the SEC on November 28, 1995:
On November 21, 1995, the Company terminated the appointment of Coopers &
Lybrand L.L.P. as independent accountants for the Company. The decision not
to renew the engagement of Coopers & Lybrand L.L.P. followed a determination
by management and the Audit Committee, approved by the Board of Directors,
that it was in the interest of the Company to periodically review the
relationship between the Company and its independent accounting firm with
respect to services provided and fees charged. For the fiscal year ended June
30, 1995 and several years prior thereto Coopers & Lybrand L.L.P. had
examined and reported upon the Company's financial statements and had served
as the Company's independent accountants. The Company has not yet engaged an
independent accounting firm to perform the audit for the fiscal year ending
June 30, 1996, but has received proposals from certain accounting firms and
expects to make a decision shortly.
In connection with the audits of the two fiscal years ended June 30, 1994
("fiscal 1994") and June 30, 1995 ("fiscal 1995"), and during the subsequent
interim period through November 21, 1995, there were no disagreements with
Coopers & Lybrand L.L.P. on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to the their satisfaction would have caused
them to make reference in connection with their opinion to the subject matter
of the disagreement.
The audit reports of Coopers & Lybrand L.L.P. on the consolidated financial
statements of the Company for fiscal 1994 and fiscal 1995 did not contain any
adverse opinion or disclaimer of opinion, nor were they qualified or modified
as to uncertainty, audit scope, or accounting principles, except as follows.
In the Report of Independent Accountants furnished to the Company by Coopers
& Lybrand L.L.P. on January 26, 1994, in connection with the audit for the
fiscal year ended June 30, 1993 ("fiscal 1993"), Coopers & Lybrand L.L.P.
stated, among other things, that based upon their understanding of the
underlying circumstances leading to the departure of the Company's former
chief executive officer and chief financial officer subsequent to June 30,
1993, Coopers & Lybrand L.L.P. could not rely on those individuals'
representations nor could Coopers & Lybrand L.L.P. be certain that they had
been provided with all appropriate documentation relevant to the transactions
which such individuals had initiated or for which they were responsible, and
accordingly, that the scope of Coopers & Lybrand L.L.P.'s work was not
sufficient to enable them to express, and they did not express, an opinion on
the consolidated statements of operations, stockholders' equity and cash
flows for any of the three years in the period ended June 30, 1993. The
Report of Independent Accountants furnished to the Company by Coopers &
Lybrand L.L.P. on each of October 20, 1994 and August 31, 1995, in connection
with the audits for fiscal 1994 and fiscal 1995, respectively, contains
similar disclosure as to the inability of Coopers & Lybrand L.L.P. to express
an opinion on the consolidated statements of operations, stockholders' equity
and cash flows for the years ended June 30, 1993 and June 30, 1992 in the
case of the October 20, 1994 report, and June 30, 1993 in the case of the
August 31, 1995 report.
The inability of Coopers & Lybrand L.L.P. to express an opinion in
connection with certain financial statements of the Company and to rely upon
the representations of former management relates only to fiscal 1993, and, as
stated by Coopers & Lybrand L.L.P. in their audit reports, resulted from the
circumstances which led to the departure of the former chief executive
officer and the former chief financial officer from the Company during fiscal
1994. Prior to the rendering by Coopers & Lybrand L.L.P. of their audit
report for fiscal 1993, certain members of the Board of Directors and the new
management of the Company discussed with Coopers & Lybrand L.L.P. the nature
and scope of such audit report. The Company has authorized Coopers & Lybrand
L.L.P. to respond fully to the inquiries of the Company's successor
accountants concerning the subject matter of the fiscal 1993 audit report.
In a letter dated August 9, 1994 (the "August 1994 Letter"), Coopers &
Lybrand L.L.P. noted that certain elements of the Company's internal control
structure under prior management which were previously communicated to the
Company did not reduce to a relatively low level the risk that errors or
irregularities in amounts that would be material in relation to the financial
statements being audited may occur and not be detected within a timely period
by employees in the normal course of performing their assigned functions.
Certain members of the Board of Directors and the new management of the
Company have discussed with Coopers & Lybrand L.L.P. the matters indentified
in the August 1994 Letter, and, subsequent to receiving the August 1994
Letter, the Company believes that it has taken such actions as were necessary
to cure any potential material weaknesses in its internal accounting control
structure which may have resulted from actions taken by prior management. The
Company has authorized Coopers & Lybrand L.L.P. to respond fully to the
inquiries of the Company's successor accountants concerning the subject
matter of the August 1994 Letter. As noted below, the Report of Independent
Accountants furnished to the Company by Coopers & Lybrand L.L.P. on August
31, 1995, in connection with the audit for fiscal 1995, does not contain any
adverse opinion or disclaimer of opinion, or qualification or modification as
to uncertainty, audit scope, or accounting principles with respect to the
financial statements for fiscal 1995 or fiscal 1994. Except as provided
above, Coopers & Lybrand L.L.P. has not advised the Company of any inability
to rely upon management's representations nor have there been any other
reportable events of the type required to be disclosed pursuant to the
applicable regulations of the Securities and Exchange Commission.
Additionally, in the Report of Independent Accountants furnished to the
Company by Coopers & Lybrand L.L.P. on October 20, 1994, in connection with
the audit for fiscal 1994, Coopers & Lybrand L.L.P. stated, among
15
other things, that because of the inherent uncertainty associated with the
valuations of foreign privately held entities, the estimated fair value
reflected in the financial statements of a $3,669,000 investment by the
Company in a foreign entity may differ from the value that would be
determined by negotiation between parties in a sales transaction, and the
difference could be material. As a result of a violation at that time of a
covenant contained in the Company's 1986 Industrial Revenue Bond, Coopers &
Lybrand L.L.P. also stated in its fiscal 1994 audit report that the financial
statements had been prepared assuming that the Company would continue as a
going concern; that if the Company were unable to resolve this violation it
could result in a default under the Company's 1986 Industrial Revenue Bond
and the Company's domestic credit facility which, in turn, could result in
the acceleration of all amounts due under these debt obligations; that the
situation raised substantial doubt about the Company's ability to continue as
a going concern; that in recognition of the situation all amounts due under
these debt obligations were classified as current liabilities in the
financial statements; and that the financial statements did not include any
other adjustments that might result from the outcome of this uncertainty.
The Report of Independent Accountants furnished to the Company by Coopers &
Lybrand L.L.P. on August 31, 1995, in connection with the audit for fiscal
1995, does not contain any adverse opinion or disclaimer of opinion, or
qualification or modification as to uncertainty, audit scope, or accounting
principles with respect to the financial statements for fiscal 1995 or fiscal
1994.
OTHER MATTERS
The Board of Directors does not know of any matters other than those
described in this Proxy Statement that will be presented for action at the
Annual Meeting. If other matters are duly presented, proxies will be voted in
accordance with the best judgment of the proxy holders.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE
REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
16
PROXY CARD
FERROFLUIDICS CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 21, 1996
The undersigned hereby constitutes and appoints Paul F. Avery, Jr., Salvatore J.
Vinciguerra and William B. Ford, and each of them, as Proxies of the
undersigned, with full power to appoint his substitute, and authorizes each of
them to represent and to vote all shares of Common Stock of Ferrofluidics
Corporation (the "Company") held of record by the undersigned as of the close of
business on October 10, 1996, at the Annual Meeting of Stockholders (the "Annual
Meeting") to be held at the Marriott Hotel, Nashua, New Hampshire, at 10:00 a.m.
Eastern Time, on Thursday, November 21, 1996, and at any adjournments or
postponements thereof.
When properly executed, this proxy will be voted in the manner directed herein
by the undersigned stockholder(s). If no direction is given, this proxy will be
voted FOR the three nominees of the Board of Directors listed in Proposal 1. In
their discretion, the Proxies are each authorized to vote upon such other
business as may properly come before the Annual Meeting and any adjournments or
postponements thereof. A stockholder wishing to vote in accordance with the
Board of Directors' recommendations need only sign and date this proxy and
return it in the enclosed envelope.
The undersigned hereby acknowledge(s) receipt of a copy of the accompanying
Notice of Annual Meeting of Stockholders, the Proxy Statement with respect
thereto and the Company's 1996 Annual Report to Stockholders and hereby
revoke(s) any proxy or proxies heretofore given. This proxy may be revoked at
any time before it is exercised.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
FERROFLUIDICS CORPORATION
Please vote and sign on other side and return
promptly in enclosed envelope.
Please sign name exactly as shown. Where there is more than one holder, each
should sign. When signing as an attorney, administrator, executor, guardian or
trustee, please add your title as such. If executed by a corporation or
partnership, the proxy should be signed by a duly authorized person, stating his
or her title or authority.
PLEASE MARK VOTES AS IN
THIS EXAMPLE
[X]
FOR WITHHOLD
Proposal 1. Election of Class I Directors
for a three-year term. [ ] [ ]
Nominees: Stephen B. Hazard, Dennis R. Stone and
Salvatore J. Vinciguerra
If you do not wish your shares to be voted FOR a particular nominee,
mark the FOR box and strike a line through that nominee's name. Your
shares will be voted for the remaining nominee(s).
In their discretion, the Proxies are each authorized to vote upon such other
business as may properly come before the Annual Meeting and any adjournments or
postponements thereof.
Please be sure to sign and date this Proxy.
Date:________________________
Shareholder(s) signature(s): ________________________________
________________________________
HAS YOUR ADDRESS CHANGED?
______________________________
______________________________
______________________________