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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
SCOPE INDUSTRIES
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(Name of Registrant as Specified In Its Charter)
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(1) Title of each class of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
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previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
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SCOPE INDUSTRIES
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 23, 2001
To the Shareholders of
Scope Industries:
NOTICE IS HEREBY GIVEN that the Annual Meeting of the shareholders of Scope
Industries will be held on Tuesday, October 23, 2001, at 2:00 o'clock P.M.,
California time, at Scope Industries, 233 Wilshire Boulevard, Suite 310, Santa
Monica, California 90401, for the following purposes:
1. To elect a board of five directors to serve for the ensuing year
and until their respective successors have been elected and qualified. The
nominees for election to the board are Babette Heimbuch, Robert Henigson,
Meyer Luskin, William H. Mannon and Franklin Redlich.
2. To transact such other business as may properly come before the
Annual Meeting or adjournments thereof.
Only holders of shares of record on the books of the Corporation at the
close of business on August 31, 2001 are entitled to notice of, and to vote at,
the Annual Meeting or any adjournment or adjournments thereof. The transfer
books will not be closed.
A Proxy Statement and a proxy are enclosed with this Notice. All
shareholders are requested to attend the Annual Meeting. However, whether or not
you plan to attend in person, you are requested to fill in, sign and mail the
enclosed proxy as promptly as possible in the enclosed envelope to which no
postage need be affixed if it is mailed in the United States. The giving of such
proxy will not affect your right to vote in person if you attend the Annual
Meeting.
By Order of the Board of Directors,
Eleanor R. Smith
Secretary
Santa Monica, California
September 13, 2001
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SCOPE INDUSTRIES
233 WILSHIRE BOULEVARD, SUITE 310
SANTA MONICA, CALIFORNIA 90401
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PROXY STATEMENT
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FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 23, 2001
This statement is furnished in connection with the solicitation of proxies
by the Board of Directors of Scope Industries (the "Corporation") for use at the
Annual Meeting of its shareholders to be held at Scope Industries, 233 Wilshire
Boulevard, Suite 310, Santa Monica, California 90401, on Tuesday, October 23,
2001 at 2:00 o'clock P.M., California time, or at any adjournment thereof, for
the purposes set forth in the accompanying Notice of said Annual Meeting.
INFORMATION CONCERNING PROXY
The Board of Directors selected the persons named as proxies. The shares
represented by the proxies will be voted at the Annual Meeting. The cost of
solicitation of proxies will be borne by the Corporation. Solicitation by the
Board of Directors will be by mail. In addition to solicitation by mail, certain
officers and agents of the Corporation may solicit proxies by telephone,
telecopier facsimile, e-mail and personal interview (the cost of which will be
nominal). It is anticipated that banks, brokerage houses and other custodians,
nominees and fiduciaries will be requested to forward soliciting material to
beneficial owners and to obtain authorizations for the execution of proxies.
They will be reimbursed by the Corporation for their out-of-pocket expenses
incurred in connection therewith.
The only matter of business which the Corporation's management intends to
present at the Annual Meeting is the election of five directors to serve for the
ensuing year and until their successors are elected and qualified.
Shareholders who execute proxies may revoke them at any time before they
are voted. Revocation may be effected by filing with the Secretary of the
Corporation either an instrument revoking the proxy or a proxy bearing a later
date, duly executed by the shareholder, or by written notice to the Corporation
of the death or incapacity of the shareholder who executed the proxy. In
addition, the powers of a proxy holder are suspended if the person executing the
proxy is present at the Annual Meeting and elects to vote in person.
An Annual Report with certified financial statements for the fiscal year
ended June 30, 2001, accompanied by a letter from the President to the
shareholders, is included herewith. Such report and letter are not incorporated
in, and are not a part of, this Proxy Statement and do not constitute
proxy-soliciting material. The Corporation intends to mail this Proxy Statement
and accompanying material on or about September 13, 2001.
INFORMATION CONCERNING THE CORPORATION'S SECURITIES
Shares of common stock (hereinafter sometimes called "shares") are the only
voting securities of the Corporation. There were issued and outstanding at
August 31, 2001, a total of 1,029,267 shares, all of which may be voted at the
Annual Meeting. Only holders of shares of record on the books of the Corporation
at the close of business on August 31, 2001 will be entitled to vote at the
Annual Meeting.
In the election of directors, shareholders are entitled to cumulate their
votes for candidates whose names have been placed in nomination prior to the
voting, if a shareholder has given notice at the Annual Meeting prior to the
voting of his or her intention to cumulate votes. If votes for directors are to
be cumulated, each share has the number of votes equal to the number of
directors to be elected, which votes may be cast for one candidate or
distributed among two or more candidates. On all matters other than election of
directors, each share has one vote.
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The proxies solicited by the Corporation's Board of Directors will be voted
for the election of the nominees named below and votes will be cumulated, if
applicable, in such manner as the proxy holders may determine in their
discretion unless, and to the extent, authority to do so is withheld in the
enclosed proxy. If for any reason, one or more of the nominees should be unable
to serve or refuse to serve as director (an event which the Board of Directors
does not anticipate), the persons named in the enclosed proxy will vote for
another candidate or candidates nominated by the Corporation's Board of
Directors, and discretionary authority to do so is included in the proxy.
The following table presents the beneficial ownership of the Corporation's
shares by each beneficial owner of more than 5% of the Corporation's shares on
August 31, 2001. Except as indicated below, there is no person known to the
Corporation who owns beneficially 5% or more of the Corporation's shares.
<Table>
<Caption>
PERCENTAGE OF
OUTSTANDING
NAME OF AMOUNT AND NATURE COMMON
BENEFICIAL OWNER(1) OF BENEFICIAL OWNERSHIP(2) STOCK
------------------- -------------------------- -------------
Meyer Luskin...................................... 603,050 Shares 58.6%
Estate of Paul D. Saltman......................... 71,000 Shares(3) 6.9%
Robert Henigson................................... 67,500 Shares 6.6%
Dimensional Fund Advisors, Inc.................... 68,850 Shares(4) 6.7%
1299 Ocean Avenue
Santa Moncia, CA 90401
</Table>
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(1) The address of each person named in the table (except Dimensional Fund
Advisors, Inc.) is c/o Scope Industries, 233 Wilshire Boulevard, Suite 310,
Santa Monica, California 90401.
(2) The named beneficial owners have sole voting and investment power with
respect to the listed shares, except as otherwise indicated in the footnotes
below.
(3) Paul D. Saltman served as a director of the Company from 1969 until 1999.
(4) Dimensional Fund Advisors, Inc., a registered investment advisor, is deemed
to have a beneficial interest of 68,850 shares, all of which shares are held
in several portfolios for which Dimensional Fund Advisors, Inc. serves as
investment managers. Dimensional Fund Advisors, Inc. disclaims the
beneficial ownership of all such shares.
The following table presents the beneficial ownership of the Corporation's
shares by each director, each nominee for director and each executive officer
named in the Summary Compensation Table on page 4 and all directors and
executive officers as a group on August 31, 2001.
<Table>
<Caption>
PERCENTAGE OF
OUTSTANDING
NAME OF AMOUNT AND NATURE COMMON
BENEFICIAL OWNER(1) OF BENEFICIAL OWNERSHIP(2) STOCK
------------------- -------------------------- -------------
Meyer Luskin...................................... 603,050 shares 58.6%
Robert Henigson................................... 67,500 shares 6.6%
Franklin Redlich.................................. 3,400 shares 0.3%
William H. Mannon................................. 13,264 shares 1.3%
Babette Heimbuch.................................. 400 shares *
Robert E. McMullen................................ 1,500 shares(3) 0.1%
F. Duane Turney................................... 0 shares *
Eric M. Iwafuchi.................................. 100 shares *
Eleanor R. Smith.................................. 11,682 shares 1.1%
All Directors and Executive Officers as a group (9
persons)........................................ 700,896 shares 68.1%
</Table>
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* Less than 0.1%
(1) The address of each person named in the table is c/o Scope Industries, 233
Wilshire Blvd., Suite 310, Santa Monica, California 90401.
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(2) The named beneficial owners have sole voting and investment power with
respect to the listed shares.
(3) Robert McMullen failed to file Form 3 in a timely manner for the fiscal year
ended June 30, 2000.
ELECTION OF DIRECTORS AND INFORMATION AS TO NOMINEES
Each of the five incumbent directors who comprise the Board has been
elected to serve until the next succeeding Annual Meeting of Shareholders and
the election and qualification of his successor. The term of office of each
present director of the Corporation expires October 23, 2001, which is the date
of the next Annual Meeting. Five directors of the Corporation will be elected at
the Meeting. The nominees of the Board of Directors for election at the Meeting
as directors of the Corporation and certain information concerning such nominees
follow.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE ELECTION
OF EACH NOMINEE AS A DIRECTOR OF THE CORPORATION.
Babette Heimbuch, a director of the Corporation since July 17, 2000, serves
as President and Chief Executive Officer of First Federal Bank of California and
its holding company FirstFed Financial Corp. She also serves on the Board of
Directors of both the bank and holding company. She first joined the bank in
1982 as Chief Financial Officer. Ms. Heimbuch received her Bachelor of Science
degree from the University of California at Santa Barbara and is a Certified
Public Accountant. Ms. Heimbuch is a director of the Federal Home Loan Bank of
San Francisco, America's Community Bankers and the Western League of Savings
Institutions. She is 53 years old.
Member: Audit Committee
Robert Henigson, a director of the Corporation since October 1996, is an
investor and retired attorney. He was previously a director of the Corporation
from May 1969 until August 1987. Mr. Henigson holds Bachelor of Science and
Master of Science degrees from the California Institute of Technology. He
received his L.L.B. from Harvard Law School. Mr. Henigson is a director of
Reliance Steel & Aluminum Co. and Myricom, Incorporated. He is 76 years old.
Member: Audit Committee; Compensation Committee; Stock Option Committee
Meyer Luskin, the Chairman of the Board of Directors, President and Chief
Executive Officer of the Corporation since 1961, has been a director of the
Corporation since November 1958. He also serves as Chief Executive Officer of
Scope Products, Inc., the Corporation's largest subsidiary. Mr. Luskin received
a Bachelor of Arts degree from University of California at Los Angeles and a
Master of Business Administration degree from Stanford University. Mr. Luskin is
responsible primarily for the formation of overall corporate policy and
operations of the Corporation's main business groups and has been an employee of
the Corporation since 1961. Mr. Luskin is a director of Chromagen, Inc.,
Metaprobe LLC, OSI Systems, Inc. and Stamet, Incorporated. He is 76 years old.
Member: Retirement Savings Plan Committee; Retirement Profit Sharing Plan
Committee
William H. Mannon, a director of the Corporation since September 1966,
served as Vice President and Secretary of the Corporation from 1966 until his
retirement in August 1986. Since his retirement, Mr. Mannon has served as a
consultant to the Corporation. He was previously a director of the Corporation
from May 1953 until May 1958 and again from September 1962 until November 1965.
Mr. Mannon holds a Bachelor of Arts degree from Stanford University in Mineral
Sciences. Mr. Mannon is a director of Ojai Oil Company. He is 79 years old.
Member: Audit Committee, Stock Option Committee
Franklin Redlich, a director of the Corporation since September 1968, was
the President of Holiday Stores, a retail dealer in hardware from 1956 until his
retirement in 1993. Mr. Redlich received his Bachelor of Arts and Master of
Business Administration degrees from Stanford University. He is 75 years old.
Member: Audit Committee; Compensation Committee; Stock Option Committee
It is intended that proxies given to the persons named in the accompanying
proxy will be voted for the election of the nominees above named unless directed
otherwise. In voting the proxies for election of directors,
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the persons named in the proxies have the right to cumulate the votes for
directors covered by said proxies (unless otherwise instructed) on the principle
described above under the caption "Information Concerning the Corporation's
Securities" and may do so if such action is deemed desirable.
The term of office for each director elected at the Annual Meeting will
expire on October 22, 2002, provided that, if for any reason an election of
directors is not held on October 22, 2002, the directors who are elected at the
Annual Meeting on October 23, 2001 will continue to serve until their respective
successors have been elected and qualified.
All of the nominees for the office of director are currently directors of
the Corporation. Each of the directors was elected to his present term of office
by vote of the shareholders of the Corporation at the Annual Meeting of
Shareholders held October 17, 2000.
Although it is not contemplated that any nominee will decline or be unable
to serve as a director, in the event that at the date of the Annual Meeting or
any adjournment thereof any nominee declines or is unable to serve, the proxies
will be voted for such other person for director as the Board of Directors may
select or, if no person is so selected, as the persons named in the proxies may,
in their discretion, select.
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE FOR ALL NOMINEES TO BE MEMBERS
OF THE BOARD OF DIRECTORS.
EXECUTIVE COMPENSATION
The following table summarizes certain information concerning the
compensation paid by the Corporation during fiscal years 2001, 2000 and 1999 to
its chief executive officer and each of the other four most highly compensated
executive officers whose aggregate salary and bonus exceeded $100,000 for
services rendered in all capacities to the Corporation during the fiscal 2001.
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
LONG-TERM
COMPENSATION
FISCAL ANNUAL COMPENSATION AWARDS
YEAR -------------------- OPTIONS/ ALL OTHER
ENDED SALARY BONUS SARS COMPENSATION
NAME AND POSITION JUNE 30 ($) ($) (#)(2) ($)(1)
----------------- ------- -------- -------- ------------ ------------
Meyer Luskin...................... 2001 $546,312 $100,000 0 $60,491
Chairman, President and 2000 543,320 0 0 54,947
Chief Executive Officer 1999 529,264 0 0 52,920
Robert E. McMullen................ 2001 222,313 6,000 0 25,222
President of subsidiary 2000 208,821 10,000 0 20,686
(Scope Products, Inc.)
F. Duane Turney................... 2001 135,000 10,000 0 15,556
President of subsidiary 2000 135,000 10,000 0 13,832
(Scope Beauty Enterprises, Inc.) 1999 134,823 0 0 13,520
Eric M. Iwafuchi.................. 2001 136,087 0 0 18,523
Vice President-Finance and 2000 102,358 0 0 0
Chief Financial Officer
Eleanor R. Smith.................. 2001 121,558 37,500 0 14,923
Vice President, Secretary 2000 116,867 0 0 11,911
and Controller 1999 113,293 0 0 11,370
</Table>
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(1) "All Other Compensation" includes the Corporation's 100% matching
contributions to the Retirement Savings Plan for Officers and Executives;
contributions to the Retirement Profit Sharing Plan and Company sponsored
401(k) Retirement Plan and the value of a Company automobile.
(2) See note below regarding Scope Products, Inc. Incentive and Non-Qualified
Stock Option Plan and grants to three executive officers listed above.
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No other executive officer of the Corporation received salary and bonus of
more than $100,000 during fiscal 2001.
FISCAL 2001 OPTION GRANTS
No options under the Company's 1992 Stock Option Plan were granted during
fiscal 2001 to any of the executive officers identified in the Summary
Compensation Table.
Under the Scope Products, Inc., a wholly owned subsidiary of the Company,
Incentive and Non-Qualified Stock Option Plan, options for 5,000 shares were
granted to Eric M. Iwafuchi during fiscal 2001. At June 30, 2000, options for
500,000 shares had been granted to Robert McMullen, 20,000 shares to Eric M.
Iwafuchi and 15,000 shares to Eleanor R. Smith. No other executive officer
received options under this plan. A total of 1,000,000 shares have been reserved
under this plan and as of June 30, 2001, 717,500 option shares were outstanding.
FISCAL YEAR 2001 AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
SCOPE INDUSTRIES 1992 QUALIFIED STOCK OPTION PLAN
<Table>
<Caption>
NUMBER OF UNEXERCISED
SHARES VALUE OPTIONS AT
ACQUIRED REALIZED FISCAL YEAR-END
ON ON ---------------------
EXERCISE EXERCISE EXERCISABLE
NAME (#) ($)(1) (#)(2)
---- -------- -------- ---------------------
Meyer Luskin......................................... 3,000 $24,900 0
</Table>
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(1) The values represent the difference between the exercise price of the
options and the market price of the underlying securities on the date of
exercise.
(2) There were no outstanding options at June 30, 2001.
No Stock Appreciation Rights (SARS) are held by any of the named executive
officers.
CERTAIN RELATED TRANSACTIONS
Mr. Robert Henigson, who is a director of the Corporation, is a director of
Myricom, Inc., a privately held company in which Scope made an investment by
purchasing common stock from an original founder of Myricom, Inc. during fiscal
2001.
Mr. Meyer Luskin is a director of MetaProbe LLC a startup biotechnology
company that the Company made a direct investment in during fiscal 2001.
William H. Mannon, who is a director of the Corporation, has acted as a
consultant to the Corporation since his retirement in 1986 and has been
compensated for his services at the rate of $1,000 per month. The Corporation
expects to continue to consult with Mr. Mannon in the near future.
During the fiscal year ended June 30, 2000, the Company loaned $200,000 to
Robert McMullen, an executive officer of the Company, to help in his relocation
from Georgia to California. The note bears interest only of 6% for the first two
years and then quarterly principal and interest payments until the balance is
paid in May 2011. The note is secured by a second trust deed on his home. Mr.
McMullen is current with his interest payments.
DIRECTORS' COMPENSATION
From July 1, 2000 through June 30, 2001, each outside director of the
Corporation received a compensation of $4,000 annually plus a $1,000 fee and
reimbursements for certain expenses for each of the Board of Directors meetings
attended. Each Director who is a member of the Audit Committee received $600 for
each Audit Committee meeting attended.
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MEETINGS OF THE BOARD OF DIRECTORS
AND FUNCTIONS OF COMMITTEES
During the fiscal year July 1, 2000 through June 30, 2001, the Board of
Directors of the Corporation held four regular meetings. No person attended
fewer than 75% of the aggregate of the total number of Board meetings and the
total number of committee meetings held by the committee on which they served.
The committees of the Board of Directors are the Audit Committee, the
Compensation Committee, the Retirement Savings Plan Committee, the Retirement
Profit Sharing Plan Committee and the Stock Option Committee. In addition to Mr.
Luskin, Mr. Iwafuchi and Ms. Smith serve on both the Retirement Savings Plan
Committee and the Retirement Profit Sharing Plan Committee. Messrs. Henigson,
Redlich, Mannon and Ms. Heimbuch currently serve on the Audit Committee. Messrs.
Henigson and Redlich currently serve on both the Compensation Committee and
along with Mr. Mannon serve on the Stock Option Committee. All of the committees
met once formally during the last fiscal year, although the members of each
committee confer informally from time to time.
The Audit Committee reviews the company's financial reporting process on
behalf of the Board of Directors. Management has the primary responsibility for
the financial statements and the reporting process, including the system of
internal controls. Each of the members of our committee is independent as
independence is defined under the American Stock Exchange listing standards.
During 2001, the Committee reviewed and adopted a new written charter (attached
hereto as Exhibit 1).
The Compensation Committee reviews and approves the salaries of all
officers of the Corporation. It also reviews and makes recommendations as
appropriate for compensation plans of subsidiary and division officers.
The Retirement Savings Plan, Retirement Profit Sharing Plan and Stock
Option Committees monitor the respective plans. Their functions include an
overview of proper compliance with the requirements of the respective plans and
periodic reports to the Board of Directors.
The Corporation has no standing Nominating Committee at the present time.
Nominations for the Board of Directors are made and considered by the Board of
Directors as a whole. Compensation policies are also considered and established
by the Board of Directors acting as a whole.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
It is the responsibility of the Compensation Committee to set policy for
administering the Corporation's executive compensation plans and to make
recommendations to the Board as appropriate. These plans for executive officers
include base salaries, stock options, and any other forms of remuneration.
The Committee annually reviews in detail all aspects of compensation for
the Chief Executive Officer and other executive officers. The Committee also
reviews executive compensation surveys, compensation reports of other public
companies of similar size, and other data in determining policies.
Cash compensation is provided to officers in the form of base salaries.
Base salaries are reviewed to determine if adjustment is necessary based on
competitive practices and economic conditions. Salaries are adjusted, if
appropriate, based on individual performance and for changes in job content and
responsibilities. None of the officers or executives is compensated under an
employment agreement.
The Committee may grant incentive awards to corporate and division
executives. Officers and facility managers of Scope Products, Inc. are entitled
to participate in the Corporation's Retirement Profit Sharing Plan that, by
formula, determines the share of profits of that subsidiary which is to be
contributed to the Plan for the benefit of the participants. The Compensation
Committee has no authority to change that share but the Plan participants,
nevertheless, are incentivized by virtue of the performance of Scope Products,
Inc. The Committee evaluates the combination of base pay and incentive awards so
that, in combination, highly talented executives can be attracted, retained and
motivated to consistently improve the financial performance of the Corporation.
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Long-term incentive awards in the form of stock options are available to be
awarded to executive officers and key employees of the Corporation under the
1992 Stock Option Plan. Options to purchase shares of the Corporation's stock at
not less than the fair market value of shares on the date the option is granted
have a term of five years and become exercisable on a cumulative basis at 25%
each year after one year. No options were granted under the Plan in fiscal 2001.
There are currently 25,000 shares available under the Plan for future options
grants and no options may be granted after December 31, 2001. The Stock Option
Plan provides a link between executive compensation and increasing shareholder
value through stock performance over an extended period.
In fiscal 2000, the Company established for Scope Products, Inc., a wholly
owned subsidiary, an Incentive and Non-Qualified Stock Option Plan for key
employees, including officers, of the Company or its subsidiaries who will be
responsible for its long-term growth. The Board of Directors, based upon the
estimated fair market value of Scope Products, Inc. at the date of grant,
determines the option exercise price. The options have a term of seven years and
become exercisable rateable after the first year at 15% each year and 10% the
final year. In fiscal 2001, 5,000 options were granted and in fiscal 2000,
757,500 options were granted. At June 30, 2001, 717,500 options were
outstanding.
Mr. Luskin, Chief Executive Officer, participates in the same compensation
programs provided to the other executives except the Scope Products, Inc. Stock
Option Plan. The Committee based the fiscal 2001 compensation of Mr. Luskin on
the policies and procedures described above. Among the factors considered by the
Committee in determining the Chief Executive Officer's compensation is the
performance of the Corporation as a whole and his individual performance both as
Chief Executive Officer of the Corporation and as the Chief Executive Officer of
Scope Products, Inc., the Corporation's largest subsidiary.
No member of the Committee is a former or current officer or employee of
the Corporation or any of its subsidiaries.
September 13, 2001
Robert Henigson
Franklin Redlich
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PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on the
Corporation's common stock with the cumulative total return of the Standard &
Poor's Composite 500 Stock Index (S&P 500), the Standard & Poor's Small Cap 600
Index and the Standard & Poor's Waste Management Industry Index for the
five-year period ended June 30, 2001. It assumes the investment of $100 at the
beginning of the five-year period in the Corporation's common stock, the S&P
500, the Small Cap 600 Index and the Waste Management Index and the reinvestment
of all dividends.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG SCOPE INDUSTRIES, THE S&P 500 INDEX
THE S&P SMALLCAP 600 INDEX AND S&P WASTE MANAGEMENT INDEX
[PERFORMANCE GRAPH]
YEARS ENDING
<Table>
<Caption>
--------------------------------------------------------------------------------
COMPANY/INDEX JUN96 JUN97 JUN98 JUN99 JUN00 JUN01
--------------------------------------------------------------------------------
Scope Industries 100 149 199 188 131 126
--------------------------------------------------------------------------------
S&P 500 Index 100 135 175 215 231 197
--------------------------------------------------------------------------------
S&P Small Cap 600
Index 100 122 145 148 169 188
--------------------------------------------------------------------------------
S&P Waste
Management Index 100 109 120 135 55 91
--------------------------------------------------------------------------------
</Table>
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* $100 Invested on 6/30/96 in stock or index -- including reinvestment of
dividends, fiscal year ending June 30.
The Corporation has a unique combination of businesses, including the
hauling, processing and distribution of bakery waste products and cosmetology
vocational schools. There is no published industry or line of business index
that accurately reflects either of these lines of business alone or is there one
for the combination. Similarly, the Corporation has been unable to establish a
peer group because few companies in these lines of business are publicly traded,
and, consequently, limited or no information is available for the Corporation's
competitors in each of these industries. The Corporation has elected to show on
its Performance Graph a comparison of the Corporation's stock performance with
the performance of the Standard & Poor's Waste Management Index and, the
Standard & Poor's Small Cap 600 Index with the hope that this information will
be helpful. The Corporation has selected the Standard & Poor's Waste Management
Index, which consists principally of companies engaged in hauling wastes, but
does not include companies engaged in processing or recycling such wastes,
because it is the index closest to the Corporation's primary line of business.
It does not contain comparable information with respect to the Corporation's
vocational schools, however, and does not accurately reflect the waste recycling
business in which the Corporation is engaged. The Standard & Poor's Small Cap
600 Index reflects information for companies in various lines of business but
with similar market capitalization to that of the Corporation.
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REPORT OF THE AUDIT COMMITTEE
The following report of the Audit Committee shall not be deemed to be
soliciting material or to be filed with the Securities and Exchange Commission
under the Securities Act of 1933 or the Securities Exchange Act of 1934 or
incorporated by reference in any document so filed.
Under the guidance of a written charter adopted by the Board of Directors
(which is attached as Exhibit 1 to this Proxy Statement), the Audit Committee
oversees the Company's financial reporting process on behalf of the Company's
Board of Directors. Management has the primary responsibility for the financial
statements and the reporting process, including the systems of internal control.
In fulfilling its oversight responsibilities, the Audit Committee reviewed
the audited financial statements in the 2001 Annual Report with management,
including a discussion of the quality, not just the acceptability, of the
accounting principles, the reasonableness of significant judgments and the
clarity of disclosures in the financial statements.
The Audit Committee reviewed with the independent auditors, who are
responsible for expressing an opinion on the conformity of those financial
statements with accounting principles generally accepted in the United States,
their judgments as to the quality, not just the acceptability, of the Company's
accounting principles and such other matters as are required to be discussed
with the Audit Committee under auditing standards generally accepted in the
United States. In addition, the Audit Committee has discussed with the
independent auditors the auditors' independence from the Company and its
management, including the matters in the written disclosures and letter which
were received by the Audit Committee from the independent auditors as required
by the Independence Standards Board Standard No. 1, Independence Discussions
with the Audit Committees, as amended, and considered the compatibility of
non-audit services with the auditor's independence.
The Audit Committee discussed with the Company's independent auditors the
overall scope and plans for their audit. The Audit Committee met with the
independent auditors, with and without management present, to discuss the
results of their examination, their evaluation of the Company's internal
controls, and the overall quality of the Company's financial reporting. The
Audit Committee held four meetings during the fiscal year ended June 30, 2001.
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors (and the Board approved) that
the audited financial statements be included in the Annual Report on Form 10-K
for the fiscal year ended June 30, 2001 for filing with the Securities and
Exchange Commission. The Audit Committee has recommended, and the Board has
approved the selection of the Company's independent auditors.
September 10, 2001
Franklin Redlich -- Chairman
Babette Heimbuch
Robert Henigson
William H. Mannon
AUDIT FEES; TAX FEES
In addition to performing the audit of the Company's consolidated financial
statements, Deloitte & Touche, LLC has provided other services during fiscal
2001. The aggregate fees billed for fiscal 2001 for each of the following
categories of services are set forth below:
<Table>
Audit and review of the Company's 2001 financial statements: $80,000.
Tax services: $55,000.
</Table>
The Audit Committee has reviewed the services provided by Deloitte & Touche
LLP and the related fees and has considered whether the provision of non-audited
services is compatible with maintaining the independence of Deloitte & Touche
LLP. On recommendation of the Audit Committee, the Board has appointed Deloitte
& Touche LLP to audit the 2002 financial statements.
9
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COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires that Company directors,
executive officers and persons who own more than 10% of the Common Stock file
initial reports of ownership and reports of changes in ownership of Common Stock
with the Securities and Exchange Commission. Officers, directors and
stockholders who own more than 10% of the Common Stock are required by the
Securities and Exchange Commission to furnish the Company with copies of all
Section 16(a) reports that they file.
Robert E. McMullen, an executive officer of the Corporation, was delinquent
in filing Form 3 required by Section 16(a) for reporting the initial purchase of
500 shares of the Company's stock during fiscal 2000. The Corporation is not
aware of any officer, director or beneficial owner of more than 10% of the
Corporation's common stock who failed to file on a timely basis any reports
required by Section 16(a) of the Securities and Exchange Act of 1934, as
amended, during the fiscal year ended June 30, 2001.
INDEPENDENT PUBLIC ACCOUNTANTS
Deloitte & Touche LLP has acted as the Corporation's independent auditors
since April 1988. A representative of Deloitte & Touche LLP will be present at
the Annual Meeting, will have an opportunity to make a statement if he or she
desires to do so, and will be available to respond to appropriate questions.
OTHER MATTERS
While management has no reason to believe that any other business will be
presented, if any other matters should properly come before the Annual Meeting,
the proxies will be voted as to such matters in accordance with the best
judgment of the proxy holders.
SHAREHOLDER PROPOSALS FOR 2002 ANNUAL MEETING
Shareholder proposals intended to be presented at the 2002 Annual Meeting
and included in the Corporation's proxy materials relating to such meeting must
be received not later than May 24, 2002. Such proposals must be addressed to the
Secretary of the Corporation.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO ANY SHAREHOLDER, UPON
WRITTEN REQUEST DIRECTED TO THE SECRETARY OF THE CORPORATION AT ITS ADDRESS
APPEARING AT THE TOP OF THE FIRST PAGE OF THIS PROXY STATEMENT, A COPY OF ITS
MOST RECENT ANNUAL REPORT ON FORM 10-K FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION.
By Order of the Board of Directors,
Eleanor R. Smith
Secretary
Santa Monica, California
September 13, 2001
SHAREHOLDERS ARE URGED, REGARDLESS OF THE NUMBER OF SHARES OF COMMON STOCK
OF THE COMPANY OWNED, TO FILL IN, SIGN, DATE AND MAIL THE ENCLOSED PROXY. YOUR
COOPERATION IN GIVING THESE MATTERS YOUR IMMEDIATE ATTENTION AND IN RETURNING
YOUR PROXY PROMPTLY IS APPRECIATED.
10
13
EXHIBIT 1
SCOPE INDUSTRIES
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD DIRECTORS
ORGANIZATION:
The Audit Committee is a committee of the Board of Directors (the "Board")
of Scope Industries (the "Company") composed of three or more of its directors
appointed by the Board, each of whom is financially literate and at least one of
whom has accounting or related financial management experience. The Committee
members shall be independent of the Company's management and free from any
relationship that would, in the opinion of the Board, interfere with the
exercise of independent judgment by any one of the Committee members.
PURPOSE:
The Audit Committee's primary purpose is to assist the Board in fulfilling
the Board's oversight responsibilities pertaining to the integrity of the
Company's internal controls and the financial practices and audit processes of
the Company and the publication by the Company to its shareholders and others of
financial information regarding the Company and its operations. In pursuance
thereof, the Audit Committee shall exercise its best efforts to maintain free
and open communications between the Board and the Company's independent auditors
and financial management.
RESPONSIBILITIES:
The Company's management is responsible for preparing the Company's
financial statement and the outside auditors are responsible for auditing the
financial statements. The Company's financial management including the outside
auditors has more time, knowledge and more detailed information of the Company
than does the Committee. Consequently, the Committee's role is one of oversight
and it does not provide any expert assurance or certification as to the
Company's financial statements or the work of the outside auditors. The outside
auditors are, however, ultimately accountable to the Committee and the Board of
Directors.
The Audit Committee shall have the following responsibilities:
1. To review the Company's independent auditors in order to ascertain their
independence and the quality and cost effectiveness of their work and to
recommend to the Board the independent auditors to be selected annually
to audit the financial statements of the Company and its subsidiaries.
2. To meet at least four times per year, or more frequently as
circumstances may require, to review with financial management and the
independent auditors the Company's annual and quarterly financial
statements prior to the public release of earnings or the filing with
the Securities and Exchange Commission (the "SEC") of the relevant Forms
10-K and 10-Q.
3. To review with the independent auditors selected by the Board and
approved by the Company's shareholders the scope of the proposed annual
audit and the procedures to be utilized in its execution and the fees
proposed to be charged for that work.
4. To review with the independent auditors the results of their annual
audit and their findings and recommendations, any difficulties
encountered in the course of the audit work, any changes required in the
planned scope of the audit if any, and the opinions to be issued in
respect of the Company's financial statements.
5. To review with the independent auditors and the Company's financial
management the adequacy and effectiveness of the accounting and
financial controls of the Company, with particular emphasis on internal
controls to expose any payments, transactions or procedures which might
be deemed
11
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improper, and to elicit any recommendations for the improvement of such
internal control procedures or particular areas where new or more
detailed controls or procedures are desirable.
6. To review periodically with the Company's Chief Financial Officer the
adequacy and effectiveness of the Company's accounting and financial
controls and procedures to the end that all financial transactions are
faithfully and accurately recorded and all funds properly accounted
for.
7. To provide sufficient opportunity for the independent auditors to meet
separately and together with the Audit Committee without members of
management present and to discuss among other things in these meetings
the evaluation by the independent auditors of the Company's financial
accounting personnel and the degree of cooperation received during the
course of the audit.
8. To review the financial statements contained in the quarterly and
annual report to shareholders with management and the independent
auditors to determine that the independent auditors are satisfied with
the disclosure and content of the financial statements to be presented
to the shareholders.
9. To review policy statements of the Company in order to determine their
adherence to the Company's code of conduct.
10. To investigate any matter brought to its attention within the scope of
its foregoing duties which a majority of the Audit Committee believes
warrants such investigation, with the power to retain outside counsel
or other consultants for such purpose if, in its judgment, such action
is appropriate.
11. To submit minutes of all its meetings to the Board and to discuss with
the Board at its next ensuing meeting the matters discussed at the last
meeting of the Audit Committee.
12. Not less frequently than annually, to review and reassess the adequacy
of the Charter and the Committee's adherence to it and to submit to the
Board for its approval suggested changes to the Charter and, not less
frequently than tri-annually, to cause the Charter to be published to
the Company's shareholders in accordance with SEC regulations.
13. To review annually a summary of directors and officers related party
transactions in order to ascertain the existence of potential
conflicts.
Adopted by the Board of Directors
February 6, 2001
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[SCOPE INDUSTRIES LOGO]
SCOPE INDUSTRIES PROXY
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON OCTOBER 23, 2001
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of SCOPE INDUSTRIES (the "Corporation") hereby
appoints MEYER LUSKIN, ELEANOR R. SMITH, and ERIC M. IWAFUCHI, and each of them
proxies, each with power to act without the other and with power of
substitution, and hereby authorizes them to represent and vote all shares of
stock of the Corporation to be held at Scope Industries, 233 Wilshire Blvd.,
Suite 310, Santa Monica, CA 90401, at the hour of 2:00 o'clock P.M., California
time on Tuesday, October 23, 2001 or at any adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSALS:
<Table>
(1) ELECTION OF DIRECTORS FOR all nominees listed below (except WITHHOLD AUTHORITY
as marked to the contrary below) [ ] to vote for all nominees listed
below [ ]
</Table>
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE STRIKE A
LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
Babette Heimbuch, Robert Henigson, Meyer Luskin, William H. Mannon, Franklin
Redlich
(2) In their discretion on such matters as may properly come before the
meeting or any adjournment thereof.
CONTINUED ON THE OTHER SIDE. PLEASE DATE AND SIGN ON REVERSE SIDE AND RETURN
PROMPTLY.
16
(CONTINUED FROM OTHER SIDE)
Any proxy heretofore given with respect to the shares covered by this proxy
is hereby revoked. A majority of said proxies present and acting at the meeting
(or if only one shall be present and acting, then that one) shall have and may
exercise all of the powers of all said proxies hereunder. THE SHARES REPRESENTED
HEREBY SHALL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, SUCH SHARES
SHALL BE VOTED FOR THE ELECTION AS A DIRECTOR OF EACH NOMINEE NAMED ABOVE (AND
VOTES WILL BE CUMULATED, IF APPLICABLE, IN SUCH MANNER AS THE PROXY HOLDERS MAY
DETERMINE IN THEIR DISCRETION) AND AS THE PROXY HOLDERS DETERMINE IN THEIR
DISCRETION AS TO ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE MEETING.
Receipt of the accompanying proxy statement is hereby acknowledged by the
undersigned shareholder.
The giving of this proxy
does not affect the right
or the undersigned
shareholder to vote in
person should such
shareholder attend the
meeting. This proxy may
be revoked at any time
before it is voted.
Dated this -- day of --,
2001
-------------------------
(Signature)
-------------------------
(Signature if held
jointly)
(Please sign as name
appears herein. Joint
owners should each sign.)
PLEASE RETURN THIS PROXY IN THE ENCLOSED ENVELOPE PROMPTLY.