UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material under ss. 240.14a-12
SCAN-OPTICS, INC.
(Name of Registrant as Specified In Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
N/A
(2) Aggregate number of securities to which transaction applies:
N/A
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
N/A
(4) Proposed maximum aggregate value of transaction:
N/A
(5) Total fee paid:
N/A
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
[LOGO OMITTED]
May 5, 2003
Dear Stockholders:
You are cordially invited to the Annual Meeting of Stockholders of
Scan-Optics, Inc., scheduled to be held Thursday, June 12, 2003, at Scan-Optics'
offices at 169 Progress Drive, Manchester, Connecticut, commencing at 1:30 p.m.
Your Board of Directors and management look forward to meeting you personally.
At the meeting you will be asked to elect three directors, to ratify the
appointment of independent auditors for the fiscal year ending December 31, 2003
and to transact such other business as may properly be brought before the
meeting.
In addition to the specific matters to be acted upon, there will be a
report on the progress of Scan-Optics and an opportunity for questions of
general interest to the stockholders. Important information is contained in the
accompanying proxy statement which you are urged to read carefully.
Regardless of the number of shares you own, it is important that they are
represented and voted at the meeting, whether or not you plan to attend.
Accordingly, you are requested to mark, sign, date and return the enclosed proxy
in the envelope provided at your earliest convenience.
Your interest and participation in the progress of Scan-Optics are greatly
appreciated.
Sincerely,
/s/ James C. Mavel
James C. Mavel
Chairman of the Board,
Chief Executive Officer and President
SCAN-OPTICS, INC.
Notice of Annual Meeting of Stockholders
The Annual Meeting of Stockholders of Scan-Optics, Inc. ("Scan-Optics")
will be held at the offices of Scan-Optics at 169 Progress Drive, Manchester,
Connecticut, on Thursday, June 12, 2003 at 1:30 p.m. (EDT) to consider and take
action on the following items:
1. To elect three directors to serve until the Annual Meeting of
Stockholders in 2006;
2. To ratify the appointment of independent auditors for the fiscal year
ending December 31, 2003; and
3. To transact such other business as may properly come before said meeting
or any adjournment thereof.
Only holders of our common stock at the close of business on April 25, 2003
are entitled to notice of and to vote at the meeting or any adjournment thereof.
A list of stockholders entitled to vote at the meeting will be available for
examination by any stockholder for any purpose germane to the meeting during
ordinary business hours for ten days prior to the meeting at the offices of
Scan-Optics, 169 Progress Drive, Manchester, Connecticut.
By Order of the Board of Directors
Richard D. Harris
Secretary
Manchester, Connecticut
May 5, 2003
_____________________________
Directions to Scan-Optics' offices at 169 Progress Drive, Manchester,
Connecticut are as follows:
From I-84 Eastbound, take Exit 63. Turn left at traffic light onto Tolland
Turnpike. Turn right at first traffic light onto Parker Street, follow
directions below.
From I-84 Westbound, take Exit 63. Stay in the right lane, and turn right at
traffic light. Proceed to the third traffic light and turn right onto Parker
Street, follow directions below.
Follow Parker Street for 8/10th mile, then turn left onto Colonial Drive. Turn
left onto Progress Drive, Scan-Optics is about one half mile on the left. A
special parking area will be designated.
YOUR VOTE IS IMPORTANT. EVEN IF YOU PLAN TO ATTEND THE MEETING IN PERSON,
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY IN THE
ENCLOSED ENVELOPE AS PROMPTLY AS POSSIBLE.
SCAN-OPTICS, INC.
169 Progress Drive
Manchester, Connecticut 06040
PROXY STATEMENT
This statement is furnished in connection with the solicitation of proxies
to be used at the Annual Meeting of Stockholders of Scan-Optics, Inc., a
Delaware corporation, to be held at the offices of Scan-Optics at 169 Progress
Drive, Manchester, Connecticut, on Thursday, June 12, 2003 at 1:30 p.m.
The solicitation of proxies on the accompanying form is made on behalf of
the Board of Directors of Scan-Optics.
The cost of soliciting proxies on the accompanying form has been or will be
borne by Scan-Optics. In addition to solicitation by mail, Scan-Optics will
request banks, brokers and other custodians, nominees, and fiduciaries to send
proxy material to the beneficial owners and to secure their voting instructions,
if necessary. Scan-Optics will reimburse them for their expenses in so doing.
Directors, officers and regular employees of Scan-Optics, who will receive no
compensation for their services other than their regular salaries, may solicit
proxies personally, by telephone or otherwise from stockholders. This proxy
statement and the accompanying form of proxy are being mailed to stockholders on
or about May 5, 2003.
A stockholder signing and returning a proxy on the accompanying form has
the power to revoke it at any time before the shares subject to it are voted by
notifying the Secretary of Scan-Optics in writing of such revocation, or by
filing a duly executed proxy bearing a later date, or by attending the meeting
and voting in person. Properly executed proxies, not revoked, will be voted in
accordance with the instructions contained thereon. Unless a contrary
specification is made thereon, it is the intention of the attorneys named in the
enclosed proxy to vote FOR the nominees for election to the Board of Directors,
and FOR the appointment of Ernst & Young LLP as auditors for the fiscal year
ending December 31, 2003.
OUTSTANDING VOTING SECURITIES
Only holders of our common stock, $.02 par value, at the close of business
on April 25, 2003 are entitled to notice of and to vote at the meeting. On April
25, 2003, the record date, there were 7,439,732 shares of common stock
outstanding. Each share of common stock is entitled to one vote per share.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information with respect to each
person known to Scan-Optics to have beneficial ownership of more than 5% of our
outstanding voting stock as of April 25, 2003. In preparing the following table,
Scan-Optics relied on the information filed with the Securities and Exchange
Commission pursuant to Section 13(d) or 13(g) of the Securities Exchange Act of
1934 (the "Exchange Act") or information supplied to Scan-Optics by such person
or the representative of such person. Each person listed on the following page
has sole voting and investment power as to the shares beneficially owned, except
as otherwise indicated.
Scan-Optics, Inc. and Subsidiaries 5
Number
of Shares
Name and Address Title of Beneficially Percent
of Beneficial Owner Class Owned Owned of Class
------------------- ----------- ----- --------
Edwin W. Schloss Common Stock 502,400 (1) 6.8%
350 Park Avenue
9th Floor
New York, NY 10022
Walter J. Schloss Common Stock 486,400 (2) 6.5%
350 Park Avenue
9th Floor
New York, NY 10022
Walter & Edwin Schloss Common Stock 472,400 (3) 6.3%
Associates, L.P.
350 Park Avenue
9th Floor
New York, NY 10022
<FN>
(1) Edwin W. Schloss has sole voting and dispositive power with respect to the
30,000 shares of common stock which he individually owns. In addition, by
reason of his position as one of the general partners of Schloss Management
Company ("SMC"), which is the general partner of Walter & Edwin Schloss
Associates, L.P. ("Associates") (listed in the above table), Edwin W.
Schloss may be deemed to have shared voting and dispositive powers with
respect to the 472,400 shares of common stock owned by Associates, thereby
increasing his beneficial ownership of the common stock to 502,400 shares,
or 6.8% of the Common Stock outstanding.
(2) Walter J. Schloss has sole voting and dispositive power with respect to the
14,000 shares of common stock which he individually owns. In addition, by
reason of his position as one of the general partners of SMC, which is the
general partner of Associates (listed in the above table), Walter J.
Schloss may be deemed to have shared voting and dispositive power with
respect to the 472,400 shares of common stock owned by Associates, thereby
increasing his beneficial ownership of the common stock to 486,400 shares,
or 6.5% of the common stock outstanding. In addition, Walter J. Schloss
from time to time possesses certain indicia of investment discretion over
10,000 shares of common stock held in the accounts of his clients, but he
has no voting power, and he disclaims beneficial ownership, with respect to
such shares. If he were deemed to have beneficial ownership of such 10,000
shares, his total beneficial ownership of the common stock would be 496,400
shares, or 6.7% of the common stock outstanding.
(3) Associates has reported that it has sole voting and dispositive power with
respect to the shares listed opposite its name, except that Edwin W.
Schloss and Walter J. Schloss, solely by reason of their positions as
general partners of SMC, the general partner of Associates, may be deemed
to have shared voting and dispositive power with respect to those shares.
See footnotes (1) and (2) above.
</FN>
See "Election of Directors-Share Ownership of Management" for information
on beneficial ownership of common stock by directors and officers of
Scan-Optics.
6 Scan-Optics, Inc. and Subsidiaries
GOVERNANCE OF SCAN-OPTICS
In accordance with our By-Laws and Delaware law, responsibility for the
management of Scan-Optics is vested in its Board of Directors. During 2002, the
Board of Directors met nine times. All directors attended at least 75% of the
aggregate of the number of meetings of the Board of Directors and of committees
of the Board on which they served.
The Board has delegated responsibilities with respect to management
compensation and employee stock option plans to the Stock Options and Executive
Compensation Committee, responsibilities with respect to certain audit matters
to the Audit Committee and responsibilities with respect to recommending
candidates to serve on the Board to the Nominating Committee.
The Stock Options and Executive Compensation Committee is composed of Logan
Clarke, Jr. (Chairman), Richard J. Coburn and John J. Holton. The Audit
Committee is composed of Robert H. Steele (Chairman), E. Bulkeley Griswold and
Lyman C. Hamilton, Jr. Each of the Audit Committee members meets the standards
for independence from Scan-Optics established under Rule 4200(a)(15) of the
National Association of Securities Dealers' listing standards. The Nominating
Committee is composed of Messrs. Griswold (Chairman), Holton and Clarke.
The Stock Options and Executive Compensation Committee is responsible for
reviewing and supervising all ordinary and incentive compensation payments and
plans for executive officers of Scan-Optics and for approving grants of stock
options to employees under our employee stock option plans. During 2002, the
Stock Options and Executive Compensation Committee met twice. The Audit
Committee is responsible for reviewing the adequacy of financial controls and
the adequacy and accuracy of financial reporting. The Audit Committee met six
times during 2002, four of which were conference calls relating to quarterly
earnings reports. The Nominating Committee is responsible for screening and
recommending candidates to serve on the Board. The Nominating Committee met once
in 2002.
Pursuant to our By-Laws, nominations for directors may be made by any
stockholder entitled to vote for the election of directors at the meeting who
complies with the notice procedures in the By-laws and who is a stockholder of
record at the time the notice is given. To be timely, a stockholder's notice
must be received at the principal executive offices of Scan-Optics not less than
40 days nor more than 90 days prior to the meeting. If stockholders have less
than 50 days' prior notice of the date of the meeting, however, a stockholder
nomination will be timely if received not later than the close of business on
the tenth day following the earlier of:
o the day on which notice of the date of the meeting was mailed or
o the day public disclosure of the meeting date was made.
A stockholder's notice must set forth:
o all information relating to the nominee that is required to be
disclosed in solicitations of proxies for election of directors or is
otherwise required pursuant to Regulation 14A under the Exchange Act;
Scan-Optics, Inc. and Subsidiaries 7
o the proposed nominee's written consent to being named in a proxy
statement as a nominee and to serving as a director if elected; and
o as to the stockholder giving the notice, (i) the name and address, as
they appear on Scan-Optics books, of such stockholder and any other
stockholder known by such stockholder to be supporting such nomination
and (ii) the class and number of shares of Scan-Optics which are
beneficially owned by such stockholder.
A stockholder making such a nomination must also comply with all applicable
requirements of the Exchange Act and the rules and regulations thereunder with
respect to such matter.
Directors, other than those who are full-time employees of Scan-Optics or a
subsidiary, each receive a monthly fee of $750 and additional fees of $1,200 per
Board meeting attended and $500 per committee meeting attended. Directors who
are full-time employees of Scan-Optics receive no remuneration for serving on
the Board of Directors or committees. Under the Scan-Optics, Inc. 1990 Stock
Option Plan for Outside Directors, each non-employee director automatically
receives an option to purchase 5,000 shares of common stock on the date of each
annual meeting of stockholders of Scan-Optics. The exercise price per share is
equal to the fair market value of a share of common stock on the date of grant.
($.34 per share on June 6, 2002, the date of last year's annual meeting). The
options vest six months after the date of grant and also vest upon a
reorganization, merger or consolidation in which Scan-Optics is not the
surviving corporation.
1. ELECTION OF DIRECTORS
The Certificate of Incorporation of Scan-Optics provides for a Board of
Directors which is divided into three classes, as nearly equal in size as
possible, with one class elected each year for a three-year term, to hold office
until the end of such term and until successors have been elected and qualified.
Pursuant to the Certificate of Incorporation, the Board of Directors has
determined that Scan-Optics will have eight directors, two in the class whose
term will expire in 2004, three in the class whose term will expire in 2005 and
three in the class whose term will expire in 2006. At the 2003 Annual Meeting,
three directors are to be elected to constitute the class whose term will expire
in 2006.
It is intended that the shares represented by the accompanying proxy will
be voted for the election of Lyman C. Hamilton, Jr., James C. Mavel and Ralph J.
Takala as directors unless the proxy indicates that authority to vote for such
nominees is withheld. If a nominee is unable or declines to serve, which the
Board of Directors has no reason to expect, the attorneys named in the proxy
intend to vote for another person designated by the Board of Directors.
Under Delaware law, directors are elected by a plurality of the votes cast.
Votes withheld and broker non-votes are not counted as votes cast in the
election of directors.
The following information sets forth the nominees for election at this
meeting and each director continuing in office, their ages, business experience
over at least the last five years, other directorships and period of time as a
director of Scan-Optics.
Information Regarding Nominees and Continuing Directors
Nominees for election to Class III at this meeting to terms expiring in 2006:
8 Scan-Optics, Inc. and Subsidiaries
Mr. Lyman C. Hamilton, Jr., age 76, is an investment manager and was
formerly Chief Executive Officer and President of InterDigital Communications
Corporation, a specialized communications company, from 1993 to 1994. He served
as Chairman and Chief Executive Officer of Alpine PolyVision, Inc., a flat panel
display manufacturer, from 1991 to 1993 and of Imperial Corporation of America,
a financial services organization, from 1989 to 1990 and as Chairman and
President of Tamco Enterprises, Inc., an investment company, from 1980 to 1989.
He had previously served in various positions during a 17 year association at
ITT Corporation including President during 1977 and Chief Executive Officer from
1978 to 1979. Mr. Hamilton is also a director of Videonet, Inc., a privately
held provider of videoconferencing services. He has been a member of the Board
of Directors since 1985.
Mr. James C. Mavel, age 57, joined Scan-Optics on January 2, 1996 as
President and Chief Operating Officer. On December 31, 1996, Mr. Mavel was
promoted to Chief Executive Officer. On May 15, 1997, Mr. Mavel was promoted to
Chairman of the Board of Directors. From 1991 to 1995 Mr. Mavel was Vice
President and General Manager of the Imaging Systems Division of Unisys
Corporation. He has been a member of the Board of Directors since 1996.
Mr. Ralph J. Takala, age 63, is an independent business advisor and
financial consultant. In connection with that role, he served as Interim Chief
Financial Officer of PictureTel Corporation, an SEC registrant, from 2000 to
2001. Previously, he served as a partner at Ernst & Young, LLP, an international
professional services firm, from 1978 to 1995. For a seven year period ending in
1988 at Ernst & Young, LLP, Mr. Takala served as engagement partner for
Scan-Optics. Mr. Takala's appointment was approved by the current Board of
Directors and he will be instated upon stockholder approval.
Class II directors whose present terms continue until 2004:
Mr. Logan Clarke, Jr., age 75, is an independent management consultant. He
previously served as Interim Executive Director of Southeast Area Technology
Center, a business incubator and revolving loan fund from 1995 to 1996,
independent management consultant from 1991 to 1995, acting President of
Hartford College for Women from 1990 to 1991 and as Executive Vice President of
Society for Savings, a savings bank, from 1986 to 1990. He has been a member of
the Board of Directors since 1981.
Mr. Richard J. Coburn, age 71, is Manager of Sentry Tec LLC, a developer of
smart camera equipment for law enforcement. From 1993 to October, 2001, Mr.
Coburn served in senior officer positions with Accent Color Sciences, Inc., a
manufacturer of color printing systems. Previously he served as President of KCR
Technology, Inc., a manufacturer of high speed printers, from 1983 to 1991.
Except for a short period in 1980, he has been a member of the Board of
Directors since 1968.
Class I directors whose present terms continue until 2005:
Mr. E. Bulkeley Griswold, age 64, is Managing General Partner of L&L
Capital Partners, LLC, a corporate finance partnership. Mr. Griswold is also a
director of NLC Insurance Companies, the New York Mercantile Exchange, the Trust
Company of Connecticut and a number of other privately held companies. He has
been a member of the Board of Directors since 1989.
Scan-Optics, Inc. and Subsidiaries 9
Mr. John J. Holton, age 70, is Chairman of Yojna, Inc., a software
development and marketing company specializing in distribution of check images
to support financial institution applications, which position he has held since
1996. He had previously served as a Vice President of Unisys Corporation. During
his long career with Unisys (which resulted from the merger of Burroughs and
Sperry Corporations) he had key assignments as President of Burroughs K.K.
JAPAN, Vice President and General Manager of American Pacific Division and
Strategic Account Management. Mr. Holton has been a member of the Board of
Directors since 1998.
Mr. Robert H. Steele, age 64, is Vice Chairman of the John Ryan Company, a
banking services company, which position he has held since 1998. He previously
held the positions of Executive Vice President during 1997 and Senior Vice
President from 1992 to 1997. Mr. Steele is also Chairman of Moore Medical
Corporation (a distributor of medical, surgical and pharmaceutical products),
and a director of NLC Insurance Companies, SmartServ Online, Inc. (a provider of
Web and wireless applications) and the New York Mercantile Exchange. He has been
a member of the Board of Directors since 1978.
Share Ownership of Management
The following table sets forth certain information regarding the beneficial
ownership of shares of common stock as of April 25, 2003 of each director, each
nominee for director and each executive officer named in the Summary
Compensation Table contained elsewhere in this proxy statement.
Percentage
of Common Stock
Name Number of Shares (1) Outstanding
-------------------------- ---------------- ----------------
Logan Clarke, Jr. 50,600 (2)
Richard J. Coburn 55,200 (2)
Richard C. Goyette 191,063 2.5%
E. Bulkeley Griswold 83,000 1.1%
Lyman C. Hamilton, Jr. 55,000 (2)
John J. Holton 20,000 (2)
Joel K. Howser 154,081 2.0%
James C. Mavel 380,483 4.9%
Clarence W. Rife 183,569 2.4%
Robert H. Steele 78,000 (2)
Ralph J. Takala
Michael J. Villano 192,871 2.5%
(1) Includes the following number of shares subject to options exercisable
within 60 days of April 25, 2003: Logan Clarke, Jr., 50,000 shares; Richard J.
Coburn, 50,000 shares; Richard C. Goyette, 190,583 shares; E. Bulkeley Griswold,
46,500 shares; Lyman C. Hamilton, Jr., 50,000 shares; John J. Holton, 20,000
shares; Joel K. Howser, 153,000 shares; James C. Mavel, 320,000 shares; Clarence
W. Rife, 180,283 shares; Robert H. Steele, 50,000 shares; and Michael J.
Villano, 180,750 shares.
(2) Ownership is less than 1%.
All directors and executive officers as a group (14 persons) beneficially owned
1,671,243 shares of our common stock, which constituted 17.3% of the outstanding
common stock as of that date. This total includes 1,556,481 shares subject to
options exercisable within 60 days of April 25, 2003.
10 Scan-Optics, Inc. and Subsidiaries
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation paid
to the Chief Executive Officer and the four other most highly compensated
executive officers of Scan-Optics in 2002 for services rendered in all
capacities during the fiscal years ended December 31, 2002, 2001 and 2000.
Summary Compensation Table
Long Term
Compensation
Annual Compensation Awards
------------------- ------
Other
Annual Securities All Other
Compen- Underlying Compen-
Name and Salary Bonus sation Options sation
Principal Position Year ($) ($) ($)(1) (#) ($)(2)
- ----------------------------------------------------------------------------------------------------------------------
James C. Mavel 2002 262,500 55,466 28,095 10,366
Chairman of the Board, Chief 2001 250,000 100,000 44,102 250,000 17,960
Executive Officer, Director 2000 250,000 45,481 19,490
and President
Richard C. Goyette 2002 147,900 32,170 20,362 822
Vice President 2001 145,000 58,000 30,065 145,000 5,088
Sales and Marketing 2000 168,692 10,000 29,465 8,566
Joel K. Howser 2002 132,600 28,842 10,391 6,334
Vice President 2001 130,000 52,000 15,619 130,000 10,422
Software Development 2000 130,000 2,500 15,019 10,364
Clarence W. Rife 2002 132,600 28,842 17,299 6,524
Vice President 2001 130,000 52,000 20,832 130,000 10,655
Access Services Division 2000 110,833 20,232 10,550 9,443
and Hardware Engineering
Michael J. Villano 2002 147,000 31,061 19,244 7,260
Chief Financial Officer, 2001 140,000 56,000 19,539 140,000 9,594
Vice President and Treasurer 2000 140,000 20,000 18,939 8,073
(1) Other annual compensation includes perquisites such as Group Term Life and
Disability insurance premiums, car allowances, legal counseling, and country
club memberships. Mr. Mavel received $8,421 in car allowance and $8,554 in
country club membership. Mr. Goyette received $7,800 in car allowance and $8,490
in legal counseling. Mr. Howser received $7,800 in car allowance. Mr. Rife
received $7,800 in car allowance and $7,615 in disability insurance premiums.
Mr. Villano received $7,800 in car allowance and $6,924 in country club
membership.
(2) Includes employer match under the Scan-Optics, Inc. Retirement Savings Plan,
a section 401 plan under the Internal Revenue Code of 1986, the stock allocation
under the Scan-Optics, Inc. Employee Stock Ownership Plan, term life insurance
and other insurance premiums paid by Scan-Optics for the benefit of the
executive officer.
Scan-Optics, Inc. and Subsidiaries 11
Options Granted in Last Fiscal Year
During 2002, no options were granted to any executive officers listed in
the Summary Compensation Table. In general, options granted to employees under
our stock option plans vest in installments of one-third commencing one year
after grant. Options granted to the officers on December 31, 2001 vested six
months after the date of grant. The option exercise price is equal to the fair
market value of a share of common stock on the date of grant. Options vest in
full upon a reorganization, merger or consolidation in which Scan-Optics is not
the surviving corporation and upon other specified events.
Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values
The following table summarizes options exercised during 2002 and presents
the value of unexercised options held by the named executives at fiscal
year-end:
Number of Value*
Securities of
Underlying Unexercised
Shares Unexercised In-the-Money
Acquired Value Options Options
On Exercise Realized* at Fiscal at Fiscal
Name (#) ($) Year-End Year-End
- --------------------------------------------------------------------------------------------------------------------
James C. Mavel 0 0 320,000 (1) $ 7,500 (1)
0 (2) $ 0 (2)
Richard C. Goyette 0 0 190,583 (1) $ 4,350 (1)
0 (2) $ 0 (2)
Joel K. Howser 0 0 153,000 (1) $ 3,900 (1)
0 (2) $ 0 (2)
Clarence W. Rife 0 0 180,283 (1) $ 3,900 (1)
3,517 (2) $ 0 (2)
Michael J. Villano 0 0 180,750 (1) $ 4,200 (1)
0 (2) $ 0 (2)
<FN>
(1) Exercisable
(2) Unexercisable
</FN>
*Values are calculated by subtracting the exercise or base price from the fair
market value of the common stock as of the exercise date, or in the case of
unexercised options, at fiscal year end.
12 Scan-Optics, Inc. and Subsidiaries
Executive Employment Agreements
Scan-Optics entered into an employment agreement ("Employment Agreement")
effective as of December 31, 1996 with James C. Mavel to serve as its President
and Chief Executive Officer and in such other executive capacities as the Board
of Directors may designate from time to time. The term of Mr. Mavel's employment
extends until either party terminates it. The Employment Agreement provides for
a base annual salary of $200,000 or such greater amount as the Board of
Directors may from time to time determine, annual incentive compensation,
involving both potential cash and stock option benefits, as the Stock Options
and Executive Compensation Committee of the Board of Directors may determine,
life insurance in the face amount of $550,000, use of an automobile, health and
disability insurance benefits, participation in other benefits available
generally to executive employees as the Board of Directors may determine, and
certain other personal benefits. Mr. Mavel's employment terminates automatically
upon death or after three months of disability, and may also be terminated by
Scan-Optics or Mr. Mavel. Under the Employment Agreement, Mr. Mavel is entitled
to severance benefits consisting of one-year's base pay and continued
participation for a year in our health and disability insurance plans if
Scan-Optics terminates Mr. Mavel's employment without cause (as defined in the
Employment Agreement) prior to a change in control of Scan-Optics or if Mr.
Mavel, prior to a change in control, terminates his employment because
Scan-Optics has significantly diminished his job responsibilities.
Following a change in control of Scan-Optics, Mr. Mavel would be entitled
to enhanced severance benefits, similar to those available to other executive
officers and described below, if his employment terminates involuntarily (except
on account of death or disability or for cause) or he terminates his employment
for good reason. Good reason is defined to include: an adverse change in Mr.
Mavel's powers, responsibilities or duties; a reduction in his base pay,
discontinuance or a reduction of his participation in an incentive pay plan or
arrangement or employee benefits in which he was participating; the failure of a
successor company to assume the obligations of Scan-Optics under the Employment
Agreement in connection with a liquidation, merger or consolidation of
Scan-Optics or a transfer of all or substantially all of its assets; or any
material breach of the agreement by Scan-Optics or any successor. Upon any such
termination of employment, Mr. Mavel will receive a lump sum payment equal to
the sum of (a) two and a half times his base pay, (b) two and a half times his
incentive payments from the preceding year (or the second or third preceding
year, if greater), (c) two and a half times Scan-Optics' matching contribution
to its Retirement Savings Plan that would be made if he deferred four percent
(or such higher percentage as may be eligible for matching contributions) of the
amount of his base pay and incentive pay, and (d) the value of all his options
to acquire Scan-Optics stock that will not become exercisable on account of his
termination. The lump sum payment is subject to reduction if necessary to avoid
the imposition of an excise tax under the federal income tax law limitations on
so-called "golden parachute" payments. In addition, Mr. Mavel's health,
disability and life insurance coverages will continue for two years following
termination of employment.
A change in control is defined as a change that would be required to be
reported pursuant to the proxy regulations under the Exchange Act, whether or
not Scan-Optics is then subject to such reporting requirements. A change in
control would also occur if any person or entity acquires 22% or more of the
voting power of our outstanding securities or if over a two-year period the
members of our Board of Directors at the beginning of the period (together with
any persons nominated by a two-thirds majority of such directors) cease to
constitute a majority of the Board.
Scan-Optics, Inc. and Subsidiaries 13
Executive Severance Agreements
Scan-Optics has adopted severance agreements for executive officers,
including Mr. Goyette, Mr. Howser, Mr. Rife and Mr. Villano. These agreements
provide severance benefits in the event of an involuntary termination of
employment with Scan-Optics (except on account of death, disability or cause) or
a voluntary termination of employment with Scan-Optics where good reason exists,
in either case following a change in control of Scan-Optics. A change in control
is defined in the same way as in Mr. Mavel's Employment Agreement described
above. On an involuntary termination following a change in control, each
executive officer is entitled to a lump sum payment equal to the sum of (a) two
and a half times his base pay and commission pay, (b) two and a half times his
incentive payments from the preceding year (or the second or third preceding
year, if greater), (c) two and a half times Scan-Optics' matching contribution
to its Retirement Savings Plan that would be made if he deferred under such Plan
four percent (or such higher percentage as may be eligible for matching
contributions) of the amount of base pay, commission pay and incentive pay, and
(d) the value of all options to acquire Scan-Optics common stock that will not
become exercisable on account of the executive officer's termination. The lump
sum payment is subject to reduction if necessary to avoid the imposition of an
excise tax under federal income tax law limitations on so-called "golden
parachute" payments. In addition, the executive officer's insurance coverages
will continue for two years following termination. These benefits generally will
be in addition to any other benefits that executive officers are entitled to
receive from Scan-Optics.
Executive Insurance Agreement
Under an insurance agreement with Mr. Rife, Scan-Optics is obligated to
provide certain retirement and disability benefits. If Mr. Rife dies while in
the employ of Scan-Optics but prior to attaining the age of 65, Scan-Optics is
obligated to pay his beneficiary $50,000 per annum for each of the ten years
following such death, with payment to commence in the year of death. If he
retires from Scan-Optics upon attaining the age of 65, or thereafter,
Scan-Optics is obligated to pay him (or his beneficiary in the event that he
dies during the retirement period) $50,000 per annum for each of the ten years
following such retirement, with payment to commence in the year of retirement.
To provide for the adequate funding of its obligations under the agreement,
Scan-Optics has purchased and is obligated to maintain at its expense an
insurance policy on Mr. Rife's life in the face amount of $310,000. Scan-Optics
has purchased and is obligated to maintain for the benefit of Mr. Rife, at
Scan-Optics' expense, a disability income policy which would provide disability
benefits to him in the amount of $2,500 per month. The agreement provides that
payments under the disability policy will commence six months after a
determination of disability has been made and will continue until Mr. Rife
reaches the age of 65. The agreement provides for automatic termination if Mr.
Rife resigns or otherwise voluntarily terminates his employment other than by
reason of disability or retirement upon attaining the age of 65, or if his
employment is terminated by reason of gross misconduct.
14 Scan-Optics, Inc. and Subsidiaries
COMPARISON OF FIVE YEAR TOTAL RETURN AMONG
SCAN-OPTICS INC., THE RUSSELL 2000 INDEX
AND THE NASDAQ COMPUTER DATA PROCESSING INDEX
DECEMBER 31, 1997 - DECEMBER 31, 2002
[GRAPHIC OMITTED]
12/97 12/98 12/99 12/00 12/01 12/02
----- ----- ----- ----- ----- -----
The Russell 2000 Index $100.00 $178.39 $392.44 $180.62 $145.44 $100.29
Nasdaq Computer & Data Processing Index $100.00 $ 97.45 $118.17 $114.60 $117.45 $100.29
Scan-Optics, Inc. $100.00 $ 44.85 $ 19.12 $ 1.84 $ 2.82 $3.18
*$100 invested on 12/31/97 in stock or index including reinvestment of
dividends.
Fiscal year ending December 31st.
Scan-Optics, Inc. and Subsidiaries 15
Report of the Board of Directors and Stock Options
and Executive Compensation Committee
The Stock Options and Executive Compensation Committee is responsible for
making recommendations to the full Board of Directors with respect to the
compensation of our Chief Executive Officer and other executive officers of
Scan-Optics, and with respect to long- and short-term incentive compensation
awards. It also makes grants under our stock option plans for employees. The
members of the Stock Options and Executive Compensation Committee are Logan
Clarke, Jr. (Chairman), Richard J. Coburn and John J. Holton. All members are
non-employee directors, and no member has any direct or indirect material
interest in or relationship with Scan-Optics outside of his position as
director.
During 2002, the Stock Options and Executive Compensation Committee met
separately from the Board of Directors on two occasions, and other decisions
were made in joint session with the other members of the Board of Directors. Mr.
Mavel, the sole member of management who serves on the Board of Directors, did
not participate in decisions specifically concerning his compensation. The
policies of the Board and the Stock Options and Executive Compensation Committee
and their application in 2002 are described below.
The principal components of our executive compensation program are base
salary, bonus compensation and stock options. Actual salary changes are based on
performance. Bonus awards for executive officers and other key members of
management are paid only if Scan-Optics meets specified goals. Special awards
can be granted to various members of management and other key employees.
Stock options are intended to align the interests of top management with
the interests of stockholders. The Committee has the authority to determine the
individuals to whom stock options are awarded, the terms on which option grants
are made, and the number of shares subject to each option.
The overall objective of our compensation program is to reward performance
in a manner that is competitive with comparable companies and that provides
incentives for managers to produce steadily improved results. Historically, we
have carefully measured the various compensation components, base salary,
bonuses, options and other fringe benefits against those offered by peer
companies of similar size to assure that Scan-Optics' executives and key
employees are compensated in a fair manner. In December 2001, we adopted a
business plan that largely determines the amount of compensation available to
the seven executive officers and seventeen other members of management and that
includes various incentives for these officers and other members of management
if Scan-Optics achieves the performance goals included in the plan. We are
satisfied that the compensation program included in our 2002 business plan is
consistent with the overall objective of providing fair and competitive
compensation that offers adequate incentives for the achievement of our
performance goals.
The Committee approved raises for the seven executive officers in June of
2002. The executive officers had not received a raise in the prior 3 years.
These raises represented cost of living and merit increase adjustments and
ranged from 4% to 10% of base salary.
16 Scan-Optics, Inc. and Subsidiaries
In accordance with the 2002 business plan, the Committee approved awards of
bonus compensation and stock options for the achievement of the performance
goals included in the 2002 business plan. Achievement of the performance goals
was based on the consolidated financial statements of Scan-Optics as of and for
the year ended December 31, 2002, as audited by Ernst & Young. Under the plan, a
total of $387,000 in bonus compensation was earned, of which $227,000 was paid
to the seven executive officers and $160,000 was paid to the seventeen other key
members of management. In addition, options to purchase an aggregate of 682,500
shares of our common stock were granted on March 18, 2003, the date of the Ernst
& Young LLP opinion. The seven executive officers received 512,500 stock
options, and the seventeen other key members of management received 170,000
stock options. The named executives in this proxy received the following
options: Mr. Mavel, 125,000; Mr. Goyette, 72,500; Mr. Howser, 65,000; Mr. Rife,
65,000; and Mr. Villano, 70,000. The options have an exercise price of $.28 per
share, the market price on the date of grant.
The policies of the Committee and the Board with respect to the Chief
Executive Officer's compensation and the role of performance in the
determination of his compensation included in the other executive officers
compensation review, as described above.
Board of Directors and Stock Options and Executive Compensation Committee
*Logan Clarke, Jr., Chairman Lyman C. Hamilton, Jr.
*Richard J. Coburn James C. Mavel
*John J. Holton Robert H. Steele
E. Bulkeley Griswold
(*) indicates member of the Stock Options and Executive Compensation Committee
Report of the Audit Committee
In accordance with its written charter adopted by the Board of Directors,
the Audit Committee (the "Committee") oversees, on behalf of the Board of
Directors, the quality and integrity of the accounting, auditing and financial
reporting practices of Scan-Optics. Management has the primary responsibility
for the financial statements and the reporting process, including the systems of
internal controls.
The Committee consists entirely of independent directors. The Audit
Committee met six times during 2002, four of which were conference calls
relating to quarterly earnings reports.
In discharging its oversight responsibility as to the audit process, the
Committee obtained from the independent auditors a formal written statement
describing all relationships between the auditors and Scan-Optics that might
bear on the auditors' independence consistent with the Independence Standards
Board Standard No. 1, "Independence Discussions with Audit Committees." The
Committee discussed with the auditors any relationships that may affect their
objectivity and independence, including fees for non-audit services, and
satisfied itself as to the auditor's independence. The Committee also discussed
with management and the independent auditors the quality and adequacy of
Scan-Optics' internal controls and the internal audit function's organization,
responsibilities, budget and staffing. The Committee reviewed with the
independent auditors their audit plan and audit scope.
Scan-Optics, Inc. and Subsidiaries 17
The Committee discussed and reviewed with the independent auditors all
communications required by generally accepted auditing standards, including
those described in Statement on Auditing Standards No. 61, as amended,
"Communications with Audit Committees" and, with and without management present,
discussed and reviewed the independent auditors' examination of the financial
statements.
The Committee reviewed the audited financial statements of Scan-Optics as
of and for the year ended December 31, 2002, with management and the independent
auditors. This review included 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.
Based on the reviews and discussions described above, the Committee
recommended to the Board of Directors that the audited financial statements of
Scan-Optics be included in its Annual Report on Form 10-K for the year ended
December 31, 2002, for filing with the Securities and Exchange Commission, and
the Board of Directors approved this recommendation. The Committee also
recommended, subject to stockholder approval, that Ernst & Young LLP be selected
to serve as Scan-Optics' independent auditors for the year ending December 31,
2003.
Principal Accounting Firm Fees
Set forth below is a summary of the fees paid for the year ended December
31, 2002 to the Company's principal accounting firm, Ernst & Young LLP.
Audit fees $ 151,500
Consulting fees relating to financial information 0
systems design and implementation
All other fees:
Benefit plan audit fees 15,000
Tax return preparation fees (compliance fees) 52,000
-----------
Total fees $ 218,500
-----------
Robert H. Steele, Audit Committee Chairman
E. Bulkeley Griswold, Audit Committee Member
Lyman C. Hamilton, Jr., Audit Committee Member
April 21, 2003
CERTAIN TRANSACTIONS
During 2002, legal services were rendered to Scan-Optics by a law firm of
which Richard D. Harris, Secretary of Scan-Optics, is a partner.
18 Scan-Optics, Inc. and Subsidiaries
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors and officers and
persons who own more than 10% of our common stock to file reports of ownership
and changes in ownership on Forms 3, 4 and 5 with the Securities Exchange
Commission. Those directors, officers and stockholders are required to send us
copies of all such forms they file. Based solely on our review of the copies of
such forms we have received and written representations from certain of our
officers and directors, we believe that all of our officers and directors filed
the required forms on or before their due dates.
2. APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors recommends that proxies be voted in favor of the
ratification of the appointment of Ernst & Young LLP, certified public
accountants, as independent auditors for the fiscal year ending December 31,
2003. Ernst & Young LLP has been our independent auditor since 1979. Under
Delaware law and our By-Laws, the affirmative vote of a majority of the votes
cast at the meeting will be required to ratify the appointment. Abstentions and
broker non-votes will have no effect on the outcome of the vote.
Representatives of Ernst & Young LLP are expected to be present at the
Annual Meeting where they will have an opportunity to make a statement if they
desire to do so and are expected to be available to answer appropriate
questions.
3. OTHER BUSINESS
The Board of Directors does not know of any matters to be presented at the
Annual Meeting other than those set forth in the Notice of Annual Meeting of
Stockholders. However, if any other matters properly come before such meeting,
the persons named in the enclosed proxy will have discretionary authority to
vote all proxies on such matters in accordance with their judgment.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the Annual Meeting of
Stockholders in 2004 must be received by Scan-Optics at its principal executive
offices no later than February 13, 2004 in order to be considered for inclusion
in Scan-Optics' proxy statement and form of proxy relating to the Annual Meeting
of Stockholders in 2004. Any such proposal must comply with Rule 14a-8
promulgated by the Securities and Exchange Commission pursuant to the Exchange
Act and the notice provisions of our By-Laws described under "Governance of
Scan-Optics," beginning on page 3.
In addition, with respect to the Annual Meeting of Stockholders in 2004, if
a stockholder does not provide notice to Scan-Optics of a stockholder proposal
by March 17, 2004, the attorneys named in the form of proxy mailed with our
proxy statement for that meeting will have discretionary authority to vote as
they determine on the proposal. If we change the date of the 2004 Annual Meeting
by more than 30 days from the date of the 2003 Annual Meeting, those attorneys
will have that discretionary authority to vote unless the stockholder provides
notice of the stockholder proposal a reasonable time before we mail our proxy
materials for the meeting.
RICHARD D. HARRIS
Secretary
May 5, 2003
Scan-Optics, Inc. and Subsidiaries 19
20 Scan-Optics, Inc. and Subsidiaries SCAOP-PS-03
SCAN-OPTICS, INC.
Dear Stockholder,
Pleases take note of the important information enclosed with the Proxy Ballot.
There are a number of issues related to the management and operation of your
Company that require your immediate attention and approval. These are discussed
in detail in the enclosed proxy materials.
Your vote counts, and you are strongly encouraged to exercise your right to vote
your shares.
Please mark the boxes on this proxy card to indicate how your shares will be
voted. Then sign the card, detach it and return your proxy vote in the enclosed
postage paid envelope.
Your vote must be received prior to the Annual Meeting of Stockholders, June 12,
2003.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
Scan-Optics, Inc.
DETACH HERE
SCAN-OPTICS, INC.
169 Progress Drive
Manchester, Connecticut 06040
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS ON JUNE 12, 2003
The undersigned hereby appoints as proxies, James C. Mavel and Michael J.
Villano, or either of them, each with the power to appoint his substitute, and
hereby authorizes them to vote, as designated on the reverse side, all shares of
capital stock of Scan-Optics, Inc. (the "Company") held of record by the
undersigned on April 25, 2003 at the Annual Meeting of Stockholders to be held
on June 12, 2003 and any adjournments thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED BY THE
UNDERSIGNED, IF NO DIRECTION IS GIVEN WITH RESPECT TO A PARTICULAR PROPOSAL,
THIS PROXY WILL BE VOTED FOR SUCH PROPOSAL. THE BOARD OF DIRECTORS RECOMMENDS A
VOTE FOR THE PROPOSALS.
PLEASE MARK, SIGN, AND RETURN THIS PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES OF AMERICA.
- --------------------------------------------------------------------------------
Please sign exactly as your name appears on the books of the Company. Joint
owners should each sign personally. Trustees and other fiduciaries should
indicate the capacity in which they sign, and where more than one name appears,
a majority must sign. If a corporation, this signature should be that of an
authorized officer who should state his or her title.
- --------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
__________________________________ __________________________________
__________________________________ __________________________________
__________________________________ __________________________________
SCAN-OPTICS, INC.
C/O EQUISERVE TRUST COMPANY, N.A.
P.O. BOX 8694
EDISON, NJ 08818-8694
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DETACH HERE IF YOU ARE RETURNING YOUR PROXY CARD BY MAIL.
[x] Please mark votes
as in this example.
SCAN-OPTICS, INC.
1. Election of Directors.
Nominees: (01) Lyman C. Hamilton, Jr.,
(02) James C. Mavel and
(03) Ralph J. Takala
FOR ALL NOMINEES [ ] [ ] WITHHELD FROM ALL NOMINEES
[ ] _________________________________________
For all nominees except as noted above
2. To appoint Ernst & Young, LLP as independent auditors for the fiscal year
ending December 31, 2003.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
In their discretion, the proxies are authorized to vote upon any other business
that may properly come before the meeting.
Mark box at right if an address change or comment had been noted on the reverse
side of this card. [ ]
Please be sure to sign and date this Proxy.