VALLEY FORGE SCIENTIFIC CORP.
136 Green Tree Road
Oaks, Pennsylvania 19456
________________________________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held Wednesday, March 14, 2001
________________________________________
To the Shareholders of
Valley Forge Scientific Corp.:
The Annual Meeting of Shareholders (the "Meeting") of Valley Forge
Scientific Corp. (the "Company") will be held at the Hampton Inn at Route 422
and Egypt Road, Oaks, Pennsylvania on Wednesday, March 14, 2001 at 10:30 a.m.
local time, for the following purposes:
1.To elect six directors to hold office until the Annual Meeting of
Shareholders in 2002 and until their respective successors are duly elected
and qualified;
2.To approve a proposal to adopt the Company's 2001 Stock Plan;
3.To approve a proposal to adopt the Company's 2000 Non-Employee
Directors' Stock Option Plan; and
4.To consider and act upon any other matter which may properly come
before the meeting or any adjournment thereof. The Board of Directors of the
Company is presently unaware of any other business to be presented to a vote
of shareholders at the Meeting.
The Board of Directors has fixed the close of business on January 31,
2001 as the record date for the Meeting. Only shareholders of record on that
date are entitled to notice of and vote at the Meeting and any adjournment or
postponement thereof.
The enclosed proxy is solicited by the Board of Directors of the
Company. Reference is made to the accompanying Proxy Statement for further
information with respect to the business to be transacted at the meeting.
By Order of the Board of Directors
/s/Thomas J. Gilloway
THOMAS J. GILLOWAY,
Secretary
Oaks, Pennsylvania
February 2, 2001
IMPORTANT
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN PERSON. EVEN IF YOU
PLAN TO BE PRESENT PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY AT
YOUR EARLIEST CONVENIENCE IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE
IF MAILED IN THE UNITED STATES. IF YOU ATTEND THE MEETING, YOU MAY VOTE EITHER
IN PERSON OR BY PROXY.
VALLEY FORGE SCIENTIFIC CORP.
136 Green Tree Road
Oaks, Pennsylvania 19456
_______________
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Valley Forge Scientific Corp., a
Pennsylvania corporation (the "Company"), in connection with the Company's
Annual Meeting of Shareholders (the "Meeting"), which is scheduled to be held
at 10:30 a.m., local time, on Wednesday, March14, 2001, at the Hampton Inn,
Route 422 and Egypt Road, Oaks, Pennsylvania, and at any adjournment or
postponement thereof, for the purposes set forth in the accompanying Notice of
the Meeting. This Proxy Statement, the foregoing notice, the enclosed proxy,
and the Annual Report to Shareholders are being sent to shareholders on or
about February 8, 2001.
The Board of Directors knows of no matters that are likely to be brought
before the Meeting, other than the matters specifically referred to in the
Notice of the Meeting. If any other matter properly comes before the
Meeting, however, the persons named in the enclosed proxy, or their duly
constituted substitutes acting at the Meeting, will be authorized to vote or
otherwise act thereon in accordance with their judgment on such matters. If
the enclosed proxy is properly executed and returned prior to voting at the
Meeting, the shares represented thereby will be voted in accordance with the
instructions marked thereon. In the absence of instructions, executed proxies
will be voted: (i) "FOR" the six nominees of the Board of Directors for
election as directors; (ii) "FOR" the approval of a proposal to adopt the
Company's 2001 Stock Plan; and (iii) "FOR" the approval of a proposal to adopt
the Company's 2000 Non-Employee Directors Stock Option Plan.
Any proxy may be revoked at any time prior to its exercise by notifying
the Secretary of the Company in writing, by delivering a duly executed proxy
bearing a later date, or by attending the Meeting and voting in person.
RECORD DATE
The record date for determining the holders of common stock ("Common
Stock") of the Company who are entitled to notice and to vote at the Meeting
was January 31, 2001.
VOTING SECURITIES
At January 31, 2001, the Company had 8,081,402 shares of Common Stock
outstanding. Holders of record of Common Stock as of such date will be
entitled to one vote for each share held.
[1]
The presence at the meeting, in person or by proxy, of holders of shares
of common stock having, in the aggregate, a majority of the votes entitled to
cast at the Meeting will constitute a quorum for the Meeting. The affirmative
vote by the holders of a plurality of the shares of common stock represented
at the Meeting is required for the election of Directors, provided a quorum is
present in person or by proxy. All actions proposed herein other than the
election of Directors may be taken upon the affirmative vote of shareholders
possessing a majority of the shares of common stock represented at the
Meeting, provided a quorum is present in person or by proxy.
Abstentions are included in the shares present at the Meeting for
purposes of determining whether a quorum is present, and are counted as a vote
against for purposes of determining whether a proposal is approved. Broker
non-votes (when shares are represented at the Meeting by a proxy specifically
conferring only limited authority to vote on certain matters and no authority
to vote on other matters) are included in the determination of the number of
shares represented at the Meeting for purposes of determining whether a quorum
is present but are not counted for purposes of determining whether a proposal
has been approved and thus have no effect on the outcome.
PROPOSALS TO BE ACTED UPON AT THE ANNUAL MEETING
PROPOSAL 1
ELECTION OF DIRECTORS
At the Meeting, the shareholders will elect six directors to hold office
until the Annual Meeting of Shareholders in 2002, and until their respective
successors are duly elected and qualified.
The Company's by-laws provide that the Board of Directors shall consist
of not fewer than three members. The Board of Directors has fixed the number
of Directors at six. Jerry L. Malis, Thomas J. Gilloway, Leonard I. Malis,
Bruce A. Murray, Bernard H. Shuman and Robert H. Dick, who have each been
nominated for election as a director by the Board of Directors, were elected
to serve their present terms on June 27, 2000. All directors hold office
until the next annual meeting of shareholders, or until their successors are
elected and qualified.
It is the intention of the persons named in the accompanying proxy to
vote, unless otherwise instructed, "FOR" the election as directors of the six
nominees named above. All nominees have expressed their willingness to serve
as directors. If any of the nominees should be unable to serve, the proxies
will be voted for the election of such other person or persons as shall be
determined by the person in the proxy in accordance with their judgment. The
Company is not aware of any reason why any of the nominees, if elected, should
be unable to serve as a director. The vote of a plurality of a quorum of
shareholders present in person or by proxy at the Meeting is required for the
election of the nominees.
[2]
The directors and executive officers of the Company are as follows:
Director
Name Age Position(s) Since
Jerry L. Malis 68 Chairman of the Board and President 1980
Thomas J. Gilloway 63 Executive Vice President, Secretary, 1984
Treasurer and Director
Leonard I. Malis 81 Director 1989
Bruce A. Murray 64 Director 1992
Bernard H. Shuman 75 Vice President and Director 1994
Robert H. Dick 57 Director 1997
Jerry L. Malis, a member of the audit committee, has served as President
or Vice-President and a Director of the Company since its inception in March
1980. As of June 30, 1989, Mr. Malis was elected as Chairman of the Board of
the Company. He has published over fifty articles in the biological science,
electronics and engineering fields, and has been issued twelve United States
patents. Mr. Malis coordinates and supervises the development, engineering and
manufacturing of the Company's products and is in charge of the daily business
operations of the Company. He devotes substantially all his business time to
the business of the Company.
Thomas J. Gilloway has been Executive Vice President and a Director of
the Company since December 1984, and as of June 30, 1989 was appointed
Secretary and Treasurer of the Company. From the Company's inception in March
1980 to December 21, 1984, Mr. Gilloway served in capacities as a
Vice-President and Treasurer. Mr. Gilloway received his undergraduate degree
from LaSalle University in 1959 and his graduate degree from Temple University
in 1963. Prior to his involvement with the Company, Mr. Gilloway was employed
in a marketing capacity for Scott Paper Company, C.R. Bard, Inc., and
CheckPoint Systems as Director of Marketing. He is involved with marketing,
regulatory and contract administration matters for the Company and currently
devotes approximately half of his business time to the business of the
Company.
Leonard I. Malis, M.D., a consultant to the Company since its inception
in March 1980, has been a director since June 30, 1989. Dr. Malis was
Professor and Chairman of the Department of Neurosurgery at Mount Sinai School
of Medicine, New York, New York, from 1971 until 1993, and is currently
Professor and Chairman Emeritus at Mount Sinai School of Medicine. Dr. Malis
designed and built the first commercial bipolar coagulator in 1955, and his
original units were the standard in neurosurgery for many years. Dr. Malis has
been issued five United States patents and has designed and trademarked over
one hundred instruments. He has published over one hundred articles in medical
journals and reviews and is the author of a textbook on neurosurgery.
Bruce A. Murray, a member of the audit committee and the compensation
committee, has been a director of the Company since October 14, 1992. He is a
Managing Member of The Change Management Group, LLC, a management consulting
company; and a Principal of Adair & Murray Associates, Inc., a management
consulting company. From 1991 to May 1993, he was a senior consultant with
the management consulting firm of Rath and Strong. From 1984 to August 1991,
Mr. Murray held positions within the Pfizer Hospital Products Group, as
Director of Engineering-Surgical Products, Corporate Vice President - Research
and Development, and Senior Vice President and Business Manager - Surgical
Products. He has also held senior management positions with Valleylab, Inc.,
Picker Corporation Electronics Division, Ball Brothers Research Corporation
and IIT Research Institute. Mr. Murray received both his B.S. in Engineering
and his M.B.A. from the Illinois Institute of Technology, and is an adjunct
instructor in business strategies at the University of Colorado.
[3]
Bernard H. Shuman has been a director and Vice President of the Company
since September 1, 1994. Mr. Shuman is currently Vice President-Technology.
Prior to September 1, 1994, Mr. Shuman served as President and director of
Diversified Electronic Corporation, a specialty electronics manufacturer which
merged into the Company on August 31, 1994.
Robert H. Dick, a member of the audit committee and the compensation
committee, has been a director of the Company since 1997. He is the principal
of R.H. Dick & Company, Inc., an investment banking firm. From April 1996 to
1998, he was a partner in Boles & Company, an investment banking firm. He was
President, CEO and CFO of two Boles & Company clients: BioMagnetic Therapy
Systems, Inc. (from September 1995 to April 1996) and Pharmx, Inc. (from May
1994 to May 1995). From April 1987 to May 1994, Mr. Dick served as Vice
President-International for Codman & Shurtleff, Inc., a Johnson & Johnson
subsidiary, where he was responsible for new business development and sales
and marketing in non-U.S. markets. Mr. Dick has also held other business
development and sales and marketing positions with Codman & Shurtleff, Inc.,
and product management positions with USCI Surgical Products, a division of
C.R. Bard.
Jerry L. Malis and Dr. Leonard I. Malis are brothers. The Company's
executive officers are elected annually by the Company's directors and shall
continue to serve until their successors are elected and qualified.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held 3 meetings in the fiscal year ended September
30, 2000.
The Board has standing Audit and Compensation committees. No director,
other than Bernard H. Shuman attended fewer than 75% of the (i) total number
of meetings of the Board of Directors held in the most recent fiscal year and
(ii) total number of meetings held by all committees on which that Director
served in the most recent fiscal year.
REPORT OF THE AUDIT COMMITTEE
During the fiscal year ended September 30, 2000, the Audit Committee
consisted of Bruce Murray (Chairman), Robert H. Dick and Jerry L. Malis.
Messrs. Murray and Dick are considered "independent" pursuant to the NASDAQ
listing standards. The Committee is responsible for evaluating the Company's
system of accounting controls and approving the scope of the annual audit.
The Board of Directors has adopted a written charter for the Committee, which
is attached as Exhibit A. The Committee met once during the fiscal year ended
September 30, 2000 and on two occasions after the end of the fiscal year. The
Committee has reviewed and discussed the audited financial statements with
management and the Company's auditors and recommended to the Company's Board
of Directors that the audited financial statements for the fiscal year ended
September 30, 2000 be included in the Company's Annual Report and Form 10-K.
The Committee has also received the written disclosures and the letter from
the Company's independent accountants as required by Independence Standards
Board Standard No. 1 and has confirmed the auditor's independence.
AUDIT COMMITTEE
Bruce A. Murray, Chairman
Robert H. Dick
Jerry L. Malis
[4]
COMPENSATION COMMITTEE
During the fiscal year ended September 30, 2000, the Compensation
Committee consisted of Messrs. Murray (Chairman) and Dick. The Committee acts
on matters related to executive officer compensation and grants of stock
options pursuant to the Company's stock option plans. The Compensation
Committee did not meet during the fiscal year ended September 30, 2000.
DIRECTORS' COMPENSATION
Directors of the Company do not receive any compensation for their
services as members of the Board of Directors, but Directors who are not
officers of the Company are entitled to reimbursement for expenses incurred in
connection with their attendance at meetings and are entitled to participate
in the Company's stock option plans.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE
INDIVIDUALS NOMINATED FOR ELECTION AS DIRECTORS
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the
compensation paid by the Company to its executive officers for the three
fiscal years ended September 30, 2000.
SUMMARY COMPENSATION TABLE
Name and
Principal Position Fiscal Year Salary (1) Number of Shares of
Common Stock Underlying
Options Granted
Jerry L. Malis, 2000 $200,000 ---
President 1999 188,000 ---
1998 189,000 ---
Thomas J. Gilloway, 2000 $ 91,000 ---
Executive Vice President 1999 100,000 ---
1998 161,000 ---
Bernard H. Shuman 2000 $105,000 ---
Vice President - 1999 105,000 ---
Technology 1998 105,000 ---
- ------
(1) Non-cash compensation did not exceed the lesser of $50,000 or 10% of the
cash compensation for the named individual.
[5]
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENT
Effective July 1, 1994, the Company entered into employment agreements
with Jerry L. Malis, President, and Thomas J. Gilloway, Executive Vice
President, for a term of 63 months expiring on September 30, 1999. The
agreements provided for annual base salaries to Mr. Malis and Mr. Gilloway of
$148,720 and $126,940, respectively, in 1994, with annual base salary
increases of 10% commencing on October 1, 1994. In addition the agreements
provided that Messrs. Malis and Gilloway may receive such other cash and stock
bonus and benefits as may be determined from time to time by the Board of
Directors. On September 30, 1999, the Company amended the employment
agreements with Messrs. Malis and Gilloway to extend the terms for an
additional year effective October 1, 1999. As extended the employment
agreements provided for annual base salary of $198,950 for Jerry Malis and
$90,000 for Thomas J. Gilloway. Although the employment agreements for
Messrs. Malis and Gilloway were not extended on October 1, 2000, the Company
continues to provide compensation to them at the annual rate of $198,500 and
$90,000, respectively. For the year ended September 30, 1998, Messrs. Malis
and Gilloway waived their right to a full 10% increase of base salary, opting
to reduce the annual base salary increase from 10% to 5%, and for the year
ended September 30, 1999 Messrs. Malis and Gilloway waived their right to a
10% increase of base salary. The reduction of Mr. Gilloway's base salary for
the year ended September 30, 1999 was due to his being employed on a half-time
basis effective January 1, 1999.
On August 31, 1994, the Company entered into an employment agreement with
Bernard H. Shuman, Vice President-Technology, for a term of 59 months ending
on July 31, 1999. The agreement provided for an annual salary to Mr. Shuman of
$50,000 for the period from September 1, 1994 to July 31, 1995, and a salary
of $105,000 for each twelve month period thereafter. The agreement provides
that Mr. Shuman may receive additional compensation and benefits as may be
determined from time to time by the Board of Directors. Although the
employment agreement has not been extended, the Company continues to provide
compensation to Mr. Shuman on an annual basis of $105,000.
[6]
401(K) PLAN AND PROFIT-SHARING PLAN
Effective January 1, 1990, the Company adopted a 401(k) Plan and Profit
Sharing Plan that covers full-time employees who have attained age 21 and have
completed at least one year of service with the Company. Under the 401(k)
Plan, an employee may contribute an amount up to 25% of his compensation to
the 401(k) Plan on a pre-tax basis not to exceed $10,500 per year (adjusted
for cost of living increases). Amounts contributed to the 401(k) Plan are
non-forfeitable.
Under the Profit Sharing Plan, a participant in the plan participates in
the Company's contributions to the plan as of December 31 in any year, with
allocations to individual accounts based on annual compensation. An employee
does not fully vest an interest in the plan until completion of three years of
employment. The Board of Directors determines the Company's contributions to
the plan on a discretionary basis. The Company has not made any contributions
to date.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of January 20, 2001, certain
information with respect to the beneficial ownership of Common Stock, by each
person known to the Company to own beneficially 5% or more of the outstanding
Common Stock, by each director and nominee, and by all officers and directors
as a group.
Amount of
Name and Address of Beneficial Percentage
Beneficial Owners (1) Ownership Owned
Jerry L. Malis (2)(3) 1,282,276 15.6%
Thomas J. Gilloway(2)(7) 1,001,375 12.2%
Dr. Leonard I. Malis(2)(8) 961,242 11.9%
Bernard H. Shuman(2)(4) 126,467 1.6%
Bruce A. Murray(2)(5) 23,500 *
Robert H. Dick(2)(6) 14,000 *
All officers and directors
as a group (6 persons) 3,408,860 40.4%
____________________
* less than 1%
(1)Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them.
(2)The mailing address of Messrs. Malis, Gilloway, Shuman, Murray and Dick and
Dr. Malis, directors of the Company, is 136 Green Tree Road, P.O. Box 1179,
Oaks, Pennsylvania 19456-1179.
(3)Includes 150,000 shares issuable to Mr. Malis subject to options
exercisable currently or within 60 days.
[7]
(4)Includes 25,000 shares issuable to Mr. Shuman subject to options
exercisable currently or within 60 days, and includes 101,467 shares held in
the Bernard H. Shuman Living Trust, a trust in which Mr. Shuman holds voting
and dispositive control.
(5)Includes 23,500 shares issuable to Mr. Murray subject to options
exercisable currently or within 60 days.
(6)Includes 14,000 shares issuable to Mr. Dick subject to options exercisable
currently or within 60 days.
(7)Includes 150,000 shares issuable to Mr. Gilloway subject to options
exercisable currently or within 60 days, and includes 250,000 shares held in
the Gilloway Family, L.P., a limited partnership in which Mr. Gilloway is a
general partner and possesses voting and dispositive control.
(8)Includes 400,000 shares held in the Leonard and Ruth Malis Family, L.P., a
limited partnership in which Dr. Malis is a general partner and possesses voting
and dispositive control.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since the late 1960's, Dr. Leonard I. Malis, a director of the Company,
on an individual basis, has been a party to royalty arrangements with Codman &
Shurtleff, Inc., formerly known as Johnson & Johnson Professional, Inc., a
principal customer of the Company. Dr. Malis has developed and in the future
may develop passive hand instruments for Codman & Shurtleff, Inc. with no
pecuniary benefits to the Company.
The Company has entered into a five year lease commencing on July 1, 2000
for approximately 4,200 square feet of office and warehouse space at a base
monthly rent of $4,643 with GMM Associates, a Pennsylvania general
partnership, whose partners are Jerry L. Malis, Thomas J. Gilloway and Leonard
I. Malis, principal shareholders, directors and/or officers of the Company.
The related expense for this lease for the year ended September 30, 2000 was
$56,376. The Company believes the rental payments reflect fair rental value
for the space.
For the year ended September 30, 2000, the Company paid legal fees and
costs in the amount of $78,546 to a law firm in which a son-in-law of Jerry
L. Malis is a partner.
In fiscal years 1998, 1999 and 2000, the Company retained R. H. Dick &
Company, Inc., an investment banking and business consulting company, owned by
Robert H. Dick, a director of the Company, to perform investment banking and
business consulting services for the Company.
PROPOSAL 2
APPROVE ADOPTION OF THE
2001 STOCK PLAN
The Board of Directors of the Company has approved, and recommends that
the shareholders approve, the adoption of the Valley Forge Scientific Corp.
2001 Stock Plan (the "Employee Plan") for employees, officers and executives
of, and consultants and advisors to, the Company and any subsidiary. The Plan
authorizes grants of Incentive Stock Options ("ISOs"), Nonstatutory Stock
Options ("NSOs"), Restricted Stock and Stock.
[8]
The Board believes that using long-term incentives under the Employee
Plan will be beneficial to the Company as a means to promote the success and
enhance the value of Valley Forge Scientific Corp. by linking the personal
interests of its employees, officers, executives, consultants and advisors to
those of its shareholders and by providing such individuals with an incentive
for outstanding performance. These incentives also provide the Company
flexibility in its ability to attract and retain the services of individuals
upon whose judgment, interest, and special effort the successful conduct of
the Company's operation is largely dependent. The Employee Plan, if approved
by shareholders, will have an effective date of January 16, 2001, the date it
was approved by the Board of Directors. The following summary of the Employee
Plan is qualified in its entirety by reference to the Employee Plan, a copy of
which is included at the end of this Proxy Statement as Exhibit B.
ADMINISTRATION
The Employee Plan will be administered by either the Board or a committee
appointed by the Board consisting of at least two (2) non-employee directors
who also qualify as "outside directors" under section 162(m) of the Internal
Revenue Code of 1986, as amended ("Code"). If the Board does not appoint a
committee, any reference herein to the committee shall be to the Board.
This committee will have the exclusive authority to administer the
Employee Plan, including the power to determine eligibility, the types and
sizes of awards, the price and timing of awards and the acceleration or waiver
of any vesting restriction.
ELIGIBILITY
Persons eligible to participate in the Employee Plan include all
employees, officers, and executives of, and consultants and advisors to, the
Company and its subsidiaries, as determined by the Committee, including
employees who are members of the Board, but excluding directors who are not
employees. As of January 16, 2001, there were approximately 30 employees of
the Company and its subsidiaries.
LIMITATION ON AWARDS AND SHARES AVAILABLE
An aggregate of 345,000 shares of the Company's Common Stock are
available for grant under the Employee Plan. This amount includes 95,000
shares which were available for issuance under the Company's 1988
Non-Qualified Employee Stock Option Plan, but were not issued as of the
effective date of the Employee Plan. As of the effective date of the Employee
Plan, no further options will be granted under the 1988 Non-Qualified Employee
Stock Option Plan. The maximum number of shares of Common Stock that may be
subject to one or more awards to a single participant under the Employee Plan
during any calendar year is 75,000 shares. As of January 24, 2001, the
closing price of the Company's Common Stock on the NASDAQ was $2.9375 per
share.
[9]
DESCRIPTION OF THE AVAILABLE AWARDS
Incentive Stock Options
An ISO is a stock option that satisfies the requirements specified in
Section 422 of the Code. Under the Code, ISOs may only be granted to
employees. In order for an option to qualify as an ISO, the price payable to
exercise the option must equal or exceed the fair market value of the stock at
the date of the grant, the option must lapse no later than 10 years from the
date of the grant, and the stock subject to ISOs that are first exercisable by
an employee in any calendar year must not have a value of more than $100,000
as of the date of grant. Certain other requirements must also be met.
An optionee will not be treated as receiving taxable income upon either
the grant of an ISO or upon the exercise of an ISO. However, the difference
between the exercise price and the fair market value on the date of exercise
will be an item of tax preference at the time of exercise in determining
liability for the alternative minimum tax, assuming that the common stock is
either transferable or subject to a substantial risk of forfeiture under
Section 83 of the Code.
If Common Stock acquired by the exercise of an ISO is not sold or
otherwise disposed of within two years from the date of its grant and is held
for at least one year after the date such Common Stock is transferred to the
optionee, any gain or loss resulting from its disposition will be treated as
long-term capital gain or loss. If such Common Stock is disposed of before
the expiration of the above-mentioned holding periods, a "disqualifying
disposition" will occur. If a disqualifying disposition occurs, the optionee
will realize ordinary income in the year of the disposition in an amount equal
to the difference between the fair market value of the Common Stock on the
date of exercise and the exercise price, or the selling price of the Common
Stock and the exercise price, whichever is less. The balance of the
optionee's gain on a disqualifying disposition, if any, will be taxed as
capital gain.
In the event an optionee exercises an ISO using Common Stock acquired by
a previous exercise of an ISO, unless the stock exchange occurs after the
required holding periods, such exchange shall be deemed a disqualifying
disposition of the stock exchanged.
The Company will not be entitled to any tax deduction as a result of the
grant or exercise of an ISO, or on a later disposition of the Common Stock
received, except that in the event of a disqualifying disposition, the Company
will be entitled to a deduction equal to the amount of ordinary income
realized by the optionee.
Nonstatutory Stock Options
An NSO is any stock option other than an Incentive Stock Option. Such
options are referred to as "nonstatutory" because they do not meet the
requirements of, and are not eligible for, the favorable tax treatment
provided by Section 422 of the Code.
No taxable income will be realized by an optionee upon the grant of an
NSO, nor is the Company entitled to a tax deduction by reason of such grant.
Upon the exercise of an NSO, the optionee will realize ordinary income in the
amount equal to the excess of the fair market value of the Common Stock on the
date of exercise over the exercise price and the Company will be entitled to a
corresponding tax deduction.
[10]
Upon a subsequent sale or other disposition of Common Stock acquired
through exercise of an NSO, the optionee will realize capital gain or loss to
the extent of any intervening appreciation or depreciation. Such a resale by
the optionee will have no tax consequence to the Company.
On January 19, 2001, NSOs to purchase a total of 85,000 shares, vesting
over a five year period, were granted to ten employees of the Company.
Restricted Stock Awards
Under the Restricted Stock feature of the Employee Plan, an eligible
individual may be granted a specified number of shares of Common Stock.
However, vested rights to such stock are subject to certain restrictions or
are conditioned on the attainment of certain performance goals. If the
recipient violates any of the restrictions during the period specified by the
committee or the performance standards fail to be satisfied, the Stock is
forfeited.
A recipient of a Restricted Stock Award will recognize ordinary income
equal to the fair market value of the Common Stock at the time the
restrictions lapse. The Company is entitled to a tax deduction equal to the
amount of income recognized by the recipient in the year in which the
restrictions lapse.
Instead of postponing the income tax consequences of a Restricted Stock
Award, the recipient may elect to include the fair market value of the Common
Stock in income in the year the award is granted. This election is made under
Section 83(b) of the Code. This Section 83(b) election is made by filing a
written notice with the Internal Revenue Service office with which the
recipient files his or her Federal income tax return. The notice must be filed
within 30 days of the date of grant and must meet certain technical
requirements.
The tax treatment of the subsequent disposition of Restricted Stock will
depend upon whether the recipient has made a Section 83(b) election to include
the value of the Common Stock in income when awarded. If the recipient makes a
Section 83(b) election, any disposition thereafter will result in a capital
gain or loss equal to the difference between the selling price of the Common
Stock and the fair market value of the Common Stock on the date of grant. The
character of such capital gain or loss will depend upon the period the
Restricted Common Stock is held. If no Section 83(b) election is made, any
disposition thereafter will result in a capital gain or loss equal to the
difference between the selling price of the Common Stock and the fair market
value of the Common Stock on the date the restrictions lapsed.
[11]
Stock Awards
An eligible individual may be granted, or sold at a price determined by
the committee, a specified number of shares of Common Stock free of any
vesting restrictions. Stock awards may be granted or sold in respect of past
services or other valid consideration.
AMENDMENT AND TERMINATION
The Board may terminate, amend, or modify the Employee Plan at any time;
provided, however, that shareholder approval is required for any amendment to
the extent necessary or desirable to comply with any applicable law,
regulation, or stock exchange rule.
CHANGE OF CONTROL
In the event that a successor corporation to the Company does not agree
to assume the options granted pursuant to the Employee Plan or to substitute
equivalent options, the Board of Directors shall provide for each optionee to
have the right to exercise all options then held by an optionee for a period
of fifteen days after written notice to the optionee.
VOTE REQUIRED
Adoption of the Employee Plan requires approval by holders of a majority
of the outstanding shares of Common Stock who are present, or represented, and
entitled to vote thereon, at the Annual Meeting.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 2, THE ADOPTION OF
THE VALLEY FORGE SCIENTIFIC CORP. 2001 STOCK OPTION PLAN.
PROPOSAL 3
APPROVE ADOPTION OF THE
2000 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
The Company's Board of Directors has approved and recommends that the
stockholders approve the adoption of the Valley Forge Scientific Corp. 2000
Non-Employee Directors' Stock Option Plan (the "Directors' Plan"), for
non-employee directors of the Company. The Directors' Plan authorizes
automatic grants and discretion grants of nonqualified stock options to
non-employee directors of the Company, who are not members of the immediate
family of an employee/director of the Company. Currently, the Company's Board
of Directors is composed of two such non-employee directors. The total number
of shares of Common Stock available for awards under the Directors' Plan is
150,000 shares. The closing price for the Company's Common Stock on January
24, 2001, as reported on the NASDAQ, was $2.9375 per share.
The Board believes that adoption of the Directors' Plan will promote the
success and enhance the value of the Company by (i) strengthening the
Company's ability to attract and retain the services of experienced and
knowledgeable persons as non-employee directors of the Company, and (ii)
linking the personal interest of non-employee directors to those of the
Company's shareholders. The Directors' Plan, if approved by shareholders, will
be effective as of the December 12, 2000, the date the plan was adopted by the
Board of Directors.
[12]
The Board of Directors of the Company or a committee, appointed by the
Board, will administer the Directors' Plan. The Directors' Plan provides for
the automatic grants to the current non-employee directors, as well as other
non-employee directors when they are first appointed or elected to the Board
of Directors, of options to purchase 10,000 shares, and thereafter automatic
annual option grants to purchase 10,000 shares of the Company's Common Stock
in subsequent years that a non-employee director is re-elected to the Board of
Directors. The Directors' Plan also provides the discretionary grant of
options to non-employee Directors. The following summary of the Directors'
Plan is qualified in its entirety by reference to the Directors' Plan, a copy
of which is included at the end of this Proxy Statement as Exhibit C.
STOCK OPTIONS
Under the Directors' Plan, a non-employee director is entitled to two
types of automatic grants as well as discretionary grants by the Board of
Directors or a committee appointed by the Board.
The first type of automatic grant is an initial option grant to the two
non-employee directors of the Company on December 12, 2000, the effective date
of the Directors' Plan, and to other non-employee directors, the next business
day after their election or appointment to the Board of Directors. These
initial option grants are for 10,000 shares, a term of ten years and
immediately vested and exercisable with an exercise price equal to the fair
market value of a share of the Company's Common Stock on the date of grant.
The unexercised options will be exercisable for two years after a non-employee
director ceases to be a director.
The second type of automatic option grant is the annual option grant to
each non-employee director beginning in calendar year 2001 on the first
business day following the annual meeting of Shareholders at which the
non-employee director is re-elected as a director of the Company. The annual
option grants are for 10,000 shares, a term of ten years and are immediately
vested and exercisable. The exercise price is equal to the fair market value
of a share of the Company's Common Stock on the date of grant. The unexercised
options will be exercisable for two years after a non-employee ceases to be a
director.
The grant of an option to a non-employee director under the Directors'
Plan will not produce any taxable income to the director, and the Company will
not be entitled to a deduction at that time. On the date the option is
exercised, the director will recognize ordinary income equal to the difference
between the fair market value of the Common Stock on the date of exercise and
the exercise price. The Company is entitled to a corresponding deduction in
the same amount and in the same year in which the director recognizes income.
In accordance with the terms of the Directors' Plan, on December 12,
2000, Bruce A. Murray and Robert H. Dick, the current non-employee directors
of the Company as defined in the Directors' Plan, were each granted an option
to purchase 10,000 shares for a term of 10 years with a per share exercise
price equal to the fair market value of a share of the Company's Common Stock
on the date of the grant.
[13]
VOTE REQUIRED
Adoption of the Plan requires approval by holders of a majority of the
outstanding shares of Common Stock who are present, or represented, and
entitled to vote thereon, at the Meeting.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 3, THE ADOPTION OF
THE VALLEY FORGE SCIENTIFIC CORP. 2000 NON-EMPLOYEE DIRECTORS' STOCK OPTION
PLAN.
INFORMATION CONCERNING INDEPENDENT PUBLIC ACCOUNTANTS
Samuel Klein & Company was selected by the Board of Directors as the
independent public accountants to audit the financial statements of the
Company for the fiscal year ended September 30, 2000. A representative of
Samuel Klein & Company is not expected to be present at the Annual Meeting of
Shareholders. The Audit Committee of the Board has not had an opportunity to
consider the selection of the Company's independent public accountant for the
year ending September 30, 2001.
SHAREHOLDER PROPOSALS - 2002 ANNUAL MEETING
Shareholders who believe they are eligible to have their proposals
included in the Company's proxy statement for the annual meeting expected to
be held in March 2002, in addition to the other applicable requirements
established by the Securities and Exchange Commission, must ensure that their
proposals are received by the Secretary of the Company, at the address set
forth on the first page of this Proxy Statement, no later than November 14,
2001.
SOLICITATION OF PROXIES
The accompanying form of proxy is being solicited on behalf of the Board
of Directors of the Company. The Company will pay the expense of solicitation
of proxies for the meeting. In addition to the mailing of the proxy material,
such solicitation may be made in person or by telephone or telecopy by
directors, officers or regular employees of the Company.
FORM 10-K ANNUAL REPORT
A copy of the Annual Report on Form 10-K of the Company for the fiscal
year ended September 30, 2000, as filed with the Securities and Exchange
Commission, is available to shareholders. A shareholder may obtain a copy of
the Form 10-K without charge and a copy of any exhibit thereto upon payment of
a reasonable charge limited to the Company's costs of providing such exhibits
by writing to Investor Relations, Valley Forge Scientific Corp., P.O. Box
1179, 136 Green Tree Road, Oak, Pennsylvania 19456.
By Order of the Board of Directors,
/s/ Thomas J. Gilloway
THOMAS J. GILLOWAY,
Secretary
February 2, 2001
[14]
VALLEY FORGE SCIENTIFIC CORP.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR THE ANNUAL MEETING OF SHAREHOLDERS.
The undersigned shareholder of Valley Forge Scientific Corp. (the
"Company") hereby appoints Jerry L. Malis and Thomas J. Gilloway, and each of
them, his or her true and lawful agent and proxy with full power of
substitution in each, to represent and to vote on behalf of the undersigned all
shares of common stock of the Company which the undersigned is entitled to vote
at the Annual Meeting of Shareholders of the Company to be held at the Hampton
Inn at Route 422 and Egypt Road, Oaks, Pennsylvania on Wednesday, March 14,
2001, at 10:30 a.m., local time, and at any adjournment thereof, upon the
following proposals more fully described in the Notice of Annual Meeting of
Shareholders and Proxy Statement for the meeting (receipt of which is hereby
acknowledged):
(1) ELECTION OF DIRECTORS
Nominees:Jerry L. Malis
VOTE FOR all nominees [ ] Thomas J. Gilloway
Leonard I. Malis
FOR, except vote withheld from the following Bruce A. Murray
nominees, (if any): Bernard H. Shuman
Robert H. Dick
_____________________________________
VOTE WITHHELD from all nominees[ ]
(Continued, and to be signed and dated, on reverse side)
(Continued from other side)
(2) APPROVAL OF PROPOSAL TO ADOPT THE COMPANY'S 2001 STOCK PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) APPROVAL OF PROPOSAL TO ADOPT THE COMPANY'S 2000 NON-EMPLOYEE DIRECTORS'
STOCK OPTION PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(4) In his discretion, the proxy is authorized to vote upon other matters as
may properly come before the Meeting.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned shareholder. If no direction is made, this proxy
will be voted FOR the nominees listed in Proposal 1, and FOR Proposal 2 and
Proposal 3.
_____________________________
_____________________________
Signature of Shareholder(s)
Please sign your name exactly as it
appears hereon. Joint owners must each
sign. When signing as attorney, executor,
administrator, trustee or guardian, please
give your full title as it appears hereon.
Dated:___________________, 2001
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY,
USING THE ENCLOSED ENVELOPE.