-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BwJrDzF84oruaoqVhQOchZGA92biwaPk7P14Q+Zb9F7tPpnZQRwJXqQcAk2ZuQyC LSuqg5stfnGpUl3McjGKcA== 0000950135-96-003948.txt : 19960911 0000950135-96-003948.hdr.sgml : 19960911 ACCESSION NUMBER: 0000950135-96-003948 CONFORMED SUBMISSION TYPE: DEFS14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960926 FILED AS OF DATE: 19960910 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN SCIENCE & ENGINEERING INC CENTRAL INDEX KEY: 0000005768 STANDARD INDUSTRIAL CLASSIFICATION: X-RAY APPARATUS & TUBES & RELATED IRRADIATION APPARATUS [3844] IRS NUMBER: 042240991 STATE OF INCORPORATION: MA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: DEFS14A SEC ACT: 1934 Act SEC FILE NUMBER: 001-06549 FILM NUMBER: 96627922 BUSINESS ADDRESS: STREET 1: 829 MIDDLESEX TURNPIKE STREET 2: 40 ERIE STREET CITY: BILLERICA STATE: MA ZIP: 01821 BUSINESS PHONE: 5082628700 MAIL ADDRESS: STREET 1: 40 ERIE STREET STREET 2: 829 MIDDLESEX TURNPIKE CITY: BILLERICA STATE: MA ZIP: 01821 DEFS14A 1 AMERICAN SCIENCE AND ENGINEERING, INC. 1 PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. 1) Filed by the Registrant /X/ Filed by a party other than the Registrant / / Check the appropriate box: / / Preliminary Proxy Statement / / Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) /X/ Definitive Proxy Statement / / Definitive Additional Materials / / Soliciting Material Pursuant to [Section]240.14a-11(c) or [Section]240.14a-12 American Science and Engineering, Inc. - -------------------------------------------------------------------------------- (Name of Registrant as Specified In Its Charter) - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement if other than the Registrant)) Payment of filing Fee (Check the appropriate box): / / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or Item 22(a)(2) of Schedule 14A. / / $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3). / / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. 1) Title of each class of securities to which transaction applies: ______ 2) Aggregate number of securities to which transaction applies: _________ 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): ___________ 4) Proposed maximum aggregate value of transaction: _____________________ 5) Total fee paid: /X/ 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: _______________________________________________________ Date Filed: ___________________________________________________________________ 2 2) Form, Schedule or Registration Statement No.: _______________________ 3) Filing Party: _______________________________________________________ Date Filed: ___________________________________________________________________ 3 PRELIMINARY COPY AMERICAN SCIENCE AND ENGINEERING, INC. 829 MIDDLESEX TURNPIKE BILLERICA, MASSACHUSETTS 01821 NOTICE OF SPECIAL MEETING IN LIEU OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD SEPTEMBER 26, 1996 The Special Meeting in Lieu of Annual Meeting of Stockholders of American Science and Engineering, Inc. (the "Company") will be held Thursday, September 26, 1996, at 9:00 A.M., at the office of the Company, 829 Middlesex Turnpike, Billerica, Massachusetts, for the following purposes: (1) To fix the number of Directors of the Company at six for the ensuing year, and to elect the six persons named in the accompanying Proxy Statement to serve as Directors until the next Annual Meeting and until their successors are elected and qualified; (2) To consider and act upon a proposed amendment to the Company's Restated Articles of Organization, as amended (the "Articles") limiting the liability of directors to the extent permitted by Massachusetts law; (3) To consider and act upon a proposed amendment to the Articles which would increase the number of authorized shares of the Company's Common Stock, $.66 2/3 par value, from 8,000,000 to 20,000,000 shares; (4) To consider and act upon proposed amendments to the Articles and to the Company's ByLaws to provide for the classification of the Company's Board of Directors into three classes and to make related changes; (5) To consider and act upon a proposal to amend the Articles to increase the number of authorized shares of the Company's no par Preferred Stock from 100,000 to 1,000,000 and to amend the terms of such Preferred Stock; (6) To consider and act upon a proposed amendment to the Articles to require that, in certain circumstances, actions by vote of the stockholders must be approved by a 66 2/3% affirmative vote of each class of stock outstanding and entitled to vote on the matter; (7) To consider and act upon a proposal to amend the By-Laws to require 90 days notice of any proposal by a stockholder to nominate candidates for director at the Annual Meeting; (8) To consider and act upon a proposed amendment to the By-Laws to require that special meetings of the stockholders may only be called by the President, a majority of directors or by stockholders who hold at least 50% of the Company's voting stock; (9) To consider and act upon a proposed amendment to the Articles to add a "fair price" provision; and (10) To consider and act upon any other business that may properly come before the meeting and any adjournment or adjournments thereof. 4 Stockholders of record at the close of business on August 2, 1996, are entitled to notice of, and to vote at, the meeting. By Order of the Board of Directors Jeffrey A. Bernfeld Clerk September 10, 1996 - -------------------------------------------------------------------------------- YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU INTEND TO ATTEND THE MEETING IN PERSON, PLEASE DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ACCOMPANYING ENVELOPE. IF YOU ATTEND THE MEETING, YOU MAY REVOKE THE PROXY AND VOTE YOUR SHARES IN PERSON. - -------------------------------------------------------------------------------- 5 AMERICAN SCIENCE AND ENGINEERING, INC. 829 MIDDLESEX TURNPIKE BILLERICA, MASSACHUSETTS 01821 PROXY STATEMENT The enclosed Proxy is solicited by the Board of Directors of American Science and Engineering, Inc. (the "Company") for use at the Special Meeting in Lieu of Annual Meeting of Stockholders to be held on Thursday, September 26, 1996, at 9:00 a.m. at the principal office of the Company, 829 Middlesex Turnpike, Billerica, Massachusetts, and at any adjournment of the meeting (the "Meeting"). The matters to be considered and acted upon at the Meeting are described in the attached notice of the Meeting and in this Proxy Statement. Stockholders of record at the close of business on August 2, 1996 are entitled to notice of and to vote at the Meeting. Each share of Common Stock of the Company outstanding on the record date is entitled to one vote. As of the close of business on August 2, 1996, 4,512,907 shares of Common Stock of the Company were outstanding. This Proxy Statement and the accompanying Proxy will first be mailed to stockholders on or about September 10, 1996. A copy of the Annual Report of the Company for its fiscal year ended March 31, 1996 accompanies this Proxy Statement. PROPOSAL NO. 1 ELECTION OF DIRECTORS The Company's By-laws provide that the Board of Directors of the Company shall consist of not less than three nor more than twelve directors. The Board of Directors currently consists of five members, whose terms expire at the Meeting. The Directors are recommending that the Board be expanded to six members and that in addition to re-electing the five incumbent directors identified below, William E. Odom be elected to fill the new seat. The affirmative vote of a majority of the shares of Common Stock of the Company voted in person or by proxy at the Meeting is required to fix the number of directors and a plurality of the affirmative votes cast is required to elect each of the six directors. If Proposal No. 4 below is approved, the nominees below designated as "Class I" will serve an initial term of one year; the Class II nominees will serve an initial term of two years and the Class III nominees will serve an initial term of three years (in all cases, nominees will also serve until their successors are elected and qualified). Subsequent to this year's election, all directors will be elected to three year terms. If Proposal No. 4 is not adopted, each director will serve for one year and until his successor is elected and qualified. If any nominee at the time of the election is unable or unwilling to serve or is otherwise unavailable for election, the Board of Directors may designate another nominee and the persons named as proxies will vote all proxies for such nominee. The Board of Directors has no reason to believe that any nominee is unwilling or unable to serve. There are no arrangements between any nominee and any other person relating to such nominee's nomination. Proxies solicited by the Board of Directors of the Company, if properly signed and returned and containing no instructions to the contrary, will be voted FOR fixing the number of directors at six and electing the six nominees listed below as directors of the Company. 6 NOMINEES The names of, and certain information with respect to, the persons nominated by the Board of Directors for election as directors are as follows:
Positions and Offices Date Assumed Name Age Class of Company Held Each Position - ---- --- ----- --------------- ------------- Herman Feshbach 79 III Director September 1975 Chairman July 1993 Al Gladen 58 I Director September 1995 Hamilton W. Helmer 49 I Director February 1993 Donald J. McCarren 55 II Director February 1993 William E. Odom 64 III Nominee for Director N/A Ralph S. Sheridan 46 II Director January 1994 President and Chief Executive Officer September 1993
Dr. Herman Feshbach is the current Chairman of the Board of Directors, a position he was elected to in 1993 after serving on the Board since 1976. Dr. Feshbach also has been Institute Professor Emeritus at the Massachusetts Institute of Technology for more than five years and has served as Chairman of the Physics Department at MIT, and Director of the MIT Center for Theoretical Physics. He is a past President of the American Physical Society and the American Academy of Arts and Sciences and is a Fellow of both those organizations and of the American Association for the Advancement of Sciences. He is on the Board of Governors of the Weizmann Institute of Science, Editor of the Annals of Physics, and has served as Chairman or Member on numerous committees for the Department of Energy, the National Science Foundation, the National Academy of Sciences, and the American Physical Society. He was awarded the National Medal of Science by President Reagan in 1986. Dr. Feshbach holds a Ph.D. in Physics from MIT. Mr. Al Gladen has been President of Dabster, Inc., a technology consulting firm specializing in engineering and technology management assistance, with offices in Kent, Washington since 1981. Mr. Gladen's consulting activities have included strategic technology planning, new product development, project management and acquisition review. Mr. Gladen has acted as a technology and engineering consultant to the Company since 1993, and it is expected that he will continue to provide such assistance on a part-time basis. Mr. Gladen holds four U.S. patents and is a director of four other privately held corporations. Mr. Hamilton W. Helmer has, for the last 14 years, been Managing Partner of Helmer & Associates, a strategic consulting firm located in Los Altos, California. Prior to that, Mr. Helmer worked for Bain & Co. Mr. Helmer holds a Ph.D in Economics from Yale University. Mr. Donald J. McCarren was until July 1996 President and Chief Executive Officer of Tacora Corporation, a medical technology company located in Seattle, Washington. From July 1992 to June 1994, he was President and Chief Operating Officer of ImmunoGen, Inc., a bio-tech research and development company located in Cambridge, Massachusetts. Prior to that, he was President (1990 to 1992) of the Adria Laboratories Division of Erbamont N.V. in Columbus, Ohio, and Corporate Vice President of Worldwide Marketing and Business Development (1989 to 1990) and Vice President of Far East and Australian Operations (1986 to 1989) of Erbamont, N.V. Mr. McCarren holds a Ph.D. in Developmental Economics. General William E. Odom is the Director of National Security Studies for the Hudson Institute in Washington, D.C. and an adjunct Professor in the Department of Political Science at Yale University. Prior to joining the Hudson Institute in 1988, General Odom spent 34 years as an officer in the United States Army, retiring with the rank of Lieutenant General. While on active duty, 2 7 General Odom served as Director of the National Security Agency for three years, Assistant Chief of Staff for Intelligence for the Department of the Army for four years and Military Assistant to the President's National Security Advisor for four years. General Odom received his BS degree from West Point and Masters and Ph.D. degrees from Columbia University. General Odom is on the Board of Directors of Nichols Research Corporation of Huntsville, Alabama, V-ONE Corporation of Rockville, Maryland, Middlebury College, from which he received an honorary doctorate, and the Institute for the Study of Diplomacy at Georgetown University. General Odom is the author of five books and numerous articles. Mr. Ralph S. Sheridan was elected President and Chief Executive Officer of the Company in September 1993, and in January of 1994, he was elected a Director. Prior to joining the Company, Mr. Sheridan ran his own consulting and investment firm, Value Management Corporation, in Waltham, Massachusetts. Prior to that, Mr. Sheridan was President and CEO (1988-1989) and Vice President of Marketing and Operations (1987-1988) of HEC Energy Corp., in Boston, Massachusetts. Mr. Sheridan held the position of Vice President of Operations for the Engineered Systems and Controls Group (1984-1986) and Vice President of Corporate Business Development (1981-1984) at Combustion Engineering, Inc. in Stamford, Connecticut. Mr. Sheridan holds a B.S. in Chemistry and an M.B.A., both from Ohio State University. EXECUTIVE OFFICERS (WHO ARE NOT ALSO DIRECTORS)
Positions and Offices Date Assumed Name Age of Company Held Each Position - ---- --- --------------- ------------- Jeffrey A. Bernfeld 39 Vice President, General Counsel and Clerk February 1996 Peter W. Harris 43 Vice President, Sales and Marketing April 1994 Michael V. Hynes 45 Vice President, Science and Technology September 1995 Alan H. Rutan 55 Vice President, Engineering July 1996 Lee C. Steele 45 Treasurer, Vice President of Finance, and Chief October 1994 Financial Officer
Mr. Jeffrey A. Bernfeld joined AS&E as Vice President, General Counsel and Clerk in February 1996. Prior to that time, he was Vice President and General Counsel of Spire Corporation in Bedford, Massachusetts for three and one-half years; a founder and Managing Director of Global Solutions, Inc. in Wellesley, Massachusetts for one year; Vice President and General Counsel of The Mediplex Group in Wellesley, Massachusetts for two years; and a partner at Goldstein & Manello in Boston, Massachusetts, where he began his career as an Associate in 1981. Mr. Bernfeld received his B.A. from Brandeis University and his J.D. from New York University School of Law. Mr. Bernfeld is a director of Summit Technology, Inc. of Waltham, Massachusetts. Mr. Peter W. Harris joined the Company in February 1994 as Vice President, Sales and Marketing. Prior to joining the Company, Mr. Harris was Manager of External Affairs for Stone & Webster, an architectural engineering firm in Boston, Massachusetts, where he held a number of positions beginning in 1988. During his time at Stone & Webster, Mr. Harris concentrated on Federal government and international sales. Mr. Harris, a graduate of the U.S. Naval Academy, holds the rank of Captain in the U.S. Naval Reserve and commanded several units during his twelve years of active duty and seven years in the Naval Reserve. Mr. Harris holds a Master's degree in National Security Studies from Georgetown University. Dr. Michael V. Hynes joined AS&E as Vice President, Science and Technology and Chief Technical Officer in September 1995. Prior to joining AS&E, Dr. Hynes had been at Los Alamos National Laboratory for fifteen years, where he held a number of positions including Industrial Fellow, Program Manager and Project Leader. Dr. Hynes earned three degrees from the Massachusetts Institute of Technology: a B.S. in Physics; an M.S. in Management and a Ph.D in Physics. Dr. Hynes has authored more than fifty articles in the peer-reviewed literature and has won numerous awards and honors including Weizmann and Sloan Fellowships from MIT, an Oppenheimer Fellowship from Los Alamos Scientific Laboratory and a Distinguished Performance Award from Los Alamos National Laboratory. 3 8 Mr. Alan H. Rutan joined the Company in July 1996 as Vice President of Engineering. Prior to that time, Mr. Rutan spent 11 years at Raytheon Company, most recently as Manager of the Air Defense Systems Department, where his work focused on radar systems engineering and signal processing. Prior to his Raytheon experience, Mr. Rutan spent seven years at GTE Laboratories as a Senior Member of the Technical Staff. From 1974 to 1978, Mr. Rutan ran his own consulting firm, Signal Processing Associates, Inc., which specialized in image processing applications for various government security organizations. Mr. Rutan received his BA in Physics from Harvard University. Mr. Lee C. Steele joined the Company in September 1994 as its Vice President of Finance and Chief Financial Officer. From 1991 until he joined the Company, Mr. Steele was a principal of Asset Management Corporation, a Waltham, Massachusetts consulting firm specializing in the analysis and resolution of complex financial and operational challenges for small and medium size businesses. Until 1991, Mr. Steele was a Partner at Deloitte & Touche, specializing in profit planning, corporate finance and troubled company situations. He holds an M.B.A. from Harvard Business School and an engineering degree from Case Western Reserve University. MEETINGS OF BOARD OF DIRECTORS AND COMMITTEES During the fiscal year ended March 31, 1996, the Board of Directors of the Company met seven times. Each incumbent director attended 75% or more of the aggregate of the total number of meetings of the Board held during the period he was a director and of the meetings of committees of the Board on which he served. The Board of Directors has three standing Committees: the Audit, Compensation and Nominating Committees. The Audit Committee consists of Dr. Feshbach, Mr. Helmer, and Mr. McCarren. This Committee, which met once during fiscal 1996, is primarily responsible for reviewing the activities of the Company's independent auditors, reviewing and evaluating recommendations of the auditors, recommending areas of review to the Company's management, and reviewing and evaluating the Company's financial statements, accounting policies, reporting practices and internal controls. The Compensation Committee consists of Dr. Feshbach, Mr. Helmer, and Mr. McCarren. This Committee, which met four times in conjunction with full Board meetings during fiscal 1996, is responsible for making recommendations to the Company's Board of Directors concerning the levels and types of compensation and benefits to be paid and granted to the Company's Chief Executive Officer and other executive employees of the Company and for the administration of the Company's stock option plans. The Nominating Committee consists of Messrs. Helmer, McCarren and Sheridan. The Committee met two times during fiscal 1996 in conjunction with full Board meetings and is charged with the responsibility of identifying appropriate candidates for nomination to the Board. The Company's By-Laws currently do not set forth any procedure for the nomination of candidates for director by stockholders. See Proposal No. 7 for a description of the proposed amendment to the By-Laws which would provide such a procedure. COMPENSATION OF DIRECTORS Directors who are also employees of the Company do not receive additional compensation as Directors. Non-Employee Directors (other than the Chairman) receive annual compensation of 2,000 shares of Company Common Stock (2,055 shares in the 1996 fiscal year) issuable on January 10th in each year, and options to purchase 7,000 shares of Common Stock at the closing price on the date of the Annual Meeting in each year. The Chairman receives 2,500 shares of Common Stock on January 10th in each year, as well as cash payments totalling $15,330 in 1996 and continues to receive deferred compensation under a now discontinued plan described below. No meeting fees or other fees are payable to any Director. Dr. Feshbach, the Company's Chairman, is covered by a nonfunded deferred compensation plan (adopted in 1976 and amended in 1977, 1980, 1986, 1990 and 1992) that provides for periodic payments beginning at age 65, based on length of service. During the year, Dr. Feshbach received $4,752 under the Plan. The Company accrues the current cost of the plan, which amounted to $20,529 in fiscal 1996. 4 9 OWNERSHIP OF COMMON STOCK OF THE COMPANY BY CERTAIN PERSONS As of August 2, 1996, the Company was not aware of any person or entity beneficially owning 5% or more of the Company's Common Stock. The following table sets forth the Common Stock holdings of the Company's directors, nominees for director, each named executive officer in the Summary Compensation Table under "Executive Compensation" below and all directors and executive officers as a group as of August 2, 1996. BENEFICIAL HOLDINGS OF THE COMPANY'S COMMON STOCK BY DIRECTORS AND EXECUTIVE OFFICERS AS OF AUGUST 2, 1996.
Name of Amount and Nature of Percent Beneficial Owner Beneficial Ownership(1) of Class - ---------------- ----------------------- -------- Herman Feshbach 12,790 (2) Al Gladen 35,055 Peter W. Harris 22,250 (2) Hamilton W. Helmer 23,781 (2) Donald J. McCarren 31,581 (2) William E. Odom - (2) Ralph S. Sheridan 276,500 5.97 Lee C. Steele 33,250 (2) Directors and Executive Officers as a Group (11 persons) 455,207 9.56 (1) Includes shares that may be acquired under stock options and warrants exercisable within sixty days after the date of this table, as follows: Dr. Feshbach - 3,750; Mr. Gladen - 30,000; Mr. Harris -22,000; Mr. Helmer - 20,000; Mr. McCarren - 26,000; Mr. Sheridan - 100,000; Mr. Steele - 32,500; and all Directors and Executive Officers as a group - 246,250. All ownership reported herein includes sole voting and investment power. (2) Amount owned constitutes less than one percent.
5 10 EXECUTIVE COMPENSATION The following chart provides information concerning compensation paid by the Company during the fiscal year ended March 29, 1996 to the Chief Executive Officer and each of the most highly compensated executive officers of the Company whose aggregate compensation exceeded $100,000 (collectively, the "named executive officers"). SUMMARY COMPENSATION TABLE
Long-Term Annual Compen- Compensation sation Awards Securities All Other Name and Principal Fiscal Underlying Compen- Position Year Salary ($) Bonus ($) Options (#) sation ($)(1) - ------------------ ------ ----------- --------- ------------- ------------ Ralph S. Sheridan 1996 200,000 202,168(3) 0 2,486 President and CEO 1995 200,000 111,055(3) 0 2,198 1994(2) 104,038 0 120,000 163 Peter W. Harris 1996 110,000 40,000 0 403 Vice President of Sales and Marketing 1995 110,000 0 0 721 1994(2) 18,615 0 30,000 0 Lee C. Steele 1996 110,752 27,000 0 1,344 Vice President and CFO 1995(2) 55,000 0 50,000 900 (1) All Other Compensation includes imputed income from taxable life insurance. (2) The indicated years were years of partial employment with the Company for each named executive officer. (3) Mr. Sheridan's bonus is paid in respect of "contract years" ending September 30th in each year and includes cash, stock and payments made to him to alleviate the tax impact of his stock bonus.
Mr. Sheridan has an employment contract with the Company that provides for his employment as President and Chief Executive Officer, and as a Director, through September 1996, at an annual salary of $200,000, plus performance bonuses tied to specific accomplishments. Under the contract, Mr. Sheridan is eligible to receive an annual bonus of up to $75,000 and 10,000 shares of Common Stock in each contract year, based on his achievement of goals established by the Compensation Committee. Mr. Sheridan also receives a cash amount calculated to compensate him for the taxes due on the stock portion of this bonus. In addition, in 1994, pursuant to the contract, the Company granted Mr. Sheridan options to purchase 120,000 shares of the Company's Common Stock at $4.00 per share, the fair market value of the Company's Common Stock on the date of grant. Of the 120,000 options, an option to purchase 40,000 shares became fully exercisable on September 15, 1994. The option to purchase the remaining 80,000 shares was approved by the stockholders at the 1994 Annual Meeting of Stockholders and becomes exercisable for up to: (i) 50% of the shares covered thereby at any time after September 15, 1995, (ii) 75% of the shares covered thereby at any time after September 14, 1996, and (iii) subject to Mr. Sheridan agreeing prior to September 14, 1996 to remain employed by the Company for an additional year from that date, 100% of the shares covered thereby at any time after September 14, 1996. The vesting schedule is accelerated upon the 6 11 occurrence of certain events. The options will expire on December 16, 2003, unless earier exercised or terminated in accordance with their terms. Under the Employment Agreement, Mr. Sheridan purchased 160,000 treasury shares of the Company's Common Stock at a price of $4.00 per share, payable by promissory note with interest at the rate of 6.26% per year. The note is due on the earlier of September 15, 2003 or the termination of Mr. Sheridan's employment. The note may also become due in the event of Mr. Sheridan's failing to comply with the terms and provisions of the note. The Company has agreed to reimburse Mr. Sheridan for the interest payable under the note, in most circumstances. The note permits payment in part or in full by return of the shares purchased in connection with the note, and the note sets the value of the stock for such purposes as $2.00 per share for the year following September 15, 1994, $3.00 for the year following September 15, 1995, and $4.00 after September 15, 1996. In the event of termination of Mr. Sheridan's employment by the Company without Cause at any time, the value of the stock for such purposes shall be $4.00 per share. Under the Employment Agreement, Mr. Sheridan is entitled to receive the same benefits as other senior executives of the Company, as well as to the use of a car (which Mr. Sheridan declined until April 1996). In the event that Mr. Sheridan's employment with the Company is terminated without Cause, or by him for Good Reason (as defined in the Employment Agreement), he will receive twelve months' pay and any previously earned bonuses. In the event that Mr. Sheridan's employment with the Company is terminated for Cause, or by him other than for Good Reason, or by his death or disability, he will not be entitled to receive any salary beyond the date of termination, and he will only be entitled to receive previously earned bonuses if the termination is caused by death or disability. Mr. Steele has an agreement with the Company providing for a three year term, subject to termination for cause as defined. The contract establishes a base salary of $110,000 plus a potential bonus of up to $30,000 upon the achievement of semiannual individual and corporate goals as established by the President of the Company in consultation with Mr. Steele. The Agreement grants Mr. Steele severance payments equal to one year's salary if he is terminated in connection with a change of control of the Company, as defined in the Agreement. There were no options granted to, or exercised by, the named executive officers in fiscal year 1996. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Company's Compensation Committee includes Dr. Herman Feshbach, Mr. Hamilton W. Helmer and Mr. Donald J. McCarren. No reportable relationship existed between the Company and any member of the Compensation Committee. RELATED PARTY TRANSACTIONS In April, 1995 a group that included three of the Company's Officers and one Company Director made a loan to the Company in the total amount of $650,000. The proceeds of the loan were used for general working capital purposes. The loan was paid off in full on time in August, 1995 and bore interest at the prime rate plus two percent. As additional consideration, the Company issued a total of 6,500 shares of its Common Stock and warrants to purchase 65,000 shares of its Common Stock proportionately to the lenders. The warrant exercise price is the lowest trading price of the stock on the American Stock Exchange during the term of the loan. The Company has registered these shares with the Securities and Exchange Commission. Ralph S. Sheridan, the Company's President and CEO, provided $200,000 of the loan funds. Al Gladen, who subsequently became a Director of, and remains a Consultant to, the Company, provided $300,000. Lee C. Steele, the 7 12 Company's Vice President of Finance and CFO, provided $75,000. Donald J. McCarren, a Director of the Company, provided $50,000. Peter W. Harris, the Company's Vice President of Sales and Marketing, provided $25,000. Mr. Gladen provides engineering and management services to the Company on a regular basis. In fiscal year 1996, the compensation paid to Dabster, Inc., a corporation of which Mr. Gladen is the President, for such services was $168,800. COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION The Compensation Committee of the Board of Directors (consisting of the three outside Directors whose names appear below this Report) has sole responsibility for compensation issues relating to the Chief Executive Officer. Compensation practices and policies for the other executive officers are set by the Chief Executive Officer with the advice of the Compensation Committee. The Compensation Committee has formulated an approach to all executive compensation that emphasizes the establishment of goals and objectives for each executive and for the Company as a whole and ties a substantial portion of executive compensation to the performance of the executive and the Company with respect to these goals and objectives. Base compensation for executive officers (and many other Company employees) is established on the basis of an analysis of salaries received by comparable employees of high-tech and manufacturing companies in the Greater Boston area, company financial results and prospects, and individual contributions relative to the job description and past performance of each executive. In line with this approach, the Company entered into an Employment Agreement with its President and Chief Executive Officer, Mr. Ralph S. Sheridan, in December 1993 (effective as of September 1993). This Agreement was based, in part, on an independent consultant's analysis of compensation arrangements for chief executives of comparable companies, and was also based on a careful review of the most important goals and objectives for the Company. The Agreement provides for cash compensation of $200,000, plus annual incentive bonuses of up to $75,000 and 10,000 shares of Company stock, tied to specific, agreed upon performance criteria. In addition, in order to provide for long-term incentives, under the Agreement the Company has issued Mr. Sheridan stock options to purchase 120,000 shares of Common Stock, and Mr. Sheridan has purchased 160,000 shares of the Company's Treasury Stock. For the contract year ended in September 1995, the Committee awarded Mr. Sheridan a cash bonus of $63,750 and 8,500 shares of stock, representing 85% of the potential award under his contract, plus the amount required by Mr. Sheridan's contract to compensate him for the taxes due on the stock portion of the bonus. This award represents the Committee's determination that Mr. Sheridan had done an excellent job over the preceding twelve months and had met most but not all of the goals and objectives jointly established by the Committee and Mr. Sheridan. Also in keeping with its performance-based compensation philosophy, in the spring of 1994, the Company implemented an incentive compensation program for all executives who report directly to the Office of the President. Under this policy, these executives receive a specified portion of their total compensation (ranging from 10% to 27%), as determined by the Chief Executive Officer, based upon two factors: their completion of agreed upon goals and objectives, and the performance of the entire Company. Report Submitted By: Dr. Herman Feshbach, Mr. Hamilton W. Helmer and Mr. Donald J. McCarren. 8 13 / / STOCK PERFORMANCE CHART The following chart graphs the performance of the cumulative total return to shareholders (stock price appreciation plus dividends) during the previous five years in comparison to the returns of the Standard & Poor's 500 Composite Stock Price Index and the Standard & Poor's 500 High-Tech Composite Stock Price Index. INDEXED RETURNS Years Ending March
1991 1992 1993 1994 1995 1996 ---- ---- ---- ---- ---- ---- AS&E 100 85.45 120.00 56.36 90.91 143.64 S&P 500 100 111.04 127.95 129.84 150.05 198.22 S&P Hi-Tech 100 102.33 112.44 132.25 167.36 225.95 Note: Assumes $100 invested at the close of trading on the last trading day preceding the first day of the fifth preceding fiscal year (and reinvestment of dividends) in the Company's Common Stock, Standard & Poor's 500 Composite Stock Price Index and the Standard & Poor's 500 High-Tech Composite Stock Price Index.
9 14 PROPOSAL NO. 2 PROPOSED AMENDMENT TO RESTATED ARTICLES OF ORGANIZATION TO LIMIT CERTAIN DIRECTOR LIABILITIES Under Massachusetts law, directors stand in a fiduciary relationship to a corporation and its stockholders, owing a duty of care and a duty of loyalty in the management of the corporation's affairs. The duty of care is the duty of directors to exercise diligence and care in overseeing the business and affairs of the corporation. The duty of loyalty is the duty of directors to act in good faith and in the manner they reasonably believe to be in the best interest of a corporation and its stockholders. In an action by a corporation or its stockholders for the breach of a fiduciary duty, a director could be subject to monetary damages and equitable remedies. The Massachusetts Business Corporation Law, under which the Company is organized, permits Massachusetts corporations to include in their Articles of Organization a provision relieving directors of liability to the corporation or its stockholders for monetary damages for negligent breach of the directors' fiduciary duty. Delaware corporate law includes a similar provision, and many public companies have adopted amendments to their charters including these provisions. The adoption of these statutes by a number of states reflects a significant concern that directors may be subjected to unwarranted personal liability for business decisions made in good faith. Any provision adopted pursuant to the Massachusetts statute that eliminates or limits the ability of the corporation and its stockholders to recover monetary damages from a director for breach of fiduciary duty as a director, may not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for authorizing dividends or distributions to stockholders, stock redemptions, or loans to officers or directors of the corporations which are not repaid, in violation of Sections 61 or 62 of the Massachusetts Business Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. The right to pursue non-monetary equitable remedies for such a breach, such as injunctions and rescission of contracts, is unaffected. Additionally, the amendment has no effect on directors' liabilities under federal securities laws. Finally, the new provision does not eliminate or limit the liability of a director for any act or omission occurring prior to the date upon which the provision becomes effective. There is currently no litigation pending or, to the best of the Company's knowledge, threatened, involving the Board of Directors or any of its members which would be affected by the proposed amendment were it currently in effect. The Board of Directors has determined that the ability of the Company to continue to attract and retain qualified directors will be enhanced by amending the Company's Restated Articles of Organization, as amended (the "Articles") to eliminate the personal liability of directors to the extent permitted by the Massachusetts statute. The proposed amendment reflects the statutory provision and includes all of the limitations in the statute preserving director liability for nonnegligent acts or omissions in certain circumstances, as described above. On May 22, 1996, the Directors unanimously voted to approve and to recommend to the stockholders for their approval a proposed amendment to Article Six of the Company's Articles which would add the following language to Article Six: ELIMINATION OF DIRECTORS' PERSONAL LIABILITY. No director shall be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director notwithstanding any provision of law imposing such liability; provided, however, that this provision shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under section sixty-one or sixty-two of chapter 156B of the Massachusetts General Laws, or (iv) for any transaction from which the director derived an improper personal benefit. No amendment to or repeal of this paragraph shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to the date of such amendment or repeal. This amendment to the Articles would supplement the protection provided to directors by the indemnification provisions set forth in the Company's By-Laws and by the Company's directors and officers liability insurance. 10 15 Adoption of the proposed amendment may discourage or deter stockholders or management from bringing a lawsuit against any of the Directors for breach of fiduciary duty, including grossly negligent business decisions, even though such an action, if successful, might otherwise benefit the Company and its stockholders. In light of the foregoing, the Directors could directly benefit from recommending the proposed amendment. However, the Directors believe they are acting in good faith and in a manner they reasonably believe to be in the best interests of the Company in proposing this amendment. If approved by the stockholders, the proposed amendment would become effective upon the filing of Articles of Amendment with the Secretary of State of Massachusetts, which filing is expected to take place within thirty (30) days after the Meeting. Adoption of the amendment to the Company's Articles requires the affirmative vote of the holders of two-thirds of the outstanding shares of the Company's Common Stock entitled to notice of and to vote at the Meeting. THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF PROPOSAL NO. 2. PROPOSAL NO. 3 AMENDMENT TO ARTICLES TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK The Board of Directors unanimously recommends that the stockholders approve a proposal to amend the Company's Articles to increase the number of authorized shares of Common Stock, $.66 2/3 par value, from 8,000,000 to 20,000,000. The additional shares of Common Stock would be part of the existing class of Common Stock and, if and when issued, would have the same rights and privileges as the shares of Common Stock presently outstanding. As of August 2, 1996, there were outstanding 4,512,907 shares of Common Stock. In addition, an aggregate of 1,328,167 shares of Common Stock were reserved for issuance upon exercise of options and warrants outstanding or options available to be granted in the future under the Company's various stock option plans. Pursuant to Massachusetts corporate law, the Board of Directors is authorized to issue from time to time any and all authorized and unissued shares of Common Stock for any proper corporate purposes without prior stockholder approval, except as may be required for a particular transaction by the Company's Articles. The Board of Directors believes that the proposed increase in the number of authorized shares of Common Stock is in the best interests of the Company and its stockholders. The increase will give the Company greater flexibility by allowing shares of Common Stock to be issued by the Board of Directors without the delay and expense of a special meeting of stockholders. For example, the Board of Directors may deem it appropriate to make a private or public offering of the Company's Common Stock in order to raise funds for working capital or other purposes, or the Common Stock may be issued to finance possible future acquisitions, or for distribution to the Company's stockholders in the event of a stock dividend or stock split, or for distribution pursuant to employee benefit plans and for other corporate purposes. The Board of Directors does not have any current plans to issue any additional shares of Common Stock, other than and pursuant to outstanding options and existing employee benefit and director stock plans. No further action or authorization by the Company's stockholders would be necessary prior to issuance of the additional shares, except as may be required for a particular transaction by the Articles, by applicable law or regulatory agencies or by the rules of any stock exchange on which the Company's capital stock may then be listed. Issuance of such shares, however, could dilute existing stockholders. The flexibility to issue Common Stock also could enhance the Board's bargaining capability in a takeover situation. For example, any amount of such additional shares of Common Stock could be privately placed with purchasers who might 11 16 side with management of the Company in opposing a tender offer by a third party or such shares could be issued in conjunction with the adoption of a stockholder purchase rights plan. These actions could have the effect of delaying, deferring or preventing a change in control of the Company. See "Introduction to Anti-Takeover Amendments" later in this proxy statement for a further discussion of the advantages and disadvantages of anti-takeover measures. Stockholders of the Company do not now have preemptive rights to subscribe for or purchase additional shares of Common Stock, and the stockholders will have no preemptive rights to subscribe for or purchase any of the additional shares authorized by the proposed amendment. The affirmative vote of a majority of the votes entitled to be cast by holders of the Common Stock outstanding and entitled to vote is required for the adoption of Proposal No. 3. THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF PROPOSAL NO. 3 INTRODUCTION TO ANTI-TAKEOVER AMENDMENTS The Board of Directors unanimously has determined that certain amendments to the Company's Articles and By-Laws are advisable and has unanimously voted to recommend them to the Company's stockholders for adoption at the Meeting. These amendments are being submitted in the form of six separate proposals: (i) a proposal to create a classified Board of Directors and related matters; (ii) a proposal to authorize an additional 900,000 shares of the Company's no par Preferred Stock, and to amend the terms of such Preferred Stock such that it shall have such rights, powers, preferences and terms as shall from time to time be fixed by the Board of Directors of the Company without further stockholder approval, (iii) a proposal to require a supermajority (i.e. 66 2/3%) vote of stockholders in certain circumstances, (iv) a proposal requiring stockholders to give the Company notice of their intention to nominate directors, (v) a proposal limiting the right of stockholders to call a special meeting of stockholders to stockholders who hold at least 50% of the Company's voting stock, and (vi) a proposal to add to the Articles a so-called "Fair Price Provision" with regard to certain business combinations (collectively, the "Anti-Takeover Amendments"). The purposes and effects of the six proposals are set forth below, followed by a more detailed description of each proposal and how it would operate. PURPOSES AND EFFECTS The Board of Directors believes that, without the Anti-Takeover Amendments which it is recommending for stockholder approval at the Meeting, the Company may be vulnerable to certain tactics -- including the accumulation of substantial voting positions as a prelude to an attempt to take over corporate control or to effect a significant corporate restructuring, proxy fights, and similar tactics - -- which have become relatively more common in recent years. For the reasons discussed below, the Board of Directors believes that such tactics could be highly disruptive to the Company and could result in dissimilar and unfair treatment of the Company's stockholders. Proposals No. 4 through 9 are being submitted for stockholder approval as a means of protecting the Company from these kinds of tactics. The Board of Directors believes that the Anti-Takeover Amendments, taken as a whole, will reduce the vulnerability of the Company to takeover proposals that are not in the best interests of the Company or its stockholders and will allow the Board to carefully consider and act upon any proposed takeover or other major corporate restructuring. The Anti-Takeover Amendments are interrelated but are being presented as six separate proposals. The Anti-Takeover Amendments are not being recommended in response to any past problems regarding Board of Director continuity or any specific effort of which the Board of Directors is aware to accumulate the Company's stock or to acquire control of the Company, but rather in recognition that such activities might occur in the future. If Proposal No. 4 creating a classified Board of Directors is approved, because only one of the three classes of a classified Board will be elected annually, at least two annual stockholders' meetings, instead of one, will be required to effect a change in the control of the Board through the normal election processes. The classified board amendment would require 12 17 a person seeking to acquire control of the Company to wait up to two years to obtain control of the Board even though that person has acquired ownership of a majority or controlling minority interest in the Company. The classified board would thus make it more difficult and time-consuming for any individual or entity who accumulates a substantial stock or voting position in the Company to obtain control of the Board or to effect changes in the Company's day-to-day operations. If Proposal No. 5 authorizing an additional 900,000 shares of the Company's no par Preferred Stock and amending the terms of such Preferred Stock is adopted, the authority of the Board of Directors to issue shares of Preferred Stock might be considered as having the effect of discouraging an attempt by another person or entity to effect a takeover or otherwise gain control of the Company because of the potential dilution of the voting power of the Common Stock to the extent that a series of Preferred Stock might be convertible into Common Stock. In addition, a series of Preferred Stock could be privately placed with a person or entity friendly to management, whose vote would be required to approve the proposed takeover, or issued in conjunction with the adoption of a stockholder purchase rights plan. Proposal No. 6 requiring a supermajority vote of stockholders in certain circumstances, may have the effect of making it more difficult for a bidder to obtain stockholder approval, through a proxy contest or otherwise, for certain transactions, an amendment to the Company's Articles (to repeal a defensive provision) or any other action not recommended by a majority of the Continuing Directors (other than the election of directors). If Proposal No. 7, requiring stockholders to give notice of their intention to nominate directors, is adopted, it would be more difficult and time-consuming for stockholders to nominate directors. This provision makes it easier for the Company to obtain advance notice of nominations and makes more difficult the assumption of control of the Company by a purchaser of a significant block of the shares of the Company through the removal of incumbent directors. Proposal No. 8 limiting the ability of stockholders to call Special Meetings of stockholders, if adopted, would have the effect of making it more difficult for the stockholders of the Company, other than a stockholder holding 50% of the Company's voting stock, to take action at any time other than an annual meeting (or a special meeting authorized by the Board of Directors or other authorized persons) to replace directors, amend the Company's charter or take any other action authorized to be taken by stockholders under Massachusetts law. The proposed amendment may have the effect of discouraging potential purchasers from attempting to acquire control of the Company or, in some cases, may discourage the accumulation of large blocks of Common Stock by reducing the control effect of such blocks. Proposal No. 9, adding to the Articles a Fair Price Provision regarding certain business combinations, if adopted, would give greater assurance to the holders of the Company's capital stock that they will receive fair and equitable treatment in the event of certain business combination transactions between the Company and any interested stockholder or certain related persons. The Company is not aware of any efforts to accumulate the Company's securities or to obtain control of the Company, and the Company has no present intention or agreement to issue any shares of Preferred Stock. ADVANTAGES OF PROPOSALS The proposed Anti-Takeover Amendments are intended to encourage persons seeking to acquire control of the Company to initiate such an acquisition through arm's length negotiations with the Company's Board of Directors. If the Board is presented with a proposal from a third party who has acquired a substantial block of the Company's Common Stock, the Directors will be able to evaluate the proposal and study alternative proposals in the absence of the coercive atmosphere that might otherwise prevail and without the imminent threat of removal. This ability to evaluate and negotiate will help ensure that the best price is obtained in any acquisition transaction that may ultimately be consummated. The Anti-Takeover Amendments cannot, and are not intended to, prevent a purchase of all or a majority of the equity securities of the Company nor are they intended to deter bids or other efforts to acquire such securities. Rather, the Board of Directors believes that the Anti-Takeover Amendments will discourage disruptive tactics and takeovers at unfair prices or on terms that do not provide all stockholders with the opportunity to sell their stock at a fair price and will encourage third parties which may seek to acquire control of the Company to initiate such an acquisition through negotiations directly with the Board of Directors. Therefore, the Board believes that it will be in a better position to protect the interests of all 13 18 of the stockholders if the Anti-Takeover Amendments are approved. In addition, the stockholders of the Company will have a more meaningful opportunity to evaluate such action. DISADVANTAGES OF PROPOSALS Adoption of the proposed Anti-Takeover Amendments may deter certain mergers, tender offers, proxy contests or other future takeover attempts which holders of some or even a majority of the outstanding stock believe to be in their best interests, and may make removal of management more difficult even if such removal would be beneficial in the judgment of many of the stockholders. Not all takeovers or changes in control of the Board of Directors that are proposed and effected without prior consultation and negotiation with the incumbent Board are necessarily detrimental to the Company and its stockholders. However, the Board believes that the benefits of seeking to protect its ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure the Company outweigh the disadvantages of discouraging such proposals. Although the Anti-Takeover Amendments are intended to encourage persons seeking to acquire control of the Company to initiate such an acquisition through arm's length negotiations with the board of directors, the overall effect of these provisions may be to discourage a third party from making a tender offer for a portion or all of the Company's securities, hostile or otherwise (including an offer at a substantial premium over the then prevailing market value of the Company's Common Stock), or otherwise attempting to obtain a substantial portion of the Common Stock of the Company in order to commence a proxy contest or engage in other takeover-related action, even though some or a majority of the Company's stockholders might believe such actions to be beneficial. If third parties are discouraged from making offers for all or a substantial portion of the Company's Common Stock, the effect may be to dampen demand for, or speculation in, the Company's Common Stock and therefore negatively impact the price of the Common Stock. To the extent that any third party potential acquirers are deterred by the Anti-Takeover Amendments, such provisions may serve to benefit incumbent management by making it more difficult to remove management, even when the only reason for the proposed change of control or the stockholder action may be the unsatisfactory performance of the present directors. In addition, since the Anti-Takeover Amendments are in part designed to discourage accumulating large blocks of the Company's voting securities by purchasers whose objective is to gain control of the Company, their adoption could tend to reduce the temporary fluctuation in the market price of such voting stock that frequently results from such accumulations or attempted accumulations. Accordingly, stockholders could be deprived of certain opportunities to sell their shares at a higher market price. RELATIONSHIP OF ANTI-TAKEOVER AMENDMENTS TO OTHER PROVISIONS The Board of Directors does not believe that the Articles currently contain any provisions which should be viewed as anti- takeover devices, except that the Company currently has authorized 100,000 shares of no par Preferred Stock which can be issued in series with the relative rights and preferences of the shares of any series to be determined by the Directors. If Proposal No. 5 is adopted, an additional 900,000 shares of no par Preferred Stock shall be authorized and the terms of the Preferred Stock shall be amended such that the Board will have even greater flexibility with respect to determining the rights, powers, preferences and terms of any series of Preferred Stock which may be issued. In addition to the Proposals set forth herein, the Board of Directors may, in the future, adopt, or propose to stockholders for their adoption other measures which could be characterized as having an anti-takeover effect, however, the Board has no present intention to put before the stockholders any other proposal which would operate as a significant impediment to an attempt by a third party to gain control of the Company. APPLICABLE PROVISIONS OF MASSACHUSETTS LAW. CONTROL SHARE ACQUISITION LAW. Under Chapter 110D of the Massachusetts General Laws governing "control share acquisitions," any stockholder of certain publicly-held Massachusetts corporations who acquires 20% or more of voting power of a covered corporation may not (except in certain transactions) vote such stock unless the stockholders of the corporation so authorize. The provisions of Chapter 110D are applicable to the Company. BUSINESS COMBINATION STATUTE. Chapter 110F of the Massachusetts General Laws, entitled "Business Combinations with Interested Shareholders," applies to publicly-held Massachusetts corporations with 200 or more stockholders of record. 14 19 Generally, this statute prohibits such Massachusetts corporations from engaging in a "business combination" with an "interested stockholder" for a period of three years following the date of the transaction in which the person becomes an interested stockholder unless (a) the interested stockholder obtains the approval of the corporation's board of directors prior to becoming an interested stockholder; (b) the interested stockholder acquires at least 90% of the voting stock of the corporation (excluding shares held by certain affiliates of the corporation) outstanding at the time he or it becomes an interested stockholder; or (c) the business combination is both approved by the board of directors and authorized at an annual or special meeting of stockholders by the holders of a least two-thirds of the outstanding voting stock of the corporation (excluding shares held by the interested stockholder). An "interested stockholder" is a person who, together with affiliates and associates, owns (or at any time within the prior three years did own) 5% or more of the outstanding voting stock of the corporation. A "business combination" includes, among other transactions, a merger, stock or asset sale and other transactions resulting in a financial benefit to the stockholder. Chapter 110F is applicable to the Company. The application of this statute to the Company could discourage or make it more difficult for any person or group of persons to attempt to obtain control of the Company. The Company may at any time amend its Articles of Organization or By-Laws to elect not to be governed by Chapter 110F, by a vote of its stockholders, but such an amendment would not be effective for twelve months and would not apply to a business combination with any person who became an interested stockholder prior to the date of the amendment. STATUTORY FAIR PRICE PROVISION. Chapter 110C of the Massachusetts General Laws, entitled "Regulation of Take-Over Bids in the Acquisition of Corporations," sets forth disclosure and other requirements with which a person making a "take-over bid" must comply. In addition, the statute generally requires that if a person making a take-over bid increases the consideration he is willing to pay for shares of the target corporation, then all stockholders of the target corporation will be entitled to such higher price for their shares, whether or not such shares are tendered before or after the offeror increases the consideration he is willing to pay. All of the various provisions described above, as well as Proposals No. 4 through 9, could be used by the Board of Directors in a manner calculated to prevent the removal of management and to make more difficult or discourage a change in control of the Company. Certain aspects of the foregoing provisions were designed to afford the Board of Directors the opportunity to evaluate the terms of a takeover attempt without haste or undue pressure, advise stockholders of its findings, and to negotiate to protect the interests of all stockholders. PROPOSAL NO. 4 AMENDMENT TO ARTICLES AND BY-LAWS TO PROVIDE FOR A CLASSIFIED BOARD OF DIRECTORS AND RELATED MATTERS At present, all the Company's directors are elected at each annual meeting of stockholders for a one year term. The Board of Directors unanimously recommends that stockholders approve the addition of a new subsection to Article 6 of the Articles to provide for the classification of the Company's Board of Directors into three classes, each comprising as nearly as possible one-third of the directors, and to address certain related matters. At the 1996 Annual Meeting, the Class I directors would be elected for one year, the Class II directors for two years and the Class III directors for three years. (See Exhibit A for the entire text of the proposed amendment.) At each annual meeting thereafter, the class of directors up for election would be elected for three years and the directors in the other two classes would continue in office. The votes required for election would remain unchanged. If the number of directors is changed, any newly-created directorships or decreases in directorships are to be assigned by the Board so as to make all classes as nearly equal in number as possible. Under the proposed addition to Article 6, the ability of the stockholders to enlarge the Board of Directors would be restricted. If the Proposal is adopted, changes in the number of Directors may be effected by a vote of a majority of the Continuing Directors (a defined term which is intended to include those Directors in office prior to any takeover attempt) or by the stockholders by the affirmative vote of 66 2/3% of the shares of voting stock outstanding voting as a single class. Vacancies on the Board resulting from an increase in the number of directors or otherwise shall be filled only by the affirmative vote of a majority of the Continuing Directors for the remainder of the full term of the class of directors in which the directorship was created or the vacancy occurred. Under this provision, directors would be removable with or 15 20 without cause only by vote of the holders of at least 66 2/3% of the combined voting power of the outstanding shares of voting stock, voting together as a single class or upon the vote of a majority of the Continuing Directors. The proposed amendment is intended to moderate the pace of any change in the Board of Directors by extending the time required to replace a majority of the incumbent directors. At least two stockholder meetings, instead of one, will be required to effect a change in a majority of the Board. The Board of Directors believes that a classified Board would tend to assure desirable continuity in leadership and policy since, when the classified Board becomes fully operative, approximately two- thirds of the directors at any time will have had prior experience on the Board. The provision for electing only one class of the Board annually, rather than the entire Board, will be applicable to every annual election of directors, and not just to any election occurring after a change in stockholder control of the Company. A classified Board could delay stockholders who do not like the policies of the Board of Directors from removing a majority of the Board for up to two years. This would be so even if the only reason for the attempted action by a stockholder was dissatisfaction with the performance of the current Board. The provisions relating to removal of directors or expanding the Board and filling the resulting vacancies would make it more difficult for a third party to remove incumbent directors or expand the Board and simultaneously gain control of the Board by filling the vacancies created by such expansion with its own nominees. Stockholders should recognize that the amendment will also make more difficult the removal of a director in circumstances which do not constitute a takeover attempt and where, in the opinion of the holders of a majority of the Company's outstanding shares, it is desirable that a director be removed. The proposed provision would, in effect, give holders of one-third of the outstanding shares of common stock a veto power over such removal without cause. Moreover, the proposal may have the effect of delaying an ultimate change in existing management that might be desired by a majority of the stockholders. These provisions should increase the likelihood of continuity and stability in the composition of the Board of Directors and, at the same time, reduce the possibility that a third party could effect or threaten to effect a sudden or surprise change in majority control of the Board of Directors without the support of the incumbent Board. The Board of Directors does not believe that the Company has had any problems in the past with respect to continuity in leadership and policy. The amendment may also impede assumption of the management of the Company by any other person or entity which, through a takeover bid or otherwise, might obtain a substantial number of shares of Common Stock. If Proposal No. 4 is approved by the stockholders, the Company's By-Laws will also be amended as set forth in Exhibit A to conform the By-Laws to the provisions of this proposed amendment. The affirmative vote of two thirds of the votes entitled to be cast by holders of the Common Stock outstanding and entitled to vote is required for the adoption of Proposal No. 4. THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL OF PROPOSAL NO. 4. PROPOSAL NO. 5 AMENDMENT TO ARTICLES TO ADD BLANK CHECK PREFERRED STOCK The Board of Directors has unanimously approved an amendment to the Company's Articles to increase the number of authorized shares of the Company's no par Preferred Stock (the "Preferred Stock") from 100,000 to 1,000,000 and to amend the terms of the Preferred Stock such that it has such rights, powers, preferences and terms as are determined by the Board of Directors at the time of issuance, without further stockholder action. There are currently no shares of Preferred Stock issued and outstanding. 16 21 The proposed amendment would enable the Board of Directors to authorize the issuance, without further stockholder action (unless required in a specific case by applicable laws, regulations or stock exchange rules), of one or more series of Preferred Stock, with such terms and at such times and for such consideration as the Board of Directors may determine. With respect to any such series of Preferred Stock, the Board of Directors will be authorized to determine, among other things: (i) the dividend rate, which may be fixed or variable, the conditions and times at which the dividend is payable, its preference as to any other class or series of capital stock, and whether dividends will be cumulative or non-cumulative; (ii) whether the shares are to be redeemable and, if so, at which times and prices and on what other terms and conditions; (iii) the terms and amount of any sinking fund provided for the purchase or redemption of the shares; (iv) whether the shares shall be convertible or exchangeable and, if so, the times, prices, rates, adjustments and other terms of such conversion or exchange; (v) the voting rights, if any, applicable to the shares in addition to those prescribed by law; (vi) the restrictions and conditions, if any, on the issue or reissue of any additional shares of such series or of any other series of Preferred Stock ranking on a parity with, or prior to, the shares of such series; and (vii) the rights of the holders of such shares upon voluntary or involuntary liquidation, dissolution or winding up of the Company. If Proposal No. 5 is adopted, Article 4 of the Articles would read in its entirety as set forth in Exhibit B. If the amendment is adopted, the result will be to increase the flexibility of the terms of the Preferred Stock to give the Board greater latitude in determining the rights, powers, preferences and terms with respect to any series and to simplify and modernize the language. The Board of Directors believes that the proposed amendment is in the best interests of the Company and its stockholders. The authorization of additional shares of Preferred Stock will give the Company greater flexibility in equity financing by permitting the Board of Directors to issue shares of Preferred Stock without the delay and expense of a special meeting of stockholders. For example, the Board of Directors may deem it appropriate to make a private or public offering of the Company's Preferred Stock in order to raise funds for working capital or other purposes or the Preferred Stock could be issued to finance possible future acquisitions. The flexibility to issue the "blank check" Preferred Stock could enhance the Board's bargaining capability in a takeover situation. For example, the Board of Directors could issue a series of Preferred Stock with the right as a separate class to approve any merger or sale of the Company. This could have the effect of delaying, deferring or preventing a change in control of the Company. In addition, the Board of Directors of the Company could forestall or prevent a change in control by means of a private placement of the Preferred Stock with a person or entity friendly to management, whose vote would be required to approve the proposed takeover. Preferred Stock could also be issued in conjunction with the adoption of a stockholder purchase rights plan. Stockholders of the Company do not have preemptive rights to subscribe for or purchase any shares of Preferred Stock that may be issued in the future. Each series of Preferred Stock could and probably would, as determined by the Board of Directors at the time of issuance, rank senior to the Company's Common Stock with respect to dividends, redemption and liquidation rights. The Company has no current plans to issue any shares of Preferred Stock. The affirmative vote of two thirds of the votes entitled to be cast by holders of the Common Stock outstanding and entitled to vote is required for the adoption of Proposal No. 5. THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL OF PROPOSAL NO. 5 PROPOSAL NO. 6 AMENDMENT TO ARTICLES TO REQUIRE A SUPERMAJORITY VOTE OF STOCKHOLDERS Proposal No. 6 would amend the Articles to provide that, after the 1996 Meeting, where a stockholder vote is required under Massachusetts law, other than with respect to the election of directors, the affirmative vote of a majority of each 17 22 class of stock outstanding and entitled to vote thereon is required, if such vote is recommended by a majority of the Continuing Directors (a defined term which is intended to include those Directors in office prior to any takeover attempt) or, in the event such vote is not recommended by a majority of the Continuing Directors, the affirmative vote of 66 2/3% of each class of stock outstanding and entitled to vote thereon is required. (See Exhibit C for the text of this amendment.) The supermajority voting provision would be subject to other provisions of the Articles and By-Laws of the Company that specify a different percentage vote in particular circumstances, as well as the requirements of Massachusetts law. Massachusetts law already requires a vote of two-thirds of the shares of each class of stock outstanding and entitled to vote (unless the articles of organization provide for a lesser proportion, but not less than a majority) to approve certain actions, such as a merger or a sale of substantially all assets. Requiring supermajority voting may have the effect of making it more difficult for a bidder to obtain stockholder approval, through a proxy contest or otherwise, for certain transactions, an amendment to the Company's Articles (to repeal a defensive provision) or any other action other than the election of Directors. A supermajority provision will also make it more likely that management stockholders will be able to defeat a proposal that could be detrimental to the Company. The supermajority provision would allow the Company to protect itself to some degree, while retaining the ability to require mere majority vote for actions that a majority of the Continuing Directors recommend. In practice this provision would likely require a bidder to come to agreement with the Continuing Directors before taking action. The affirmative vote of two thirds of the votes entitled to be cast by holders of the Common Stock outstanding and entitled to vote is required for the adoption of Proposal No. 6. THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF PROPOSAL NO. 6. PROPOSAL NO. 7 AMENDMENT TO BY-LAWS TO REQUIRE STOCKHOLDERS TO GIVE NOTICE OF DIRECTOR NOMINATIONS The Company's By-Laws do not set forth any procedure for the nomination of candidates for director by stockholders. Proposal No. 7 would amend Article III, Section 1 of the Company's By-Laws to require stockholders to give the Company at least 90 days notice prior to the Annual Meeting of such stockholder's intention to nominate Directors. The notice must include (a) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated, (b) a representation that the stockholder is a stockholder of record entitled to vote at such meeting and will appear in person or by proxy at the meeting, (c) a description of all arrangements or understandings between the stockholder and each nominee, (d) such other information regarding each nominee as would be required to be included in a Proxy Statement filed pursuant to the proxy rules of the Securities and Exchange Commission, and (e) a consent of each nominee to serve as a Director of the Company if so elected. The text of the proposed amendment is set forth in full as Exhibit D to this proxy statement. This provision will require stockholders to act well in advance of an annual meeting if the stockholder desires to nominate a director. The provision also requires the stockholder to supply the Company with a variety of information concerning itself and the nominee. This provision may discourage some stockholders from nominating directors, due both to the advanced timing required and to the need to provide detailed information relating to the nominee. This provision makes it easier for the Company to obtain advance notice of nominations and makes more difficult the assumption of control of the Company by a purchaser of a significant block of the shares of the Company through the removal of incumbent directors. While the amendment does not give the Board of Directors any power to approve or disapprove of a stockholder nomination, it will preclude the possibility of unexpected nominations for directors from the floor of meetings and limit the ability of stockholders to cause sudden changes in the membership of the Board of Directors. The proposed provision will also provide stockholders and the Board of Directors an opportunity to evaluate the qualifications of nominees for election prior to the vote, thus furthering the objective of the Board to identify candidates who have the character, experience and proven accomplishments which give promise of significant contribution to the Company's business. 18 23 Although the Board of Directors does not believe that the amendment will have a significant impact on any attempt by a third party to obtain control of the Company, it is possible that the amendment may deter a third party from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempt to obtain control of the Company or effect a change in management, irrespective of whether such action would be beneficial to stockholders generally. The affirmative vote of a majority of the votes entitled to be cast by holders of the Common Stock outstanding and entitled to vote is required for the adoption of Proposal No. 7. THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF PROPOSAL NO. 7. PROPOSAL NO. 8 AMENDMENT TO BY-LAWS TO LIMIT STOCKHOLDERS' RIGHT TO CALL SPECIAL MEETINGS The Company's By-Laws currently provide that Special Meetings of Stockholders may be called by the President, by a majority of the Directors, or upon written application of one or more stockholders who hold at least 10% of the voting stock entitled to vote at the meeting. Unless otherwise provided in the articles of organization or by-laws, Massachusetts law limits the right to call a special meeting of stockholders to stockholders who hold at least 40% of the Company's voting stock. The Board is proposing that Article II, Section 2 of the By-Laws be amended to limit the right to call a special meeting of stockholders to stockholders who hold at least 50% of the Company's voting stock. For the text of this amendment to the By-Laws, see Exhibit E. The Board of Directors believes that the current threshold affording holders of 10% of the Company's voting stock the right to call Special Meetings of stockholders establishes too low a threshold and exposes the Company to the costs of preparing for a Special Meeting without a showing of substantial support by the stockholders. The Board believes that the decision whether to hold such a meeting should properly rest with the holders of at least 50% of the Company's outstanding shares and with the President and the Board of Directors. This provision restricts the ability of a stockholder intending to bid for control of the Company to call a special meeting at which he or she may attempt to pack the Board of Directors or otherwise wage a proxy contest. For example, such a person could attempt, through a resolution at a Special Meeting, to emasculate a defensive measure previously implemented by the Company. The affirmative vote of a majority of the votes entitled to be cast by holders of the Common Stock outstanding and entitled to vote is required for the adoption of Proposal No. 8. THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF PROPOSAL NO. 8. PROPOSAL NO. 9 AMENDMENT TO ARTICLES TO ADD FAIR PRICE PROVISION In recent years, tactics have been used in connection with actual and threatened unsolicited takeovers of corporate control which discriminate against certain stockholders of the target corporation. These tactics include "two tiered," "front-end loaded" cash tender offers for a portion of the target corporation's outstanding shares of voting stock, followed by "clean-up" or "squeeze out" mergers or similar transactions that involve the elimination of the then remaining public stockholders of the target company (i.e. those who did not tender their shares to, or have their tenders accepted by, the acquirer in the initial partial cash tender offer) for cash or other consideration having a lower value than the amounts paid to the stockholders participating in the initial partial cash tender offer. The Board of Directors has approved a proposal to include a provision as an addition to Article 6 to the Company's Articles for the purpose of giving greater assurance to the 19 24 holders of the Company's capital stock that they will receive fair and equitable treatment in the event of certain business combination transactions between the Company and any interested stockholder or certain related persons. The Fair Price Provision requires the affirmative vote of the holders of 66 2/3% of the combined voting power of the Company's outstanding voting stock for certain transactions defined as "Business Combinations" with a "Related Person" unless specified price criteria and procedural requirements are met or the approval of the Continuing Directors is given. (See Exhibit F to this proxy statement for the complete text of the Fair Price Provision.) A "Business Combination" is defined as (i) any merger or consolidation of the Company with any Related Person or affiliate of a Related Person, or (ii) any sale, lease, pledge or other disposition to any Related Person or affiliate of a Related Person of assets of the Company having a fair market value greater than 10% of the Company's total stockholders' equity, or (iii) the issuance or transfer by the Company of any securities of the Company to any Related Person or affiliate of a Related Person in exchange for consideration having a fair market value in excess of 10% of the Company's total stockholders' equity, or (iv) the adoption of any proposal for the liquidation or dissolution of the Company proposed by or on behalf of any Related Person or affiliate of a Related Person, or (v) any reclassification of securities or recapitalization of the Company or other transaction which has the effect, directly or indirectly of increasing the proportionate share of securities of the Company directly or indirectly owned by any Related Person or affiliate of a Related Person. A "Related Person" is defined as any person which, together with such person's affiliates and associates, acquires beneficial ownership, directly or indirectly, of more than 5% of the voting power of the Company's outstanding voting stock. The Fair Price Provision requires that, in Business Combinations which involve consideration received by the stockholders, either such Business Combination shall be approved by a majority of the Continuing Directors or a number of conditions must be met, including a condition which requires that the amount of consideration received per share by stockholders be at least equal to the higher of (a) the highest per share price paid by the Related Person for any such shares within the two-year period immediately prior to the date of the announcement of the proposed transaction or in the transaction in which it became a Related Person, whichever is higher, or (b) the fair market value per share on the date of such announcement, or (c) in the case of any class of Preferred Stock, the highest preferential amount per share to which the holders are entitled in the event of a winding up of the Company. The Board of Directors believes that the adoption of the proposal is desirable in addition to the provisions of Massachusetts law discussed above and notwithstanding certain other provisions of Massachusetts law that provide that stockholders who object to a merger or consolidation may, under certain circumstances, have the statutory right to dissent, have their shares "appraised" and receive the "fair value" of their shares in cash. The affirmative vote of two thirds of the votes entitled to be cast by holders of the Common Stock outstanding and entitled to vote is required for the adoption of Proposal No. 9. THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF PROPOSAL NO. 9. OTHER MATTERS VOTING The representation in person or by proxy of at least a majority of the outstanding shares of Common Stock of the Company is necessary to provide a quorum at the Meeting. Directors are elected by a plurality of the affirmative votes cast. Abstentions and broker "non-votes" are each counted as present in determining whether the quorum requirement 20 25 is satisfied. Abstentions and "non-votes" have the effect of votes against proposals presented to the stockholders other than the election of directors. A "non-vote" occurs when a broker or other nominee holding shares for a beneficial owner votes on one proposal, but does not vote on another proposal because the broker or other nominee does not have discretionary voting power and has not received instructions from the beneficial owner. PROXIES; REVOCATION OF PROXIES All Proxies solicited by the Board of Directors of the Company that are properly executed and returned, but which are not expressly voted, will be voted at the Meeting in accordance with the recommendation of the Board of Directors of the Company, unless such proxies are revoked prior to the Meeting. A Proxy may be revoked by delivering a written notice of revocation to the principal office of the Company or may be revoked in person at the Meeting at any time prior to the voting thereof. Attendance at the Meeting will not, by itself, revoke a Proxy. SOLICITATION All expenses of this solicitation will be paid by the Company. Brokerage firms, nominees, fiduciaries and other custodians have been requested to forward proxy solicitation materials to the beneficial owners of shares of Common Stock of the Company held of record by such persons, and the Company will reimburse such brokerage firms, nominees fiduciaries and other custodians for reasonable out-of-pocket expenses incurred by them in connection therewith. In addition to solicitation of Proxies by mail, directors, officers and employees of the Company, without receiving additional compensation therefor, may solicit Proxies from stockholders of the Company by telephone, telegram, in person or by other means. The Company will also use Georgeson & Company Inc., a paid proxy solicitaion firm, to solicit proxies on behalf of the Company. The Company expects to pay the firm approximately $11,000 plus certain expenses for its proxy solicitation efforts. INDEPENDENT PUBLIC ACCOUNTANTS The Board of Directors has selected Arthur Andersen LLP, as the independent certified public accountants to audit the consolidated financial statements of the Company for the fiscal year ending March 31, 1997. A representative of Arthur Andersen LLP will be at the Meeting and will be given an opportunity to make a statement, if so desired. The representative will be available to respond to appropriate questions. STOCKHOLDER PROPOSALS FOR 1997 ANNUAL MEETING Any stockholder proposal to be included in the proxy statement and form of proxy for the 1997 Annual Meeting of Stockholders must be received at the principal office of the Company by May 13, 1997. It is suggested that proposals be submitted by Certified Mail, Return Receipt Requested. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934 requires certain persons, including the Company's Directors and Executive Officers, to file initial reports of beneficial ownership of the Company's securities and reports of changes in beneficial ownership with the Securities and Exchange Commission. For fiscal year 1996, the following reports were filed late: Herman Feshbach filed one late report covering one transaction; Al Gladen filed two late reports covering three transactions; Peter Harris filed one late report covering one transaction; Hamilton Helmer filed one late report covering two transactions; Donald McCarren filed one late report covering three transactions; and Lee Steele filed one late report covering two transactions. 21 26 INCORPORATION BY REFERENCE To the extent that this Proxy Statement has been or will be specifically incorporated by reference into any filing by the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, the sections of the Proxy Statement entitled "Compensation Committee Report on Executive Compensation" and "Stock Performance Chart" shall not be deemed to be so incorporated, unless specifically otherwise provided in any such filing. OTHER PROPOSED ACTION The Board of Directors knows of no other matters that are to be presented at the Meeting. If, however, any other business should properly come before the Meeting, the persons named in the enclosed proxy intend to vote such proxy upon such matters in accordance with their best judgment. By Order of the Board of Directors Jeffrey A. Bernfeld Clerk 22 27 EXHIBIT A CLASSIFICATION OF BOARD OF DIRECTORS AND RELATED MATTERS Text of Provision to be added to Article 6 of the Articles of Organization (to - ------------------------------------------------------------------------------ be inserted at the beginning of Article 6). - ------------------------------------------- (i) Classification of Board of Directors and Related Matters. -------------------------------------------------------- A. Number, Election and Terms of Directors --------------------------------------- 1. Subject to the rights of the holders of any class or series of stock having a preference over the Corporation's voting stock as to dividends or upon liquidation to elect additional directors under specific circumstances, the number of directors shall be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by a majority of the Continuing Directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board of Directors for adoption) or by the affirmative vote of the holders of at least 66 2/3% of the shares of voting stock outstanding, voting as a single class. At the 1996 annual meeting of stockholders, the directors, other than those who may be elected by the holder of any class or series of stock having a preference over the voting stock as to dividends or upon liquidation, shall be divided into three classes, as nearly equal in number as possible, with the term of office of the first class to expire at the 1997 annual meeting of stockholders, the term of office of the second class to expire at the 1998 annual meeting of stockholders and the term of office of the third class to expire at the 1999 annual meeting of stockholders. At each annual meeting of stockholders following such initial classification and election, the successors of those directors whose terms expire at that meeting shall be elected by a plurality vote of all votes cast at such meeting for a term of office to expire at the third succeeding annual meeting of stockholders after their election, unless by reason of any intervening changes in the authorized number of directors, the Board of Directors shall designate one or more of the then expired directorships as directorships of another class in order more nearly to achieve equality of number of directors among the classes. 2. The number of the Board of Directors may be changed by a vote of a majority of the Continuing Directors or by the stockholders by vote of 66 2/3% of the shares of voting stock outstanding, voting as a single class. 3. Notwithstanding the rule that the three classes shall be as nearly equal in number of directors as possible, in the event of any change in the authorized number of directors, each director then continuing to serve as such, shall nevertheless continue as a director of the class of which he is a member until the expiration of his current term, or his prior death, resignation or removal. If any newly created directorship may, consistent with the rule that the three classes shall be as nearly equal in number of directors as possible, be allocated to one of two or more classes, the Board of Directors shall allocate it to that of the available classes whose term of office is due to expire at the earliest date following such allocation. B. Newly Created Directorships and Vacancies ----------------------------------------- Except as otherwise provided for or fixed by or pursuant to the provisions of these Articles of Organization relating to the rights of the holders of any class or series of stock having a preference over the voting stock as to dividends or upon liquidation to elect directors under specified circumstances, newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled only by the affirmative vote of a majority of the Continuing Directors, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been elected and qualified. No decrease in the number of directors shall shorten the term of an incumbent director. C. Removal ------- Subject to the rights of the holders of any class or series of stock having a preference over the voting stock as to dividends or upon liquidation to elect additional directors under specified circumstances, any director may be removed from 23 28 office with or without cause only by the affirmative vote of the holders of at least 66 2/3% of the combined voting power of the outstanding shares of voting stock, voting together as a single class or upon the vote of a majority of the Continuing Directors. D. Amendment, Repeal or Alteration ------------------------------- Notwithstanding anything contained in these Articles of Organization to the contrary, the affirmative vote of the holders of at least 66 2/3% of the outstanding shares of voting stock, voting together as a single class, shall be required to alter, change, amend or repeal this Article 6(i) or to adopt any provision inconsistent with this Article 6(i). Text of new Article III, Section 1 of By-Laws --------------------------------------------- Section 1: Enumeration, Election and Term of Office. - ---------- ----------------------------------------- The number of Directors on the Board of Directors shall be determined as provided in the Articles of Organization of the Corporation. No Director need be a Stockholder. The Directors of the Corporation shall be divided into three classes: Class I, Class II and Class III. Each class shall consist as nearly as may be possible, of one-third of the whole number of the Board of Directors. In the election of Directors at the 1996 Annual Meeting of Stockholders, the Class I Directors shall be elected to hold office for a term to expire at the first Annual Meeting of Stockholders thereafter; the Class II Directors shall be elected to hold office for a term to expire at the second Annual Meeting of Stockholders thereafter; and the Class III Directors shall be elected to hold office for a term to expire at the third Annual Meeting of Stockholders thereafter; and in the case of each class, until their respective successors are duly elected and qualified. At each annual election held after the 1996 Annual Meeting of Stockholders, the Directors elected to succeed those whose terms expire shall be identified as being the same class as the Directors they succeed and shall be elected to hold office for a term to expire at the third Annual Meeting of Stockholders after their election, and until their respective successors are duly elected and qualified. If the number of Directors changes, any increase or decrease in Directors shall be apportioned among the classes so as to maintain all classes as nearly equal in number as possible, and any additional Director elected to any class shall hold office for a term which shall coincide with the terms of the other Directors in such class and until his successor is duly elected and qualified. Any vacancy in the Board of Directors, however occurring, including a vacancy resulting from the enlargement of the Board of Directors, shall be filled as provided in the Articles of Organization of the Corporation. The Board of Directors may be enlarged as provided in the Articles of Organization of the Corporation. A Director, whether elected by the stockholders or Directors, may be removed from office in the manner provided by the Articles of Organization of the Corporation. - ------------- Article V, Sections 2 and 3 of the By-Laws will also be amended to delete inconsistent provisions regarding removal of directors and filling vacancies in the Board of Directors. 24 29 EXHIBIT B BLANK CHECK PREFERRED STOCK - --------------------------- Text of new Article 4 of the Articles of Organization. ------------------------------------------------------ The classes of stock of the corporation authorized by Article 3 hereof shall have the preferences, voting powers, qualifications, and special or relative rights or privileges as to each class thereof and any series now established as set forth in this Article 4. Stock of any class or series authorized pursuant hereto may be issued from time to time by authority of the Board of Directors for such consideration as from time to time may be fixed by vote of the Board of Directors. PART I - COMMON STOCK --------------------- The holders of the Common Stock shall be entitled to one vote per share and, subject to the rights and preferences of the holders of the Preferred Stock and any other class of stock ranking senior to or on a parity with the Common Stock, shall be entitled to dividends when, as and if declared and paid to the holders of Common Stock, and upon liquidation, dissolution or winding up of the corporation, to share ratably in the assets available for distribution to the holders of the Common Stock. PART II - PREFERRED STOCK ------------------------- Preferred Stock may be issued by the Board of Directors, in one or more series and with such rights, powers, preferences and terms and at such times and for such consideration as the Board of Directors shall determine, without further stockholder action. With respect to each series of Preferred Stock, prior to issuance, the Board of Directors by resolution shall designate that series to distinguish it from other series and classes of stock of the Corporation, shall specify the number of shares to be included in the series, and shall fix the rights, powers, preferences and terms of the shares of the series, including, but without limitation: (i) the dividend rate, which may be fixed or variable, its preference as to any other class or series of capital stock, and whether dividends will be cumulative or non-cumulative; (ii) whether the shares are to be redeemable and, if so, at what times and prices (which price or prices may, but need not, vary according to the time or circumstances of such redemption) and on what other terms and conditions; (iii) the terms and amount of any sinking fund provided for the purchase or redemption of the shares; (iv) whether the shares shall be convertible or exchangeable and, if so, the times, prices, rates, adjustments and other terms of such conversion or exchange; (v) the voting rights, if any, applicable to the shares in addition to those prescribed by law; (vi) the restrictions and conditions, if any, on the issue or reissue of any additional shares of such series or of any other series of Preferred Stock ranking on a parity with or prior to the shares of such series; (vii) whether, and the extent to which, any of the rights, powers, preferences and terms of any such series may be made dependent upon facts ascertainable outside of the Articles of Organization or outside the resolution or resolutions providing for the issuance of such series by the Board of Directors, provided that the manner in which such facts shall operate is clearly set forth in the resolution or resolutions providing for the issuance of such series adopted by the Board of Directors; and (viii) the rights of the holders of such shares upon voluntary or involuntary liquidation, dissolution or winding up of the Corporation. 25 30 EXHIBIT C SUPERMAJORITY VOTING - -------------------- Text of Provision to be added to Article 6 of Articles of Organization (to - -------------------------------------------------------------------------- be inserted after Article 6(i). - ------------------------------- (ii) Supermajority Voting. --------------------- Except as otherwise provided in these Articles of Organization, the By-Laws and any designation of terms of any class of stock, any vote required by stockholders pursuant to Massachusetts law, other than the election of directors (which shall not be affected by this provision), shall be effective if recommended by a majority of the Continuing Directors and the vote of a majority of each class of stock outstanding and entitled to vote thereon; and if not recommended by a majority of the Continuing Directors, then by the vote of 66 2/3% of each class of stock outstanding and entitled to vote thereon, voting as separate classes. 26 31 EXHIBIT D NOMINATIONS OF DIRECTORS - ------------------------ Text of New Provision to be Added to Article III of the By-Laws. ---------------------------------------------------------------- Section 7: Nomination of Directors - ------------------------------------ Nominations for the election of directors at an annual meeting of the stockholders, or special meeting in lieu of the annual meeting, may be made by the Board of Directors or a committee appointed by the Board of Directors or by any stockholder entitled to vote in the election of directors at the meeting. Stockholders entitled to vote in such election may nominate one or more persons for election as directors only if written notice of such stockholder's intent to make such nomination or nominations has been given either by personal delivery, overnight (receipted) courier or by United States mail, postage prepaid, to the Clerk of the Corporation not later than ninety days prior to the anniversary date of the immediately preceding annual meeting or special meeting in lieu thereof. Such notice shall set forth: (a) the name and address of the stockholder who intends to make the nomination and of the persons or person to be nominated; (b) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (d) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission; and (e) the consent of each nominee to serve as a director of the Corporation if so elected. The presiding officer of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. 27 32 EXHIBIT E SPECIAL MEETINGS OF SHAREHOLDERS - -------------------------------- Text of new Article II, Section 2 of By-Laws. --------------------------------------------- Section 2. Special Meetings. - -------------------------------- Special meetings of the stockholders may be called at any time by the President, or by the Board of Directors. Special meetings of the stockholders shall be called by the Clerk, or in the case of the death, absence, incapacity or refusal of the Clerk, by any other officer, upon written application by one or more stockholders who hold at least 50% of each class of stock outstanding and entitled to vote at such meeting. Such call shall state the time, place and purposes of the meeting. 28 33 EXHIBIT F FAIR PRICE PROVISION - -------------------- Text of Provision to be added to Article 6 of the Articles of Organization -------------------------------------------------------------------------- (to be inserted after Article 6(ii). ------------------------------------ (iii) Fair Price Provision -------------------- 1. In addition to the affirmative vote otherwise required by law or any provision of these Articles of Organization, except as otherwise provided in Section 2 of this Article 6(iii), any Business Combination shall require the affirmative vote of the holders of 66 2/3% of the combined voting power of all Voting Stock voting together as a single class. Such affirmative vote shall be required notwithstanding any other provisions of these Articles of Organization, or any provision of law or of any agreement with any national securities exchange which might otherwise permit a lesser vote or no vote, and such affirmative vote of the holders of the combined voting power of the outstanding shares of any particular class or series of the Voting Stock or other capital stock required by law or by these Articles of Organization. 2. The provisions of Section 1 of this Article 6(iii) shall not be applicable in respect of a Business Combination if, in the case of such Business Combination that does not involve any consideration received by the stockholders of the Corporation, solely in their respective capacities as stockholders of the Corporation, the condition specified in paragraph (a) below is met, or, in the case of any other Business Combination, the conditions specified in either of paragraphs (a) or (b) below are met; in which event, such Business Combination shall require only such affirmative vote as is required by law, any other provision of these Articles of Organization, or any agreement with any national securities exchange, as the case may be: (a) The Business Combination shall have been approved by a majority of the Continuing Directors, it being understood that this condition shall not be capable of satisfaction unless there is at least one Continuing Director. (b) All of the following conditions shall have been met: (i) The form of the consideration received by holders of shares of a particular class of outstanding Voting Stock shall be in cash or in the same form as the Related Person has paid for shares of such class of Voting Stock within the two-year period ending on and including the Determination Date. If, within such two-year period, the Related Person has paid for shares of any class of Voting Stock with varying forms of consideration, the form of consideration received per share by holders of shares of such class of voting stock shall be either cash or the form used to acquire the largest number of shares of such class of Voting Stock acquired by the Related Person within such two-year period. (ii) The aggregate amount of consideration received per share by holders of each class of Voting Stock in such Business Combination shall be at least equal to the higher of the following (it being intended that the requirements of this paragraph (b)(ii) shall be met with respect to every such class of Voting Stock outstanding, whether or not the Related Person has previously acquired any shares of that particular class of Voting Stock): (a) (if applicable) the highest per share price (including any brokerage commission, transfer taxes and soliciting dealers' fees) paid by the Related Person for any shares of that class of Voting Stock acquired by it within the two-year period immediately prior to the Announcement Date or in the transaction in which it became a Related Person, whichever is higher; or (b) the Fair Market Value per share of such Voting Stock on the Announcement Date; or (c) in the case of any class of Preferred Stock, the highest preferential amount per share to which the holders of shares of such class of Voting Stock are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation; 29 34 (iii) After such Related Person has become a Related Person and prior to the consummation of such Business Combination: (a) except as approved by a majority of the Continuing Directors, there shall have been no failure to declare and pay at the regular date therefor any full quarterly dividends (whether or not cumulative) on any outstanding Preferred Stock; (b) there shall have been (I) no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock), except as approved by a majority of the Continuing Directors, and (II) an increase in such annual rate of dividends as necessary to reflect any reclassification (including any reverse stock split, recapitalization, reorganization or any similar transaction which has the effect of reducing the number of outstanding shares of the Common Stock), unless the failure so to increase such annual rate of dividends is approved by a majority of the Continuing Directors; (c) such Related Person shall not have become the beneficial owner of any newly issued shares of Voting Stock directly or indirectly from the Corporation except as part of the transaction which results in such Related Person becoming a Related Person; (d) after such Related Person has become a Related Person, such Related Person shall not have received the benefit, directly or indirectly (except proportionately, solely in such Related Person's capacity as a stockholder of the Corporation), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Corporation, whether in anticipation of or in connection with such Business Combination or otherwise; and (e) a proxy or information statement describing the proposed Business Combination and complying with the requirements of the Exchange Act and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to all stockholders of the Corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to the Exchange Act or subsequent provisions). Such proxy or information statement shall contain on the front thereof, prominently displayed, any recommendation as to the advisability or inadvisability of the Business Combination which the Continuing Directors, or any of them, may have furnished in writing to the Board of Directors and/or shall contain an opinion by an investment banking firm, selected by a majority of the Continuing Directors, as to the fairness (or unfairness) of the Business Combination to the stockholders of the Corporation, other than the Related Person. 3. A majority of the total number of Continuing Directors shall have the power and duty to determine, on the basis of information known to them, after reasonable inquiry, all facts necessary to determine compliance with this Article 6(iii) including, without limitation, (i) whether a person is a Related Person, (ii) the number of shares of voting stock beneficially owned by any person, (iii) whether the applicable conditions set forth in paragraph (b) of subsection 2 have been met with respect to any Business Combination, and (iv) whether the assets which are the subject of any Business Combination or the consideration received for the issuance or transfer of securities by the Corporation or any Subsidiary in any Business Combination have an aggregate Fair Market Value in excess of 10% of the Corporation's total stockholders' equity as reflected on the Corporation's most recent audited financial statements. 4. Nothing contained in this Article 6(iii) shall be construed to relieve any Related Person from any fiduciary obligation imposed by law. 5. Notwithstanding anything contained in these Articles of Organization to the contrary, the affirmative vote of the holders of at least 66 2/3% of the combined voting power of all Voting Stock, voting together as a single class, shall be required to amend or repeal this Article 6(iii) or Article 6(iv) below, or to adopt any provision inconsistent herewith or therewith. (iv) Definitions ----------- 30 35 The following definitions shall apply for the purpose of Article 6. (a) "Affiliate" shall have the meaning given such term Rule 12b-2 under the Exchange Act. (b) "Announcement Date" shall mean the date of first public announcement of the proposal of a Business Combination. (c) "Associate" shall have the meaning given such term in Rule 12b-2 under the Exchange Act. (d) "Business Combination" shall mean: (i) any merger or consolidation of the Corporation or any Subsidiary with (a) any Related Person, or (b) any other Person (whether or not itself a Related Person) which is, or after such merger or consolidation would be, an Affiliate of a Related Person; or (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Related Person or any Affiliate of any Related Person of any assets of the Corporation or any Subsidiary having an aggregate Fair Market Value in excess of 10% of the Corporation's total stockholder's equity as reflected on the Corporation's most recent audited financial statements; or (iii) the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the Corporation or any Subsidiary to any Related Person or any Affiliate of any Related Person in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value in excess of 10% of the Corporation's total stockholders' equity as reflected on the Corporation's most recent audited financial statements; or (iv) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of any Related Person or any Affiliate of any Related Person; or (v) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving the Related Person) which has the effect, directly or indirectly, of increasing the proportionate share of securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Related Person or any Affiliate of any Related Person. (e) "Continuing Director" shall mean any member of the Board of Directors who is not an affiliate of any Related Person and who was a member of the Board of Directors prior to the time that any such Related Person became a Related Person, and any successor of a Continuing Director who is unaffiliated with any Related Person and is recommended to succeed a Continuing Director by a majority of the Continuing Directors then on the Board of Directors. Notwithstanding the above, a majority of the then existing Continuing Directors can deem a new director to be a Continuing Director, even though such person is Affiliated with a Related Person. (f) "Determination Date" shall mean the date upon which the Business Combination is consummated. (g) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, from time to time. (h) "Fair Market Value" shall mean: (i) in the case of stock, the highest closing sale price during the 30-day period immediately preceding the date in question of a share of such stock on the principal United States securities exchange or quotation system on which such stock is listed or quoted, or, if no such price or quotations are available, the highest closing bid price of a share of such stock during such period on the quotation system on which such stock is then quoted, or, if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by the Board of Directors in good faith; and (ii) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined by the Board of Directors in good faith. 31 36 (i) "Person" shall mean any individual, firm, partnership, joint venture, joint stock company, trust, business trust, corporation, limited liability partnership, limited liability corporation, unincorporated association or other entity of whatsoever nature. (j) "Related Person" shall mean any Person (other than the Corporation or any Subsidiary) which, together with such Person's Affiliates and Associates and with any other Person (other than the Corporation or any Subsidiary) with which such Person or they have entered into any agreement, arrangements or understanding with respect to acquiring, holding or disposing of voting stock, acquires beneficial ownership (as defined in Rule 13d-3 of the Exchange Act, except that such term shall include any voting stock which such person has the right to acquire, whether or not such right may be exercised within 60 days), directly or indirectly of more than 5% of the voting power of the outstanding voting stock after September 26, 1996. (k) "Subsidiary" shall mean any corporation in which a majority of the capital stock entitled to vote generally in the election of directors is owned, directly or indirectly, by the Corporation. (l) "Voting Stock" shall mean all the then outstanding shares of Common Stock and any other class of stock, voting together as a single class, entitled to vote generally in the election of directors. (v) Miscellaneous Matters --------------------- [If approved, Proposal No. 2 will be inserted here, to be followed by the existing provisions of Article 6.] 32 37 AMERICAN SCIENCE AND ENGINEERING, INC. SPECIAL MEETING IN LIEU OF ANNUAL MEETING OF STOCKHOLDERS September 26, 1996 The undersigned hereby appoints Ralph S. Sheridan, Jeffrey A. Bernfeld and Paige Ryan, or any of them, with full power of substitution, attorneys and proxies to represent the undersigned at the Special Meeting in Lieu of Annual Meeting of Stockholders ("Meeting") of American Science and Engineering, Inc. ("Company") to be held Thursday, September 26, 1996 at 829 Middlesex Turnpike, Billerica, Massachusetts at 9:00 a.m. and at any adjournments thereof, to vote in the name and place of the undersigned, with all powers which the undersigned would possess if personally present, all of the stock of the Company standing in the name of the undersigned on the books of the Company, on all matters set forth in the Notice of the Meeting and upon such other and further business as may properly come before the Meeting. WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED AS INSTRUCTED BY THE UNDERSIGNED. IF NO CHOICE IS SPECIFIED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES FOR DIRECTOR LISTED BELOW, FOR EACH OF THE PROPOSALS DESCRIBED IN THE NOTICE OF THE MEETING AND ACCOMPANYING PROXY STATEMENT, AND IN THE DISCRETION OF THE NAMED PROXIES ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING AND ANY ADJOURNMENTS OF THE MEETING. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. TO BE COMPLETED AND SIGNED ON THE REVERSE SIDE. 38 [REVERSE SIDE] Your shares will be voted FOR the following proposals unless otherwise indicated. 1. ELECTION OF DIRECTORS To fix the number of directors at six and to elect Herman Feshbach , Al Gladen, Hamilton W. Helmer, Donald J. McCarren, William E. Odom and Ralph S. Sheridan FOR all nominees ___ WITHHOLD from all nominees____ FOR all nominees except for the following ____________(INSTRUCTIONS: to withhold authority to vote for any individual nominee(s), write that nominee's name(s) in the space provided.) 2. To amend the Company's Restated Articles of Organization, as amended (the "Articles") to limit the liability of directors to the extent permitted by Massachusetts law. FOR___ AGAINST__ ABSTAIN___ 3. To increase the number of authorized shares of Common Stock, $.66 2/3 par value, from 8,000,000 to 20,000,000 shares. FOR___ AGAINST___ ABSTAIN___ 4. To amend the Articles and the Company's By-Laws ("By-Laws") to provide for the classification of the Company's Board of Directors into three classes and to make related changes. FOR___ AGAINST____ ABSTAIN___ 5. To amend the Articles to increase the number of authorized shares of the Company's no par Preferred Stock from 100,000 to 1,000,000 shares and to amend the terms of such Preferred Stock as provided in the proxy statement. FOR___ AGAINST___ ABSTAIN___ 6. To amend the Articles to require that in certain circumstances actions by vote of the stockholders must be approved by a 66 2/3% affirmative vote of each class of stock outstanding and entitled to vote on the matter. FOR___ AGAINST___ ABSTAIN____ 7. To amend the By-Laws to require 90 days notice of any proposal by a stockholder to nominate candidates for director at the Annual Meeting. FOR___ AGAINST___ ABSTAIN___ 8. To amend the By-Laws to require that special meetings of the stockholders may only be called by the President, a majority of the directors or by stockholders who hold at least 50% of the Company's voting stock. FOR___ AGAINST___ ABSTAIN___ 9. To amend the Articles to add a "fair price"provision as described in the proxy statement. FOR___ AGAINST___ ABSTAIN___ The undersigned hereby acknowledges receipt of the Notice of Special Meeting in Lieu of Annual Meeting of Stockholders, the Proxy Statement for the Meeting and the 1996 Annual Report of the Company. 39 Signature ________________________ Date____________ Signature ________________________ Date____________ PLEASE SIGN YOUR NAME EXACTLY AS IT APPEARS ON THIS CARD. For joint accounts, both owners should sign. Fiduciaries and corporate officers should indicate their full titles. PLEASE SIGN, DATE AND RETURN YOUR PROXY PROMPTLY IN THE ENCLOSED ENVELOPE. -----END PRIVACY-ENHANCED MESSAGE-----