<PAGE> 1
FORM 10-K/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to _______________
Commission file number 0-27309
AAVID THERMAL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 02-0466826
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE EAGLE SQUARE, SUITE 509, CONCORD, NEW HAMPSHIRE 03301
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (603) 224-1117
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g)of the Act: COMMON STOCK,
$0.01 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports, and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. [X]
As of March 15, 1999, the aggregate market value of the registrant's voting
stock held by non-affiliates of the registrant (based on the last sale price for
such shares as quoted by the Nasdaq National Market) was $103,965,108.
The number of outstanding shares of the registrant's Common Stock as of
March 15, 1999 was 9,274,524.
<PAGE> 2
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The following table sets forth the names of each of the Company's
directors, their ages, the year in which each first became a director of the
Company and their principal occupations during the past five years:
<TABLE>
<CAPTION>
YEAR
FIRST
BECAME PRINCIPAL OCCUPATIONS
NOMINEE AGE DIRECTOR DURING THE PAST FIVE YEARS
- ------- --- -------- --------------------------
<S> <C> <C> <C>
Ronald F. Borelli 61 1993 Ronald F. Borelli has served as Chairman of the Board and
Chief Executive Officer of the Company since October 15,
1996 and as President of the Company from October 1996 to
October 1997; from March 1989 to October 1996, president,
chief executive officer and a director of Spectra, Inc.,
a hot melt ink jet company focusing on color printers;
from 1982 to March 1989 a senior vice president of SCI
Systems; and prior thereto he spent 20 years at Honeywell.
Charles A. Dickinson 74 1997 Mr. Dickinson has twice served as chairman of the board
of Solectron Corporation, from 1986 to 1990 and from 1993
to 1996, where he has been a director since 1984; from
1991 until February 1996, he was responsible for
establishing Solectron Europe. Mr. Dickinson has held
various management positions in manufacturing and
technology companies. From 1986 until 1990 he served as
chief executive officer and chairman of Vermont
Microsystems; prior thereto he was chief executive
officer and president of Dataproducts Corporation, having
been promoted from vice president of operations, a
position he had held since 1978.
Bharatan R. Patel 49 1996 Mr. Patel has been the President and Chief Operating
Officer of the Company since October 1997 and since 1998
the President and Chief Executive Officer of Fluent, Inc.
("Fluent"), a subsidiary of the Company since 1995;
various capacities at Creare, Inc., an engineering
consulting firm, since 1976, including principal engineer
and vice president, and established the Fluent division
upon its formation in 1983; senior engineer from 1971 to
1976 in the Power Systems Group of Westinghouse Electric
Corporation.
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C> <C>
Frank J. Pipp 73 1998 Mr. Pipp was a Corporate Officer, Group Vice-President of
Xerox Corporation ("Xerox"), where he held several senior
world-wide management positions, which included
manufacturing, engineering, product planning and
service. He joined Xerox in 1971 after spending 21 years
with Ford Motor Company, where he served in many senior
management manufacturing positions. He continues to
serve as a consultant to Xerox Corporation. He has
served as Chairman of the Board of Directors for Delphax
Printing System, AMTX Corporation, Xylogics Corporation,
and FastCast Corporation. He has also chaired the
Malcolm Baldridge National Quality Award panel.
M. William Macey, Jr. 44 1993 Mr. Macey is a partner and co-founder of Sterling
Ventures Limited ("Sterling"), a company formed in 1991
to sponsor private equity investments; managing director
of Asian Oceanic Group, an international merchant bank
headquartered in Hong Kong, from 1990 to 1991; previously
a managing director in the mergers and acquisitions group
of Smith Barney, Harris Upham & Co.
David R. A. Steadman 60 1994 Mr. Steadman served as Chairman of the Board from
February 1995 until October 1996; Chairman of Brookwood
Companies Incorporated, a textile converter, dyer and
finisher, since March 1989; chairman of Technology
Service Group, Inc., a manufacturer of coin-operated
telephones, from November 1994 to December 1997;
president of Atlantic Management Associates, Inc., a
management services and investment group, since November
1988; chairman and chief executive officer of Integra-A
Hotel and Restaurant Company from July 1990 to March
1994; chairman and chief executive officer of GCA
Corporation from 1987 to July 1990; various positions
within the Raytheon Company from 1975 to 1978 and 1980 to
1987; and Mr. Steadman served as chairman of a group of
subsidiaries of EMI Ltd. in the United Kingdom, Australia
and the United States from 1978 to 1980.
</TABLE>
All directors of the Company are elected by the stockholders for a
one-year term and hold office until the next annual meeting of stockholders of
the Company and until their successors are elected and qualified. There are no
family relationships among the directors and executive officers of the Company.
In January, 1998, Alan Beane retired from the Board of Directors. In
June, 1998, Edward Glassmeyer and Douglas Newhouse retired from the Board. The
stockholders elected Frank J. Pipp to the Board in June, 1998.
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<PAGE> 4
MEETINGS OF THE BOARD OF DIRECTORS
The business affairs of the Company are managed under the direction of
the Board of Directors. Members of the Board are kept informed through various
reports and documents sent to them, through operating and financial reports
routinely presented at Board and committee meetings by the Chairman and other
officers, and through other means. In addition, directors of the Company
discharge their duties throughout the year not only by attending Board meetings,
but also through personal meetings and other communications, including
considerable telephone contact, with the Chairman of the Board and others
regarding matters of interest and concern to the Company.
During the fiscal year ended December 31, 1998, the Company's Board of
Directors held five formal meetings. Each director attended at least 75% of the
meetings of the Board of Directors held during 1998 when he was a director and
of all committees of the Board of Directors on which he served during 1998.
BOARD COMMITTEES
The Company's Board of Directors has a Compensation and Stock Plans
Committee and an Audit Committee but does not have a nominating committee. The
members of each committee are appointed by the Board of Directors.
- - Compensation and Stock Plans Committee. The Compensation and Stock
Plans Committee reviews and approves overall policy with respect to
compensation matters, including such matters as compensation plans for
employees and employment agreements and compensation for executive
officers. The Compensation and Stock Plans Committee also administers
the Company's Stock Plans. The Compensation and Stock Plans Committee
currently consists of Messrs. Steadman and Dickinson. The Compensation
and Stock Plans Committee met four times during 1998.
- - Audit Committee. The Audit Committee recommends to the Board of
Directors the auditing firm to be selected each year as independent
auditors of the Company's financial statements and to perform services
related to the completion of such audit. The Audit Committee also has
responsibility for: (i) reviewing the scope and results of the audit;
(ii) reviewing the Company's financial condition and results of
operations with management; (iii) considering the adequacy of the
internal accounting and control procedures of the Company; and (iv)
reviewing any non-audit services and special engagements to be
performed by the independent auditors and considering the effect of
such performance on the auditors' independence. Messrs. Steadman and
Pipp currently serve as members of the Audit Committee. The Audit
Committee met twice during 1998.
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<PAGE> 5
EXECUTIVE OFFICERS
See "Part I -- Item 1. Business -- Executive Officers of the Company."
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Securities and Exchange Commission (the "Commission") has
comprehensive rules relating to the reporting of securities transactions by
directors, executive officers and stockholders who beneficially own more than
10% of the Company's Common Stock (collectively, the "Reporting Persons"). Based
solely on a review of reports filed pursuant to Section 16 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), received by the Company
from Reporting Persons and written representations from the Company's executive
officers and directors, the Company believes that no Reporting Person has failed
to file a Section 16 report on a timely basis during the most recent fiscal
year. The Company has no knowledge of whether Alan Beane, whom the Company
believes beneficially owns more than 10% of the Company's Common Stock, had any
transactions required to be reported pursuant to Section 16.
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes all compensation earned by or paid to
the Company's Chief Executive Officer, and each of the four other most highly
compensated executive officers of the Company whose annual salary and bonus
exceeded $100,000 (collectively, the "Named Executive Officers") for services
rendered in all capacities to the Company during the fiscal years indicated.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
-------------------
ANNUAL COMPENSATION SECURITIES
FISCAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS
- --------------------------- ------ ------ ----- ----------
<S> <C> <C> <C> <C>
Ronald F. Borelli(1) 1998 $300,000 $ -- 100,000
Chairman of the Board 1997 250,000 150,000 --
And Chief Executive Officer 1996 48,077(2) 37,500 300,000
Bharatan R. Patel(4) 1998 $225,000 $ -- 10,000
President and Chief 1997 200,000 83,744 --
Operating Officer 1996 200,000 142,922 70,000
George P. Dannecker(3) 1998 $200,000 $ -- 24,900
President and Chief 1997 175,804 59,100 17,320
Operating Officer of 1996 138,846 28,423 --
Aavid Thermal Products
H. Ferit Boysan* 1998 $228,350 $ 78,733 5,000
President and Chief 1997 206,844 62,209 --
Operating Officer of Fluent 1996 243,738 105,600 5,835
John W. Mitchell 1998 $185,000 $ -- 3,000
Vice President, General 1997 173,000 34,650 2,393
Counsel and Secretary 1996 163,873 30,000 --
</TABLE>
- -----------------------
*Appointed to this position in 1998.
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<PAGE> 6
(1) Effective October 15, 1996, Mr. Borelli, a director of the Company,
succeeded Alan F. Beane as Aavid's President and Chief Executive
Officer. Mr. Borelli ceased to serve as President of the Company in
October 1997. See " -- Employment Agreements" for a discussion of Mr.
Borelli's compensation.
(2) Represents a base salary of $250,000 on an annualized basis.
(3) Mr. Dannecker became President and Chief Operating Officer of Aavid
Thermal Products in October 1997.
(4) Mr. Patel became President and Chief Operating Officer of the Company
in October 1997.
(5) Represents a base salary of $165,000 on an annualized basis.
The following table sets forth certain information regarding individual
options granted in fiscal 1998 to each of the Named Executive Officers pursuant
to the Company's stock option plans. The options underlying each grant become
exercisable in four equal installments commencing on the date of grant and then
on the next three successive anniversaries of the date of grant. In accordance
with the rules of the Commission, the table sets forth the hypothetical gains or
"option spreads" that would exist for the options at the end of their respective
terms. These gains are based on assumed rates of annual compound stock price
appreciation of 5% and 10% from the date the option was granted to the end of
the option's term.
OPTION GRANTS IN FISCAL 1998
<TABLE>
<CAPTION>
PERCENTAGE OF POTENTIAL REALIZABLE
SECURITIES TOTAL OPTIONS VALUE AT ASSUMED ANNUAL RATES
UNDERLYING GRANTED TO EXERCISE OF
OPTIONS EMPLOYEES IN PRICE EXPIRATION STOCK PRICE APPRECIATION FOR
NAME GRANTED FISCAL YEAR PER SHARE DATE OPTION TERM(2)
- ---- ---------- ------------- --------- ---------- -----------------------------
5% 10%
--- ---
<S> <C> <C> <C> <C> <C> <C>
Ronald F. Borelli 50,000 14% $24.00 01/30/08 $754,674 $1,912,491
Ronald F. Borelli 14% $28.13 07/31/08 884,540 2,241,599
50,000
George P. Dannecker 3% $24.00 01/30/08 375,827 952,420
10,000
Bharatan R. Patel 24,900 7% $24.00 01/30/08 150,935 382,498
H. Ferit Boysan 5,000 1% $24.00 01/30/08 45,280 114,749
John W. Mitchell 3,000 1% $24.00 01/30/08 75,467 191,249
</TABLE>
- ----------
(1) Based upon options to purchase 358,133 shares granted to all employees
in 1998. On January 4, 1999 Messrs. Dannecker, Boysan, Mitchell, and
Patel were granted options to purchase 15,000 shares, 24,950 shares,
10,000 shares, and 24,950 shares, respectively, of Common Stock at an
exercise price of $15.88 per share. All of the options were immediately
exercisable as to 25% and become exercisable as to an additional 25% on
each of January 4, 2000, 2001, and 2002.
(2) The 5% and 10% assumed annual compound rates of stock price
appreciation are mandated by the Commission and do not represent the
Company's estimate or projection of the future Common Stock prices.
Actual gains, if any, on stock option exercises will depend on the
future price of the Common Stock and overall stock market conditions.
The 5% and 10% rates of appreciation over the 10 year option term of
the $24.00 stock price on the date of grant would result in a stock
price of $39.09 and $62.25, respectively. The 5% and 10% rates of
appreciation over the 10 year option term of the $28.13 stock price on
the date of grant would result in a stock price of $45.82 and $72.96,
respectively. There is no representation that the rates of appreciation
reflected in this table will be achieved.
The following table sets forth information with respect to (i) stock
options exercised in 1998 by the Named Executive Officers and (ii) unexercised
stock options held by such individuals at December 31, 1998.
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<PAGE> 7
AGGREGATED OPTION EXERCISES IN FISCAL 1998 AND 1998 FISCAL YEAR-END
OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES UNDERLYING VALUE OF UNEXERCISED
ACQUIRED UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
ON VALUE FISCAL YEAR-END AT FISCAL YEAR-END(1)
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- -------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Ronald F. Borelli 20,000 $ 342,187 303,125 / 103,125 $2,236,359 / $ 22,828
Bharatan R. Patel - - 55,000 / 25,000 $ 387,450 / $129,150
H. Ferit Boysan - - 5,627 / 5,208 $ 73,884 / $ 24,611
George P. Dannecker 22,000 $ 736,719 42,106 / 27,567 $ 409,759 / $ 8,599
John W. Mitchell 32,500 $1,132,500 37,958 / 3,685 $ 314,035 / $ 5,927
</TABLE>
(1) Calculated on the basis of $16.88 per share, the closing sale price of
the Common Stock as reported on the Nasdaq National Market on December
31, 1998, minus the exercise price.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Mr. Borelli,
which currently expires on December 31, 1999 and with Mr. Mitchell, which
currently expires on December 1, 1999. Aavid Thermal Products has entered into
an employment agreement with Mr. Dannecker, which currently expires on June 30,
2000; and Fluent, Inc. has entered into employment agreements with Messrs. Patel
and Boysan which currently expire on August 24, 2000. Each of the foregoing
employment agreements (collectively, the "Employment Agreements") provides for
automatic renewal for successive one year terms (two years in the case of
Messrs. Patel and Boysan) unless either party gives written notice to the other
to the contrary at least 90 days prior to its expiration; however, each of
Messrs. Borelli, Mitchell, Dannecker, Patel, and Boysan are entitled to
terminate his employment at any time by giving 90 days' notice to the Company.
The Employment Agreements require each employee to devote his full
business time and best efforts, business judgment, skill and knowledge
exclusively to the advancement of the business and interests of the Company. The
Employment Agreements currently provide for the payment of a base salary to
Messrs. Borelli, Patel, Boysan, Mitchell and Dannecker equal to $325,000,
$225,000, $228,350, $195,000, and $212,000, respectively, subject to increase at
the discretion of the board of directors of their respective employers. Each
Employment Agreement provides that the employee will continue to receive his
base salary, bonuses, benefits and other compensation for a specified period in
the event their respective employers terminate their employment other than for
"cause" or under certain other circumstances. In addition, in the event there is
a material change to the makeup of the Board of Directors, without Mr. Borelli's
consent, as a result of a merger, acquisition or financing, and either Mr.
Borelli is terminated as a result of such change or he elects to voluntarily
terminate his employment as a result of such material change, then he will be
entitled to continue to receive his base salary for the longer of 12 months or
the end of the term of his Employment Agreement. As consideration for Mr.
Borelli becoming Chairman, President and
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<PAGE> 8
Chief Executive Officer, in October 1996 the Company granted Mr. Borelli options
to purchase an aggregate of 300,000 shares of Common Stock at an exercise price
of $9.50 per share. Of these options, 37,500 became exercisable upon grant, and
the remainder became exercisable in equal quarterly installments over a period
of two years.
Each of Messrs. Borelli, Dannecker, Mitchell, Boysan, and Patel is
entitled to an annual bonus based on the Company's performance. Mr. Borelli is
entitled to a target annual bonus of $150,000 based upon achievement in each
fiscal year. Mr. Dannecker is entitled to receive a target annual bonus of
$100,000, based on Aavid Thermal Products' actual performance measured against
budgeted performance. Mr. Mitchell is entitled to receive an annual bonus of up
to $65,000 based on his management of the Company's legal expenses. Messrs.
Patel and Boysan are entitled to annual bonuses based on the Company's actual
performance against budgeted performance. The Employment Agreements (other than
those of Messrs. Borelli and Patel) provide that if the bonus payments would
cause a payment default under the terms of the Company's agreement with LaSalle
Business Credit, Inc., the payment will be deferred until such time as the
payments would not cause a default. Such deferred payments would accrue interest
at the rate of 10.25% per annum. The Company may renegotiate its obligation to
make the payments under those employment agreements in connection with certain
public offering or acquisition transactions involving the Company.
The Employment Agreements contain non-competition covenants, waivable
by the Company, which survive the termination of each employee's employment with
the Company until two years from the date the employee's employment terminates
(the "Non-Competition Period"). In addition to other compensation payable to
each of Messrs. Borelli, Dannecker, Mitchell, Patel and Boysan under their
agreements, during the Non-Competition Period the Company is required to pay
each employee one-half (75% of base salary in the case of Messrs. Patel and
Boysan) of his highest prior base salary per annum.
COMPENSATION OF DIRECTORS
Each non-employee director of the Company receives an annual fee of
$10,000 and $500 for each Board of Directors and committee meeting attended. All
directors are reimbursed for all reasonable expenses incurred by them in acting
as a director or as a member of any committee of the Board of Directors. In
addition, directors who are not employees of the Company are compensated through
stock options under the Directors' Plan.
The Company adopted the 1995 Non-Employee Director Stock Option Plan
(the "Directors' Plan") to promote the Company's interests by attracting and
retaining highly skilled, experienced and knowledgeable non-employee directors.
An aggregate of 100,000 shares of Common Stock have been reserved for issuance
under the Directors' Plan. Options granted under the Directors' Plan do not
qualify as incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). The Directors' Plan
provides for an automatic grant of an option to purchase 10,000 shares of Common
Stock effective upon initial election or appointment to the Board of Directors
of a non-employee director, and an automatic grant of an option to purchase an
additional 2,500 shares of Common Stock on each anniversary of the date of his
or her election or appointment to the Board of Directors. In addition, the
Directors' Plan provided for the automatic grant to each of Messrs. Borelli and
Macey, as well as Messrs. Edward Glassmeyer, Douglas Newhouse, and William L.
Selden, at the time non-employee directors of the Company, of: (i) an option to
purchase 10,000 shares of Common Stock in February 1996 (the "Initial Options")
following the consummation of the
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<PAGE> 9
Company's initial public offering (the "Initial Public Offering") at an exercise
price of $9.50 per share, the initial public offering price of the Common Stock;
and (ii) on April 21st of each year, commencing April 21, 1996, an automatic
grant of an option to purchase an additional 2,500 shares of Common Stock,
provided such individual received Initial Options and is serving as a
non-employee director at the close of business on April 21st of such year. The
options have an exercise price of 100% of the fair market value of the Common
Stock on the date of grant and have a ten-year term. Initial Options became
exercisable in their entirety six months after the date of the grant. All other
options granted under the Directors' Plan become fully exercisable on the first
anniversary of the grant date. Each outstanding option is subject to
acceleration in the event of a change of control of the Company (as defined in
the Directors' Plan). The options may be exercised by payment in cash, check or
shares of Common Stock. On April 10, 1997, Mr. Dickinson was granted an option
to purchase 10,000 shares of Common Stock at an exercise price of $11.375 upon
his election as a director. On April 15, 1997 Mr. Steadman was granted an option
to purchase 10,000 shares of Common Stock at an exercise price of $11.25 upon
his becoming a non-employee director. On April 21, 1997, each of Messrs.
Glassmeyer, Macey, Newhouse and Selden was granted an option to purchase an
additional 2,500 shares of Common Stock at an exercise price of $11.25; on April
21, 1998, each of Messrs. Glassmeyer, Macey and Newhouse was granted an option
to purchase an additional 2,500 shares at an exercise price of $32.375; and on
April 21, 1999, Mr. Macey was granted an option to purchase an additional 2,500
shares at an exercise price of $16.50. On each of April 10, 1998 and 1999, Mr.
Dickinson was granted an option to purchase an additional 2,500 shares of Common
Stock at an exercise price of $30.125 and $16.50, respectively. On each of April
15, 1998 and 1999, Mr. Steadman was granted an option to purchase an additional
2,500 shares of Common Stock at an exercise price of $32.25 and $16.50,
respectively. On June 19, 1998, Mr. Pipp was granted an option to purchase
10,000 shares of Common Stock at an exercise price of $30.13 upon his election
as a Director.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number and percentage of shares of
Common Stock beneficially owned, as of March 1, 1999 (except as otherwise noted
in the footnotes), by (i) all persons known by the Company to own beneficially
more than five percent of the outstanding Common Stock; (ii) each director of
the Company; (iii) each executive officer names in the Summary Compensation
Table (see "Item 11. Executive Compensation"); and (iv) all directors and
executive officers of the Company as a group. Except as otherwise specified, the
names beneficial owner has the sole voting and investment power over the shares
listed.
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<PAGE> 10
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP OF PERCENT OF
NAME OF BENEFICIAL OWNER COMMON STOCK(1) COMMON STOCK
- ------------------------ ----------------------- ------------
<S> <C> <C>
Alan F. Beane(2) 1,218,000 12.8%
Warburg Pincus Asset Management(3) 1,025,134 11.1%
Peter Wright(4) 564,400 6.1%
Ronald F. Borelli(5) 425,776 4.4%
Hasan Ferit Boysan(6) 85,964 *
George P. Dannecker(7) 89,048 1.0%
Charles A. Dickinson(8) 30,500 *
M. William Macey, Jr.(9) 53,592 *
John W. Mitchell(10) 55,643 *
Bharatan R. Patel(11) 301,341 3.2%
Frank J. Pipp(12) 10,000 *
David R. A. Steadman(13) 43,500 *
All directors and executive officers as a group (10
persons)(14) 1,177,864 11.7%
</TABLE>
- ----------
* Less than one percent
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, which attribute beneficial
ownership of securities to persons who possess sole or shared voting
power and/or investment power with respect to those securities.
(2) Consists of 268,000 shares of Common Stock issuable upon exercise of
options and 3,000 shares of Common Stock held by Mr. Beane's children.
Mr. Beane's address is c/o Materials Innovation Inc., 8 Commerce Way,
Lebanon, New Hampshire 03784. The number of beneficially owned shares
of Mr. Beane is based on information in the Company's records.
(3) The amount and nature of beneficial ownership is based on information
set forth in an Amendment No. 2 to Schedule 13G, dated January 29,
1999, filed by the beneficial owner. The Schedule 13G states that the
shares are held in investment advisory accounts, including accounts of
registered investment companies, as to which the beneficial owner acts
as investment advisor, and that none of such accounts owns more than
5%. The Schedule 13G states that the beneficial owner has sole voting
power with respect to 224,100 shares, shared voting power with respect
to 758,180 shares, and sole dispositive power with respect to 1,025,134
shares. The address of the beneficial owner is 466 Lexington Avenue,
New York, New York 10017.
(4) The amount of beneficial ownership is based on information set forth in
a Schedule 13G dated March 16, 1999, filed by the beneficial owner. The
Schedule 13G states that Mr. Wright beneficially owns 564,400 shares
and P.A.W. Capital Corp., of which Mr. Wright is president,
beneficially owns 552,000 shares. The Schedule 13G states that Mr.
Wright has shared voting and dispositive power with respect to 552,000
shares. The address of the beneficial owner is 10 Glenville Street,
Greenwich, CT 06831.
(5) Includes 406,250 shares of Common Stock issuable upon the exercise of
options, including 75,000 shares issuable upon the exercise of options
which are not exercisable within 60 days of March 1, 1999.
(6) Includes 35,785 shares of Common Stock issuable upon the exercise of
options, including 22,670 shares issuable upon the exercise of options
which are not exercisable within 60 days of March 1, 1999.
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<PAGE> 11
(7) Includes 84,673 shares of Common Stock issuable upon the exercise of
options, including 32,128 shares issuable upon the exercise of options
which are not exercisable within 60 days of March 1, 1999.
(8) Includes 15,000 shares of Common Stock issuable upon the exercise of
options.
(9) Includes 20,000 shares of Common Stock issuable upon the exercise of
options.
(10) Includes 51,643 shares of Common Stock issuable upon the exercise of
options, including 9,956 shares issuable upon the exercise of options
which are not exercisable within 60 days of March 1, 1999.
(11) Includes 104,950 shares of Common Stock issuable upon the exercise of
options, including 41,212 shares issuable upon the exercise of options
which are not exercisable within 60 days of March 1, 1999.
(12) Consists of 10,000 shares of Common Stock issuable upon the exercise of
options.
(13) Includes 12,500 shares of Common Stock issuable upon the exercise of
options.
(14) Includes 805,801 shares of Common Stock issuable upon the exercise of
options, including 223,466 shares issuable upon the exercise of options
which are not exercisable within 60 days of March 1, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's Board of Directors established the Compensation Committee
in November 1993 and combined it with the Stock Plans Committee in 1997 to form
the Compensation and Stock Plans Committee. Both Messrs. Steadman and Dickinson
served as members of the Compensation and Stock Plans Committee during fiscal
1998. In 1998, each of Messrs. Steadman and Dickinson received options to
purchase 2,500 shares of Common Stock pursuant to the Directors' Plan. See "Item
11. Executive Compensation - Compensation of Directors."
In October 1993, the Company entered into a management agreement with
Sterling Ventures, Ltd. pursuant to which Sterling agreed to provide financial
and management consulting services to the Company for a fee of $200,000 per
annum, plus 2% of the Company's consolidated net income before interest expense,
taxes, depreciation, amortization and certain other expenses ("EBITDA") in
excess of $7,000,000 (the "Sterling EBITDA Fee"), plus reimbursement of direct
out-of-pocket costs and expenses. In September 1995, the Company and Sterling
amended the management agreement to eliminate the Sterling EBITDA Fee effective
January 1, 1996. In consideration of elimination of the Sterling EBITDA Fee, the
Company agreed to pay Sterling $275,000, which amount was paid in February 1996
from the net proceeds of the Company's initial public offering, and to increase
the management fee to $250,000 per annum for the period commencing January 1,
1996. Pursuant to the management agreement, Sterling assisted the Company's
management in, among other things, developing and implementing corporate
strategy, including acquisition and divestiture strategies, budgeting future
corporate investment and debt and equity offerings. The management agreement
provided that it would terminate on the later of: (i) December 31, 2000; (ii)
the date no officer or employee of Sterling is a member of the Board of
Directors of the Company; or (iii) Oak Investment Partners V, Limited
Partnership, Oak V Affiliates Fund, Limited Partnership, and the directors and
officers of Sterling beneficially own in the aggregate less than 15% of the
Company's Common Stock, although Sterling could terminate the agreement at any
time upon 30 days' notice. In the event of a change in control of the Company in
which no Sterling director remained a director of the Company, the current
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value of the management fee for the remaining term of the agreement (using a
discount rate of 9%) would become immediately due and payable. In April, 1998,
the Company and Sterling terminated the management agreement in consideration of
a payment of $619,348 by the Company to Sterling. Mr. Macey, a current director
of the Company, and Messrs. Douglas Newhouse and William Selden, directors of
the Company until June 1998 and November 1997, respectively, are officers,
directors and the sole stockholders of Sterling.
In October 1993, the Company entered into an agreement with Materials
Innovation, Inc. ("MII") pursuant to which MII, Mr. Alan Beane, formerly both a
director and the Company's chief executive officer, and Mr. Glenn Beane, Alan
Beane's brother, granted to the Company exclusive worldwide rights and licenses
under certain patents and technology owned by them to develop, make, have made,
use and sell certain products used to attach certain heat dissipation products
("Clamp Products") and heat sinks manufactured by a vacuum die cast process
("Heat Sink Products"). Under the agreement, the Company is required to pay MII
an annual royalty for the Clamp Products sold by the Company equal to the
greater of: (i) $0.05 per Clamp Product; or (ii) 15% of the net selling price
for such Clamp Products, with a minimum royalty of $40,000 per annum. In
addition, under the agreement the Company must pay MII an annual royalty for the
Heat Sink Products sold by the Company equal to the greater of (i) 10% of the
net selling price; and (ii) 25% of the net selling price minus servicing cost.
During the term of the agreement, the Company is required to reimburse MII for
its direct costs incurred in sourcing and testing clamps required and requested
by the Company. The agreement provides that prior to October 14, 2003, MII, Alan
Beane and Glenn Beane may not directly or indirectly, in any capacity
whatsoever: (i) sell any heat dissipation product of the type produced by the
Company (other than products whose principal purpose is not heat dissipation and
products for one specified customer); (ii) license, sell, transfer, provide or
make available to any business which is competitive with the Company any
products, technology or other intellectual property which may be useful in the
manufacture or sale of the Company's heat dissipation products, except that MII
is permitted to sell raw materials to entities which are not direct competitors
of the Company; or (iii) provide any kind of services to any business which is
competitive with the Company with respect to its heat dissipation products. In
addition, the Company may not prior to October 14, 2003, in any capacity
whatsoever, engage in the manufacture, distribution, sale or licensing of
particle level heterogeneous materials and other materials created from powders
and particles, except adhesives and compliant inter-face materials, or pursuant
to a license from MII. The Company must give MII primary consideration as a
supplier of such materials created from powders and particles if MII can supply
such materials on terms which are competitive with those otherwise available in
the market. The agreement grants the Company a right of first refusal in the
event of a transfer of MII's interest in the technology covered by the
agreement. In addition, the agreement provides that MII may not, and may not
permit Glenn Beane or any affiliate to, transfer all or any part of its interest
in the patents or technology covering the Clamp Products or Heat Sink Products,
unless, prior to the transfer, the transferee has executed an agreement
acknowledging that it takes such interest subject to the provisions of the
agreement between MII and Aavid. The agreement terminates upon the last to
expire of the licensed patents covering the Clamp Products and the Heat Sink
Products, although the Company may terminate the agreement at any time effective
immediately upon written notice to MII. In 1998, royalty payments and expense
reimbursement by the Company to MII were not material and there were no sales of
MII products and development services to the Company. The Company believes that
Mr. Alan Beane is the chairman and an owner of approximately 41.5% of MII.
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On March 4, 1998, MII and Messrs. Alan and Glenn Beane (collectively,
the "Petitioners") filed a petition for declaratory judgment against the Company
seeking to have the agreement between the Company and MII declared invalid. The
Petitioners claim that the Company had failed to pay royalties associated with
the vacuum die cast patent. The action does not seek monetary damages. The Court
dismissed the Petitioners' claim during the first quarter of 1999, and they have
filed a notice of appeal. The Company believes it has meritorious defenses and
intends to vigorously defend the action. Although the Company believes that the
termination of the agreement with MII will not have a material adverse effect on
its business, results of operations or financial condition, there can be no
assurance it will not have such a material adverse effect in the future.
Under the terms of Mr. Beane's former employment agreement with the
Company, Mr. Beane was permitted to pursue scientific research, patent
inventions and business ventures with MII so long as such activities did not
interfere with Mr. Beane's obligations to Aavid. The Company has no rights to
any intellectual property resulting from such permitted activities. The
relationship of MII to the Company is regulated by the terms of an agreement
between MII, its principals and Aavid, which prohibits MII from competing with
the Company in the markets for heat sinks and other products whose principal
purpose is to dissipate heat from electronic devices. MII is pursuing the
development of certain products and advanced materials which, if successfully
developed, would have application to the Company's business. However, MII is not
obligated to license such technology to Aavid, and there can be no assurance
that Aavid will benefit from the relationship with MII or will be able to
license any intellectual property from MII, if desirable, on acceptable terms or
at all. There can be no assurance that a conflict of interest will not develop
between Aavid and MII.
Mr. Beane's Employment Agreement originally provided for the payment of
an annual bonus during the five year period ended December 31, 1998, regardless
of whether Mr. Beane is then employed by the Company, equal to 8% of the
Company's EBITDA in excess of $5.0 million for the applicable year. In September
1995, Mr. Beane's employment agreement was amended to provide for (i) the
payment of annual bonuses in 1996, 1997 and 1998 in an amount equal to 8% of the
Company's EBIT in excess of $10.75 million for 1996, $12.75 million for 1997 and
$14.44 million for 1998 (which amounts were to be adjusted for any future
acquisitions) and (ii) the payment to Mr. Beane of $2,374,000, representing the
present value of the portion of the expected future bonus payments required
under the employment agreement. Mr. Beane received a bonus of $246,000 in 1995,
representing 8% of 1995 EBITDA in excess of $5.0 million. In December 1995, the
Company paid Mr. Beane $250,000 as an advance against Mr. Beane's 1995 bonus.
All amounts (other than the $2.4 million payment referred to above) required to
be paid under Mr. Beane's employment agreement in any year in excess of $750,000
shall be deferred until the first year in which such payments can be made
without exceeding such $750,000 annual limit. Mr. Beane was paid the $2,374,000
in February 1996 from the proceeds of the Company's initial public offering.
Under the terms of the agreement, Mr. Beane was not entitled to a bonus in 1998.
Mr. Beane's employment agreement with the Company ended in October 1996.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
AAVID THERMAL TECHNOLOGIES, INC.
By /s/ Stephen D. Eldred
------------------------------------------
Stephen D. Eldred
April 29, 1999 Vice President and Chief Financial Officer
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