<PAGE>
================================================================================
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
KEYSTONE AUTOMOTIVE INDUSTRIES, 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):
[X] No fee required.
[_] 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:
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(2) Aggregate number of securities to which transaction applies:
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(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:
-------------------------------------------------------------------------
[_] 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:
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(4) Date Filed:
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Notes:
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
[LOGO OF 700 EAST BONITA AVENUE
KEYSTONE POMONA, CALIFORNIA 91767
AUTOMOTIVE
INDUSTRIES, INC.] NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON TUESDAY, AUGUST 26, 1997
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Keystone
Automotive Industries, Inc. (the "Company") will be held at the Sheraton Suites
Fairplex, 601 West McKinley Avenue, Pomona, California 91768 at 10:00 a.m.
(California Time) for the following purposes:
(1) To elect members of the Board of Directors to serve until the next
annual meeting of shareholders;
(2) To approve an amendment to the Company's 1996 Employee Stock Incentive
Plan to increase from 730,000 to 1,100,000 the number of shares
available for grant;
(3) To amend Article Three of the Company's Articles of Incorporation to
increase its authorized shares of Common Stock from 20,000,000 to
50,000,000;
(4) To ratify the appointment of Ernst & Young, LLP as independent
accountants for the Company for the 1998 fiscal year; and
(5) To transact such other business as may properly come before the meeting
or any adjournments thereof.
These items are more fully described in the accompanying Proxy Statement. The
Board of Directors has fixed the close of business on July 18, 1997 as the
record date for the determination of shareholders entitled to notice of and to
vote at the meeting. Only shareholders at the close of business on the record
date are entitled to vote at the meeting.
Accompanying this Notice are a Proxy and Proxy Statement. IF YOU WILL NOT BE
ABLE TO ATTEND THE MEETING TO VOTE IN PERSON, PLEASE COMPLETE, SIGN AND DATE
THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE PAID
ENVELOPE. The Proxy may be revoked at any time prior to its exercise at the
meeting.
By Order of the Board of Directors,
/s/ Ronald G. Brown
Ronald G. Brown
Chairman of the Board
Pomona California
July 25, 1997
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
[LOGO OF 700 EAST BONITA AVENUE
KEYSTONE POMONA, CALIFORNIA 91767
AUTOMOTIVE
INDUSTRIES, INC.] ANNUAL MEETING OF SHAREHOLDERS
AUGUST 26, 1997
PROXY STATEMENT
INTRODUCTION
This Proxy Statement is furnished to the shareholders of Keystone Automotive
Industries, Inc., a California corporation (the "Company"), in connection with
the solicitation of proxies by and on behalf of the Board of Directors of the
Company. The proxies solicited hereby are to be voted at the Annual Meeting of
Shareholders of the Company to be held on August 26, 1997, and at any and all
adjournments thereof (the "Annual Meeting").
A form of proxy is enclosed for your use. The shares represented by each
properly executed unrevoked proxy will be voted as directed by the shareholder
executing the proxy. If no direction is made, the shares represented by each
properly executed unrevoked proxy will be voted "FOR" (i) the election of the
nominees for the Board of Directors set forth herein; (ii) the amendment of
the Company's 1996 Employees Stock Incentive Plan (the "Stock Incentive Plan")
to increase from 730,000 to 1,100,000 the number of shares available for
grant; (iii) the amendment to Article Three of the Company's Articles of
Incorporation to increase its authorized shares of Common Stock from
20,000,000 to 50,000,000; and (iv) the ratification of the appointment of
Ernst & Young LLP as independent accountants for the Company for the 1998
fiscal year. With respect to any other item of business that may come before
the Annual Meeting, the proxy holders will vote the proxy in accordance with
their best judgement.
Any proxy given may be revoked at any time prior to its exercise by filing
with James C. Lockwood, Secretary of the Company, an instrument revoking such
proxy or by the filing of a duly executed proxy bearing a later date. Any
shareholder present at the meeting who has given a proxy may withdraw it and
vote his or her shares in person if such shareholder so desires.
It is contemplated that the solicitation of proxies will be made primarily
by mail. Should it, however, appear desirable to do so in order to ensure
adequate representation of shares at the Annual Meeting, officers, agents and
employees of the Company may communicate with shareholders, banks, brokerage
houses and others by telephone, telegraph, or in person to request that
proxies be furnished. All expenses incurred in connection with this
solicitation will be borne by the Company. In following up the original
solicitation of proxies by mail, the Company may make arrangements with
brokerage houses and other custodians, nominees and fiduciaries to send
proxies and proxy material to the beneficial owners of the shares eligible to
vote at the Annual Meeting and will reimburse them for their expenses in so
doing. The Company has no present plans to hire special employees or paid
solicitors to assist in obtaining proxies, but reserves the option of doing so
if it should appear that a quorum otherwise might not be obtained. This Proxy
Statement and the accompanying form of proxy are first being mailed to
shareholders on or about July 25, 1997.
VOTING SECURITIES
Only holders of record of the Company's Common Stock at the close of
business on July 18, 1997 (the "Record Date") are entitled to notice of and to
vote at the Annual Meeting. As of the Record Date, the Company had issued and
outstanding 12,627,052 shares of Common Stock, the holders of which are
entitled to vote at the Annual Meeting. Each share of Common Stock that was
issued and outstanding as of the Record Date is entitled to one vote at the
Annual Meeting. The presence, in person or by proxy, of shareholders entitled
to cast at least a majority of the votes entitled to be cast by all
shareholders will constitute a quorum for the transaction of business at the
Annual Meeting.
<PAGE>
Shareholders have the right to elect directors by cumulative voting, with
each share allocated a number of votes equal to the number of directors to be
elected, which votes may be cast for one nominee or distributed among any two
or more nominees. The five nominees for director who receive the greatest
number of votes cast will be elected. However, no shareholder may cumulate
votes for any nominee unless the nominee's name has been placed in nomination
prior to the voting and at least one shareholder at the meeting has given
notice of the intention to cumulate votes prior to the voting.
Abstentions and broker non-votes are each included in the determination of
the number of shares present at the meeting for purposes of determining
whether a quorum is present. Abstentions are counted in tabulations of votes
cast on proposals presented to shareholders, but broker non-votes are not
counted for purposes of determining whether a proposal has been approved.
SECURITY OWNERSHIP
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of July 18, 1997, by each person
known by the Company to own beneficially more than 5% of the outstanding
shares of the Company's Common Stock and as to the number of shares
beneficially owned by (i) each director of the Company, (ii) the Chief
Executive Officer and each of the four other current or former executive
officers of the Company named in the Summary Compensation Table under the
heading "Executive Compensation" (the "Named Executive Officers") and (iii)
all directors and executive officers as a group. The Company believes that,
unless otherwise noted, the persons listed below have sole investment and
voting power with respect to the Common Stock they own.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND ADDRESS(1) OF COMMON STOCK(2) PERCENT OF CLASS(3)
------------------- ------------------ -------------------
<S> <C> <C>
Ronald G. Brown...................... 942,878 7.5%
Charles J. Hogarty(4)................ 311,619 2.5
Al A. Ronco(5)....................... 199,602 1.6
John M. Palumbo(6)................... 25,023 *
Robert L. Blanton(7)................. 87,210 *
Timothy C. McQuay(8)................. 10,000 *
George E. Seebart(8)................. 10,000 *
Virgil K. Benton II(9)............... -- --
All directors and executive officers
as a group (10 persons)(10)......... 1,748,498 13.8
</TABLE>
- - --------
* *Less than one percent.
(1) The business address of each beneficial owner is 700 East Bonita Avenue,
Pomona, California 91767.
(2) Each person has sole voting and investment power over the shares of
Common Stock shown as beneficially owned, subject to community property
laws where applicable.
(3) Shares of Common Stock which the person (or group) has the right to
acquire within 60 days after July 18, 1997 are deemed to be outstanding
in calculating the percentage ownership of the person (or group) but are
not deemed to be outstanding as to any other person or group.
(4) Includes 56,820 shares held for the benefit of Mr. Hogarty by the
Company's Employee Stock Ownership Plan ("ESOP") and excludes options to
acquire 40,000 shares of Common Stock under the Stock Incentive Plan,
which are not exercisable within 60 days of July 18, 1997.
(5) Includes (i) 147,677 shares held by the Ronco Family Trust and (ii)
51,925 shares held for the benefit of Mr. Ronco by the ESOP and excludes
options to acquire 40,000 shares of Common Stock under the Stock
Incentive Plan, which are not exercisable within 60 days of July 18,
1997.
(6) Excludes options to acquire 10,000 shares of Common Stock under the Stock
Incentive Plan, which are not exercisable within 60 days of July 18,
1997, and includes (i) 10,000 shares of Common Stock under the Stock
Incentive Plan, which are currently exercisable and (ii) 23 shares held
for the benefit of Mr. Palumbo by the ESOP.
(7) Includes 27,210 shares held for the benefit of Mr. Blanton by the ESOP.
2
<PAGE>
(8) Consists of shares issuable upon the exercise of stock options granted
under the Stock Incentive Plan to the named individual.
(9) Mr. Benton resigned as the Chairman of the Board, Chief Executive Officer
and Director of the Company in May 1997.
(10) Excludes 200,000 shares subject to options which are not exercisable
within 60 days of July 18, 1997 and includes (i) 135,978 shares held for
the benefit of directors and executive officers by the ESOP and (ii)
40,000 shares subject to options exercisable within 60 days of July 18,
1997.
ELECTION OF DIRECTORS
NOMINEES
A board of five directors is to be elected at the Annual Meeting of
Shareholders. Unless otherwise instructed, the proxy holders will vote the
proxies received by them for the Company's five nominees named below, all of
whom are presently directors of the Company. If any nominee of the Company is
unable or declines to serve as a director at the time of the Annual Meeting,
the proxies will be voted for the nominee designated by the present Board of
Directors to fill the vacancy. It is not expected that any nominee will be
unable or will decline to serve as a director. The term of office of each
person elected as a director will continue until the next Annual Meeting or
until a successor has been elected and qualified.
VOTE REQUIRED; RECOMMENDATION OF BOARD OF DIRECTORS
Subject to the restrictions described below, each shareholder voting in the
election of directors may cumulate such shareholder's votes and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which such shareholder's shares are
entitled, or may distribute such votes on the same principal among as many
nominees as the shareholder chooses, provided that votes cannot be cast for
more than the total number of directors to be elected at the meeting. However,
no shareholder may cumulate votes for any candidate unless the candidate's
name has been placed in nomination prior to the voting and at least one
shareholder at the meeting has given notice of the intention to cumulate votes
prior to the voting.
The five nominees receiving the highest number of votes cast will be elected
as directors for the ensuing year. For this purpose, the votes cast are
defined under California law to be the shares of the Company's Common Stock
represented and voting at the Annual Meeting. Votes that are withheld from any
nominee will be counted for purposes of determining the presence or absence of
a quorum, but have no legal effect under California law.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE
"FOR" THE NOMINEES LISTED BELOW:
INFORMATION CONCERNING NOMINEES
Set forth below is certain information with respect to the nominees standing
for election to the Board of Directors.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION WITH THE COMPANY SINCE
---- --- ------------------------- --------
<C> <C> <S> <C>
Ronald G. Brown 60 Chairman of the Board 1997
Charles J. Hogarty 56 President, Chief Executive Officer and a
Director 1987
Al A. Ronco 61 Executive Vice President and a Director 1987
Timothy C. McQuay* 45 Director 1996
George E. Seebart* 68 Director 1996
</TABLE>
- - --------
* Member of Audit and Compensation Committees
3
<PAGE>
RONALD G. BROWN was elected a director of the Company upon completion of the
combination of the Company and North Star Plating Company ("North Star") in
March 1997 (the "North Star Merger"), pursuant to the terms of the Merger
Agreement as described below, and was elected as Chairman of the Board of
Directors in May 1997. Mr. Brown served as President of North Star from its
founding in 1968 until the North Star Merger, and he is currently the Vice
President--Manufacturing of North Star. From 1982 to the present, he has been
a member of the Board of Directors of First Bank N.A. of Brainerd, Minnesota,
an affiliate of North Star's primary bank lender. Mr. Brown has served as a
member of the Board of Directors and Vice President of the Bumper Recycling
Association of North America.
CHARLES J. HOGARTY served as the President, Chief Operating Officer and a
director of the Company since 1987 and was appointed the Chief Executive
Officer of the Company in May 1997. From his joining the Company in 1960 until
1987, Mr. Hogarty held various positions, including salesman, sales manager,
general manager and regional manager. Mr. Hogarty served as a director of the
Aftermarket Body Parts Association from 1984 to 1993, President in 1989 and
Chairman in 1990.
AL A. RONCO has served as the Executive Vice President and a director of the
Company since 1987 and as Secretary from 1987 until he resigned that position
in May 1997. From his joining the Company in 1959 until 1987, Mr. Ronco held
various positions, including salesman, production manager, general manager and
regional manager.
TIMOTHY C. MCQUAY was appointed a director of the Company upon the
completion of its initial public offering in June 1996. Mr. McQuay was
appointed a Vice President with A. G. Edwards & Sons, Inc. and a senior member
of its Investment Banking Department in July 1997. From October 1994 to July
1997, Mr. McQuay was Managing Director--Corporate Finance of Crowell, Weedon &
Co. From May 1993 to October 1994, Mr. McQuay was Vice President, Corporate
Development with Kerr Group, Inc., a NYSE-listed plastics manufacturing
company. From May 1990 to May 1993, Mr. McQuay was Managing Director--Merchant
Banking with Union Bank. Mr. McQuay is a director of Meade Instruments Corp.,
a publicly held company.
GEORGE E. SEEBART was appointed a director of the Company upon the
completion of its initial public offering in June 1996. From 1964 until his
retirement in 1993, Mr. Seebart was employed in various executive positions
with Farmers Group, Inc., including as Senior Vice President, Field Operations
and Vice President, Sales and Marketing. From 1987 to 1992, Mr. Seebart was
also President of Mid-Century Insurance Company, a subsidiary of Farmers
Group, Inc.
In connection with the North Star Merger, the Company agreed to use its best
efforts to maintain Ronald G. Brown as a member of the Board of Directors and
each of Messrs. Hogarty, Ronco, Blanton (Vice President--Finance) and Palumbo
(Vice President, Treasurer and Chief Financial Officer) have agreed to vote
all shares of the Company's Common Stock as to which they have sole or shared
voting power in favor of the election of Mr. Brown as a member of the Board of
Directors. Other than as described above, there are no arrangements or
understandings between any director, or any nominee, or any other person
pursuant to which such director or nominee is or was nominated to serve as a
director. There is no family relationship among any directors or executive
officers of the Company.
BOARD MEETINGS AND COMMITTEES
The Board of Directors held a total of four meetings from the date of the
Company's initial public offering in June 1996 through the end of its last
fiscal year, March 28, 1997 (the "Fiscal Period"). The Board of Directors has
an Audit Committee and a Compensation Committee, which met three and one
times, respectively, during the Fiscal Period. During the Fiscal Period, each
director attended at least 75% of the meetings of the Board of Directors held
while he was a director and of the Committees of the Board of Directors on
which he served.
The Audit Committee's functions include recommending to the Board of
Directors the engagement of the Company's independent auditors, reviewing and
approving the services performed by the independent auditors and reviewing and
evaluating the Company's accounting policies and internal accounting controls.
The Compensation Committee reviews and approves the compensation of officers
and key employees, including the granting of options under the Company's Stock
Incentive Plan. See "Report of Compensation Committee" attached hereto as
Annex "A."
4
<PAGE>
DIRECTOR COMPENSATION
The Company pays an annual retainer of $7,500 to each director who is not
also an employee, payable in equal quarterly installments, $1,000 for each
board meeting and $500 for each committee meeting attended; and reimburses
such person for all reasonable and documented expenses incurred as a director.
In addition, each non-employee director, upon joining the Board of Directors,
receives an option to purchase 10,000 shares of the Common Stock of the
Company pursuant to the Stock Incentive Plan. Such options will have an
exercise price equal to the market price of such shares on the date of grant,
will be immediately exercisable and will have a term of ten years. The Board
of Directors may modify such compensation in the future.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended March 28, 1997, Messrs. Seebart and McQuay
served on the Compensation Committee. Mr. McQuay is a Managing Director--
Corporate Finance of Crowell, Weedon & Co. ("Crowell Weedon"). Crowell Weedon
was one of the representatives of the underwriters of the Company's initial
public offering in June 1996 and was one of the underwriters of the Company's
public offering in June 1997. In addition, Crowell Weedon provided certain
financial advisory services to the Company in connection with the North Star
Merger. See "Certain Transactions."
REPORT OF COMPENSATION COMMITTEE
The Report of the Compensation Committee of the Board of Directors of the
Company, describing the compensation policies and rationale applicable to the
Company's executive officers with respect to compensation paid to such
executive officers for the fiscal year ended March 28, 1997, is attached to
this Proxy Statement as Annex "A."
5
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by the
Company for services rendered in all capacities during each of the three
fiscal years ended March 28, 1997 to the Company's Chief Executive Officer and
the Company's four other most highly compensated executive officers at the end
of fiscal 1997 (the "Named Executives"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------- --------------
OTHER ANNUAL LONG TERM ALL OTHER
NAME AND PRINCIPAL COMPENSATION INCENTIVE PLAN COMPENSATION
POSITION YEAR SALARY($) BONUS($) ($)(1) PAYOUTS($)(2) ($)(3)
------------------ ---- --------- -------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Virgil K. Benton II(4).. 1997 295,000 142,345 20,718 -- 3,979
1996 425,000 182,744 20,718 -- 9,069
1995 402,870 -- 20,718 -- 2,930
Charles J. Hogarty...... 1997 250,000 122,010 11,616 -- 2,099
1996 145,000 214,395 11,616 -- 310
1995 134,006 172,266 328,564 278,259 1,518
Al A. Ronco............. 1997 185,000 101,675 11,640 -- 3,725
1996 125,000 187,787 11,640 -- 3,682
1995 117,258 150,887 233,501 194,778 10,000
Robert L. Blanton....... 1997 100,000 40,670 3,195 -- 5,070
1996 102,000 25,000 3,195 -- 5,391
1995 68,250 87,983 66,595 55,661 3,170
John M. Palumbo(5)...... 1997 97,500 -- 6,000 -- 783
1996 3,958 -- -- -- --
</TABLE>
- - --------
(1) Consists of automobile lease and related expenses. Amounts shown for
fiscal 1995 include amounts paid for reimbursement of taxes.
(2) Represents compensation relating to the vesting of shares of Common Stock
awarded under the Company's Restricted Stock Plan in prior periods.
(3) Consists of reimbursement of medical and dental expenses not covered by
insurance plans provided to employees generally.
(4) Mr. Benton resigned as Chairman of the Board and Chief Executive Officer
of the Company in May 1997. See "Certain Transactions."
(5) Mr. Palumbo joined the Company in March 1996.
In June 1996, the Company entered into employment agreements with Messrs.
Hogarty, Ronco and Blanton, terminable by either party at the end of three
years by written notice, pursuant to which each such person is entitled to (i)
receive an annual base salary of $250,000, $195,000 and $100,000,
respectively, (ii) receive such performance-based bonus, if any, as may be
determined by the Board of Directors, (iii) participate in all plans sponsored
for executive officers in general and (iv) receive the use of an automobile
leased and maintained by the Company. In the event the Company terminates
employment before the end of the stated term without cause or the individual
terminates his employment for specified causes, the Company is obligated to
pay the base salary through the stated term of the agreement. In the event the
Company terminates employment before the end of the stated term with cause,
the Company is obligated to pay the base salary only through the date of
termination.
Upon consummation of the North Star Merger, North Star entered into
employment agreements with Ronald G. Brown (Chairman of the Board) and Kim D.
Wood (Vice President and President and Chief Operating Officer of North Star).
Under a five-year employment agreement, Mr. Brown is employed as the Vice
President-Manufacturing of North Star and is entitled to (i) receive an annual
base salary for the 12 months commencing March 1, 1997, 1998, 1999, 2000 and
2001 of $325,000, $300,000, $275,000, $225,000 and $150,000, respectively, and
(ii) participate in any group health, medical reimbursement or dental plan
sponsored by the Company or North Star for executive officers in general. In
the event North Star terminates his employment before the end of the stated
term with cause, or Mr. Brown terminates his employment for specified causes,
North
6
<PAGE>
Star is obligated to pay the compensation described in clauses (i) and (ii)
only through the date of termination. In the event North Star terminates his
employment before the end of the stated term other than with cause, North Star
is obligated to pay such compensation through the stated term of the
agreement. The agreement further provides that Mr. Brown will not engage in
any "competitive activity" (as defined in the agreement) during the period
commencing on the date of the employment agreement and ending on the later to
occur of the seventh anniversary of such date or two years after the
termination of his employment.
Under an employment agreement terminable by either party at the end of three
years by giving written notice, Mr. Wood is employed as the President and
Chief Operating Officer of North Star and is entitled to (i) receive an annual
base salary of $175,000, (ii) receive such performance-based bonus, if any, as
may be determined by the Board of Directors, (iii) participate in all plans
sponsored by North Star for employees in general and (iv) receive the use of
an automobile leased and maintained by North Star. In the event North Star
terminates his employment before the end of the stated term with cause, or Mr.
Wood terminates his employment for specified causes, North Star is obligated
to pay such compensation only through the date of termination. In the event
North Star terminates employment before the end of the stated term other than
with cause, North Star is obligated to pay such compensation through the
stated term of the agreement, but in no event for less than 12 months. The
agreement further provides that Mr. Wood will not engage in any "competitive
activity" (as defined in the agreement) during the 12-month period commencing
on the termination of his employment.
The following table sets forth certain information with respect to options
granted under the Stock Incentive Plan during fiscal 1997 to the Named
Executives.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENTAGE OF TOTAL VALUE AT ASSUMED
OPTIONS GRANTED ANNUAL RATE OF STOCK
SHARES OF COMMON STOCK TO EMPLOYEES IN EXERCISE EXPIRATION PRICE APPRECIATION
NAME UNDERLYING OPTIONS FISCAL YEAR PRICE DATE FOR OPTION TERM
---- ---------------------- ------------------- -------- -------------- ---------------------
5% 10%
---------- ----------
<S> <C> <C> <C> <C> <C> <C>
John M. Palumbo......... 5,000(1) 1.4% $15.50 March 27, 2007 $ 21,390 $ 47,353
Robert L. Blanton....... 10,000(1) 2.7% $15.50 March 27, 2007 $ 42,780 $ 74,705
</TABLE>
- - --------
(1) The options vest in four equal annual installments, with the first
installment vesting on March 28, 1998.
OPTION EXERCISES AND YEAR-END VALUE TABLE
AGGREGATED OPTION EXERCISES IN LAST FISCAR YEAR
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS IN-THE-MONEY OPTIONS AT
ACQUIRED AT YEAR-END YEAR-END
ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- -------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
John M. Palumbo......... -- -- 0/ 5,000 $0/0
Robert L. Blanton....... -- -- 0/10,000 0/0
</TABLE>
7
<PAGE>
EMPLOYEE DEFINED BENEFIT PENSION PLAN
General. The Board of Directors adopted the Employee Defined Benefit Pension
Plan (the "Pension Plan"), originally effective as of April 1, 1978, for the
benefit of the eligible employees of the Company. Since the implementation of
the Pension Plan, the Company has amended the Pension Plan from time to time.
The primary purpose of the Pension Plan was to provide a retirement benefit
for participating employees who continue in the employ of the Company until
their retirement. Effective April 30, 1997, the Pension Plan was suspended
with no further benefits to accrue on behalf of any participant or beneficiary
and no further contributions, except as may be required for fiscal 1997 or by
law, to be made. It is anticipated that the Pension Plan will be terminated
within the next two years and that the termination will not have a material
adverse impact on the financial condition of the Company upon that event. The
Pension Plan has been replaced with the 401(k) Savings Plan described below.
Estimated Monthly Benefits. The following table sets forth the estimated
monthly benefit under the Pension Plan based on the current benefit structure.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------
REMUNERATION 15 20 25 30 35
------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
$125,000.............................. $1,172 $1,563 $1,953 $2,344 $2,734
150,000.............................. 1,407 1,875 2,344 2,813 3,281
175,000.............................. 1,407 1,875 2,344 2,813 3,281
200,000.............................. 1,407 1,875 2,344 2,813 3,281
225,000.............................. 1,407 1,875 2,344 2,813 3,281
250,000.............................. 1,407 1,875 2,344 2,813 3,281
300,000.............................. 1,407 1,875 2,344 2,813 3,281
400,000.............................. 1,407 1,875 2,344 2,813 3,281
450,000.............................. 1,407 1,875 2,344 2,813 3,281
500,000.............................. 1,407 1,875 2,344 2,813 3,281
</TABLE>
The compensation covered by the Pension Plan includes basic salary or wages,
overtime payments, bonuses, commissions and all other direct current
compensation, but does not include contributions by the Company to Social
Security, benefits from stock options (whether qualified or not),
contributions to this or any other retirement plans or programs, or the value
of any other fringe benefits provided at the expense of the Company. For
benefit calculation purposes, a "highest-five-year" average of compensation is
used. Benefits are paid as straight-life annuities with no subsidies or
offsets. The compensation covered by the Pension Plan for all of the Named
Executive Officers was limited to $150,000 in accordance with Section
401(a)(17) of the Internal Revenue Code of 1986, as amended.
The years of credited service for each Named Executive who participates in
the Pension Plan are as follows:
<TABLE>
<CAPTION>
NAME YEARS
---- -----
<S> <C>
Virgil K. Benton II................ 22
Charles J. Hogarty................. 37
Al A. Ronco........................ 38
Robert L. Blanton.................. 28
John M. Palumbo.................... 1
</TABLE>
401(K) SAVINGS PLAN
Effective April 1, 1997, the Section 401(k) Savings Plan (the "Plan") in
effect at North Star was amended to make the Plan available to employees of
the Company. Pursuant to the amendment, the Company became the Plan sponsor
and North Star became an adopting employer. All employees of the Company as of
April 1, 1997,
8
<PAGE>
became participants in the Plan and the amendment had no affect upon those
persons who were employed at North Star on April 1, 1997. Persons becoming
employees of the Company subsequent to April 1, 1997 are not eligible to
participate until they complete one year of service and are at least 21 years
of age.
Under the terms of the Plan, participants can contribute, by way of payroll
deductions, from 1% to 15% of their pre-tax compensation annually, subject to
certain legal limitations. The Plan also provides for a matching contribution
by the Company equal to 50% of a participant's contribution, up to a maximum
6% of compensation. For purposes of determining the amount of contributions
and matching contributions to be allocated to a participant's account,
compensation is defined as the annual income amount reportable by the Company
for federal income tax purposes, including overtime, commissions and bonuses.
A participant is always 100% vested in his own Plan contributions. A
participant becomes 100% vested in the matching contributions allocated to his
account upon his attainment of early retirement age (age 55 and four years of
service), normal retirement age (age 65), disability while employed by the
Company, his death while employed by the Company or the termination or
complete discontinuance of contributions to the Plan.
If a participant terminates employment with the Company for any other
reason, a participant vests 25% in his benefits after one year of service, 25%
each year thereafter, with 100% vesting after four or more years of service.
EMPLOYEE STOCK OWNERSHIP PLAN
General. The Board of Directors adopted the Employee Stock Ownership Plan
(the "ESOP"), originally effective as of April 1, 1975, for the benefit of the
eligible employees of the Company. Since the implementation of the ESOP, the
Company has amended the ESOP from time to time. Most recently, the Company
amended and restated the ESOP in order to comply with the requirements of the
Tax Reform Act of 1986 and later legislation, generally effective as of April
1, 1989. The primary purpose of the ESOP is to permit participating employees
to share in the growth and prosperity of the Company through the ownership of
the Company's Common Stock under the ESOP. All employees of the Company are
eligible to participate in the ESOP as of their date of hire. The Company does
not intend to make contributions to the ESOP for the foreseeable future.
Administration. The ESOP is administered by a committee (the "Committee")
that is appointed by the Board of Directors. The Committee oversees the day-
to-day administration of the ESOP and is responsible for making determinations
on questions of administration, interpretation and application of ESOP terms,
including questions of eligibility, service and distribution of plan benefits
to participants. The Committee will carry out its responsibilities under the
ESOP in a uniform and nondiscriminating manner.
ESOP Contributions and Vesting. The ESOP provides for employer contributions
only, the amount of which is determined by the Board of Directors on an annual
basis. Tax law limits deductible contributions to the ESOP to 15% of the total
compensation paid during the year to participating employees.
For purposes of calculating the amount of a participant's employer
contributions in any year, compensation means all wages and salaries paid to
the participant during the year, including bonuses, overtime and commissions.
A participant will become fully vested in his employer contributions upon
the attainment of normal retirement age, death or termination of the ESOP. If
the participant terminates employment prior to retirement age, the vested
interest he has in his employer contributions will be based on his years of
service, with 20% of vesting upon the completion of three years of service,
and 20% for each additional year thereafter, with 100% vesting after seven or
more years of service.
ESOP Investments. Because the ESOP is an employee stock ownership plan, it
is designed to comply with the legal requirement that all plan assets be
invested primarily in the Company's Common Stock. Cash
9
<PAGE>
contributions made by the Company to the ESOP, therefore, are used by the
trustee to purchase the Company's Common Stock at such time as the trustee
deems it prudent to do so.
In compliance with applicable legal requirements, the ESOP also permits
eligible participants to diversify the investment of their plan assets under
the ESOP. An eligible participant is a participant who has attained age 55 and
who has at least ten years of participation in the ESOP. An eligible
participant is entitled to diversify up to 25% of his account balance for a
six-year period, and at the end of the six-year period, he will be entitled to
diversify up to 50% of his account balance. For purposes of meeting
diversification requirements, the Company will either make a distribution to
the eligible participant of his diversified amount, or provide three
investment funds under the ESOP to enable the eligible participant to
diversify the investment of his plan assets.
ESOP Amendment or Termination. Under the terms of the ESOP, the Company
reserves the right to amend or terminate the ESOP at any time and in any
manner. No amendment or termination, however, may deprive a participant of any
benefit he has accrued under the ESOP prior to the effective date of the
amendment or termination.
CERTAIN TRANSACTIONS
The Company has entered into three lease agreements with two partnerships
whose partners include certain of the Company's directors and officers and two
lease agreements with a corporation which is owned by a family member of a
former officer and director of the Company. In addition, as a result of the
North Star Merger, the Company is a party to four leases with partnerships
whose partners include persons, or their spouses, who are currently officers
or directors of the Company. The Company believes that the terms and
conditions of such leases with affiliated parties are no less favorable to the
Company than could have been obtained from unaffiliated parties in arm's
length transactions at the time such leases were entered into.
The Company entered into a lease dated January 5, 1995, with V-JAC
Properties, Ltd. for an 8,000 square feet warehouse facility in Ontario,
California, with a lease term of three years (with an option to renew the
lease for an additional three years on the same terms and conditions), for a
monthly rent of $3,494. V-JAC Properties, Ltd. is a partnership whose
interests are held equally by Virgil K. Benton, Sr., and John G. Jordan, each
of whom is a co-founder of the Company, and Al A. Ronco and Charles J.
Hogarty, who are currently directors and executive officers of the Company.
The Company has also entered into a lease dated January 5, 1995, with V- JAC
Properties, Ltd. for a 10,000 square feet warehouse facility in Palmyra, New
Jersey, with a lease term of three years (with an option to renew the lease
for an additional three years on the same terms and conditions), for a monthly
rent of $2,985.
The Company entered into a lease dated January 5, 1995, with B-J Properties,
Ltd. for a 25,000 square feet warehouse facility in St. Louis, Missouri, with
a lease term of three years (with an option to renew the lease for an
additional three years on the same terms and conditions), for a monthly rent
of $5,067. B-J Properties, Ltd. is a partnership whose interests are held
61.75% by Virgil K. Benton, Sr. and 38.25% by John G. Jordan, the Company's
co-founders, both of whom retired as directors effective March 31, 1996.
The Company entered into a lease dated April 1, 1995, with Benton Real
Properties, Inc. relating to approximately 24,082 square feet in Ontario,
California, with a lease term of five years, for a monthly rent of $6,088 in
the first year of the lease, increasing to $6,271, $6,549, $6,653 and $6,853,
respectively, in each year thereafter. In January 1996, the Company exercised
a five-year lease option expiring December 31, 2000, with respect to a lease
dated January 1, 1991, with Benton Real Properties, Inc. relating to
approximately 20,000 square feet in Ontario, California for a monthly rent of
$5,634 in the first year of the lease, increasing to $5,803, $5,977, $6,157
and $6,341, respectively, in each year thereafter. Benton Real Properties,
Inc. is wholly owned by Bertha Benton, the mother of Virgil Benton II. Mr.
Benton resigned as the Company's Chief Executive Officer and a director in May
1997.
10
<PAGE>
On January 1, 1995, North Star entered into a ten-year lease agreement with
a partnership owned by the spouses of Ronald G. Brown and Kim D. Wood to lease
property occupied by North Star's East Peoria, Illinois service center. The
initial base rent under the lease was $6,975 per month, which is subject to
increase on each anniversary of the lease term by the percentage increase in
the Consumer Price Index during the preceding year. In addition to the base
rent, North Star pays real estate taxes, maintenance, utilities and insurance
costs associated with the property.
On January 1, 1995, North Star entered a ten-year lease agreement with a
partnership owned by the spouse of Raymond Wood, a former shareholder, officer
and director of North Star, and the spouse of Ronald G. Brown to lease the
property occupied by North Star's Brainerd, Minnesota chrome bumper plating
center. The initial base rent under the lease was $21,300 per month, which is
subject to increase on each anniversary of the lease term by the percentage
increase in the Consumer Price Index during the preceding year. In addition to
the base rent, North Star pays real estate taxes, maintenance, utilities and
insurance costs associated with the property. Pursuant to the lease agreement,
North Star is responsible for certain occurrences on the premises, including
any environmental contamination.
On January 1, 1995, North Star entered into a ten-year lease agreement with
a partnership owned by Kim D. Wood and Richard Monson, the general manager of
North Star's Brainerd, Minnesota chrome bumper manufacturing and recycling
center to lease the property occupied by North Star's St. Cloud, Minnesota
service center. The initial base rent under the lease was $5,000 per month,
which is subject to increase on each anniversary of the lease term by the
percentage increase in the Consumer Price Index during the preceding year. In
addition to the base rent, North Star pays real estate taxes, maintenance,
utilities and insurance costs associated with the property.
On May 20, 1996, North Star entered into a ten-year lease agreement with a
partnership owned by the spouses of Ronald G. Brown and Kim D. Wood and the
Brown Family Limited Partnership to lease property occupied by North Star's
headquarters and Minneapolis, Minnesota service center hub. The initial base
rent under the lease was $12,000 per month, which is subject to increase on
the anniversary of the lease term by the percentage increase in the Consumer
Price Index during the preceding year. In addition to the base rent, North
Star pays real estate taxes, maintenance utilities and insurance costs
associated with the property. In an amendment to the lease dated September 23,
1996, the partnership agreed to construct a 37,260 square foot addition to the
existing building. North Star began occupying the addition in January 1997
and, accordingly, the base rent increased to $25,627 per month.
Crowell, Weedon was one of the representatives of the underwriters of the
Company's initial public offering in June 1996 and was one of the underwriters
of the Company's subsequent public offering in June 1997. In addition, in
January 1996, the Company entered into an agreement with Crowell, Weedon to
provide certain financial advisory services to the Company in connection with
evaluating the North Star Merger. Upon the consummation of the North Star
Merger, Crowell, Weedon received $125,000 in consideration of such services.
Timothy C. McQuay, a director of the Company, is a Managing Director --
Corporate Finance of Crowell, Weedon & Co.
In May 1997, Virgil K. Benton II resigned as the Chairman of the Board,
Chief Executive Officer and director of the Company. In connection with his
resignation, the Company and Mr. Benton entered into a Resignation Agreement
and General Release, pursuant to which the Company (i) paid Mr. Benton cash
and properties having a value of approximately $700,000, representing its
obligations to Mr. Benton under the remaining two years of his employment
agreement; (ii) agreed to register Mr. Benton's and certain related and
affiliated persons' shares for sale in the Company's 1997 public offering; and
(iii) granted Mr. Benton a piggyback registration right in the event less than
one million of the shares of Common Stock were sold in the 1997 public
offering. Pursuant thereto, Mr. Benton and certain of his relatives and
affiliates disposed of their holdings in the Company in the Company's public
offering in June 1997.
11
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
Set forth below is a line graph comparing the annual percentage change in
the cumulative return to the shareholders of the Company's Common Stock with
the cumulative return of the NASDAQ Stock Market (US Companies) Index and the
following group of peer companies (the "Peer Group"): Autozone, Inc., Discount
Auto Parts, Inc., Finishmaster, Inc., Genuine Parts Co., O'Reilly Automotive,
Inc., Pep Boys--Manny, Moe & Jack, Republic Automotive Parts, Inc., Thompson
PBE, Inc. and Trak Auto Corp. for the period commencing with June 21, 1996,
the date the Company's Common Stock began trading on the NASDAQ National
Market and ending March 28, 1997. The information contained in the performance
graph shall not be deemed "soliciting material" or to be "filed" with the
Securities and Exchange Commission, nor shall such information be incorporated
by reference into any future filing under the Securities Act or Exchange Act,
except to the extent that the Company specifically incorporates it by
reference into such filing. The stock price performance on the following graph
is not necessarily indicative of future stock price performance. The graph
assumes that the value of the investment in the Company's Common Stock, the
NASDAQ Market Index and the peer group of companies was each $100 on June 21,
1996 and that all dividends were reinvested.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG KEYSTONE AUTOMOTIVE INDUSTRIES, INC., THE NASDAQ STOCK MARKET (U.S.)
INDEX AND A PEER GROUP
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
KEYSTONE NASDAQ
Measurement Period AUTOMOTIVE STOCK
(Fiscal Year Covered) INDUSTRY INC. MARKET (U.S.) PEER GROUP
- - --------------------- ------------- ------------- ----------
<S> <C> <C> <C>
FYE 6/21/96 $100 $100 $100
FYE 3/28/97 $168 $106 $86
</TABLE>
12
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors and persons who own more than ten percent of a
registered class of the Company's equity securities to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
("SEC"). Executive officers, directors, and greater-than-ten percent
shareholders are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file. Based solely on its review of the
copies of such forms received by it and written representations from certain
reporting persons that they have complied with the relevant filing
requirements, the Company believes that, during the fiscal year ended March
28, 1997, all relevant Section 16(a) filing requirements were complied with.
APPROVAL OF AMENDMENT TO 1996 EMPLOYEE STOCK INCENTIVE PLAN
The Company's Board of Directors and shareholders have previously adopted
and approved the Company's 1996 Employee Stock Incentive Plan (the "Stock
Incentive Plan"). A total of 697,500 shares of Common Stock are presently
reserved for issuance under the Stock Incentive Plan of which 554,500 shares
were subject to outstanding options as of July 18, 1997. Options with respect
to 32,500 shares of Common Stock were exercised in July 1997. In May 1997, the
Board of Directors approved an amendment to the Plan, subject to shareholder
approval, to increase the shares reserved for issuance thereunder to
1,100,000.
At the Annual Meeting, the shareholders are being requested to consider and
approve the proposed amendment to the Plan to increase the number of shares of
Common Stock reserved for issuance thereunder from 730,000 shares to
1,100,000. The Board believes that the amendment will enable the Company to
continue its policy of widespread employee stock ownership as a means to
motivate high levels of performance and to recognize key employee
accomplishments.
DESCRIPTION OF STOCK INCENTIVE PLAN
General. The Board of Directors of the Company adopted the Stock Incentive
Plan pursuant to which officers, directors, employees and independent
contractors are eligible to receive shares of the Common Stock of the Company
or other securities or benefits with a value derived from the value of the
Common Stock of the Company. The purpose of the Stock Incentive Plan is to
enable the Company to attract, retain and motivate officers, directors,
employees and independent contractors by providing for or increasing their
proprietary interests in the Company and, in the case of non-employee
directors, to attract such directors and further align their interests with
those of the Company's shareholders by providing for or increasing their
proprietary interests in the Company.
Administration. The Stock Incentive Plan is administered by the Compensation
Committee (the "Committee"), except that grants to non-employee directors are
made by the Board of Directors pursuant to a predetermined formula. The
Committee has full and final authority to select the recipients of awards and
to grant such awards. Subject to the provisions of the Stock Incentive Plan,
the Committee has a wide degree of flexibility in determining the terms and
conditions of awards and the number of shares to be issued pursuant thereto,
including conditioning the receipt or vesting of awards upon the achievement
by the Company of specified performance criteria. The expenses of
administering the Stock Incentive Plan are borne by the Company.
Terms of Awards. The Stock Incentive Plan authorizes the Committee to enter
into any type of arrangement with an eligible recipient that, by its terms,
involves or might involve the issuance of Common
13
<PAGE>
Stock or any other security or benefit with a value derived from the value of
Common Stock. Awards are not restricted to any specified form or structure and
may include, without limitation, sales or bonuses of stock, restricted stock,
stock options, reload stock options, stock purchase warrants, other rights to
acquire stock, securities convertible into or redeemable for stock, stock
appreciation rights, phantom stock, dividend equivalents, performance units or
performance shares. An award may consist of one such security or benefit or
two or more of them in tandem or in the alternative.
An award granted under the Stock Incentive Plan may include a provision
accelerating the receipt of benefits upon the occurrence of specified events,
such as a change of control of the Company or a dissolution, liquidation,
merger, reclassification, sale of substantially all of the property and assets
of the Company or other significant corporate transactions. The Committee may
grant options that either are intended to be "incentive stock options" as
defined under Section 422 of the Internal Revenue Code of 1986, as amended, or
are not intended to be incentive stock options ("non-qualified stock
options"). Awards to non-employee directors may only be non-qualified stock
options.
An award may permit the recipient to pay all or part of the purchase price
of the shares or other property issuable pursuant thereto, or to pay all or
part of such recipient's tax withholding obligation with respect to such
issuance, by (i) delivering previously owned shares of capital stock of the
Company or other property, (ii) reducing the amount of shares or other
property otherwise issuable pursuant to the award or (iii) delivering a
promissory note, the terms and conditions of which will be determined by the
Committee. If an option permits the recipient to pay for the shares issuable
pursuant thereto with previously owned shares, the recipient would be able to
exercise the option in successive transactions, starting with a relatively
small number of shares and, by a series of book-entry exercises using shares
acquired from each such transaction to pay the purchase price of the shares
acquired in the following transaction, to exercise an option for a large
number of shares with no more investment than the original share or shares
delivered. The exercise price and any withholding taxes are payable in cash by
non-employee directors, although the Board of Directors at its discretion may
permit such payment by delivery of shares of Common Stock, or by delivery of
broker instructions authorizing a loan secured by the shares acquired upon
exercise or payment of proceeds from the sale of such shares.
Amendment and Termination. Subject to limitations imposed by law, the Board
of Directors may amend or terminate the Stock Incentive Plan at any time and
in any manner. However, no such amendment or termination may deprive the
recipient of an award previously granted under the Stock Incentive Plan of any
rights thereunder without his consent.
Federal Tax Information for Plan. Options granted under the Stock Incentive
Plan may be either "incentive stock options," as defined in Section 422 of the
Code, or nonstatutory options.
An optionee who is granted an incentive stock option will not recognize
taxable income either at the time the option is granted or upon its exercise,
although the exercise may subject the optionee to the alternative minimum tax.
Upon the sale or exchange of the shares more than two (2) years after grant of
the option and one (1) year after exercising the option, any gain or loss will
be treated as long term capital gain or loss. If these holding periods are not
satisfied, the optionee will recognize ordinary income at the time of sale or
exchange equal to the difference between the exercise price and the lower of
(i) the fair market value of the shares at the date of the option exercise or
(ii) the sale price of the shares. A different rule for measuring ordinary
income upon such a premature disposition may apply if the optionee is also an
officer, director, or 10% shareholder of the Company. The Company will be
entitled to a deduction in the same amount as the ordinary income recognized
by the optionee. Any gain or loss recognized on such a premature disposition
of the shares in excess of the amount treated as ordinary income will be
characterized as long-term or short-term capital gain or loss, depending on
the holding period.
All options which do not qualify as incentive stock options are referred to
as nonstatutory options. An optionee will not recognize any taxable income at
the time he or she is granted a nonstatutory option. However, upon its
exercise, the optionee will recognize taxable income generally measured as the
excess of the then fair
14
<PAGE>
market value of the shares purchased over the purchase price. Any taxable
income recognized in connection with an option exercise by an optionee who is
also an employee of the Company will be subject to tax withholding by the
Company. Upon resale of such shares by the optionee, any difference between
the sales price and the optionee's purchase price, to the extent not
recognized as taxable income as described above, will be treated as long-term
or short-term capital gain or loss, depending on the holding period.
The Company will be entitled to a tax deduction in the same amount as the
ordinary income recognized by the optionee with respect to shares acquired
upon exercise of a nonstatutory option.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION
UPON THE OPTIONEE AND THE COMPANY WITH RESPECT TO THE GRANT AND EXERCISE OF
OPTIONS UNDER THE STOCK INCENTIVE PLAN, DOES NOT PURPORT TO BE COMPLETE, AND
DOES NOT DISCUSS THE TAX CONSEQUENCES OF THE OPTIONEE'S DEATH OR THE INCOME
TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH AN OPTIONEE
MAY RESIDE.
VOTE REQUIRED; RECOMMENDATION OF BOARD OF DIRECTORS
The approval of the amendment to the Stock Incentive Plan requires the
affirmative vote of a majority of the votes cast on the proposal at the Annual
Meeting.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
AMENDMENT OF THE STOCK INCENTIVE PLAN TO INCREASE THE NUMBER OF SHARES
RESERVED FOR ISSUANCE THEREUNDER.
AMENDMENT TO RESTATED ARTICLES OF INCORPORATION
TO INCREASE AUTHORIZED COMMON STOCK
The Board of Directors has unanimously approved, declared advisable and
recommends that the shareholders consider and approve an amendment (the
"Amendment") to Article Three of the Company's Restated Articles of
Incorporation (the "Articles"), pursuant to which the authorized amount of
shares of Common Stock would be increased from 20,000,000 shares to 50,000,000
shares. The Articles also currently authorizes the issuance of up to 3,000,000
shares of Preferred Stock (the "Preferred Stock"), of which no shares are
issued and outstanding. The Amendment would not alter the authorized amount of
Preferred Stock.
PURPOSE AND EFFECTS OF THE AMENDMENT
As of July 18, 1997, there were 12,627,052 shares of Common Stock issued and
outstanding and 697,500 shares were reserved in the aggregate for issuance
pursuant to the Stock Incentive Plan (1,067,500 shares if the amendment to the
Stock Incentive Plan proposed herein is approved by shareholders).
The Board of Directors believes that the flexibility provided by the
Amendment to permit the Company to issue or reserve additional Common Stock,
in the discretion of the Board of Directors, without the delay or expense of a
special meeting of shareholders, is in the best interest of the Company and
its shareholders. Shares of Common Stock may be used for general corporate
purposes, including stock splits and stock dividends, acquisitions, public
offerings, stock option and other employee benefit plans. The Company has no
present plans, arrangements, commitments or understandings with respect to the
issuance of any of the additional shares of Common Stock that would be
authorized by adoption of the Amendment.
Pursuant to the Articles, shareholders of the Company have no preemptive
rights with respect to the additional shares of Common Stock being authorized.
The Articles do not require further approval of shareholders prior to the
issuance of any additional shares of Common Stock. In certain circumstances
(generally relating to the number of shares to be issued, the manner of
offering and the identity of the recipients), the rules
15
<PAGE>
of the NASDAQ may require specific authorization in connection with the
issuance of such additional shares. The Company does not anticipate that it
will seek authorization from shareholders for issuance of additional shares of
Common Stock unless required by applicable laws or the NASDAQ.
The issuance of any additional shares of Common Stock may have the effect of
diluting the percentage of stock ownership, book value per share and voting
rights of the present holders of the Common Stock. The Amendment also may have
the effect of discouraging attempts to take over control of the Company, as
additional shares of Common Stock could be issued to dilute the stock
ownership and voting power of, or increase the cost to, a party seeking to
obtain control of the Company. The Amendment is not being proposed in response
to any known effort or threat to acquire control of the Company and is not
part of a plan by management to adopt a series of amendments to the Articles
and By-laws having an anti-takeover effect.
RESOLUTION.
The following resolution will be submitted to shareholders for their
approval:
RESOLVED, that the first sentence of ARTICLE THREE of the Restated Articles
of Incorporation of the Company be amended to read in its entirety as follows:
"THREE: This corporation is authorized to issue two classes of shares of
stock designated "Common Stock" and "Preferred Stock," respectively. The total
number of shares of stock which this corporation shall have authority to issue
is 53,000,000 shares, consisting of 50,000,000, shares of Common Stock and
3,000,000 shares of Preferred Stock."
Vote Required: Recommendation of the Board of Directors.
In accordance with California law, the affirmative vote of the holders of a
majority of the outstanding shares of Common Stock is required to approve the
Amendment. Accordingly, abstentions and broker non-votes applicable to shares
present at the meeting will have the same effect as votes cast against
approval of the Amendment. If the Amendment is approved, the Company intends
to file the Amendment with the Secretary of State of California as soon as
practicable thereafter.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
THE PROPOSED AMENDMENT.
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected Ernst & Young LLP, independent
accountants, to audit the financial statements of the Company for the 1998
fiscal year. This nomination is being presented to the shareholders for
ratification at the meeting. Ernst & Young LLP has audited the Company's
financial statements since the fiscal year ended in March 1977. A
representative of Ernst & Young LLP is expected to be present at the meeting,
will have the opportunity to make a statement and is expected to be available
to respond to appropriate questions.
VOTE REQUIRED, RECOMMENDATION OF BOARD OF DIRECTORS
The affirmative vote of a majority of the votes cast on the proposal at the
Annual Meeting is required to ratify the Board's selection. If the
shareholders reject the nomination, the Board will reconsider its selection.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S
INDEPENDENT ACCOUNTANTS FOR THE 1998 FISCAL YEAR.
16
<PAGE>
SUBMISSION OF STOCKHOLDER PROPOSALS
Stockholders are advised that any shareholder proposal, including
nominations to the Board of Directors, intended for consideration at the 1998
Annual Meeting must be received by the Company within a reasonable time before
materials are mailed to shareholders to be included in the proxy materials for
the 1998 Annual Meeting. It is recommended that shareholders submitting
proposals direct them to the Company, c/o James C. Lockwood, Secretary of the
Company, and utilize certified mail, return-receipt requested in order to
ensure timely delivery.
OTHER MATTERS
The Board of Directors knows of no matter to come before the Annual Meeting
other than as specified herein. If other business should, however, be properly
brought before such meeting, the persons voting the proxies will vote them in
accordance with their best judgment.
THE SHAREHOLDERS ARE URGED TO COMPLETE, SIGN, AND RETURN PROMPTLY THE
ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE.
/s/ James C. Lockwood
James C. Lockwood
Secretary
July 25, 1997
17
<PAGE>
ANNEX "A"
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The following report of the Compensation Committee to the Board of Directors
shall not be deemed to be incorporated by reference into any filing by the
Company under either the Securities Act of 1933, as amended ("Securities Act")
or the Securities Exchange Act of 1934, as amended ("Exchange Act") that
incorporates future Securities Act or Exchange Act filings in whole or in part
by reference.
GENERAL
The Compensation Committee of the Board of Directors (the "Committee") is
responsible for establishing and administering the policies that govern
executive compensation and benefit practices. All decisions of the Committee
are subject to the approval of the Company's Board of Directors. The
compensation committee of the Board of Directors is currently comprised of
Messrs. McQuay and Seebart.
During the fiscal year ended March 28, 1997, all of the executive officers
of the Company with the exception of Mr. Palumbo and one other executive
officer (who is not a Named Executive) had written employment agreements
adopted before the Company's initial public offering in June 1996. In addition
to fixing base compensation, these agreements fixed the bonuses for the last
fiscal year. Consequently, the Committee took no action with respect to the
salaries and bonuses paid to those individuals during the last fiscal year.
Bonuses for the current fiscal year are not fixed by agreement and will be
determined by the Board of Directors upon recommendation from the Committee.
Salaries for the executive officers who did not have employment agreements
were recommended by management and approved by the Committee.
COMPENSATION PHILOSOPHY
The Company's executive compensation program is designed to (1) provide
levels of compensation that integrate pay and incentive plans with the
Company's strategic goals, so as to align the interest of executive management
with the long-term interests of the Company's shareholders, (2) attract,
motivate and retain executive talent capable of achieving the strategic
business goals of the Company and (3) recognize outstanding individual
contributions. The Company's executive compensation program consists of three
main elements: base salary, annual cash bonus and long-term incentives.
BASE SALARY
Base salaries for executive officers (including raises for those persons
with employment agreements) are determined on an annual basis by evaluating
each executive officer's position, duties, responsibilities, tenure,
performance and potential contributions to the Company. The Company also
provides its chief executive officer and other executive officers medical,
dental, and other customary employee benefits.
ANNUAL CASH BONUSES
Certain key executive officers of the Company, including the Chief Executive
Officer, participate in an annual bonus pool, the amount of which is
determined with reference to the Company's pre-tax profit margin for the
fiscal year. Bonuses are limited in amount to 100% of base compensation. The
other executive officers are eligible for an incentive bonus at the discretion
of the Committee and the Board of Directors, the amount of which will be
determined subjectively, taking into account factors such as the financial
performance of the Company, achievement of corporate goals and individual
performance.
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LONG-TERM INCENTIVES
The Committee provides the Company's executive officers with long-term
incentive compensation through grants of stock options under the Stock
Incentive Plan. The Committee is responsible for selecting the executive
officers to whom grants should be made, the time of grants, the determination
of the per share exercise price and the number of shares subject to each
option awarded. The Committee believes that stock options provide the
Company's executive officers with the opportunity to purchase and maintain an
equity interest in the Company and to share in the appreciation of the value
of the Common Stock. The Committee believes that stock options directly
motivate an executive to maximize long-term shareholder value. The options
incorporate vesting periods in order to encourage key employees to continue in
the employ of the Company. All options granted in fiscal 1997 were granted at
the fair market value of the Company's Common Stock on the date of the grant.
SUMMARY
The Compensation Committee believes that its executive compensation
philosophy of paying its executive officers by means of base salaries, annual
cash bonuses and long-term incentives, as described in this Report, is in the
best interests of the Company and its shareholders.
COMPENSATION COMMITTEE: Timothy C. McQuay
George E. Seebart
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KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS ON AUGUST 26, 1997.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Ronald G. Brown, Charles J. Hogarty and Al.
A. Ronco, or any of them, each with full power of substitution, as proxies of
the undersigned to attend the Annual Meeting of Shareholders of Keystone
Automotive Industries, Inc. at the Sheraton Suites Fairplex, 601 West McKinley
Avenue, Pomona, California 91768, on August 26, 1997, at 10:00 a.m. Pacific
Time, and any adjournments thereof, and to vote all shares of Common Stock that
the undersigned would be entitled to vote if personally present in the manner
indicated below and on the reverse side, all as set forth in the accompanying
Proxy Statement.
1. Election of Directors:
[_] FOR all nominees listed below
(except as marked to the contrary below)
[_] WITHHOLD AUTHORITY
to vote for all nominees listed below
Ronald G. Brown Charles J. Hogarty Al A. Ronco
Timothy C. McQuay George E. Seebart
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.
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2. To approve an amendment to the Company's 1996 Employee Stock Incentive
Plan to increase from 730,000 to 1,100,000 the number of shares available for
grant.
[_] FOR [_] AGAINST [_] ABSTAIN
3. To amend Article Three of the Company's Articles of Incorporation to
increase its authorized shares of Common Stock from 20,000,000 to 50,000,000.
[_] FOR [_] AGAINST [_] ABSTAIN
4. To ratify the appointment of Ernst & Young LLP as independent accountants
for the year ending December 31, 1997.
[_] FOR [_] AGAINST [_] ABSTAIN
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5. In their discretion, upon any and all such other matters as may properly
come before the meeting or any adjournment or postponement thereof.
THIS PROXY WILL BE VOTED AS SPECIFIED, OR, IF NO CHOICE IS SPECIFIED, WILL BE
VOTED FOR THE FIVE NOMINEES FOR ELECTION AND FOR PROPOSALS 2, 3, 4 AND 5.
(Please sign exactly as name appears. When shares are held by joint tenants,
both should sign. When signing as attorney, as executor, administrator, trustee
or guardian, please give full title as such. If a corporation, please sign in
full corporate name by President or other authorized officer. If a partnership,
please sign in partnership name by authorized person.)
Dated: __________________, 1997
_______________________________
Signature
_______________________________
Signature, if held jointly
SHAREHOLDERS ARE URGED TO MARK, DATE, SIGN AND RETURN THIS PROXY IN THE
ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
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