SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
PENTACON, 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:
______________________________________________________________________
2) Aggregate number of securities to which transaction applies:
______________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
______________________________________________________________________
4) Proposed maximum aggregate value of transaction:
______________________________________________________________________
5) Total fee paid:
______________________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
______________________________________________
2) Form, Schedule or Registration Statement No.:
______________________________________________
3) Filing Party:
______________________________________________
4) Date Filed:
______________________________________________
<PAGE>
PENTACON, INC.
April 12, 1999
Dear Fellow Stockholders:
You are cordially invited to attend the Company's annual meeting of
stockholders to be held at 9:00 a.m. on Wednesday, May 12, 1999, at the
Westchase Hilton and Towers, 9999 Westheimer Road, Houston, Texas.
Information on the various matters on which the stockholders will act is
provided in the enclosed notice of the meeting and proxy statement. An Annual
Report to Stockholders for the year ended September 30, 1998 and a "Transitional
Report" on Form 10-Q for the quarter ended December 31, 1998 also are enclosed
with this Proxy Statement.
Your vote is important. Regardless of whether you plan to attend the
meeting in person, please execute the enclosed proxy and return it promptly in
the enclosed envelope so that your shares will be represented. If you are able
to attend the meeting in person, your proxy can be canceled and the shares voted
in person at the meeting.
We hope you will participate in the annual meeting, either in person or by
proxy. Thank you for your continued interest in and support of Pentacon, Inc.
Sincerely,
/s/ MARK E. BALDWIN
Mark E. Baldwin
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
10375 Richmond Avenue, Suite 700, Houston, Texas 77042
<PAGE>
PENTACON, INC.
10375 Richmond Avenue, Suite 700
Houston, Texas 77042
(713) 860-1000
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 12, 1999
-------------------
Notice is hereby given that the annual meeting of the stockholders of
Pentacon, Inc. (the "Company") will be held at the Westchase Hilton and Towers,
9999 Westheimer Road, Houston, Texas, on Wednesday, May 12, 1999, at 9:00 a.m.,
Central Time, for the following purposes:
1. To elect three Class I Directors to serve until the third annual
meeting of stockholders following their election and until their
successors are elected and qualified; and
2. To consider and act upon such other business as may properly be
presented to the meeting or any adjournment thereof.
Holders of the Company's common stock and of the Company's restricted
common stock as of the close of business on March 29, 1999 are entitled to
notice of and to vote at the meeting or any adjournment thereof.
Please sign and date the enclosed proxy and return it promptly in the
enclosed envelope, regardless of whether you plan to attend the meeting in
person. No postage is required if the proxy is mailed in the United States. If
you do attend the meeting in person, you may withdraw your proxy and vote
personally on all matters brought before the meeting. The prompt return of
proxies will ensure a quorum and save the Company the expense of further
solicitation.
By Order of the Board of Directors
/s/ BRUCE M. TATEN
Bruce M. Taten
SENIOR VICE PRESIDENT AND SECRETARY
April 12, 1999
<PAGE>
PENTACON, INC.
========================================
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
========================================
INTRODUCTION
This proxy statement and the accompanying form of proxy are furnished in
connection with the solicitation of proxies by and on behalf of the Board of
Directors of Pentacon, Inc. (the "Company") in connection with the Annual
Meeting of stockholders to be held on Wednesday, May 12, 1999, and at any
adjournment thereof. The Annual Meeting will be held at 9:00 a.m. Central Time,
at the Westchase Hilton and Towers, 9999 Westheimer Road, Houston, Texas 77042.
This proxy statement and the accompanying form of proxy are being mailed to
stockholders of the Company on or about April 12, 1999.
When such proxy is properly executed and returned, the shares it
represents will be voted at the meeting in accordance with the directions
specified thereon. If no direction is specified, it will be voted in favor of
the election of the nominees named herein to the Board of Directors. Any proxy
may be revoked at any time before its exercise by written notice of the person
giving the proxy.
The cost of solicitation of proxies will be borne by the Company. In
addition to solicitations by mail, certain directors, officers or employees of
the Company may solicit proxies in person or by telephone. Upon request, the
Company will reimburse brokers, dealers, banks and trustees, or their nominees,
for reasonable expenses incurred by them in forwarding proxy materials to
beneficial owners of common shares and restricted common shares. An Annual
Report to Stockholders for the year ended September 30, 1998 and a "Transitional
Report" on Form 10-Q for the quarter ended December 31, 1998 are enclosed with
this Proxy Statement.
OUTSTANDING VOTING SHARES
As of March 29, 1999, the record date for the determination of
stockholders entitled to vote at the Annual Meeting, the Company had outstanding
16,666,115 shares of common stock, par value $0.01 per share (the "Common
Stock"), and 1,133,098 shares of restricted common stock, par value $0.01 per
share (the "Restricted Common Stock").
Each share of Common Stock entitles the holder to one vote on each matter
presented at the meeting. The holders of Restricted Common Stock, voting
together as a single class, are entitled to elect one member of the Company's
Board of Directors (a Class I Director), and are entitled to 0.25 of a vote per
share on all other matters on which the Common Stock is entitled to vote.
Holders of Restricted Common Stock are not entitled to vote on the election of
any other directors.
The presence, in person or by proxy, of at least a majority of the sum of
the outstanding shares of Common Stock and Restricted Common Stock is required
for a quorum. The affirmative vote of a majority of Common Stock and Restricted
Common Stock, respectively, represented and voted at the Annual Meeting is
required for election of directors and approval of any other matters brought
before the meeting. Abstentions and broker non-votes are counted for purposes of
determining the presence or absence of a quorum for the transaction of business.
Abstentions are counted in tabulations of the votes cast upon proposals
presented to stockholders, whereas broker non-votes are not counted for purposes
of determining whether a proposal has been approved.
<PAGE>
Votes will be tabulated by American Securities Transfer & Trust, Inc., the
transfer agent and registrar for the Company's stock, and the results will be
certified by election inspectors who are required to resolve impartially any
interpretive questions as to the conduct of the vote.
ELECTION OF DIRECTORS
The Company's Certificate of Incorporation groups the Company's Board of
Directors into three classes (Classes I, II, and III, respectively) with respect
to the time for which the directors in each class individually hold office. Each
class consists, as nearly as possible, of one-third of the entire Board. The
Company's Board of Directors is currently fixed at nine members.
At the meeting, three (3) Class I Directors will be elected, each director
to hold office until the third annual meeting of stockholders following his
election. Messrs. Baldwin and Taten, or their substitutes, have been designated
by the Board of Directors to vote the proxies granted to the Board of Directors
and, unless authority is withheld, they intend to vote for the election of the
nominees named below to the Board of Directors as Class I Directors. If any
nominee should become unavailable for election, the proxy may be voted for a
substitute nominee selected by the persons named in the proxy, or the Board may
be reduced accordingly; however, the Board of Directors is not aware of any
circumstances likely to render any nominee unavailable for election.
NOMINEES AND CONTINUING DIRECTORS
Certain information concerning the nominees, together with comparable
information for the Class II and Class III Directors, whose terms are not
expiring at the 1999 Annual Meeting, is set forth below. The Company has agreed
to nominate each of Messrs. List, Fatica, Spence, and Peters and Ms. McClure for
re-election upon any expiration of their terms occurring on or before March 9,
2003 (five years from the date of the Company's initial public offering).
NOMINEES - CLASS I DIRECTORS (TERMS EXPIRING AT THE 2002 ANNUAL MEETING OF
STOCKHOLDERS)
MARK E. BALDWIN Director since 1997
Mr. Baldwin, 45, became Chief Executive Officer of the Company in
September 1997 and became Chairman of the Board in November 1997. Mr. Baldwin
has been involved in the organization of the Company and the Company's initial
public offering. From 1980 through August 1997, Mr. Baldwin was employed by
Keystone International, Inc., a publicly traded manufacturer of industrial
valves and controls, serving most recently as President of the Industrial Valves
& Controls Group, a division with 17 manufacturing locations and multiple
company-owned sales and distribution locations in 15 countries. Mr. Baldwin is a
member of the Committee on Director Affairs and the Mergers and Acquisitions
Committee of the Company's Board of Directors.
CARY M. GROSSMAN Director since 1997
Mr. Grossman, 45, has been a director of the Company since March 1997. Mr.
Grossman co-founded McFarland, Grossman & Company, Inc. ("MGCO"), an investment
banking firm, in 1991, and serves as its Chief Executive Officer. MGCO formed
the Company in 1997 and sponsored the Company through its initial public
offering. From 1977 until 1991, Mr. Grossman was engaged in the practice of
public accounting. Mr. Grossman is a C.P.A. Mr. Grossman is a member of the
Committee on Director Affairs and the Audit Committee of the Company's Board of
Directors. Mr. Grossman also is a director of Omniplex Communications Group,
Inc.
Mr. Grossman is the director nominee for the Company's Restricted Common
Stock.
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<PAGE>
MARY E. MCCLURE Director since 1998
Ms. McClure, 58, became a director of the Company in March 1998. Ms.
McClure co-founded Capitol Bolt & Supply, Inc. in 1966 and has served as
Capitol's President since 1981. Ms. McClure has served as Chairman of the
Southwest Fastener Association and as Chairman/President of the National
Fastener Distributor Association. Ms. McClure has also been inducted into the
Fastener Hall of Fame. Ms. McClure is a member of the Mergers and Acquisitions
Committee of the Company's Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS
VOTE "FOR" THE ELECTION OF THE ABOVE-NAMED NOMINEES.
DIRECTORS CONTINUING IN OFFICE
CLASS II DIRECTORS
MICHAEL W. PETERS Director since 1998
Mr. Peters, 40, became a director of the Company in March 1998 and is
President of Pentacon Industrial Group, Inc. Mr. Peters has over 13 years of
experience in the fastener distribution business. He joined Maumee Industries,
Inc. in 1986 and has served as its Chief Executive Officer since July 1995.
BENJAMIN E. SPENCE, JR. Director since 1998
Mr. Spence, 45, became a director of the Company in March 1998. Mr. Spence
has over 22 years of experience in the fastener distribution business and has
served as President of Sales Systems, Limited since 1986.
CLAYTON K. TRIER Director since 1998
Mr. Trier, 47, became a director of the Company in March 1998. Mr. Trier
has served as Chairman, Chief Executive Officer, and President of RV Centers,
Inc., a company created to consolidate the highly fragmented recreational
vehicle retail industry, since October 1998. From April 1997 to October 1998,
Mr. Trier was a private investor. In 1993, he was a founder of U.S. Delivery
Systems, Inc. ("U.S. Delivery"), a company created to consolidate the highly
fragmented local delivery industry, and Mr. Trier served as Chairman and Chief
Executive Officer of U.S. Delivery from its inception until April 1997. In March
1996, U.S. Delivery, a NYSE-listed company at that time, was acquired by
Corporate Express, Inc., a large publicly owned office products company, and Mr.
Trier served as a director of Corporate Express, Inc. from the acquisition date
until January 1997. From 1991 to 1993, Mr. Trier was President of Trier &
Partners, Inc., a consulting firm. From 1987 through 1990, Mr. Trier served as
President and Co-Chief Executive Officer of Allwaste, Inc. ("Allwaste"), a
provider of industrial and environmental services listed on the NYSE. From 1974
to 1987, Mr. Trier was at the international accounting firm of Arthur Andersen &
Co., in which he was a partner from 1983 to 1987. Mr. Trier also serves as a
director of Creative Master International, Inc. (Nasdaq: CMST), a manufacturer
and distributor of collectible-quality, die-cast replicas of cars, trucks and
other items. Mr. Trier is a member of the Committee on Director Affairs, the
Mergers and Acquisitions Committee, the Compensation Committee and the Audit
Committee of the Company's Board of Directors.
CLASS III DIRECTORS
ROBERT M. CHISTE Director since 1998
Mr. Chiste, 51, became a director of the Company in March 1998. Mr. Chiste
is Chairman and Chief Executive Officer of Triactive Technologies, Inc. From
August 1997 to June 1998, Mr. Chiste was President of
3
<PAGE>
the Industrial Services Group of Philip Services Corp. He served as Vice
Chairman of Allwaste, a provider of industrial and environmental services, from
May 1997 through July 1997, President and Chief Executive Officer of Allwaste
from November 1994 through July 1997 and director of Allwaste from January 1995
through August 1997. Philip Services Corp. acquired Allwaste effective July 31,
1997. Mr. Chiste served as Chief Executive Officer and President of America
National Power, Inc., a successor company of Transco Energy Ventures Company,
from its creation in 1986 until August 1994. During the same period, he served
as Senior Vice President of Transco Energy Company. From 1980 to 1986, Mr.
Chiste served in various executive roles with Enron Oil & Gas and its
predecessor companies. Mr. Chiste also serves as a director of Innovative Valve
Technology, Inc. and of Franklin Credit Management Corp., a New York-based
financial services company. Mr. Chiste is a member of the Compensation Committee
and the Audit Committee of the Company's Board of Directors.
JACK L. FATICA Director since 1998
Mr. Fatica, 54, became President, Chief Operating Officer and director of
the Company in March 1998. Mr. Fatica has over 30 years of experience in the
fastener distribution business. He has been employed by AXS or its predecessors
since 1967 and currently serves as its Chief Executive Officer. Mr. Fatica is a
member of the Committee on Director Affairs of the Company's Board of Directors.
DONALD B. LIST Director since 1998
Mr. List, 43, became a director of the Company in March 1998 and is
President of Pentacon Aerospace Group, Inc. Mr. List has over 20 years of
experience in the fastener distribution business and has served as President of
Alatec Products, Inc. since 1981. Mr. List is a member of the Mergers and
Acquisitions Committee of the Company's Board of Directors.
BOARD AND COMMITTEE ACTIVITY AND STRUCTURE
During 1998, the Company's Board of Directors met on nine (9) occasions.
Committees of the Board held meetings as follows: Audit Committee - four (4)
meetings; Compensation Committee - one (1) meeting; and Committee on Director
Affairs - two (2) meetings. Each director attended at least 75% of all meetings
of the Board and each committee on which he or she served during the year.
AUDIT COMMITTEE. The Audit Committee is comprised of Messrs. Grossman,
Trier, and Chiste. The committee recommends the appointment of independent
auditors, reviews with the independent auditors the plan and results of the
auditing engagement, reviews the independence of the independent auditors,
considers the range of audit and nonaudit fees of the independent auditors and
reviews the adequacy of the Company's internal financial controls.
COMPENSATION COMMITTEE. The Compensation Committee is comprised of Messrs.
Chiste and Trier. The committee is responsible for setting the compensation and
benefit programs for key executives of the Company and makes determinations with
respect to the Company's 1998 Stock Plan.
COMMITTEE ON DIRECTOR AFFAIRS. The Committee on Director Affairs is
comprised of Messrs. Baldwin, Fatica, Grossman and Trier. The committee is
responsible for reviewing the functions and operation of the Board and its
committees, establishing and monitoring board governance policies and
procedures, evaluating the performance of directors and developing a pool of
potential future board nominees. Stockholders who may wish to suggest
individuals for possible future consideration for board positions should direct
recommendations to the Committee on Director Affairs at the Company's principal
offices.
DIRECTORS' COMPENSATION
Directors who are employees of the Company do not receive additional
compensation for serving as directors. Each director who is not an employee of
the Company receives an annual fee of $16,000 paid in
4
<PAGE>
equal quarterly amounts. Directors of the Company are reimbursed for
out-of-pocket expenses incurred in attending meetings of the Board of Directors
or committees thereof, and for other expenses incurred in their capacity as
directors of the Company. Each non-employee director receives stock options to
purchase 15,000 shares of Common Stock upon election to the Board of Directors
and an annual grant of 5,000 options. Mr. Grossman was appointed Lead Director
for 1999 for which he is to receive an additional $10,000 and options to
purchase 10,000 shares of Common Stock. In March 1998 Messrs. Chiste and Trier
each purchased 10,000 shares of Common Stock at $10.00 per share and the Company
granted each of Messrs. Chiste and Trier 10,000 shares of Common Stock pursuant
to restricted stock grants under the 1998 Stock Plan.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
Common Stock as of February 28, 1999, by (i) all persons known to the Company to
be the beneficial owner of 5% or more thereof, (ii) each director and nominee
for director, (iii) each executive officer and (iv) all officers and directors
as a group.
SHARES BENEFICIALLY OWNED
-------------------------
BENEFICIAL OWNER NUMBER PERCENT
- ---------------- --------- -------
Donald B. List (1) .................................. 2,979,493 17.9%
Jack L. Fatica (2) .................................. 1,043,220 6.3
Generations Family Limited Partnership (3) .......... 901,321 5.4
Wellington Management Company, LLP (4) .............. 835,000 5.0
Cary M. Grossman (5) ................................ 358,615 2.2
Michael W. Peters ................................... 297,441 1.8
Benjamin E. Spence, Jr. (6) ......................... 253,332 1.5
Mark E. Baldwin ..................................... 207,100 1.2
Mary E. McClure (7) ................................. 184,470 1.1
Brian Fontana ....................................... 133,000 *
Bruce M. Taten ...................................... 132,000 *
Clayton K. Trier (8)(9) ............................. 45,000 *
Robert M. Chiste (8) ................................ 20,000 *
All officers and directors as a group (14 persons)... 5,735,476 34.4%
- ------------
* Less than one percent.
(1) Includes an aggregate of 76,248 shares of Common Stock held by three
trusts for the benefit of Mr. List's minor children. Mr. List disclaims
any beneficial ownership of the shares owned by the trusts. Mr. List's
address is c/o Pentacon, Inc., 10375 Richmond Avenue, Suite 700, Houston,
Texas 77042.
(2) Includes 92,782 shares of Common Stock owned by the Jason P. Fatica Trust
and 92,782 shares of Common Stock owned by the Ryan A. Fatica Trust of
which Mr. Fatica is co-trustee. Mr. Fatica's address is c/o Pentacon,
Inc., 10375 Richmond Avenue, Suite 700, Houston, Texas 77042.
(3) Represents shares of Common Stock owned by the Generations Family Limited
Partnership of which Mr. Michael Black is General Partner. The Partnership
address is 4648 Craftsbury Circle, Fort Wayne, Indiana, 46818.
(4) Wellington Management Company, LLP ("WMC") in its capacity as investment
adviser may be deemed to beneficially own 835,000 shares of Common Stock
which are held of record by clients of WMC. WMC's address is 75 State
Street, Boston, Massachusetts, 02109.
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<PAGE>
(5) Consists of 152,000 shares owned directly by Mr. Grossman; 193,304 shares
owned by a family limited partnership of which Mr. Grossman is a general
partner; 12,875 shares owned by McFarland, Grossman & Company, Inc.; and
436 shares owned by Mr. Grossman's children. Mr. Grossman disclaims
beneficial ownership of shares held by the family limited partnership,
McFarland, Grossman & Company, and his children.
(6) Includes 4,350 shares of Common Stock owned by the Morgan E. Spence Trust
and 4,350 shares of Common Stock owned by the Alison R. Spence Trust of
which Mr. Spence is the trustee.
(7) Includes 84,243 shares of Common Stock owned by the Earl Milton McClure,
Jr. Residuary Trust of which Ms. McClure is trustee.
(8) Includes 10,000 shares of Common Stock granted as a restricted stock grant
under the 1998 Stock Plan.
(9) Includes 2,000 shares of Common Stock owned by the KKT Trust and 2,000
shares of Common Stock owned by the JCT Trust of which Mr. Trier is
trustee.
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<PAGE>
EXECUTIVE OFFICERS
The following table presents compensation information for the Company's
Chief Executive Officer and five additional most highly compensated executive
officers (the "Named Executive Officers") for the year ended December 31, 1998.
The Company was incorporated in March 1997 but did not conduct any business
operations until March 1998. As a result, none of the Named Executive Officers
received any compensation from the Company prior to March 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------- --------------------------------------------------
AWARDS
-----------------------------------
SECURITIES
RESTRICTED UNDERLYING OPTION PAYOUTS ALL OTHER
NAME AND PRINCIPAL POSITION SALARY(1) BONUS STOCK AWARD(S) PLANS/SARS LTIP PAYOUTS COMPENSATION
- --------------------------- --------- ----- -------------- ----------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Mark E. Baldwin ............ $121,500 -0- -0- 185,000 -0- -0-
Chairman and Chief
Executive Officer (2)
Jack L. Fatica ............. $121,500 -0- -0- -0- -0- $ 13,700
President and Chief
Operating Officer (2)
Donald B. List ............. $121,500 -0- -0- -0- -0- $ 14,000
President, Pentacon
Aerospace Group, Inc. (2)
Michael W. Peters .......... $121,500 -0- -0- -0- -0- $ 14,500
President, Pentacon
Industrial Group, Inc. (2)
Bruce M. Taten ............. $121,500 -0- -0- 100,000 -0- -0-
Senior Vice President, Chief
Administrative Officer,
General Counsel and
Secretary (3)
Brian Fontana .............. $121,500 -0- -0- 85,000 -0- -0-
Senior Vice President and
Chief Financial Officer (4)
</TABLE>
- --------------------
(1) Each of the Named Executive Officer's salaries are based on annual salaries
of $150,000.
(2) For biographies of Messrs. Baldwin, Fatica, List and Peters, see "Nominees
and Continuing Directors" above.
(3) Mr. Taten, 43, joined the Company in October 1997. From 1993 to 1997, Mr.
Taten was employed by Keystone International, Inc., most recently as Vice
President and General Counsel. From 1988 to 1993, Mr. Taten practiced law
with Sutherland Asbill & Brennan, a law firm based in Atlanta, Georgia.
From 1983 to 1986, Mr. Taten practiced law with the New York firm of
Simpson, Thacher & Bartlett. Mr. Taten is a C.P.A. and an attorney.
(4) Mr. Fontana, 41, joined the Company in October 1997. From 1996 to 1997, Mr.
Fontana served as Executive Vice President and Chief Financial Officer of
Prime Service, Inc. one of the largest rental equipment companies in the
United States. From 1990 to 1996, he was employed by National Convenience
Stores Incorporated, most recently as Vice President and Chief Financial
Officer. From 1985 to 1990, Mr. Fontana was employed by NationsBank as a
Vice President of Corporate Banking and earlier by Allied Bank of Texas as
Assistant Vice President.
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<PAGE>
OPTION GRANTS
The following table sets forth information with respect to stock options
granted in 1998 under the Company's 1998 Stock Plan to the Named Executive
Officers.
<TABLE>
<CAPTION>
PERCENT OF
TOTAL OPTIONS
NUMBER OF SECURITIES GRANTED TO EXERCISE POTENTIAL REALIZABLE VALUE AT
UNDERLYING OPTIONS EMPLOYEES IN PRICE PER ASSUMED RATES OF STOCK PRICE
NAME GRANTED FISCAL YEAR SHARE EXPIRATION DATE APPRECIATION FOR OPTION TERM (2)
---- -------- ----------- ----- --------------- --------------------------------
5% 10%
<S> <C> <C> <C> <C> <C> <C> <C>
Mark E. Baldwin (1)..... 185,000 16.76% $10 March 10, 2008 $1,163,446 $2,948,419
Jack L. Fatica ......... -0- -- -- -- -- --
Donald B. List ......... -0- -- -- -- -- --
Michael W. Peters ...... -0- -- -- -- -- --
Bruce M. Taten (1) ..... 100,000 9.06% $10 March 10, 2008 $628,890 $1,593,740
Brian Fontana (1) ...... 85,000 7.70% $10 March 10, 2008 $534,556 $1,354,679
</TABLE>
- ------------
(1) The options awarded to Messrs. Baldwin, Taten, and Fontana were issued in
connection with the initial public offering of the Company and vest
one-third on March 10, 2000 and the remainder on March 10, 2001.
(2) The SEC requires disclosure of the potential realizable value or present
value of each grant. This disclosure assumes the options were be held for
the full term prior to exercise. These options may be exercised prior to
the end of the term. The actual value, if any, an executive officer may
realize will depend upon the excess of the stock price over the exercise
price or the date the option is exercised. There can be no assurance that
the stock price will appreciate at the rates shown in the table.
OPTION EXERCISES AND YEAR-END VALUES
The following table sets forth information with respect to the value of
unexercised options held by Named Executive Officers of the Company. No options
were exercised by the Named Executive Officers of the Company during the year
ended December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING
UNEXERCISED OPTIONS HELD AT VALUE OF UNEXERCISED IN-THE-MONEY
DECEMBER 31, 1998 OPTIONS HELD AT DECEMBER 31, 1998
--------------------------------- -------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Mark E. Baldwin ............. -0- 185,000 -0- -0-
Jack L. Fatica .............. -0- -0- -0- -0-
Donald B. List .............. -0- -0- -0- -0-
Michael W. Peters ........... -0- -0- -0- -0-
Bruce M. Taten .............. -0- 100,000 -0- -0-
Brian Fontana ............... -0- 85,000 -0- -0-
</TABLE>
8
<PAGE>
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each Named
Executive Officer of the Company that prohibit such officers from disclosing the
Company's confidential information and trade secrets and generally restrict
these individuals from competing with the Company for a period of two years
after the termination of their respective employment agreements. Messrs.
Baldwin's, Fatica's, Peters' and List's employment agreements have an initial
term of five years commencing March 10, 1998. The agreements for Messrs. Taten
and Fontana have an initial term of three years commencing March 10, 1998. All
of the employment agreements are terminable by the Company for "good cause" upon
ten days' written notice and without "cause" or for "good reason" by the officer
upon thirty days' written notice. All employment agreements provide that if the
officer's employment is terminated by the Company without "good cause," such
officer will be entitled to receive a lump-sum severance payment at the
effective time of termination.
All of the employment agreements contain certain provisions concerning a
change-in-control of the Company, including the following: (i) in the event that
the executive is not notified by the acquiring company that it will assume the
Company's obligations under the employment agreement at least five days in
advance of the transaction giving rise to the change-in-control, the
change-in-control will be deemed a termination of the employment agreement by
the Company without "cause," and the provisions of the employment agreement
governing the same will apply, except that the severance amount otherwise
payable shall be tripled and the provisions which restrict competition with the
Company shall not apply; and (ii) in any change-in-control situation, such
officer may elect to terminate his employment by giving ten days' written notice
prior to the anticipated closing of the transaction giving rise to the
change-in-control, which will be deemed a termination of the employment
agreement by the Company without "cause," and the provisions of the employment
agreement governing the same will apply, except that the severance amount
otherwise payable shall be doubled and the time period during which such officer
is restricted from competing with the Company will be eliminated.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors of the Company sets the
level of compensation and benefits for the Company's executive officers and key
managers and oversees the administration of executive compensation programs. The
Compensation Committee is composed solely of independent directors.
The Compensation Committee believes the Company's compensation policies should
be designed to (i) attract and retain senior executives who will contribute to
the long-term success and growth of the Company; (ii) reward executives for
increased profitability and resulting increased stockholder value by aligning
the financial interests of senior executives with those of stockholders; (iii)
provide equitable compensation within a competitive framework of comparable
companies; and (iv) emphasize the importance of stockholder interest through the
awards of equity-based incentives, such as restricted stock and options to key
executive officers.
The base salaries paid to the Named Executive Officers were paid pursuant to
employment agreements entered into in connection with the Company's initial
public offering. The Committee believes that these salaries are comparable to
the base salaries paid in the initial year of operations by comparable start-up
companies. As part of its responsibilities and as the Company grows from its
start-up phase, the Committee will review the salaries for the Company's
executive officers and other key executives. The Committee will base individual
salary changes on a combination of factors, such as the performance of the
particular executive, salary levels relative to the competitive market, level of
responsibility, growth of the Company's operations, and the recommendation of
the Chief Executive Officer.
In accordance with the employment agreements entered into with the Company's
executive officers, the executive officers were eligible to receive bonuses for
1998 if certain performance targets established by the Committee and related to
the Company's per share earnings were achieved. Because those performance
targets were not met, no bonuses were paid to the executive officers for the
year ended December 31, 1998.
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Mr. Baldwin's annualized base salary for 1998 was $150,000, as set by his
employment agreement with the Company entered into in connection with the
Company's initial public offering.
THE COMPENSATION COMMITTEE
Robert M. Chiste, Chairman
Clayton K. Trier
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended December 31, 1998, no officer or employee of the
Company or any of its subsidiaries served as (i) a member of the Compensation
Committee; (ii) a member of the compensation committee (or other board committee
or full board performing equivalent functions) of another entity, one of whose
executive officers served on the Board of Directors of the Company; or (iii) a
director of another entity, one of whose executive officers served on the Board
of Directors of the Company.
COMMON STOCK PERFORMANCE GRAPH
The following performance graph compares the Company's cumulative total
stockholder return on its Common Stock with the cumulative total return of (i)
the Russell 2000, and (ii) the Industrial Equipment Wholesale Index. The Company
believes that because the number of publicly traded companies which it considers
to be industry competitors is limited and because the investment community
generally categorizes the Company together with the industrial equipment
wholesalers, the Industrial Equipment Wholesale Index will provide an
appropriate comparison of cumulative total return for its stockholders. The
cumulative total return computations set forth in the Performance Graph assume
the investment of $100 in the Company's Common Stock, the Industrial Equipment
Wholesale Index and the Russell 2000 on March 10, 1998. [OBJECT OMITTED]
CUMULATIVE TOTAL RETURN
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
3/31 6/30 9/30 12/31
------ ----- ----- -----
Pentacon, Inc. 140.00 118.75 63.75 43.13
Russell 2000 103.46 98.44 78.26 90.82
Industrial Equipment Wholesale Index 106.15 91.61 60.67 57.81
10
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The companies that comprise the Industrial Equipment Wholesale Index are:
Abatix Environmental Corp., Airgas, Inc., American Aircarriers Support, Inc.,
Applied Industrial Technologies, Inc., Aviation Sales Company, AVTEAM, Inc.,
CanArgo Energy Corporation, CE Franklin Ltd., Central Garden & Pet Company,
China Resources Development, Inc., DXP Enterprises, Inc., Global Industrial
Technologies, Inc., Hirsch International Corp., Industrial Distribution Group,
Inc., Industrial Holdings, Inc., Innovative Valve Technologies, Inc., INOTEK
Technologies Corp., International Airline Support Group, Inc., JLK Direct
Distribution Inc., Kaman Corporation, Mitcham Industries, Inc., MSC Industrial
Direct Co. Inc., National-Oilwell, Inc., PEC Israel Economic Corporation,
Pentacon, Inc., Polyphase Corporation, RDO Equipment Co., Speizman Industries,
Inc., Western Power & Equipment Corp., White Cap Industries, Inc.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ORGANIZATION OF THE COMPANY
Simultaneously with the closing of its initial public offering in March
1998, the Company acquired by merger all of the issued and outstanding capital
stock of Alatec Products, Inc., AXS Solutions, Inc., Capitol Bolt & Supply,
Inc., Maumee Industries, Inc. and Sales Systems Ltd. (the "Founding Companies"),
at which time each Founding Company became a wholly owned subsidiary of the
Company. The aggregate consideration paid by the Company to acquire the Founding
Companies consisted of (i) approximately $21.9 million in cash (net of cash
acquired) and (ii) 6,720,000 shares of common stock. In addition, certain
indebtedness of the Founding Companies, which was personally guaranteed by the
stockholders of those companies, was repaid in connection with the Company's
initial public offering.
In connection with the initial public offering, certain officers,
directors and holders of more than 5% of the outstanding shares of the Company,
together with trusts for which they act as trustees, received cash and shares of
Common Stock of the Company as described in the following table. These amounts
do not include any S-corporation distributions which were made by certain of the
Founding Companies to their stockholders prior to the initial public offering.
SHARES OF
CASH COMMON STOCK
--------- --------------
(In thousands of dollars,
except share amounts)
Donald B. List............................ $12,666 2,969,493
Jack L. Fatica............................ 3,423 802,656
Michael Black............................. 3,844 901,321
Benjamin E. Spence, Jr.................... 1,170 232,132
Mary E. McClure........................... 661 154,898
------- ---------
Total............................ $21,764 5,060,500
======= =========
On November 18, 1997, and in connection with the initial formation of the
Company, the Company sold 200,000, 125,000 and 125,000 shares of Common Stock of
the Company to Messrs. Baldwin, Taten and Fontana, respectively, for $0.01 per
share.
LEASES OF REAL PROPERTY
Alatec Products, Inc. ("Alatec"), a subsidiary of the Company, leases
certain of its facilities located in California from Mr. List, a director of the
Company. The leases provide for a total annual rent of $462,840 with the terms
of the leases expiring in March 2012. Alatec also pays taxes and utilities on
the leased premises. The rent will be adjusted in accordance with the Consumer
Price Index ("CPI"), subject to a minimum of 4% and a maximum of 8%. In
addition, Alatec leases its warehouse in Fremont, California from FDR
Properties, an entity controlled and partially owned by Mr. List. This lease
expires August 31, 2003 and provides for an annual rent
11
<PAGE>
of $126,000. Alatec also pays taxes and utilities on those premises. The Company
leases from the List Family Trust an office and warehouse in Chatsworth,
California. The lease provides for an annual rental of $170,832 and terminates
in October 2012. Alatec also pays utilities and taxes on the premises. The
Company believes that the rent for each of these properties does not exceed fair
market value.
AXS Solutions, Inc, a subsidiary of the Company, leases certain real
property located in Erie, Pennsylvania from JFJ Realty Company, an entity owned
in part by Mr. Fatica, a director and officer of the Company. The lease for the
property runs through August 2006 and provides for an annual rent of $240,000
through August 30, 2001. Beginning September 1, 2001, the rent will be adjusted
to fair market value as determined on February 1, 2001. Furthermore, AXS
Solutions, Inc. pays taxes and utilities on the leased premises. The Company
believes that the rent for this property does not exceed fair market value.
Sales Systems Limited ("SSL"), a subsidiary of the Company, leases certain
real properties located in Chester, South Carolina from Chester Associates, LLC,
an entity owned in part by Mr. Spence, a director of the Company. One facility
in Chester, South Carolina is leased for an initial five-year term expiring
December 31, 2002, with an option to extend the lease for an additional
five-year term. The annual rent for the first year of this lease is $61,250. The
rent will increase each subsequent year of the lease based on the CPI, not to
increase more than 4%. SSL is responsible for utilities. Also, certain warehouse
space in South Carolina is leased to SSL by Chester Associates, LLC. This
warehouse is leased for an initial five-year term expiring December 31, 2002,
with an option to extend for an additional five-year term. The annual rent for
the first year of this lease is $55,000, with subsequent rental rates to
increase per the CPI, not to exceed 4% in any one year. SSL is responsible for
utilities. The Company believes that the rent for these properties does not
exceed fair market value.
OTHER TRANSACTIONS
Mr. List owns approximately 50% of a supplier from which the Company
purchased approximately $1.8 million of products during the fiscal year ended
September 30, 1998. The Company believes all such purchases have been at fair
market prices. The Company anticipates continuing to purchase products from the
supplier in the future so long as the prices and terms remain competitive with
those of alternative suppliers.
In March 1998, Mr. Fatica acquired certain life insurance policies from
AXS for the cash surrender value of the policy.
Mr. Grossman is a principal in McFarland, Grossman & Company ("MG&C"), an
investment banking and advisory firm. The Company engaged the services of an
employee of MG&C from March 10, 1998 until July 10, 1998 to assist the Company
with the development of its mergers and acquisition activities until the Company
could employ an individual to assume that function. Pursuant to this agreement,
the Company paid MG&C fees in the amount of $300,000 during the year ended
December 31, 1998. The Company also paid MG&C fees for the year ended December
31, 1998 in the amount of $600,000 in connection with the placement of the
Company's initial credit facility and $12,500 for consulting services rendered
in connection with the Company's high-yield offering (which was completed in
1999). The Company entered into an indemnity agreement with certain principals
of MG&C in connection with the initial public offering and the conduct of audit
procedures at certain of the Founding Companies.
All of the directors of Pentacon, other than Messrs. Grossman, Chiste and
Trier, are employees of Pentacon or one of its subsidiaries and as such receive
employment-based consideration and benefits from the Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, executive officers and persons holding more than ten
percent of a registered class of the Company's equity securities to file with
the Securities and Exchange Commission and any stock exchange or automated
quotation system on
12
<PAGE>
which the Common Stock may then be listed or quoted (i) initial reports of
ownership, (ii) reports of changes in ownership, and (iii) annual reports of
ownership of Common Stock and other equity securities of the Company. Such
directors, officers and ten-percent holders are also required to furnish the
Company with copies of all such reports.
Based solely upon review of such reports and written representations that
no other reports were required during 1998, the Company believes that all
Section 16 reporting requirements related to the Company's directors and
executive officers were timely filed during 1998.
AUDITORS
Ernst & Young LLP, a certified public accounting firm, has served as the
independent auditor of the Company. While management anticipates that this
relationship will continue to be maintained during 1999, no formal action is
proposed to be taken at the annual meeting with respect to the continued
engagement of Ernst & Young LLP inasmuch as no such action is legally required.
A representative of Ernst & Young LLP plans to attend the annual meeting and
will be available to answer questions. The representative also will have an
opportunity to make a statement at the meeting if he so desires, although it is
not expected that any statement will be made.
The Audit Committee of the Board of Directors assists the Board in
assuring that the accounting and reporting practices of the Company are in
accordance with all applicable requirements. The Committee reviews with the
auditors the scope of the proposed audit work and meets with the auditors to
discuss matters pertaining to the audit and any other matter which the Committee
or the auditors may wish to discuss. In addition, the Audit Committee would
recommend the appointment of new auditors to the Board of Directors if future
circumstances were to indicate that such action is desirable.
LIMITATION ON INCORPORATION BY REFERENCE
Notwithstanding any reference in prior or future filings of the Company
with the Securities and Exchange Commission which purports to incorporate this
proxy statement by reference into another filing, such incorporation shall not
include any material included herein under the captions "Compensation Committee
Report on Executive Compensation" or "Common Stock Performance Graph."
DEADLINE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
Under the Company's bylaws, any Stockholder who wishes to submit a
proposal for action to be considered at the Company's 2000 Annual Meeting of
stockholders must submit such proposal in writing to the Secretary of the
Company no later than 80 days before the 2000 Annual Meeting of Stockholders. If
you do not provide the proper notice by 80 days prior to the date established
for the 2000 Annual Meeting, the Chairman of the meeting may exclude the matter,
and it will not be acted upon at the meeting. If the Chairman does not exclude
the matter, the proxies may vote in the manner they believe appropriate, as the
SEC's rules allow.
For a stockholder proposal to be considered for possible inclusion in the
proxy statement for the 2000 Annual Meeting, the proposal must be received by
the Company's Secretary no later than December 9, 1999. A nomination or proposal
that does not supply adequate information about the nominee or proposal will be
disregarded.
13
<PAGE>
REPORTS
A copy of the Company's Annual Report on Form 10-K for the year ended
September 30, 1998 and a "Transitional Report" on Form 10-Q for the quarter
ended December 31, 1998, as filed with the Securities and Exchange Commission,
including the financial statements and the financial statement schedules
thereto, are included in the Annual Report to Stockholders mailed to each
Stockholder entitled to vote at the Meeting. The Company will furnish to any
such person any exhibit described in the list accompanying the Form 10-K, upon
payment, in advance, of the specified reasonable fees related to the Company's
furnishing of such exhibit(s). Requests for copies of such reports and/or
exhibits should be directed to Investor Relations, Pentacon, Inc., 10375
Richmond Avenue, Suite 700, Houston, Texas 77042.
By Order of the Board of Directors
/s/ BRUCE M. TATEN
BRUCE M. TATEN
SENIOR VICE PRESIDENT AND SECRETARY
April 12, 1999
14
<PAGE>
FRONT SIDE OF PROXY
PROXY
PENTACON, INC.
SOLICITED BY THE BOARD OF DIRECTORS FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 12, 1999
The undersigned hereby appoints Mark E. Baldwin and Bruce M. Taten, and each
of them individually, as proxies with full power of substitution, to vote all
shares of Common Stock of Pentacon, Inc. that the undersigned is entitled to
vote at the Annual Meeting of Stockholders thereof to be held on Wednesday, May
12, 1999 at the Westchase Hilton and Towers, 9999 Westheimer Road, Houston,
Texas, or at any adjournment or postponement thereof, as follows:
Any executed proxy which does not designate a vote shall be deemed to grant
authority for any item not designated.
PROPOSAL 1: ELECTION OF DIRECTORS
[ ] FOR ALL nominees listed below [ ] WITHHOLD AUTHORITY to vote for all
nominees listed below.
Mark E. Baldwin and Mary McClure to hold office until the 2002 Annual
Meeting and until their successors are elected and qualified.
INSTRUCTION: To withhold authority to vote for any individual nominee or
nominees, write the appropriate name or names in the space provided herein.
___________________________________________________
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
BACK SIDE OF PROXY
ALL SHARES WILL BE VOTED AS DIRECTED HEREIN AND, UNLESS OTHERWISE DIRECTED,
WILL BE VOTED "FOR" PROPOSAL I (ALL NOMINEES) AND IN ACCORDANCE WITH THE
DISCRETION OF THE PERSON VOTING THE PROXY WITH RESPECT TO ANY OTHER BUSINESS
PROPERLY BROUGHT BEFORE THE MEETING.
YOU MAY REVOKE THIS PROXY AT ANY TIME PRIOR TO A VOTE THEREON.
DATED: _______________________________, 1999
_____________________________________________
Signature
_____________________________________________
Signature, if held jointly
Please sign exactly as name appears on this
card. Joint owners should each sign.
Executors, administrators, trustees, etc.,
should give their full titles.
PLEASE COMPLETE, SIGN AND PROMPTLY MAIL THIS PROXY IN THE ENCLOSED ENVELOPE.
<PAGE>
FRONT SIDE OF PROXY
PROXY
PENTACON, INC.
SOLICITED BY THE BOARD OF DIRECTORS FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 12, 1999
The undersigned hereby appoints Mark E. Baldwin and Bruce M. Taten, and each
of them individually, as proxies with full power of substitution, to vote all
shares of Restricted Common Stock of Pentacon, Inc. that the undersigned is
entitled to vote at the Annual Meeting of Stockholders thereof to be held on
Wednesday, May 12, 1999 at the Westchase Hilton and Towers, 9999 Westheimer
Road, Houston, Texas, or at any adjournment or postponement thereof, as follows:
Any executed proxy which does not designate a vote shall be deemed to grant
authority for any item not designated.
PROPOSAL 1: ELECTION OF RESTRICTED COMMON STOCK DIRECTOR
[ ] FOR the nominee listed below [ ] WITHHOLD AUTHORITY to the nominee
listed below.
Cary M. Grossman to hold office until the 2002 Annual Meeting and until his
successor is elected and qualified.
INSTRUCTION: To withhold authority to vote for any individual nominee or
nominees, write the appropriate name or names in the space provided herein.
___________________________________________________
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
BACK SIDE OF PROXY
ALL RESTRICTED SHARES WILL BE VOTED AS DIRECTED HEREIN AND, UNLESS OTHERWISE
DIRECTED, WILL BE VOTED "FOR" PROPOSAL I (RESTRICTED COMMON STOCK DIRECTOR)
AND IN ACCORDANCE WITH THE DISCRETION OF THE PERSON VOTING THE PROXY WITH
RESPECT TO ANY OTHER BUSINESS PROPERLY BROUGHT BEFORE THE MEETING.
YOU MAY REVOKE THIS PROXY AT ANY TIME PRIOR TO A VOTE THEREON.
DATED: _______________________________, 1999
_____________________________________________
Signature
_____________________________________________
Signature, if held jointly
Please sign exactly as name appears on this
card. Joint owners should each sign.
Executors, administrators, trustees, etc.,
should give their full titles.
PLEASE COMPLETE, SIGN AND PROMPTLY MAIL THIS PROXY IN THE ENCLOSED ENVELOPE.
