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:
______________________________________________
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PENTACON, INC.
April 10, 2000
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 10, 2000, at the
Millennium Tower, 10375 Richmond Avenue, 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 December 31, 1999 is also 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 10, 2000
-------------------
Notice is hereby given that the annual meeting of the stockholders of
Pentacon, Inc. (the "Company") will be held at the Millennium Tower, 10375
Richmond Avenue, Houston, Texas, on Wednesday, May 10, 2000, at 9:00 a.m.,
Central Time, for the following purposes:
1. To elect three Class II 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 14, 2000 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 10, 2000
<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 10, 2000, and at any
adjournment thereof. The Annual Meeting will be held at 9:00 a.m., Central Time,
at the Millennium Tower, 10375 Richmond Avenue, Houston, Texas 77042. This proxy
statement and the accompanying form of proxy are being mailed to stockholders of
the Company on or about April 10, 2000.
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 December 31, 1999 is enclosed with
this Proxy Statement.
OUTSTANDING VOTING SHARES
As of March 14, 2000, the record date for the determination of
stockholders entitled to vote at the Annual Meeting, the Company had outstanding
16,373,529 shares of common stock, par value $0.01 per share (the "Common
Stock") and 307,732 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. At the May 12, 1999 Annual Meeting,
the holders of Restricted Common Stock elected Cary M. Grossman as a Class I
director. Mr. Grossman's term will expire at the 2002 Annual Meeting. 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 represented and
voted at the Annual Meeting is required for election of directors and the
affirmative vote of the majority of votes cast at the Annual Meeting is required
for approval of any other matters brought before the meeting. Cumulative voting
for the election of directors is not permitted. Abstentions and broker non-votes
are counted for purposes of determining the presence or absence of a quorum for
the
<PAGE>
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.
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 II 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 II
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 I and Class III Directors, whose terms are not
expiring at the 2000 Annual Meeting, is set forth below. The Company has agreed
to nominate each of Messrs. List, Fatica, and Spence 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 II DIRECTORS (TERMS EXPIRING AT THE 2003 ANNUAL MEETING OF
STOCKHOLDERS)
JACK L. FATICA Director since 1998
Mr. Fatica, 55, became President, Chief Operating Officer and director of
the Company in March 1998 and Vice Chairman of the Company in May 1999. Mr.
Fatica has over 30 years of experience in the fastener distribution business. He
has been employed by the Company or its predecessors since 1967. Mr. Fatica is a
member of the Mergers and Acquisitions Committee of the Company's Board of
Directors.
BENJAMIN E. SPENCE, JR. Director since 1998
Mr. Spence, 46, became a director of the Company in March 1998. Mr. Spence
has over 23 years of experience in the fastener distribution business and has
served as President of Sales Systems Limited since 1986.
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<PAGE>
CLAYTON K. TRIER Director since 1998
Mr. Trier, 48, became a director of the Company in March 1998. Since April
1997 Mr. Trier has been 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., 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 and the Audit 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 I DIRECTORS (TERMS EXPIRING AT THE 2002 ANNUAL MEETING OF STOCKHOLDERS)
MARK E. BALDWIN Director since 1997
Mr. Baldwin, 46, became Chief Executive Officer of the Company in
September 1997 and became Chairman of the Board in November 1997. 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 of the Company's Board of Directors.
CARY M. GROSSMAN Director since 1997
Mr. Grossman, 46, 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
Compensation Committee and the Audit Committee of the Company's Board of
Directors. Mr. Grossman also is a director of Omniplex Communications Group,
Inc.
MARY E. MCCLURE Director since 1998
Ms. McClure, 59, 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.
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<PAGE>
CLASS III DIRECTORS (TERMS EXPIRING AT THE 2001 ANNUAL MEETING OF STOCKHOLDERS)
ROBERT M. CHISTE Director since 1998
Mr. Chiste, 52, became a director of the Company in March 1998. Mr. Chiste
is currently involved with several Internet related businesses. Since September
1999 he has served as Chairman of FuelQUEST, Inc., a development stage B2B
e-commerce enterprise focusing on commerce, content and community within the
$200 billion industry of fuels, lubricants, propane and solvents. Since
September 1999 Mr. Chiste has also served as the Chairman, President and Chief
Executive Officer of FuelONE, Inc., an ongoing consolidation of fuel and
lubricant wholesale distribution companies with annual projected revenues in
excess of $1 billion. FuelONE is a minority owner of FuelQUEST. From July 1998
to August 1999, Mr. Chiste has served as Chief Executive Officer of TriActive,
Inc., a venture funded Application Service Provider providing systems management
services over the Internet to mid-sized companies. Since July 1998 Mr. Chiste
has served as Chairman of the Board of Directors of TriActive, Inc. Mr. Chiste
is a co-founder of FuelQUEST, FuelONE and TriActive as well as a founding
investor in iMark.com, a leading auction site for industrial equipment. Mr.
Chiste was the President, Industrial Services Group, of Philip Services Corp.
from August 1997 to June 1998. He served as Vice Chairman of Allwaste, Inc., 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 a 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 American 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 held
several executive positions with Enron Corp. and its successor companies. Mr.
Chiste also serves as a director of Franklin Credit Management Corp., a New
York-based financial services company. Mr. Chiste received a B.A. in mathematics
from the College of New Jersey, as well as J.D. and a M.B.A. degrees from
Rutgers University. Mr. Chiste is a member of the Compensation Committee and the
Committee on Director Affairs of the Company's Board of Directors.
DONALD B. LIST Director since 1998
Mr. List, 44, 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.
NISHAN TESHOIAN Director since 1999
Mr. Teshoian, 58, became a director of the Company in July 1999. Since
July 1999 Mr. Teshoian has been a private investor. From January 1998 until July
1999, Mr. Teshoian served as President and Chief Operating Officer of Coltec
Industries, Inc. (which was acquired by The BF Goodrich Company in July 1999).
Mr. Teshoian was Chairman of the Board and Chief Executive Officer of Keystone
International, Inc. from August 1995 until December 1997. Prior thereto, he was
employed by Cooper Industries, Inc. for eighteen years in a series of
successively more responsible management positions culminating in his election
in 1993 as Executive Vice President of Operations-Tools and Hardware. Mr.
Teshoian is a member of the Audit Committee and Compensation Committee of the
Company's Board of Directors.
BOARD AND COMMITTEE ACTIVITY AND STRUCTURE
During 1999, the Company's Board of Directors met on eight (8) occasions.
Committees of the Board held meetings as follows: Audit Committee - six (6)
meetings; Compensation Committee - two (2) meetings; and Committee on Director
Affairs - three (3) 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.
4
<PAGE>
AUDIT COMMITTEE. The Audit Committee is comprised of Messrs. Grossman,
Teshoian, and Trier. 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, Grossman, and Teshoian. 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, Chiste, 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. From January 1 through November 4, 1999,
directors who were not employees of the Company received the compensation
indicated below:
Annual Retainer (payable in quarterly cash installments) $16,000
Meeting Fees -0-
Annual Award of Stock Options (number of units) 5,000
The Company changed its compensation package for nonemployee directors
effective November 4, 1999 to the levels indicated below:
Annual Retainer (payable in Common Stock) $16,000
Attendance at Board or Committee Meeting:
Committee Member $ 500
Committee Chairperson $ 1,000
Board Meeting $ 1,000
Lead Director:
(payable in cash) $ 4,000
(payable in stock) $ 4,000
Annual Award of Stock Options (number of units) 5,000
Nonemployee directors also 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 nonemployee director receives stock options to purchase 15,000 shares of
Common Stock upon election to the Board of Directors. Mr. Grossman was elected
Lead Director for the May 1999/May 2000 period.
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<PAGE>
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 29, 2000, 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 PERCENT
NUMBER OF CLASS
----------- ----------
Donald B. List (1)............................. 2,979,493 17.8%
Jack L. Fatica (2)............................. 1,136,003 6.8%
Generations Family Limited Partnership (3)..... 901,321 5.4%
Jeffrey P. Fatica (4) ......................... 559,968 3.3%
Cary M. Grossman (5)........................... 385,898 2.3%
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 *
James C. Jackson............................... 44,000 *
Clayton K. Trier (8)(9)........................ 38,283 *
Robert M. Chiste (8)........................... 23,283 *
David G. Simonsen.............................. 13,500 *
Nishan Teshoian................................ 8,983 *
All officers and directors as a group (14 persons) 7,000,634 41.9%
------------
* Less than one percent.
(1) Includes an aggregate of 98,064 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) 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, who
are Mr. Fatica's sons. Includes 54,578 shares of Common Stock held in
trust for Jack C. Fatica and 38,205 shares of Common Stock held in trust
for Justin P. Fatica, of which Mr. Fatica is a co-trustee. Mr. Fatica's
address is c/o Pentacon, Inc., 10375 Richmond Avenue, Suite 700, Houston,
Texas 77042.
(5) Consists of 140,283 shares owned directly by Mr. Grossman; 193,304 shares
owned by a family limited partnership of which Mr. Grossman is a general
partner; 49,875 shares owned by McFarland, Grossman & Company, Inc.; 2,000
shares owned by FMTC Trust; and 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, Inc., FMTC
Trust, and his children.
(6) Includes 12,000 shares of Common Stock owned by the Morgan E. Spence Trust
and 12,000 shares of Common Stock owned by the Alison R. Spence Trust of
which Mr. Spence is the trustee.
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<PAGE>
(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.
EXECUTIVE OFFICERS
The following table presents compensation information for the Company's
Chief Executive Officer and four additional most highly compensated executive
officers (the "Named Executive Officers") for the years ended December 31, 1999
and 1998.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION
----------------------------------- ----------------------------
AWARDS
----------------------------
RESTRICTED SECURITIES
STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS AWARD(S)(5) OPTIONS (#) COMPENSATION(6)
- --------------------------- ---- --------- ----- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Mark E. Baldwin.. . . . . . 1999 $187,500 -0- -0- -0- $ 2,858
Chairman and Chief Executive 1998 $121,500 -0- -0- 185,000 -0-
Officer (2)
Jack L. Fatica. . . . . . . .. . 1999 $152,500 $4,650 $2,325 1,617 $ 4,797
Vice Chairman(2) 1998 $121,500 -0- -0- -0- $13,700
Donald B. List. . . . . .. . . 1999 $170,000 $4,722 $2,361 1,643 $ 3,606
President, Pentacon Aerospace 1998 $121,500 -0- -0- -0- $14,000
Group, Inc. (2)
Jeffrey P. Fatica. . . . . . 1999 $153,000 $19,806 -0- -0- $3,276
President, Pentacon Industrial 1998 $121,500 -0- -0- -0- -0-
Group, Inc. (3)
Bruce M. Taten. . . . . . . . 1999 $162,500 $7,313 $3,657 2,543 $ 2,231
Senior Vice President, Chief 1998 $121,500 -0- -0- 100,000 -0-
Administrative Officer, General
Counsel and Secretary (4)
- --------------------
</TABLE>
(1) Each of the Named Executive Officers salaries for 1998 were based upon
annual salaries of $150,000.
(2) For biographies of Messrs. Baldwin, Jack L. Fatica and List, see "Nominees
and Continuing Directors" above.
(3) Mr. Jeffrey P. Fatica, 41, is President of Pentacon Industrial Group, Inc.
Mr. Fatica has over 23 years of experience in the fastener distribution
business with AXS Solutions, Inc., one of Pentacon's founding companies.
Jeffrey P. Fatica is the brother of Jack L. Fatica, the Company's Vice
Chairman.
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(4) Mr. Taten, 44, 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.
(5) The value of the restricted stock awards shown in the table was determined
by multiplying the number of shares of restricted stock awarded to each
Named Executive Officer by the closing price per share of the Company's
Common Stock on March 7, 2000, the date the awards were granted ($2.875).
The number of shares awarded were: Mr. Baldwin - 0; Mr. Jack L. Fatica -
809; Mr. List - 822; Mr. Jeffrey P. Fatica - 0; Mr. Taten - 1,272. The
restricted stock awarded to each Named Executive Officer vests ratably
over the next three years (although vesting may be accelerated in certain
circumstances). Holders of restricted stock are entitled to receive any
dividends declared with respect to the Company's Common Stock, although
the Company does not anticipate paying dividends with respect to its
Common Stock.
(6) "All Other Compensation" consists of employer matching contributions to
Company retirement plans.
OPTION GRANTS
The following table sets forth information with respect to stock options
granted for the year ended December 31, 1999 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 PRICE PER ASSUMED RATES OF STOCK PRICE
NAME GRANTED (#) IN YEAR SHARE EXPIRATION DATE APPRECIATION FOR OPTION TERM (1)
---- ------------ ------------ ----- --------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
5% 10%
Mark E. Baldwin -0- -0- -- -- -0- -0-
Jack L. Fatica 1,617 * $2.875 3/7/2010 $2,924 $7,409
Donald B. List 1,643 * $2.875 3/7/2010 $2,971 $7,528
Jeffrey P. Fatica -0- -0- -- -- -0- -0-
Bruce M. Taten 2,543 1.37% $2.875 3/7/2010 $4,598 $11,652
- ------------
</TABLE>
* Less than 1%.
(1) The SEC requires disclosure of the potential realizable value or present
value of each grant. This disclosure assumes the options will 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.
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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, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING
UNEXERCISED OPTIONS HELD AT VALUE OF UNEXERCISED IN-THE-MONEY
DECEMBER 31, 1999 OPTIONS HELD AT DECEMBER 31, 1999
----------------- ---------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Mark E. Baldwin -0- 185,000 -0- -0-
Jack L. Fatica -0- 1,617 (1) -0- -0-
Donald B. List -0- 1,643 (1) -0- -0-
Jeffrey P. Fatica -0- -0- -0- -0-
Bruce M. Taten -0- 102,543 (1) -0- -0-
</TABLE>
(1) Messrs. Jack L. Fatica's and List's options were awarded on March 7, 2000
with respect to 1999; 2,543 of Mr. Taten's options were awarded on March
7, 2000 with respect to 1999.
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, Jack L. Fatica's, Jeffrey P. Fatica's and List's employment
agreements have an initial term of five years commencing March 10, 1998. The
agreement for Mr. Taten has 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.
9
<PAGE>
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.
Officers of the Company are paid base salaries determined according to the
individual's level of responsibility, performance of the particular individual,
salary levels relative to the competitive market, growth of the Company's
business and recommendation of the Chief Executive Officer. It is the general
philosophy of the Compensation Committee that, as the Company evolves from its
start-up phase, base salaries should approach the midpoint salary range at the
50th percentile of salaries paid by similar size companies in relevant
industries. The Committee believes that the base salaries paid to most of its
Named Executive Officers currently are below this 50th percentile.
Officers of the Company also are eligible to receive an annual cash
incentive award. Messrs. Baldwin and List were eligible to receive incentive
awards up to fifty percent (50%) of their base salaries, and Messrs. Jack L.
Fatica, Jeffrey P. Fatica, and Taten were eligible to receive incentive awards
up to thirty percent (30%) of their base salaries. Seventy-five percent (75%) of
the incentive awards paid to each Named Executive Officer were based upon a
graduated formula which takes into account predetermined earnings goals and
cash-flow measurements for the Company (or, in the case of individuals with
group profit and loss responsibility, group earnings goals and cash flow
objectives). Twenty-five percent (25%) of the incentive awards paid to each
Named Executive Officer were based upon levels of achievement of individual
goals established at the beginning of the year. In addition to any annual cash
incentive award, Named Executive Officers are eligible to receive stock options
and restricted stock awards determined under the same formulas described above.
The Compensation Committee annually reviews and approves the compensation
of Mark E. Baldwin, the Chief Executive Officer. Because the Company did not
meet its earnings targets and cash flow targets established at the beginning of
1999, Mr. Baldwin did not receive any incentive awards for 1999. Mr. Baldwin's
current annualized base salary was set at $225,000 in mid-1999 and no increase
was made for 2000.
THE COMPENSATION COMMITTEE
Robert M. Chiste, Chairman
Cary M. Grossman
Nishan Teshoian
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Messrs. Chiste, Grossman and
Teshoian. No member of the Compensation Committee of the Board of Directors of
the Company was, during 1999, an officer or employee of the Company or any of
its subsidiaries, or was formerly an officer of the Company or any of its
subsidiaries or had any relationships requiring disclosure by the Company, other
than Mr. Grossman, who served as President of the Company prior to its initial
public offering.
During the year ended December 31, 1999, 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.
10
<PAGE>
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.
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
-------------------------------------------------------------------------------------------------------
3/31/98 6/30/98 9/30/98 12/31/98 3/31/99 6/30/99 9/30/99 12/31/99
------- -------- ------- --------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pentacon, Inc. 140.00 118.75 63.75 43.75 40.00 49.38 35.63 31.25
------- -------- ------- --------- -------- ------- ------- --------
Russell 2000 103.46 98.44 78.26 90.82 85.58 98.51 91.97 108.64
------- -------- ------- --------- -------- ------- ------- --------
Industrial Equipment
Wholesale Index 106.15 91.61 60.67 57.81 56.09 56.68 51.77 53.55
------- -------- ------- --------- -------- ------- ------- --------
</TABLE>
The companies that comprise the Industrial Equipment Wholesale Index are:
Abatix Corp., Airgas, Inc., American Aircarriers Support, Inc., Applied
Industrial Technologies, Inc., Aviation Sales Company, AVTEAM, Inc., CE Franklin
Ltd., Central Garden & Pet Company, China Resources Development, Inc., DXP
Enterprises, Inc., Hirsch International Corp., Industrial Distribution Group,
Inc., Industrial Holdings, Inc., International Airline Support Group, Inc., JLK
Direct Distribution Inc., Kaman Corporation, Mitcham Industries, Inc., MSC
Industrial Direct Co. Inc., National-Oilwell, Inc., Pentacon, Inc., RDO
Equipment Co., Speizman Industries, Inc., Strategic Distribution, Inc., Western
Power & Equipment Corp., and White Cap Industries, Inc.
11
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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 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.
Pentacon Industrial Group, 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. Jack L. Fatica, a director and officer of the
Company, and Mr. Jeffrey P. Fatica, an 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, Pentacon
Industrial Group, 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 $1.2 million of products during 1999. 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.
All of the directors of Pentacon, other than Messrs. Grossman, Chiste,
Teshoian and Trier, are employees of Pentacon or one of its subsidiaries and as
such receive employment-based consideration and benefits from the Company.
12
<PAGE>
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 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 1999, the Company believes that all
Section 16 reporting requirements related to the Company's directors and
executive officers were timely filed during 1999.
AUDITORS
Ernst & Young LLP, a certified public accounting firm, has served as the
independent auditor of the Company since its inception in 1998. While management
anticipates that this relationship will continue to be maintained during 2000,
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 2001 Annual Meeting of
stockholders must submit such proposal in writing to the Secretary of the
Company no later than 80 days before the 2001 Annual Meeting of Stockholders. If
you do not provide the proper notice by 80 days prior to the date established
for the 2001 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 2001 Annual Meeting, the proposal must be received by
the Company's Secretary no later than December 8, 2000. 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
December 31, 1999, 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 Annual 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 10, 2000
14
<PAGE>
PROXY
PENTACON, INC.
SOLICITED BY THE BOARD OF DIRECTORS FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 10, 2000
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
10, 2000 at 9:00 a.m. at the Millenium Tower, 10375 Richmond Avenue, 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
Jack L. Fatica, Benjamin E. Spence, Jr. and Clayton K. Trier to hold office
until the 2003 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 below.
___________________________________________
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
<PAGE>
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: ___________________________, 2000
_________________________________________
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>
PROXY
PENTACON, INC.
SOLICITED BY THE BOARD OF DIRECTORS FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 10, 2000
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 10, 2000 at 9:00 a.m. at the Millennium Tower, 10375 Richmond
Avenue, Houston, Texas, or at any adjournment or postponement thereof, as
follows:
ELECTION OF DIRECTORS - As a holder of restricted common stock, you 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. At the May 12, 1999 Annual Meeting,
the holders of Restricted Common Stock elected Cary M. Grossman as a Class I
Director. Mr. Grossman's term will expire at the 2002 Annual Meeting. Holders of
Restricted Common Stock are not entitled to vote on the election of any other
directors, and, accordingly, will not be eligible to vote for the Class II
directors standing for election this year.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
<PAGE>
ALL RESTRICTED SHARES WILL BE VOTED 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: _______________________________________, 2000.
_____________________________________________________
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.
