<PAGE>
TRISTAR AEROSPACE CO.
2527 WILLOWBROOK ROAD
DALLAS, TEXAS 75220
INFORMATION STATEMENT PURSUANT TO SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about November 22, 1999 to
the holders of record of shares of common stock, par value $.01 per share (the
"Common Stock" or "Shares"), of TriStar Aerospace Co., a Delaware corporation
(the "Company"), at the close of business on or about October 31, 1999. You are
receiving this Information Statement in connection with the possible appointment
of persons designated by Offeror (as defined below) to the Board of Directors of
the Company (the "Board") as soon as practicable following consummation of the
Offer described below. This Information Statement is required by Section
14(f) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and Rule 14f-1 thereunder. YOU ARE URGED TO READ THIS INFORMATION STATEMENT
CAREFULLY. YOU ARE NOT, HOWEVER, REQUIRED TO TAKE ANY ACTION WITH RESPECT TO THE
POSSIBLE APPOINTMENT OF PERSONS DESIGNATED BY OFFEROR TO THE BOARD AS DESCRIBED
HEREIN AT THIS TIME.
On October 31, 1999, the Company, AlliedSignal Inc., a Delaware corporation
("Parent" or "AlliedSignal"), and AlliedSignal Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of Parent ("Offeror"), entered into an
Agreement and Plan of Merger (the "Merger Agreement") in accordance with the
terms and subject to the conditions of which (i) Parent caused Offeror to
commence a tender offer (the "Offer") for all outstanding Shares at a price of
$9.50 per Share net to the seller in cash and without interest thereon and
(ii) Offeror, or another direct or indirect wholly owned subsidiary of Parent,
will be merged with and into the Company (the "Merger"). As a result of the
Merger, the Company will become a wholly owned subsidiary of Parent.
The Merger Agreement requires the Company to either increase the size of the
Board or to use its best efforts to secure the resignation of such number of its
incumbent directors, or both, as is necessary to enable certain directors
designated by Offeror to be elected or appointed to the Board following
consummation of the Offer under the circumstances described therein. See "Right
to Designate Directors" and "The Offeror Designees."
Capitalized terms used herein and not otherwise defined herein will have the
meaning set forth in the Solicitation/Recommendation Statement on Schedule 14D-9
(the "Schedule 14D-9") previously mailed to the holders of record on November 5,
1999. The Company's fiscal year ends each September 30; therefore, for example,
references to "fiscal year 1999" refer to the Company's fiscal year ended
September 30, 1999.
Pursuant to the Merger Agreement, Offeror commenced the Offer on November 5,
1999. The Offer is scheduled to expire at 12:00 Midnight, New York City time, on
Monday, December 6, 1999, unless the Offer is extended pursuant to the Merger
Agreement.
GENERAL
The Shares are the only class of voting securities of the Company
outstanding. Each Share has one vote. As of the close of business on
October 31, 1999, there were 17,277,054 Shares outstanding. The Board currently
consists of three classes, each consisting of two directors, or a total of six
authorized members. At each annual meeting of the Company's stockholders,
directors are elected for a full term of three years to succeed those directors
who are members of one of the three classes and whose terms expire on these
annual meeting dates. The officers of the Company serve at the discretion of the
Board.
RIGHT TO DESIGNATE DIRECTORS
The Merger Agreement provides that, promptly upon the payment for any Shares
by Offeror pursuant to the Offer as a result of which Parent, Offeror or any of
their affiliates beneficially own (excluding Shares held by the Company) at
least a majority of the then outstanding Shares, the Company will increase the
size of the Board to seven members and Offeror will be entitled to designate
members of the Board such
<PAGE>
that Offeror, subject to compliance with Section 14(f) of the Exchange Act, will
have a number of representatives on the Board, rounded up to the next whole
number, equal to the product obtained by multiplying seven by the percentage of
Shares beneficially owned by Parent and any of its subsidiaries. The Company has
agreed, upon the request of Offeror, to promptly increase the size of the Board
to the extent permitted by the certificate of incorporation of the Company
and/or use its best efforts to secure the resignations of such number of
directors as is necessary to enable the Offeror Designees (as defined below) to
be elected to the Board and has agreed to use its best efforts to cause the
Offeror Designees to be so elected. Notwithstanding the foregoing sentence:
(i) in the event that the Offeror Designees are appointed or elected to the
Board, until the Effective Time (as defined in the Merger Agreement) of the
Merger, the Board will have at least one director who is a director on the date
of the Merger Agreement and who is neither an officer of the Company nor a
stockholder, affiliate or associate (within the meaning of federal securities
laws) of Parent (any such directors are collectively referred to as the
"Continuing Directors"), and (ii) if no Continuing Directors remain, the other
directors will designate one person to fill one of the vacancies, who will not
be either an officer of the Company or a stockholder, affiliate or associate of
Parent, and such person will be deemed to be a Continuing Director.
Pursuant to the Merger Agreement, if the Offeror Designees are elected to
the Board, after the acceptance for payment and purchase of Shares pursuant to
the Offer and prior to the Effective Time (i) the affirmative vote of a majority
of the Continuing Directors will be required to amend or terminate the Merger
Agreement on behalf of the Company, amend the Company's certificate of
incorporation, or the Company's bylaws, exercise or waive any of the Company's
rights or remedies under the Merger Agreement, extend the time for performance
of Parent or Offeror's obligations under the Merger Agreement, or take any other
action by the Company in connection with the Merger Agreement required to be
taken by the Board, and any such actions when so taken will be deemed to
constitute the action of the full Board of the Company and any committee
specifically designated by the Board to approve the actions contemplated by the
Merger Agreement, and (ii) neither the Offeror nor Parent will, directly or
indirectly, cause the Company to breach its obligations under the Merger
Agreement.
IN THE EVENT THAT OFFEROR AND ITS AFFILIATES DO NOT ACQUIRE ANY SHARES
PURSUANT TO THE OFFER, OR TERMINATE THE OFFER, OR IF THE MERGER AGREEMENT IS
TERMINATED PURSUANT TO ITS TERMS PRIOR TO THE ELECTION OR APPOINTMENT OF THE
OFFEROR DESIGNEES, OFFEROR AND ALLIEDSIGNAL WILL NOT HAVE ANY RIGHT UNDER THE
MERGER AGREEMENT TO HAVE THEIR DESIGNEES ELECTED OR APPOINTED TO THE BOARD.
The information contained in this Information Statement concerning Parent,
Offeror and the Offeror Designees has been furnished to the Company by Parent,
and the Company assumes no responsibility for the accuracy or completeness of
such information.
2
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THE OFFEROR DESIGNEES
AlliedSignal and Offeror have informed the Company that they currently
intend to designate a majority of the directors of the Company following the
consummation of the Offer. It is currently anticipated that Offeror will
designate some or all of Robert D. Johnson, Peter M. Kreindler, Stephen R.
Loranger, Donald J. Redlinger, James D. Taiclet, Jr. and/or Richard F. Wallman
(collectively the "Offeror Designees"). The names and ages of the nominees of
Parent and Offeror, and their present principal occupations, are set forth
below. Each individual is a citizen of the United States and his business
address is 101 Columbia Road, Morris Township, New Jersey 07962.
Each of the individuals has consented to serve as a director of the Company
if appointed or elected. None of the Offeror Designees currently is a director
of, or holds any positions with, the Company. To the best of Parent's or
Offeror's knowledge, except as set forth below, none of the Offeror Designees or
any of their affiliates beneficially owns any equity securities or rights to
acquire any such securities of the Company, nor has any such person been
involved in any transaction with the Company or any of its directors, executive
officers or affiliates that is required to be disclosed pursuant to the rules
and regulations of the Securities and Exhange Commission (the "Commission")
other than with respect to transactions among Parent, Offeror and the Company
that have been described in the Schedule 14D-1 filed by Parent and Offeror with
the Commission on November 5, 1999, or the Schedule 14D-9 filed by the Company
with the Commission on November 5, 1999.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT WITH ALLIEDSIGNAL/
NAME AND AGE MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
- ------------ ------------------------------------------------------------
<S> <C>
Robert D. Johnson, 52......... President and Chief Executive Officer of AlliedSignal
Aerospace since April 1999. President--Aerospace Marketing,
Sales and Service from January 1999 to March 1999.
President--Electronic & Avionics Systems from October 1997
to December 1998, and Vice President and General
Manager--Aerospace Services from 1994 to 1997. Group Vice
President, Manufacturing and Services of AAR Corp. from 1993
to 1994.
Peter M. Kreindler, 54........ Senior Vice President, General Counsel and Secretary of
AlliedSignal Inc. since December 1994. Senior Vice President
and General Counsel of AlliedSignal Inc. from March 1992 to
November 1994.
Steven R. Loranger, 47........ President--AlliedSignal Engines and Systems since April
1999. President--Engines from July 1997 to March 1999.
President--Truck Brake Systems from February 1995 to June
1997. Vice President--Air Transport unit of Engines from May
1993 to January 1995.
Donald J. Redlinger, 54....... Senior Vice President--Human Resources and Communications of
AlliedSignal Inc. since February 1995. Senior Vice
President--Human Resources of AlliedSignal Inc. from January
1991 to January 1995.
James D. Taiclet, Jr., 39..... President--AlliedSignal Aerospace Services since April 1999.
Vice President, Engine Services, for Pratt & Whitney, a unit
of United Technologies Corporation, based in Hartford,
Connecticut, from May 1997 to April 1999. Vice President,
Military Service Programs, for Pratt & Whitney, from March
1996 to April 1997. Senior Engagement Manager with McKinsey
and Company Inc., from July 1991 to February 1996.
Richard F. Wallman, 48........ Senior Vice President and Chief Financial Officer of
AlliedSignal Inc. since March 1995. Vice President and
Controller of International Business Machines Corp. (IBM)
from April 1994 to February 1995.
</TABLE>
3
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information known by the Company
regarding the beneficial ownership of the Company's Common Stock, as of
November 22, 1999, by each beneficial owner of more than five percent of the
outstanding Common Stock, by each of the Company's directors, by each current
executive officer named in the Summary Compensation Table (presented below) and
by all directors and executives officers of the Company as a group. Except as
otherwise indicated, the person or entities listed below have sole voting and
investing power with respect to all shares of Common Stock beneficially owned by
them, except to the extent such power may be shared with a spouse.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME BENEFICIALLY OWNED(1) PERCENTAGE(2)
- ---- --------------------- -------------
<S> <C> <C>
AlliedSignal Inc.(3) 3,611,740 18.60
101 Columbia Road
Morris Township, NJ 07962
Warburg Pincus Asset Management Inc.(4) 1,708,300 9.89
466 Lexington Avenue
New York, NY 10017
Mellon Bank Corporation(5) 1,497,500 8.67
One Mellon Bank Center
Pittsburgh, PA 15258
Wellington Management Company, LLP(6) 1,002,000 5.80
75 State Street
Boston, MA 02109
Goldman, Sachs & Co.(7) 898,700 5.20
85 Broad Street
New York, NY 10004
P. Quentin Bourjeaurd(8) 2,872,942 15.27
Charles Balchunas(9) 738,798 4.13
Douglas E. Childress(10) 179,335 1.03
Jon Cohen(11) 75,160 *
Trevor Wright(12) 91,500 *
Denny Barge(13) 147,730 *
Brian E. Barents(14) 16,000 *
James L. Hersma(15) 11,000 *
Cindy B. Brown(16) 12,500 *
All directors and executive officers of the
Company as a group (10 persons)(17) 4,204,965 21.10
</TABLE>
- ------------------------
* Less than one percent
(1) For purposes of this table, a person or group of persons is deemed to have
"beneficial ownership" of any shares of Common Stock which such person has
the right to acquire within 60 days following November 22, 1999. For
purposes of computing the percentage of outstanding shares of Common Stock
held by each person or group of persons named above, any Shares which such
person or persons has or have the right to acquire within 60 days following
November 22, 1999 is deemed to be outstanding, but is not deemed to be
outstanding for the purpose of computing the percentage ownership of any
other person. With respect to the directors and officers listed above, the
number of Shares beneficially owned includes Shares subject to options some
of which will accelerate upon consummation of the Merger.
4
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(2) The outstanding Common Stock of the Company as of October 31, 1999 was
17,277,054 Shares.
(3) Includes securities not outstanding which are subject to options, warrants,
rights or conversion privileges that are exercisable within 60 days.
Pursuant to a Tender and Option Agreement dated as of October 31, 1999 by
and among Parent, Offeror, P. Quentin Bourjeaurd and Charles Balchunas (the
"Shareholders Agreement") as amended on November 19, 1999, Parent has shared
power to vote or direct the vote of the Shares included in the table. Parent
does not have sole power to vote or direct the vote of such Shares and does
not have sole power to dispose or direct the disposition of such Shares.
Parent has informed the Company that Parent does not have beneficial
ownership of any Shares other than pursuant to the Shareholders Agreement,
as amended.
(4) Warburg Pincus Asset Management Inc. ("Warburg") serves as investment
advisor to many accounts including various registered investment companies.
As investment advisor Warburg has sole power to vote or direct the vote of
1,204,800 Shares and shared power to vote or direct the vote of 486,700
Shares. Warburg holds sole power to dispose of or direct disposition of all
Shares included in the table. Information based on Schedule 13G, filed
January 8, 1999.
(5) Mellon Bank Corporation ("Mellon") is the trustee of the Company's employee
benefit plan, which is subject to ERISA. All of the Shares reported are held
by Mellon or direct or indirect subsidiaries of Mellon in their various
fiduciary capacities. As a result, another entity in every instance is
entitled to dividends or proceeds of sale. Mellon holds sole power to vote
or direct the vote of 1,343,600 Shares and does not have shared power to
vote or direct the vote of any Shares. Mellon holds sole power to dispose of
or direct the disposition of 1,353,600 Shares and shared power to dispose or
direct the disposition of 143,900 Shares. The amount beneficially owned
includes, where appropriate, securities not outstanding which are subject to
options, warrants, rights or conversion privileges that are exercisable
within 60 days. Information based on Schedule 13G, filed February 5, 1999.
(6) Wellington Management Company, LLP ("Wellington") does not have sole power
to vote or direct the vote of any Shares or sole power to dispose or direct
the disposition of any Shares. In its capacity as investment advisor,
Wellington may be deemed to have shared power to vote or direct the vote of
582,000 Shares and shared power to dispose or direct the disposition of
1,002,000 Shares. Information based on Schedule 13G, filed February 9, 1999.
(7) Neither Goldman, Sachs & Co. ("Goldman") nor the Goldman Sachs Group L.P.
(the "Goldman Group") has sole power to vote or direct the vote of any
Shares or sole power to dispose or direct the disposition of any Shares.
Goldman and the Goldman Group have shared voting power or shared power to
direct the vote of 898,700 Shares and shared power to dispose or shared
power to direct the disposition of 898,700 Shares. Goldman and the Goldman
Group each disclaims beneficial ownership of the securities beneficially
owned by (1) any client accounts with respect to which Goldman or employees
of Goldman have voting or investment discretion, or both and (2) certain
investment entities, of which a subsidiary of Goldman is the general
partner, managing general partner or other manager, to the extent interests
in such entities are held by persons other than Goldman, the Goldman Group
or their affiliates. Information based on Schedule 13G, filed February 16,
1999.
(8) Includes (i) 1,338,920 Shares owned of record by Mr. Bourjeaurd, and
(ii) 1,534,022 Shares subject to options which are currently exercisable.
Pursuant to the Shareholders Agreement, as amended, Mr. Bourjeaurd has
shared power to vote or direct the vote of such Shares.
(9) Includes (i) 136,522 Shares owned of record by Mr. Balchunas, and
(ii) 602,276 Shares subject to options which are currently exercisable.
Pursuant to the Shareholders Agreement, as amended, Mr. Balchunas has shared
power to vote or direct the vote of such Shares.
(10) Includes (i) 3,510 Shares owned of record by Mr. Childress, (ii) 75,825
Shares subject to options which are currently exercisable, (iii) 20,000
Shares subject to options which will become exercisable on
5
<PAGE>
December 22, 1999 but which will be terminated if the Merger is consummated
prior to such date, and (iv) 80,000 Shares subject to options which will
accelerate upon the consummation of the Merger.
(11) Includes (i) 160 Shares owned of record by Mr. Cohen, (ii) 10,000 Shares
subject to options which are currently exercisable by Mr. Cohen,
(iii) 5,000 Shares subject to options which will become exercisable on
December 22, 1999 but which will be terminated if the Merger is consummated
prior to such date, and (iv) 60,000 Shares subject to options which will
accelerate upon the consummation of the Merger.
(12) Includes (i) 11,500 Shares owned of record by Mr. Wright, (ii) 20,000
Shares subject to options which are currently exercisable, and (iii) 60,000
Shares subject to the options which will accelerate upon the consummation of
the Merger.
(13) Includes (i) 50,010 Shares owned of record by Mr. Barge, and (ii) 97,720
Shares subject to options which are currently exercisable.
(14) Includes (i) 6,000 Shares owned of record by Mr. Barents, and (ii) 10,000
Shares subject to options which are currently exercisable.
(15) Includes (i) 1,000 Shares owned of record by Mr. Hersma, and (ii) 10,000
Shares subject to options which are currently exercisable.
(16) Includes (i) 2,500 Shares owned of record by Ms. Brown, and (ii) 10,000
Shares subject to options which are currently exercisable.
(17) Includes (i) 1,550,122 Shares owned of record by the directors and
executive officers of the Company, and (ii) 2,654,843 Shares subject to
options which are currently exercisable or which may be exercisable in the
next 60 days.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table and biographies set forth information concerning those
individuals who are currently serving as members of the Board or as executive
officers of the Company.
<TABLE>
<CAPTION>
NAME PRINCIPAL POSITIONS WITH THE COMPANY
- ---- ------------------------------------
<S> <C>
P. Quentin Bourjeaurd(1)...... Chairman of the Board of Directors, President and Chief
Executive Officer
Douglas E. Childress(2)....... Director, Executive Vice President, Chief Financial Officer,
and Treasurer
Charles Balchunas(3).......... Director, Executive Vice President and Chief Operating
Officer
Cindy B. Brown(1)............. Director
James L. Hersma(3)............ Director
Brian E. Barents(2)........... Director
Trevor Wright................. Executive Vice President, Sales and Marketing
Daniel Barth.................. Vice President, Information Technology
Jon Cohen..................... Vice President of Quality Assurance and Acting Vice
President of Operations
</TABLE>
- ------------------------
(1) Class III directors whose terms will expire at the 2001 Annual Meeting of
Stockholders.
(2) Class I directors whose terms will expire at the 2002 Annual Meeting of
Stockholders.
(3) Class II directors whose terms will expire at the 2000 Annual Meeting of
Stockholders.
6
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P. QUENTIN BOURJEAURD, age 42, has served on the Board since September 19,
1996 and as Chairman of the Board since May 12, 1998. Mr. Bourjeaurd has served
as President of the Company since September 19, 1996 and as the Chief Executive
Officer of the Company since December 2, 1996. From June 1993 to September 19,
1996, Mr. Bourjeaurd was the Vice President and General Manager of Aviall
Aerospace, then a business unit of Aviall Services, Inc. Mr. Bourjeaurd formed
Bourjeaurd Specialty Products, Inc., an aerospace hardware distribution company,
in June 1983 and was the President and sole stockholder of such company until
its acquisition by Aviall Services, Inc. in June 1993.
DOUGLAS E. CHILDRESS, age 42, has served on the Board since May 5, 1998.
Mr. Childress joined the Company as the Vice President-Finance and Treasurer on
August 29, 1997 and became an Executive Vice President and the Chief Financial
Officer of the Company on January 15, 1998. Prior to joining the Company,
Mr. Childress served as the Director of Accounting, Consulting and Evaluation
Services of Interstate Battery System of America, a Dallas based battery
distribution company, from October 1994 to August 1997 and as an Audit and
Consulting Manager with the KL Real Estate Group of Ernst & Young from July 1993
to October 1994. Mr. Childress co-founded the consulting firm Worldwide Holdings
Corporation, a local investment banking firm, in 1990 prior to which time he had
been employed as an audit manager with Ernst & Young. Mr. Childress is a
certified public accountant and an accredited member of the American Society of
Appraisers.
CHARLES BALCHUNAS, age 54, has served on the Board and as Executive Vice
President and Chief Operating Officer of the Company since September 19, 1996.
Mr. Balchunas joined Tri-Star Aerospace, Inc. (the "Predecessor") in August 1990
as a customer service manager, subsequently becoming the Executive Vice
President and Chief Operating Officer of the Predecessor. Prior to joining the
Predecessor, Mr. Balchunas served as a Lieutenant Colonel with the United States
Marine Corps. During his 22 years of service with the Marine Corps,
Mr. Balchunas gained extensive experience in aviation, aviation maintenance and
logistics systems management as an aircraft maintenance manager, an airfield
operations manager and the Commanding Officer, Headquarters of the Marine Corps
Air Station in Iwakuni, Japan.
CINDY B. BROWN, age 41, has served on the Board since May 5, 1998.
Ms. Brown is currently the Chief Executive Officer of Tx International Payment
Solutions, Inc. and a partner in the Chavoy Group, a management consulting
company specializing in mentoring and supplementing executive management teams.
Ms. Brown served as Senior Vice President-Finance of Blockbuster Entertainment
Group from 1997 to 1998. From 1980 to 1997, Ms. Brown was employed by
DrPepper/Seven-Up North America where she served in several capacities,
including Director-Treasury and Strategic Planning and Vice President-
Information Services.
JAMES L. HERSMA, age 51, has served on the Board since May 12, 1998.
Mr. Hersma is currently an Executive Vice President of Medibuy.com, an
e-commerce company specializing in health care supply transactions. Mr. Hersma
also serves on the Board of Directors of Medibuy.com. From 1996 to 1999
Mr. Hersma served as President, Chief Executive Officer and on the Board of
Directors of Novation, the pharmaceutical supply company of VHA and UHC. From
1993 through 1996, Mr. Hersma served as President and Chief Operating Officer of
CIS Technologies Inc., a publicly held health care software company in Tulsa,
Oklahoma.
BRIAN E. BARENTS, age 55, has served on the Board since May 5, 1998.
Mr. Barents is a founding member of Galaxy Aerospace Company, a commercial
aircraft manufacturer, and has served as President, Chief Executive Officer and
on the Board of Directors of Galaxy Aerospace Company since 1996. From 1990 to
1996, Mr. Barents was the President and Chief Executive Officer of Learjet Inc.,
also a commercial aircraft manufacturer. Mr. Barents serves on the Board of
Directors of Kaman Corporation, a publicly held company which primarily
specializes in aerospace manufacturing.
TREVOR WRIGHT, age 52, has served as the Executive Vice President, Sales and
Marketing of the Company since August 4, 1998. Prior to joining the Company,
Mr. Wright was the Vice President of Sales, Marketing and Interim President for
Aerospace Rivet Manufacturers Corporation, an aerospace hardware
7
<PAGE>
manufacturing company, which he joined in 1997. From 1994 to 1997, Mr. Wright
was employed by Fairchild Fasteners, a division of Fairchild Corporation, also
an aerospace hardware manufacturing company, where he held various positions
including Senior Vice President of Sales and Marketing.
DANIEL BARTH, age 41, has served as Vice President of Information Systems of
the Company since May 24, 1999. Prior to joining the Company, Mr. Barth was a
Senior Practice Director for Oracle Corporation, an international software
company, which he joined in January 1999. From 1996 to January 1999, Mr. Barth
served as Chief Information Officer for Pinnacle Brands, Inc., a manufacturer
and distributor of sports trading cards.
JON COHEN, age 44, has served as Vice President of Quality Assurance since
February 16, 1998 and as Acting Vice President of Operations since June 22,
1999. Prior to joining the Company, Mr. Cohen was a director in the quality
assurance department at Lockheed Martin, an aerospace manufacturing company.
CURRENT BOARD OF DIRECTORS AND COMMITTEES OF THE COMPANY
The Board directs the management of the business and affairs of the Company,
as provided by Delaware law, and conducts its business through meetings of the
Board and three standing committees: the Audit Committee, Compensation Committee
and Finance Committee. In addition, from time to time, special committees may be
established under the direction of the Board when necessary to address specific
issues. The Company has no nominating or similar committee.
COMMITTEES OF THE BOARD; BOARD MEETINGS
The Board held eight meetings during fiscal year 1999. In addition to the
regularly scheduled meetings, the Board took action on six occasions by
Unanimous Written Consent. Each director attended 75% or more of the aggregate
of (i) meetings of the Board held during the period for which he or she served
as a director and (ii) meetings of all committees held during the period for
which he or she served on those committees.
The Audit Committee's principal functions are to review the scope of the
annual audit of the Company by its independent public accountants, review the
annual financial statements of the Company and the related audit report of the
Company as prepared by its independent public accountants, review management's
selection of an independent public accounting firm each year and review audit
and any non-audit fees paid to the Company's independent public accountants. The
Company's Chief Financial Officer generally attends Audit Committee meetings and
gives reports to and answers inquiries from the Audit Committee. The Audit
Committee reports its findings and recommendations to the Board. The Audit
Committee is composed of two non-employee directors: Cindy B. Brown and James L.
Hersma. The Audit Committee held one meeting during fiscal year 1999.
The Compensation Committee is responsible for developing and making
recommendations to the Board with respect to the Company's compensation policies
and also determines the cash portion of the Company's compensation program,
including the cash compensation to be paid to the Company's Chief Executive
Officer. In addition, the Compensation Committee is responsible for
administering the Company's employee benefit plans, including the 1996 and 1998
Stock Option Plans (as defined below). The Compensation Committee is composed of
three non-employee directors: Cindy B. Brown, Brian E. Barents and James L.
Hersma. The Compensation Committee held four meetings during fiscal year 1999.
In addition to the regularly scheduled meetings, the Compensation Committee took
action on six occasions by Unanimous Written Consent.
The Finance Committee is responsible for advising the Board regarding any
special financial matters of the Company at the specific request of the Board.
In addition, the Finance Committee is responsible for assisting and advising the
Company regarding investor relations matters. The Finance Committee is
8
<PAGE>
composed of the Chief Financial Officer of the Company and one non-employee
director, Cindy B. Brown. The Finance Committee held seven meetings during
fiscal year 1999.
DIRECTOR COMPENSATION
Directors who are not executive officers of the Company are granted options
to purchase Common Stock in connection with their election to the Board. On
October 13, 1998, options were granted to non-employee directors as follows:
Cindy B. Brown, 25,000 Shares; Brian E. Barents, 25,000 Shares; and James L.
Hersma, 25,000 Shares. The exercise price for all of these options is equal to
the fair market value at the date of grant. Non-employee directors also are paid
a fee of $3,500 for each regular meeting of the Board which they attend and
$2,500 for each special meeting of the Board of Directors which they attend. In
addition, each non-employee director is paid $2,500 per year for service on the
Compensation and Audit Committees. During fiscal year 1999, Ms. Brown, a
director of the Company, was paid $20,000 on January 20, 1999 as compensation
for four Finance Committee meetings attended from June through November 1998 and
$25,000 on June 2, 1999 as compensation for five Finance Committee meetings
attended from January through May 1999. Directors are reimbursed for their
out-of-pocket expenses arising from attendance at meetings of the Board and
committees which occur outside of Dallas, Texas.
9
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COMPENSATION OF EXECUTIVE OFFICERS
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation for the Company's 1999, 1998
and 1997 fiscal years for the Company's Chief Executive Officer and each of the
five other most highly compensated executive officers or former executive
officers of the Company (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
----------------------- SECURITIES
OTHER ANNUAL ALL OTHER UNDERLYING
SALARY BONUS COMPENSATION COMPENSATION OPTIONS
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(4) ($) (#)
- --------------------------- -------- -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
P. Quentin Bourjeaurd............ 1999 225,000 63,000 -- 6,149(1) --
President and Chief Executive 1998 225,000 70,900 -- 6,304(2) --
Officer 1997 202,706 350 -- 1,256(3) 1,853,340(5)
Charles Balchunas................ 1999 200,000 50,000 -- 6,260(1) --
Executive Vice President and 1998 200,000 59,900 -- 5,962(2) --
Chief Operating Officer 1997 161,927 100,350 16,215(4) 3,569(3) 723,325(5)
Douglas E. Childress(7).......... 1999 200,000 50,000 -- 6,020(1) 175,000(6)
Executive Vice President and 1998 166,154 134,500 -- 1,294(2) --
Chief Financial Officer 1997 4,654 3,050 -- -- 71,730(5)
Denny Barge(8)................... 1999 200,000 -- -- 6,013(1) 75,000
Vice President of Strategic 1998 153,846 198,250 -- 857(2) 158,000(5)
Planning
Trevor Wright(9)................. 1999 140,000 20,000 44,545(4) 808(1) 100,000(6)
Executive Vice President of 1998 15,615 -- -- 252(2) --
Sales and Marketing
Jon Cohen(10).................... 1999 120,000 30,000 -- 756(1) 75,000(6)
Vice President Quality 1998 69,231 22,650 -- 479(2) --
Assurance and Acting Vice
President of Operations
</TABLE>
- --------------------------
(1) Represents (i) amounts paid for term life insurance premiums during fiscal
year 1999 on behalf of Messrs. Bourjeaurd, Balchunas, Childress, Barge,
Wright and Cohen in the amounts of $1,418, $1,260, $1,260, $1,260, $808, and
$756, respectively and (ii) contributions to the Company's 401(k) plan
during fiscal year 1999 on behalf of Messrs. Bourjeaurd, Balchunas,
Childress and Barge in the amounts of $4,731, $5,000, $4,760 and $4,753,
respectively.
(2) Represents (i) amounts paid for term life insurance premiums during fiscal
year 1998 on behalf of Messrs. Bourjeaurd, Balchunas, Childress, Barge,
Wright and Cohen in the amounts of $1,327, $985, $812, $630, $252, and $252,
respectively, (ii) contributions to the Company's 401(k) plan during fiscal
year 1998 on behalf of Messrs. Bourjeaurd, Balchunas and Childress in the
amounts of $4,750, $4,750, and $255, respectively and (iii) an amount of
$227 paid by the Company to purchase 10 Shares at $16 per Share and to pay
the associated taxes on behalf of each of Messrs. Bourjeaurd, Balchunas,
Childress, Barge and Cohen, respectively, in connection with the Company's
initial public offering which was consummated on May 5, 1998 (the
"Offering").
(3) Represents (i) amounts paid for term life insurance premiums during fiscal
year 1997 on behalf of Messrs. Bourjeaurd and Balchunas in the amounts of
$526 and $329, respectively, (ii) amounts paid for whole life insurance
premiums on behalf of Mr. Balchunas in the amount of $677 and
(iii) contributions to
10
<PAGE>
the Company's 401(k) plan during fiscal year 1997 on behalf of
Mr. Bourjeaurd and Mr. Balchunas in the amounts of $730 and $2,563,
respectively.
(4) Represents reimbursement of expenses incurred by Messrs. Balchunas and
Wright in relocating to Dallas, Texas.
(5) Under the terms of the grant letters relating to the options, options which
are not exercisable at the date of grant become "available" in the Company's
fiscal years 1997 through 2001 depending on satisfaction by the Company of
certain performance targets. Once "available," 25% of such options may be
exercised immediately with 25% of the remaining options becoming exercisable
at the end of each of the next three fiscal years. The availability and
exercisability of the options are subject to acceleration in certain
circumstances. As a result of the Company's Offering, all of the options
which were "available" prior to the Offering became immediately exercisable.
In addition, 80% of the options eligible to become "available" in fiscal
years ending subsequent to the Offering became immediately exercisable as a
result of the Offering. The options which were not accelerated as described
in the foregoing sentence terminated upon consummation of the Offering.
Because the options reflected in the above table were granted prior to the
Offering, the number of "Securities Underlying the Options" is calculated
based upon the initial date such options were granted.
(6) On October 19, 1999 subsequent to the end of fiscal year 1999 certain Named
Executive Officers were granted the following number of options to purchase
Shares under the Company's 1998 Stock Option Plan at a price of $5.50 per
share: Mr. Childress was granted an option to purchase 80,000 Shares,
Mr. Wright was granted an option to purchase 60,000 Shares and Mr. Cohen was
granted an option to purchase 60,000 Shares. These options are not included
in the Securities Underlying Options column of the Summary Compensation
Table. For the specific terms of such options see "Stock Option Plans--The
1998 Stock Option Plan."
(7) On August 29, 1997, Mr. Childress joined the Company as Vice President of
Finance and Treasurer and was subsequently promoted on January 15, 1998 to
serve as the Company's Executive Vice President, Chief Financial Officer and
Treasurer.
(8) Mr. Barge joined the Company on December 8, 1997 as Vice President of
Strategic Planning and was subsequently promoted to Vice President of
Operations on May 20, 1998. As of June 22, 1999, Mr. Barge resigned from his
position of Vice President of Operations, and as of the end of fiscal year
1999, Mr. Barge no longer served as an executive officer of the Company.
Mr. Barge was not considered a Named Executive Officer during fiscal year
1997 because he was not an officer of the Company during that fiscal year.
(9) Mr. Wright joined the Company on August 4, 1998 as Executive Vice President
of Sales and Marketing. Mr. Wright was not considered a Named Executive
Officer during fiscal year 1997 because he was not an officer of the Company
during that fiscal year.
(10) Mr. Cohen joined the Company on February 16, 1998 as Vice President of
Quality Assurance and has been serving as Acting Vice President of
Operations since Mr. Barge resigned on June 22, 1999. Mr. Cohen was not
considered a Named Executive Officer during fiscal year 1997 because he was
not an officer of the Company during that fiscal year.
11
<PAGE>
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning stock option grants
made to each of the Named Executive Officers during fiscal year 1999:
OPTION GRANTS IN FISCAL YEAR 1999
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
ASSUMED ANNUAL RATES
% OF TOTAL OF STOCK
NUMBER OF OPTIONS PRICE APPRECIATION
SECURITIES GRANTED TO FOR OPTION
UNDERLYING EMPLOYEES EXERCISE TERM(4)
OPTIONS IN FISCAL PRICE EXPIRATION -----------------------
NAME GRANTED(#)(1) YEAR(2) ($/SH)(3) DATE 5%($) 10%($)
- ---- ------------- ---------- --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Douglas E. Childress(5)......... 75,000 4.90 8.375 9/30/08 401,707 1,009,178
100,000 6.53 6.875 6/22/09 438,657 1,105,929
Denny Barge..................... 75,000 4.90 8.375 9/30/08 401,707 1,009,178
Trevor Wright(5)................ 100,000 6.53 8.375 9/30/08 535,610 1,345,571
Jon Cohen(5).................... 50,000 3.26 8.375 9/30/08 267,805 672,786
25,000 1.63 6.875 6/22/09 109,664 276,482
</TABLE>
- --------------------------
(1) Options granted in fiscal year 1999 generally vest over a four year period:
20% become exercisable six months after the date granted, and each
additional 20% become exercisable on the anniversary date of the date of
grant upon approval by the Compensation Committee that the Company has met
certain financial goals. If the Compensation Committee does not approve the
vesting of options for any certain period, such options do not fail, but
will vest 4 1/2 years after the date of grant. In addition, the option
agreements evidencing the granting of options during fiscal year 1999
provided that such options will accelerate in the event of a Change of
Control (as such term is defined in the 1998 Stock Option Plan) if, and only
if, the closing price of the Shares on the closing date of such Change of
Control is at least $14. The options granted during fiscal year 1999 were
granted pursuant to the Company's 1998 Stock Option Plan which provides that
in the event of a Change of Control of the Company, the Compensation
Committee has the discretion (i) to accelerate the vesting of each option
not then currently exercisable, (ii) to cause each option to terminate
within a period of time after delivery of notice and (iii) to cause each
option holder to receive, in respect of each Share for which such option is
exercisable, an amount equal to the excess of the fair market value of such
Share over the exercise price per Share, payable in a form of consideration
as determined by the Compensation Committee. The Compensation Committee has
decided not to exercise its discretion provided in Section 11 of the 1998
Stock Option Plan to accelerate any option granted under the 1998 Stock
Option Plan if the option agreement evidencing the granting of such options
contains a provision that provides that such option will accelerate upon a
Change of Control if, and only if, the closing price of the Shares on the
closing date of such Change of Control is at least $14. Accordingly, options
subject to such provisions which are not otherwise vested at the Effective
Time (as defined in the Merger Agreement) will not accelerate or be
converted as described above, since the Offer Price (as defined in the
Merger Agreement) is $9.50.
(2) The Company granted options to purchase 1,531,600 Shares of the Company
during fiscal year 1999.
(3) All options were granted at an exercise price equal to the fair market value
of the Shares as determined by the Compensation Committee on the date of
grant.
(4) The amounts under the columns labeled "5%" and "10%" are based on
calculations at hypothetical 5% and 10% compounded annual appreciation rates
prescribed by the Commission and, therefore, are not intended to forecast
possible future appreciation, if any, of the Shares.
12
<PAGE>
(5) See note (6) of the "Summary Compensation Table" and the discussion under
"Stock Option Plans--The 1998 Stock Option Plan" for a description of
options granted to Named Executive Officers subsequent to the end of fiscal
year 1999, which are not included in the table above.
AGGREGATED OPTION EXERCISES AND VALUES
The following table sets forth for each of the Named Executive Officers
certain information concerning the number of Shares subject to both exercisable
and non-exercisable stock options as of September 30, 1999. No options were
exercised during fiscal year 1999 by any of the Named Executive Officers. Also
reported are values for "in the money" options that represent the positive
spread between the respective exercise prices of outstanding options and the
fair market value of the Company's Shares as of September 30, 1999.
FISCAL 1999 YEAR-END OPTION VALUES(1)
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY OPTIONS AT
UNDERLYING UNEXERCISED FISCAL YEAR-END
OPTIONS AT FISCAL YEAR-END -------------------------
-------------------------------- EXERCISABLE/UNEXERCISABLE
NAME EXERCISABLE/UNEXERCISABLE (#)(2) ($)(3)
- ---- -------------------------------- -------------------------
<S> <C> <C>
P. Quentin Bourjeaurd................... 1,534,022/- 7,140,872/-
Charles Balchunas....................... 602,276/- 1,689,779/-
Douglas E. Childress.................... 75,825/160,000 167,581/-
Denny Barge............................. 97,720/60,000 192,324/-
Trevor Wright........................... 20,000/80,000 -
Jon Cohen............................... 10,000/65,000 -
</TABLE>
- ------------------------
(1) See note (6) of the "Summary Compensation Table" and the discussion under
"Stock Option Plans--The 1998 Stock Option Plan" for details concerning
additional options which were granted to Named Executive Officers since the
end of fiscal year 1999 and are not included in the table above.
(2) This table reflects the cancellation of options which terminated as a result
of the Company's Offering and options exercised by certain Named Executive
Officers during fiscal year 1998 and reported in the Company's proxy
statement filed on December 22, 1998. See note (5) of the "Summary
Compensation Table" for details concerning the terms of such options.
(3) Based upon the closing price of the Company's Shares on September 30, 1999,
which was $6.125 per Share.
EMPLOYMENT AGREEMENTS
P. QUENTIN BOURJEAURD EXECUTIVE EMPLOYMENT AGREEMENT. Mr. Bourjeaurd
entered into an executive employment agreement with the Company on September 19,
1996. Pursuant to his employment agreement, Mr. Bourjeaurd will serve as
President of the Company through September 19, 2001, unless earlier terminated
as provided therein. Under his employment agreement, Mr. Bourjeaurd receives an
annual salary of $200,000 and is entitled to medical and other benefits
generally available to senior executives of the Company. On July 1, 1997 the
Compensation Committee increased Mr. Bourjeaurd's annual compensation to
$225,000. The Company and Mr. Bourjeaurd amended certain provisions of the
executive employment agreement on October 31, 1999 by letter agreement. The
amendment provides that if Mr. Bourjeaurd's employment is terminated by the
Company other than for Cause (as defined in his employment agreement),
Mr. Bourjeaurd will continue to receive his salary and benefits as currently
provided (as severance) through September 19, 2001, the termination date. In the
event Mr. Bourjeaurd's
13
<PAGE>
employment is terminated for Cause or by reason of Death or Disability (as
defined in his employment agreement), no further compensation will be payable by
the Company.
Additionally, Mr. Bourjeaurd's employment agreement contains a
non-competition provision pursuant to which Mr. Bourjeaurd has agreed, during
the term of his employment and for such period of time following the Term that
he is receiving payments, not to engage in any business activity, without the
consent of the Company, which would be in competition with any business in which
the Company or any of its subsidiaries or affiliates are then engaged or
planning to be engaged. The executive employment agreement was further amended
by the October 31, 1999 letter agreement so that the non-competition covenant
contained in the agreement will continue to apply until September 19, 2001 under
all circumstances. Also, in the letter amendment, Mr. Bourjeaurd acknowledged
that the transactions contemplated by the Merger Agreement would make
AlliedSignal Hardware Product Group an "affiliate" as it is defined in the
employment agreement for purposes of the non-competition provisions of the
agreement.
CHARLES BALCHUNAS EXECUTIVE EMPLOYMENT AGREEMENT. Mr. Balchunas entered
into an executive employment agreement with the Company on February 1, 1997.
Pursuant to his employment agreement, Mr. Balchunas will serve as Chief
Operating Officer of the Company through December 31, 1999, unless earlier
terminated as provided therein. Under his employment agreement, Mr. Balchunas
receives an annual salary of $200,000, is eligible for such discretionary
bonuses as the Compensation Committee may determine and is entitled to medical
and other benefits generally available to senior executives of the Company.
Mr. Balchunas' employment agreement also provides that if Mr. Balchunas'
employment is terminated other than for Cause (as defined therein),
Mr. Balchunas will continue to receive his salary and benefits (as severance)
for a period of two years following the Date of Termination (as defined therein)
of his employment; provided that such continued salary and benefits will cease
upon commencement by Mr. Balchunas of other full-time employment. In the event
Mr. Balchunas' employment is terminated for Cause or by reason of Death or
Disability (as defined therein), no further compensation will be payable by the
Company. Additionally, Mr. Balchunas' employment agreement contains a
non-competition provision pursuant to which Mr. Balchunas has agreed not to
engage in any business activity, without the consent of the Company, which would
be in competition with any business engaged in by the Company during his
employment and for two years thereafter.
DOUGLAS E. CHILDRESS EXECUTIVE EMPLOYMENT AGREEMENT. Mr. Childress entered
into an executive employment agreement with the Company on January 15, 1998.
Pursuant to his employment agreement, Mr. Childress will serve as Executive Vice
President and Chief Financial Officer of the Company through January 15, 2000,
unless earlier terminated as provided therein. Under this employment agreement,
Mr. Childress receives an annual salary of at least $150,000, is eligible for
such discretionary bonuses as the Compensation Committee may determine and is
entitled to medical and other benefits generally available to senior executives
of the Company.
Mr. Childress' employment agreement also provides that if Mr. Childress'
employment is terminated other than for Cause (as defined therein),
Mr. Childress will continue to receive his salary and benefits (as severance)
for a period of two years following the Date of Termination (as defined therein)
of his employment; provided that such continued salary and benefits will cease
upon commencement by Mr. Childress of other full-time employment. In the event
Mr. Childress' employment is terminated for Cause or by reason of Death or
Disability (as defined therein), no further compensation will be payable by the
Company. Additionally, Mr. Childress' employment agreement contains a
non-competition provision pursuant to which Mr. Childress has agreed not to
engage in any business activity, without the consent of the Company, which will
be in competition with any business engaged in by the Company during his
employment and for such period of time thereafter that Mr. Childress continues
to receive any of the severance payments described above.
14
<PAGE>
TREVOR WRIGHT EXECUTIVE EMPLOYMENT AGREEMENT. Mr. Wright entered into an
executive employment agreement with the Company on August 1, 1998. Pursuant to
his employment agreement, Mr. Wright will serve as Executive Vice President of
Sales and Marketing of the Company through July 31, 2000, unless earlier
terminated as provided therein. Under his employment agreement, Mr. Wright
receives an annual salary of $140,000, is eligible for such discretionary
bonuses as the Compensation Committee may determine and is entitled to medical
and other benefits generally available to senior executives of the Company.
Mr. Wright's employment agreement also provides that if Mr. Wright suffers a
Permanent Disability (as defined therein) and the Company terminates his
employment as a result thereof, or Mr. Wright is terminated due to Death (as
defined therein), Mr. Wright or his estate will receive the balance of his base
salary under his employment agreement (as severance). In the event Mr. Wright's
employment is terminated without Cause (as defined therein) or Mr. Wright
terminates his employment because of Constructive Termination (as defined
therein), Mr. Wright will continue to receive his salary (as severance) for a
period of two years following the Date of Termination (as defined therein). In
the event Mr. Wright's employment is terminated for Cause (as defined therein),
no further compensation will be payable by the Company. Additionally,
Mr. Wright's employment agreement contains a non-competition provision pursuant
to which Mr. Wright has agreed not to engage in any business activity, without
the consent of the Company, which will be in competition with any business
engaged in by the Company during his employment and for such period of time
thereafter that Mr. Wright continues to receive any of the severance payments
described above.
DANIEL BARTH EXECUTIVE EMPLOYMENT AGREEMENT. Mr. Barth entered into an
executive employment agreement with the Company on May 24, 1999. Pursuant to his
employment agreement, Mr. Barth will serve as Vice President of Information
Technology of the Company through May 24, 2000, unless earlier terminated as
provided therein. Under his employment agreement, Mr. Barth receives an annual
salary of $175,000, is eligible for such discretionary bonuses as the
Compensation Committee may determine and is entitled to medical and other
benefits generally available to senior executives of the Company.
Mr. Barth's employment agreement also provides that if Mr. Barth's
employment is terminated other than for Cause (as defined therein), Mr. Barth
will continue to receive his salary and benefits until the end of the Employment
Term (as defined therein); provided that such continued salary and benefits will
be reduced by any earned income received by Mr. Barth during such period
following termination. In the event Mr. Barth's employment is terminated for
Cause or by reason of Death or Disability (as defined therein), no further
compensation will be payable by the Company. Additionally, Mr. Barth's
employment agreement contains a non-competition provision pursuant to which
Mr. Barth has agreed not to work for, directly or indirectly, any other business
entity that competes with the Company in the states of California, Florida,
Texas and Arizona during the Employment Term. Mr. Barth has further agreed that,
until 12 months after the Employment Term, he will not persuade or induce any
Company employee to leave his or her employment with the Company.
1999 BONUS PLAN
The Company's 1999 Bonus Plan provides for a maximum annual bonus amount
payable to executives and employees. For each executive, the bonus amount is
determined by the Compensation Committee based upon the following factors:
(1) the achievement by the Company of certain financial objectives and
(2) individual performance criteria.
STOCK OPTION PLANS
THE 1996 STOCK OPTION PLAN. The Company's Amended and Restated 1996 Stock
Option Plan (the "1996 Stock Option Plan") authorizes the issuance of up to
3,950,000 Shares pursuant to stock options granted to key employees,
non-employee directors and consultants of the Company. The 1996 Stock
15
<PAGE>
Option Plan is administered by the Compensation Committee which selects the
optionees and determines the terms and provisions of each option grant within
the parameters set forth in the 1996 Stock Option Plan.
In general, in the event of a "change in control" (as defined in the 1996
Stock Option Plan) of the Company, each option will terminate within a specified
number of days after notice to the holder of such option, and each such holder
will receive, in respect of each option which is then exercisable, an amount
equal to the excess of the aggregate fair market value of the Shares subject to
the vested option over the exercise price, payable in the same consideration as
received by the stockholders of the Company upon the closing of such
transaction. Pursuant to the 1996 Stock Option Plan and confirmed by the
Compensation Committee, the conversion of the vested options into consideration
received by stockholders shall occur simultaneously with, and the termination of
all options under the 1996 Stock Option Plan shall occur after, the consummation
of the Merger, which event constitutes a "change in control." On October 19,
1999, the Compensation Committee resolved to grant under the 1996 Stock Option
Plan a total of 407,140 options to employees other than executive officers,
directors or affiliates of the Company. All options granted on October 19, 1999
pursuant to the 1996 Stock Option Plan shall accelerate and become exercisable
immediately prior to and subject to the occurrence of the Merger, entitling the
holder to receive the compensation described above.
THE 1998 STOCK OPTION PLAN. The Company's 1998 Stock Option Plan (the "1998
Stock Option Plan") authorizes the issuance of up to 2,000,000 Shares of the
Company pursuant to stock options granted to key employees, non-employee
directors and consultants of the Company. The 1998 Stock Option Plan is
administered by the Compensation Committee which selects the optionees and
determines the terms and provisions of each option grant within the parameters
set forth in the 1998 Stock Option Plan.
In general, in the event of a "change in control" (as defined in the 1998
Stock Option Plan) of the Company, the Compensation Committee has the discretion
(i) to accelerate the vesting of each option not then currently exercisable,
(ii) to cause each option to terminate within a period of time after delivery of
notice and (iii) to cause each option holder to receive, in respect of each
Share for which such option is exercisable, an amount equal to the excess of the
fair market value of such Share over the exercise price per Share, payable in a
form of consideration as determined by the Compensation Committee.
The Compensation Committee has exercised its discretion provided by Section
11 of the 1998 Stock Option Plan to provide that options subject to the 1998
Stock Option Plan shall, in connection with the transactions contemplated by the
Merger Agreement, terminate immediately after the Effective Time (as defined in
the Merger Agreement), and such options which are exercisable at the Effective
Time shall be converted as described in clause (iii) above, upon the occurrence
of the Effective Time.
The Compensation Committee has decided not to exercise its discretion
provided by Section 11 of the 1998 Stock Option Plan to accelerate any option
granted under the 1998 Stock Option Plan if the option agreement evidencing the
granting of such options contains a provision that provides that such option
will accelerate upon a change in control if, and only if, the closing price of
the Shares on the closing date of such change in control is at least $14.
Accordingly, options subject to such provisions which are not otherwise vested
at the Effective Time will not accelerate or be converted as described above
since the Offer Price (as defined in the Merger Agreement) is $9.50.
On October 19, 1999, the Compensation Committee resolved to grant, under the
1998 Stock Option Plan, a total of 345,000 options, 5,000 of which were to a
consultant of the Company. All options granted on October 19, 1999 pursuant to
the 1998 Stock Option Plan shall accelerate and become exercisable immediately
prior to and subject to the occurrence of the Merger, entitling the holder to
receive the compensation described above. The following options were granted to
Named Executive Officers on October 19, 1999 under the 1998 Stock Option Plan:
(1) Douglas E. Childress was granted 80,000 options at a strike price of
$5.50 per Share.
16
<PAGE>
(2) Jon Cohen was granted 60,000 options at a strike price of $5.50 per
Share.
(3) Trevor Wright was granted 60,000 options at a strike price of $5.50 per
Share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No executive officer of the Company served as a member of the compensation
committee (or other board committee performing similar functions or, in its
absence of any such committee, the entire board of directors) of another
corporation, one of whose executive officers served on the Compensation
Committee. No executive officer of the Company served as a director of another
corporation, one of whose executive officers served on the Compensation
Committee. No executive officer of the Company served as a member of the
compensation committee (or other board committee performing equivalent functions
or, in the absence of any such committee, the entire board of directors) of
another corporation, one of whose executive officers served as a director of the
Company.
CERTAIN RELATED PARTY TRANSACTIONS
MANAGEMENT STOCKHOLDERS' AND OPTIONHOLDERS' AGREEMENT
The Company and each management stockholder and optionholder are parties to
an Amended and Restated Management Stockholders' and Optionholders' Agreement
dated as of May 15, 1997 (the "Stockholders Agreement"). The Stockholders
Agreement provides, among other things, for certain limitations on transfers of
the Common Stock, for the grant of proxies and powers of attorney in favor of
Odyssey Partners L.P., and for certain "piggyback" registration rights in favor
of the management stockholders with respect to registered offerings of the
Common Stock by the Company. Upon the consummation of the Company's Offering,
however, the Stockholders Agreement terminated, except with respect to the
"piggyback" registration rights granted to the management stockholders. The
management stockholders party to the agreement include Messrs. Bourjeaurd,
Balchunas, Childress, and Barge, in addition to certain other employees of the
Company.
LOANS TO MANAGEMENT
On September 19, 1996, the Company loaned Mr. Bourjeaurd $200,000 at an
interest rate of 5.93% per annum, the proceeds of which were used to purchase
Common Stock of the Company. The entire principal and interest under such loan
was repaid by Mr. Bourjeaurd on December 11, 1997. On April 15, 1997, the
Company loaned an additional $100,000 to Mr. Bourjeaurd at an interest rate of
5.83% per annum, the proceeds of which were used to purchase additional Common
Stock. The entire principal and interest under such loan was repaid by
Mr. Bourjeaurd on December 11, 1997.
On May 30, 1997, the Company loaned Mr. Balchunas $75,000 at an interest
rate of 6.74% per annum, the proceeds of which were used, together with personal
funds, to purchase 136,512 Shares of the Company at a purchase price of $1.47
per Share. Until all principal and interest is paid in full, Mr. Balchunas is
required to apply all proceeds from any sale or transfer of any Shares owned by
him to the principal and interest then owing under the loan. Interest is
otherwise payable semi-annually. Interest of $5,127 was accrued for the fiscal
year 1999. On January 13, 1999, the Company released 100,000 Shares that were
pledged as collateral for such loan. The Company retains a pledge on 36,512
Shares owned by Mr. Balchunas, as collateral for the loan.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers and holders of more than 10% of the Company's outstanding
Common Stock to file with the Commission reports of ownership and changes in
ownership of Common Stock and other equity securities of the Company on Forms 3,
4 and 5. Based on written representations of reporting persons and a review of
those
17
<PAGE>
reports, the Company believes that during the fiscal year 1999, all its officers
and directors and holders of more than 10% of the Company's Common Stock
complied with all applicable Section 16(a) filing requirements, except as
follows: In April 1999, Brian Barents reported on Form 4 a transaction in which
he purchased 6,000 Shares of the Company. Mr. Barents was delinquent in filing
such report. In November 1999, P. Quentin Bourjeaurd filed a report on Form 5
delinquently with respect to the disposition of 120,527 Shares that were not
properly reported on a Form 4 following the Offering. This Information Statement
states the corrected Share amounts for Mr. Bourjeaurd.
18
