EVEREST & JENNINGS INTERNATIONAL LTD.
NOTICE OF 1994 ANNUAL MEETING OF STOCKHOLDERS
May 23, 1994
Notice is hereby given that the 1994 Annual Meeting of Stockholders
(the "Annual Meeting") of Everest & Jennings International Ltd. (the
"Company") will be held at 1100 Corporate Square Drive, St. Louis, Missouri
63132, on May 23, 1994, commencing at 11:00 a.m. The Annual Meeting is
being held for the following purposes:
(1) To elect five (5) members of the Board of Directors.
(2) To ratify the appointment of Price Waterhouse as the
independent accountants of the Company for fiscal 1994.
(3) To transact such other business as properly may come before the
meeting or any adjournment thereof.
Only stockholders of record at the close of business on April 8, 1994
are entitled to vote at the Annual Meeting.
All stockholders are cordially invited to attend the meeting in person.
IN ANY EVENT, PLEASE MARK YOUR VOTES, THEN DATE AND SIGN THE ENCLOSED
FORM(S) OF PROXY AND RETURN YOUR VOTED PROXY OR PROXIES PROMPTLY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE WHETHER OR NOT YOU CURRENTLY PLAN TO ATTEND
THE ANNUAL MEETING. YOU MAY REVOKE YOUR PROXY IF YOU DECIDE TO ATTEND THE
ANNUAL MEETING AND WISH TO VOTE YOUR SHARES IN PERSON.
BY ORDER OF THE BOARD OF DIRECTORS
JOSEPH A. NEWCOMB
Secretary
St. Louis, Missouri
April 22, 1994
EVEREST & JENNINGS INTERNATIONAL LTD.
1100 Corporate Square Drive
St. Louis, Missouri 63132
________________
PROXY STATEMENT
________________
GENERAL
This Proxy Statement (first mailed on or about April 22, 1994 to
stockholders of record on April 8, 1994) is furnished in connection with
the solicitation by the Board of Directors of Everest & Jennings
International Ltd. (the "Company") of Proxies for use at the 1994 Annual
Meeting of Stockholders (the "Annual Meeting"), or at any adjournment
thereof. The Annual Meeting will be held on May 23, 1994, at 11:00 a.m.,
at 1100 Corporate Square Drive, St. Louis, Missouri 63132.
The Annual Meeting is being held: (i) to elect five (5) members of the
Board of Directors of the Company; (ii) to ratify the appointment of Price
Waterhouse as the independent accountants of the Company for fiscal 1994;
and (iii) to transact such other business as properly may be brought before
the meeting or any adjournment thereof.
Separate forms of Proxy apply to the Company's Common shares, Series A
Convertible Preferred Stock, Series B Convertible Preferred Stock and
Series C Convertible Preferred Stock. Enclosed is a form of Proxy for the
shares of Common stock and each Series of Preferred Stock held by you on
the Record Date, as defined below.
Unless otherwise indicated on the forms of Proxy, shares represented by
any Proxy on the enclosed forms will, if the Proxy is properly executed and
received by the Company prior to the Annual Meeting, be voted FOR each of
the nominees for director shown on the form of Proxy and FOR ratification
of the appointment of Price Waterhouse as the independent accountants of
the Company. Any Proxy executed and returned to the Company may be revoked
by the person giving it by delivering a later signed and dated Proxy or
other written notice of revocation to the Secretary of the Company at any
time prior to the exercise of the Proxy. A Proxy is also subject to
revocation if the person executing the Proxy is present at the Annual
Meeting and chooses to vote in person.
STOCK OWNERSHIP
The stockholder shown in the following table is known to have owned
beneficially, as of April 8, 1994, at least 5% of any class or series of
the Company's shares. Some of the following information concerning share
ownership is based upon Schedules 13D filed with the Securities and
Exchange Commission (the "SEC").
Shares of Shares of Shares of
Shares of Series A Series B Series C
Common Preferred Preferred Preferred
Stock Stock Stock Stock
Beneficially Beneficially Beneficially Beneficially
Owned(1) Owned(2) Owned(2) Owned(2)
------------ ------------ ------------ ------------
Name/Address No. of Shares No. of Shares No. of Shares No. of Shares
of Beneficial ------------- ------------- ------------- -------------
Owner Percent Percent Percent Percent
- - ------------- ------- ------- ------- -------
BIL (Far East
Holdings) 57,799,352(3) 6,622,206 786,357 20,000,000
Limited ("BIL")
2801 Three 79.05%(3) 100% 100% 100%
Exchange Square
Central, Hong Kong
[FN]
(1) For purposes of this chart, a total of 73,114,790 Common shares are
deemed to be outstanding as of April 8, 1994 as follows: 72,199,612
shares actually outstanding; 25,799 Common shares issuable to past and
current directors of the Company in lieu of certain directors fees; and
889,379 shares issuable pursuant to options granted under the Company's
1990 Omnibus Stock Incentive Plan which are currently exercisable or
will become exercisable within 60 days after April 8, 1994. The
following shares are not included: approximately 83,650 shares
issuable on exercise of outstanding options granted under the Company's
1981 Stock Option Plan (all of which are exercisable at exercise prices
in excess of the highest closing price for the Class A Common shares
for the 52-week period ended April 8, 1994, and which the Company
accordingly believes are unlikely to be exercised within 60 days of
April 8, 1994); 6,622,206 shares issuable on conversion of the
outstanding Series A Preferred Stock; 786,357 shares issuable on
conversion of the outstanding Series B Preferred Stock; and 20,000,000
shares issuable on conversion of the outstanding Series C Preferred
Stock.
(2) Except as required by applicable law, each share of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock has the
same voting rights as a Common share of the Company and the holders of
the Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock have the right to vote together with the holders of the
Common shares as a class (including with respect to the election of
directors).
(3) Includes a total of 4,000 Common shares issuable to Robert G.
Sutherland, Michael S. Dreyer and Terry E. Vandewarker, respectively,
in lieu of cash payment of certain director fees. Messrs. Dreyer and
Vandewarker are former directors of the Company. Pursuant to the terms
of their employment or consulting arrangements with BIL and its
affiliates, Messrs. Sutherland, Dreyer and Vandewarker have assigned
such shares to BIL.
QUORUM AND VOTING
Only stockholders of record as of the close of business on April 8,
1994 (the "Record Date") will be entitled to vote at the Annual Meeting.
On that date, 72,199,612 Common shares, $0.01 par value; 6,622,206 shares
of Series A Preferred Stock, $0.01 par value; 786,357 shares of Series B
Preferred Stock, $0.01 par value; and 20,000,000 shares of Series C
Preferred Stock, $0.01 par value, were outstanding.
The presence at the Annual Meeting, in person or by proxy, of the
holders of a majority of the outstanding shares of the Common Stock, the
Series A Preferred Stock, the Series B Preferred Stock and the Series C
Preferred Stock is necessary to constitute a quorum for transacting
business, the election of directors and any other matter requiring a vote
by class. The holders of Common shares, Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock are entitled to one (1) vote
per share.
Cumulative voting is permitted in the election of directors provided
that at least one stockholder has given notice at the Annual Meeting,
before voting has commenced, of an intention to cumulate votes. If any one
stockholder gives notice of an intention to cumulate votes, all
stockholders may cumulate their votes for the candidates. To cumulate
votes, a stockholder may cast as many votes as there are directors to be
elected by his or her class of stock multiplied by the number of shares of
that class registered in his or her name on the Record Date. These votes
may be cast all for one (1) candidate or may be distributed among the
candidates at the discretion of the stockholder. In any election of
directors, the candidates receiving the highest number of affirmative votes
of the shares entitled to be voted for them up to the number of directors
to be elected by such shares are elected; votes against the director and
votes withheld have no legal effect. The Company is not aware that any
stockholder intends to cumulate votes at the Annual Meeting.
As of April 8, 1994, the Company's current officers, directors and
director nominees as a group owned of record or beneficially 60,810,807
(approximately 84.2%) of the outstanding Common shares, all of the
outstanding shares of Series A Preferred Stock, all of the outstanding
shares of Series B Preferred Stock, and all of the outstanding shares of
Series C Preferred Stock. Accordingly, as of the Record Date, the
Company's current officers and directors beneficially owned approximately
88.6% of the total outstanding Common shares, Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock.
Because his position as a director of BIL may give him the power to
direct the voting of shares over which BIL has voting control, Rodney F.
Price, a current director and a nominee for director of the Company, is
deemed to be a beneficial owner of the aggregate 85,207,915 (85.5%) shares
of Common stock, Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock which BIL has the power to vote for the election
of directors.
Because his position as a general partner of the general partner of
Ampersand Specialty Materials Ventures Limited Partnership ("ASMVLP") may
give him the power to direct the voting of shares over which ASMVLP has
voting control, Charles D. Yie, a current director and a nominee for
director of the Company, is deemed to be a beneficial owner of the
2,581,970 shares of Common stock which ASMVLP has the power to vote for the
election of directors.
Under applicable cumulative voting procedures, as of April 8, 1994, the
current officers, directors and director nominees of the Company had
beneficial ownership of shares of stock with the power to elect all of the
five (5) Directors. If votes are not cumulated for the election of
directors at the Annual Meeting, the current officers, directors and
director nominees of the Company had the power as of April 8, 1994 to elect
all of the five (5) Directors. The ratification of the appointment of
Price Waterhouse as independent accountants for the Company will require
the affirmative vote of a majority of the votes of the Common sharesand the
shares of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock voting together and counted in the manner set forth above,
present and voting at the Annual Meeting in person or by Proxy.
RECLASSIFICATION OF CLASS A COMMON SHARES
AND CLASS B COMMON SHARES
On March 17, 1992, the stockholders of the Company approved a Plan of
Reclassification. Under the Plan of Reclassification, the Certificate of
Incorporation of the Company was amended to reclassify the Company's
authorized Class A Common shares and Class B Common shares with a new
single class of Common Stock (the "Single Class Common Stock") having
25,000,000 authorized shares and reclassified each outstanding Class A
Common share and each outstanding Class B Common share into one share of
such new Single Class of Common Stock. The Plan of Reclassification became
effective as of the close of business on November 18, 1993.
The elimination of the Class B Common shares had the effect of shifting
the ability to elect a majority of the Board of Directors of the Company
from the holders of the Class B Common Stock to those persons who hold a
majority of the new Single Class Common Stock. The Class B Common shares
lost the right to elect a specified portion of the Board of Directors. The
voting power of the former holders of Class A and Class B Common shares
have been further affected by the issuance of shares of Series A Preferred
Stock and Series B Preferred Stock to BIL.
The voting power of the former holders of Class A Common shares was
increased from one-tenth (1/10th) vote per share to one (1) vote per share
on all matters other than the election of a specified portion of the Board
of Directors. Similarly, in all matters other than the election of
directors, the voting power of the former holders of Class B Common shares
was diluted by the Plan of Reclassification as a result of the ten-fold
increase in the voting power of each former Class A Common share.
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
PROPOSAL NO. 1
ELECTION OF DIRECTORS
THE BOARD OF DIRECTORS
The Company's Bylaws provide for a Board of Directors of five (5)
members as of the Annual Meeting.
Each of the persons listed below has been nominated by the Company's
current Board of Directors for election to the Board at the Annual Meeting.
Each director will hold office until the next Annual Meeting and until his
or her successor is elected and qualified.
If the enclosed Proxy is properly executed and returned to the Company
before the Annual Meeting, the persons named in the Proxy will vote the
shares represented by the Proxy FOR the nominees shown on the Proxy. The
persons named in the Proxy will have the right to vote cumulatively and to
distribute votes among nominees as they consider advisable. If any of the
nominees becomes unavailable for any reason, or if a vacancy should occur
before the election, the shares represented by the Proxy will be voted FOR
the person, if any, who is designated by the Board of Directors to replace
the nominee or to fill the vacancy on the Board. The Board of Directors
has no reason to believe that any of the nominees will be unavailable or
that any vacancy on the Board of Directors will occur. All nominees have
consented to be named and have indicated their intent to serve if elected.
INFORMATION REGARDING NOMINEES
The following tables set forth certain information concerning all
nominees for election. The number of shares shown for each nominee as of
April 8, 1994 includes shares, if any, held beneficially or of record by
each nominee's spouse; voting and investment power of the shares also may
be shared by spouses. In addition, the number of shares shown for each
nominee includes shares which the nominee may purchase or acquire pursuant
to the exercise of any outstanding stock option or conversion of any
convertible security exercisable or convertible on or before June 8, 1994;
the percentage of shares owned by each nominee is calculated by using as
the total number of shares of that class or series of stock the actual
number of shares outstanding on the Record Date, plus the number of shares
as to which that nominee as of April 8, 1994 had beneficial ownership due
to his or her ability to exercise a stock option or to convert a security
within sixty (60) days after such date.
<PAGE>
Principal Occupations and
Affiliations Over the Last
Five Years; Directorships in Director
Name Age Other Publicly Held Companies Since
- - ---- --- ----------------------------- --------
Dianne J. Jennings 35 Self-employed Certified Public Accountant 1988
since May 1, 1993; Certified Public
Accountant with Barnard, Vogler & Co.
from February 15, 1989 to April 30,
1993; accountant with Barnard, Vogler &
Co. from September 1986 to February 14,
1989.
Robert C. Sherburne 73 Private investor; Chairman of Zac Ind., 1982
a manufacturer, from February 1985 to
June 1990; director of Zero Corp. from
1975 to 1992.
Rodney F. Price 50 Director, Brierley Investments Ltd. 1994
since 1993; Managing Director & CEO,
Pioneer International Ltd. from 1990 to
1993; Managing Director & CEO,
Industrial Equity Limited (IEL) from
1986 to 1989. Chairman, Australia Media
Ltd.; Director, Ilvis; Director, Mount
Charlotte Investments.
Bevil J. Hogg 46 President and Chief Executive Officer 1994
since January 21, 1994; Executive Vice
President from January 14, 1994 to
January 20, 1994; Chief Executive
Officer of Medical Composite Technology,
Inc. from December 16, 1992 to January
13, 1994; Chief Executive Officer of
Cycle Composite, Inc. from 1986 to
December, 1992.
Charles D. Yie 35 General Partner of Ampersand Ventures, a 1994
venture capital investment company,
since 1989; Principal from 1987 to 1989.
<PAGE>
Shares of Shares of Shares of
Shares of Series A Series B Series C
Common Preferred Preferred Preferred
Stock Stock Stock Stock
Beneficially Beneficially Beneficially Beneficially
Owned(1) Owned(2) Owned(2) Owned(2)
------------ ------------ ------------ ------------
Name/Address No. of Shares No. of Shares No. of Shares No. of Shares
of Beneficial ------------- ------------- ------------- -------------
Owner Percent Percent Percent Percent
- - ------------- ------- ------- ------- -------
B. J. Hogg 332,239 0 0 0
* * * *
D. J. Jennings 83,870(3) 0 0 0
* * * *
R. F. Price 57,799,352(5) 6,622,206(5) 786,357(5) 20,000,000(5)
79.05% 100% 100% 100%
R. C. Sherburne 4,433(4) 0 0 0
* * * *
C. D. Yie 2,581,970(6) 0 0 0
3.5% * * *
[FN]
* The percentage of shares beneficially owned does not exceed 1% of the
outstanding shares of the applicable class.
(1) For purposes of this chart, a total of 73,114,790 Common shares are
deemed to be outstanding as of April 8, 1994 as follows: 72,199,612
shares actually outstanding; 25,798 Common shares issuable to past and
current directors of the Company in lieu of certain directors fees; and
889,379 shares issuable under options granted under the Company's 1990
Omnibus Stock Incentive Plan which are currently exercisable or will
become exercisable within 60 days after April 8, 1994. The following
shares are not included: approximately 83,650 shares issuable on
exercise of outstanding options granted under the Company's 1981 Stock
Option Plan (all of which are exercisable at exercise prices in excess
of the highest closing price for the Class A Common shares and single
class Common shares for the 52-week period ended April 8, 1994 and
which the Company accordingly believes are unlikely to be exercised
within 60 days of April 8, 1994); 6,622,206 shares issuable on exercise
of the outstanding Series A Preferred Stock; 786,357 shares issuable on
conversion of the outstanding Series B Preferred Stock; and 20,000,000
shares issuable on conversion of the outstanding Series C Preferred
Stock.
(2) Except as required by applicable law, each share of Series A Preferred
Stock, Series B Preferred Stock, and Series C Preferred Stock has the
same voting rights as a share of Common stock of the Company.
(3) Includes 4,683 Common shares issuable to Ms. Jennings in lieu of
payment of 50% of accrued directors fees payable to her and 5,803
shares owned by Ms. Jennings' husband.
(4) Includes 3,933 Common shares issuable to Mr. Sherburne in lieu of
payment of 50% of accrued directors fees payable to him.
(5) Consists entirely of shares of stock beneficially owned by BIL and
which Mr. Price may be deemed to own beneficially because he is a
director of BIL.
(6) Consists entirely of shares of stock beneficially owned by ASMVLP and
which Mr. Yie may be deemed to own beneficially because he is a general
partner of the general partner of ASMVLP.
AGREEMENTS REGARDING THE ELECTION OF DIRECTORS
As of August 30, 1991, BIL entered into Stockholder Agreements
(collectively the "A/B Exchange Agreements") and Offer and Election
Agreements pursuant to which the following stockholders (the "Exchanging
Stockholders") declined an opportunity granted by BIL to acquire an
interest in an Amended and Restated 9% Subordinated Convertible Note (the
"Amended Convertible Note") issued by the Company, agreed to exchange each
Class B Common share held by them for a Class A Common share held by BIL
and granted to BIL proxies (the "New Proxies") to vote all Class A Common
shares held by them to approve certain matters: Sybil M. Jennings, as
Trustee of The Harry and Sybil Jennings Family Residual Trust Under
Agreement Dated May 1, 1976 (the "SMJ Family Trust"); Sybil M. Jennings, as
Trustee of The Harry and Sybil Jennings Family Survivors Trust Under
Agreement Dated May 1, 1976 (the "SMJ Survivors Trust"); Elizabeth A.
Jennings, as Trustee of The Gerald M. Jennings and Elizabeth A. Jennings
Revocable Survivor Trust (the "EAJ Survivors Trust"); Elizabeth A.
Jennings, as Trustee of The Gerald M. Jennings and Elizabeth A. Jennings
Irrevocable Family Trust (the "EAJ Family Trust"); David D. Jennings; and
Dianne J. Jennings. The failure of BIL to vote to approve certain matters
at the Company's Annual Meeting held on March 17, 1992 would have permitted
the Exchanging Stockholders to revoke the New Proxies and would have caused
reversal of the exchanges pursuant to the A/B Exchange Agreements. At such
Annual Meeting, BIL voted in favor of the matters covered by the New
Proxies and the New Proxies terminated as of March 17, 1992. The A/B
Exchange Agreements obligate BIL, and BIL affiliates to which it transfers
any such stock or voting right, to vote for a period of three (3) years
ending August 30, 1994, all shares of Company stock owned by BIL and all
other shares of Company stock which BIL at any time has the right to vote
for the election of directors, to elect Dianne J. Jennings, or her nominee,
to the Board of Directors.
The Company has agreed, through July, 1995 and pursuant to the terms of
the acquisition of Medical Composite Technology, Inc., to nominate two
nominees for election to the Board of Directors as designated by the
holders of at least a majority of the Common shares issued by the Company
in such acquisition. Additionally, the Company agreed that the Board of
Directors would not exceed 15 persons during such time period.
NUMBER OF DIRECTORS BIL AND OTHER STOCKHOLDERS CAN ELECT
The following table sets forth information, for both cumulative and
non-cumulative voting, regarding the number of directors to be elected at
the Annual Meeting, the number of votes required to elect directors, the
number of directors which BIL has the power to elect and the number of
directors which may be elected by the stockholders other than BIL.
Non-
Cumulative Vote Cumulative Vote
--------------- ---------------
Total Number of Directors 5 5
Number of Votes Required
to Elect One Director 16,601,363 49,804,088
Number of Votes Required
to Elect All Directors 83,006,813 49,804,088
Number of Directors BIL Can Elect 5 5
Number of Directors Other
Stockholders Can Elect 0 0
PROPOSAL NO. 2
APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Company has employed Price Waterhouse as its independent
accountants. During fiscal year 1993, the audit services of Price
Waterhouse included the audit of the Company's consolidated financial
statements, services related to filings with the Securities and Exchange
Commission and accounting consultation services.
The rendition of routine audit and non-audit services by Price
Waterhouse was reviewed and approved in advance by the Audit Committee on
behalf of the Board of Directors. As part of the process, the Audit
Committee also considered whether the rendition by that firm of certain
non-audit services affects its independence as the Company's independent
accountants and concluded that it does not.
It is anticipated that representatives of Price Waterhouse will be
present at the Annual Meeting and will have an opportunity to make a
statement, if they wish to do so, and to respond to any appropriate
inquiries of the stockholders or their representatives.
VOTE REQUIRED AND RECOMMENDED FOR APPROVAL
The Board of Directors and its Audit Committee recommend that the
stockholders vote FOR the appointment of Price Waterhouse as independent
accountants to perform the audit of the Company's accounts for the 1994
fiscal year.
BIL has indicated that it intends to vote all of its Common shares,
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock FOR ratification of the appointment of Price Waterhouse as
independent accountants. Such a vote by BIL, standing alone, would
constitute ratification of such appointment by the stockholders.
<PAGE>
IDENTIFICATION OF EXECUTIVE OFFICERS
The following table sets forth certain information concerning all
current executive officers of the Company.
Officer Positions with Business Experience
Name/Age Since the Company During Past Five Years
- - -------- ------- -------------- ----------------------
Bevil J. Hogg 1993 President and President and Chief Executive
46 Chief Executive Officer since January 21,
Officer 1994; Executive Vice President
from January 14, 1994 to
January 20, 1994; CEO of
Medical Composite Technology,
Inc. from December 16, 1992 to
January 13, 1994; CEO of Cycle
Composite, Inc. from 1986 to
December, 1992.
Joseph A. Newcomb 1992 Executive Vice Chief Financial Officer since
43 President, Chief January 21, 1994; Executive
Financial Officer Vice President and General
and Secretary Counsel of the Company since
December 15, 1992; Secretary
of the Company since March 17,
1992; Vice President and
General Counsel of BIL (USA)
Inc. from June 1989 to
September 30, 1993; Vice
President, General Counsel and
Secretary of Capital
Associates, Inc. (an equipment
leasing and finance company)
from April 1984 to June 1989.
Robert A. Swatek 1993 Executive Vice Executive Vice President -
47 President, Operations since March 29,
Operations 1993; Analyst and Director of
Alexander Proudfoot Co. from
January 1990 to March 1993;
independent contract
consultant from June 1982 to
January 1990.
Stephen A. Dezember1992 Executive Vice Executive Vice President -
49 President, Sales and Marketing since
Sales & Marketing January 13,1992; Vice
President, Marketing and
Sales of Beiersdorf, AG, Jobst
Institute, formerly a division
of Bristol-Meyers Squibb, from
October 1986 to January 1992.
Joseph E. Mata 1992 Executive Vice Executive Vice President -
42 President, Human Resources since March
Human Resources 30, 1992; Vice President Human
Resources of Gerry Baby
Products Company, a division
of Huffy Corporation, from
January 1988 to March 1992;
Vice President Human Resources
of Raleigh Cycle Co. of
America, a division of Huffy
Corporation, from May 1985 to
January 1988.
Douglas L. Rash 1993 Executive Vice Executive Vice President - New
50 President, New Business Development and
Business Institutional Group since
Development and November 8, 1993; Vice
Institutional Group President and General Manager
of Clinicare Systems Divi-
sion of Gaymar Industries from
1988 to November, 1993.
<PAGE>
INFORMATION CONCERNING MANAGEMENT
SUMMARY OF CASH COMPENSATION AND CERTAIN OTHER COMPENSATION
The following Summary Compensation Table shows for the fiscal years
ended December 31, 1991, 1992 and 1993, the cash compensation paid by the
Company as well as certain other compensation paid or accrued for those
years, to the CEO and the other four most highly compensated executives of
the Company for services rendered in all capacities:
SUMMARY COMPENSATION TABLE
Annual Compensation
------------------------------------------
Other
Annual
Name and Salary Bonus Compensation
Principal Position Year ($) ($) ($)
- - ------------------ ---- ------ ----- ------------
C. Richard Piazza 1993 74,959(1) 0 2,722(2)
President, Chief Executive 1992 0
Officer and a Director 1991 0 0 0
of the Company
Stephen A. Dezember 1993 140,000 0 8,040(5)
Executive VP, 1992 136,452 0 5,000(7)
Sales and Marketing 1991 0 0 0
John G. Cowan 1993 127,500(9) 0 0
President & CEO of 1992 127,500(9) 0 0
E&J Canadian Ltd. 1991 127,500(9) 0 0
Robert A. Swatek 1993 121,793(10) 0 5,453(11)
Executive VP, 1992 0 0 0
Operations 1991 0 0 0
Ralph E. Wolf 1993 92,346(12) 0 4,770(13)
Executive VP and Chief 1992 0 0 0
Financial Officer 1991 0 0 0
SUMMARY COMPENSATION TABLE (continued)
Long-Term Compensation
--------------------------------------
Awards Payouts
---------------------- -------
Restricted All
Stock Options/ LTIP Other
Name and Award(s) SARs Payouts Compensation
Principal Position ($) ($) ($) ($)
- - ------------------ ------- ------ ----- ------------
C. Richard Piazza 0 500,000(3) 0 35,000(4)
President, Chief Executive 0 0
Officer and a Director 0 0 0 0
of the Company
Stephen A. Dezember 0 0 0 13,633(6)
Executive VP, 0 50,000 0 31,791(8)
Sales and Marketing 0 0 0 0
John G. Cowan 0 0 0 0
President & CEO of 0 0 0 0
E&J Canadian Ltd. 0 0 0 0
Robert A. Swatek 0 69,000 0 0
Executive VP, 0 0 0 0
Operations 0 0 0 0
Ralph E. Wolf 0 36,000 0 0
Executive VP and Chief 0 0 0 0
Financial Officer 0 0 0 0
[FN]
(1) Hired in 1993 at an annual salary of $275,000; resigned January 21,
1994.
(2) Includes $2,585 car allowance, and $137 representing the Company's
matching contribution under the 401(k) Plan.
(3) Expired April 20, 1994.
(4) Consists of $35,000 relocation assistance bridge loan.
(5) Includes $7,200 car allowance, and $840 representing the Company's
matching contribution under the 401(k) Plan.
(6) Relocation expense in connection with hiring.
(7) Car allowance.
(8) Relocation expense in connection with hiring.
(9) Includes an annual salary of US$121,500 and car allowance of
US$6,000.
(10) Hired in 1993 at annual salary of $160,000.
(11) Includes $5,400 car allowance, and $53 representing the Company's
matching contribution under the 401(k) Plan.
(12) Hired in 1993 at annual salary of $140,000; resigned as of January
21, 1994.
(13) Car allowance.
The Company has not included in the table above the incidental personal
value of perquisites furnished by the Company to current executive officers
if such incidental personal value did not exceed the lesser of $50,000 or
10% of the total of annual salary and bonus reported for the named
executive officer in the table above.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The following table contains information concerning grants of stock
options to the executive officers named previously in the Summary
Compensation Table for 1993. There were no stock appreciation rights
granted in 1993. The exercise price for all of the grants of stock options
was the fair market value on the date of the grant. The options were
granted pursuant to the Company's 1990 Omnibus Stock Incentive Plan, dated
November 2, 1990 (the "Omnibus Plan"):
OPTION/SAR GRANTS DURING THE
FISCAL YEAR ENDED DECEMBER 31, 1993
Individual Grants
------------------------------------------------
% of Total
Options/SARs
Options/ Granted to
SARs Employees Exercise or
Granted in Fiscal Base Price Expiration
Name # 1993 ($/Sh) Date
- - ------------------ ------ ---------- --------- ----------
C. Richard Piazza 500,000(1) 69.5 1.625 9-24-03
Stephen A. Dezember 0 0 0 -----
John G. Cowan 0 0 0 -----
Robert A. Swatek 60,000(2) 8.3 1.3125 3-29-03
Ralph E. Wolf 36,000(3) 5.0 1.75 5-3-03
Potential Realizable
Value at
Assumed Annual
Rates of Stock
Price Appreciation
for Option Term
--------------------------
5% ($) 10% ($)
------ --------
C. Richard Piazza 511,063 1,295,125
Stephen A. Dezember 0 0
John G. Cowan 0 0
Robert A. Swatek 49,534 125,527
Ralph E. Wolf 39,627 100,422
The dollar amounts under the 5% and 10% columns in the Option/SAR
Grants table are the result of calculations required by SEC rules
and, therefore, are not intended to forecast possible future
appreciation of the stock price of the Class A Common shares of the
Company. Although permitted by SEC rules, the Company did not use
an alternative formula or model to compute a grant date valuation
because, given the Company's recent financial performance, the
Company is not aware of any formula which will determine with any
reasonable degree of accuracy a present value based on future
unknown or volatile factors.
[FN]
(1) This option became exercisable on September 24, 1993. Mr. Piazza
resigned on January 21, 1994, and therefore his stock options terminate
effective April 20, 1994, in accordance with his stock option agreement.
(2) This option became exercisable to the extent of 10,002 shares on
September 29, 1993, and becomes exercisable with respect to an
additional 1,667 shares on each monthly anniversary thereafter (or, in
the case of the last monthly increment to become exercisable, the
balance of the option shares).
(3) This grant of 36,000 shares is to be received as blocks of 12,000
shares each on the initial three annual employment anniversary dates.
The initial option block became exercisable to the extent of 2,000
shares on November 3, 1993, and becomes exercisable with respect to an
additional 333 shares on each monthly anniversary thereafter (or, in the
case of the last monthly increment to become exercisable, the balance of
the option shares). The second and third option blocks of 12,000 shares
become exercisable to the same extent as this initial block effective
November 3, 1994 and November 3, 1995, respectively, for the same
amounts.
The following table sets forth information with respect to the
previously named executive officers regarding their exercise of options and
SARs during the year ended December 31, 1993, and unexercised options and
SARs held as of December 31, 1993. Note that no options were exercised
during 1993:
AGGREGATED OPTION/SAR EXERCISES DURING THE FISCAL YEAR ENDED
DECEMBER 31, 1993
AND OPTION/SAR VALUES AT DECEMBER 31, 1993
Value of
Number of Unexercised
Unexercised In-the-Money
Shares Options/SARs Options/SARs
Acquired at 12/31/93 at 12/31/93
on Values (#) ($)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
- - ---- -------- -------- ------------- -------------
C. Richard Piazza 0 0 500,000/0 0/0(1)
John G. Cowan 0 0 45,000/0 0/0(2)
Stephen A. Dezember 0 0 33,360/16,640 0/0(3)
Robert A. Swatek 0 0 15,012/44,988 0/0(4)
Ralph E. Wolf 0 0 2,667/33,333 0/0(5)
[FN]
(1) Option exercise price $1.625 per share; market value at FY-End $1.125
per share.
(2) Option exercise price $1.25 per share; market value at FY-End $1.125
per share.
(3) Option exercise price $2.25 per share; market value at FY-End $1.125
per share.
(4) Option exercise price $1.3125 per share; market value at FY-End
$1.125 per share.
(5) Option exercise price $1.75 per share; market value at FY-End $1.125
per share.
LONG-TERM INCENTIVE PLAN AWARDS
The Omnibus Plan is administered by a committee (the "Plan Committee")
of three (3) disinterested directors. The Plan Committee designates the
officers and other employees of the Company who will participate in the
Omnibus Plan and the amounts of awards, if any, to participants. Awards
may include stock options, stock appreciation rights, restricted stock of
the Company, incentive compensation in the form of shares of Common Stock
of the Company and convertible debentures. Accordingly, the Omnibus Plan
may be considered to be a long-term incentive plan. However, as of the
date of this Proxy Statement, only incentive stock options have been
awarded by the Plan Committee under the Omnibus Plan, as reflected in the
tables above.
PROPOSED STOCK OPTION PLAN
As of the Record Date, the Board of Directors had approved in principle
a 1994 Stock Option Plan (the "1994 Plan"). The 1994 Plan provides for the
issuance of non-qualified stock options and reserves five million
(5,000,000) shares of Common Stock for the exercise of such options. The
1994 Plan will be administered by a committee of the Board, the majority of
whom will be non-management. The committee will decide on the amount of
the grant to any employee based on the employee's relative level of
responsibility and contribution to the Company's goals and objectives. In
general, options will be initially granted to substantially all of the
Company's employees, and vesting of the options will be predicated on the
Company's achievement of certain financial and customer satisfaction goals.
Because of the changes in percentage ownership which would result from
the issuance and exercise of the stock options under the 1994 Plan, the
following table is designed to quantify the effect of such on existing
stockholders.
PRO FORMA RECORD OWNERSHIP
REFORE AND AFTER THE APPROVAL
OF THE 1994 STOCK OPTION PLAN
No. of Common Shares(1) % of Common Shares
Before After Before After
------ ----- ------ -----
BIL 85,207,915(2) 85,207,915 84.76% 80.75%
All Other Stockholders
as a Group 15,315,438 15,315,438 15.24% 14.51%
Shares Issued Per the
1994 Plan -0- 5,000,000(3) -0- 4.74%
----------- ------------ ----- -----
Total 100,523,353 105,523,353 100% 100%
[FN]
(1) For purposes of this chart, a total of 100,523,353 Common shares are
deemed to be outstanding as of April 8, 1994 as follows: 72,199,612
shares actually outstanding; 25,799 Common shares issuable to past and
current directors of the Company in lieu of certain directors fees;
889,379 shares issuable pursuant to options granted under the Company's
1990 Omnibus Stock Incentive Plan which are currently exercisable or
will become exercisable within 60 days after April 8, 1994; 6,622,206
shares issuable upon conversion of the Series A Preferred Stock;
786,357 shares issuable upon conversion of the Series B Preferred
Stock; and 20,000,000 shares issuable on conversion of the Series C
Preferred Stock. The following shares are not included: approximately
83,650 shares issuable on exercise of outstanding options granted under
the Company's 1981 Stock Option Plan (all of which are exercisable at
exercise prices in excess of the highest closing price for the Class A
Common shares for the 52-week period ended April 8, 1994, and which the
Company accordingly believes are unlikely to be exercised within 60
days of April 8, 1994).
(2) Includes a total of 4,000 Common shares issuable to Robert G.
Sutherland, Michael S. Dreyer and Terry E. Vandewarker, respectively,
in lieu of cash payment of certain director fees. Messrs. Dreyer and
Vandewarker are former directors of the Company. Pursuant to the terms
of their employment or consulting arrangements with BIL and its
affiliates, Messrs. Sutherland, Dreyer and Vandewarker have assigned
such shares to BIL.
(3) Assumes that 5,000,000 shares of Common Stock are issued under the 1994
Plan.
Upon finalization of the 1994 Plan by the Board of Directors, the
stockholders of the Company will be asked to approve the 1994 Plan.
DEFINED BENEFIT RETIREMENT PLAN
The Company's current retirement plan for its domestic employees is a
defined benefit pension plan under which a participant, retiring on his or
her normal retirement date, is entitled to an annual pension equal to the
sum of a Past-Service Benefit and a Future-Service Benefit:
Past-Service Benefit is equal to the number of years of credited
service prior to January 1, 1980, multiplied by the sum of: (a) 1% of
the first $9,000 of the past-service rate of compensation, plus (b)
1 1/2% of such compensation in excess of $9,000. An employee's past-
service rate of compensation is equal to the lesser of: (a) the
employee's 1979 W-2 compensation, or (b) the average of the annual W-2
compensation for the five (5) consecutive years that will produce the
highest average annual compensation as determined at retirement.
Future-Service Benefit for each year of future credited service,
beginning with 1980, is equal to: (a) 1% of each year's compensation
(W-2 earnings) that is less than or equal to 80% of the maximum
compensation covered by Social Security, plus (b) 1 3/4% of such
compensation above the Social Security wage base for the year.
Effective May 1, 1991, the Company suspended Future Service Benefit
accruals. Participating employees will, however, continue to earn
credit for purposes of satisfying service requirements for vesting,
early retirement and disability benefits.
The following table projects annual pension annuities payable for life
under the Company's defined benefit retirement plan at the normal
retirement date for an employee retiring in 1994 with the specified years
of credited service with the Company:
PENSION PLAN TABLE
Years of Credited Service at Retirement
Career Average -------------------------------------------
Remuneration(1) 10 20 30 40 50
---- ---- ---- ---- ----
$ 50,000 $ 6,318 $13,383 $20,433 $ 27,483 $ 34,533
$100,000 15,068 29,758 44,308 58,856 73,408
$150,000 23,818 46,133 68,183 90,233 112,283
$200,000(2) 32,538 62,508 92,058 121,878 151,158
[FN]
(1) Annual benefits payable in 1994 will reflect the maximum annual benefit
limit of $118,800 under the Internal Revenue Code of 1986, as amended.
This maximum is subject to future annual cost of living adjustments
under applicable Treasury regulations.
(2) Under the Omnibus Budget Reconciliation Act of 1993, annual salary in
excess of $150,000, (as indexed), must be ignored in determining annual
benefit accruals subsequent to 1993.
As indicated above, future service benefit accruals were suspended by
the Company effective May 1, 1991. Accordingly, none of the individuals
named in the table of the five (5) highest paid executive officers in
fiscal 1992 has any years of credited service as of December 31, 1993.
COMPARATIVE STOCK PERFORMANCE
The following illustrates for the purpose of comparison the cumulative
total returns (assuming reinvestment of dividends) of the Company's Class A
Common shares and Class B Common shares (single class after November 18,
1993), the Standard & Poors 500 Composite Stock index ("S&P 500"), and the
Standard & Poors Health Care Composite Index ("Health Care Composite").
This presentation assumes an initial investment of $100 in each of the four
options on December 31, 1988 and illustrates the return history for each
option through December 31, 1993.
COMPARISON OF CUMULATIVE TOTAL RETURN
E&J COMMON, S&P 500, AND HEALTH CARE COMPOSITE INDEX
(12/31/88 -- 12/31/93)
1989 1990 1991 1992 1993
---- ---- ---- ---- ----
E&J-A Common $105 $13 $26 $18 $15
E&J-B Common $106 $17 $31 $16 $14
S & P 500 $132 $127 $166 $179 $197
Health Care Composite $133 $150 $226 $186 $210
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors does not have a standing Compensation Committee.
The following persons were members of the Board during the fiscal year
ended December 31, 1993 and served as officers or employees of the Company
where noted:
Name Position with the Company
- - ---- -------------------------
Dianne J. Jennings None
Robert C. Sherburne None
Randall D. Humphreys (4) Consultant to the Company from January 1992 to
June 1992; Executive Vice President and Chief
Operating Officer from June 30, 1992 to March 31,
1993
B. D. Hunter (1) None
Joseph A. Newcomb (2) Secretary of the Company since March 17, 1992;
Executive Vice President and General Counsel of
the Company since December 15, 1992
C. Richard Piazza (3) President and Chief Executive Officer from October
5, 1993 to January 21, 1994
Robert G. Sutherland Chairman of the Board since September 4, 1991;
Executive Chairman and Acting Chief Executive
Officer from December 18, 1992 to October 5, 1993
[FN]
(1) Mr. Hunter was formerly an officer of the S&D Subsidiaries, as defined
in "CERTAIN TRANSACTIONS - Smith & Davis Acquisition and Related
Settlement Agreements" below. Mr. Hunter resigned from the Board as
of April 11, 1994.
(2) Mr. Newcomb resigned from the Board as of October 1, 1993.
(3) Mr. Piazza resigned from the Board as of January 21, 1994.
(4) Mr. Humphreys resigned from the Board as of January 21, 1994.
Mr. Hunter, and certain affiliates of Mr. Hunter, and the Company were
parties to the Smith & Davis Acquisition (as defined in "CERTAIN
TRANSACTIONS - Smith & Davis Acquisition and Related Settlement
Agreements") on March 15, 1990. Subsequent to completion of the Smith &
Davis Acquisition, certain disputes arose among the Company and BIL, on the
one hand, and Mr. Hunter and certain of his affiliates on the other hand,
which disputes were resolved as of September 16, 1992. See "CERTAIN
TRANSACTIONS - Smith & Davis Acquisition and Related Settlement
Agreements."
Mr. Sutherland is, and Messrs. Newcomb and Humphreys were, directors
and officers of certain affiliates of BIL. BIL has advanced the Company
funds for working capital and other operating purposes. See "CERTAIN
TRANSACTIONS - BIL; - BIL Acquisition of Restructured Bank Debt; -
Additional Loans by BIL to the Company; Debt Conversion Transaction."
During the fiscal year ended December 31, 1993, no officers or
employees of the Company or any of its subsidiaries, who were not otherwise
members of the Board, participated in deliberations of the Company's Board
concerning executive officer compensation. Furthermore, during such fiscal
year, there were no interlocking relationships between any executive
officer of the Company and any other entity.
REPORT OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
As indicated above, the Board of Directors does not have a standing
Compensation Committee. The Board is responsible for developing and
implementing the Company's executive compensation program and determines on
an annual basis the nature and amount of compensation to be paid to the
President and Chief Executive Officer and to the other executive officers
of the Company.
The compensation program for executive officers, including the
President and Chief Executive Officer, currently consists of annual base
compensation, an annual cash bonus and participation in the Company's
Omnibus Plan. By linking bonus amounts and realization of benefits under
the Omnibus Plan to Company performance, the Board seeks to align the
financial interests of the Company's executive officers with those of its
stockholders.
The Board believes that in order to reward, incentivize and retain
capable management, each executive officer should receive compensation that
is both competitive and reflective of the Company's performance. In
addition, the Board believes each executive officer's compensation should
reflect the experience, personal performance and responsibility level of
that executive officer.
ANNUAL BASE COMPENSATION. As part of the process of establishing
annual base compensation, the Board reviews the annual base compensation of
executive officers in equivalent positions in organizations similar to the
Company, as understood to exist and as reported in independent compensation
surveys with respect to the health care industry. In addition, the Board
reviews the performance of each executive officer in relation to the
overall performance of the company and considers factors such as the
experience and responsibility of each executive officer, including such
executive officer's performance of special projects and assignments. Since
the Board believes that the evaluation of executive officer performance
should not be limited to a formulaic approach, the Board considers a wide
range of objective and subjective criteria, including the Company's general
level of performance as evidenced by its earnings and profits, and each
executive officer's individual level of performance under the particular
circumstances involved.
ANNUAL CASH BONUS. The annual cash bonus, if any, paid to each
executive officer, including the President and Chief Executive Officer, is
determined, in the discretion of the Board, on the basis of the overall
performance and profitability of the Company in the year then ending and
the Board's evaluation of the executive officer's performance and
responsibility in relation thereto. The Board has determined that no
annual cash bonus will be paid to the Company's executive officers for the
year ending December 31, 1993.
The recently enacted Revenue Reconciliation Act of 1993 (the "Act")
precludes the Company from taking a deduction for certain compensation in
excess of $1 million per year paid or accrued with respect to the Chief
Executive Officer and the four other highest paid Executive Officers on and
after January 1, 1994. As of the Record Date, neither the Board nor the
Company has taken any action to qualify compensation (not otherwise
qualified under the Act) for deduction by the Company. Based on present
levels of compensation, it does not appear that any of the named Executive
Officers' non-deductible compensation will exceed $1 million in 1994.
CORPORATE GOVERNANCE
ROLE OF STOCKHOLDERS
While management of the Company is entrusted to the Board of Directors,
the stockholders are the owners of the Company and have the power to
control the Company through the election of directors. Except for
vacancies filled by the Board, directors are elected annually by the
stockholders.
RESPONSIBILITIES OF THE BOARD OF DIRECTORS
Except for matters reserved to the stockholders, the Bylaws empower the
Board of Directors to exercise all the authority and power of the Company
as permitted by law and the Certificate of Incorporation. While the Board
of Directors has the responsibility for directing the management of the
Company, the Chief Executive Officer, under the control of the Board, is
responsible for the general supervision and direction of the business and
affairs of the Company. Illustrative of the matters that come before the
entire Board for action are those dealing with the policy and direction of
the Company, annual and longer-term financial and operating plans,
significant capital expenditures and dispositions of properties, and review
of the Company's performance and developments affecting the Company's
business.
MEETINGS OF THE BOARD
Regular meetings of the Board generally are held on a bi-monthly basis.
Special meetings are called when necessary. During the Company's fiscal
year ended December 31, 1993, there were ten (10) Board meetings, including
four (4) telephonic meetings. All current directors attended more than 75%
of the meetings of the Board and of Board committees on which they served.
COMMITTEES OF THE BOARD
The standing committees of the Board are the Audit Committee and the
Human Resources Committee. Membership from January 1, 1993 through May 25,
1993 was as follows: Audit Committee -- Robert C. Sherburne, Chairman, B.
D. Hunter, Dianne J. Jennings and Joseph A. Newcomb; Human Resources
Committee -- Dianne J. Jennings, Chairman, B. D. Hunter and Robert C.
Sherburne. Membership from May 26, 1993 through January 20, 1994 was as
follows: Audit Committee -- Robert C. Sherburne, Dianne J. Jennings,
Randall D. Humphreys and Joseph A. Newcomb (Mr. Newcomb resigned from the
Board of Directors as of October 1, 1993); Human Resources Committee --
Dianne J. Jennings, Chairman, Robert C. Sherburne and Robert G. Sutherland.
Membership from January 21, 1994 to the Record Date was as follows: Audit
Committee -- Robert C. Sherburne, Dianne J. Jennings and Charles D. Yie;
Human Resources Committee -- Robert C. Sherburne, Dianne J. Jennings and
Charles D. Yie. The Board of Directors also has an ad-hoc Nominating
Committee.
AUDIT COMMITTEE
The Audit Committee has responsibility for recommending to the Board of
Directors a firm of independent accountants to audit the Company's
accounts, for reviewing the scope and results of audits, for reviewing both
the auditors' recommendations to management and the response of management
to such recommendations, and for reviewing the adequacy of internal
financial and accounting controls. In fiscal 1993, this committee met two
(2) times.
HUMAN RESOURCES COMMITTEE
The Human Resources Committee recommends to the Board of Directors the
salary and bonus levels of officers and directors of the Company, and is
informed by management of the compensation levels of key management
personnel in all subsidiaries. It also administers the 1981 Plan. In
fiscal 1993, this committee did not meet formally, but the general topics
of salary, bonuses and aggregate compensation levels for officers,
directors and key management personnel were discussed at several regular
meetings of the Board.
NOMINATING COMMITTEE
The ad hoc Nominating Committee considers as potential director
nominees persons recommended by stockholders. Stockholder recommendations
should, where possible, include a brief description of the potential
nominee's business background for the last five (5) years and a list of
other publicly held companies of which the potential nominee is a director.
Recommendations should be submitted to the ad hoc Nominating Committee in
care of the Secretary of the Company by December 17, 1994.
COMPENSATION OF DIRECTORS
From January 1, 1993 through March 31, 1993, the directors were not
compensated for their service on the Board or any committees thereof.
Effective April 1, 1993, the directors who were not employed by the Company
or its subsidiaries received $500 for each Board meeting and Committee
meeting attended. The amounts paid for the fiscal year ended December 31,
1993 were as follows:
B.D. Hunter $4,000
Randall D. Humphreys $4,750
Dianne J. Jennings $6,000
Joseph A. Newcomb -0-
Robert C. Sherburne $7,500
Robert G. Sutherland $ 500
Under the Retirement Plan for Non-Employee Directors adopted June 1,
1987, as amended on October 24, 1989, a non-employee director age 65 or
older who retires as a director after completing at least five (5) years of
service, and who is not otherwise eligible to receive retirement benefits
under any tax-qualified retirement plan of the Company or any of its
subsidiaries, is entitled to receive the following percentage of the annual
director retainer in effect at the time of his retirement as an annual
retirement benefit:
Percentage of Annual
Years of Retainer Paid as Annual
Service Retirement Benefit
5 25%
6 30%
7 35%
8 40%
9 45%
10 50%
11 60%
12 70%
13 80%
14 90%
15 100%
The annual retirement benefit is payable in monthly installments for a
period equal to the retiring director's completed years of service, or
until his death, whichever occurs first. Benefit payments are to continue
to be made to a retiring director's surviving spouse for the remaining
benefit period after the retiring director's death, up to a maximum of ten
(10) years.
On April 4, 1990, the Board of Directors voted to suspend director
benefits payable under the Retirement Plan for non-employee directors.
Retired directors will not receive such benefits until payments are
reinstated by the Board.
Retirement benefit payments have been, and to the extent they occur in
the future, will be made from current operating revenues of the Company.
Retired directors will not receive such payments until they are reinstated
by the Board.
The policy of the Company is to reimburse directors for out-of-pocket
expenses incurred in attending Board and committee meetings and in
traveling on Company business.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than
ten percent of a registered class of the Company's equity securities, to
file with the Securities and Exchange Commission and the American Stock
Exchange initial reports of ownership and reports of changes in ownership
of Common Stock and other equity securities of the Company. Officers,
directors and greater than ten-percent stockholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms
they file.
To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company and written representations that no
other reports were required, during the fiscal year ended December 31, 1993
all Section 16(a) filing requirements applicable to its officers, directors
and greater than ten-percent beneficial owners were complied with.
CERTAIN TRANSACTIONS
SMITH & DAVIS ACQUISITION AND RELATED SETTLEMENT AGREEMENTS
On March 15, 1990, the Company purchased five (5) wholly-owned
subsidiaries (the "S&D Subsidiaries") of HUNTCO Manufacturing, Inc.
("Huntco") for $13,356,000 ($4,500,000 in cash plus 984,000 shares of Class
A Common stock of the Company which were valued at $9.00 per share for
purposes of the acquisition).
In November 1988, the Company entered into a Purchase and Sale
Agreement pursuant to which Huntco Health Care, Inc. ("Health Care"), an
affiliate of Huntco, acquired inventory from the Company and the Company
acquired inventory from Health Care. Concurrently, the Company entered
into Distributorship Agreements and various other documents with Health
Care and certain other parties pursuant to which the Company became a
distributor of certain products of Health Care and Health Care became a
distributor of certain products of the Company. In connection with
accounts payable arising in the course of those distributorship
relationships, Health Care issued to the Company a note in the original
principal amount of $4,791,809 (the "Health Care Note") backed by affiliate
guaranties by B. D. Hunter (the "Hunter Guaranty"), by Huntco Acquisitions
Holding, Inc. (the "Huntco Acquisitions Holding Guaranty") and by Huntco
(the "Huntco Guaranty"). In addition, Health Care posted a note receivable
(the "Collateral Note") payable by Huntco Acquisitions Holding, Inc. to B.
D. Hunter as collateral for the Health Care Note. In connection with the
Smith & Davis Acquisition, the Company agreed to release the Hunter
Guaranty, the Huntco Acquisitions Holding Guaranty, the Huntco Guaranty and
the Collateral Note. As a result, the $4,791,809 Health Care Note became
an unguaranteed unsecured obligation.
Subsequent to completion of the Smith & Davis Acquisition, certain
disputes arose among the Company and BIL, on the one hand (the "Company
Parties"), and B. D. Hunter, Huntco and HMH Investments, Inc., on the other
hand (the "Huntco Parties"), relating to potential adjustments to the
purchase price paid in connection with the Smith & Davis Acquisition, the
value of the S&D Subsidiaries and of the Company shares issued to Huntco in
connection with the Smith & Davis Acquisition and the replacement of that
portion of a letter of credit (the "Original Letter of Credit")
attributable to the business activities of the S&D Subsidiaries. On
September 16, 1992, the Company Parties and Huntco Parties settled such
disputes on the following principal terms: (a) $750,000 of the Original
Letter of Credit was deemed attributable to the S&D Subsidiaries (the "S&D
Portion") and $250,000 of the Original Letter of Credit was deemed
attributable to other business interests of the Huntco Parties (the "Huntco
Portion"); (b) by October 2, 1992, the Company Parties were to obtain a
substitute letter of credit (the "Substitute Letter of Credit") (i) to
replace the S&D Portion of the Original Letter of Credit or, (ii) if the
creditors of the S&D Subsidiaries relying on the Original Letter of Credit
for security refused to accept a substitute for the Original Letter of
Credit to replace the Substitute Letter of Credit as collateral for the S&D
Portion of the Original Letter of Credit, the Company Parties were to pay
B. D. Hunter $5,000 for each 30-day period (or portion thereof) after
October 2, 1992 that the Company Parties failed to obtain the Substitute
Letter of Credit; (c) the Huntco Parties were to reimburse the Company
Parties for any draw against the Substitute Letter of Credit (or the S&D
Portion of the Original Letter of Credit) which should have been made
against the Huntco Portion of the Original Letter of Credit and the Company
Parties were to reimburse the Huntco Parties for draws made against the
Huntco Portion of the Original Letter of Credit which should have been made
against the Substitute Letter of Credit (or the S&D Portion of the Original
Letter of Credit); (d) the Huntco Parties were provided an aggregate
$200,000 credit against products manufactured or sold by the S&D
Subsidiaries; (e) the Company paid B. D. Hunter $50,000 for use of the S&D
Portion of the Original Letter of Credit subsequent to the Smith & Davis
Acquisition; (f) HMH Investments, Inc. received certain demand and "piggy-
back" registration rights with regard to the 984,000 Class A Common shares
issued to Huntco in connection with the Smith & Davis Acquisition (which
shares subsequently were sold by Huntco to HMH Investments, Inc.); (g) the
Huntco Parties released the Company Parties from claims relating to the
nature, amount and value of and adjustments to the purchase price paid in
connection with the Smith & Davis Acquisition and/or any failure of the
Company to replace the S&D Portion of the Original Letter of Credit in
accordance with the Smith & Davis Acquisition purchase agreement; and (h)
the Company Parties released the Huntco Parties from claims relating to the
adjustment to the purchase price for the S&D Subsidiaries. In accordance
with the foregoing, the Substitute Letter of Credit was issued on January
14, 1993 and the Company paid $7,500 on behalf of Mr. Hunter to his bank
with respect to the S&D Portion of the Original Letter of Credit.
Furthermore, the $200,000 credit against products manufactured or sold by
the S&D Subsidiaries was fully utilized during 1993.
B. D. Hunter owns 49% of HMH Investments, Inc. which is the beneficial
owner of in excess of 5% of the outstanding Class A Common stock of the
Company. Mr. Hunter is a Class B Director of the Company.
BIL
ORIGINAL CONVERTIBLE NOTES. In March 1990, BIL advanced $8,100,000 to
the Company in return for two 9% Subordinated Convertible Notes (the
"Original Convertible Notes") of the Company. The first such Note, dated
March 7, 1990, was in the original principal amount of $4,000,000. The
second, dated March 15, 1990, was in the original principal amount of
$4,100,000. The Original Convertible Note transactions were approved by a
disinterested majority of the Board of Directors and were on terms that the
Company believes were at least as favorable as if entered into with an
unaffiliated third party. The outstanding principal balance of, and
accrued, unpaid interest and certain costs incurred by BIL in connection
with, the Original Convertible Notes were rolled over into the principal
amount of the Amended Convertible Note (as described below). See
"Restructure of BIL Debt" below.
12% NOTE. On April 9, 1990, BIL loaned Everest & Jennings, Inc. ("E&J
Inc.") $3,000,000 on an interim basis. E&J Inc.'s repayment obligation was
evidenced by a Promissory Note (the "12% Note") bearing interest at the
rate of 12% per annum, secured by a first priority security interest in
Everest & Jennings, Inc.'s headquarters and manufacturing facility in
Camarillo, California (the "Camarillo Property"), guaranteed by the
Company, and contemplated that sums could be added to the principal amount
thereof. On June 21, 1990, BIL advanced an additional $3,000,000 pursuant
to the 12% Note, bringing the aggregate principal balance thereof to
$6,000,000. The 12% Note was amended and restated as an Amended and
Restated Promissory Note (as described below) on August 30, 1991. See
"Restructure of BIL Debt" below.
RESTRUCTURE OF BIL DEBT. As of August 30, 1991, the Company, E&J Inc.,
E&J Inc.'s wholly-owned subsidiary, The Jennings Investment Co. ("Jennings
Investment"), and BIL entered into a Debt Restructure Agreement which
provided for the restructure of approximately $14,100,000 in principal,
plus accrued, unpaid interest and approximately $75,000 in costs, owed by
the Company and E&J Inc. to BIL pursuant to the Original Convertible Notes
and the 12% Note. Pursuant to that Debt Restructure Agreement, as of
August 30, 1991, (a) the Company and E&J Inc. issued to BIL the Amended
Convertible Note in the original principal amount of $9,247,430; (b) E&J
Inc. issued to BIL an Amended and Restated Promissory Note (the "Amended
Promissory Note") in the original principal amount of $6,931,069; (c) the
Company, E&J Inc. and Jennings Investment granted or agreed to grant to BIL
liens on and pledges of certain of their respective assets to secure
performance of obligations under, and payment of indebtedness evidenced by,
the Debt Restructure Agreement and the agreements and notes entered into or
issued by the Company, E&J Inc. or Jennings Investment pursuant to the Debt
Restructure Agreement (collectively, the "BIL Restructure Obligations");
(d) BIL and the Exchanging Stockholders entered into the A/B Exchange
Agreements and the Offer and Election Agreements (see "Agreements with the
Jennings Family" below); (e) the Company and E&J Inc. entered into an
Environmental Indemnity Agreement pursuant to which they agreed to provide
BIL with certain indemnifications against environmental liability which BIL
might incur with respect to the grant by E&J Inc. to BIL of a security
interest in the Camarillo Property; (f) Jennings Investment issued a
Guaranty to BIL to guarantee performance and payment of certain of the BIL
Restructure Obligations; and (g) Security Pacific National Bank (the
"Bank") and BIL entered into an Intercreditor Agreement (the "Restructure
Intercreditor Agreement") regarding their relative rights with respect to
the BIL Restructure Obligations and the obligations of the Company and its
subsidiaries to the Bank under an Amended and Restated Credit Agreement and
related notes and agreements. On November 27, 1991, the Company, E&J Inc.,
Jennings Investment and BIL entered into Amendment No. 1 to Debt
Restructure Agreement, which as amended by such amendment, is referred to
herein as the "BIL Debt Restructure Agreement." The restructure of the BIL
Debt pursuant to the foregoing documents is referred to herein as the "BIL
Debt Restructure."
PRINCIPAL TERMS OF RESTRUCTURE OF 12% NOTE
The 12% Note was restructured, effective August 30, 1991, as follows:
AMENDED PROMISSORY NOTE: The Company and E&J Inc. issued the Amended
Promissory Note on the following terms:
Parties: The Amended Promissory Note was made by E&J Inc., as
borrower, and is payable to BIL.
Principal Amount: The Amended Promissory Note is in the original
principal amount of $6,931,069 (the sum of the $6,000,000 principal
amount of the 12% Note plus $931,069 constituting all accrued, unpaid
interest due under the 12% Note on August 30, 1991).
Term: The Amended Promissory Note is due on the earlier of (a) April
1, 1993, and (b) the date on which E&J Inc. sells the Camarillo
Property. The Camarillo Property was sold on October 7, 1992. As of
March 29, 1993, BIL agreed to extend the due date of the Amended
Promissory Note to June 30, 1993.
Interest: The Amended Promissory Note bears interest at an annual rate
of 10.5%. All accrued, unpaid interest is payable at maturity.
Security: The Amended Promissory Note was secured by a first priority
deed of trust on the Camarillo Property.
$6,000,000 was applied as payments against the balance of the 12% Note,
$3,000,000 from the sale of Ortopedia GmbH and $3,000,000 from the sale of
the Camarillo Property. The first priority deed of trust on the Camarillo
Property was released by BIL upon its sale in October 1992.
CONVERSION OF THE AMENDED CONVERTIBLE NOTE
Pursuant to the terms of the Amended Convertible Note, the entire
principal amount of that Note, together with accrued, unpaid interest
thereon, automatically converted into 5,850,380 shares of Series A
Preferred Stock of the Company on April 27, 1992. At the time of such
conversion, the aggregate amount of principal and accrued, unpaid interest
due under the Amended Convertible Note was $9,796,955.36; that amount
converted into shares of Series A Preferred Stock at a per share conversion
price equal to $1.67458437.
The principal terms of the Amended Convertible Note were as follows:
PRINCIPAL AMOUNT: The Amended Convertible Note was in the original
principal amount of $9,247,430 (the sum of the $8,100,000 principal amount
of the Original Convertible Notes, plus $1,072,430 constituting all
accrued, unpaid interest due under the Original Convertible Notes, plus
$75,000 in costs incurred by BIL in connection with the BIL Debt
Restructure).
INTEREST RATE: The Amended Convertible Note bore interest at the rate
of 9% per annum payable in annual installments on December 31 of each year
beginning December 31, 1992.
IN-KIND ELECTION: The Company and E&J Inc. could elect to pay any
installment of interest under the Amended Convertible Note "in-kind" if
they were not in default thereunder and if the election would not violate
applicable law. No installment of interest became payable prior to
conversion of the Amended Convertible Note. Accordingly, all accrued
unpaid interest at the time of conversion was converted into shares of
Series A Preferred Stock pursuant to the terms of the Amended Convertible
Note.
CONVERSION TERMS: Upon satisfaction of stated conditions, the entire
principal amount plus accrued, unpaid interest under the Amended
Convertible Note automatically was convertible into shares of Series A
Preferred Stock at a conversion price equal to $1.67458437 per share
(subject to anti-dilution adjustment).
PRINCIPAL TERMS OF SERIES A PREFERRED STOCK
The principal terms of the Series A Preferred Stock are as follows:
Dividends -- the Series A Preferred Stock bears 9% cumulative dividends
mandatorily payable (subject to applicable law) at the end of each fiscal
quarter of the Company, in cash, or, at the option of the Company, in kind,
as additional Series A Preferred Stock ("In-Kind Dividend Stock");
Conversion -- the Series A Preferred Stock is convertible into Class A
Common shares (or, after effectuation of the Plan of Reclassification, into
shares of the resulting Single Class Common Stock on a share-for-share
basis, subject to anti-dilution provisions; Registration Rights -- the
Series A Preferred Stock has registration rights as follows with respect to
Class A Common shares (or Single Class Common Stock, if then authorized)
issued upon conversion (for the purpose of registration) of Series A
Preferred Stock and Class A Common shares (or Single Class Common Stock, if
then authorized) which both were issued upon conversion (for a purpose
other than registration) of shares of Series A Preferred Stock by BIL and
are still held by BIL (collectively, the Series A Registration Shares"):
(a) the holders of the greater of (i) 2,761,112 shares of Series A
Preferred Stock, or (ii) 50% or more of the sum of (x) the number of shares
of Series A Preferred Stock then outstanding, plus (y) the Class A Common
shares (or Single Class Common Stock, as applicable) which both were issued
on conversion of Series A Preferred Stock by BIL and are still held by BIL,
may make a one-time demand that the Company register the distribution of
the Series A Registration Shares; and (b) the holders of Series A
Registration Shares have the right to request that the distribution of such
Series A Registration Shares be included in any registration statement
under the Securities Act of 1933 filed by the Company (with the exception
of certain stock option, merger and exchange registration statements);
Voting Rights -- the Series A Preferred Stock has the same voting rights
as, and the right (except as limited by applicable law) to vote together
with, the Class A Common shares (or Single Class Common Stock, if then
authorized); Redemption -- the Series A Preferred Stock is redeemable at
the Company's option (a) until the second anniversary of conversion of the
Amended Convertible Note at a per share redemption price of $1.67458437,
and (b) from and after the seventh anniversary of conversion of the Amended
Convertible Note at a per share redemption price equal to (i) for all
shares except the In-Kind Dividend Stock, $1.67458437, and (ii) for the In-
Kind Dividend Stock an amount equal to 150% of the "market price" of the
Class A Common shares (or, if applicable, Single Class Common Stock) as of
the redemption date; Sinking Fund -- there is no sinking fund requirement
for redemption of the Series A Preferred Stock; and Liquidation Preference
- - -- the Series A Preferred Stock has a liquidation preference per share
equal to $1.67458437. Except to the extent the Company is restricted under
applicable law from so doing, the terms of the Series A Preferred Stock do
not restrict the Company from repurchasing or redeeming the Series A
Preferred Stock while there is an arrearage in the payment of dividends.
BIL ACQUISITION OF RESTRUCTURED BANK DEBT
On August 10, 1987, the Company and E&J Inc. entered into a Credit
Agreement (the "Original Credit Agreement") with the Bank, pursuant to
which the Bank advanced loans to, and issued letters of credit for the
account of, the Company and E&J Inc. The Original Credit Agreement expired
on December 31, 1989. As of August 30, 1991, the Company and E&J Inc.
entered into an Amended and Restated Credit Agreement with the Bank to
restructure the expired credit arrangements. Pursuant thereto, (a) the
Company and E&J Inc. issued an Amended and Restated Promissory Note to the
Bank in the aggregate principal amount of $31,000,000 (the "Bank Loan");
(b) the Company and certain of its subsidiaries granted to the Bank liens
on or pledges of certain of their respective assets to secure performance
of the obligations and payment of the indebtedness which was the subject of
the Amended Credit Agreement (the "Restructured Bank Obligations"); (c) the
Company and E&J Inc. entered into an Environmental Indemnity Agreement
pursuant to which they agreed to provide the Bank with certain
indemnifications against environmental liability which the Bank might incur
as a result of the grant to the Bank by E&J Inc. of a security interest in
the Camarillo Property; (d) Jennings Investment issued a Guaranty of
certain of the Restructured Bank Obligations to the Bank; and (e) the Bank
entered into the Restructure Intercreditor Agreement. On November 27,
1991, the Company, E&J Inc. and the Bank entered into Amendment No. 1 to
First Amended and Restated Credit Agreement (the "First Bank Amendment").
The First Bank Amendment extended the repayment dates of the Bank Loan,
such that the Bank Loan would be payable on the dates described above. See
"Principal Terms of Restructured Bank Debt" above.
On February 21, 1992, BIL, for $17,000,000 in cash, acquired the Bank's
entire interest in the Bank Loan and its interest under the foregoing
documents (the "Bank Interest"). The Bank Interest acquired by BIL
included the right to acquire shares of Series B Preferred Stock (see
"Principal Terms of Restructured Bank Debt" below) but expressly excluded
the Bank's interest under outstanding letters of credit issued by the Bank
under the First Amended and Restated Credit Agreement. In connection with
that acquisition, BIL committed to the Bank that those letters of credit
would be replaced and Brierley Investments Limited (an affiliate of BIL)
guaranteed payment of any amount drawn on such letters of credit prior to
their replacement. As of February 21, 1992, the Company, E&J Inc. and BIL
entered into (a) a Consent Agreement (the "Consent Agreement") and (b)
Amendment No. 2 to First Amended and Restated Credit Agreement (the "Second
Bank Amendment"). The Second Bank Amendment amended the Amended Credit
Agreement by changing the place and manner of payments and the address for
required notices.
The First Amended and Restated Credit Agreement, as amended by the
First Bank Amendment and the Second Bank Amendment, is referred to herein
as the "Amended Credit Agreement." The restructure of the Bank Loan
pursuant to the foregoing documents is referred to herein as the "Bank Debt
Restructure."
In the Consent Agreement, the Company and E&J Inc. consented to BIL's
acquisition of the Bank Interest, and BIL agreed, without compensation
other than reimbursement of its reasonable out-of-pocket expenses, (a) to
permit the Company and E&J Inc. to move their business and assets from
Camarillo, California to Missouri, (b) to permit the Company and E&J Inc.
to borrow up to $10 million and to obtain letters of credit of up to $6
million from a lender other than BIL as necessary for that move and for
working capital, and (c) to release or subordinate its security interests
under the BIL Debt Restructure Agreement (and security documents entered
into pursuant thereto) and the Amended Credit Agreement (and security
documents entered into pursuant thereto) as might reasonably be necessary
to allow the Company and E&J Inc. to obtain such financing.
In addition, BIL agreed that the Company would have the right, for a
ten-day period ending March 2, 1992, to obtain a substitute lender to
acquire the Bank Interest from BIL on terms no less favorable than those
obtained by BIL. The Company did not obtain such a substitute lender.
In the Consent Agreement, the Company and E&J Inc. agreed (a) to use
their reasonable best efforts to assist BIL to comply with its obligations
to the Bank to replace, on or before March 31, 1992, the letter of credit
facility previously made available to the Company by the Bank, (b) to grant
BIL a second priority security interest in any collateral with respect to
which BIL releases its first priority security interest pursuant to the
Consent Agreement, and (c) to grant to BIL a first priority security
interest in otherwise unencumbered assets, if any, of the Company and its
subsidiaries as necessary to replace the value of security interests
released or subordinated by BIL pursuant to the Consent Agreement.
PRINCIPAL TERMS OF RESTRUCTURED BANK DEBT
The Amended Credit Agreement provided for payment by the Company and
E&J Inc. of the Bank Loan (the $31,000,000 aggregate amount of principal
and accrued interest through September 1, 1990 under the note issued under
the Original Credit Agreement) pursuant to an Amended and Restated Note
(the "Amended Bank Note") dated as of August 30, 1991. Pursuant to the
Amended Credit Agreement, the Bank Loan accrued interest from September 1,
1990 at an annual rate of 2.25% over the Bank's Prime Rate and was payable
as follows:
(a) the Company and E&J Inc. must pay at least $6,000,000 in
principal on or before March 31, 1992; if such payment was made on a
timely basis, payment of all interest accruing from September 1, 1990
through March 31, 1992 would be forgiven.
(b) the Company and E&J Inc. must pay the balance of the principal
amount of the Bank Loan on or before March 31, 1993; if the aggregate
principal balance as of March 31, 1993 did does not exceed
$13,000,000, payment of interest accruing from April 1, 1992 through
March 31, 1993 would be forgiven.
In addition to being entitled to make voluntary prepayments, the
Company and E&J Inc. must apply the net proceeds of any sale by the Company
or any of its subsidiaries of the Camarillo Property, of Ortopedia GmbH and
of certain other assets (the proceeds from the sale of which are not used
for operations in the normal course of business of the selling entity) to
prepay the Bank Loan.
The disposition of proceeds of a sale of the Camarillo Property were
governed by the terms of the Restructure Intercreditor Agreement which
provided that the net proceeds of such sale would be distributed to the
Company and E&J Inc. and to BIL as follows: the first $14,000,000 of net
proceeds of a sale of the Camarillo Property would be distributed as
follows: to BIL for application against the Amended Promissory Note --
$3,000,000; to BIL (as successor in interest to the Bank) for application
against the Bank Loan -- $11,000,000. Net proceeds between $14,000,000 to
$17,000,000 would be paid to BIL (as successor in interest to the Bank) for
application against the Bank Loan; net proceeds in excess of $17,000,000
would be paid to the Company and E&J Inc.
On October 4, 1991, Jennings Investment sold its entire interest in
Ortopedia GmbH and acquired a 15% interest in a newly formed parent company
of Ortopedia GmbH. Pursuant to the Restructure Intercreditor Agreement,
the Bank received $8,344,484.67 from the net proceeds of that sale and
applied the same to reduce the principal balance of the Amended Bank Note.
A portion of that payment satisfied the requirement that the Company pay at
least $6,000,000 in principal prior to March 31, 1992. Accordingly, all
interest accruing under the Amended Bank Note from September 30, 1990
through March 31, 1992 was forgiven.
The Bank Loan was secured by a first priority security interest in the
stock of certain subsidiaries of the Company and by a first priority
security interest in certain other assets of the Company and E&J Inc. The
Bank Loan was previously secured by a second priority deed of trust on the
Camarillo Property which was released upon the sale of the property in
October 1992. Proceeds of $8,082,000 from such sale were applied to the
balance of the Amended Bank Note.
ISSUANCE OF BANK PREFERRED STOCK
In consideration of the Bank Loan and the Bank's entry into the Amended
Credit Agreement, the Company agreed to issue to the Bank that number of
shares of Series B Preferred Stock of the Company which equals 4.9823% of
the outstanding stock of the Company (regardless of class) after conversion
of the Amended Convertible Note (the "Bank Preferred Stock"). In
satisfaction of that requirement, as of April 27, 1992, the Company issued
786,357 shares of Series B Preferred Stock to BIL (as successor in interest
to the Bank) and paid cash to BIL in lieu of 0.22 additional shares of
Series B Preferred Stock.
PRINCIPAL TERMS OF SERIES B PREFERRED STOCK
As required by the Amended Credit Agreement, the principal terms of the
Series B Preferred Stock include the following: Dividends -- the Series B
Preferred Stock has the same right to dividends and distributions as the
Class A Common shares of the Company (or the Single Class Common Stock, if
authorized); Conversion -- the Series B Preferred Stock is convertible into
Class A Common shares (or shares of Single Class Common Stock, if
authorized) on a share-for-share basis, subject to anti-dilution
provisions; Registration Rights -- there are registration rights as follows
with respect to Class A Common shares (or shares of Single Class Common
Stock, if authorized) issued upon conversion (for the specific purpose of
registration) of Series B Preferred Stock and Class A Common shares (or
shares of Single Class Common Stock, if authorized) which both were issued
upon conversion (for a purpose other than registration) of shares of Series
B Preferred Stock by BIL (as successor in interest to the Bank) and are
still held by BIL (collectively "Series B Registration Shares"): (a) the
holders of the greater of (i) 384,575 shares of Series B Preferred Stock,
or (ii) 50% or more of the sum of (x) the number of shares of Series B
Preferred Stock then outstanding, plus (y) the Class A Common shares (or
shares of Single Class Common Stock, as applicable) which both were issued
on conversion of shares of Series B Preferred Stock by the BIL (as
successor in interest to the Bank) and are still held by the BIL, may make
a one-time demand that the Company register the distribution of Series B
Registration Shares; and (b) the holders of Series B Registration Shares
have the right to request that the distribution of such Series B
Registration Shares be included in any registration statement under the
Securities Act of 1933 filed by the Company (with the exception of certain
stock option, merger and exchange registration statements); Voting Rights -
- - - the Series B Preferred Stock has the same voting rights as, and the right
(except as limited by applicable law) to vote together with, the Class A
Common shares (or shares of Single Class Common Stock, as applicable);
Redemption -- the Company, at its option may redeem the Series B Preferred
Stock at any time prior to the seventh anniversary of the issuance date at
a per share redemption price (the "Series B Redemption Price") equal to the
quotient of (a) the aggregate amount of interest forgiven pursuant to the
Amended Credit Agreement, divided by (b) the number of Bank Preferred
Shares issued to BIL; Sinking Fund -- there is no sinking fund requirement
for redemption of the Series B Preferred Stock; and Liquidation Preference
- - -- the Series B Preferred Stock has a liquidation preference per share
equal to the Series B Redemption Price plus accrued, unpaid dividends, if
any. Except to the extent the Company is restricted under applicable law
from so doing, the terms of the Series B Preferred Stock will not restrict
the Company from repurchasing or redeeming the Series B Preferred Stock
while there is an arrearage in the payment of dividends.
AGREEMENTS WITH THE JENNINGS FAMILY
Pursuant to the Debt Restructure Agreement, as of August 30, 1990, the
Company entered into Offer and Election Agreements with BIL and each of
Elizabeth A. Jennings, as trustee, Sybil M. Jennings, as trustee, David D.
Jennings and Dianne J. Jennings. Entry into the foregoing Offer and
Election Agreements was a condition to BIL's obligations under the Debt
Restructure Agreement. Dianne J. Jennings is a director of the Company.
ADDITIONAL LOANS BY BIL TO THE COMPANY
BIL had agreed to loan the Company up to a total of $8,000,000 on an
interim basis to provide cash necessary to accomplish the move of the
Company's headquarters and wheelchair manufacturing facility from
Camarillo, California to Missouri. However, due to various production and
relocation problems experienced by the Company, BIL agreed to lend the
following amounts to the Company:
(i) For the period commencing April 3, 1992 through and including
September 11, 1992, BIL lent a total of $15,000,000 to the Company, of
which $11,000,000 was repaid to BIL upon the closing in October 1992
of a $20,000,000 revolving credit facility (the "Revolving Credit
Facility") by the Company with The Hongkong and Shanghai Banking
Corporation ("HSBC"). The repayment of the Revolving Credit Facility
has been guaranteed by an affiliate of BIL.
(ii) For the period commencing September 12, 1992 through and
including March 31, 1993, BIL lent a total of $23,000,000 to the
Company and $1,000,000 to one of the S&D Subsidiaries.
(iii) For the period commencing April 1, 1993 through and including
September 30, 1993, BIL lent a total of $17.1 million to the Company.
In general, each of the loans referred to in (i), (ii) and (iii) above
(the "Interim Loans") was evidenced by a secured promissory note
(individually a "Promissory Note" and collectively the "Promissory Notes")
which bore interest at 6.5% per annum. Accrued interest under each
Promissory Note was payable in monthly installments commencing on the first
of the month next succeeding the date the Interim Loan was made. However,
the Company did not make, and BIL did not demand, payment of the monthly
installments of interest. The principal balance and all accrued, unpaid
interest due under each Promissory Note that relates to the Interim Loans
referred to in (i) above were due on the date that the Company closed the
Revolving Credit Facility with HSBC. As of such date, no accrued interest
and $11,000,000 of principal were paid to BIL. BIL agreed to extend the
due dates of the remaining $4,000,000 of Promissory Notes to September 30,
1993. The principal balance and all accrued, unpaid interest under each
Promissory Note that relates to the Interim Loans referred to in (ii) above
are generally due one year from the date of each Interim Loan.
DEBT CONVERSION TRANSACTION
As of September 30, 1993, the Company, E&J Inc., Jennings Investment
Co. and BIL entered into a Debt Conversion Agreement to provide for the
conversion (the "Debt Conversion Transaction") of approximately $75 million
in principal and accrued, unpaid interest (the "Converted BIL Debt"), owed
by the Company and E&J Inc. to BIL pursuant to the Amended and Restated
Credit Agreement, the Amended Promissory Note, and the Interim Loans.
Pursuant to the Debt Conversion Agreement, (a) the Company and E&J Inc.
issued to BIL a Convertible Promissory Note -- Common Stock (the "Common
Stock Note") in the initial principal amount of $45 million and a
Convertible Promissory Note -- Preferred Stock (the "Preferred Stock Note")
in the original principal amount of $20 million; (b) BIL agreed to lend to
E&J Inc. $5.7 million to allow E&J Inc. to repay the outstanding balance of
cash advances owed by E&J Inc. to HSBC under Revolving Credit Facility; (c)
Brierley Investments Limited, an affiliate of BIL, agreed to guarantee a
letter of credit facility ("Letter of Credit Facility") between E&J Inc.
and HSBC (or an alternative commercial lending institution) in an amount
not exceeding $6 million through and including June 30, 1995; (d) BIL, as
guarantor of the obligations of E&J Inc. under the Revolving Credit
Facility, agreed to an amendment thereof whereby cash advances of up to $10
million were made available for E&J Inc.'s working capital needs; (e) the
Company and E&J Inc. agreed to indemnify (the "Indemnification Obligation")
BIL from and against any and all losses arising out of BIL's guarantee of
the Letter of Credit Facility and the Revolving Credit Facility; (f) BIL
agreed to lend to the Company and E&J Inc. up to $12.5 million pursuant to
the terms of the Revolving Promissory Note; (g) BIL and the Company and E&J
Inc. entered into a Security Agreement (the "Security Agreement") pursuant
to which the Company and E&J Inc. granted a security interest in all of
their assets to BIL to secure on a pari passu basis the obligations of the
Company and E&J Inc. to BIL under the Common Stock Note, the Preferred
Stock Note, the Revolving Promissory Note and the Indemnification
Obligation; and (h) the Company and BIL entered into a Registration Rights
Agreement pursuant to which the Company granted to BIL registration rights
with respect to shares of Common Stock held as of the date of the
Registration Rights Agreement and shares of Common Stock obtained by BIL as
a result of the conversion of the Common Stock Note and Series C Preferred
Stock issuable upon conversion of the Promissory Stock Note.
The Company held a Special Meeting of Stockholders on December 31,
1993, to ratify and approve the Debt Conversion Transaction. Concurrent
with ratification and approval of the Debt Conversion Transaction, the
Company's stockholders approved and adopted amendments to the Company's
Certificate of Incorporation to increase the number of authorized shares of
Common Stock from 25,000,000 to 120,000,000 and to increase the number of
authorized shares of Preferred Stock from 11,000,000 to 31,000,000 (the
"Recapitalization Proposals").
BIL had agreed, upon stockholder approval of the Debt Conversion
Transaction and the Recapitalization Proposals, to advance E&J Inc. $10
million to pay HSBC the cash advance it made to E&J Inc. under the
Revolving Credit Facility. Such advance by BIL to E&J Inc. would result in
an increase in the principal amount of the Common Stock Note from $45
million to $55 million. However, subsequent to the Special Meeting of
Stockholders, BIL and E&J Inc. agreed to transfer $10 million from the
Revolving Promissory Note to the Common Stock Note, thus increasing the
balance of the Common Stock Note to $55 million.
The Common Stock Note was scheduled to mature on March 31, 1994, bear
interest at the rate of 8% per annum from and after March 31, 1994, and was
secured by a lien on and security interest in all assets of the Company and
E&J Inc. on a pari passu basis with the repayment and other obligations of
the Company and E&J Inc. under the Preferred Stock Note, the Revolving
Promissory Note and the Indemnification Obligation. The Common Stock Note
was subordinated to all debt borrowed by the Company or E&J Inc. from, or
the payment of which had been guaranteed by the Company or E&J Inc. to,
HSBC, the Pension Benefit Guaranty Corporation, Congress Financial
Corporation and any other financial institution constituting a principal
lender to the Company and/or E&J Inc.
The Common Stock Note was convertible into that number of shares of
Common stock equal to the outstanding principal balance of that Note at
conversion divided by a stated conversion price ($1.00 per share, subject
to antidilution adjustment). The Common Stock Note automatically converted
in full upon satisfaction of all of the following conditions:
(a) ratification of the Debt Conversion Transaction by the stockholders of
the Company; (b) approval and adoption of the Common Stock Amendment and
the Preferred Stock Amendment by the stockholders of the Company; (c) the
filing and effectiveness of an amendment to the Company's Certificate of
Incorporation to effect the Common Stock Amendment and the Preferred Stock
Amendment; (d) adoption by the Board of Directors of resolutions to
designate the Series C Preferred Stock and the filing and effectiveness of
a Certificate of Designations of the Series C Preferred Stock (the "Series
C Certificate of Designations"); (e) reservation of a sufficient number of
shares of Series C Preferred Stock for issuance on conversion of the
Preferred Stock Note; (f) reservation of a sufficient number of Common
shares for issuance on conversion of the Common Stock Note and the Series C
Preferred Stock issued on conversion of the Preferred Stock Note; and
(g) approval for listing on the American Stock Exchange of the Common
shares issuable on conversion of the Common Stock Note and the Series C
Preferred Stock issued on conversion of the Preferred Stock Note. BIL
waived condition (g), and the Common Stock Note converted into 55 million
shares of Common stock on January 12, 1994.
The Preferred Stock Note was scheduled to mature on March 31, 1994,
bear interest at the rate of 8% per annum from and after March 31, 1994,
and was secured by a lien on and security interest in all assets of the
Company and E&J Inc. on a pari passu basis with the repayment and other
obligations of the Company and E&J Inc. under the Common Stock Note, the
Revolving Promissory Note and the Indemnification Obligation. The
Preferred Stock Note was subordinated to all debt borrowed by the Company
or E&J Inc. from, or the payment of which had been guaranteed by the
Company or E&J Inc. to, HSBC, the Pension Benefit Guaranty Corporation,
Congress Financial Corporation and any other financial institution
constituting a principal lender to the Company and/or E&J Inc.
The Preferred Stock Note was convertible into a number of shares of
Series C Preferred Stock equal to the outstanding principal balance of that
Note at conversion divided by a stated conversion price ($1.00 per share,
subject to antidilution adjustment). The Series C Preferred Stock is
convertible into shares of Common stock on a one-for-one basis. The
Preferred Stock Note automatically converted in full upon satisfaction of
all of the following conditions: (a) ratification of the Debt Conversion
Transaction by the stockholders of the Company; (b) approval and adoption
of the Common Stock Amendment and the Preferred Stock Amendment by the
stockholders of the company; (c) the filing and effectiveness of an
amendment to the Company's Certificate of Incorporation to effect the
Common Stock Amendment and the Preferred Stock Amendment; (d) adoption by
the Board of Directors of resolutions to designate the Series C Preferred
Stock and the filing and effectiveness of a Certificate of Designations of
the Series C Preferred Stock (the "Series C Certificate of Designations");
(e) reservation of a sufficient number of shares of Series C Preferred
Stock for issuance on conversion of the Preferred Stock Note;
(f) reservation of a sufficient number of Common shares for issuance on
conversion of the Common Stock Note and the Series C Preferred Stock issued
on conversion of the Preferred Stock Note; and (g) approval for listing on
the American Stock Exchange of the Common shares issuable on conversion of
the Common Stock Note and the Series C Preferred Stock issued on conversion
of the Preferred Stock Note. BIL waived condition (g), and the Preferred
Stock Note converted into 20 million shares of Series C Convertible
Preferred Stock on January 12, 1994.
PRINCIPAL TERMS OF SERIES C PREFERRED STOCK
The principal terms of the Series C Preferred Stock are as follows:
Dividends -- 7% cumulative dividends mandatorily payable (subject to
applicable law), commencing after the Company achieves two consecutive
fiscal quarters of operating profit, accruing as of the first day of such
quarters, and payable on the first business day of each April, commencing
with the first April following the end of the fiscal year in which the
second of the consecutive fiscal quarters occurs and payable in kind, in
shares of Common Stock ("In-Kind Dividend Stock"), at the option of the
Company; Conversion - convertibility into Common shares on a share-for-
share basis, subject to anti-dilution provisions; Registration Rights - as
contained in the Registration Rights Agreement, and as follows with respect
to shares of Common Stock issuable upon conversion of Series C Preferred
Stock: (a) the holder may make a one-time demand that the Company register
distribution of shares of Common Stock for not less than 500,000 shares;
and (b) the holder has the right to request that the distribution of its
shares of Common Stock be included in any registration statement under the
Securities Act of 1933 filed by the Company; Sinking Fund - none;
Redemption - none; Preemptive Rights - none; Voting Rights - the same
voting rights as, and the right (except as limited by applicable law) to
vote together with, the Common shares; and Liquidation Preference - a
liquidation preference per share equal to $1.00.
LEASE TRANSACTION. An affiliate of BIL, Steego Corporation ("Steego"),
is leasing to the Company the computer system and the telephone system
which are located at the Company's facilities in St. Louis. Steego has
entered into a back-to-back lease arrangement for such systems with Sentry
Financial Corporation, which is not affiliated with either BIL or Steego.
INTEREST OF CERTAIN PERSONS. Rodney F. Price and Robert G. Sutherland
are directors of the Company. Messrs. Price and Sutherland are also
directors of BIL. As a result of their respective positions with BIL,
Messrs. Price and Sutherland may be deemed to have an indirect interest in
the foregoing transactions.
REIMBURSEMENT TO BIL (USA) INC.
The Company has agreed to reimburse Mr. Sutherland's employer, BIL (USA)
Inc., an affiliate of BIL, the following amounts:
(a) $60,000 for the period of September 1, 1992 to December 31,
1992 for Mr. Sutherland's services and travel and related
expenses; and
(b) For the period of January 1, 1993 to September 30, 1993,
$25,000 per month for Mr. Sutherland's services.
Additionally, for the period of January 1, 1993 to September 30, 1993, the
Company agreed to pay Mr. Sutherland's temporary housing costs in St.
Louis, provide a car for his use in St. Louis, and pay Mr. Sutherland's
travel and entertainment expenses which pertained to the Company's
business.
COMPENSATION TO DIRECTORS
Please see "CORPORATE GOVERNANCE -- Compensation of Directors" above
for information regarding payment of compensation to directors for services
rendered to the Company.
EXPENSES OF PROXY SOLICITATIONS
The principal solicitation of Proxies is being made by mail. However,
certain officers, directors and employees of the Company, none of whom will
receive additional compensation therefor, may solicit Proxies by telegram,
telephone or other personal contact. The Company will bear the cost of the
solicitation of the Proxies, including postage, printing and handling, and
will reimburse the reasonable expenses of brokerage firms and others for
forwarding solicitation materials to beneficial owners of shares.
ANNUAL REPORTS
Included in the Company's Annual Report on Form 10-K, for the fiscal
year ended December 31, 1993 are, among other things, a description of the
Company's business, consolidated balance sheets of the Company and its
subsidiaries for the fiscal years ended December 31, 1992 and December 31,
1993, the related statements of operations, stockholders' equity and cash
flows for each of the three (3) fiscal years in the period ended December
31, 1993, and a financial summary for the five (5) fiscal years ended
December 31, 1993. A copy of the Company's Annual Report on Form 10-K is
being mailed to stockholders prior to, or together with this Proxy
Statement. Stockholders are urged to read the Company's Annual Report
carefully.
Upon written request and payment of a copying charge of $.20 per page,
the Company will furnish to any such stockholder a copy of the exhibits to
the Annual Report on Form 10-K for the fiscal year ended December 31, 1993.
Requests should be addressed to Joseph A. Newcomb, Secretary, Everest &
Jennings International Ltd., 1100 Corporate Square Drive, St. Louis,
Missouri 63132.
DATE FOR RECEIPT OF STOCKHOLDER PROPOSALS
FOR PRESENTATION AT 1995 ANNUAL MEETING
Any proposal that a stockholder wishes to present for consideration at
the 1995 Annual Meeting and which such stockholder wishes included in the
Company's 1995 proxy materials must be received by the Company no later
than December 17, 1994. This date provides sufficient time for inclusion
of the proposal in the 1995 proxy materials.
OTHER BUSINESS TO BE TRANSACTED
As of the date of this Proxy Statement, the Board of Directors knows of
no other business to be presented for action at the Annual Meeting. As for
any business that may properly come before the Annual Meeting, the Proxies
confer discretionary authority in the persons named therein. Those persons
will vote or act in accordance with their best judgment with respect
thereto.
YOU ARE URGED TO VOTE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY IN
THE ENCLOSED POSTAGE-PAID ENVELOPE AT YOUR EARLIEST CONVENIENCE, WHETHER OR
NOT YOU CURRENTLY PLAN TO ATTEND THE ANNUAL MEETING IN PERSON.
BY ORDER OF THE BOARD OF DIRECTORS
JOSEPH A. NEWCOMB
Secretary
St. Louis, Missouri
April 22, 1994
