<PAGE> 1
LCS INDUSTRIES, INC.
120 BRIGHTON ROAD
CLIFTON, NEW JERSEY 07012-1694
INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 14f-1 THEREUNDER
This Information Statement is being mailed on or about January 7, 1999 by
LCS Industries, Inc., a Delaware corporation (the "Company"), to the holders of
record of shares (the "Shares") of common stock, par value $0.01 per share, of
the Company. You are receiving this Information Statement in connection with the
possible election of persons designated by CustomerONE Holding Corporation, a
Delaware corporation ("CustomerONE" or "Parent"), to a majority of the seats on
the Board of Directors of the Company (the "Board" or "Board of Directors").
Pursuant to an Agreement and Plan of Merger (the "Merger Agreement"), dated
as of December 17, 1998, by and among the Company, CustomerONE and Catalog
Acquisition Co., a Delaware corporation and a wholly owned subsidiary of
CustomerONE (the "Purchaser"), the Purchaser has commenced a tender offer (the
"Offer") for all of the issued and outstanding Shares at a price of $17.50 per
Share, net to the seller in cash. Following consummation of the Offer, it is
contemplated that the Purchaser will be merged with and into the Company (the
"Merger"), with the Company surviving as a wholly owned subsidiary of
CustomerONE.
The Merger Agreement provides that, promptly after the purchase of and
payment for outstanding Shares pursuant to the Offer, CustomerONE will be
entitled to designate such number of directors as will give CustomerONE
representation on the Board proportionate to its ownership interest in the
Shares, rounded up to the next whole number. The Merger Agreement requires the
Company to take all actions necessary to cause the designees of CustomerONE (the
"CustomerONE Designees") to be elected to the Board under the circumstances
described therein. This Information Statement is being mailed to stockholders of
the Company pursuant to Section 14(f) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and Rule 14f-1 thereunder.
You are urged to read this Information Statement carefully. You are not,
however, required to take any action with respect to the election of the
CustomerONE Designees.
The information contained in this Information Statement concerning
CustomerONE, the Purchaser and the CustomerONE Designees has been furnished to
the Company by CustomerONE. The Company assumes no responsibility for the
accuracy or completeness of such information.
CERTAIN INFORMATION REGARDING THE COMPANY
The Shares are the only class of voting securities of the Company
outstanding. As of January 5, 1999, 4,898,447 Shares were outstanding and
entitled to one vote per Share. In addition, 792,921 Shares were reserved for
issuance on that date (i) upon the exercise of outstanding options; (ii) in
accordance with the Purchase Agreement, dated as of April 1, 1993, as amended,
by and among the Company, Catalog Resources, Inc. ("CRI") and the sellers of all
of the outstanding capital stock of CRI; and (iii) pursuant to the 10% and 100%
stock dividends declared in 1995.
<PAGE> 2
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, to the knowledge of the Company, certain
information regarding beneficial ownership of the Shares as of December 1, 1998:
(i) by each person or group who owns beneficially more than five percent of the
Shares; (ii) by each director of the Company; (iii) by each of the five most
highly compensated executive officers (the "named executive officers") of the
Company during the fiscal year ended September 30, 1998 ("fiscal 1998"); and
(iv) by all directors and officers of the Company as a group.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
NAME AND ADDRESS(1) SHARES(2)(3) OF CLASS
------------------- ------------ ----------
<S> <C> <C>
Heartland Advisors, Inc..................................... 986,816(4) 20.1%
790 North Milwaukee Street
Milwaukee, WI 53202
Gerald A. King.............................................. 284,005 5.8%
248 West Brow Road
Lookout Mountain, TN 37350
Estate of Arnold J. Scheine................................. 409,477(5) 8.4%
189 Deerfield Lane North
Pleasantville, NY 10570
Joseph R. Barbaro........................................... 12,400 *
1140 Avenue of the Americas
New York, NY 10036
Bernard Ouziel.............................................. 96,400 1.9%
120 Brighton Road
Clifton, NJ 07012
William Rella............................................... 214,629 4.0%
120 Brighton Road
Clifton, NJ 07012
Marvin Cohen................................................ 444,054(6) 8.9%
120 Brighton Road
Clifton, NJ 07012
Lon Mandel.................................................. 25,472 *
1200 Harbor Boulevard
Weehawken, NJ 07087
Pat R. Frustaci............................................. 46,500 *
120 Brighton Road
Clifton, NJ 07012
James E. Quinlan............................................ 11,502 *
120 Brighton Road
Clifton, NJ 07012
All directors and officers as a group (8 persons)........... 1,134,962 21.7%
</TABLE>
- ---------------
(1) Except as described below, the persons named in this table possess sole
voting and dispositive power with respect to their Shares.
(2) In this table, it is assumed for only each person who holds stock options
that he has exercised those stock options to the extent they are exercisable
within 60 days of the date of this table. The number of Shares that each
such person may acquire upon exercise of such options is as follows: Mr.
Barbaro -- 6,400; Mr. Ouziel -- 56,800; Mr. Rella -- 128,000; Mr.
Cohen -- 86,000; Mr. Frustaci -- 46,500; Mr. Quinlan -- 5,500; all directors
and officers as a group -- 329,200.
2
<PAGE> 3
(3) Does not take into account stock options exercisable for an additional
69,000 shares that will become exercisable upon the consummation of the
Merger or a similar transaction.
(4) Based on information obtained directly from Heartland Advisors, Inc.
(5) Includes 7,330 Shares owned of record and beneficially by Mrs. Scheine and
175,000 Shares registered in the name of HAS Investments, L.P. and 31,814
Shares registered in the name of Scheine Holdings, L.P., two limited
partnerships created for estate planning purposes.
(6) Includes 2,200 Shares owned of record and beneficially by Mr. Cohen's wife
as to which Shares he disclaims beneficial ownership.
* Less than 1%.
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors and persons who own more than 10% of a registered class of the
Company's equity securities to file reports of their ownership thereof and
changes in that ownership with the Securities and Exchange Commission ("SEC")
and the National Association of Securities Dealers, Inc. Executive officers,
directors and greater than 10% stockholders are required by SEC regulations to
furnish the Company with copies of all such reports they file.
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company pursuant to Rule 16a-3(e) under the Exchange Act during
fiscal 1998 and Forms 5 and amendments thereto furnished to the Company with
respect to fiscal 1998, no officer, director or 10% stockholder of the Company
failed to file on a timely basis any reports required by Section 16(a) of the
Exchange Act during fiscal 1998.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Certain information concerning the current directors and executive officers
of the Company is set forth below:
<TABLE>
<CAPTION>
POSITION WITH THE COMPANY
NAME AGE AND DATE FROM WHICH HELD
---- --- -------------------------
<S> <C> <C>
Joseph R. Barbaro(1)(2)(3)...... 53 Director -- 1996
Bernard Ouziel(1)(2)(3)(4)...... 60 Director -- 1983
William Rella(4)(5)............. 56 Chief Executive Officer -- 1998
President, Chief Operating Officer and Director -- 1997
President -- Fulfillment Services -- 1994
Marvin Cohen(5)................. 64 Senior Vice President and Secretary -- 1981
Director -- 1969
Pat R. Frustaci................. 44 Vice President -- Finance, Chief Financial Officer,
Treasurer and Assistant Secretary -- 1995
Lon Mandel...................... 43 President and Chief Executive Officer --
The SpeciaLISTS, Ltd -- 1987
James E. Quinlan................ 60 Controller -- 1988
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Stock Option Committee.
(4) Member of the 1994 Employee Stock Purchase Plan Committee.
(5) Member of the Non-Employee Directors Stock Option Committee.
3
<PAGE> 4
Joseph R. Barbaro has been a director since 1996. The firm of Phillips Gold
and Company, LLP, of which Mr. Barbaro has been a partner for over five years,
performed accounting and consulting services during fiscal 1998 for the Company
and was paid therefor the aggregate sum of $131,869.
Bernard Ouziel has been a director since 1983. He has been a practicing
attorney in private practice for more than the last five years. Mr. Ouziel
performed legal services for the Company during fiscal 1998 and was paid
therefor the aggregate sum of $58,336.
All executive officers of the Company, other than Mr. Frustaci, have, as
their principal occupations, been employed as officers of the Company or one of
its subsidiaries for more than the last five years. Mr. Frustaci was Vice
President and Chief Financial Officer for Image Business Systems, Inc. until
December 1994.
RIGHT TO DESIGNATE DIRECTORS;
THE CUSTOMERONE DESIGNEES
The Merger Agreement provides that, subject to compliance with applicable
law, promptly upon payment by the Purchaser for Shares acquired pursuant to the
Offer, CustomerONE will be entitled to designate a number of members of the
Board of Directors equal to the product of (i) the total number of persons on
the Board (giving effect to the election of any additional directors as
described in this sentence) and (ii) the percentage that the aggregate number of
Shares beneficially owned by the Purchaser (including Shares acquired pursuant
to the Offer) is of the total number of Shares outstanding, rounded up to the
next whole number. The Company will take all action necessary to cause the
CustomerONE Designees to be elected or appointed to the Board, including,
without limitation, increasing the number of directors and seeking and accepting
resignations of incumbent directors. Notwithstanding the foregoing, until the
Merger is effective, the Company will retain as members of the Board of
Directors at least two persons who were directors of the Company on the date of
the Merger Agreement.
Set forth below is certain information with respect to the CustomerONE
Designees:
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
NAME AND BUSINESS ADDRESS AGE EMPLOYMENT AND FIVE-YEAR EMPLOYMENT HISTORY
------------------------- --- -------------------------------------------
<S> <C> <C>
Thomas O. Harbison........................ 55 Director and Chief Executive Officer of
Parent
8117 Preston Road and the Purchaser. Mr. Harbison is also the
Suite 205 managing partner of ECM Partners, L.P. From
Dallas, TX 75225 October 1995 to April 1998, he served as
President of EDS Customer Solutions, a
division of Electronic Data Systems
Corporation. From October 1994 to October
1995, he was the Chief Executive Officer of
Thomas Harbison Inc., a consulting firm in
the direct marketing industry. Prior to
that time, Mr. Harbison was the Chief
Executive Officer of Neodata Corporation.
Seth M. Mersky............................ 39 Director and Chairman of Parent and the
161 Bay Street, 49th Floor Purchaser. Since April 1997, Mr. Mersky has
P.O. Box 700 been a Vice President of Onex Corporation.
Toronto, ON M5J 2S1 From 1993 to 1997, he served as a Senior
Vice President of The Bank of Nova Scotia.
Thomas P. Dea............................. 33 Director and Secretary of Parent and the
161 Bay Street, 49th Floor Purchaser. Mr. Dea has been with Onex
P.O. Box 700 Corporation since June 1995 and is
Toronto, ON M5J 2S1 currently a Principal thereof. From 1993 to
1995, he was with CIBC Wood Gundy Capital,
now known as CIBC Capital Partners.
</TABLE>
4
<PAGE> 5
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
NAME AND BUSINESS ADDRESS AGE EMPLOYMENT AND FIVE-YEAR EMPLOYMENT HISTORY
------------------------- --- -------------------------------------------
<S> <C> <C>
Mark R. Briggs............................ 42 Director, President and Chief Operating
Officer
644 Elliott Street of Parent and the Purchaser. Since January
Buffalo, NY 14203 1997, Mr. Briggs has served as President
and Chief Executive Officer of Softbank
Services Group, now CustomerONE
Corporation. From 1990 through 1996, he was
President and Chief Executive Officer of
The Reseller Network, a division of
Intelligent Electronics.
Peter Berczi.............................. 30 Mr. Berczi is currently the Executive Vice
3250 Bloor St. West President, Business Development, of North
East Tower, 11th Floor Direct Response Inc. From July 1995 to
P.O. Box 19 August 1996, Mr. Berczi was with the
Toronto, ON M8X 2X9 Zehr-Berczi Group Inc. and, from 1993 to
1995, he was with Bell Canada Inc.
Andrew J. Sheiner......................... 35 Mr. Sheiner has been a Principal with Onex
161 Bay Street, 49th Floor Corporation since 1995. Prior to that time,
P.O. Box 700 he was with Sheiner Group, a private
Toronto, ON M5J 2S1 investment firm.
Nigel S. Wright........................... 35 Mr. Wright has been a Principal of Onex
161 Bay Street, 49th Floor Corporation since November 1997. Prior to
P.O. Box 700 that time, he was a partner with the law
Toronto, ON M5J 2S1 firm of Davies, Ward & Beck.
</TABLE>
CustomerONE has advised the Company that each of the CustomerONE Designees
has consented to serve on the Board of Directors and that, to the best of its
knowledge, none of the CustomerONE Designees (i) has a family relationship with
any of the directors or executive officers of the Company, (ii) beneficially
owns any securities (or rights to acquire securities) of the Company, (iii) has
been involved in any transactions, or has any business relationships, with the
Company or any of its directors, executive officers or affiliates of a type
required to be disclosed pursuant to Rule 14f-1 under the Exchange Act, or (iv)
has been the subject of any civil, regulatory or criminal proceeding.
GENERAL INFORMATION
ABOUT THE BOARD OF DIRECTORS
The Board of Directors held 13 meetings during fiscal 1998 and took action
by unanimous written consent in lieu of a formal meeting on three occasions.
Each director attended each Board and committee meeting held during fiscal 1998
while such person was a member of the Board or that committee.
The Board of Directors has an Audit Committee, a Compensation Committee, a
Stock Option Committee, a 1994 Employee Stock Purchase Plan Committee and a
Non-Employee Directors Stock Option Committee.
The Audit Committee, composed of Messrs. Ouziel and Barbaro, met once
during fiscal 1998. The Audit Committee generally reviews the scope and
procedures of the audit of the Company's independent auditors and the reports
from their examinations. It also reviews any reports from the Company's
financial management and independent auditors on compliance with corporate
policies and the adequacy of the Company's internal accounting controls.
The Compensation Committee, composed of Messrs. Ouziel and Barbaro, met
once during fiscal 1998. Its principal functions are to administer and review
the Company's benefits plans and determine the compensation of senior
management.
5
<PAGE> 6
The Stock Option Committee, composed of Messrs. Ouziel and Barbaro, met
twice during fiscal 1998. This committee administers the Company's 1983 and 1993
Incentive Stock Option Plans.
The 1994 Employee Stock Purchase Plan Committee, composed of Messrs. Rella
and Ouziel, met once during fiscal 1998. Its principal function is to administer
the 1994 Employee Stock Purchase Plan.
The Non-Employee Directors Stock Option Committee, composed of Messrs.
Rella and Cohen, met once during fiscal 1998. Its principal function is to
administer the 1996 Non-Employee Directors Stock Option Plan (the "Directors
Plan").
Each director who is not an officer of the Company receives a $10,000
annual director's fee and a $1,000 fee for each meeting of the Board of
Directors he attends. Directors who are officers of the Company do not receive
additional compensation for service as directors. In addition, pursuant to the
terms of the Directors Plan, on the fifth business day following the public
release of the Company's annual earnings for any fiscal year in which sales and
net earnings per Share increase by more than 5% over the prior fiscal year's
(subject to antidilution adjustment), each non-employee director, who is a
non-employee director on the date of grant and who was not employed by the
Company or any of its subsidiaries at any time during the fiscal year of the
Company immediately preceding such date of grant, would be granted a
non-qualified option to purchase 11,000 Shares. Each such option would become
exercisable pro rata over the five-year period following, and have an exercise
price per share equal to the fair market value of the Shares on, the date of
grant.
6
<PAGE> 7
EXECUTIVE COMPENSATION
The following table sets forth, for the fiscal years indicated, the cash
and other compensation provided by the Company and its subsidiaries to each of
the named executive officers of the Company in all capacities in which they
served.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM ALL OTHER
ANNUAL COMPENSATION(1) COMPENSATION COMPENSATION
-------------------------------------------- ------------ ------------
FISCAL SALARY BONUS OTHER ANNUAL OPTIONS
NAME AND PRINCIPAL POSITION YEAR ($) ($) COMPENSATION (#)(2) ($)(3)
--------------------------- ------ ------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
William Rella 1998 360,000 640,000 -- -- 40,725
President and 1997 360,000 640,000 -- 40,000 19,054
Chief Executive Officer 1996 360,000 437,576 -- -- 14,679
Marvin Cohen 1998 287,614 163,626 -- -- 35,140
Senior Vice President and 1997 277,648 116,511 -- -- 16,965
Secretary 1996 274,143 125,457 -- -- 16,965
Pat R. Frustaci 1998 167,019 50,000 -- 10,000 26,026
Vice President -- Finance 1997 147,116 40,000 -- -- 9,602
and Treasurer 1996 135,673 30,000 -- -- 9,599
Lon Mandel 1998 180,000 414,386 -- -- 26,741
President and 1997 180,000 449,747 -- -- 8,894
Chief Executive Officer, 1996 180,000 506,609 -- -- 8,876
The SpeciaLISTS, Ltd.
James E. Quinlan 1998 100,316 10,000 -- 2,000 2,816
Controller 1997 93,528 7,500 -- 2,500 2,256
1996 88,865 7,500 -- 5,000 2,397
</TABLE>
- ---------------
(1) Compensation deferred at the election of a named executive officer is
included in the category and year it would have been reported had it not
been deferred.
(2) The Company does not grant stock appreciation rights. All options granted
were incentive stock options or non-qualified stock options.
(3) Consists of (i) with the exception of Mr. Rella in 1996, the Company's
matching contributions to the 401(k) Plan (as defined below), (ii) as to
Messrs. Cohen and Rella, the total premiums on split-dollar insurance
policies during such fiscal year, (iii) as to Mr. Rella in 1998 and 1997 and
Messrs. Frustaci, Mandel and Quinlan, an automobile allowance and/or
associated costs, and (iv) as to the named individuals in 1998, the
Company's matching contributions under its deferred compensation plans.
STOCK OPTION GRANTS
The following table sets forth information concerning incentive stock
options granted during fiscal 1998 to certain named executive officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
--------------------------------------------------- ---------------------
% OF TOTAL
OPTIONS
GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED(#) FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
---- ---------- ------------ ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Pat R. Frustaci............... 10,000 7 14.00 12/22/07 228,050 363,120
James E. Quinlan.............. 2,000 1 14.00 12/22/07 45,610 72,624
</TABLE>
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<PAGE> 8
STOCK OPTION EXERCISES AND HOLDINGS
The following table sets forth information concerning stock options
exercised during fiscal 1998 and stock options held as of the end of fiscal 1998
by the named executive officers.
AGGREGATED OPTION EXERCISES IN FISCAL 1998 AND
FISCAL 1998 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS OPTIONS
SHARES AT FY-END(#) AT FY-END($)
ACQUIRED ON EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) VALUE REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- ------------ ----------------- -------------- -----------------
<S> <C> <C> <C> <C>
William Rella................ -- -- 128,000/40,000 935,968/0
Marvin Cohen................. 22,000 380,248 86,000/0 297,500/0
Pat R. Frustaci.............. -- -- 33,000/21,000 309,755/103,251
James E. Quinlan............. 4,400 54,868 3,125/6,375 313/938
</TABLE>
THE 1983 AND 1993 INCENTIVE STOCK OPTION PLANS
The Company has an Incentive Stock Option Plan (the "1993 Option Plan")
which was adopted and became effective in May 1993. The 1993 Option Plan permits
the granting to certain officers and other employees of incentive stock options
to purchase Shares. Any such options would be exercisable at a price not less
than the fair market value of the Shares on the date such options are granted.
The aggregate number of Shares which may be issued under the 1993 Option Plan is
2,200,000. The Company's 1983 Incentive Stock Option Plan (the "1983 Option
Plan") expired on May 24, 1993. Both the 1983 Option Plan and the 1993 Option
Plan are intended to be qualified plans under section 422 of the Internal
Revenue Code of 1986, as amended.
OTHER OPTIONS
Non-employee directors have been granted non-qualified options, with an
exercise price equal to the fair market value on the date of grant, to purchase
48,000 Shares. An officer has been granted non-qualified options, with an
exercise price of $5.75 per Share, to purchase 25,000 Shares. These options were
not granted under any of the plans described above.
401(k) RETIREMENT SAVINGS PLAN
During fiscal 1991, the Company established the LCS Industries, Inc.
Employee Retirement Savings Plan (the "401(k) Plan"). The 401(k) Plan allows
employees of the Company to defer a portion of their compensation on a pre-tax
basis through contributions to that plan. For the period from January 1, 1998 to
June 30, 1998, the Company made a matching contribution equal to no more than
35% of an employee's contributions, subject to a 6% limitation. For the
remainder of fiscal 1998, the matching contribution was equal to no more than
25% of an employee's contributions, subject to a 6% limitation. The Company's
aggregate matching contributions to the 401(k) Plan amounted to $233,000 during
fiscal 1998. The Company may also make discretionary contributions to the 401(k)
Plan. In fiscal 1998, no discretionary contributions were made to the 401(k)
Plan.
1994 EMPLOYEE STOCK PURCHASE PLAN
In March 1994, the Company adopted the 1994 Employee Stock Purchase Plan
(the "Purchase Plan"). The Purchase Plan provides eligible employees of the
Company and its subsidiaries the opportunity to acquire up to an aggregate of
300,000 Shares. Purchases are made on a monthly basis through payroll deductions
of 1% to 10% of eligible compensation. Shares are offered at a 15% discount from
the closing price on the last trading date of
8
<PAGE> 9
each month with no brokerage commissions. Participation in the Purchase Plan
began September 1, 1994. A total of 6,341 Shares were purchased during fiscal
1998.
EMPLOYMENT AGREEMENTS
The Company has entered into an incentive compensation arrangement with Mr.
Rella pursuant to which Mr. Rella is entitled to a bonus equal to 33% of the
first $1,000,000 of pre-tax profits of the fulfillment division of the Company
and 25% of all such pre-tax profits in excess of $1,000,000, with a maximum
bonus payable equal to $640,000.
The Company has an arrangement with Mr. Cohen pursuant to which Mr. Cohen
is entitled to a bonus equal to 2% of the pre-tax profits of the international
communications division of the Company.
The Company has entered into a one-year employment agreement with Mr.
Frustaci pursuant to which the Company will pay a base salary of $165,000 for
fiscal 1999 and awarded a bonus of $50,000 for fiscal 1998. This agreement
expires in August 1999 but is currently scheduled for review by the President to
determine whether to renew it. If it is not renewed and Mr. Frustaci voluntarily
resigns, he will receive six months' severance pay following its expiration in
August 1999.
The Company has entered into an employment agreement with Mr. Mandel
pursuant to which the Company pays him an annual base salary of $180,000 and
awards him a bonus equal to 25% of the pre-tax profits of The SpeciaLISTS, Ltd.
RETENTION BONUS ARRANGEMENTS
The Company has entered into agreements with Messrs. Frustaci and Mandel
pursuant to which the Company will pay $75,000 to each such individual if he
remains an employee until the Merger or a similar transaction is consummated.
The Company has entered into an agreement with Mr. Quinlan pursuant to
which the Company will pay $15,000 to him if he remains an employee until the
Merger or a similar transaction is consummated.
DEFERRED COMPENSATION PLANS
During fiscal 1998, the Company established plans providing senior and
other executives of the Company and its subsidiaries the opportunity to
participate in unfunded deferred compensation programs.
The Executive Non-Qualified Deferred Compensation Plan (the "Executive
Plan") provides senior officers retirement benefits through the deferring of
compensation, as defined, on a pre-tax basis to a maximum of $30,000 per year.
The Company provides a matching contribution of 30% of the amounts deferred.
Participants fully vest in the Company's matching contributions and related
earnings/losses after three years of service with the Company. Messrs. Rella,
Mandel, Cohen and Frustaci participate in the Executive Plan.
The Management Non-Qualified Deferred Compensation Plan (the "Management
Plan") provides certain management employees retirement benefits through the
deferring of compensation, as defined, on a pre-tax basis to a maximum of
$10,000 per year. The Company provides a matching contribution of 20% of the
amounts deferred. Participants fully vest in the Company's matching
contributions and related earnings/losses after five years of participation in
the Management Plan or attaining age 62. Mr. Quinlan participates in the
Management Plan.
Deferred compensation expense for fiscal 1998, represented by the Company's
matching contributions and net earnings/losses, was $77,000.
9
<PAGE> 10
COMPENSATION COMMITTEE CRITERIA
In order to attract, retain and motivate executives who will contribute to
the Company's success, the Company's executive compensation philosophy is to
provide competitive pay for competitive performance and superior pay for
superior performance.
To create a structure of compensation that achieves these critical goals,
the Compensation Committee relies on:
- A performance review system that provides a forum for dialogue and
relates salary increases to competitive conditions and bonuses to
performance.
- A program for providing long-term incentive opportunities in the
form of stock options that relate executive awards directly and solely to
stockholder gains.
THE COMPENSATION PROGRAM IN GENERAL
The Company's executive pay program is made up of the following elements:
Base Salary. Salaries of the named executive officers are listed in the
Summary Compensation Table. The following considerations are used in determining
the appropriate salary level: (a) their experience; (b) their level of
responsibility for corporate results and functions; and (c) external pay
practices.
Bonuses. Bonuses paid to the named executive officers are also listed in
the Summary Compensation Table. The following considerations are used in
determining the appropriate bonuses: (a) employment agreements in effect; (b)
the individual's performance and contribution to the Company's goals; and (c)
the overall profitability of the Company.
Stock Options. Stock options granted to the named executive officers are
listed above. Stock options encourage and reward effective management and
employee performance resulting in long-term corporate financial success, as
measured by stock price appreciation. Stock options only have value to their
recipient if the price of the Shares appreciate in value from the date the stock
options are granted, a benefit in which the Company's stockholders participate
as well.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION IN COMPENSATION DECISIONS
Joseph R. Barbaro served on the Compensation Committee during fiscal 1998.
The firm of Phillips Gold and Company, LLP, of which Mr. Barbaro has been a
partner for over five years, performed accounting and consulting services during
fiscal 1998 for the Company, and was paid therefor the aggregate sum of
$131,869.
Bernard Ouziel served on the Compensation Committee during fiscal 1998. He
has been a practicing attorney in private practice for more than the last five
years. Mr. Ouziel performed legal services for the Company during fiscal 1998
and was paid therefor the aggregate sum of $58,336.
10
<PAGE> 11
COMPANY PERFORMANCE
The graph and table below compare for each of the last five fiscal years
the cumulative total returns of the Company, The Nasdaq Stock Market(SM) and a
peer group of 17 public companies identified as having the Company's Standard
Industrial Classification Code as their primary code. The cumulative total
returns for the Shares and the two comparative indices assume that $100 was
invested in each on September 30, 1993 and also assume reinvestment of
dividends.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among LCS Industries, Inc., The NASDAQ Stock Market (U.S.) Index and a Peer
Group
<TABLE>
<CAPTION>
'LCS Industries, Nasdaq Stock
Inc.' Peer Group Market (U.S.)
<S> <C> <C> <C>
Sep-93 100.00 100.00 100.00
Sep-94 113.19 118.24 100.83
Sep-95 563.52 149.91 139.28
Sep-96 508.09 208.28 165.24
Sep-97 695.96 207.47 226.81
Sep-98 490.08 226.63 231.84
</TABLE>
* $100 invested on 9/30/93 in stock or index, including
reinvestment of dividends.
Fiscal year ending September 30.
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
9/93 9/94 9/95 9/96 9/97 9/98
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
LCS INDUSTRIES, INC. 100.00 113.19 563.52 508.09 695.96 490.08
PEER GROUP 100.00 118.24 149.91 208.28 207.47 226.63
NASDAQ STOCK MARKET (U.S.) 100.00 100.83 139.28 165.24 226.81 231.84
</TABLE>
January 7, 1999 LCS INDUSTRIES, INC.
11
