<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
Forstmann & Company, Inc.
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Warshaw Burnstein Cohen Schlesinger & Kuh
555 Fifth Avenue
New York, New York 10017
------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
(4) Proposed maximum aggregate value of transaction:
- --------
*Set forth the amount on which the filing is calculated and state how it was
determined.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
<PAGE>
Preliminary Copy
[INSERT LOGO]
FORSTMANN & COMPANY, INC.
1185 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 30, 1994
The Annual Meeting of Shareholders of Forstmann & Company, Inc. (the
"Company") will be held at The 60 East Club, 60 East 42nd Street, New York, New
York, at 10:00 a.m., on Wednesday, March 30, 1994, for the following purposes:
1. To vote on the ratification of an amendment to the Company's By-Laws
to increase the number of directors from five to six;
2. To elect five directors for a term of one year and until their
respective successors are elected and qualified;
3. To elect one additional director being nominated by Odyssey Partners,
L.P. (in the event that the proposed amendment to the By-Laws is duly
ratified by the shareholders) for a term of one year and until his
successor is elected and qualified;
4. To vote on an amendment to the Company's Common Stock Incentive Plan
to increase by 250,000 shares the number of shares of Common Stock
reserved for issuance thereunder;
5. To vote on an amendment to the Company's Amended and Restated Articles
of Incorporation to increase the number of authorized shares of Common
Stock to 20,000,000 shares;
6. To vote on the ratification of the selection of Deloitte & Touche as
the Company's independent auditors for the fiscal year ending October
30, 1994; and
7. To transact such other business as properly may come before the
meeting or any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on February 1, 1994
as the record date for determining shareholders entitled to receive notice of
the Annual Meeting and to vote at such meeting or any adjournment or
adjournments thereof.
The Board of Directors appreciates and welcomes shareholder participation
in the Company's affairs. Whether or not you plan to attend the Annual Meeting,
please vote by completing, signing and dating the enclosed proxy and returning
it promptly to the Company in the enclosed self-addressed, postage prepaid
envelope. If you attend the meeting, you may revoke your proxy and vote your
shares in person.
By Order of the Board of Directors,
Jane S. Pollack
Secretary
February [__], 1994
<PAGE>
Preliminary Copy
FORSTMANN & COMPANY, INC.
1185 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
-------------------
PROXY STATEMENT
-------------------
1994 ANNUAL MEETING OF SHAREHOLDERS
General Information
- -------------------
This Proxy Statement is furnished to shareholders of Forstmann & Company,
Inc., a Georgia corporation (the "Company"), in connection with the solicitation
of proxies by the Board of Directors of the Company (the "Board of Directors")
for use at the Annual Meeting of Shareholders of the Company to be held at 10:00
a.m. on Wednesday, March 30, 1994 at The 60 East Club, 60 East 42nd Street, New
York, New York, and any adjournment or adjournments thereof (the "Annual
Meeting"), for the purposes set forth in the accompanying Notice of Annual
Meeting. This Proxy Statement, the attached Notice of Annual Meeting, the
accompanying form of proxy and the Annual Report to Shareholders of the Company
for the fiscal year ended October 31, 1993 ("Fiscal 1993") are first being
mailed to shareholders of the Company on or about February [__], 1994.
The record date for shareholders of the Company entitled to notice of, and
to vote at, the Annual Meeting is the close of business on February 1, 1994 (the
"Record Date"). As of the Record Date, 5,585,380 shares of the Company's common
stock, par value $.001 per share (the "Common Stock"), were issued and
outstanding. All of such shares are of one class, with equal voting rights, and
each holder thereof is entitled to one vote on all matters voted on at the
Annual Meeting for each share registered in such holder's name. A quorum
consists of a majority of the total number of issued and outstanding shares of
Common Stock. Assuming a quorum is present, directors are elected by a
plurality of the votes cast. Approval of the amendment to the Company's Amended
and Restated Articles of Incorporation to increase the number of authorized
shares of Common Stock will require the affirmative vote of the holders of a
majority of the issued and outstanding shares of Common Stock. Approval of each
other matter which is submitted to a vote of the shareholders at the Annual
Meeting, including (i) the ratification of the amendment to the Company's By-
Laws to increase the number of directors from five to six (without changing the
number of Independent Directors, which is two), (ii) the amendment to the
Company's Common Stock Incentive Plan to increase the number of shares reserved
for issuance thereunder, and (iii) the ratification of the selection of Deloitte
& Touche as the Company's independent auditors for the current fiscal year will
require that the votes cast in favor of each such matter exceed the votes cast
in opposition to such matter. In addition, in order to comply
<PAGE>
with the provisions of Securities Exchange Act of 1934 (the "Exchange Act") Rule
16b-3, the proposed amendment to the Common Stock Incentive Plan must be
approved by the affirmative vote of the holders of a majority of the shares of
Common Stock present in person or represented by proxy at the Annual Meeting and
entitled to vote. Except with respect to this matter, abstentions and broker
non-votes will be included in the computation of the number of shares that are
present for the purpose of determining the presence of a quorum, but will not be
counted in the total number of votes cast and, therefore, will have no effect on
the outcome of the vote. With respect to the proposed amendment to the Common
Stock Incentive Plan, shares voted as abstaining will be treated as present and
entitled to vote on the matter, thus having the effect of a "no" vote on the
matter, while broker non-votes will not be considered as shares entitled to vote
and, therefore, will not affect the outcome of the vote on the matter. Brokers
may vote in their discretion on each of the matters being presented on behalf of
their beneficial holders who have not furnished voting instructions within 10
days of the Annual Meeting. A copy of the 1993 Annual Report to Shareholders
has been sent to all shareholders.
A proxy in the accompanying form which is properly executed, duly returned
to the Company and not revoked will be voted in accordance with the instructions
contained thereon. If no specific instructions are indicated on the proxy, the
shares represented thereby will be voted FOR (i) the ratification of the
amendment to the By-Laws to increase the number of directors from five to six,
(ii) the election of the five persons nominated herein by the current Board of
Directors as directors, (iii) the amendment to the Common Stock Incentive Plan,
(iv) the amendment to the Amended and Restated Articles of Incorporation, and
(v) the ratification of the selection of Deloitte & Touche as the Company's
independent auditors for the current fiscal year; and, in the discretion of the
persons named in the proxy, on any other matter as may properly come before the
Annual Meeting, (iv) the election of one additional director which Odyssey
Partners, L.P., a Delaware limited partnership ("Odyssey Partners") proposes to
nominate, assuming that the amendment to the By-Laws to increase the number of
directors from five to six is duly ratified.
Each proxy granted may be revoked by the person granting it at any time (i)
by giving written notice to such effect to the Secretary of the Company, (ii) by
execution and delivery of a proxy bearing a later date, or (iii) by attendance
and voting in person at the Annual Meeting, except as to any matter upon which,
prior to such revocation, a vote shall have been cast at the Annual Meeting
pursuant to the authority conferred by such proxy. The mere presence at the
Annual Meeting of a person appointing a proxy does not revoke the appointment.
Ownership of Equity Securities
- ------------------------------
The following table sets forth the aggregate number of shares of Common
Stock of the only persons or groups known to the Company to own beneficially, as
of February 1, 1994, 5% or more of the outstanding shares of Common Stock.
2
<PAGE>
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
- ----------------------------------------- -------------------- ---------
<S> <C> <C>
Odyssey Partners, L.P./(1)/ 2,832,713 shares 50.7%
31 West 52nd Street
New York, New York 10019
FMR Corp./(2)/ 588,200 shares 10.5%
82 Devonshire Street
Boston, Massachusetts 02109-3614
Harris Associates, Inc./(3)/ 589,000 shares 10.5%
2 North LaSalle Street, Suite 500
Chicago, Illinois 60602
Merrill Lynch Investment 374,500 shares 6.7%
Management, Inc./(4)/
P. O. Box 9011
Princeton, New Jersey 08540-9011
David L. Babson & Company, Inc./(5)/ 311,700 shares 5.6%
One Memorial Drive
Cambridge, Massachusetts 02142-1300
TCW Management Company/(6)/ 289,534 shares 5.2%
865 South Figueroa Street
Los Angeles, California 90017
- -----------------------------
</TABLE>
(1) Leon Levy, Jack Nash, Stephen Berger and Joshua Nash, by virtue of being
general partners of Odyssey Partners, share voting and dispositive power
with respect to the Common Stock owned by Odyssey Partners and,
accordingly, may each be deemed to own beneficially the Common Stock owned
by Odyssey Partners. Each of the aforesaid persons has expressly
disclaimed any such beneficial ownership (within the meaning of Exchange
Act Rule 13d-3(d)(1)) which exceeds the proportionate interest in the
Common Stock which he may be deemed to own as a general partner of Odyssey
Partners. The Company has been advised that no other person exercises (or
may be deemed to exercise) any voting or investment control over the Common
Stock owned by Odyssey Partners. Odyssey Partners is a private investment
firm with substantial equity capital invested in marketable securities and
closely-held businesses. Michael E. Barker, a director of the Company, is
a principal of Odyssey Partners. Steven M. Friedman, a director of the
Company, was, until December 31, 1993, a general partner of Odyssey
Partners.
(2) Based on Schedule 13G, dated July 31, 1993, filed with the Securities and
Exchange Commission. FMR Corp. ("FMR") is a parent holding company as
referred to in Exchange Act Rule 13d-1(b)(ii)(G). Fidelity Management &
Research Company
3
<PAGE>
("Fidelity"), a wholly-owned subsidiary of FMR and a registered investment
adviser under the Investment Advisers Act of 1940 (the "Advisers Act"), is
the beneficial owner of 547,200 of the shares of Common Stock held by FMR
as a result of acting as investment adviser to several registered
investment companies under the Investment Company Act of 1940 (the
"Investment Company Act"). One of such investment companies, Fidelity
Contrafund, owns 281,400 of such shares of Common Stock. Mr. Edward C.
Johnson, III, together with various trusts for the benefit of members of
his family, form a controlling group with respect to FMR. Neither FMR nor
Mr. Johnson has the sole power to vote the shares of Common Stock
beneficially owned by Fidelity, which power resides with the Boards of
Trustees of the funds for which Fidelity acts as investment adviser.
Fidelity Management Trust Company ("Fidelity Trust'), a wholly-owned
subsidiary of FMR and a bank as defined in Section 3(a)(6) of the Exchange
Act, is the beneficial owner of the remaining 41,000 shares of Common Stock
held by FMR. FMR, through its control of Fidelity Trust, has sole voting
and dispositive power over the shares of Common Stock beneficially owned by
Fidelity Trust.
(3) Based on Schedule 13G, dated May 7, 1993, filed with the Securities and
Exchange Commission. Harris Associates, Inc. ("Harris") is the sole
general partner of Harris Associates L.P., a Delaware limited partnership
and a registered investment adviser under the Advisers Act ("Harris
Associates"). Harris Associates serves as an investment adviser to the
Oakmark Fund, a series of the Harris Associates Investment Trust, and may
be deemed to beneficially own the 403,000 shares of Common Stock held by
such fund. In addition, Harris Associates beneficially owns 186,000 shares
of Common Stock which were acquired on behalf of discretionary and other
advisory clients.
(4) Based on Schedule 13G, dated February 4, 1993, filed with the Securities
and Exchange Commission. The Common Stock beneficially owned by Merrill
Lynch Investment Management, Inc. includes Common Stock held by its
subsidiary, Fund Asset Management, Inc. ("Asset Manager"), and by Merrill
Lynch Phoenix Fund, Inc. ("Phoenix Fund"), registered investment companies
under the Investment Company Act. Asset Manager acts as an investment
adviser to the Phoenix Fund and may be deemed to beneficially own the
Common Stock held by such fund.
(5) Based on Schedule 13G, dated January 24, 1994, filed with the Securities
and Exchange Commission. David L. Babson & Company, Inc., a registered
investment adviser under the Advisers Act, is the beneficial owner of
311,700 shares of Common Stock with sole dispositive power over such
shares. It has sole voting power with respect to 272,800 of such shares
and shared voting power with respect to the remaining 38,900 of such
shares.
(6) Based on Schedule 13G, dated February 9, 1993, filed with the Securities
and Exchange Commission. TCW Management Company, a Nevada corporation, is
a parent holding company as referred to in Exchange Act Rule 13d-
1(b)(ii)(G), and the parent company of Trust Company of the West, a
California corporation and a bank as defined in Section 3(a)(6) of the
Exchange Act, and TCW Asset Management Company, a California corporation
and a registered investment adviser under the Advisers Act.
Set forth below is information, as of February 1, 1994, with respect to the
beneficial ownership of the Common Stock by (i) the five nominees of the Board
of Directors for election as directors of the Company (which consists of all
current directors), (b) the additional proposed
4
<PAGE>
nominee of Odyssey Partners for election as a director of the Company, (c) the
Company's Chief Executive Officer and the four other most highly compensated
executive officers of the Company during Fiscal 1993, and (d) all current
directors and executive officers of the Company, as a group (12 persons).
<TABLE>
<CAPTION>
Amount and Nature of Percent
Name Beneficial Ownership /(1)/ of Class
- -------------------------------- -------------------------- ---------
<S> <C> <C>
Michael E. Barker 0/(2)/ ---
Stephen Berger 2,832,713/(3)/ 50.7%
Cameron Clark, Jr. 1,000 *
F. Peter Libassi 0 ---
Steven M. Friedman 0/(4)/ ---
Fred D. Matheson 15,833/(5)/ *
Richard Pactor 15,833/(5)/ *
Peter Roaman 16,533/(6)/ *
Christopher L. Schaller 73,333/(7)/ 1.3%
William B. Towne 19,833/(8)/ *
All directors and executive 2,977,744/(9)/ 53.3%
officers as a group
- -----------------------
</TABLE>
* Less than 1%.
(1) Each individual listed below has sole investment and voting power except as
otherwise indicated.
(2) Mr. Barker has an option to purchase 85,019 shares from Odyssey Partners,
Mr. Barker's employer, for services rendered to Odyssey Partners,
exercisable through August 5, 1997 at an exercise price of $8.37 per share
plus 8% per annum interest on $5.44 of such purchase price during the
period from August 5, 1992 until exercise. These shares comprise part of
the shares beneficially owned by Odyssey Partners. If not exercised by
its expiration date, the option will be converted automatically into a
stock appreciation right on the same terms. If the option is exercised,
Odyssey Partners will retain sole voting and dispositive power over the
purchased shares.
(3) Consists of the shares owned by Odyssey Partners. As reflected in footnote
(1) to the preceding table, Mr. Berger is a general partner of Odyssey
Partners and may be deemed to own beneficially the shares owned by Odyssey
Partners. Mr. Berger has disclaimed beneficial ownership in such shares to
the extent that such beneficial ownership exceeds the proportionate
interest in such shares that he may be deemed to own as a general partner
of Odyssey Partners.
(4) Mr. Friedman has an indirect financial interest in, a portion of the
shares owned by Odyssey Partners which are listed above for Mr. Berger.
Mr. Friedman does not have any voting or dispositive power over any shares
owned by Odyssey Partners.
5
<PAGE>
(5) Represents shares issuable upon exercise of currently exercisable options
under the Company's Common Stock Incentive Plan.
(6) Consists of (a) 15,833 shares issuable upon exercise of currently
exercisable options under the Company's Common Stock Incentive Plan, and
(b) 700 shares held in an individual retirement account.
(7) Includes 68,333 shares issuable upon exercise of currently exercisable
options under the Company's Common Stock Incentive Plan.
(8) Consists of (a) 15,833 shares issuable upon exercise of currently
exercisable options under the Company's Common Stock Incentive Plan, (b)
500 shares held in an individual retirement account, (c) 500 shares in
which Mr. Towne and his wife share voting and investment power, (d) 1,500
shares held by a trust of which Mr. Towne and his wife are co-trustees and
their children are the beneficiaries, as to which Mr. Towne has disclaimed
beneficial ownership, and (e) 1,500 shares held by a trust in which Mr.
Towne is the trustee and his niece is the beneficiary, as to which Mr.
Towne has disclaimed beneficial ownership.
(9) Includes shares issuable upon exercise of currently exercisable options
under the Company's Common Stock Incentive Plan. The shares which may be
deemed to be beneficially owned by Mr. Barker are included in the shares
owned by Odyssey Partners which are listed above as beneficially owned by
Mr. Berger.
Based upon a review of information received by the Company, none of the
persons referred to above failed to file timely with the Securities and Exchange
Commission any report required to be filed during Fiscal 1993 pursuant to
Section 16(a) of the Exchange Act.
RATIFICATION OF AMENDMENT TO THE BY-LAWS
(ITEM 1 ON THE PROXY CARD)
Section 3.2 of the Company's By-Laws currently provides that the Board of
Directors "shall consist of five members, at least two of whom (the "Independent
Directors") are neither officers or employees of the Company or any of its
affiliates." Odyssey Partners has proposed to the Board of Directors that the
Board of Directors be increased from five to six members. Expanding the size of
the Board of Directors will enable another person, who may be considered to be
an affiliate of Odyssey Partners, to be elected to the Board of Directors so
that the composition of the Board of Directors may represent better Odyssey
Partners' 50.7% ownership of the Company's outstanding Common Stock.
The Board of Directors believes that an increase in the size of the Board
of Directors would be in the best interests of the Company and its shareholders
because the decision-making process of the Board of Directors would be enhanced
by the added experience, expertise and viewpoint of an additional director, and
an enlarged Board of Directors would enable the responsibilities of its members
(each of whom, except for Mr. Schaller, has full-time employment with a third
party) to be reallocated amongst a larger group. Accordingly, the Board of
Directors on February 18, 1994, subject to ratification by the shareholders at
the Annual Meeting, increased
6
<PAGE>
the size of the Board of Directors to six members by amending Section 3.2 of the
By-Laws of the Company to read as follows (changes underlined):
3.2 Number of Directors. The Board of Directors shall consist of six
-------------------- ---
(6) members, at least two of whom are neither officers nor employees of the
--- - -
corporation or any of its Affiliates (the "Independent Directors"). For
purposes of this Article III, Affiliate means any person directly or
indirectly controlling or controlled by or under direct or indirect common
control with the corporation.
The Board of Directors currently consists of Michael E. Barker, Cameron
Clark, Jr., Steven M. Friedman, F. Peter Libassi and Christopher L. Schaller.
Messrs. Barker and Friedman may be considered to be affiliated with Odyssey
Partners. Messrs. Clark and Libassi are considered to be Independent Directors.
The By-Laws permit amendments thereto to be adopted either by majority vote
of the directors then holding office or by majority vote of the shareholders.
Although the Board of Directors has the power to adopt the proposed amendment to
the By-Laws without shareholder action, in light of the interests of certain of
its members in this matter, the Board of Directors determined to adopt the
proposed amendment to the By-Laws subject to ratification by the shareholders.
Odyssey Partners owns a majority of the outstanding Common Stock and has
indicated to the Board of Directors that it intends to vote all of its shares
for ratification of the proposed amendment, which would assure approval of such
amendment.
Assuming the proposed amendment is ratified by the shareholders, Odyssey
Partners has the voting ability, by virtue of its position as majority
shareholder, and intends, to elect an additional person who may be considered to
be affiliated with Odyssey Partners as a director of the Company. See "Election
of Additional Director." As a result, persons who may be considered to be
affiliates of Odyssey Partners will constitute half of the Board of Directors.
THE BOARD OF DIRECTORS BELIEVES THAT THE PROPOSAL IS IN THE BEST INTERESTS
OF THE COMPANY AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE FOR RATIFICATION OF THE AMENDMENT TO THE BY-LAWS.
ELECTION OF FIVE DIRECTORS
(ITEM 2 ON THE PROXY CARD)
The Company's By-Laws currently provide that the Board of Directors is to
consist of five members. At least two directors must be neither officers nor
employees of the Company or of any person directly or indirectly controlling the
Company ("Independent Directors"). Cameron Clark, Jr. and F. Peter Libassi,
each of whom currently serves as a director, have been nominated to serve as
Independent Directors of the Company.
At the Annual Meeting, assuming that the amendment to the By-Laws is duly
ratified by the shareholders, six persons will be elected to the Board of
Directors to serve until the next annual meeting and until their respective
successors are elected and qualified. In the unlikely event that the proposed
amendment is not ratified, Odyssey Partners has indicated to the Board of
Directors that it will not nominate the additional person being proposed by
Odyssey Partners.
7
<PAGE>
Nominees of the Board of Directors
- ----------------------------------
The persons named in the accompanying form of proxy, unless otherwise
instructed, intend to vote the shares of Common Stock represented by valid
proxies FOR the election of the five persons named in the following table, who
have been designated by the Board of Directors. In the event that any of the
nominees of the Board of Directors is unable to continue to be available for
election, the persons named in the accompanying form of proxy will have
discretionary power to vote for a substitute and will have discretionary power
to vote or withhold their vote for any additional nominees named by
shareholders. There are no circumstances presently known to the Board of
Directors which would render any of the following persons unavailable to serve
as a director, if elected.
<TABLE>
<CAPTION>
Director
Name Age Principal Occupation Since
- ---------------------------- --- ----------------------------- -------------
<S> <C> <C> <C>
Michael E. Barker 46 Principal of Odyssey Partners May 1990
Cameron Clark, Jr. 71 President and Chief Executive December 1991
Officer of Production Sharing
International, Ltd.
Steven M. Friedman 39 General Partner of December 1988
EOS Partners, L.P.
F. Peter Libassi 63 Dean of the Barney School February 1994
of Business and Public
Administration of the
University of Hartford
Christopher L. Schaller 52 Chairman of the Board, April 1990
President and Chief
Executive Officer
of the Company
</TABLE>
The business experience during the past five years, and the current
directorships in reporting companies under the Exchange Act, of each of the
foregoing persons is as follows:
Michael E. Barker has been a principal of Odyssey Partners since July 1989.
Prior thereto, he served as Executive Vice President of Avon-Brazil S.A. (a
manufacturer and distributor of cosmetic products). He is also a director of
the following reporting companies: The Caldor Corporation (a chain of discount
retail stores), Gundle Environmental Systems, Inc. (a manufacturer of liners for
waste disposal sites), MB Communications, Inc. (a manufacturer and marketer of
data communications and related computer connectivity products) and Revell-
Monogram, Inc. (a manufacturer of toy kits).
8
<PAGE>
Cameron Clark, Jr. has been President and Chief Executive Officer of
Production Sharing International, Ltd., the principal business of which is third
world industrial development, since January 1979.
F. Peter Libassi has been Dean of the Barney School of Business and Public
Administration of the University of Hartford since February 1993. For more than
the five years prior thereto, he was Senior Vice President for Corporate
Communications of Travelers Corporation (an insurance company). Since January
1993, Mr. Libassi also has been of counsel to the Washington, D.C. law firm of
Verner, Liipfert, Bernhard, McPherson and Hand.
Steven M. Friedman has been a General Partner of EOS Partners, L.P. (a
private investment firm) since January 1, 1994. For more than the five years
prior thereto, he was a General Partner of Odyssey Partners. Mr. Friedman was
Chairman of the Board of the Company from October 1990 to March 1992, and a Vice
President of the Company from December 1988 to March 1992. Mr. Friedman is a
director of the following reporting companies: The Leslie Fay Companies, Inc.
(a womenswear designer and manufacturer), which is a customer of the Company,
The Caldor Corporation, Eagle Food Centers, Inc. (a chain of grocery stores),
Gundle Environmental Systems, Inc., MB Communications, Inc., Revell-Monogram,
Inc. and JPS Textiles Group, Inc. (a textile manufacturer).
Christopher L. Schaller joined the Company in April 1990 as President and
Chief Operating Officer, at which time he also was elected a director. Mr.
Schaller became Chief Executive Officer in October 1990 and Chairman of the
Board of Directors in March 1992. Immediately prior to joining the Company, Mr.
Schaller was President of the Apparel Fabrics Division of WestPoint Stevens,
Inc. (a textile manufacturer).
ELECTION OF ADDITIONAL DIRECTOR
(ITEM 3 ON THE PROXY CARD)
If the amendment to the By-Laws is ratified by the shareholders, Odyssey
Partners proposes to nominate the following person (who is not currently a
director of the Company) to be elected to the Board of Directors to serve until
the next annual meeting and until his successor is elected and qualified. The
person named in the accompanying form of proxy, unless otherwise instructed,
intend to vote the shares of Common Stock represented by valid proxies for the
election of the proposed nominee. In the event that such proposed nominee is
unable to continue to be available for election, Odyssey Partners intends to
nominate a substitute acceptable to the Board of Directors. There are no
circumstances presently known to Odyssey Partners which would render its
proposed nominee unavailable to serve as a director, if elected.
Name Age Principal Occupation
---- --- --------------------
Stephen Berger 54 General Partner of Odyssey Partners
The business experience during the past five years, and the current
directorships in reporting companies under the Exchange Act, of the foregoing
person is as follows:
9
<PAGE>
Stephen Berger has been a general partner of Odyssey Partners since July 1,
1993. From July 1990 to July 1993, Mr. Berger was employed by General Electric
Capital Corporation, most recently as Executive Vice President and as Chairman
and Chief Executive Officer of its subsidiary, Financial Guaranty Insurance
Corporation. Immediately prior thereto, Mr. Berger served as the Executive
Director of the New York and New Jersey Port Authority. Mr. Berger is a
director of the following reporting companies: MB Communications, Inc., Hugoton
Energy Corporation (a natural gas exploration and production company) and The
Scotsman Group, Inc. (a lessor of mobile office units).
The Board of Directors and Committees Thereof
- ---------------------------------------------
Directors of the Company are elected annually to serve until the next
annual meeting of shareholders and until their successors have been duly elected
and qualified. During Fiscal 1993, there were six meetings of the Board of
Directors, and each director attended all of the meetings of the Board of
Directors and of the Committees thereof, if any, on which he served.
The Company's Board of Directors has an Audit Committee and a Compensation
Committee. The Board of Directors does not have a Nominating Committee;
nominations for directorships are made by vote of the Board of Directors. The
members of each committee are appointed by the Board of Directors for a term
beginning after the first regular meeting of the Board of Directors following
the Annual Meeting of Shareholders and until their respective successors are
elected and qualified.
Audit Committee. The Audit Committee recommends to the Board of Directors
the auditing firm to be selected each year as independent auditors of the
Company's financial statements. The Audit Committee also has responsibility for
(i) reviewing the proposed scope and results of the audit, (ii) reviewing the
Company's financial condition and results of operations, (iii) considering the
adequacy of the Company's internal accounting and control procedures, and (iv)
reviewing any non-audit services and special engagements to be performed by the
independent auditors, and ensuring that the performance of such tasks will not
impair the auditors' independence. The Audit Committee also reviews, at least
annually, the terms of all material transactions and arrangements between the
Company and its affiliates. Members of the Audit Committee may not be employees
of the Company, and not more than one member may be affiliated with or represent
the interest of a shareholder of the Company beneficially owning 20% or more of
the outstanding Common Stock. The current members of the Audit Committee are
Messrs. Barker and Clark, with Mr. Clark serving as Chairman. During Fiscal
1993, the Audit Committee held six meetings.
Compensation Committee. The Compensation Committee determines the
compensation paid to the Company's executive officers and key employees. The
Compensation Committee is also responsible for the administration and award of
stock options under the Company's Common Stock Incentive Plan, and the
implementation of the management incentive compensation plans. The current
members of the Compensation Committee are Messrs. Clark and Friedman, with Mr.
Friedman serving as Chairman. Both members are "disinterested directors" within
the meaning of Rule 16b-3 under the Exchange Act. During Fiscal 1993, the
Compensation Committee held four meetings.
10
<PAGE>
Executive Compensation
- ----------------------
Summary of Compensation in Fiscal 1993, Fiscal 1992 and Fiscal 1991
The following summary compensation table sets forth information concerning
compensation for services in all capacities awarded to, earned by or paid to the
Chief Executive Officer and the four other most highly compensated executive
officers of the Company during Fiscal 1993 and the fiscal years ended November
1, 1992 ("Fiscal 1992") and October 27, 1991 ("Fiscal 1991").
<TABLE>
<CAPTION> Long-Term
Annual Compensation Compensation
---------------------------------- Awards
------------
Other Annual All Other
Name and Fiscal Compensation Options Compensation
Principal Position Year Salary Bonus/(1)/ /(2)(3)/ (Shares)/(4)/ /(3)(5)/
- ------------------- ------ -------- ----------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Christopher L. Schaller 1993 $360,833 $114,141 $ 5,198 10,000 $ 3,991
President and Chief 1992 340,000 65,960 5,198 65,000 2,287
Executive Officer 1991 290,000 96,994 - 0 -
Richard Pactor 1993 232,292 73,480 6,398 10,000 6,351
Executive Vice 1992 220,833 42,842 5,905 12,500 41,339
President-Product 1991 200,000 66,712 - 0 -
Development
Fred D. Matheson 1993 220,000 69,592 73,132 10,000 1,376
Executive Vice 1992 200,000 38,800 10,149 12,500 0
President - 1991 166,667 55,744 - 0 -
Manufacturing
William B. Towne 1993 218,333 69,065 7,204 10,000 911
Executive Vice 1992 200,000 38,800 6,417 12,500 357
President and 1991 158,750 53,096 - 0 -
Chief Financial
Officer
Peter Roaman 1993 216,667 68,537 7,190 10,000 0
Executive Vice 1992 197,917 38,396 6,350 12,500 62,943
President- 1991 166,667 55,744 - 0 -
Marketing
- ----------------------
</TABLE>
(1) The amount of any bonus earned for a fiscal year, although included in the
fiscal year earned, is actually determined and paid after the end of the
fiscal year.
(2) Represents tax liability reimbursed by the Company arising from (a)
contributions made by the executive officer and for investment earnings
thereon under a Company employee savings plan, which is discussed below
under "Non-Qualified Salaried Employees' Savings, Investment and Profit
Sharing Plan", and (b) personal use of Company owned vehicles by
11
<PAGE>
the executive officer. The amounts for Mr. Matheson include reimbursement
of relocation expenses of $65,161 and $3,026 in Fiscal 1993 and Fiscal
1992, respectively.
(3) In accordance with the transitional provisions applicable to the rules of
the Securities and Exchange Commission, information with respect to Fiscal
1991 has not been included.
(4) Represents incentive stock options granted under the Company's Common Stock
Incentive Plan (a) on September 18, 1992 to purchase the stated number of
shares of Common Stock at an exercise price of $9.00 per share, exercisable
on or after November 1, 1993, and (b) on December 8, 1992 to purchase the
stated number of shares of Common Stock at an exercise price of $6.75 per
share, exercisable for one-third of such shares commencing on each of
December 8, 1993, December 8, 1994 and December 8, 1995. The options
granted on September 18, 1992, when the fair market value of the Common
Stock was $5.25 per share, were granted in substitution for canceled
options with identical terms granted in March 1992. The options granted on
December 8, 1992 were granted at fair market value.
(5) Represents (a) amounts paid as premiums for group life insurance, and (b)
non-recurring payments in Fiscal 1992 to Mr. Pactor and Mr. Roaman based on
a previous commitment relating to an investment made in 1989 in the former
parent of the Company. In addition, each of the named executive officers
was granted an Equity Referenced Award ("ERA") during Fiscal 1992, which is
discussed below under "Common Stock Incentive Plan and ERAs". Although the
Company is accruing the expense relating to the ERAs, the dollar value of
amounts earned by each executive officer on his ERA during Fiscal 1993
cannot be calculated since an ERA is not vested unless the executive
officer remains in the Company's employ until March 1995 (or until his
earlier death, disability or termination without cause or after a change in
control of the Company), and cannot be exercised unless the Common Stock
maintains a market price of at least $9.00 per share for a period of 30
consecutive days after vesting. Upon exercise of his ERA, Mr. Schaller
would receive $585,000 and each of the other executive officers would
receive $112,500.
Stock Options Granted in Fiscal 1993
The following table sets forth information concerning individual grants of
stock options made during Fiscal 1993 to each executive officer named below.
The Company did not grant any stock appreciation rights during Fiscal 1993.
12
<PAGE>
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term
------------------------------------------------ ---------------------------
% of Total
Options
Options Granted to Exercise
Granted Employees in Price Expiration
Name (shares) Fiscal Year ($/Sh) Date/(1)/ 5% 10%
- ----- ------- ------------ -------- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Christopher L. Schaller 10,000 7.3% $6.75 12/7/02 $3,375 $6,750
Richard Pactor 10,000 7.3% $6.75 12/7/02 $3,375 $6,750
Fred D. Matheson 10,000 7.3% $6.75 12/7/02 $3,375 $6,750
William B. Towne 10,000 7.3% $6.75 12/7/02 $3,375 $6,750
Peter Roaman 10,000 7.3% $6.75 12/7/02 $3,375 $6,750
- ------------------------
</TABLE>
(1) The options were granted by the Compensation Committee pursuant to the
Company's Common Stock Incentive Plan on December 8, 1992, when the fair
market value of the Common Stock was $6.75 per share, and are exercisable
for one third of the shares commencing on each of December 8, 1993,
December 8, 1994 and December 8, 1995.
Stock Options Held at the End of Fiscal 1993
The following table indicates the total number of exercisable and
unexercisable stock options granted under the Company's Common Stock Incentive
Plan held by each executive officer named below on October 31, 1993, the last
day of Fiscal 1993. No options to purchase Common Stock were exercised during
Fiscal 1993 and no stock appreciation rights were outstanding during Fiscal
1993. On October 29, 1993, the last trading day in Fiscal 1993, the last sales
price of the Common Stock on the Nasdaq National Market System ("Nasdaq National
Market") was $11.50 per share.
13
<PAGE>
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options In-the-Money Options at
at Fiscal Year End Fiscal Year End
---------------------------- --------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ------------------------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Christopher L. Schaller 68,333 shares 6,667 shares $178,332 $31,668
Richard Pactor 15,833 shares 6,667 shares $ 47,082 $31,668
Fred D. Matheson 15,833 shares 6,667 shares $ 47,082 $31,668
William B. Towne 15,833 shares 6,667 shares $ 47,082 $31,668
Peter Roaman 15,833 shares 6,667 shares $ 47,082 $31,668
</TABLE>
Retirement Pension Plan
The Company maintains a Retirement Pension Plan (the "Pension Plan") for
its salaried employees. The Pension Plan is a defined benefit pension plan
providing a formula benefit for employees 21 years of age or older who have
completed one year of service with the Company. The Pension Plan generally
takes into account credited service and annual compensation earned under the
pension plan of a predecessor of the Company (the "Predecessor Plan"), but the
benefit payable from the Pension Plan, depending on the circumstances, may be
reduced by any benefit payable under the Predecessor Plan.
The following table shows the estimated annual benefits upon retirement to
participants in the Pension Plan in specified annual compensation and years of
credited service classifications. The amounts shown are subject to the maximum
benefit limitations set forth in Section 415 of the Internal Revenue Code of
1986 (the "Code") and are subject to reduction for amounts payable under the
Predecessor Plan. The pension benefits shown are based upon retirement at age
65 and the payment of a single-life annuity to the participants. The pension
benefits in the table do not reflect the limitation under Section 401(a)(17) of
the Code on the maximum amount of annual compensation ($150,000 effective
February 1, 1994 (the "Code Limitation")), that can be utilized for determining
benefits.
14
<PAGE>
<TABLE>
<CAPTION>
Years of Credited Service at Retirement
Highest Five Year Average -------------------------------------------------------------------
Annual Compensation/(1)/ 5 10 15 20 25 30 35
- ---------------------------- ------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$100,000 $ 6,930 $13,860 $ 20,790 $ 27,720 $ 34,650 $ 41,580 $ 48,510
150,000 10,680 21,360 32,040 42,720 53,400 64,080 74,760
200,000 14,430 28,860 43,290 57,720 72,150 86,580 101,010
250,000 18,180 36,360 54,540 72,720 90,900 109,080 127,260
300,000 21,930 43,860 65,790 87,720 109,650 131,580 153,510
350,000 25,680 51,360 77,040 102,720 128,400 154,080 179,760
400,000 29,430 58,860 88,290 117,720 147,150 176,580 206,010
450,000 33,180 66,360 99,540 132,720 165,900 199,080 232,260
500,000 36,930 73,860 110,790 147,720 184,650 221,580 258,510
550,000 40,680 81,360 122,040 162,720 203,400 244,080 284,760
600,000 44,430 88,860 133,290 177,720 222,150 266,580 311,010
650,000 48,180 96,360 144,540 192,720 240,900 289,080 337,260
- ----------------------------
</TABLE>
(1) Annual compensation is the amount reportable on a participant's Form W-2
for federal income tax purposes, and consists of the amounts reported in
the table included under "Summary of Compensation in Fiscal 1993, Fiscal
1992 and Fiscal 1991" as salary, bonus, other annual compensation and all
other compensation.
Credited years of service for benefit accrual under the Pension Plan, as of
January 31, 1994, for the following executive officers are:
Christopher L. Schaller . . . . . . . . . . . . . . . . . . 3 years
Fred D. Matheson . . . . . . . . . . . . . . . . . . . . . 3 years
Richard Pactor . . . . . . . . . . . . . . . . . . . . . 5 years
Peter Roaman . . . . . . . . . . . . . . . . . . . . . . . 4 years
William B. Towne . . . . . . . . . . . . . . . . . . . . . 3 years
A participant's annual pension payable as of his or her normal retirement
date at age 65 will be equal to 1% of that portion of the participant's "final
average compensation" (as defined in the Pension Plan) which is equal to the
"social security integration level" (as defined in the Pension Plan) in effect
for the year in which the participant retires, plus 1-1/2% of that portion of
the participant's final average compensation in excess of the social security
integration level, multiplied by the number of years of credited service not to
exceed 35 years. A reduced pension benefit is payable upon (i) early retirement
at or after age 55, (ii) death, under certain circumstances, and (iii)
disability if the participant has completed at least five years of vesting
service. A reduced pension benefit is also payable, at the election of a
participant who terminates
15
<PAGE>
employment after completing at least five years of vesting service, at any time
at or after age 55. Generally, the payment of benefits will be in the form of a
straight life annuity for participants who are not married and a joint and
survivor annuity for those who are married.
Supplemental Retirement Plans
In response to the Code Limitation, which substantially reduces the amount
of annual compensation that can be considered under the Pension Plan, the
Company approved an auxiliary nonqualified retirement plan (the "Supplemental
Plan") applicable to all employees whose annual compensation exceeds the Code
Limitation. The Supplemental Plan will provide a retirement benefit, payable
only if and when the participant or the participant's beneficiary commences
receiving a benefit under the Pension Plan, equal to the difference between the
benefit the participant or the participant's beneficiary would have received had
the Code Limitation not existed and the amount of the benefit being received
under the Pension Plan.
Executive officers of the Company having a position of Executive Vice
President or higher, upon attaining age 50, are eligible to participate in the
Company's Supplemental Retirement Benefit Plan (the "SERP"). Messrs. Schaller
and Pactor are currently the only participants in the SERP. The Company's
contributions to the SERP are paid to a trust for the benefit of participants.
A participant who retires at or after age 62 who does not elect an optional form
of payment will receive until death (i) monthly amounts equal to the greater of
(a) the annuity benefit that would be payable to him for such month under the
Pension Plan after application of the Code Limitation, or (b) the annuity
benefit that, as of the date he became a participant, was expected to be payable
to him, as aforesaid, for such month under the Pension Plan, and (ii) continued
welfare benefits (such as medical insurance) for himself, his spouse and his
eligible dependents. Based on such provisions, the annual benefit payable under
the SERP at age 62 for Messrs. Schaller and Pactor would be $62,094 and $37,792,
respectively. Alternatively, a participant may elect to have his supplemental
income benefit paid in a lump sum, in five equal annual installments, or as a
joint and survivor annuity. A participant who voluntarily resigns before age 62
will receive, on his 62nd birthday, the following: (i) if he was employed by
the Company for at least two-thirds of his anticipated service period (the
period commencing on the date he became a participant and ending on his 62nd
birthday), a lump sum payment that is the actuarial equivalent of two-thirds of
the normal form of payment he would have received had he continued in the
Company's employ until age 62 and (ii) if he was employed by the Company for at
least one-third (but less than two-thirds) of his anticipated service period, a
lump sum payment that is the actuarial equivalent of one-third of the normal
form of payment he would have received had he continued in the Company's employ
until age 62. If a participant dies while employed, his beneficiary will
receive a lump sum payment that is the actuarial equivalent of the normal form
of payment the participant would have received had he continued in the Company's
employ until age 62. If a participant is terminated from employment without
cause or after a change in control, he will receive the same supplemental income
benefit (actuarially reduced for payment prior to age 62) and the same welfare
benefits he would have received had he continued in the Company's employ until
age 62. No payment may be made under the SERP to a participant whose employment
is terminated for cause.
16
<PAGE>
Non-Qualified Salaried Employees' Savings, Investment and Profit Sharing Plan
The Company maintains a Non-Qualified Salaried Employees' Savings,
Investment and Profit Sharing Plan (the "Savings Plan") for its "highly
compensated employees" (as defined in Section 414(q) of the Code) who are 21
years of age or older and who have completed one year of service. A participant
may make contributions of 2% through 6% of base pay on an after-tax basis. The
Company may "gross-up" or reimburse the participants for their tax liability
relating to the amount contributed by them to the Savings Plan, and did so for
their contributions during Fiscal 1993. The Company may match each
participant's contributions at a percentage determined in the Company's sole
discretion. In addition, if the consolidated net income per share of Common
Stock ("Net Earnings") for any fiscal year exceeds the average Net Earnings for
the three immediately preceding fiscal years, the Company may, in its sole
discretion, make a contribution with respect to each active participant equal to
such participant's contributions for the fiscal year multiplied by the profit
improvement percentage (but not more than 50%), which is such excess divided by
the average Net Earnings. No matching or profit improvement contributions were
made by the Company during Fiscal 1993.
Accounts are maintained for each participant and the contributions of each
participant and any Company contributions (and net earnings thereon) are
allocated to these accounts. Assets of the Savings Plan are invested in various
investment funds and a participant may designate the manner in which assets
allocated to the participant's account may be apportioned among the funds. A
participant is always 100% vested with respect to the participant's own
contributions (and net earnings). Other amounts generally vest at a rate of 20%
for each year of service with the Company, except that a participant will be
100% vested in the event of the participant's death while employed, retirement
at or after age 55, termination of employment because of lay-off or
involuntarily without cause, or the termination of the Savings Plan. Upon the
occurrence of any such event, the value of the participant's accounts will be
paid to the participant or the participant's beneficiary in cash, either in a
single payment or in quarterly installments. If installments are chosen, the
unpaid balance will continue to share in the income, gains or losses of the
Savings Plan.
Common Stock Incentive Plan and ERAs
In January 1992, the Board of Directors adopted a stock option plan for all
key employees of the Company pursuant to which incentive stock options, within
the meaning of Section 422 of the Code ("ISOs") were granted in March 1992 to
each of Christopher L. Schaller, Fred D. Matheson, Richard Pactor, Peter Roaman
and William B. Towne to purchase an aggregate of 115,000 shares of Common Stock
at $9.00 per share. Simultaneously, each executive received equity referenced
deferred incentive awards ("ERAs") covering the same number of shares of Common
Stock as the ISOs granted to him on such date. The ERAs generally vest three
years after the date of grant and are exercisable only if, after vesting, the
Common Stock maintains a market price of at least $9.00 per share for a
continuous period of 30 days. Upon exercise, the ERAs have a value of $9.00
multiplied by the number of shares which were covered by such executive's March
1992 ISOs, and which would have permitted each executive to be reimbursed, on a
pre-tax basis, for the exercise price of such ISOs. The ERAs are independent of
the ISOs and may be exercised by the executive irrespective of whether the ISOs
are exercised.
17
<PAGE>
In September 1992, the Board of Directors terminated the January 1992 stock
option plan and the ISOs issued thereunder were canceled. Such action did not
affect the granted ERAs. Simultaneously with such termination, the Board of
Directors adopted a new Common Stock incentive plan (the "Common Stock Incentive
Plan") and the Compensation Committee issued new ISOs thereunder to the same
five executive officers at the same exercise price and covering the same number
of shares of Common Stock as the canceled ISOs.
The Common Stock Incentive Plan was approved by the Company's shareholders
in March 1993. The number of shares of Common Stock that may be issued under
the Common Stock Incentive Plan is 450,000 shares. An increase in the number of
shares of Common Stock that may be issued under the Common Stock Incentive Plan
is one of the proposals to be voted on at the Annual Meeting. A detailed
description of the Common Stock Incentive Plan is provided under "Amendment of
the Common Stock Incentive Plan."
Employment Contracts and Termination of Employment and Change in Control
Arrangements
In December 1992, the Company entered into a change in control agreement
(the "CIC Agreement") with Mr. Schaller and each of the Company's four Executive
Vice Presidents which provides that upon a change in control of the Company,
followed by a termination of employment of the executive without appropriate
cause (or an event which is deemed to be tantamount to a termination) within 18
months of such change in control, the executive will be entitled to a severance
payment equal to the aggregate of two years' base compensation plus an amount
equal to his previous year's bonus, if any. The severance payment is subject to
reduction if it results in the imposition of an excise tax under the Code. A
"change in control," as defined in the CIC Agreement, will be deemed to have
occurred if, among other things, the Company's Board of Directors becomes
controlled by a shareholder or group of affiliated shareholders, other than
Odyssey Partners, beneficially owning more than 20% of the Common Stock, or if
any person or entity, including Odyssey Partners, causes a majority of the Board
of Directors to consist of individuals affiliated with, or nominated by, such
person or entity. No severance is payable under a CIC Agreement if the
executive officer is terminated prior to a change of control, regardless of the
reason for such termination. A CIC Agreement may be terminated by the Company
for any reason upon four years' prior notice.
After the conclusion of Fiscal 1993, the Company entered into an employment
agreement with Mr. Schaller and with each of the Company's four Executive Vice
Presidents. Each of these agreements is for a two-year term and is
automatically extended so that the unexpired term thereof remains two years,
until either the Company or the executive gives two years' advance notice of
non-renewal. During the term of their respective agreements, each executive is
to receive an annual base salary of not less than the executive's base salary at
the time his employment agreement was executed, as follows: Mr. Schaller -
$365,000; Mr. Pactor - $237,500; Mr. Matheson - $220,000; Mr. Towne - $220,000;
and Mr. Roaman - $220,000. Each agreement provides that, upon the executive's
termination for any reason other than for cause (as defined), disability, death
or voluntary resignation and other than under the circumstances covered by his
CIC Agreement, the executive will (i) receive a lump sum payment equal to (a)
two times the executive's then-current base salary, plus (b) the executive's
most recent bonus reduced proportionately to the extent that the current year's
adjusted pre-tax earnings are less than such amount in the immediately preceding
year, (ii) continue to receive life and health insurance benefits for a two-year
period on the same contributory basis that would have been in effect had the
executive
18
<PAGE>
remained employed by the Company, unless substantially similar coverage is
obtained prior thereto at no greater expense to the executive, (iii) become
vested in all unvested stock options and ERAs previously granted to the
executive, and (iv) be entitled to outplacement consultant services. In
addition, Mr. Schaller's agreement provides that, under such circumstances, if
he is not fully vested in the Pension Plan or the SERP, he will be granted
retirement benefits equal to that which he would have received had his
employment not terminated until his vesting dates thereunder.
The SERP provides that if a participant thereunder is terminated from
employment without cause or after a change in control, the participant will
receive the same supplemental income benefit (actuarially reduced for payment
prior to age 62) and the same welfare benefit he would have received if he
continued in the Company's employ until age 62. Mr. Schaller and Mr. Pactor are
the only participants in the SERP at the present time, due to the age
eligibility requirement for the SERP.
The ISOs granted in September 1992 to Mr. Schaller and each of the
Company's four Executive Vice Presidents provide that if their respective
employment is terminated after a change in control of the Company, the options
vest immediately and may be exercised at any time until expiration on October
31, 1999. ISOs which are not exercised within three months after termination of
employment will be treated as non-qualified stock options under the Code.
The ERAs granted to Mr. Schaller and each of the Company's four Executive
Vice Presidents vest in March 1995, subject to acceleration in the event of
termination of the executive's employment without cause or a change in control
of the Company. Each ERA terminates if, prior to vesting, the executive's
employment terminates voluntarily or for cause.
Compensation of Directors
Directors who are employees of the Company or an affiliate of the Company
receive no compensation for their services as directors. Other directors
receive $2,500 for attendance at each meeting of the Board of Directors or
committee thereof.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Board of Directors consists of Cameron
Clark, Jr. and Steven M. Friedman. Hubert J. Horan was a member of such
Committee until his resignation as a director in November 1993. Mr. Friedman
served as a Vice President of the Company and Chairman of the Board of Directors
from December 1988 to March 1992. Until December 31, 1993, Mr. Friedman was a
general partner of Odyssey Partners, which, directly or indirectly, has been the
principal shareholder of the Company since December 1988. See "Ownership of
Equity Securities." On December 15, 1992, the Company paid $350,000 to an
affiliate of Odyssey Partners in settlement of management fees earned under, and
to terminate, a management agreement with such affiliate. In connection with
the Company's March 1992 initial public offering, Odyssey Partners purchased
from the Company an aggregate of 1,215,000 unregistered shares of Common Stock
for $9.00 per share and the Company agreed to grant registration rights to
Odyssey Partners with respect thereto. These registration rights have not yet
been exercised.
19
<PAGE>
Compensation Committee Report on Executive Compensation
- -------------------------------------------------------
The annual compensation of executive officers consists of two components,
base salary and incentive compensation determined pursuant to the management
incentive plan. Salary adjustments are determined and normally implemented on a
12- to 16-month cycle, with the amount of increase dependent upon the
performance of the Company, the performance of the executive, any increased
responsibilities assumed by the executive and consideration of the competitive
marketplace.
Based on the foregoing factors and a review made in September 1992 by the
Compensation Committee, Mr. Schaller's base salary was increased effective
January 1993 (14 months after the effective date of the prior increase) by 7.4%
(6.3% annualized) over the preceding amount. In Fiscal 1992, sales increased
7.4%, while operating income increased 48.4%. The increases in base salary for
the four Executive Vice Presidents of the Company effective at various times
during the first and second quarters of Fiscal 1993 (reflecting cycles of 14
months) ranged from 5.6% to 10% over the respective Fiscal 1992 levels.
Increases in base salaries for other executive officers averaged 6% during
Fiscal 1993, and were implemented based on an average 14 month cycle. These
increases represented the Company's efforts to ensure equity between its pay
scales and those of the Company's competitors, so as to foster the retention of
executive officers. Based on a review of management surveys conducted by two
major benefits consulting firms and an analysis of the salaries of senior
executives of other publicly-traded textile companies, the compensation packages
for the Company's executive officers generally approximate the median.
The Compensation Committee administers the Company's incentive programs in
which members of management selected by the Compensation Committee participate.
The program for executive officers and executives reporting directly to the
President annually awards cash to a maximum of 50% of the executive's base
salary. The actual award is based upon a combination of the Company's level of
achievement of its strategic and operating goals established by the Compensation
Committee (weighted 75%) and each individual participant's level of
accomplishment of specific objectives (weighted 25%). Participant objectives
include individual contributions, participation as part of the senior management
team, ability to manage and motivate reporting employees and the achievement of
assigned projects. Awards are determined annually after the close of each
fiscal year and usually paid before the end of the calendar year.
The management incentive program establishes minimum, maximum and target
goals of operating income after deduction of variable interest charges
("Adjusted Operating Income"). The Adjusted Operating Income for Fiscal 1993
was $20.0 million, as compared to $14.7 million for Fiscal 1992, an improvement
of $5.3 million or 36%. For Fiscal 1993, the percentage of base salary awarded
as incentive compensation attributable to Company performance amounted to 24.6%
for all executive officers, as compared to 13.4% for Fiscal 1992. In Fiscal
1993, sales increased 11.7%, while operating income increased 21.8%. The amount
of incentive compensation attributable to the individual component in Fiscal
1993, 7.07%, has historically been identical for each of the five senior
executive officers because of the interdependence of the President and the four
Executive Vice Presidents in achieving the Company's goals, and the success of
all of them in achieving their individual objectives. Bonuses for Mr. Schaller
and each of the Executive Vice Presidents for Fiscal 1993 amounted to 31.6% of
base salary. Bonuses for the other executive officers averaged 31.7%.
20
<PAGE>
During the last quarter of Fiscal 1993, the Compensation Committee
commenced the process of reviewing the Company's management incentive
compensation programs, and engaged a benefits consulting firm for assistance.
The review, and any changes to the incentive programs implemented as a result
thereof, are anticipated to be determined during Fiscal 1994.
The Compensation Committee believes that equity ownership by management is
beneficial in aligning management's and shareholders' interests in enhancing
shareholder value. Therefore, in December 1992 (Fiscal 1993), the Compensation
Committee awarded incentive stock options, generally exercisable only if the
optionee is employed by the Company at the time of exercise, for an aggregate of
137,800 shares of Common Stock to approximately 130 management-level employees,
including all the executive officers then in the Company's employ. Mr. Schaller
and the four Executive Vice Presidents each received options for 10,000 shares
and each of the other executive officers received options for 4,000 shares,
reflecting the decision that senior executives' greater responsibilities and
opportunities to improve Company performance should be reflected in the size of
the option award.
In December 1993 (Fiscal 1994), on the recommendation of the Committee's
then engaged benefits consulting firm, and to ensure the loyalty of senior
management during a period of anticipated growth and profitability of the
Company, the Compensation Committee authorized the Company to enter into
employment agreements with Mr. Schaller and the four Executive Vice Presidents
and change in control agreements with the other executive officers and certain
other executives. Prior thereto, during Fiscal 1993, the Company entered into
change in control agreements with Mr. Schaller, the four Executive Vice
Presidents and one other executive officer. The employment agreements do not
supersede the existing change in control agreements, which activate only if an
executive's termination occurs without cause and not due to death, disability or
voluntary termination, within eighteen months after a "change in control event"
(as defined). The change in control agreements entered into during Fiscal 1993
were executed because the Company, at the time, did not have employment
agreements with any executives, and the Compensation Committee believed that it
was in the Company's best interests to provide an incentive for senior
management to remain in the Company's employ notwithstanding the possible
occurrence of a change in control.
In Fiscal 1993, the Company approved a Supplemental Retirement Benefit Plan
(the "SERP") for which only the President and the Executive Vice Presidents,
upon attaining age 50, are eligible to participate. The SERP was implemented to
serve as an incentive for senior executive performance over a period of longer
than one year.
A recent change in the tax laws substantially limits, to $150,000, the
annual compensation which can be considered in calculating retirement benefits
under a qualified retirement plan. The limitation on annual compensation will
have a significant impact on the retirement income of the Company's senior
management. To remedy the harsh result of the new tax law, in Fiscal 1994 the
Company approved the implementation of an auxiliary nonqualified retirement
plan, in which all employees with annual compensation in excess of $150,000 will
participate. The effect of the plan, in conjunction with the Company's
qualified pension plan, will be to provide retirement benefits as if the
employees' full annual compensation had been taken into account under the
qualified pension plan.
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<PAGE>
The Compensation Committee welcomes written comment from the Company's
shareholders concerning these programs. Comments should be marked "personal and
confidential" and addressed to The Compensation Committee of the Board of
Directors, Forstmann & Company, Inc., 1185 Avenue of the Americas, New York, New
York 10036.
February 5, 1994
Compensation Committee of the Board of Directors
Steven M. Friedman, Chairman
Cameron Clark, Jr.
Comparative Performance by the Company
- --------------------------------------
The Securities and Exchange Commission requires the Company to present a
chart comparing the cumulative total shareholder return on its Common Stock with
the cumulative total shareholder return of (i) a broad equity market index, and
(ii) a published industry index or peer group. Although such a chart would
normally be for a five-year period, the Common Stock has been publicly traded
only since March 4, 1992 and, as a result, the following chart commences as of
such date. The Common Stock is compared with (i) the Nasdaq National Market
Index (the "Nasdaq Index"), and (ii) a group of public companies, each of which
manufactures fabric (the "Selected Peer Group"), and assumes an investment of
$100 on March 4, 1992 in each of the Common Stock, the securities comprising the
Nasdaq Index and the securities comprising the Selected Peer Group.
Comparison of Cumulative Total Return among Forstmann &
Company, Inc. Common Stock, the Nasdaq Index
and the Selected Peer Group
[INSERT TABLE]
<TABLE>
<CAPTION>
NASDAQ PEER
DATA POINTS: FORSTMANN INDEX GROUP
--------- ------ -----
<S> <C> <C> <C>
MARCH 4, 1992 $100 $100 $100
APRIL 30, 1992 $ 84 $ 92 $ 96
OCTOBER 31, 1992 $ 58 $ 88 $ 96
APRIL 30, 1993 $ 74 $105 $104
OCTOBER 30, 1993 $121 $124 $ 95
- ---------------
</TABLE>
(1) The cumulative total return for the securities comprising the Nasdaq Index
and the Selected Peer Group assumes the reinvestment of dividends. The
total return for the Company's Common Stock does not assume the
reinvestment of dividends, since no dividends have been declared on the
Common Stock. The weighing of the securities comprising each index,
according to their market capitalization, has been calculated at March 4,
1992 and at the beginning of each semi-annual period.
22
<PAGE>
(2) The Nasdaq Index tracks the aggregate price performance of equity
securities of companies traded on the Nasdaq National Market, on which the
Company's Common Stock is traded.
(3) The Selected Peer Group consists of securities of the following companies:
Burlington Industries Equity, Inc., Concord Fabrics, Inc., Delta Woodside
Industries, Inc., Dixie Yarns, Inc., Galey & Lord, Inc., Johnston
Industries, Inc., Spring Industries, Inc. and Texfi Industries, Inc. The
securities of Burlington Industries Equity, Inc. and Galey & Lord, Inc.
first commenced public trading after March 4, 1992 and are included in the
index commencing April 30, 1992.
Certain Relationships and Related Transactions
- ----------------------------------------------
Odyssey Partners has been, directly or indirectly, the principal
shareholder of the Company since December 1988. See "Ownership of Equity
Securities". Steven M. Friedman, a director of the Company, was a general
partner of Odyssey Partners until December 31, 1993. Michael E. Barker, also a
director of the Company, is a principal of Odyssey Partners. Information
concerning certain transactions between the Company and Odyssey Partners is set
forth in "Compensation Committee Interlocks and Insider Participation" above.
The Company grants credit to certain customers, primarily in the menswear,
womenswear and outerwear apparel industries, which industries generally have
experienced an economic downturn. The ability of such customers to honor their
debts is somewhat dependent upon the apparel business sector. During Fiscal
1993, several of the Company's customers filed for protection under the Federal
Bankruptcy Code, which customers, at the time of their filings, owed the Company
an aggregate of approximately $2.9 million. Odyssey Apparel, L.P., an affiliate
of Odyssey Partners, is a principal shareholder of one of such customers, Taren
Holdings, Inc. ("Taren"), and Steven M. Friedman, a director of the Company, is
a director of The Leslie Fay Companies, Inc. ("Leslie Fay"), another of such
customers. All sales to Leslie Fay and Taren were made by the Company in the
ordinary course on an arms-length basis, and prices charged, terms of sale and
credit decisions were no less favorable to the Company than would have been
obtained in other comparable transactions by the Company with any other customer
of the Company. At the time that it filed for reorganization in April 1993,
Leslie Fay owed the Company an aggregate of approximately $1.9 million of
receivables, which were sold to an unrelated third party, without recourse, on
June 30, 1993, for a cash payment of 80% thereof. At the time that Taren filed
for reorganization in August 1993, it owed the Company an aggregate of
approximately $0.4 million. Leslie Fay has obtained $150 million of debtor-in-
possession financing and the Company continues to do business with it under
thirty-day payment terms.
Stephen Berger, the proposed nominee of Odyssey Partners for election to
the Board of Directors, was an Executive Vice President of General Electric
Capital Corporation ("GECC") until July 1993. The Company, as of October 30,
1992, entered into a five-year loan agreement (the "Loan Agreement") with GECC,
as agent and lender. Subject to certain borrowing base limitations, the Loan
Agreement provides for a maximum available non-amortizing revolving loan of $85
million (the "Revolving Loan") and provided for a term loan of $15 million (the
"Term Loan"). On April 5, 1993, the Company prepaid in full the Term Loan.
Borrowings under the Revolving Loan bear interest, at the Company's option as
provided in the Loan Agreement, at a floating rate or a fixed rate, payable
monthly. The floating rate is equal to 1.5% per annum above
23
<PAGE>
the greater of the (i) average prime rate of interest announced by four
specified banking institutions, and (ii) annual yield on 90-day commercial paper
of certain major corporations. The fixed rate is 3.0% per annum above LIBOR.
The obligations of the Company under the Loan Agreement are secured by liens on
substantially all of the Company's assets. The Loan Agreement contains various
restrictions and requires the Company to satisfy certain financial performance
criteria, typical of a commercial loan arrangement similar to the Loan
Agreement. GECC, for the account of each of the lenders party to the Loan
Agreement, is entitled to a fee of 0.5% per annum on the average daily unused
portion of the Revolving Loan. GECC, for its own account, is entitled to an
agency fee of $150,000 per annum, payable on each November 13 through 1996 and
is entitled to fees in connection with extending and making available letters of
credit. During Fiscal 1993, the highest amount outstanding under the Loan
Agreement was $81,394,500 and the Company paid GECC an aggregate of $4,362,412
in interest, $23,683 in letter of credit fees, $102,022 in unutilized facility
fees, $150,000 in agency fees, $97,830 in reimbursement of origination costs and
$1,225,000 in commitment and origination fees. As of October 31, 1993, the
Company had net borrowings under the Loan Agreement of approximately $47.2
million at an interest rate of 6.1875% per annum.
On February 7, 1994, the Company approved an indemnity agreement (the
"Indemnity Agreement") with each of its directors and certain of its executive
officers, which provides that the indemnitee will be entitled to receive
indemnification to the full extent permitted by law for all expenses, judgments,
fines, penalties and settlement payments incurred by the indemnitee in actions
brought against the indemnitee in connection with any act taken in the
indemnitee's capacity, and within the indemnitee's scope of authority, as a
director or executive officer of the Company. The Indemnity Agreement also
requires the Company to maintain its current level of directors' and officers'
liability insurance for so long as the indemnitee may be subject to any
possible, threatened or pending action, unless the cost of such insurance is
more than 150% of the annualized cost thereof in Fiscal 1994.
AMENDMENT OF THE COMMON STOCK INCENTIVE PLAN
(ITEM 4 ON THE PROXY CARD)
The Company's Common Stock Incentive Plan, which was approved by the
Company's shareholders at the 1993 Annual Meeting, provided for the issuance of
up to 450,000 shares of Common Stock. As of February 1, 1994, options with
respect to 3,032 shares of Common Stock had been exercised, options with respect
to 244,168 shares of Common Stock were outstanding and 202,800 shares of Common
Stock were available for future grants. Although the Board of Directors does
not have any current intention to grant additional options under the Common
Stock Incentive Plan, because of the relatively small number of remaining
available shares, the Board of Directors, on February 7, 1994, authorized,
subject to shareholder approval at the Annual Meeting, an amendment to the
Common Stock Incentive Plan increasing the number of shares of Common Stock
reserved for issuance thereunder from 450,000 shares to 700,000 shares. The
additional 250,000 shares of Common Stock represent approximately 4.5% of the
Company's issued and outstanding shares of Common Stock.
24
<PAGE>
Summary of the Common Stock Incentive Plan
- ------------------------------------------
General
The Common Stock Incentive Plan is intended primarily to (i) assist the
Company in recruiting and retaining employees with ability and initiative by
enabling them to participate in the future success of the Company, and (ii)
associate the interests of such employees with those of the Company and its
shareholders. The Common Stock Incentive Plan permits the grant of options that
are incentive stock options ("ISOs") within the meaning of Section 422 of the
Code. Options granted under the Option Plan that do not meet such requirements
are non-qualified stock options ("NSOs").
The Common Stock Incentive Plan is administered by the Compensation
Committee of the Board of Directors, the members of which are (i) ineligible to
participate in the Common Stock Incentive Plan and have not been granted options
under the Common Stock Incentive Plan or any other plan of the Company during
the one-year period prior to becoming a member of the Compensation Committee, or
(ii) otherwise deemed to be "disinterested persons" within the meaning of
Section 16 of the Exchange Act. A director of the Company who is also an
employee of the Company may be granted options under the Common Stock Incentive
Plan. However, a member of the Compensation Committee who is an employee of the
Company may not participate in the Common Stock Incentive Plan during any time
that such participation would prevent the Compensation Committee from being
"disinterested" for purposes of Section 16 of the Exchange Act.
The Compensation Committee has the authority to grant options upon such
terms (not inconsistent with the provisions of the Common Stock Incentive Plan)
as the Compensation Committee may consider appropriate. Options granted under
the Common Stock Incentive Plan entitle the optionee to purchase from the
Company a stated number of shares of Common Stock at the price established by
the Compensation Committee.
The Compensation Committee has the authority to interpret all provisions of
the Common Stock Incentive Plan, to prescribe the form of any written agreement
between the Company and an optionee (specifying the terms and conditions of the
option granted), to adopt, amend and rescind rules and regulations pertaining to
the administration of the Common Stock Incentive Plan and to make all other
determinations necessary or advisable for the administration of the Common Stock
Incentive Plan. All decisions made and action taken by the Compensation
Committee with respect to the Common Stock Incentive Plan and its administration
are final and conclusive.
The Board of Directors may terminate the Common Stock Incentive Plan and
may amend it from time to time, but no amendment will become effective until
shareholder approval is obtained if the amendment materially (i) increases the
benefits accruing to optionees, (ii) increases the aggregate number of shares of
Common Stock that may be issued, or (iii) changes the requirements as to
eligibility for participation. No amendment is permitted to affect adversely
any rights of an optionee unless the optionee consents thereto.
No option may be granted under the Common Stock Incentive Plan after
September 17, 2002. Options granted before expiration or termination of the
Common Stock Incentive Plan
25
<PAGE>
remain valid in accordance with their terms after expiration or termination of
the Common Stock Incentive Plan.
The Common Stock Incentive Plan is not subject to any provisions of the
Employee Retirement Income Security Act of 1974 and is not intended to be
qualified under Section 401(a) of the Code.
Securities Offered Under the Common Stock Incentive Plan
The Common Stock Incentive Plan provides that eligible participants may be
granted ISOs or NSOs which, upon exercise, will entitle the optionee to purchase
shares of Common Stock. The maximum aggregate number of shares of Common Stock
that may be issued under the Common Stock Incentive Plan is 450,000 shares
(which will be increased to 700,000 shares if the amendment to the Common Stock
Incentive Plan is approved by the shareholders at the Annual Meeting), subject
to increases and adjustments as provided in the Common Stock Incentive Plan.
Employees Who May Participate in the Common Stock Incentive Plan
Any of the Company's approximately 2,900 employees is eligible to
participate in the Common Stock Incentive Plan if the Compensation Committee, in
its sole discretion, determines that such employee has contributed or can be
expected to contribute to the profits or growth of the Company, although it is
anticipated that participants will be selected only from the Company's
management level employees (which group constitutes approximately 8.5% of all
employees). The granting of an option does not confer upon the optionee any
right to continue in the services of the Company or in any way affect any right
or power of the Company to terminate the services of the optionee at any time.
Issuance and Exercise of Options
The Compensation Committee designates individuals to whom options are to be
granted and specifies the number of shares of Common Stock subject to each
grant. The price per share for Common Stock purchased on the exercise of an
option is determined by the Compensation Committee on the date of grant, but if
the option is an ISO, the exercise price may not be less than the fair market
value of the Common Stock on the date the ISO is granted (or less than 110% of
the fair market value of the Common Stock if the ISO is granted to an individual
owning more than 10% of the total combined voting power of all classes of
capital stock of the Company at the time such ISO is granted to such individual
(a "Ten Percent Shareholder")). Fair market value of the Common Stock, while
the Common Stock is traded on the Nasdaq National Market, is the average of the
published high and low sales prices (or published daily bid and asked prices),
as published in The New York Times or The Wall Street Journal with respect to
------------------ -----------------------
the day immediately prior to the date on which fair market value is being
determined, and if there is no published price with respect to such day then on
the next preceding day on which prices were published. On February __, 1994,
the fair market value of the Common Stock was $____ per share. The Compensation
Committee may not grant an ISO which is first exercisable in any calendar year
for shares of Common Stock having an aggregate fair market value (determined as
of the date the ISO is granted) exceeding $100,000.
26
<PAGE>
An option may be exercised beginning on the date of grant unless another
date is established by the Compensation Committee. Generally, an optionee must
be an employee of the Company on the date of exercise of an ISO, except in the
event of death, disability or termination of employment without cause, in which
case the optionee or the optionee's representative must exercise such option
within the time period set forth in the written agreement between the Company
and the optionee specifying the terms and conditions of the option grant.
Subject to the foregoing, different terms and conditions regarding the exercise
of an option may be imposed with respect to different options and with respect
to different optionees.
The maximum period in which an option may be exercised is determined by the
Compensation Committee on the date of grant, except that an ISO may not be
exercisable more than ten years from the date of grant (or five years if the ISO
is granted to a Ten Percent Shareholder).
An option is deemed to have been exercised on the date written notice of
exercise is received by the Company from the optionee, accompanied by payment of
the option price. An option may be exercised in whole at any time, or in part
from time to time, in compliance with such requirements as the Compensation
Committee determines. Payment of the option price may be made in cash, shares
of Common Stock or any other consideration acceptable to the Compensation
Committee. The Company may lend an optionee all or part of the exercise price
of an option, but the maximum loan amount may not exceed the then-current market
value of the shares of Common Stock being acquired with the loan proceeds at the
time of the loan and the loan must be in accordance with Regulation G and the
other applicable rules and regulations of the Federal Reserve Board then in
effect.
Upon exercise of an option, an optionee will purchase the shares of Common
Stock directly from the Company for the option price set forth in the written
agreement between the Company and the optionee, without the imposition of any
fees, commissions or other charges, other than payments required to be withheld
by the Company in order to comply with applicable tax withholding requirements.
The proceeds received by the Company from the exercise of an option are to be
used for general corporate purposes.
Transfer Restrictions
An option granted under the Common Stock Incentive Plan is not
transferable, except by will or by the laws of descent and distribution, in
which event the entire option must be transferred to the same person or entity.
During an optionee's lifetime, the option may be exercised only by the optionee.
An optionee's right or interest in an option may not be subject to any lien,
obligation or liability.
No option will be exercisable, no shares of Common Stock will be issued, no
certificates for shares of Common Stock will be delivered and no payment will be
accepted under the Common Stock Incentive Plan unless, in the opinion of counsel
for the Company, such action is in compliance with all federal and state laws
and regulations (including, without limitation, withholding tax requirements)
and the rules of all national securities exchanges or self-regulatory
organizations on which the shares of Common Stock may then be listed or traded.
27
<PAGE>
The 450,000 shares of Common Stock currently issuable under the Common
Stock Incentive Plan have been registered with the Securities and Exchange
Commission under the Securities Act of 1933 (the "Securities Act") on Form S-8,
and it is the intention of the Company to so register any additional shares of
Common Stock authorized for issuance under the Common Stock Incentive Plan. As
a result, shares of Common Stock issued on the exercise of an option are freely
tradeable unless the optionee is deemed to be an affiliate of the Company at the
time of such trade. Thus, an optionee who is not an affiliate may resell
without any restrictions the shares of Common Stock acquired upon exercise of an
option. An optionee who is an affiliate of the Company may transfer the shares
of Common Stock obtained upon exercise of an option (i) publicly pursuant to
Rule 144 under the Securities Act, subject to certain volume limitations, or
(ii) in a private transaction, if the purchaser understands that "restricted
securities" are being acquired, which are subject to the same limitations on
transfer that applied to the optionee and the transaction is otherwise exempt
from the registration requirements of the Securities Act.
Options Granted under the Common Stock Incentive Plan
- -----------------------------------------------------
In September 1992, the Compensation Committee granted ISOs at $9.00 per
share, exercisable on or after November 1, 1993, to Christopher L. Schaller for
65,000 shares of Common Stock and to each of Richard Pactor, Fred D. Matheson,
William B. Towne and Peter Roaman for 12,500 shares of Common Stock. The fair
market value of the Common Stock at the time was $5.25 per share.
In December 1992, the Compensation Committee granted ISOs to 130
management-level employees of the Company for an aggregate of 137,800 shares of
Common Stock at an exercise price of $6.75 per share, the fair market value of
the Common Stock on the date of grant. The optionees consisted of Messrs.
Schaller, Matheson, Pactor, Roaman, and Towne, each of whom was granted an ISO
for 10,000 shares of Common Stock, and 125 management-level employees of the
Company, each of whom was granted an ISO for between 100 shares and 4,000 shares
of Common Stock. These options first became exercisable on December 8, 1993, at
the annual rate of one-third thereof over a period of three years.
The Compensation Committee does not have any current intention to grant
additional options under the Common Stock Incentive Plan.
Federal Income Tax Consequences
- -------------------------------
The grant of an option under the Common Stock Incentive Plan does not
result in any tax consequences to the Company or the optionee. The tax
consequences of exercising an option or disposing of Common Stock purchased by
an optionee upon exercise of an option ("option stock") depend upon whether the
option is an ISO or a NSO.
If an optionee exercises a NSO, the optionee generally must include in
gross income, as compensation for the taxable year in which the option stock
becomes substantially vested, an amount equal to the excess of the fair market
value of the option stock at the time it becomes substantially vested over the
exercise price for the option stock, and the Company will be entitled to a tax
deduction in the same amount. At disposition, appreciation (or depreciation) of
the option stock, after the date of exercise, generally is treated as capital
gain (or loss), long-term or
28
<PAGE>
short-term, depending upon the length of time elapsed between the time when the
option stock became substantially vested and the time of disposition.
If an optionee exercises an ISO, the optionee does not recognize income
upon exercise, provided that the optionee was an employee of the Company at all
times from the date when the option was granted until not less than three months
before exercise. (This three-month period is extended to one year if the
optionee's employment terminates as a result of a permanent and total
disability, and is waived in the case of the optionee's death while employed by
the Company.) However, the excess of the fair market value at the time of
exercise of the option stock over the exercise price generally constitutes an
item of tax preference and, thus, must be added to the optionee's taxable income
for purposes of determining the optionee's alternative minimum tax liability for
the taxable year of the exercise. If an optionee exercises an ISO and fails to
satisfy the three-month (or one-year) employment period requirement, the option
is generally treated as a NSO.
If (i) an optionee disposes of option stock acquired pursuant to an ISO
less than one year prior to acquisition, and (ii) the amount realized in the
disposition exceeds (or is less than) the exercise price, then the optionee must
include in gross income, as capital gain (or loss) for the taxable year of the
disposition, an amount equal to the difference between the amount realized in
the disposition over the exercise price, and the Company is not entitled to any
deduction with respect thereto.
If (i) an optionee disposes of option stock acquired pursuant to an ISO
more than one year after the option stock was acquired, and (ii) the amount
realized in the disposition exceeds both the exercise price and the fair market
value of the option stock on the date of exercise, then the optionee must
include in gross income, as compensation for the taxable year of the
disposition, an amount equal to the excess of such fair market value over the
exercise price, and must include in gross income as gain an amount equal to the
excess of the amount realized in the disposition over such fair market value,
and the Company is entitled to a deduction of such amounts. The gain is
generally treated as capital gain, long-term or short-term, depending upon the
length of time elapsed between the time when the option stock was acquired and
the time of the disposition. If, instead, the amount realized in the
disposition exceeds the exercise price, but is less than the fair market value
of the option stock on the date of exercise, the optionee must include in gross
income, as compensation for the taxable year of the disposition, an amount equal
to the excess of the amount realized over the option price, and the Company is
entitled to a deduction of such amount. If the exercise price exceeds the
amount realized in the disposition, the optionee is allowed to deduct an amount
equal to the excess as a capital loss for the taxable year of the disposition.
The loss is generally treated as capital loss, long-term or short-term,
depending upon the length of time elapsed between the time the option stock was
acquired and the time of the disposition.
THE BOARD OF DIRECTORS BELIEVES THAT THE PROPOSAL IS IN THE BEST INTERESTS
OF THE COMPANY AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE FOR APPROVAL OF THE AMENDMENT TO THE COMMON STOCK INCENTIVE
PLAN.
29
<PAGE>
AMENDMENT TO THE ARTICLES OF INCORPORATION
(ITEM 5 ON THE PROXY CARD)
The Company's Amended and Restated Articles of Incorporation (the
"Articles") currently authorize the issuance by the Company of up to 10,000,000
shares of Common Stock, of which 5,585,380 shares are issued and outstanding as
of the Record Date and 450,000 shares are reserved for issuance under the
Company's Common Stock Incentive Plan, leaving 3,964,620 shares available for
other corporate purposes.
The Board of Directors believes that it would be in the best interests
of the Company to increase the number of authorized shares of Common Stock
because a larger number would provide the Company with greater flexibility in
effecting financing, stock distributions and other transactions involving the
use of Common Stock. The Board of Directors has no current intentions to effect
any transactions which would involve the issuance of additional shares of Common
Stock. The proposed increase in the number of authorized shares of Common Stock
will not change the number of shares of Common Stock currently outstanding or
the rights of the holders of the Common Stock. Shareholders will not have any
preemptive rights to acquire the Common Stock authorized by this amendment upon
the issuance thereof.
Depending upon the nature and terms thereof, the issuance of
additional shares of Common Stock could, under certain circumstances, render
more difficult or discourage an attempt to obtain control of the Company. For
example, the issuance of shares of Common Stock in a public or private sale,
merger, or similar transaction would increase the number of the Company's
outstanding shares, thereby diluting the interest of a party seeking to take
over the Company. The proposed increase in the number of authorized shares of
Common Stock is not in response to, and is not being presented to deter, any
effort to obtain control of the Company.
The Board of Directors will have full authority to issue the entire
amount of additional authorized but unissued shares of Common Stock for such
purposes and on such terms as it may determine without further action on the
part of the shareholders. However, any such issuance would be subject to the
requirements of applicable law, governmental and other regulatory bodies and any
national securities exchange or self-regulatory organizations on which the
shares of Common Stock may then be listed or traded. The Nasdaq National
Market, on which the Common Stock is now traded, currently requires shareholder
approval in connection with the private offering by the Company of its Common
Stock where the issuance of additional shares of Common Stock could increase the
number of outstanding shares by 20% or more, if such issuance is in connection
with an acquisition or is for an amount less than the greater of the book value
or the market value of the Common Stock.
The Board of Directors, on February 7, 1994, approved an amendment to
the Company's Articles, subject to shareholder approval, increasing the number
of authorized shares of Common Stock to 20,000,000 shares. The proposed
amendment would amend the first sentence of Article FIFTH of the Articles to
read as follows (changes underlined):
The corporation shall have authority to issue (i) 20,000,000 shares of
----------
common stock, $.001 par value (the "Common Stock"), (ii) 120,000 shares of
non-voting common stock, $.001 par value (the "Non-Voting Common Stock"),
and (iii) 100,000 shares of
30
<PAGE>
preferred stock, $1.00 par value, which shall be designated 4% Senior (Pay-
in-Kind) Preferred Stock (the "Preferred Stock").
THE BOARD OF DIRECTORS BELIEVES THAT THE PROPOSAL IS IN THE BEST INTERESTS
OF THE COMPANY AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE FOR APPROVAL OF THE AMENDMENT TO THE ARTICLES.
SELECTION OF INDEPENDENT AUDITORS
(ITEM 6 ON THE PROXY CARD)
The Board of Directors, upon the recommendation of the Audit Committee, has
selected, subject to ratification by the shareholders, the firm of Deloitte &
Touche as the independent auditors for the Company to audit the Company's
financial statements for the fiscal year ending October 30, 1994. Deloitte &
Touche has served as the independent auditors for the Company and its
predecessor since 1985. A representative of Deloitte & Touche is expected to be
present at the Annual Meeting, will have the opportunity to make a statement if
such firm desires to do so and will be available to respond to appropriate
questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE
FOR RATIFICATION OF THE SELECTION OF DELOITTE & TOUCHE AS THE COMPANY'S
INDEPENDENT AUDITORS.
SHAREHOLDERS' PROPOSALS FOR THE 1995 ANNUAL MEETING
A shareholder who desires to include a proposal in the proxy material
relating to the 1995 Annual Meeting of Shareholders of the Company must submit
the same in writing, to be received at the principal executive office of the
Company (to the attention of the Secretary) on or before October 1, 1994 for the
proposal to be considered for inclusion in the Company's proxy statement for the
meeting. The proposal must also meet the other requirements of the Securities
and Exchange Commission relating to shareholder proposals required to be
included in the Company's proxy statement.
OTHER MATTERS
The Board of Directors does not know of any other business to be presented
for consideration at the Annual Meeting. If other matters properly come before
the Annual Meeting, the persons named in the accompanying form of proxy intend
to vote thereon in accordance with their best judgment.
The Company will bear the cost of the Annual Meeting of Shareholders and
the cost of soliciting proxies on behalf of the Board of Directors. Directors,
officers and regular employees of the Company (none of whom will be specifically
compensated for such services), in addition to solicitation by mail, may solicit
proxies by telephone or otherwise. Arrangements will be made with brokerage
houses and other custodians, nominees and fiduciaries to forward proxy materials
to their principals, at the Company's expense.
31
<PAGE>
Upon request, the Company will furnish without charge to each person whose
proxy is being solicited a copy of its Annual Report on Form 10-K for Fiscal
1993, including the financial statements, notes to the financial statements and
the financial schedules contained therein. Copies of any exhibits thereto may
be requested upon the payment of a reasonable duplicating charge. Requests
should be directed to Jane S. Pollack, Secretary, Forstmann & Company, Inc.,
1185 Avenue of the Americas, New York, New York 10036.
By Order of the Board of Directors
Jane S. Pollack
Secretary
February [__], 1994
------------------
PLEASE DATE, SIGN AND RETURN THE ENCLOSED PROXY AT YOUR EARLIEST
CONVENIENCE IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED FOR MAILING IN THE
UNITED STATES.
32
<PAGE>
GRAPHICS APPENDIX LIST
Proxy Statement Description of Graphic
Page Where or
Graphic Appears Cross Reference
- --------------- ----------------------
Page 22 Comparison of Cumulative Total Return among
Forstmann & Company, Inc. Common Stock, the
Nasdaq Index and the selected Peer Group,
with the vertical axis representing
cumulative total return on a $100 investment
invested March 4, 1992, and the horizontal
axis representing time periods beginning at
March 4, 1992 and at the beginning of each
semi-annual period thereafter.
<PAGE>
Preliminary Copy
FORSTMANN & COMPANY, INC.
PROXY - ANNUAL MEETING OF SHAREHOLDERS - MARCH 30, 1994
(SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS)
The undersigned shareholder of Forstmann & Company, Inc. hereby constitutes
and appoints Christopher L. Schaller, Rodney J. Peckham and Jane S. Pollack, and
each and any of them, the attorneys and proxies of the undersigned, with full
power of substitution and revocation, to vote for and in the name, place and
stead of the undersigned at the Annual Meeting of Shareholders of Forstmann &
Company, Inc. to be held at The 60 East Club, 60 East 42nd Street, New York, New
York on Wednesday, March 30, 1994 at 10:00 A.M., and at any adjournments
thereof, the number of votes the undersigned would be entitled to cast if
present.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE ELECTION OF DIRECTORS AND FOR EACH OF THE ABOVE PROPOSALS.
1. Proposal to ratify the amendment to the By-Laws.
FOR [_] AGAINST [_] ABSTAIN [_]
2. Election of five directors nominated by the Board of Directors.
FOR all nominees listed below (except as indicated to the contrary
below) [_]
Michael E. Barker, Cameron Clark, Jr.,
Steven M. Friedman, F. Peter Libassi,
Christopher L. Schaller.
WITHHOLD AUTHORITY to vote for all nominees [_]
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE, WRITE SUCH
NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
- --------------------------------------------------------------------------------
3. Election of one additional director being nominated by Odyssey Partners,
L.P.
FOR the nominee listed below, subject to adoption of Proposal 1 [_]
Stephen Berger
WITHHOLD AUTHORITY to vote for the nominee [_]
<PAGE>
4. Proposal to amend the Common Stock Incentive Plan.
FOR [_] AGAINST [_] ABSTAIN [_]
5. Proposal to amend the Amended and Restated Articles of Incorporation.
FOR [_] AGAINST [_] ABSTAIN [_]
6. Proposal to ratify the selection of Deloitte & Touche as the independent
auditors for the fiscal year ending October 30, 1994.
FOR [_] AGAINST [_] ABSTAIN [_]
PROPOSAL 3 IS BEING PROPOSED BY ODYSSEY PARTNERS, L.P., THE COMPANY'S
MAJORITY SHAREHOLDER, AND IS CONDITIONED ON THE ADOPTION OF PROPOSAL 1. EACH OF
THE OTHER FOREGOING MATTERS HAS BEEN PROPOSED BY THE BOARD OF DIRECTORS AND IS
INDEPENDENT AND NOT CONDITIONED ON THE APPROVAL OF ANY OTHER MATTER.
7. In their discretion, upon such other matters as may come properly before
the meeting.
Said attorneys and proxies, or their substitutes (or if only one, that
one), at said meeting, or any adjournments thereof, may exercise all of the
powers hereby given. Any proxy heretofore given is hereby revoked.
Receipt is acknowledged of the Notice of Annual Meeting of Shareholders,
the Proxy Statement accompanying such Notice and the Annual Report to
Shareholders for the fiscal year ended October 31, 1993.
<PAGE>
In Witness Whereof, the undersigned has signed this Proxy.
Dated: ______________________, 1994
-----------------------------------
Shareholder(s) signature(s)
-----------------------------------
Shareholder(s) signature(s)
Note: Signature(s) of shareholder(s) should correspond
exactly with the name(s) shown hereon. If shares are
held jointly, both holders should sign. Attorneys,
executors, administrators, trustees, guardians or
others signing in a representative capacity should give
their full titles. Proxies executed in the name of a
corporation should be signed on behalf of the
corporation by its president or other authorized
officer.
NOTE: THIS PROXY, PROPERLY FILLED IN, DATED AND SIGNED, SHOULD BE RETURNED
PROMPTLY IN THE ENCLOSED ENVELOPE.
