<PAGE> 1
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
SPECIALTY EQUIPMENT COMPANIES, INC.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
SPECIALTY EQUIPMENT COMPANIES, INC.
1245 CORPORATE BOULEVARD, SUITE 401
AURORA, ILLINOIS 60504
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 30, 1997
TO THE STOCKHOLDERS OF
SPECIALTY EQUIPMENT COMPANIES, INC.
Notice is hereby given that the Annual Meeting of Stockholders of
Specialty Equipment Companies, Inc., a Delaware corporation (the "Company"),
will be held at its Corporate Offices located at 1245 Corporate Boulevard,
Suite 401, Aurora, Illinois on April 30, 1997 at 10:00 a.m., Chicago time, for
the following purposes:
1. To consider and vote on the election of four members of the
Company's Board of Directors.
2. To consider and vote on a Plan of Internal Restructuring.
3. To consider and act upon such other matters as may properly come
before the meeting.
Stockholders of record at the close of business on March 20, 1997 are
entitled to notice of and to vote at the Annual Meeting and at any adjournment
thereof. For the ten days prior to the annual meeting, a complete list of the
stockholders entitled to vote at the Annual Meeting shall be open to any
stockholder, for any purpose germane to the meeting, during normal business
hours at the offices of LaSalle National Bank, 135 South LaSalle Street,
Chicago, Illinois 60674-9910.
A copy of the Annual Report and Form 10-K of the Company for the
fiscal year ended January 31, 1997 is enclosed herewith.
You are requested to sign, date and return the accompanying proxy in
the enclosed envelope, whether or not you expect to attend the meeting in
person.
By order of the Board of Directors,
/s/ DONALD K. MC KAY
----------------------------
Donald K. McKay, Secretary
Aurora, Illinois
March 27, 1997
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE
MEETING IN PERSON, WE REQUEST THAT YOU MARK, SIGN, DATE AND RETURN THE ENCLOSED
PROXY PROMPTLY.
<PAGE> 3
SPECIALTY EQUIPMENT COMPANIES, INC.
1245 CORPORATE BOULEVARD, SUITE 401
AURORA, ILLINOIS 60504
PROXY STATEMENT
SOLICITATION OF PROXIES
This proxy statement (the "Proxy Statement") is furnished to
stockholders of Specialty Equipment Companies, Inc. (the "Company") in
connection with a solicitation by the Board of Directors of the Company (the
"Board of Directors") of proxies to be used at the Annual Meeting of
Stockholders (the "Annual Meeting") to be held April 30, 1997 and any
adjournments or postponements thereof for the purposes set forth in the
accompanying notice. Any stockholder giving a proxy has the power to revoke it
at any time prior to the exercise thereof by executing and delivering to the
Secretary of the Company at the above address a subsequent proxy or a written
notice of revocation of the proxy, or by attending the Annual Meeting and
voting in person. In the absence of any contrary written direction in the
proxy, each proxy will be voted for the proposed plan of Internal Restructuring
(the "Restructuring Plan"), for the election of the nominees for directors
named in this proxy statement and in the proxy, and, in the best judgment of
the persons named in the proxy as representatives, upon any other matters which
may properly come before the Annual Meeting. The Company's Annual Report for
its fiscal year ended January 31, 1997, including financial statements, and
this Proxy Statement and the attached form of proxy are first being mailed to
stockholders on or about March 27, 1997.
Each stockholder of record at the close of business on March 20, 1997,
the record date stated in the notice of the meeting ("Record Date"), is
entitled to vote at the meeting and at any adjournments or postponements
thereof. On the Record Date, there were outstanding 18,013,418 shares of the
Company's common stock, par value $.01 per share (the "Common Stock"), each
entitled to one non-cumulative vote. No other shares of the Company entitled
to vote at the Annual Meeting were outstanding.
With regard to the election of directors, votes may be cast in favor of
or withheld from one or more of the nominees; votes that are withheld will be
excluded entirely from the vote and will have no effect. Abstentions may be
specified with respect to the Restructuring Plan and will be counted as present
for quorum purposes. As approval of the Restructuring Plan will require the
affirmative vote of the holders of a majority of the shares of Common Stock
issued and outstanding as of the Record Date, abstentions and broker non-votes
will have the effect of a negative vote on the Restructuring Plan.
Proxies will be solicited by mail and may also be solicited by personal
interview, telephone, telecopy and telegram. Solicitation will be made on a
part-time basis by directors and officers of the Company and by other regular
employees, who will receive no compensation therefore other than their regular
salary. The Company will arrange for brokerage houses, nominees and other
custodians holding Common Stock of the Company of record to forward proxy
soliciting material to the beneficial owners of such shares, and will reimburse
such record owners for the reasonable out-of-pocket expenses incurred by them.
The cost of the solicitation of proxies will be borne by the Company.
SUBMISSION OF STOCKHOLDER PROPOSALS FOR THE 1998 ANNUAL MEETING
Any proposal of a stockholder intended to be presented at the
Company's Annual Meeting of Stockholders in 1998 must be received by the
Secretary of the Company at the above address by November 27, 1997, for
inclusion in the Company's proxy, notice of meeting and proxy statement
relating to that meeting.
1
<PAGE> 4
VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS
The following table (the "Security Holdings Table") sets forth
information as of March 20, 1997 to the Company's knowledge based upon (a)
reports filed with the Securities and Exchange Commission (the "Commission") on
or before such date pursuant to Section 16(a) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and/or Rule 13D promulgated by the
Commission pursuant to the Exchange Act and (b) certain other information known
to the Company, (i) with respect to persons or groups who are believed by the
Company to be beneficial owners of more than five percent of the outstanding
Common Stock and (ii) with respect to beneficial ownership of the Company's
directors and the nominees to the Board of Directors who own such Stock, and
each of the executive officers named in the Cash Compensation Table below.
Beneficial ownership is defined, for this purpose, as the sole or shared power
to vote, or to direct the disposition of, the Common Stock. Unless otherwise
noted, the persons named in the following table have sole voting and investment
power with respect to all shares shown as beneficially owned by them.
<TABLE>
<CAPTION>
AMOUNT OF BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER OWNERSHIP OF CLASS (1)
------------------------ -------------------- ------------
<S> <C> <C>
Malcolm I. Glazer (2)(3) 7,925,532.14 41.5%
Ariel Capital Management, Inc. (2)(4) 3,811,310 21.2%
Daniel B. Greenwood (5) 494,418 2.7%
William E. Dotterweich (5)(6) 395,000 2.2%
Donald K. McKay (5) 264,661 1.5%
William W. Robertson (5) 250,000 1.4%
Jeffrey P. Rhodenbaugh (5) 239,718 1.3%
Richard A. Kent (5) 175,241 1.0%
Barry L. MacLean (5) 118,241 (7)
Charles E. Hutchinson (5) 15,241 (7)
Kevin E. Glazer (8) 16,606 (7)
Avram A. Glazer (8) 15,000 (7)
All directors and executive officers as a
group (11 people)(6) 9,909,658.14 47.7%
- ------------------
</TABLE>
(1) For purposes of calculating the percent of class, the Company has used
the number of shares of its Common Stock outstanding as of the date
specified above, 18,015,918, adjusted in the case of Malcolm I. Glazer as
set forth in the footnote 3 to this table and, in the cases of Messrs.
Greenwood, Robertson, McKay, Rhodenbaugh, Dotterweich, Hutchinson, Kent
and MacLean, as set forth in footnote 5 of this table. This number of
outstanding shares of the Company's Common Stock includes 2,500 shares to
be issued in connection with Company's 1992 Bankruptcy Plan of
Reorganization (the "POR") which as of the date specified above had not
been issued because certain holders of Debentures issued by the Company's
former Parent, SPE Acquisition, Inc. (which were canceled pursuant to the
POR), had failed to return their canceled Debentures as required by court
order as a condition to the issuance of such stock.
(2) The addresses of the persons shown on the foregoing table who are
believed by the Company to be beneficial owners of more than 5% of the
Company's Common Stock are as follows: Malcolm I. Glazer, 1482 South
Ocean Boulevard, Palm Beach, Florida 33480; and Ariel Capital Management,
Inc. ("Ariel"), 307 North Michigan Avenue, Suite 500, Chicago, IL 60601.
(3) The amount shown includes shares that can be acquired within 60 days
through the exercise of warrants to purchase 1,129,856.14 shares of Common
Stock, and the percentage of the class owned assumes the exercise of such
warrants.
(4) Ariel holds its respective shares solely as a result of its position as
investment adviser for its clients. Ariel disclaims beneficial ownership
of such shares of Common Stock. Ariel has sole dispositive power with
respect to all such shares but sole voting power with respect to only
3,598,760 shares. Mr. John W. Rogers, president
2
<PAGE> 5
and principal shareholder of Ariel, may be deemed to have beneficial
ownership of the shares beneficially owned by Ariel, but disclaims such
ownership.
(5) The amounts and percentages include those reflected in column (b) and
(c), except for 50,000 options issued to Jeffrey P. Rhodenbaugh which
are not scheduled to vest until August 21, 1998.
<TABLE>
<CAPTION>
(A) (B) (C)
SHARES ISSUABLE ON
SHARES ISSUABLE ON EXERCISE OF
EXERCISE OF OPTIONS OPTIONS
NAME UNDER EMPLOYEE PLAN DIRECTOR PLAN
---- ------------------- ------------------
<S> <C> <C>
Daniel B. Greenwood 325,000 ---
William E. Dotterweich 375,000 ---
Charles E. Hutchinson --- ---
Richard A. Kent --- 175,241
Barry L. MacLean --- 90,241
Avram A. Glazer --- ---
Malcolm I. Glazer --- ---
Kevin E. Glazer --- ---
Donald K. McKay 200,000 ---
William W. Robertson 250,000 ---
Jeffrey P. Rhodenbaugh 275,000 ---
All directors and executive 1,425,000 265,482
officers as a group (11 people)
</TABLE>
(6) Includes an aggregate of 20,000 shares held in the name of Mr.
Dotterweich's wife as to which he may be deemed to have shared voting
and investment power.
(7) Less than one percent.
(8) Avram A. Glazer and Kevin E. Glazer are sons of Malcolm I. Glazer.
Section 16(a) of the Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of the
Company's outstanding Common Stock, to file reports of ownership and changes in
ownership of such securities with the Commission. Officers, directors and
greater than ten-percent beneficial owners are required by applicable
regulations to furnish the Company with copies of all Section 16(a) forms they
file. Based solely upon a review of the copies of the forms furnished to the
Company, and written representations from certain reporting persons that no
other reports were required, the Company believes that all Section 16(a) filing
requirements applicable to its officers, directors and ten-percent holders
during or with respect to the Company's fiscal year ended January 31, 1997 were
met.
3
<PAGE> 6
1. ELECTION OF DIRECTORS
Three members of the Board of Directors will be elected to the class of
the Board of Directors which term expires at the annual meeting of stockholders
in the Company's fiscal year ending January 31, 2001. One member of the Board
of Directors will be elected to fill the vacancy created by the death of Thomas
Anderson, which term expires at the Annual Meeting of Stockholders in the
Company's fiscal year ending January 31, 1998.
The shares represented by proxies received by the Board of Directors
will be voted, in the absence of any contrary direction therein, for the
election of the nominees hereinafter listed and described. The Board of
Directors believes that the persons named will be available, but if any nominee
becomes unwilling or unable to serve as a director, the proxies will be voted
for another individual to be selected by the Board of Directors. The
affirmative vote of a plurality of the shares of the Company's Common Stock
represented at the Annual Meeting is required for the election of directors.
Malcolm I. Glazer, Barry L. MacLean and Jeffrey P. Rhodenbaugh are
nominated, and upon election will hold office for three year terms, expiring at
the annual meeting of stockholders in the Company's fiscal year ending January
31, 2001, and until their successors are chosen and have qualified. William E.
Dotterweich is nominated, and upon election, will hold office for a one year
term expiring at the Annual Meeting of Stockholders in the Company's fiscal year
ending January 31, 1998.
Certain other information (as of the date of this proxy statement)
concerning the above-mentioned nominees and the current directors who will
continue to serve on the Board of Directors after the Annual Meeting is set
forth below.
<TABLE>
<CAPTION>
Board Members and Nominees Age
- ---------------------------- ---
<S> <C>
Daniel B. Greenwood (member) 77
William E. Dotterweich (member and nominee) 61
Jeffrey P. Rhodenbaugh (nominee) 42
Avram A. Glazer (member) 36
Kevin E. Glazer (member) 35
Malcolm I. Glazer (member and nominee) 68
Charles E. Hutchinson, Ph.D. (member) 61
Richard A. Kent (member) 51
Barry L. MacLean (member and nominee) 58
</TABLE>
Mr. Dotterweich, a member and nominee, has served as a member of the
Board of Directors since May 1995. Mr. Dotterweich has been Chief Executive
Officer of the Company since December 1993 and served as President and Chief
Operating Officer of the Company from December 1993 until September 1996. Mr.
Dotterweich has announced that he will retire as Chief Executive Officer
effective May 1, 1997. From 1989 to 1992 Mr. Dotterweich worked for the Company
in a consulting capacity. Prior to that time, from 1985 until 1989, Mr.
Dotterweich served as President and Chief Operating Officer of the Company. Mr.
Dotterweich was a director of the Company from January 1985 to September 1988.
From 1981 to 1985 Mr. Dotterweich was employed by Beatrice as President of its
Commercial Equipment Division which included the food service equipment group.
Mr. Rhodenbaugh, a nominee to the Board of Directors, has been
President and Chief Operating Officer of the Company since September 1996. Mr.
Rhodenbaugh will become Chief Executive officer of the Company after Mr.
Dotterweich's retirement on May 1, 1997. He was President of Beverage-Air from
March 1996 to September 1996. From April 1993 to March 1996 he served as
Executive Vice President of Beverage-Air. He also served as Vice President of
Marketing of the Company from January 1991 to September 1996. He served as
President of Wells from January 1990 to January 1991 and as Wells' Vice
President of Sales and Marketing form 1986 to January 1990. Mr. Rhodenbaugh
joined Wells after nine years at Hobart Corporation as a field sales employee
and national account manager. Mr. Rhodenbaugh serves on the Board of Directors
and Executive Committee of the North American Association of Food Equipment
Manufacturers (NAFEM).
Mr. Malcolm I. Glazer is a member and nominee to the Board of Directors.
He has been a self-employed, private
4
<PAGE> 7
investor whose diversified portfolio consists of investments in television
broadcasting, restaurants, health care, banking, real estate, sports franchises,
stock, and corporate bonds for more than the past nine years. He has been
President and Chief Executive Officer of the First Allied Corporation since
1984. He is Chairman of the Board of Directors of Zapata, a director and
Chairman of the Board of Houlihan's Restaurant Group Inc., ("HRGI") and a
director of Envirodyne. He is a member of the group (which also includes Avram
and Kevin Glazer) which owns approximately 71% of the outstanding voting stock
of HRGI, a restaurant holding company, which is the holding company for
restaurant subsidiaries (including Houlihan's Restaurants) that regularly
purchase restaurant equipment manufactured by the Company. All such
transactions are on regular trade terms. Malcolm Glazer is the father of Avram
Glazer, who is a nominee and a current director, and Kevin Glazer, who is a
current director. Mr. Glazer has served as a director since May 1994.
Mr. MacLean is a member and nominee to the Board of Directors. He is
currently the President and Chief Executive Officer of MacLean-Fogg Company, a
manufacturer of automotive parts and products for the power and telephone
utilities businesses, and has served in those positions since 1972. Mr. MacLean
also serves as a Director of Oce-U.S.A., Inc and L.R. Nelson Corp., a
manufacturer of lawn and garden sprinklers. Mr. MacLean is a Director and a
former Chairman of the Illinois Manufacturers Association, and is a trustee of
Dartmouth College. Mr. MacLean has served as a director of the Company since
March 1992.
Mr. Greenwood, a member of the Board of Directors, has served as
Chairman of the Board since January 1985, and as Chief Executive Officer of the
Company from that date until September 1988 and from November 16, 1993 to
January 31, 1995. Before becoming Chairman he was employed by Taylor (one of
the Company's divisions) for thirty years, most recently as President. Mr.
Greenwood has served as a director since 1985. His current term as a director
expires in fiscal 1999.
Mr. Kevin E. Glazer, a member of the Board of Directors, has been
employed by, and works on behalf of, Malcolm Glazer and a number of entities
owned and controlled by Malcolm Glazer, for more than the past ten years, with
his principal responsibilities including overseeing the operations of Malcolm
Glazer's investment interests, including serving as a Vice President of First
Allied Corporation since 1986. He also serves as a director of HRGI and
Savannah Bank N.A. See the discussion above, in the information regarding
Malcolm Glazer, regarding HRGI's purchase of equipment manufactured by the
Company. Kevin Glazer is the son of Malcolm Glazer and the brother of Avram
Glazer, both of whom are members of the Board of Directors. Mr. Glazer has
served as a director since May 1994 and his current term expires in fiscal 1999.
Mr. Avram A. Glazer, a member of the Board of Directors, has been
employed by, and works on behalf of, Malcolm I. Glazer and a number of entities
owned and controlled by Malcolm Glazer, for more than the past ten years, with
his principal responsibilities including identifying, implementing, monitoring
and disposing of Malcolm Glazer's investment interests, including serving as
President and Chief Executive Officer of Zapata Corporation ("Zapata"), a
natural gas company, since March 1995. He is also a director of Zapata and
Envirodyne Industries, Inc., a packaging materials company ("Envirodyne"). He
also serves as a director of HRGI. See the discussion above, in the information
regarding Malcolm Glazer, regarding HRGI's purchase of equipment manufactured by
the Company. Avram Glazer is the son of Malcolm Glazer and the brother of Kevin
Glazer, who are each members of the Board of Directors. Mr. Glazer has served
as a director since May 1994. His current term as a director expires in fiscal
2000.
Dr. Hutchinson, a member of the Board of Directors, is Dean (Emeritus)
of the Thayer School of Engineering at Dartmouth College. He was Dean of the
Thayer School of Engineering at Dartmouth College from 1984 to 1994. Dr.
Hutchinson holds a Ph.D. from Stanford University. Dr. Hutchinson has also been
a Professor at the University of Massachusetts, has published extensively and
has extensive consulting experience with both public and private entities. He is
a member of the Board of Directors of Markem Corporation, Hypertherm, Inc. and
Interact Medical Technology Inc. Dr. Hutchinson has served as a director of
the Company since March 1992. His current term as a director expires in fiscal
2000.
Mr. Kent, a member of the Board of Directors, is currently Chairman and
Chief Executive Officer of Kentco Capital Corporation. He is also President of
Parco Foods L.L.C. Mr. Kent was formerly Chairman/Chief Executive Officer and
President of Orval Kent Food Company, Inc. Mr. Kent is a past Vice President
and a member of the Board of Directors of the Salad Manufacturers Association.
Mr. Kent has served as a director of the Company since March 1992. His current
term as a director expires in fiscal 2000.
5
<PAGE> 8
2. APPROVAL OF A PLAN OF CORPORATE RESTRUCTURING
INTRODUCTION
Since the company was reorganized in 1992, it has operated principally
as a consolidated entity, holding most of its assets directly and conducting its
operations through four principal divisions (Taylor Company, Beverage-Air,
Wells/Bloomfield and World Dryer). The divisions operate as separate business
units, with the Company's Corporate Office, located in Aurora, Illinois,
performing essential corporate functions and providing oversight and
coordination. The Company also has several subsidiaries, most of which are
foreign sales subsidiaries.
The Board of Directors, upon the recommendation of management after
consultation with its independent accountants, has approved the adoption of the
Restructuring Plan, authorizing the Company (upon satisfaction of certain
conditions) to transfer (by sale, lease or other means) some or substantially
all of its operating, manufacturing, sales and marketing assets to the newly
formed wholly-owned subsidiary. Under the Restructuring Plan, the Company would
retain direct ownership of all assets located at or used in the Corporate
Office, as well as all intellectual property rights, and potentially other
assets.
The Board of Directors believes that the new proposed holding company
structure would permit improved delineation of administrative and other
responsibilities within the corporate structure and would allow the executive
employees to more effectively concentrate their efforts on the concerns of the
consolidated enterprise as a whole. This would, through the delineation of
responsibilities, permit increased focus to be placed on the strategic aspects
of the business including business combinations, strategic dispositions and
joint ventures. An additional benefit from the reorganization would be that by
placing the intellectual property rights in the holding company corporation they
could be insulated from claims of future creditors of the subsidiaries. Finally
the Board of Directors believes that there is the potential for future state
income tax savings by further segregating the operating and holding company
functions to more appropriately recognize the value of the intellectual property
and management services provided to the operating companies.
The Restructuring Plan is attached hereto as Exhibit A, and the
discussion of the Restructuring Plan is qualified in its entirety by reference
thereto.
REASONS FOR THE RESTRUCTURING
Upon full implementation of the Restructuring Plan, the Company would
become principally a holding company, with its domestic manufacturing and sales
operations being conducted by the newly-formed Subsidiary. The holding company
structure should yield the following advantages, without any material change or
effect in the overall operations of the Company, rights of Company stockholders
or the location of the Company's facilities:
* Enhanced flexibility in the management and financing of new and existing
business operations.
* Facilitation of strategic dispositions of existing businesses.
* Facilitation of formation (and limitation of risks to the Company as a
whole) of joint ventures or other strategic alliances and business
combinations.
* Protection of the Company's valuable intellectual property rights from
the claim of future creditors of the Subsidiaries.
* Potentially significant tax savings.
The implementation of the Restructuring Plan will have no effect on the
presentation of the consolidated financial statements of the Company. The
Company will continue to report its financial operations and condition on a
consolidated basis.
6
<PAGE> 9
POTENTIAL STRUCTURE; EFFECT OF THE RESTRUCTURING PLAN
The following diagrams show the present corporate structure of the
Corporation and its subsidiaries and the potential structure which would result
from implementation of the proposed internal restructuring.
CURRENT ORGANIZATION
SPECIALTY EQUIPMENT COMPANIES, INC.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Specialty
Taylor Freezer Bloomfield Equipment
Taylor- (Cyprus) Taylor Freezer Industries FM Foreign Sales
Chicago Limited Italy SRL Canada Manufacturing Corporation
</TABLE>
PROPOSED ORGANIZATION
SPECIALTY EQUIPMENT COMPANIES, INC.
(HOLDING COMPANY)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Taylor Specialty Specialty
Freezer Taylor Bloomfield Equipment Equipment
Taylor- (Cyprus) Freezer Italy Industries- (Operating FM Foreign Sales
Chicago Limited SRL Canada Company) Manufacturing Corporation
</TABLE>
Pursuant to the Restructuring Plan, the Board of Directors retains the
discretion to determine whether and when to make any transfers to Subsidiaries,
and to determine which assets, if any, should be transferred. The Board of
Directors, with the assistance of the Company's management, is planning to
accomplish the Restructuring Plan, the general terms of which are described
below. It is currently contemplated, assuming stockholder approval of the
Restructuring Plan, that the restructuring can be accomplished on or before the
beginning of the fiscal year commencing February 1, 1998. Nevertheless, there
can be no assurances that the Board of Directors will determine to restructure
the Company pursuant to the Restructuring Plan.
Under the Restructuring Plan, the Company would transfer substantially
all of its domestic assets (excluding all intellectual property rights and
assets related to the corporate office, and potentially other assets) to the
Operating Subsidiary. The Operating Subsidiary would perform all of the
Company's manufacturing, sales and product development activities. The Company
in turn would continue to perform management, finance and administrative
functions, as well as licensing the
7
<PAGE> 10
Company's intellectual property to the Operating Subsidiary. All of the
Company's employees, other than the employees working at the Company's
Corporate Office in Aurora, Illinois would become employees of the Operating
Subsidiary. The Company would receive from the Operating Subsidiary (i)
management fees for the performance of Corporate Office functions, (ii)
royalties in connection with the licensing of the Company's intellectual
property and (iii) dividend payments, to the extent any such dividends are
declared by Operating Subsidiary's board of directors. In addition, the
Operating Subsidiary and the Company from time to time might engage in other
transactions with each other, including making or receiving intercompany
loans.
Based upon the Company's financial statements (January 31, 1997), the
assets likely to be transferred to the Operating Subsidiary are all but $5.6
million of the Company's total assets (such remaining amount representing
principally the book value of the Company's intellectual property rights after
applicable amortization.
Use of Assets Following Restructuring. Although pursuant to the
Restructuring Plan, the Company would transfer legal ownership of some or
substantially all of its operating, manufacturing, sales and marketing assets
to the Operating Subsidiary, such assets would continue to be used for the same
purposes as at present.
Effect on Corporation's Financial Statement. The implementation of the
Restructuring Plan, regardless of the structure, will have no effect on the
presentation of the consolidated financial statements of the Company. The
Company will continue to report its financial operations and condition on a
consolidated basis.
No Effect on a Pro Forma Basis. Were the Company to prepare a pro
forma consolidated financial statement giving effect to the Restructuring Plan
as of the beginning of the Company's fiscal year ended January 31, 1997 (or any
prior year), there wold not be any pro forma adjustments required to account
for the effects of the Restructuring Plan. Rather, the effect of the
Restructuring Plan is that all or substantially all of the Company's net sales
and income (loss) from operations (on a consolidated basis) will be generated
by the Operating Subsidiary, and the Company's principal source of revenue (on
an unconsolidated basis) will be dividends from the Operating Subsidiary and
intra-company charges related to management fees and royalties.
Assumption of Liabilities. Regardless of the structure, the assets
transferred to any Subsidiary will be transferred subject to all related
liabilities and obligations; however, the Company will continue to be obligated
as to those liabilities. More specifically, pursuant to the Indenture (the
"Indenture"), dated as of December 1, 1993 between the Company and Harris Trust
and Savings Bank, as trustee, the Operating Subsidiary will be required to
execute and deliver a supplemental indenture to the Indenture providing for the
guarantee of the Company's obligation pursuant to the 11-3/8% Senior
Subordinated Notes due 2003 issued under the Indenture (the "Notes"), and other
agreements binding upon the Company may require similar guarantees. As a
result of such guarantees of a Company obligation, the legal responsibility
for such obligation of the Company on a consolidated basis would be unchanged
by implementation of the Restructuring Plan.
Effects on Stockholders. The outstanding stock of the Corporation
would not be affected by consummation of the Restructuring Plan. Stockholders
of the Company would continue to have the same voting, dividend and liquidation
rights before and after implementation of the Restructuring Plan. However,
stockholders of the Company would not be entitled to elect the directors of the
Operating Subsidiary. Instead stockholders of the Company would elect the
directors of the Company, who would have overall responsibility for the
management of the Company and the Operating Subsidiary. Directors of any
Subsidiary would be elected by the Board of Directors of the Company (or
boards of the immediate parent of any such Subsidiary) which would be the sole
stockholder of the Subsidiaries (other than Subsidiaries which are wholly-owned
subsidiaries of other Subsidiaries). In addition, stockholders of the Company
would not be entitled to vote on amendments to the Operating Subsidiary's
charter or by-laws.
The Restructuring Plan provides that if the Company were to make a
further disposition of the stock of any of the Operating Subsidiary or if any
such Subsidiary disposes of its assets, in either case to parties other than
the Company and/or its wholly-owned subsidiaries, the Company first would seek
stockholder approval of such transaction if the stock or assets involved
constitute all or substantially all of the assets of the Company and its
subsidiaries taken as a whole. For this reason, the restructuring will not
substantially alter stockholders' rights to approve dispositions of all or
substantially all of the
8
<PAGE> 11
Company's assets. Although the Company has no present intentions to cause the
Operating Subsidiary to make further transfers of assets following
implementation of the Restructuring Plan (other than to other Subsidiaries
and/or the Company), the Company does not intend to seek stockholder approval
of any subsequent dispositions of assets by the Operating Subsidiary or of the
stock of any Subsidiary, unless such assets or stock to be transferred
constitute all or substantially all of the assets of the Company and its
subsidiaries, taken as a whole. Furthermore, it is possible that the Operating
Subsidiary may not be wholly-owned in the future, although the Company has no
present plan to sell or issue stock in the Operating Subsidiary to anyone other
than the Company and/or its direct and indirect wholly-owned subsidiaries. In
the event the Operating Subsidiary were to so issue shares, the Company's
shareholders would be subject to dilution, if such issuance were to any person
or entity other than the Company (whether such issuance was in a public
offering or a private placement). Currently, the maximum amount of dilution
possible is limited by the number of shares of Common Stock authorized under
the Company's Certificate of Incorporation, which may only be amended with
the approval of the Company's stockholders. Following the Restructuring Plan,
the only similar limitation on dilution will be the requirement that an
issuance of the Operating Subsidiary's stock which constitutes a sale of
substantially all of the Company's consolidated assets will require approval of
the Company's stockholders.
Under applicable Delaware law, following consummation of the
Restructuring Plan, the statutory right of the Company's stockholders to
inspect the books and records of the Company may not extend to the books and
records of the Operating Subsidiary which is a separate legal entity of which
the sole stockholder is the Company. However, because the Company is a public
company subject to the reporting requirements of the Securities and Exchange
Act of 1934, as amended, and the rules of the NASDAQ National Market,
information regarding the Company and its subsidiaries is available to
stockholders without resort to the statutory right to inspect the Company's
books and records.
Effects on Management. The proposed restructuring will not result in
any changes in the current membership of the Board of Directors of the Company,
and is not expected to result in any change in the Company's officers. Persons
who are currently serving as officers of the Company may continue to be
officers' and/or directors of the Operating Subsidiary. Although there are no
plans to make any changes in compensation or benefits in connection with
implementation of the Restructuring Plan, the Board of Directors retains
discretion to adjust compensation and benefits as it deems appropriate.
TAX CONSEQUENCES OF CONSUMMATION OF THE RESTRUCTURING PLAN
The Company does not believe that it will incur any material tax
liabilities in connection with the proposed transfers of assets to the
Operating Subsidiary. The Company has not requested or received, and does not
contemplate requesting, a ruling from the Internal Revenue Service or any state
taxing authority as to the tax consequences of any such transfers or the
Restructuring Plan. However, consummation of the Restructuring Plan, or any
part thereof, is conditioned upon receipt by the Company of a favorable opinion
of its tax advisor regarding the tax consequences of any such transfers, and
the structuring will not be consummated unless such an opinion can be obtained.
Such an opinion, if it is rendered, will represent such advisor's best
judgement based on current law, but, however, will not be binding on the
Internal Revenue Service, any state taxing authority or any court of competent
jurisdiction.
CONDITIONS TO IMPLEMENTATION OF THE RESTRUCTURING PLAN
Section 271(a) of the Delaware General Corporation Law requires that
the sale, lease or exchange of all or substantially all of the corporation's
assets be approved by its Board of Directors and authorized by a resolution
adopted by the holders of a majority of the outstanding stock of the
corporation entitled to vote. Although it is unclear that the transfer of
assets to a wholly owned subsidiary, which includes an assumption of
liabilities by the subsidiary, falls within Section 271(a), there is no clear
authority under Delaware law which would exempt such a transaction from Section
271(a)'s requirements. Accordingly, in order to ensure compliance with
applicable law, the Board of Directors have determined to submit the
Restructuring Plan to a binding stockholder vote. If the stockholders do not
approve the Restructuring Plan, it will not be consummated. However, the
submission of the Restructuring Plan to stockholders is not intended to affect
the Company's right, under applicable Delaware law, to dispose of less than all
or substantially all of its assets without stockholder approval. Thus, even if
the Restructuring Plan is not approved by the stockholders, the Company may
from time
9
<PAGE> 12
to time in the future transfer portions of its assets to subsidiaries or to
third parties on terms and for consideration approved by the Board of
Directors, subject to applicable Delaware law, without seeking stockholder
approval.
In addition to being subject to stockholder approval and the discretion
of the Board of Directors, the implementation of the Restructuring Plan is
subject to receipt of a favorable opinion of the Company's tax advisor, as
discussed in "Tax Consequences of Consummation of the Restructuring Plan";
receipt of all necessary consents and approvals of lenders, lessors and other
parties; and completion of various administrative requirements. In the event
that these conditions are not materially satisfied, the Restructuring Plan will
not be consummated. No federal or state regulatory requirements must be
complied with, nor must any governmental approval be obtained, in order to
effectuate the Restructuring Plan.
RIGHTS OF DISSENTING STOCKHOLDERS
Stockholders of the Company are not entitled to any appraisal or
similar rights under Delaware law in connection with the approval, adoption or
consummation of the Restructuring Plan.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL
The Board of Directors believes that the adoption of the Restructuring
Plan will promote the interests of the Company and its stockholders.
Accordingly, the Board of Directors has approved the adoption of the
Restructuring Plan and recommends that stockholders vote "FOR" the proposal to
adopt and approve the Restructuring Plan. Proxies solicited by the Board of
Directors will be so voted unless stockholders specify otherwise.
DIRECTORS COMMITTEES, MEETINGS AND COMPENSATION
The Board of Directors met four times in the Company's fiscal year
ending January 31, 1997. Board Committees include an Audit Committee, which
met one time during the last fiscal year, a Compensation Committee, which met
one time during that year, a Restricted Stock Committee, which met one time
during that year and a Stock Incentive Committee which met one time during that
year. The Board does not have a standing Nominations Committee.
All members of the Board of Directors attended each of the meetings of
the Board and each of the meetings of the committees on which he served in the
Company's fiscal year ending January 31, 1997 held during the period in which
he was a director.
Each director who is not an employee of the Company receives $28,000
annually, paid in quarterly installments in advance, plus expenses paid for
each regular quarterly meeting attended. Each of the current directors, other
than Mr. Greenwood, Mr. Dotterweich, Mr. Avram Glazer, Mr. Kevin Glazer, and
Mr. Malcolm Glazer, received options pursuant to the Specialty Equipment
Companies, Inc. Non-Employee Directors Long-Term Incentive Plan (the "Director
Plan"), described below. Mr. Greenwood and Mr. Dotterweich do not receive fees
for their services as directors.
The Audit Committee consists of Mr. MacLean, Mr. Avram Glazer and Mr.
Hutchinson This Committee considers matters relating to internal controls and
compliance with accounting policies. It also recommends independent auditors
to the Board of Directors and reviews the independence of such auditors,
approves the scope of the annual audit activities of the independent auditors
and reviews the audit fee payable to the independent auditors and the audit
results.
The Restricted Stock Committee consists of Mr. MacLean, Mr. Kent and
Mr. Hutchinson. The Committee administers the Company's Restricted Stock Plan.
The Compensation Committee consists of Mr. MacLean, Mr. Kent, Mr.
Greenwood and Mr. Malcolm Glazer. The Compensation Committee reviews and makes
recommendations to the Board of Directors on compensation of corporate officers
and presidents of the Company's divisions.
The Stock Incentive Committee consists of Mr. Hutchinson, Mr. Kent,
Mr. MacLean and Mr. Avram Glazer. The Stock Incentive Committee administers
the Company's Executive Long-term Incentive Plan ("Employee Plan").
10
<PAGE> 13
THE NON-EMPLOYEE DIRECTOR OPTION PLAN
Effective May 6, 1993, the Company adopted the Director Plan.
Pursuant to the Director Plan, on May 6, 1993 each of the five
non-employee directors then serving or elected to serve on the Board of
Directors was granted an option to purchase 175,241 shares of Common Stock at a
price of $1.00 per share; the aggregate grants under the Director Plan totaled
876,205 shares. Each of Messrs. Hutchinson, Kent and MacLean received such an
option, as well as two former directors.
The options granted under the Director Plan all vested and became
exercisable on May 6, 1995, as on such date all of the conditions to vesting
were satisfied. The exercise price for options granted under the Director Plan
must be paid in cash. All options granted pursuant to the Director Plan expire
on May 6, 2000. Options awarded pursuant to the Director Plan may not be
transferred except in certain circumstances by will or by the laws of descent
and distribution. Options under the Director Plan that are vested and
exercisable at the date of a grantee's termination of service generally may be
exercised for three months thereafter, except that such awards may be exercised
for three years after death, disability and/or retirement.
The following table sets forth the number of shares covered by
options, all of which are exercisable, held by each non-employee director
holding options pursuant to the Director Plan on January 31, 1997 and the
aggregate gains that were realized upon their exercise during the fiscal year
ended January 31, 1997 or would have been realized had those options been
exercised on January 31, 1997. These calculations assume a market value for a
share of Common Stock of $13.50, which was the closing price of the Common
Stock on January 31, 1997, as quoted on the Nasdaq Stock Market.
AGGREGATED NON-EMPLOYEE DIRECTOR PLAN
EXERCISES IN LAST FISCAL YEAR END AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
SHARES ACQUIRED UNEXERCISED IN-THE-MONEY
ON EXERCISE VALUE REALIZED OPTIONS OPTIONS
(#) ($) AT FY-END (#) AT FY-END ($)
-------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Richard A. Kent --- --- 175,241 2,190,513
Barry L. MacLean --- --- 90,241 1,128,013
</TABLE>
11
<PAGE> 14
EXECUTIVE COMPENSATION
The following summary compensation table (the "Compensation Table")
summarizes compensation information with respect to Mr. Dotterweich, who served
as Chief Executive Officer during fiscal 1996, and the four other most highly
compensated executive officers of the Company (collectively, the "Named
Executives") in fiscal 1996 for services rendered during such fiscal year.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
LONG-TERM COMPENSATION
----------------------
ANNUAL COMPENSATION AWARDS PAYOUT
------------------- ------ ------
RESTRICTED
STOCK OPTIONS/ ALL OTHER
SALARY BONUS AWARD(S) SARS LIP PAYOUT COMPENSATION
NAME AND PRINCIPAL POSITIONS FISCAL YEAR ($)(2) ($)(2)(4) ($) (#) ($) ($)(1)
- ---------------------------- ----------- ------ --------- ----- ---- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Daniel B. Greenwood (3) 1995 340,000 340,000 N/A N/A N/A 25,649
(Chairman of the Board) 1996 200,000 200,000 N/A N/A N/A 30,897
1997 200,000 172,200 N/A N/A N/A 35,648
William E. Dotterweich 1995 300,000 300,000 N/A 375,000 N/A 580
(Chief Executive Officer) 1996 450,000 450,000 N/A N/A N/A 1,579
1997 450,000 450,000 N/A N/A N/A 1,995
Donald K. McKay 1995 170,000 170,000 N/A N/A N/A 11,185
(Executive Vice President, 1996 180,000 180,000 N/A N/A N/A 15,213
Chief Financial Officer, 1997 193,000 166,906 N/A N/A N/A 17,929
Treasurer and Secretary)
William W. Robertson 1995 180,000 180,000 N/A N/A N/A 6,075
(President, Beverage-Air) 1996 200,000 200,000 N/A N/A N/A 11,683
1997 220,000 171,798 N/A N/A N/A 9,475
Jeffrey P. Rhodenbaugh 1995 144,000 144,000 N/A N/A N/A 3,108
(Chief Operating Officer, 1996 155,000 155,000 N/A N/A N/A 3,451
President and Chief 1997 235,417 196,928 N/A 50,000 N/A 2,959
Executive Officer, Taylor)
</TABLE>
(1) Benefits include premiums paid by the Company with respect to term life
insurance for the benefit of the beneficiaries of the Named Executives
and the value of leased cars for the use of certain named Executives,
and in the case of Mr. McKay, Mr. Greenwood, Mr. Robertson and Mr.
Rhodenbaugh, includes interest imputed on non-interest bearing loans
from the Company for payment of taxes on Restricted Stock holdings. See
"--Certain Transactions."
(2) Includes elected deferrals under the Specialty Equipment Companies
Retirement Savings Plan.
(3) Mr. Greenwood also served as Chief Executive Officer during all of
fiscal 1995.
(4) Effective September 1, 1997, Mr. Rhodenbaugh's annual salary was
increased to $300,000 upon his appointment as President and Chief
Operating Officer. Mr. Rhodenbaugh will become Chief Executive officer
of the Company after Mr. Dotterweich's retirement on May 1, 1997.
Defined Benefit Plans
The Company maintains the Specialty Equipment Companies Retirement
Income Plan ("Retirement Plan") for certain of its salaried employees, including
executive officers. The Company also maintains the Specialty Equipment
Companies Supplemental Retirement Plan ("Supplemental Plan") for certain of its
salaried employees, including executive officers, in order to provide benefits
in an amount equal to the excess of the benefits that would be paid under the
Retirement Plan were it not for the limitations on benefits imposed by the IRC.
The benefits under the Supplemental Plan are provided by means of unfunded
payments made by the Company to the individuals eligible for such payments, as
described in the
12
<PAGE> 15
Supplemental Plan. Based on estimated Social Security benefit levels and on IRC
and Retirement Plan applicable limitations in fiscal 1996, the table below
reflects annual benefit payments in the form of a single life annuity at age
65 to participants in the Retirement Plan, as supplemented by the Supplemental
Plan, at specified compensation levels (based on final average annual earnings
- -- that is, cash compensation in the five calendar years in which compensation
was highest, during the last fifteen calendar years) and with specified lengths
of service.
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE AT RETIREMENT
FINAL
AVERAGE
ANNUAL
EARNINGS 5 10 15 20 25 30 40
- -------- ------ ------ ------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
150,000 10,057 20,113 30,170 40,226 50,283 60,340 82,044
200,000 13,807 27,613 41,420 55,226 69,033 82,840 112,044
250,000 17,557 35,113 52,670 70,226 87,783 105,340 142,044
300,000 21,307 42,613 63,920 85,226 106,533 127,840 172,044
350,000 25,057 50,113 75,170 100,226 125,283 150,340 202,044
400,000 28,807 57,613 86,420 115,226 144,033 172,840 232,044
450,000 32,557 65,113 97,670 130,226 162,783 195,340 262,044
500,000 36,307 72,613 108,920 145,226 181,533 217,840 292,044
550,000 40,057 80,113 120,170 160,226 200,283 240,340 322,044
600,000 43,807 87,613 131,420 175,226 219,033 262,840 352,044
650,000 47,557 95,113 142,670 190,226 237,783 285,340 382,044
700,000 51,307 102,613 153,920 205,226 256,533 307,840 412,044
750,000 55,057 110,113 165,170 220,226 275,283 330,340 442,044
800,000 58,807 117,613 176,420 235,226 294,033 352,840 472,044
850,000 62,557 125,113 187,670 250,226 312,783 375,340 502,044
</TABLE>
For purposes of determining the collective pension benefits under the
Retirement Plan and the Supplemental Plan, the years of credited service and
final average annual earnings (as though the executive officer had retired at
age 65 on January 31, 1997 for the Named Executives are as follows: Mr.
Dotterweich, 13 years and $791,107. Mr. McKay, 19 years and $365,970; Mr.
Robertson, 26 years and $373,262; and Mr. Rhodenbaugh, 10 years and $257,437.
Mr. Greenwood is not eligible to participate in either the Retirement Plan or
the Supplemental Plan.
Employee Option Plan
Each of the Company's executive officers are eligible to be granted
awards under the Employee Plan. The Employee Plan, as amended, permits the
delivery of a maximum of 4,004,814 shares of the Company's Common Stock on
account of the exercise of Awards. Of this amount of shares of the Company's
Common Stock, a maximum of 1,500,000 shares of the Company's Common Stock may be
made subject to Awards granted to any particular individual.
The following table sets forth the number of shares covered by
exercisable and unexercisable options held by the Named Executives on January
31, 1997 and the aggregate gains that would have been realized had those options
been exercised on January 31, 1997, whether these options were exercisable or
not, on January 31, 1997. These calculations assume a market value for a share
of Common Stock of $13.50, which was the closing price of the Common Stock on
January 31, 1997, as quoted on the Nasdaq Stock Market. During the Company's
fiscal year ended January 31, 1997, none of the Named Executives acquired any
shares of Common Stock through the exercise of options.
13
<PAGE> 16
<TABLE>
<CAPTION>
NUMBER OF SHARES COVERED BY VALUE OF OPTIONS AS OF
OPTIONS ON JANUARY 31, 1997
JANUARY 31, 1997 (IN DOLLARS)
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
William E. Dotterweich (1) 375,000 --- $2,056,250 ---
Daniel B. Greenwood 325,000 --- 4,062,500 ---
Donald K. McKay 200,000 --- 2,500,000 ---
William W. Robertson 250,000 --- 3,125,000 ---
Jeffrey P. Rhodenbaugh (2) 225,000 50,000 2,812,500 $75,000
</TABLE>
(1) Option values are calculated based upon the difference between the
closing market price of the Company's common stock as reported on the NASDAQ
National Market on January 31, 1997 ($13.50) and the applicable exercise prices
of the options.
(2) All of the options granted to Mr. Rhodenbaugh vest two years after
the date of grant. 225,000 options were granted on June 8, 1993 at an exercise
price of $1.00 and 50,000 options were granted on August 21, 1996 at an exercise
price of $12.00.
Options awarded pursuant to the Employee Plan may not be transferred
except in certain circumstances by will or by the laws of descent and
distribution. Options under the Employee Plan that are vested and exercisable
at the date of a grantee's termination of service generally may be exercised for
three months thereafter, except that such awards may be exercised for three
years after death, disability and/or retirement.
OPTION GRANTS IN THE FISCAL YEAR ENDED JANUARY 31, 1997
<TABLE>
<CAPTION>
PERCENT OF TOTAL
OPTIONS POTENTIAL REALIZED VALUE AT
GRANTED TO EXERCISE OR ASSUMED ANNUAL RATES
OPTIONS EMPLOYEE IN BASE PRICE EXPIRATION DATE OF STOCK PRICE APPRECIATION
NAME GRANTED (#) FISCAL YEAR (1) ($/SHARE) (2) (3) FOR OPTION TERM (4)
---- ----------- ---------------- ------------- --------------- ---------------------------
5% ($) 10% ($)
------ -------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey P.
Rhodenbaugh 50,000 100% $12.00 8/21/03 $244,260 $569,230
</TABLE>
- ---------------
(1) Stock options exercisable into 50,000 shares of Common Stock were
granted to all employees and non-employee directors of the Corporation
as a group during the fiscal year ended January 31, 1997.
(2) The exercise price is the closing market price on the date of grant.
(3) Options vest and become exercisable commencing on the second anniversary
of the grant date, and expire in five years from the vesting date.
(4) The dollar amounts under the potential realizable values columns use the
5% and 10% rates of appreciation permitted by the SEC, and are not
intended to forecast actual future appreciation in the stock price.
Actual gains, if any, on stock option exercises are dependent on the
future performance of the Company's Common Stock. There can be no
assurance the amounts reflected in this table will be achieved. The
assumed rates are compounded annually to the full seven year term of
the options.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of its
executive officers (other than Mr. Dotterweich), among others, whereby the
Company agreed to retain each of them and each of them has agreed to remain in
the employ of the Company for two years from December 19, 1993. Each of these
Agreements were renewed for an additional two year term, effective December 19,
1995, and were amended so that they will automatically renew for
14
<PAGE> 17
additional two year terms unless either party delivers notice within 90 days
prior to the end of the then applicable term. The Company also has entered into
an employment agreement with Mr. Dotterweich dated as of February 1, 1995 (the
"Dotterweich Agreement").
Under the terms of the employment agreement for the executive officers
(other than Mr. Dotterweich), each executive officer is to receive: a salary
equal to his salary as of the date of his employment agreement, with any
increases subject to the discretion of the Compensation Committee and the
approval of the Board of Directors; a bonus determined by the Compensation
Committee with the approval of the Board of Directors; participation in any
employee stock option program, such as the Employee Plan, that may be adopted;
participation in other incentive, savings and retirement plans, welfare benefit
plans and fringe benefits, expense reimbursement and vacation policies
applicable to Company executives; and indemnification for liabilities arising
from his service whether arising before or during the term of his employment
agreement.
Also, each executive officer (other than Mr. Dotterweich), upon (i)
termination without cause, (ii) death, (iii) permanent disability or (iv)
termination for good reason, will be entitled to: (a) continuation of monthly
salary, health and life insurance in effect on the termination date for the
"Continuation Term" (although the agreements do not provide for continuation
payments if the employment of the executive is terminated at any time after the
expiration date of such person's employment agreement); (b) such terminated
executive officer's share of cash incentive bonus earned in the year of
termination prorated based on the time employed during the year; and (c) the
continuation of any unexercised options as specified in the Plan. The
Continuation Term is six months, unless the termination which gives rise to the
severance benefits occurs following a Change of Control (as defined therein), in
which case the Continuation Term is 24 months. If a change of the ownership or
effective control of a substantial portion of the assets of the Company results
in any executive officer becoming subject to the 20% excise tax on excess
parachute payments, the Company will reimburse such person for the amount of the
excise tax due and all taxes on the reimbursement up to a maximum reimbursement
limit of five times the excise tax.
The Dotterweich Agreement provides, in the event of an involuntary
termination (other than for Cause as defined in the Employee Plan) that (a) the
Company will make cash payments of (i) $500,000 to Mr. Dotterweich at
termination, and (ii) within 60 days of the fiscal year end, a prorated portion
of the bonus which would have been payable to Mr. Dotterweich under the
Company's bonus formula as in effect on the date of his termination. The
Company will also provide Mr. Dotterweich and his wife with health and dental
insurance for their respective lifetimes. In addition, upon any such
involuntary termination, all stock options granted to Mr. Dotterweich under the
Employee Plan will fully vest. For the purposes of the Dotterweich Agreement,
the term "involuntary termination" includes Mr. Dotterweich's resignation
following an involuntary removal from his position as Chief Executive Officer
of the Company and/or its successor, or any involuntary compensation reduction
which causes Mr. Dotterweich to resign.
Under the Dotterweich Agreement following a Change in Control (defined
as a change of ownership of 50% or more of the Company's Common Stock or control
of 50% or more of the seats on the board of directors), Mr. Dotterweich will
have a 90-day period in which he may elect to resign and receive the
termination benefits described above.
CERTAIN TRANSACTIONS
In connection with the taxes payable on Company issued shares of
restricted stock, the Company has offered certain of its executives non-interest
bearing loans. All shares of restricted stock were granted on April 1, 1992 and
have become fully vested and are no longer restricted. As of March 20, 1997,
the aggregate indebtedness owed to the Company by Donald McKay, Daniel Greenwood
and Jeffrey Rhodenbaugh is an amount equal to $68,963, $123,115 and $18,080
respectively, which was the largest amount of indebtedness incurred during
fiscal 1997. During fiscal year 1997, the total income imputed from the
forgiveness of interest indebtedness for these individuals was $4,659, $8,352,
and $1,216, respectively. In addition, William Robertson recognized income
imputed from interest indebtedness from loans repaid during fiscal 1997 of
$6,256.
15
<PAGE> 18
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Greenwood, who is an executive officer, is a member of the
Compensation Committee of the Board of Directors. The other members of the
Compensation Committee during fiscal 1997 were Messrs. MacLean, Kent, and
Malcolm Glazer.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors has furnished the
following report on executive compensation:
Executive Officer Compensation
The Company's compensation program for executive officers consists of
three elements: a base salary, a bonus and stock options. The Committee
believes that this approach best serves the interests of stockholders by
ensuring that executive officers are compensated in a manner which provides
incentives based upon both the short-term and long-term performance of the
Company. Thus, compensation for the Company's executive officers involves a
high proportion of pay which is at risk: the variable annual bonus and stock
options (which directly relate a significant portion of the executive officer's
long-term remuneration to stock price appreciation realized by the Company's
stockholders). The Compensation Committee generally believes that stock options
should be emphasized more than a bonus as a means to attract, retain and
motivate executives.
Base Salary. The Compensation Committee recommended, and the Board of
Directors approved a base salary for Mr. Dotterweich of $450,000 for fiscal
1997. Mr. Dotterweich's 1997 Compensation was established taking into his
account his overall qualifications and experience and market conditions for
executives of his caliber for comparable companies. In addition, it takes into
consideration, effective February 1, 1995 his added responsibilities as the
Company's Chief Executive Officer upon his election to such position at that
time. The salaries of the other executive officers of the Company, were set
based upon subjective factors such as the level of experience and competency and
complexity of the duties performed by such executive officer, as well as
objective criterion such as the performance of the Company, as compared to its
business plan, including compliance by the Company with the financial covenants
provided in the Company's loan agreements. In the case of Mr. Robertson, the
division president of Beverage-Air, base salary is also affected by the
performance of that division compared with its business plan. The Compensation
Committee's discretion in setting the executive officers' base salaries,
however, is limited by the terms of the employment agreements, described above.
Stock Options. At the Annual Meeting of Stockholders in 1993, the
Company's stockholders approved the Employee Plan. The Employee Plan is
designed to advance the interests of the Company by providing a means by which
key employees of the Company and its subsidiaries can acquire and maintain stock
ownership, thereby strengthening their commitment to the Company's success and
their desire to remain employed by the Company and its subsidiaries. The Board
of Directors believes that the share authorizations and allocations under the
Employee Plan have been consistent with competitive practice and properly
reflected the Company's transitional circumstances following its 1992 bankruptcy
reorganization and the challenges confronting management. Allocations of
options were based principally upon subjective factors, including, most
significantly, an assessment of how significant the individual executive
officer's performance was and would be to the future growth and performance of
the Company. A total of 50,000 stock options were granted pursuant to the
Employee Plan in the Company's fiscal year ended January 31, 1997. Stock
option awards are not made by the compensation committee but rather are made by
the stock incentive committee, which is comprised of three non-employee
directors.
Annual Bonus. The Compensation Committee also reviews and approves
bonus compensation for the executive officers. In anticipation of Mr.
Dotterweich's intended retirement on May 1, 1997 and in lieu of earning any
bonus for his employment in fiscal 1998, Mr. Dotterweich was awarded a bonus
of 100% of his salary, or $450,000 for fiscal 1997, in recognition of his
valuable service and his important contributions to the Company as its Chief
Executive Officer. Bonuses for executive officers other than Mr. Dotterweich
were based on a percentage of their salaries and were derived from a formula
based upon the Company's actual EBITA (Earnings Before Interest, Taxes and
Amortization), as compared to the Company's projected EBITA in its annual plan.
In the case of executive officers who perform functions primarily at only one
of the Company's divisions,
16
<PAGE> 19
divisions, bonuses are based upon various factors including the meeting of a
divisional (as opposed to Company-wide plan) EBITA, sales growth, earnings
growth and use of working capital.
Compliance With Internal Revenue Code Section 162(m)
Section 162(m) of the IRC, enacted in 1993, generally disallows a tax
deduction to public companies for compensation more than $1 million paid to the
corporation's Chief Executive Officer or four other most highly compensated
executive officers. The Compensation Committee has reviewed the possible effect
on the Company of Section 162(m), and it does not believe that such section
currently effects the Company given its current compensation structure. To the
extent that it is possible that the compensation to any of the Company's
executive officers could exceed $1 million the Compensation Committee intends to
further review and consider the effect on the Company of Section 162 (m).
Furthermore, the Employee Plan was amended so as to make it possible to satisfy
the conditions for an exemption from Section 162(m)'s deduction limit. However,
other characteristics of a grant affect whether or not a deduction is actually
available in a given case.
Members of the Compensation Committee
Daniel B. Greenwood
Barry L. MacLean
Richard A. Kent
Malcolm I. Glazer
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<PAGE> 20
PERFORMANCE INFORMATION
The following graph compares on a cumulative basis changes since
December 1, 1993 (the date on which the Common Stock of the Company was first
publicly traded) in (a) the total stockholder return on the Company's Common
Stock, (b) the total return of companies in the Russell 2000 Index, and (c) the
total return of companies in the Value Line Machinery Index. The total return
information presented in the graph assumes the reinvestment of dividends. The
graph assumes $100 was invested on December 1, 1993 in the Company's Common
Stock, the Russell 2000 Index and the Value Line Machinery Index.
COMPARISON OF CUMULATIVE TOTAL RETURN
[GRAPH]
<TABLE>
<CAPTION>
12/1/93 1/31/94 1/31/95 1/31/96 1/31/97
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Specialty Equipment
Companies, Inc. 100.00 133.33 227.78 247.22 299.99
Russell 2000 Index 100.00 106.66 100.09 130.05 154.70
Value Line Machinery Index 100.00 106.66 100.85 125.49 144.94
</TABLE>
18
<PAGE> 21
The Company is included in the Russell 2000 Index (an index of small
capitalization companies) but is not part of the Value Line Machinery Index. The
Value Line Machinery Index includes a group of 30 companies, some of which are
direct competitors of the Company, with primary businesses that involve the
manufacture of a variety of machinery and equipment.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The firm of KPMG Peat Marwick LLP served as the Company's independent
certified public accountants for the fiscal year ended January 31, 1997. The
Board of Directors has again designated that firm as the Company's independent
certified public accountants for the fiscal year to end January 31, 1998. A
representative of that firm is expected to be present at the Company's 1997
Annual Meeting of Stockholders with the opportunity to make a statement, if so
desired, and to be available to respond to appropriate questions.
3. OTHER MATTERS
It is not presently expected that any matters other than the election of
Directors and approval of the Restructuring Plan will be brought before the
meeting. If, however, other matters do come before the meeting, it is the
intention of the persons named as representatives in the accompanying proxy to
vote in accordance with their best judgment on such matters.
By order of the Board of Directors,
/s/ DONALD K. MC KAY
--------------------------
Donald K. McKay, Secretary
Aurora, Illinois
March 27, 1997
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<PAGE> 22
EXHIBIT A
RESOLUTION REGARDING
SPECIALTY EQUIPMENT COMPANIES, INC.
PLAN OF INTERNAL RESTRUCTURING
WHEREAS, the Board of Directors (the "Board"), of Specialty Equipment
Companies, Inc. (the "Corporation"), has determined that the Corporation could
achieve significant operating, tax and other benefits were it to be
restructured principally as a holding company; and
WHEREAS, the Board has determined that it would be in the best
interests of the Corporation and its stockholders for the Board to have the
authority, in its discretion, to create indirect and direct wholly owned
subsidiaries of the Corporation ("Subsidiaries") and to transfer (whether by
sale, lease or otherwise) to such Subsidiaries some or substantially all of the
Corporation's assets; and
WHEREAS, the Board believes that the formation of such Subsidiaries and
the adoption, in whole or in part, of a holding company structure should (i)
permit greater flexibility in the management and financing of new and existing
business operations, (ii) facilitate strategic dispositions of existing
businesses, (iii) facilitate formation (and limit the risks to the Corporation
as a whole) of joint ventures or other strategic alliances and business
combinations, (iv) protect the Company's valuable intellectual property rights
from the claims of future creditors of the Subsidiaries, and (v) result in
potentially significant tax savings to the Corporation; and
WHEREAS, the Board has adopted this Plan of Internal Restructuring (the
"Plan"), providing for the Corporation to transfer substantially all of its
assets (excluding all intellectual property rights and assets related to the
corporate office and potentially other assets) and such other operations as the
Board deems appropriate, to the Operating Subsidiary; and;
WHEREAS, pursuant to the terms of the Plan, the Board would have the
discretion to determine whether and when to make such transfers.
RESOLVED, that, in furtherance of the foregoing, this Plan is hereby
adopted:
1. Subsidiaries. The Board is hereby authorized to cause the
formation of the Operating Subsidiary and to effect the transfer (whether by
sale, lease or otherwise) of all, substantially all, or any portion of the
assets and related liabilities, if any, of the Corporation's operating,
manufacturing, sales and marketing assets or assets related to other operations
(but not the Corporation's intellectual property rights, other than pursuant to
licenses of such rights by the Corporation to such Subsidiary) as the Board
deems appropriate, to such subsidiary.
2. Authority to Determine Structure of Subsidiary. Without
limiting the generality of Section 1, the Board is hereby authorized to
determine the jurisdiction of incorporation of the Operating Subsidiary, its
capitalization, officers and directors, and is authorized to effect such
transfers of assets, liabilities and employees to such new or existing
Subsidiaries as the Board shall deem appropriate in its sole discretion
consistent with Section 1 above.
3. Employees. Upon the approval by the Board of any transfer of
employees to any such subsidiary, the appropriate officers of the Corporation
shall take or cause to be taken such actions as they shall deem necessary or
desirable to implement appropriate compensation levels and to obtain appropriate
workers' compensation, unemployment compensation and benefit plans coverages in
effect for such employee.
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<PAGE> 23
4. Authority of Officers. Except as otherwise provided in the
Corporation's and applicable Subsidiaries' bylaws and resolutions of their
respective Boards of Directors and/or stockholders, the appropriate officers of
the Corporation are hereby authorized and directed to cause the incorporation
of the Subsidiary as directed by the Board, to obtain such consents of lenders,
lessors and other persons, as may be necessary for the assignment and
assumption of agreements, commitments and obligations and the transfers of
assets contemplated hereby, to qualify the new Subsidiary to do business in
such jurisdiction as may be appropriate, and to secure office space, equipment
and staff necessary for its operations, and to make such filings, execute and
deliver on behalf of the Corporation such agreements, instruments and documents
and do all other acts and things necessary or appropriate to carry out the
intent and purpose of this Plan, all subject to the further instruction, if
necessary, by the Board.
5. Stockholder Approval. This Plan shall be presented to the
stockholders of the Corporation for their approval at the Annual Meeting of
stockholders on April 30, 1997. The affirmative vote of the holders of a
majority of the issued and outstanding Common Stock of the Corporation as of
the close of business on March 20, 1997 is necessary for such approval.
6. Conditions of Consummation of Plan. The consummation of this
Plan is conditioned upon (a) receipt, prior to the effective time of any
transfers of assets and related liabilities (if any) by the Corporation
hereunder, of all consents of lenders, lessors and other persons deemed
necessary by the officers of the Corporation to permit the assignment and
assumption of agreements, commitments and obligations and the transfers of
assets and related liabilities contemplated hereby; (b) approval of this Plan by
the requisite affirmative vote of the stockholders of the Corporation,
as provided in Section 5 hereof; and (c) receipt of the Company of a favorable
opinion of its tax advisor regarding the tax consequences of any transfers
pursuant to the Plan. If any consent referred to in clause (a) of the
preceding sentence is not deemed by such officers to be materially necessary to
the consummation of this Plan, such officers may waive such consent. The Board
reserves the right to amend or terminate this Plan at any time prior to any
effective time; provided that no amendment shall be made after approval of the
Plan by the stockholders of the Corporation which would have a material adverse
effect on the Corporation or its stockholders. Partial implementation of the
Plan (by the transfer of less than substantially all of the operating,
manufacturing, sales and marketing assets by the Corporation to Subsidiaries)
shall not be deemed an amendment of the Plan.
7. Stockholder Approval of Transfers of Assets by Subsidiaries.
In the event that the Board determines to transfer assets of the Corporation in
accordance with this Plan, any subsequent transfer of assets by such Subsidiary
to any third party (other than the Corporation and/or any direct or indirect
wholly-owned subsidiary of the Corporation), will be submitted to the
stockholders of the Corporation for approval if the assets so transferred to
such third party would then constitute substantially all of the assets of the
Corporation and its subsidiaries on a consolidated basis.
8. Stockholder Approval of Issuances and Sales of Stock of
Subsidiaries. In the event that the Board determines to transfer assets of the
Corporation in accordance with this Plan, any issuance or sale of stock of
such Subsidiary will be submitted to the stockholders of the Corporation for
approval if the sale or issuance of such stock would then constitute a sale by
the Corporation of substantially all of the assets of the Corporation and its
subsidiaries on a consolidated basis or would otherwise divest the Corporation
of control of all or substantially all of the assets of the Corporation and its
subsidiaries on a consolidated basis.
9. No Limitations. This Plan is intended to define, describe and
provide for the structure and functions of the Corporation, its existing
subsidiaries and any new Subsidiaries created pursuant hereto. The Board shall
take no action to implement the Plan subsequent to January 31, 1998. Nothing
contained herein shall be construed to limit the power of the Corporation, its
existing subsidiaries or the new Subsidiaries in the future to do anything
which they may lawfully have the power to do under the corporation laws of
their respective states of incorporation upon proper authorization, to the
extent required by applicable law, by their respective Boards of Directors and
stockholders.
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<PAGE> 24
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
SPECIALTY EQUIPMENT COMPANIES, INC.
1245 Corporate Boulevard, Suite 401
Aurora, Illinois 60504
For the Annual Meeting of Stockholders, April 30, 1997
The undersigned stockholder hereby appoints DANIEL B. GREENWOOD, DONALD
K. MCKAY and DOUGLAS C. JOHNSON, or any of them, with full power of
substitution (the action of one, if only one be present and acting to be in any
event controlling), the proxies of the undersigned at the Annual Meeting of
Stockholders of Specialty Equipment Companies, Inc. (the "Company") to be held
at the corporate offices located at 1245 Corporate Boulevard, Suite 401,
Aurora, Illinois 60504 on April 30, 1997 at 10:00 a.m., Chicago time and at any
and all adjournments or postponements thereof, and to vote all shares which the
undersigned would be entitled to vote thereat as designated below, with all
powers which the undersigned would possess if personally present.
PLEASE MARK BOXES M OR [X] IN BLUE OR BLACK INK.
1. Election of Directors
[ ]FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote for
(except as marked to the contrary below) all nominees listed below
William E. Dotterweich Malcom I. Glazer Barry L. MacLean Jeffrey P. Rhodenbaugh
- --------------------------------------------------------------------------------
(INSTRUCTION: To withhold authority to vote for any individual
nominee, write that nominee's name on the line provided above.)
2. Approval of the proposed Plan of Restructuring (the "Restructuring
Plan") as described in the Proxy Statement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Continued and to be signed and dated on the reverse side
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE ELECTION OF THE NOMINEES LISTED IN PROPOSAL 1 AND FOR THE
APPROVAL OF PROPOSAL 2.
Dated: , 1997
--------------------
----------------------------
Signature
----------------------------
Signature if held jointly
NOTE: Please sign exactly as
name appears at left. When
shares are held by joint
tenants, both should sign. When
signing as attorney, executor,
administrator, trustee or
guardian, please give full title
as such. If a corporation,
please sign in full corporate
name by president or other
authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY PROMPTLY USING THE
ENCLOSED ENVELOPE.
