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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
INFORMATION STATEMENT
PURSUANT TO SECTION 14(f)
OF THE
SECURITIES EXCHANGE ACT OF 1934
AND RULE 14f-1 THEREUNDER
------------
WESTCOTT COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-2110878
(State of incorporation or organization) (IRS Employer
Identification No.)
1303 MARSH LANE 75006
CARROLLTON, TEXAS
(Address of principal executive offices) (Zip Code)
------------
ROBERT J. JOHNSTON
GENERAL COUNSEL
1303 MARSH LANE
CARROLLTON, TEXAS 75006
(214) 417-4100
(Name, address and telephone number of person authorized to
receive notice and communications of behalf of the person filling
statement)
------------
Copy to:
DANIEL W. RABUN
ALAN G. HARVEY
BAKER & MCKENZIE
SUITE 4500
2001 ROSS AVENUE
DALLAS, TEXAS 75201
(214) 978-3000
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<PAGE>
INFORMATION STATEMENT PURSUANT TO SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
NO VOTE OR OTHER ACTION OF THE SHAREHOLDERS IS REQUIRED IN
CONNECTION WITH THIS INFORMATION STATEMENT. NO PROXIES ARE BEING
SOLICITED AND YOU ARE REQUESTED NOT TO SEND THE COMPANY A PROXY.
This Information Statement, which is being mailed on or about April 26, 1996
to the holders of shares of the Common Stock, $.01 par value per share (the
"Common Stock"), of Westcott Communications, Inc., a Texas corporation (the
"Company"), and is being furnished in connection with the designation by K-III
Acquisition Corp., a Texas corporation (the "Purchaser") and a direct, wholly
owned subsidiary of K-III Prime Corporation, a Delaware corporation ("K-III
Prime") and a direct, wholly owned subsidiary of K-III Communications
Corporation, a Delaware corporation (the "Parent"), of persons (the "Purchaser
Designees") to the Board of Directors of the Company (the "Board"). Such
designation is made pursuant to an Agreement and Plan of Merger dated as of
April 22, 1996 (the "Merger Agreement") among the Company, the Parent, K-III
Prime and the Purchaser.
The Merger Agreement provides, among other things, that the Purchaser is to
commence a cash tender offer no later than April 26, 1996 to purchase all of the
issued and outstanding shares of the Common Stock (the "Shares") at a price of
$21.50 per Share, net to the seller in cash without interest thereon, upon the
terms and subject to the conditions set forth in the Purchaser's Offer to
Purchase dated April 26, 1996 and the related Letter of Transmittal (which Offer
to Purchase and related Letter of Transmittal together constitute the "Offer").
The Offer and withdrawal rights will expire at 12:00 midnight, New York City
time, on Thursday, May 23, 1996, unless the Offer is extended. The obligation of
the Purchaser to accept for payment and pay for Shares tendered pursuant to the
Offer is subject to, among other things, the condition (the "Minimum Condition")
that at least the number of Shares that, when combined with the Shares already
owned by the Parent and its direct or indirect subsidiaries, constitute a
majority of the then Outstanding Shares on a Fully Diluted Basis (as hereinafter
defined) shall have been validly tendered and not withdrawn prior to the
expiration of the Offer. The Merger Agreement provides that "Outstanding Shares
on a Fully Diluted Basis" means all outstanding shares plus all shares available
for issuance under the Company's Employee Stock Purchase Plan plus all Shares
issuable upon the conversion of any convertible securities or upon the exercise
of any options, warrants or rights (other than the preferred share purchase
rights associated with the Common Stock). The Merger Agreement also provides for
the merger (the "Merger") of the Purchaser with and into the Company as soon as
practicable after consummation of the Offer. Following the consummation of the
Merger (the "Effective Time"), the Company will be the surviving corporation
(the "Surviving Corporation") and a wholly owned subsidiary of K-III Prime. In
the Merger, each Share issued and outstanding immediately prior to the Effective
Time (other than Shares held in the treasury of the Company or by the Parent,
the Purchaser or any direct or indirect wholly owned subsidiary of the Parent or
the Company, all of which will be canceled and retired, and other than Shares,
if any, held by shareholders who have perfected rights as dissenting
shareholders under the Texas Business Corporation Act ("Texas Law")) will be
converted into the right to receive cash in an amount of $21.50, net to the
seller in cash, without interest.
The Merger Agreement provides that promptly upon the purchase by the
Purchaser of a majority of the outstanding Shares pursuant to the Offer, and
from time to time thereafter, the Purchaser shall be entitled to designate the
number of directors (the "Purchaser's Designees"), rounded up to the next whole
number, on the Board as shall give the Purchaser representation on the Board
equal to the product of the total number of directors on the Board (giving
effect to the election of any additional directors pursuant to the Merger
Agreement) multiplied by the percentage that the aggregate number
<PAGE>
of Shares beneficially owned by the Purchaser or any affiliate thereof bears to
the total number of Shares then outstanding, and the Company shall, at such
time, promptly take all actions necessary to cause the Purchaser's Designees to
be elected as directors of the Company, including increasing the size of the
Board or securing the resignations of incumbent directors or both. At such
times, the Company shall use its best efforts to cause the Purchaser's Designees
to constitute the same percentage as the Purchaser's Designees shall constitute
of the Board of (i) each committee of the Board, (ii) each board of directors of
each domestic subsidiary of the Company and (iii) each committee of each such
board, in each case only to the extent permitted by applicable law. The
Company's obligations to cause to be elected the Purchaser's Designees to the
Board shall be subject to Section 14(f) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and Rule 14f-1 promulgated thereunder.
Following the election or appointment of the Purchaser's Designees and prior
to the Effective Time, any amendment of the Merger Agreement or the Articles of
Incorporation or Bylaws of the Company, any termination of the Merger Agreement
by the Company, any extension by the Company of the time for the performance of
any of the obligations or the acts of the Parent, K-III Prime or the Purchaser
or waiver of any of the Company's rights under the Merger Agreement shall
require the concurrence of a majority of the directors of the Company then in
office who are neither the Purchaser's Designees or employees of the Company or
if no such directors are then in office, no such amendment, termination,
extension or waiver shall be effected which is materially adverse to the holders
of Shares (other than K-III Prime and its subsidiaries).
The terms of the Merger Agreement, a summary of the events leading up to the
Offer and the execution of the Merger Agreement and certain other information
concerning the Offer and the Merger are contained in the Offer to Purchase and
in the Solicitation/Recommendation Statement on Schedule 14D-9 of the Company
(the "Schedule 14D-9") with respect to the Offer, copies of which are being
delivered to shareholders of the Company contemporaneously herewith. Certain
other documents (including the Merger Agreement) were filed with the Securities
and Exchange Commission (the "Commission") as exhibits to the Schedule 14D-9 and
as exhibits to the Tender Offer Statement on Schedule 14D-1 of the Purchaser,
K-III Prime and the Parent (the "Schedule 14D-1"). The exhibits to the Schedule
14D-9 and the Schedule 14D-1 may be examined at, and copies thereof may be
obtained from, the regional offices of and public reference facilities
maintained by the Commission (except that the exhibits thereto cannot be
obtained from the regional offices of the Commission) in the manner set forth in
Section 7 of the Offer to Purchase. In the Merger Agreement, the Parent
represented that it has and will make available to the Purchaser the funds to
purchase all shares of Common Stock tendered pursuant to the Offer and to
consummate the Merger.
No action is required by the shareholders of the Company in connection with
the election or appointment of the Purchaser's Designees to the Board. However,
Section 14(f) of the Exchange Act requires the mailing to the Company's
shareholders of the information set forth in this Information Statement prior to
a change in a majority of the Company's directors otherwise than at a meeting of
the Company's shareholders.
The information contained in this Information Statement concerning the
Parent, K-III Prime, the Purchaser and the Purchaser's Designees has been
furnished to the Company by such persons, and the Company assumes no
responsibility for the accuracy or completeness of such information. The
Schedule 14D-1 indicates that the principal executive offices of the Parent,
K-III Prime and the Purchaser are located at 745 Fifth Avenue, New York, New
York 10151.
2
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
GENERAL.
The outstanding voting securities of the Company as of March 28, 1996
consisted of 19,816,435 shares of Common Stock, and each share of Common Stock
is entitled to one vote.
PRINCIPAL SHAREHOLDERS.
The following table sets forth as of March 28, 1996 information known to the
management of the Company concerning the beneficial ownership of Common Stock by
(a) each person who is known by the Company to be the beneficial owner of more
than five percent of the shares of Common Stock outstanding, (b) each director
of the Company, (c) the Company's Chief Executive Officer, (d) each of the
Company's other most highly compensated executive officers and (e) all directors
and executive officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(2)
NAME AND ADDRESS --------------------------
OF THE BENEFICIAL OWNER(1) NUMBER PERCENT
- ------------------------------------------------------------------- --------- -------
<S> <C> <C>
Carl Westcott.................................................... 2,225,556(3) 10.9%
1303 Marsh Lane
Carrollton, Texas 75006
Gardner Lewis Asset Management. L.P.............................. 1,592,800(4) 7.8%
285 Wilmington--West Chester Pike
Chadds Ford, PA 19317
The Capital Group Companies, Inc................................. 1,508,000(5) 7.4%
333 South Hope Street
Los Angeles, CA 9007
Wellington Management Company.................................... 1,143,000(6) 5.6%
75 State Street
Boston, Mass 02109
Thomas W. Smith.................................................. 1,013,540(7) 5.0%
323 Railroad Avenue
Greenwich, CO 06830
Jack T. Smith.................................................... 314,792(8) 1.5%
Gary J. Fernandes................................................ 193,850(9) 1.0%
Jeffrey M. Heller................................................ 20,750(10) *
Stansfield Turner................................................ 12,750(11) *
Kern Wildenthal.................................................. 15,750(12) *
Phyllis Farragut................................................. 89,970(13) *
Joshua D. Klarin................................................. 27,500(14) *
All directors and executive officers as a group (8 persons)...... 2,900,918(15) 14.2%
</TABLE>
- ------------
* Represents less than 1% of outstanding Common Stock.
(1) Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock shown as beneficially owned by them, subject to community
property laws where applicable.
(Footnotes continued on following page)
3
<PAGE>
(Footnotes continued from preceding page)
(2) Includes 618,000 shares of Common Stock which are issuable pursuant to the
exercise of stock options which were fully vested and exercisable on March
28, 1996 or within 60 days of that date.
(3) Includes 250,000 shares of Common Stock which are issuable pursuant to the
exercise of stock options which were fully vested and exercisable on March
28, 1996 or within 60 days of that date.
(4) Based on Schedule 13G dated February 9, 1996 filed by Gardner Lewis Asset
Management, L.P. According to the Schedule 13G, Gardner Lewis Asset
Management, L.P. has sole voting control with respect to 1,362,800 shares
of Common Stock and shares voting control with respect to an additional
44,700 shares of Common Stock. Gardner Lewis Asset Management, L.P. has
sole dispositive power with respect to all 1,592,800 shares.
(5) Based on Schedule 13G dated February 9, 1996 filed by The Capital Group
Companies, Inc., on behalf of itself, Capital Research and Management
Company, and Capital Guardian Trust Company, operating subsidiaries.
According to the Schedule 13G, Capital Research and Management Company
exercises investment discretion with respect to 1,000,000 shares of Common
Stock but has no power to direct the vote of such shares, and Capital
Guardian Trust Company exercises investment discretion with respect to
508,000 shares of Common Stock and has sole voting control with respect to
473,000 of such shares.
(6) Based on Schedule 13G dated February 2, 1996 filed by Wellington Management
Company on behalf of Wellington Trust Company, N.A. According to the
Schedule 13G, Wellington Trust Company, N.A. has shared dispositive power
with respect to 1,143,000 shares of Common Stock and shares voting control
with respect to 237,000 of such shares.
(7) Based on Schedule 13D dated February 22, 1996 filed by Thomas W. Smith and
Thomas N. Tryforos. According to the Schedule 13D, Mr. Smith has sole
voting and dispositive power with respect to 173,540 shares of Common Stock
and shares voting and dispositive power with respect to an additional
840,000 shares, and Mr. Tryforos has sole voting and dispositive power with
respect to 9,450 shares of Common Stock and shares voting and dispositive
power with respect to an additional 840,000 shares.
(8) Includes 227,500 shares of Common Stock which are issuable pursuant to the
exercise of stock options which were fully vested and exercisable on March
28, 1996 or within 60 days of that date.
(9) Includes 15,750 shares of Common Stock which are issuable pursuant to the
exercise of stock options which were fully vested and exercisable on March
28, 1996 or within 60 days of that date.
(10) Includes 15,750 shares of Common Stock which are issuable pursuant to the
exercise of stock options which were fully vested and exercisable on March
28, 1996 or within 60 days of that date.
(11) Includes 750 shares of Common Stock which are issuable pursuant to the
exercise of stock options which were fully vested and exercisable on March
28, 1996 or within 60 days of that date.
(12) Includes 15,750 shares of Common Stock which are issuable pursuant to the
exercise of stock options which were fully vested and exercisable on March
28, 1996 or within 60 days of that date.
(13) Includes 65,000 shares of Common Stock which are issuable pursuant to the
exercise of stock options which were fully vested and exercisable on March
28, 1996 or within 60 days of that date.
(14) Includes 27,500 shares of Common Stock which are issuable pursuant to the
exercise of stock options which were fully vested and exercisable on March
28, 1996 or within 60 days of that date.
(15) Includes 618,000 shares of Common Stock which are issuable pursuant to the
exercise of stock options which were fully vested and exercisable on March
28, 1996 or within 60 days of that date.
4
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
PURCHASER'S DESIGNEES.
The Company has been informed by the Purchaser that, as of the date of this
Information Statement, the following individuals have been selected as the
Purchaser's Designees.
Mr. William F. Reilly, age 57, is Chairman of the Board, Chief Executive
Officer and a director of the Parent (and served in such capacities with its
predecessors). Prior to March 1990 he was a President and Chief Operating
Officer of Macmillan, Inc. ("Macmillan"). Mr. Reilly is also a director of FMC
Corporation.
Mr. Charles G. McCurdy, age 40, is President and a director of the Parent.
Mr. McCurdy was elected to this position in November 1991 and was Treasurer from
1991 to August 1993 (and served in such capacity with its predecessors). Prior
to February 1989 he was Vice-President--Corporate Finance at Macmillan.
Ms. Beverly C. Chell, age 53, is Vice Chairman, General Counsel and
Secretary of the Parent. Ms. Chell was elected to this position in November 1991
(and served in such capacity with its predecessors) and a director in March
1992. Prior thereto she was Vice President, General Counsel and Secretary of
Macmillan.
Mr. Michael T. Tokarz, age 46, is a member of the limited liability company
which serves as the general partner of Kohlberg Kravis Roberts & Co. ("KKR").
From January 1, 1993 to January 1, 1996, he was a General Partner of KKR. Prior
to January 1993 he was an executive at KKR. Mr. Tokarz is also a director of
IDEX Corporation, Safeway, Inc., Flagstar Companies Inc., Flagstar Corporation
and Walters Industries Inc.
Mr. Perry Golkin, age 42, is a member of the limited liability company which
serves as the general partner of KKR. From January 1, 1995 to January 1, 1996 he
was a General Partner of KKR. Prior to 1995 he was an executive at KKR. Mr.
Golkin is also a director of American Re Corporation and Walters Industries Inc.
None of the persons from among whom the Purchaser's Designees will be
selected or their associates is a director of, or holds any position with, the
Company. To the best knowledge of the Company, none of the Purchaser's Designees
or their associates beneficially owns any equity securities, or rights to
acquire any equity securities, of the Company or has been involved in any
transactions with the Company or any of its directors or executive officers that
are required to be disclosed pursuant to the rules and regulations of the
Commission.
CURRENT DIRECTORS.
The individuals set forth below are presently directors of the Company and
have served continuously since first becoming directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Carl Westcott............................. 56 Director, Chairman of the Board of
Directors and Chief Executive Officer
Jack T. Smith............................. 43 Director, President and Chief Operating
Officer
Gary J. Fernandes......................... 52 Director(1)
Jeffrey M. Heller......................... 56 Director(1)
Stansfield Turner......................... 72 Director(1)
Kern Wildenthal........................... 54 Director(1)
</TABLE>
- ------------
(1) Member of the Audit Committee, Compensation Committee, Stock Option
Committee and Employee Stock Purchase Plan Committee.
5
<PAGE>
Mr. Westcott has been a director, Chairman of the Board of Directors and
Chief Executive Officer of the Company since its inception in May 1986. Prior
thereto, Mr. Westcott was the sole or majority owner of a number of corporations
in the automobile sales, automobile dealership support and communications
industries. Mr. Westcott is also a director of First USA, Inc., and Jayhawk
Acceptance Corporation. Mr. Westcott is the brother of Ms. Farragut, Executive
Vice President, Chief Financial Officer and Secretary of the Company.
Mr. Smith serves as the President and Chief Operating Officer of the
Company. In such capacity, Mr. Smith is primarily responsible for overseeing
operations of the Company and the formulation and implementation of its
strategic plans. He has been a director of the Company since October 1987,
served as Vice President and Chief Financial Officer of the Company from July
1987 to March 1988 and served as Executive Vice President from March 1988 to
October 1989 when he began serving as President and Chief Operating Officer. Mr.
Smith is also a director of Jayhawk Acceptance Corporation.
Mr. Fernandes has been a director of the Company since May 1989. Mr.
Fernandes has been employed by Electronic Data Systems Corporation ("EDS") for
the last 27 years in various capacities and is currently a Senior Vice President
of EDS. Mr. Fernandes is also a director of EDS, The Southland Corporation, John
Wiley & Sons, Inc., and AmTech Corp.
Mr. Heller has been a director of the Company since October 1987. Mr. Heller
has been employed by EDS for the last 28 years in various capacities and is
currently a Senior Vice President of EDS. Mr. Heller is also a director of EDS.
Admiral Turner has been a director of the Company since January 1990.
Admiral Turner is presently a professor, lecturer and writer. Admiral Turner
served in various positions in the military and government including 36th
President of the Naval War College at Newport, Rhode Island; Commander, United
States Second Fleet and NATO Striking Fleet Atlantic; Commander in Chief of
NATO's Southern Flank; Director of Central Intelligence, heading both the
Intelligence Community and the Central Intelligence Agency. Admiral Turner
served as the John M. Olin Distinguished Professor of National Security at the
U. S. Military Academy at West Point, New York during 1989 and 1990, and, since
1991, has been a professor at the University of Maryland. Admiral Turner is also
a director of the Chase Investment Counsel Corporation.
Dr. Wildenthal has been a director of the Company since November 1992. Dr.
Wildenthal has been the President of the University of Texas Southwestern
Medical Center at Dallas since 1986. Prior to that he had served as medical
school dean and professor of internal medicine and physiology at the Center, and
as a Guggenheim Fellow and visiting scientist at the University of Cambridge,
England. He has held a variety of national offices in a number of health
organizations, including the American Heart Association, the Association of
Academic Health Centers, the American Federation for Clinical Research, and the
American Section of the International Society for Heart Research.
OTHER EXECUTIVE OFFICERS.
The other executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Phyllis Farragut.......................... 49 Executive Vice President, Chief Financial
Officer and Secretary
Joshua D. Klarin.......................... 38 Executive Vice President
</TABLE>
Ms. Farragut has been a Vice President of the Company since February 1988.
She became Controller in November 1990, was elected Secretary on December 19,
1990 and was elected Chief
6
<PAGE>
Financial Officer August 6, 1991. Ms. Farragut is a Certified Public Accountant
who maintained her own practice for 12 years before joining the Company. Ms.
Farragut is the sister of Mr. Westcott.
Mr. Klarin joined the Company in June 1993 as Vice President and General
Manager of the Company's then developing Interactive Distance Training Network.
Mr. Klarin was made Executive Vice President in May 1995. Prior to his election,
Mr. Klarin had served for 14 years in various capacities at Mead Data
Corporation and for the three years immediately preceding his joining the
Company was Director of New Product Development for Mead's Lexis/Nexis division.
CERTAIN TRANSACTIONS.
The Company periodically leases a jet aircraft from a corporation which is
wholly-owned by Mr. Westcott. Under this leasing arrangement, the Company pays a
rate of approximately $3,000 per hour of use, plus crew fees and applicable
taxes. The Company believes that these terms are no less favorable to the
Company than can be obtained for similar services from unaffiliated parties. The
Company paid $149,783 in 1995 for its use of the jet aircraft.
MEETINGS AND COMMITTEES OF THE BOARD.
During 1995 six meetings of the Board of Directors were held. Each of
Messrs. Carl Westcott, Jack T. Smith, Jeffrey M. Heller, Gary Fernandes and Dr.
Kern Wildenthal and Admiral Stansfield Turner attended in excess of 80% of the
Board meetings and committee meetings, except Dr. Wildenthal, who attended 66%
of the Stock Option Committee meetings, and Mr. Fernandes, who was unable to
attend the one meeting of the Compensation Committee, one of the two meetings of
the Audit Committee and one of the three meetings of the Stock Option Committee
held during 1995. The Company has no nominating committee, but it does have the
following standing committees:
Audit Committee. The Audit Committee was formed in August 1989. This
committee, which met twice during 1995, meets with the Company's principal
financial officer and independent auditors to review the scope of auditing
procedures and to review the Company's public financial statements. The
current members of the committee are Gary J. Fernandes, Jeffrey M. Heller,
Stansfield Turner and Kern Wildenthal.
Compensation Committee. The Compensation Committee is responsible for
determining appropriate incentive compensation for the Company's executive
officers. The committee is composed of Gary J. Fernandes, Jeffrey M. Heller,
Stansfield Turner and Kern Wildenthal. This committee met once during 1995.
Stock Option Committee. The Stock Option Committee, which is composed
of Gary J. Fernandes, Jeffrey M. Heller, Stansfield Turner and Kern
Wildenthal, administers the 1989 Stock Option Plan and the Nonemployee Stock
Option Plan. The committee met three times during 1995.
Employee Stock Purchase Plan Committee. The Employee Stock Purchase
Plan Committee, which is composed of Gary J. Fernandes, Jeffrey M. Heller,
Stansfield Turner and Kern Wildenthal, administers the Employee Stock
Purchase Plan. This committee did not meet during 1995.
COMPENSATION OF DIRECTORS.
The Company pays each of Messrs. Fernandes and Heller, Admiral Turner and
Dr. Wildenthal $12,000 per year for their services as directors, plus $2,000 for
each Board meeting attended and
7
<PAGE>
reimbursement for expenses associated with attending Board meetings. Admiral
Turner, as chairman of the Company's Audit Committee, also receives $1,000 for
each Audit Committee meeting attended.
In addition to the cash compensation, each of Messrs. Fernandes and Heller
holds an option for 20,000 shares of Common Stock at $12.63 per share, and Dr.
Wildenthal holds an option for 20,000 shares of Common Stock at $9.69 per share.
These options were granted pursuant to the Company's Nonemployee Stock Option
Plan (the "Plan"), which provides for the automatic grant of stock options to
nonemployee directors. Under the Plan, nonemployee directors are granted options
to purchase 10,000 shares of Common Stock upon their initial election to the
Board of Directors at a price per share equal to the fair market value of such
shares on the date of such election. Thereafter, upon re-election, nonemployee
directors are granted options to purchase 1,000 shares of Common Stock at a
price per share equal to the fair market value of such shares on the date of
such re-election. Each of Messrs. Fernandes and Heller and Admiral Turner and
Dr. Wildenthal were granted an option for 1,000 shares of Common Stock at $14.88
and for 1,000 shares of Common Stock at $15.00 upon their re-election to the
Board of Directors in 1994 and 1995, respectively, pursuant to the automatic
grant provisions of the Plan. Options granted under the Plan vest in 20%
increments over five years and expire after ten years from the date of grant.
EXECUTIVE COMPENSATION TABLE.
CASH COMPENSATION
The following table sets forth the cash compensation paid by the Company to
its Chief Executive Officer and to each of its most highly compensated executive
officers, during each of the last three years.
<TABLE>
<CAPTION>
SECURITIES
OTHER UNDERLYING ALL
NAME AND FISCAL ANNUAL OPTIONS/ OTHER
PRINCIPAL POSITION YEAR SALARY(2) BONUS COMPENSATION SARS(#)(3) COMPENSATION
------------------ ------ --------- ------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Carl Westcott......................... 1995 $ 240,000 -0- -0- -0- -0-
Chairman and Chief Executive Officer 1994 240,000 -0- -0- 500,000 -0-
1993 240,000 -0- -0- -0- -0-
Jack T. Smith......................... 1995 $ 222,000 -0- -0- -0- -0-
President and Chief Operating 1994 222,000 -0- -0- 200,000 -0-
Officer 1993 222,000 -0- -0- 50,000 -0-
Phyllis Farragut...................... 1995 $ 135,000 -0- -0- -0- -0-
Executive Vice President and Chief 1994 133,125 -0- -0- 100,000 -0-
Financial Officer 1993 108,440 -0- -0- 20,000 -0-
Joshua D. Klarin...................... 1995 $ 135,000 $50,000 -0- 10,000 -0-
Executive Vice President(1) 1994 135,000 -0- -0- -0- -0-
1993 78,317 -0- -0- 50,000 -0-
</TABLE>
- ------------
(1) Mr. Joshua D. Klarin joined the Company in June 1993.
(2) In April 1995 the Company established a savings plan under Section 401(k) of
the Internal Revenue Code (the "Savings Plan"). Eligible employees of the
Company may elect to contribute up to 15% of their compensation to any of
several investment vehicles established under the Savings Plan. The Company
does not make any contribution on behalf of eligible employees to the
Savings Plan. All amounts contributed by the officers named above is
included in amounts stated for salary and bonus.
(3) See "Option Grants and Exercises."
8
<PAGE>
OPTION GRANTS AND EXERCISES.
The following table sets forth as to the Company's Chief Executive Officer
and its other most highly compensated executive officers certain information
with respect to option grants during the year ended December 31, 1995.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
INDIVIDUAL GRANTS AT ASSUMED ANNUAL
------------------------------------------------------ RATES OF STOCK
NUMBER OF % OF TOTAL PRICE
SECURITIES OPTIONS/SARS EXERCISE APPRECIATION
UNDERLYING GRANTED TO OR BASE FOR OPTION TERM
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION -----------------
NAME GRANTED FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- ------------ ------------ -------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Carl Westcott.................. -0- N/A N/A N/A N/A N/A
Jack T. Smith.................. -0- N/A N/A N/A N/A N/A
Phyllis Farragut............... -0- N/A N/A N/A N/A N/A
Joshua D. Klarin............... 10,000(1) 8.7 14.88 2/6/02 62,025 142,860
</TABLE>
- ------------
(1) This option is a nonincentive stock option granted pursuant to the Company's
1989 Stock Option Plan. The option vests in 25% increments over the first
four years of the option, and expires on February 6, 2002. In the event of a
merger of the Company with or into another corporation or a sale of all or
substantially all of the Company's assets, the option shall be assumed or an
equivalent option substituted by the successor corporation; if not so
assumed or substituted, the Board of Directors of the Company must
accelerate the exercisability of the options.
AGGREGATE OPTION EXERCISES AND YEAR-END OPTION VALUES.
The following table sets forth the aggregate exercises of options for the
Company's Chief Executive Officer and its other most highly compensated
executive officers during the year ended December 31, 1995, and the value of
unexercised options at year-end.
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
IN-THE-MONEY
NUMBER OF SECURITIES OPTIONS AT FISCAL
SHARES UNDERLYING UNEXERCISED YEAR-END
ACQUIRED VALUE ---------------------------- -----------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Carl Westcott........... 0 $ 0 125,000 375,000 $ 0(1) $ 0(1)
Jack T. Smith........... 10,000 106,875 165,000 175,000 900,000(2) 0(1)
Phyllis Farragut........ 0 0 35,000 85,000 0(1) 0(1)
Joshua D. Klarin........ 0 0 25,000 25,000 10,750(3) 10,750(3)
</TABLE>
- ------------
(1) No options in-the-money.
(2) Exercise price of $3.75.
(3) Exercise price of $13.32.
OTHER COMPENSATION
The Company has no pension, retirement, annuity, savings or similar benefit
plan other than as described above. Other than cash compensation, no officer
received compensation in excess of the lesser of 10% of such officer's cash
compensation or $50,000, nor did all executive officers as a group receive
additional compensation in excess of the lesser of 10% of such officers'
aggregate cash compensation or $50,000 times the number of such officers.
9
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.
The Company's Compensation Committee is composed of Gary J. Fernandes,
Jeffrey M. Heller, Stansfield Turner and Kern Wildenthal, none of which are
officers or employees of the Company.
SECTION 16(A) REPORTING.
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than 10% of a registered class of
equity securities, to file with the Commission initial reports of ownership and
reports of changes in ownership of Common Stock and other equity securities of
the Company. Directors, executive officers and greater than 10% shareholders are
required by Commission regulations to furnish the Company with copies of all
Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it with
respect to fiscal 1995 and written representations from certain reporting
persons, the Company believes that all filing requirements applicable to its
directors, executive officers and persons who own more than 10% of a registered
class of the Company's equity securities have been complied with by such
persons, except for one late filing made by Mr. Fernandes, which corrected a
previous filing reporting one transaction by Mr. Fernandes.
10
