<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
---------------------
MASLAND CORPORATION
(Name of Subject Company)
MASLAND CORPORATION
(Name of Person(s) Filing Statement)
---------------------
COMMON STOCK, PAR VALUE $.01 PER SHARE
(INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
(Title of Class of Securities)
574806 10 5
(CUSIP Number of Class of Securities)
---------------------
DANIEL R. PERKINS
CHIEF FINANCIAL OFFICER, TREASURER AND SECRETARY
MASLAND CORPORATION
50 SPRING ROAD
CARLISLE, PA 17013
(717) 249-1866
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications on Behalf of the Person(s) Filing Statement)
---------------------
Copy to:
PETER O. CLAUSS, ESQ.
CLARK, LADNER, FORTENBAUGH & YOUNG
ONE COMMERCE SQUARE, 22ND FLOOR
PHILADELPHIA, PA 19103
(215) 241-1876
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<PAGE> 2
This Amendment amends and supplements the Solicitation/Recommendation
Statement on Schedule 14D-9 (the "Statement") filed by Masland Corporation, a
Delaware corporation (the "Company"), on May 30, 1996.
ITEM 3. IDENTITY AND BACKGROUND
INFORMATION STATEMENT
(b)(2) The Merger Agreement provides that, subject to compliance with
applicable law, promptly upon the purchase by Purchasers or any of their
Subsidiaries of such number of Shares which represents at least a majority of
the outstanding Shares (on a fully diluted basis), and from time to time
thereafter, Lear shall be entitled to designate such number of Directors,
rounded up to the next whole number (but in no event more than one less than the
total number of Directors on the Board) as will give Lear, subject to compliance
with Section 14(f) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") representation on the Board equal to the product of (x) the
number of Directors on the Board (giving effect to any increase in the number of
Directors as described below) and (y) the percentage that such number of Shares
so purchased bears to the aggregate number of Shares outstanding (such product,
the "Board Percentage"), and the Company shall, upon request by Lear, promptly
satisfy the Board Percentage by (i) increasing the size of the Board or (ii)
using its best efforts to secure the resignations of such number of Directors as
is necessary to enable those persons designated by Lear (the "Lear Designees")
to be elected to the Board and shall cause the Lear Designees promptly to be so
elected.
It is expected that the Lear Designees may assume office at any time
following the purchase by the Purchasers of Shares pursuant to the Offer, which
purchase cannot be earlier than June 26, 1996, and that, upon assuming office,
the Lear Designees will thereafter constitute at least a majority of the Board.
Certain information pursuant to Section 14(f) of the Exchange Act and Rule
14f-1 thereunder is required to be contained in an Information Statement as it
relates to the above right of Lear and Buyer to designate a certain number of
directors to the Company's Board of Directors under the Merger Agreement, and
such Information Statement is attached as Schedule I hereto.
<PAGE> 3
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
MASLAND CORPORATION
By: /s/ DANIEL R. PERKINS
--------------------------------------
Daniel R. Perkins
Chief Financial Officer,
Treasurer and Secretary
May 31, 1996
<PAGE> 4
SCHEDULE I
MASLAND CORPORATION
50 SPRING ROAD
CARLISLE, PENNSYLVANIA 17013
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about June 3, 1996 as part
of the Solicitation/Recommendation Statement on the Schedule 14D-9 ("Schedule
14D-9") and Amendment No. 1 to the Schedule 14D-9 (the "Amended Schedule 14D-9")
of Masland Corporation (the "Company") to the holders of record of shares of
Common Stock, par value $.01 per share, including the associated rights (the
"Rights" and together with the Common Stock the "Shares") to purchase Series A
Junior Participating Preferred Stock, par value $.01 per share, of the Company
at the close of business on or about May 23, 1996. You are receiving this
Information Statement in connection with the possible election of persons
designated by Lear Corporation, a Delaware corporation ("Lear"), to at least a
majority of the seats on the Board of Directors of the Company (the "Board").
On May 23, 1996, the Company, Lear and PA Acquisition Corp., a Delaware
corporation and wholly-owned subsidiary of Lear (the "Merger Subsidiary" and,
together with Lear, the "Purchasers"), entered into an Agreement and Plan of
Merger (the "Merger Agreement") in accordance with the terms and subject to the
conditions of which (i) the Purchasers will commence a tender offer (the
"Offer") for all outstanding Shares at a price of $26 per share, net to the
Seller in cash, and (ii) following consummation of the Offer and subject to
certain conditions, the Merger Subsidiary will be merged with and into the
Company (the "Merger"). As a result of the Offer and the Merger, the Company
will become a wholly-owned subsidiary of Lear.
The Merger Agreement requires that the Company use its best efforts, at
Lear's request, to take all lawful action necessary to cause Lear's designees to
be elected to the Board under the circumstances described in the Merger
Agreement. See "BOARD OF DIRECTORS AND EXECUTIVE OFFICERS -- Right to Designate
Directors; the Lear Designees" below.
You are urged to read this Information Statement carefully. You are not,
however, required to take any action. Capitalized terms used herein and not
otherwise defined herein shall have the meaning set forth in the Schedule 14D-9
and the Amended Schedule 14D-9.
Pursuant to the Merger Agreement, the Purchasers have commenced the Offer
on May 30, 1996. The Offer is scheduled to expire at 12:00 midnight, New York
City time, on Wednesday, June 26, 1996, unless the Offer is extended.
The information contained in this Information Statement concerning Lear,
the Merger Subsidiary and the Lear Designees (hereinafter defined) has been
furnished to the Company by Lear, and the Company assumes no responsibility for
the accuracy or completeness of such information.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
GENERAL
The Shares are the only class of voting securities of the Company
outstanding. Each Share has one vote. As of May 23, 1996, there were 13,590,393
Shares outstanding. The Board currently consists of six members, and is a
classified Board pursuant to which each nominee is elected to a three-year term
in one of three classes. Currently, there are two directors in each class, so
that the terms of two directors expire at the 1996 Annual Meeting of
Stockholders, the terms of two other directors expire at the 1997 Annual Meeting
of Stockholders and the terms of the remaining two directors expire at the 1998
Annual Meeting of Stockholders. The number
<PAGE> 5
of Directors may be determined from time to time by resolution of the Board.
Vacancies in the Board may be filled by the Board, and any Director chosen to
fill a vacancy will hold office until the next election of the class for which
such Director has been chosen.
RIGHT TO DESIGNATE DIRECTORS; THE LEAR DESIGNEES
The Merger Agreement provides that, subject to compliance with applicable
law, promptly upon the purchase by Purchasers or any of their Subsidiaries of
such number of Shares which represents at least a majority of the outstanding
Shares (on a fully diluted basis), and from time to time thereafter, Lear shall
be entitled to designate such number of Directors, rounded up to the next whole
number (but in no event more than one less than the total number of Directors on
the Board) as will give Lear, subject to compliance with Section 14(f) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") representation
on the Board equal to the product of (x) the number of Directors on the Board
(giving effect to any increase in the number of Directors as described below)
and (y) the percentage that such number of Shares so purchased bears to the
aggregate number of Shares outstanding (such product, the "Board Percentage"),
and the Company shall, upon request by Lear, promptly satisfy the Board
Percentage by (i) increasing the size of the Board or (ii) using its best
efforts to secure the resignations of such number of Directors as is necessary
to enable those persons designated by Lear (the "Lear Designees") to be elected
to the Board and shall cause the Lear Designees promptly to be so elected.
It is expected that the Lear Designees may assume office at any time
following the purchase by the Purchasers of Shares pursuant to the Offer, which
purchase may not be earlier than June 26, 1996, and that, upon assuming office,
the Lear Designees will thereafter constitute at least a majority of the Board.
LEAR DESIGNEES
Kenneth L. Way was elected to and has held the position of Chairman of the
Board and Chief Executive Officer of Lear since 1988. Prior to this time he
served as Corporate Vice President, Automotive Group for Lear Siegler, Inc.
("LSI") since October 1984. During the previous six years, Mr. Way was President
of LSI's General Seating Division. Before this position, he was President of
LSI's Metal Products Division in Detroit for three years. Other positions held
by Mr. Way during his 30 years with LSI include Manufacturing Manager of the
Metal Products Division and Manager of Production Control for the Automotive
Division in Detroit. Mr. Way also serves as a director of Hayes Wheels
International, Inc. Mr. Way is 56 years old.
Robert E. Rossiter became President of Lear in 1984 and a Director and the
Chief Operating Officer of Lear in 1988. He joined LSI in 1971 in the Material
Control Department of the Automotive Division, then joined the Metal Products
Division of LSI as Production Control Manager, and subsequently moved into sales
and sales management. In 1979, he joined the General Seating Division as Vice
President of Sales and worked in that position, as well as Vice President of
Operations, until 1984. Mr. Rossiter is 50 years old.
James H. Vandenberghe is Executive Vice President, Chief Financial Officer
and a Director of Lear. He was appointed Executive Vice President of Lear in
1993 and became a Director in November 1995. Mr. Vandenberghe also served as a
Director of Lear from 1988 until the consummation of the merger of Lear Holdings
Corporation into Lear. Mr. Vandenberghe previously served as Senior Vice
President -- Finance, Secretary and Chief Financial Officer of Lear since 1988.
He joined the Automotive Division of LSI in 1973 as a financial analyst and was
promoted to positions at the Metal Products Division and the Automotive Group
office, and in 1978 was named the Vice President -- Finance for the Plastics
Division. In 1983, Mr. Vandenberghe was appointed Vice President -- Finance for
the General Seating Division. Prior to 1988, Mr. Vandenberghe had been
responsible for project management, United States operations, and international
operations of Lear. Mr. Vandenberghe is 46 years old.
Donald J. Stebbins is Vice President, Treasurer and Assistant Secretary of
Lear. He joined Lear in June 1992 from Bankers Trust Company, New York, where he
was Vice President for four years. Prior to his tenure at Bankers Trust Company,
Mr. Stebbins held positions at Citibank, N.A. and The First National Bank of
Chicago. Mr. Stebbins is 38 years old.
2
<PAGE> 6
Joseph F. McCarthy was elected Vice President, Secretary and General
Counsel of Lear in April 1994. Prior to joining Lear, Mr. McCarthy served as
Vice President -- Legal and Secretary for both Hayes Wheels International, Inc.
and Kelsey-Hayes Company. Prior to joining Hayes Wheels International, Inc. and
Kelsey-Hayes Company, Mr. McCarthy was a partner in the law firm of Kreckman &
McCarthy from 1973 to 1983. Mr. McCarthy is 52 years old.
DIRECTORS OF THE COMPANY
The following sets forth information as to each Director (each, a
"Director") of the Company including name, age as of May 23, 1996, principal
occupation and employment during the past five years, directorships in other
publicly-held companies and period of service as a Director. Each individual
listed below is a citizen of the United States.
<TABLE>
<CAPTION>
POSITION WITH THE COMPANY, YEAR IN WHICH
PRINCIPAL OCCUPATION SERVICE AS A
NAME AGE AND OTHER DIRECTORSHIPS DIRECTOR BEGAN
- ----------------------- --- -------------------------------------------------- --------------
DIRECTORS WHOSE TERMS EXPIRE AT THE 1998 ANNUAL MEETING OF STOCKHOLDERS
<S> <C> <C> <C>
William J. Branch 51 Chairman of the Board of the Company since 1991
and Chief Executive Officer until December 31,
1995. He is Chairman of the Executive Committee
and serves as an ex officio member of all
committees of the Board except the Compensation
Committee.
Frank J. Preston 53 President and Chief Operating Officer of the 1995
Company since January 3, 1995 and Chief Executive
Officer since January 1, 1996. Prior to joining
Masland, Dr. Preston held various positions with
Textron, most recently President of Textron
Automotive Interiors. He was also recently elected
as a director of Precision Fabrics Group, Inc., in
which the Company has made a recent investment
(See "Compensation Committee Interlocks and
Insider Participation").
DIRECTORS WHOSE TERMS EXPIRE AT THE 1997 ANNUAL MEETING OF STOCKHOLDERS
Clinton D. Lauer 69 Principal of Lauer & Associates which he founded 1993
in 1992, and retired Vice President of Purchasing
and Supply of Ford Motor Company. Mr. Lauer serves
on both the Audit and Compensation Committees. Mr.
Lauer also serves as a Director of Mexican
Industries and of Top Source Technologies.
Lanty L. Smith 53 Chairman of the Board and Chief Executive Officer 1993
of Precision Fabrics Group, Inc. of Greensboro,
North Carolina since 1988 and former President of
Burlington Industries, Inc. Mr. Smith serves as
Chairman of the Compensation Committee and is a
member of the Audit Committee. He is presently
Chairman of The Greenwood Group, Inc., of Raleigh,
North Carolina and a director and member of the
executive committee of First Union Corporation. He
also serves as a director of a number of privately
held companies.
</TABLE>
3
<PAGE> 7
<TABLE>
<CAPTION>
POSITION WITH THE COMPANY, YEAR IN WHICH
PRINCIPAL OCCUPATION SERVICE AS A
NAME AGE AND OTHER DIRECTORSHIPS DIRECTOR BEGAN
- ----------------------- --- -------------------------------------------------- --------------
DIRECTORS WHOSE TERMS EXPIRE AT HE 1996 ANNUAL MEETING OF STOCKHOLDERS
<S> <C> <C> <C>
Paul B. Edgerley 40 A Managing Director of Bain Capital, which he 1991
joined in 1988. Previously, he was with Bain &
Company where he consulted in the healthcare,
information services, retail and automobile
industries, and prior to that, he was with Peat
Marwick & Company as an audit manager. Mr.
Edgerley serves as Chairman of the Audit Committee
and is a member of the Compensation Committee and
the Executive Committee. Mr. Edgerley also serves
as a director of a number of privately held
companies.
Paul W. Farris 49 Professor, the Darden Business School of the 1993
University of Virginia. His teaching focuses on
marketing management and business strategy. He
also serves as an independent consultant for
companies on a multi-national level. Prior to
joining the University of Virginia in 1980, he
worked for Unilever in product management. Mr.
Farris serves on both the Audit and Compensation
Committees.
</TABLE>
There are no family relationships between any of the foregoing persons.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
There are currently six members of the Board, and since the November 1994
Annual Meeting of Stockholders through October 10, 1995, there have been five
meetings of the Board and one meeting by telephone conference. Since October 10,
1995 and through the Board Meeting on May 23, 1996, there have been five
meetings of the Board and four meetings by telephone conference. All members of
the Board have attended more than 75% of these meetings of the Board and of all
committees on which they serve.
The following committees of the Board of Directors have primary
responsibility for audit and compensation matters:
Audit Committee: This committee has primary responsibility to review
accounting procedures and methods employed in connection with audit programs and
related management policies. The Audit Committee is the principal liaison
between the Board of Directors and the independent auditors for the Company. The
committee recommends the independent auditors to report on the Company's annual
financial statements. Messrs. Edgerley (Chairman), Farris, Lauer and Smith
compose the Audit Committee, which has held six meetings since the November 1994
annual meeting of stockholders.
Compensation Committee: It is the responsibility of this committee to make
a continuing review of the Company's compensation and benefit programs, to
consider its organizational structure, including management development and
succession, and to make recommendations to the Board regarding such programs and
structure. The committee consists of Messrs. Smith (Chairman), Edgerley, Farris
and Lauer. Since the November 1994 annual meeting of stockholders, this
committee has held eight meetings.
The Company does not have a Nominating Committee. The Company's By-Laws
provide that a stockholder may nominate a person for election as a director if
written notice of the stockholder's intent to nominate a person for election as
a director at a meeting is received by the Secretary of the Company not less
than 50 days nor than 75 days prior to the meeting of stockholders at which
directors are to be elected. The notice must contain specified information about
the stockholder and the nominee, including such information as would be required
to be included in a proxy statement pursuant to the rules and regulations
established by the Securities and Exchange Commission under the Exchange Act.
4
<PAGE> 8
EXECUTIVE OFFICERS OF THE COMPANY WHO ARE NOT DIRECTORS
The following sets forth information as to each Executive Officer of the
Company who is not also a Director, including name, age as of May 23, 1996,
principal occupation and employment during the past five years.
Daniel R. Perkins, Chief Financial Officer, Treasurer and Secretary, age 49,
joined the Company in April 1992. Prior thereto, Mr. Perkins served as Vice
President and Treasurer of ESCO Electronics, a defense electronics manufacturer,
from 1990 until 1992.
Larry W. Owen, Vice President and General Manager -- Fabrics, age 51, joined the
Company in 1989. Prior thereto, Mr. Owen served for a number of years in various
positions with Fieldcrest Cannon, including as President of its Karastan
Division.
Darrell F. Sallee, Vice President of the Company and President of Amtex, age 57,
joined the Company in 1990. Prior thereto, Mr. Sallee served for 28 years with
Sheller-Globe Corporation and its successor in interest, United Technologies,
most recently as Vice President and General Manager of the Insulation and
Acoustic Division.
James D. Allgyer, Controller and Chief Accounting Officer, age 50, joined the
Company in 1978. Prior thereto, Mr. Allgyer was with Avtex Fibers, most recently
as its Financial Manager.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
CERTAIN BENEFICIAL OWNERS
Shown below are persons known by the Company to have, or who recently had,
voting power and/or investment power over more than 5% of its Common Stock,
except as otherwise indicated in the footnote below, as of May 23, 1996.
<TABLE>
<CAPTION>
BENEFICIAL OWNER AMOUNT OF PERCENT
AND NATURE OF OWNERSHIP BENEFICIAL OWNERSHIP OF CLASS
- ------------------------------------------------------------------- -------------------- --------
<S> <C> <C>
Government of Singapore Investment Corporation Pte. Ltd............ 627,000(1) 4.67%
Government of Singapore............................................ (1) (1)
Monetary Authority of Singapore.................................... (1) (1)
The Board of Commissioners of Currency, Singapore.................. (1) (1)
Miller Anderson & Sherrerd......................................... 676,300 5.10%
Lazard Freres & Co. LLC............................................ 716,000 5.70%
</TABLE>
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(1) Information as to the shares held by the Government of Singapore Investment
Corporation Pte, Ltd., the Government of Singapore, the Monetary Authority
of Singapore and the Board of Commissioners of Currency, Singapore, as set
forth in a Schedule 13D filed with the Securities and Exchange Commission
dated February 13, 1996. According to such Schedule 13D, as to all such
shares, the Government of Singapore Investment Corporation Pte, Ltd., has
shared voting and investment power over 627,000 shares. Such 627,000 shares
consist of shares beneficially owned by the Government of Singapore (423,000
shares), the Monetary Authority of Singapore (169,000 shares) and the Board
of Commissioners of Currency, Singapore (35,000 shares).
COMMON STOCK OWNERSHIP OF MANAGEMENT
The following table reflects, as of May 23, 1996, the Common Stock
ownership of each director and executive officer, and all directors and officers
as a group. Each named individual and all members of the group exercise sole
voting and investment power, except as indicated in the several footnotes. The
percentage
5
<PAGE> 9
of shares owned beneficially by each named person other than Messrs. Branch and
Owen does not exceed 1% of the Common Stock outstanding.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
--------------------------------------
SHARES OPTION SHARES PERCENT
NAME OWNED EXERCISABLE OF CLASS
- ----------------------------------------------------------- ------- ------------- --------
<S> <C> <C> <C>
William J. Branch.......................................... 62,156(1) 198,675 1.76%
Paul B. Edgerley........................................... 12,575 1,057 *
Paul W. Farris............................................. 2,064 1,057 *
Clinton D. Lauer........................................... 1,000 1,057 *
Frank J. Preston........................................... 3,000 18,000 *
Lanty L. Smith............................................. 23,250(2) 1,057 *
Daniel R. Perkins.......................................... 10,611 84,195 *
Larry W. Owen.............................................. 132,411(3) 110,652 1.64%
Darrell F. Sallee.......................................... 36,204 101,283 *
James D. Allgyer........................................... 44,130 54,536 *
All Directors and Officers as a Group (10 persons)......... 327,401(4) 571,569 6.07%
</TABLE>
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* Less than 1%.
(1) Includes 4,800 shares owned by his children who share the same household
with him.
(2) Includes 5,250 shares owned by his wife and children who share the same
household with him.
(3) Includes 1,000 shares owned by his child who shares the same household with
him.
(4) Includes 11,050 shares owned by the spouse and children of 2 officers and 1
director.
6
<PAGE> 10
EXECUTIVE COMPENSATION
The following table discloses, for the fiscal years 1993 through 1995,
individual compensation information relating to Mr. Branch and the four other
most highly compensated executive officers (collectively, the "Named
Executives").(1)
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------------
AWARDS
-------------------- PAYOUTS
ANNUAL COMPENSATION RESTRICTED ------- ALL OTHER
----------------------------------------- STOCK NUMBER LTIP COMPEN-
NAME AND OTHER ANNUAL AWARD(S) OF PAYOUTS SATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($)(2) ($)(3) OPTIONS ($) ($)(4)
- ------------------------- ---- --------- -------- ------------------ ---------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William J. Branch 1995 218,333 133,840 15,396 0 0 0 0
Chairman and Chief 1994 205,000 246,000 1,093,512(5) 0 0 0 0
Executive Officer 1993 183,833 222,000 16,423 5,078 108,675 0 0
Frank J. Preston 1995 105,000 63,000 0 0 90,000 0 34,746
President and Chief
Operating Officer(1)
Daniel R. Perkins 1995 120,000 52,680 10,270 0 0 0 0
Chief Financial
Officer, 1994 116,000 98,600 9,282 0 0 0 0
Treasurer and Secretary 1993 110,000 93,500 7,723 1,729 68,543 0 42,486
Larry W. Owen 1995 126,000 55,310 10,028 0 0 0 0
Vice President and 1994 122,000 103,700 10,289 0 0 0 0
General Manager -- 1993 115,000 97,800 9,157 3,808 70,000 0 0
Fabrics
Darrell F. Sallee 1995 135,000 59,270 9,877 0 0 0 0
Vice President of the 1994 130,000 110,500 8,838 0 0 0 0
Corporation and 1993 122,500 103,700 6,207 1,903 60,631 0 0
President of Amtex
</TABLE>
- ------------
(1) Dr. Preston was an executive officer of the Company on June 30, 1995 but
was employed only for the second half of fiscal 1995. On January 1, 1996,
Mr. Branch relinquished, and Dr. Preston assumed, the title of Chief
Executive Officer.
(2) Includes amounts with respect to compensation realized upon the exercise of
stock options and perquisites, which include company cars, life insurance
premiums, tax preparation, 401(k) plan matching contributions and defined
pension plan contributions. For fiscal 1993 the amount exceeding 25% of the
total perquisites to each such Named Executive is: Mr. Branch, 401(k) plan
matching contributions $5,515 and defined pension plan contributions
$5,515; Mr. Perkins, defined pension plan contributions $3,300; Mr. Owen,
defined pension plan contributions $3,450; and Mr. Sallee, company car
$1,790 and defined pension plan contributions $3,675. For fiscal 1994 the
amount exceeding 25% of the total perquisites to each such Named Executive
is: Mr. Branch, 401(k) plan matching contributions $6,150 and defined
pension plan contributions $6,150; Mr. Perkins, company car $2,862 and
defined pension plan contributions $3,480; Mr. Owen, company car $3,016 and
defined pension plan contributions $3,660; and Mr. Sallee, company car
$2,782 and defined pension plan contributions $3,900. For fiscal 1995 the
amount exceeding 25% of the total perquisites to each such Named Executive
is: Mr. Branch, company car $4,069, defined pension plan contributions
$4,500 and 401(k) plan matching contributions $4,500; Mr. Perkins, company
car $4,064 and defined pension plan contributions $3,624; Mr. Owen, company
car $3,264 and defined pension plan contributions $3,780; and Mr. Sallee,
company car $2,497 and defined pension plan contributions $4,050.
(3) For fiscal 1993, amounts shown represent the dollar value of restricted
stock purchased by each of the Named Executives, net of the consideration
paid for such restricted stock. Such Named Executive
7
<PAGE> 11
purchased shares of Class P Common Stock on August 31, 1992 at $29.10 per
share. The fair market value of the Class P Common Stock on such date was
$30.93 per share. The amount shown is the difference between these amounts.
All other purchases of Class P Common Stock, Common Stock and warrants by
the Named Executives have been at fair market value. At the initial public
offering price of
$17.00 per share, the number and value of the restricted stock holdings as
of the end of fiscal 1993 for each of the Named Executives was Mr. Branch,
176,571 shares, $3,001,707; Mr. Perkins, 10,611 shares, $180,387; Mr. Owen
132,411 shares, $2,250,987; and Mr. Sallee, 66,204 shares, $1,125,468.
Based upon the closing price of the Company's Common Stock on June 30, 1995
as reported on the NASDAQ National Market System, which was 12 7/8 per
share, the number and value of the restricted stock holdings for each of
the Named Executives on that date was for Mr. Branch, 62,256 shares,
$801,546; for Mr. Perkins, 10,611 shares, $136,617; for Mr. Owen, 132,411
shares, $1,704,792; and for Mr. Sallee, 36,204 shares, $466,126.
(4) Represents amounts paid by the Company for relocation expenses during fiscal
1993 and fiscal 1995.
(5) Includes $1,075,935 realized in fiscal 1994 by Mr. Branch in connection with
the exercise of certain options. Such compensation is deductible by the
Company and not subject to section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"). See "Compensation Committee Report -- Tax
Deductibility of Executive Compensation".
GRANT OF STOCK OPTIONS
OPTION/SAR GRANTS IN LAST FISCAL YEAR ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT
-------------------------- ASSUMED ANNUAL RATES OF
% OF TOTAL STOCK PRICE
OPTIONS/SARS EXERCISE APPRECIATION
OPTIONS/ GRANTED TO OR BASE FOR OPTION TERM
SARS EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5% ($)(1) 10% ($)(1)
- ---------------------------- ---------- ------------ -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
William J. Branch........... 0 0 0 0 0 0
Frank J. Preston............ 60,000(2) 13.0% $15.00 1/3/2005 $ 566,005 $1,434,368
30,000(2) 6.5% $13.25 5/11/2005 $ 249,986 $ 633,513
Daniel R. Perkins........... 0 0 0 0 0 0
Larry W. Owen............... 0 0 0 0 0 0
Darrell F. Sallee........... 0 0 0 0 0 0
</TABLE>
- -------------------------
(1) It should be noted that these values will only be realized if the value of
the Common Stock appreciates at a compound rate of either 5% per year or 10%
per year over the 10-year option term. The purpose of providing this
information is to indicate the total potential stockholder gain over the
term of the options comparable to the potential gain shown for the options.
(2) Exercisable over five years at a rate of 20% per year.
8
<PAGE> 12
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES TABLE
The following table shows information regarding the exercise of stock
options during fiscal 1995, by the Named Executives and the number and value of
any unexercised stock options held by them as of June 30, 1995:
AGGREGATED OPTION EXERCISES IN 1995 FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES TABLE
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS/SARS IN-THE-MONEY
SHARES AT OPTIONS/SARS AT
ACQUIRED ON VALUE FY-END (#) FY-END ($)
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE(1)
- ---------------------------------------- ----------- -------- -------------- ----------------
<S> <C> <C> <C> <C>
William J. Branch....................... 0 0 198,675/0 $851,940/$0
Frank J. Preston........................ 0 0 0/90,000 $ 0/$0
Daniel R. Perkins....................... 0 0 79,521/14,022 $638,293/$76,720
Larry W. Owen........................... 0 0 105,978/14,022 $701,748/$76,720
Darrell F. Sallee....................... 0 0 96,609/14,022 $589,508/$76,720
</TABLE>
- -------------------------
(1) The value of the options is calculated based upon the average market price
of the Company's Common Stock as of June 30, 1995 as reported on the NASDAQ
National Market System, which was $12.75 per share.
DIRECTORS' COMPENSATION
Directors who are not salaried officers or employees of the Company are
paid an annual stipend of $14,000 payable quarterly plus a fee of $500 for each
board meeting attended and $300 for each committee meeting attended. Outside
directors serving as chairmen of committees receive an additional annual stipend
of $1,000. Also, travel and lodging expenses are reimbursed. No director who is
a salaried officer employee of the Company receives any compensation in addition
to his regular salary for attendance at meetings of the Board or any of its
committees. Outside directors may elect to defer a portion or all of their
compensation under the Company's Deferred Compensation Plan for Non-Employee
Directors. The Corporation's obligation to pay the sums deferred is unsecured.
Deferral elections, after the initial election, will be made annually prior to
the beginning of each calendar year. Deferrals can be made into a Stock Account
or into an Interest Account. The Stock Account accumulates phantom shares of
Common Stock which represent a notional equity interest in the Company. The
Interest Account accumulates interest on the deferrals. Distributions of the
deferred sums are payable to the participant, only in cash, upon retirement,
termination of service or death. Payment is made in annual installments over a
ten year period, unless the Compensation Committee determines otherwise, and
interest continues to accrue on unpaid amounts. In addition, in the event of a
"change in control" of the Company, as such term is defined in the Plan, the
account value for each electing director is payable in cash in a lump sum within
15 days following such event. The Plan was first effective as of May 11, 1995.
The Corporation has been advised that under current federal tax law, an electing
director will not be taxed on the amount of compensation deferred until it is
paid to such director pursuant to the Plan. Three directors have elected to
defer compensation.
The outside directors also participate in the Company's Non-Employee
Directors' Stock Option Plan (the "Directors' Plan"). The Directors' Plan
provides for the automatic grant of non-qualified stock options ("NQOs") to
non-employee directors of the Company commencing upon their election as
directors and thereafter annually following the Annual Meeting of Stockholders
until the total shares available thereunder is exhausted. A total of 100,000
shares of Common Stock have been reserved for issuance under the Directors'
Plan. Upon commencing service on the Board, each director is awarded a number of
options determined by a formula whereby $42,000 is divided by the fair market
value of the Common Stock on the applicable valuation
9
<PAGE> 13
date. A total of 16,144 options have been granted under the Directors' Plan. The
number of NQOs granted annually to each eligible director will be determined by
a formula whereby $14,000 is divided by the fair market value of a share of
Common Stock on the first Friday following the Company's Annual Meeting of
Stockholders (the "Valuation Date"). In order to avoid forfeiture, a
non-employee director must exercise his/her options under the Directors' Plan
within six months following date of retirement, death or termination by reason
of disability.
PLANS OR ARRANGEMENTS RELATING TO EMPLOYMENT TERMINATION OR A CHANGE IN CONTROL
Prior to the May 23, 1996 Board meeting and except for Dr. Preston, neither
Mr. Branch nor the other present executive officers of the Company had
employment agreements with the Company or any of its affiliates. Prior to the
May 23, 1996 Board meeting and except for Dr. Preston, none of them had any
agreement entitling him to termination or severance payments upon a change in
control of the Company nor a change in the Named Executive's responsibilities
following a change of control. However, each of Messrs. Branch, Perkins, Owen
and Sallee are parties to one or more Management Stock Purchase Agreements with
the Company pursuant to which each of them has purchased shares of Common Stock
in the Company; and each of them is the grantee of certain stock options from
the Company under one or more Stock Option Agreements. These agreements
contained certain provisions relating to the repurchase of the stock purchased
under such agreements or relating to payments to be made upon exercise of
options granted thereunder, which lapsed as of the IPO. The Stock Option
Agreements and warrants issued pursuant to the 1991 Plan also included certain
transfer restrictions. At their meeting of April 22, 1994, the Board of
Directors agreed to waive such transfer restrictions, the provisions relating to
the repurchase option in favor of the Company and the put option in favor of the
option or warrant holder. All of these stock options vested in full as of the
IPO, except options granted on June 14, 1993 which continue to vest at a rate of
20% per year.
Dr. Preston is a party to a letter agreement of employment which provides,
among other things, that if his employment were terminated other than for cause
prior to January 3, 1998, the Company will pay a severance benefit to him of
three times his base salary in effect at the date of termination. In addition,
the Company has entered into a Change of Control Agreement with Dr. Preston
which provides severance benefits to him in the event his employment is
terminated within a specified period following a "change in control" of the
Company, as such term is defined in the Agreement. To qualify for such severance
payment his date of termination must be on or before January 3, 2000 and such
date of termination must be within twelve months following the change in
control. His severance benefits include the lump sum payment of an amount equal
to 4.5 times his highest annual base salary in effect on any date with the
period beginning with the effective date of the Agreement and ending on his date
of termination. No termination or modification of the Agreement may be made by
the Company without the concurrence of Dr. Preston. There are no limitations on
the total payments to be made to Dr. Preston upon his termination resulting from
a Change in Control to prevent such payments from constituting excess "parachute
payments" (as that term is defined in the Code). He will also receive additional
payments under the Agreement to reimburse him for any increased taxes, penalties
and interest resulting from severance payments under the Agreement by reason of
such payments being treated as excess parachute payments (including payments to
reimburse him for increased taxes). Under the terms of the Agreement, Dr.
Preston also would be entitled to supplemental benefits, such as rights to
exercise stock options, continued medical insurance for specified periods after
termination and the payment of all reasonable fees and related expenses incurred
by him as a result of the termination of his employment or in obtaining or
enforcing any right or benefit provided by the Agreement. Had there been a
"change in control" as of the end of the Company's 1995 fiscal year, the
approximate severance payment under the Agreement for Dr. Preston in the event
of his termination would have been $945,000.
Dr. Preston is also the beneficiary of a Supplemental Employment Retirement
Pension Agreement (the "SERP") which is an unfunded, non-qualified plan designed
to restore retirement benefits to him lost under the pension plan with his
predecessor employer by reason of his change of employment to the Company, which
lost retirement pension benefits would not be adequately offset by retirement
benefits provided under the Company's retirement plans in which he will become a
participant after meeting minimum waiting periods for eligibility. The SERP is
administered by the Compensation Committee. The SERP is a phantom stock plan
10
<PAGE> 14
under which quarterly credits are made to Dr. Preston's ledger account
representing 500 units per quarter, each unit representing the equivalent of a
share of Common Stock of the Company. The credits will continue so long as he
remains in the active employment of the Company and prior to his attainment of
age 65. Additional credits are made to his ledger account equal to any dividends
payable on the Company's Common Stock. If his employment is terminated other
than by death or retirement then all units credited to his ledger account will
be deferred until the earlier to occur of attainment of age 65 or death, and
thereafter such credits shall be payable in cash in the same manner as provided
in the case of his retirement or death. At retirement or death he has the right
to elect a lump sum payment in cash equal to the then fair market value of a
share of Common Stock of the Company multiplied by the number of units standing
to his credit in the ledger account, payable within 30 days, or quarterly
installment payments over a 10 year period, valued in a similar fashion and
payable only in cash. In the event of a "change in control" of the Company, as
defined in the SERP, the fair market value of the Common Stock equivalents of
the units credited to his ledger account shall be payable to him in a lump sum
cash payment within 15 days following the "change in control". If a Change in
Control were to have occurred at the end of the Company's 1995 fiscal year, Dr.
Preston would have had an estimated entitlement to a lump sum cash payment under
the SERP of approximately $13,000.
These agreements with Dr. Preston have been superseded by an Employment
Agreement dated May 29, 1996, but which will only be effective if the Offer is
consummated. See "EMPLOYMENT AGREEMENTS".
EXECUTIVE DEFERRED COMPENSATION PLAN
The Company has established an Executive Deferred Compensation Plan (the
"EDC Plan") first effective February 9, 1995, which is an unfunded,
non-qualified deferred compensation arrangement for a select group of management
and highly compensated employees of the Company and certain of its subsidiaries,
and which is administered by a Board appointed committee consisting of the Chief
Executive Officer, the Chief Operating Officer, the Chief Financial Officer and
the Vice President of Human Resources.
The EDC Plan permits an eligible employee to defer the receipt of a
specified portion of his or her compensation until the date of retirement,
disability, death, termination of employment or for a specified deferral period.
The Company's obligation to pay the sums deferred, including interest accrued on
the amount of the deferrals, is unfunded and unsecured. Upon a "change of
control" of the Company, as defined in the EDC Plan, the participants shall be
entitled to their accrued deferrals, including interest on such deferrals,
payable in a cash lump sum payment. All deferred amounts, including deferred
interest, are payable on the deferral payment date in a lump sum cash payment
unless the participant has requested that the committee permit that payment to
be in installments or further deferred until expiration of a specified period of
time of not less than three years following the initially specified payment
date. The interest rate used for all purposes under the EDC Plan is the prime
rate of Chemical Bank, agent under the Company's loan facility. Deferral
elections may be made periodically by the participants. The EDC Plan may be
terminated by the Company upon notice to the participants, but only as to future
deferrals. The Company has been advised that under current federal tax law a
participant will not be taxed on the amount of compensation deferred until it is
paid to the participant pursuant to the EDC Plan, and further advised that if
deferrals are of incentive bonus compensation such is "performance based"
compensation and accordingly neither the deferrals attributable to such
performance based compensation nor the interest accruals thereon will be subject
to the annual $1 million limitation on deductible compensation paid or accrued
with respect to the Chief Executive Officer and the next four most highly
compensated executive officers. However, there are no limitations on the total
payments to be made to an executive upon a Change of Control under the EDC Plan
to prevent such payments from constituting excess "parachute payments" as such
term is defined in the Code. Had there been a Change in Control as of the end of
the Company's 1995 fiscal year, the approximate benefits under the EDC Plan for
the named executive officers would have been as follows: Dr. Preston -- $14,177.
11
<PAGE> 15
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1994, but prior to the Company's October 1993 initial public
offering ("IPO") compensation decisions were made for executive officers and
employees, other than Mr. Branch, by the Executive Committee which consisted of
Messrs. Branch, Edgerley and a third non-employee director who no longer serves
on the Board. None of the then members of the Executive Committee participated
in the determination of their respective compensation, if any. See "Compensation
Committee Report".
Lanty L. Smith, Chairman of the Compensation Committee and a director of
the Company, is the Chairman of the Board of Directors, Chief Executive Officer
and largest shareholder of Precision Fabrics Group, Inc. ("Precision"), in which
the Company invested $15 million on September 26, 1995 in exchange for
approximately 29% of the issued and outstanding stock of Precision. Dr. Frank J.
Preston, a director, President and Chief Operating Officer of the Company, was
elected a director of Precision on September 26, 1995.
On September 26, 1995, the Company consummated a transaction described in a
Securities Purchase Agreement dated as of September 22, 1995, pursuant to which
the Company made the cash investment for the Precision stock. In addition,
Precision granted the Company an option to acquire the remaining Precision
shares in a tax free merger exchange for up to 4,100,000 shares of Common Stock
of the Company. Precision also solicited and received irrevocable proxies
assuring the Company of the ability to consummate the Merger with Precision
should the Company so elect on or before May 31, 1996, and provided that such
Merger would be consummated on or before October 1, 1996. The Company has not
exercised that option, and there can be no assurance that the Company will in
fact elect to proceed with the subsequent Merger pursuant to that option, even
if extended. The investment made by the Company was funded partly from working
capital and partly from borrowings under its outstanding loan facilities. The
transaction was unanimously approved by the Company's Board of Directors except
that Mr. Smith did not participate in the decision-making process nor in the
vote. The Board of Directors had the benefit of an independent appraisal and
fairness opinion prior to voting on the transaction. Dr. Preston was not a
director of Precision prior to his recent election nor at the time the Company's
Board of Directors approved the transaction.
Immediately before the transaction, Mr. Smith and trusts for the benefit of
members of his immediate family owned approximately 27% of the total issued and
outstanding shares of Precision, and this beneficial ownership percentage was
reduced to approximately 19% following the transaction. However, the net
tangible book value of the shares held by Precision's shareholders prior to the
transaction was increased as a consequence of the transaction.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Exchange
Act, that might incorporate future filings, including this information
statement, in whole or in part, the following report and the Performance Graph
shall not be incorporated by reference into any such filings.
COMPENSATION COMMITTEE REPORT
The compensation paid to the Company's Chief Executive Officer and other
executive officers is determined and recommended by the Company's Compensation
Committee (the "Committee") and approved by the Board of Directors. Neither Mr.
Branch nor Dr. Preston participates in the Board of Directors' deliberations and
action regarding their compensation. The Committee is comprised of four outside
directors, Mr. Lanty L. Smith (Chairman), Mr. Paul B. Edgerley, Mr. Paul W.
Farris and Mr. Clinton D. Lauer. The Compensation Committee was established in
December 1993, following the Company's IPO. Prior to the IPO, the compensation
of the Company's executive officers was determined by the Executive Committee
and ratified by the Board of Directors, but no member of the Executive Committee
participated in the determination of his respective compensation, if any.
12
<PAGE> 16
EXECUTIVE COMPENSATION OBJECTIVES
The purpose of the Company's executive compensation program is to attract,
retain and motivate highly qualified executives to achieve satisfactory returns
for stockholders by providing a competitive, performance-based executive
compensation program.
The executive compensation program is based upon both individual
performance and corporate performance and consists of base salaries, incentive
bonuses and long-term stock incentives. These three elements are combined by the
Committee through the executive compensation program to provide the Company's
executive officers and key employees with total compensation levels which the
Committee believes are competitive with similarly situated companies in the
automotive industry sector and to promote the long-term growth of the business
and stockholder returns. Each element of the executive compensation package is
further described below.
Base Salaries. The base salaries of the Company's executives are based
primarily on their level of responsibility and performance. Salaries are
established which, when combined with bonuses and other incentives, are believed
to be competitive with executive salaries provided by other manufacturing
companies of comparable size and complexity. To assist the Committee in its
deliberations, it reviews publicly available information where appropriate
concerning the salaries paid to executive officers of such other companies. The
Committee may also review recommendations of independent consultants. The
Committee's evaluation process and the ultimate level of base compensation for
each executive officer are not based on mechanical or mathematical formulas but
include the judgment of the Committee relating to the duties, responsibilities
and experience of each executive officer coupled with his individual
performance. The Committee anticipates conducting annual reviews of executive
officers' salaries.
Prior to the IPO, the Board of Directors, upon the recommendation of the
Executive Committee, granted salary increases for fiscal 1994, effective July 1,
1993. The salary increases were based upon an assessment of the individual's
performance. At its August 11, 1994 and August 10, 1995 meetings the Committee
approved salary increases for fiscal 1995 and fiscal 1996, respectively. Factors
considered by the Committee in determining each increase included an assessment
of the executive's performance and the compensation practices of other
manufacturing companies of comparable size.
Incentive Bonuses. The executive's salaries are generally supplemented by
incentive compensation awards. The incentive compensation is designed to
motivate participants to achieve certain financial targets. These are based upon
EBITDA (earnings before interest, taxes, depreciation and amortization) as
adjusted for a targeted return on net assets. In order to receive an award, the
recipient must be an employee of the Company as of the end of the fiscal year.
Following the Company's annual audit, actual performance is compared with the
targets, and a determination is made whether incentive compensation awards will
be paid. This process results in bonus awards that vary from year to year based
upon performance. Payment of the awards has historically been made in cash. New
targets are established at the commencement of each fiscal year by the Board of
Directors based upon the recommendation of the Committee. The fiscal 1994 and
fiscal 1995 bonuses based upon a comparison of performance with the targets were
approved at the Committee's meetings on August 11, 1994 and August 10, 1995,
respectively, and are reflected in the Summary Compensation Table.
Long-Term Stock Incentives. Stock incentives and the resulting equity
ownership of executive officers are important elements of the Company's
Executive Compensation Program. Stock options are designed more closely to align
the interests of the executive and the Company's stockholders through equity
ownership in the business. They are also intended to increase long-term
retention of highly qualified employees. Historically, executive officers and
other key employees have been granted stock options and Common Stock purchase
warrants under either or both the 1991 Stock Purchase and Option Plan (the "1991
Plan") and the 1993 Stock Option Incentive Plan (the "1993 Plan"). As a result
of the lack of shares available for grant, the 1991 Plan has been frozen.
However, executive officers and employees are now eligible to receive stock
option grants under the 1993 Plan and some have in fact been granted during
fiscal 1994, and fiscal 1995. In determining the number of options to be awarded
to an executive officer, the Committee considers the performance of the
executive and his or her annual salary level. Options and Common Stock purchase
13
<PAGE> 17
warrants granted or sold under the 1991 Plan during and prior to fiscal 1993
contained exercise prices that were determined when there was no publicly traded
market for the underlying Common Stock. Those exercise prices have subsequently
been exceeded by the market prices at which the Company's Common Stock has
traded subsequent to the IPO. Accordingly, based upon the value of such options
following the IPO, the Committee granted no options to executive officers during
fiscal 1994 and fiscal 1995, other than to Dr. Preston, who was not a recipient
of any options under the 1991 Plan. It is anticipated that most options granted
in the future, if any, will be awarded with an exercise price equal to the
market price of Common stock on the date of grant, have a maximum term of 10
years and become exercisable over a period of five years at a rate of 20% per
year.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Base Salary. The percentage salary increase determined by the Compensation
Committee on August 11, 1994, for Mr. Branch, Chairman of the Board and Chief
Executive Officer, for fiscal 1995 compared with fiscal 1994 was 3.3%, effective
as of July 1, 1995. On May 11, 1995, the Committee approved an 18% increase for
Mr. Branch for fiscal 1996 effective as of May 1, 1995. Factors considered by
the Committee for fiscal 1995 and for fiscal 1996 in determining these increases
included an assessment of Mr. Branch's performance, the Company's performance,
the market performance of the Company's stock and the salary practices of other
similarly situated suppliers to the automotive industry including the Industry
Index included below.
1995 Bonus. The fiscal 1995 bonus for Mr. Branch was $133,840, which was
confirmed by the Committee on August 10, 1995 as the amount calculated using the
pre-established criteria and targets. Such amount has been deferred under the
Executive Deferred Compensation Plan, described above. The Committee approves
bonus awards based upon audited actual performance in comparison to establish
financial targets. Based upon EBITDA as adjusted for return on net assets, Mr.
Branch received a bonus award equal to 61% of his salary.
Long-Term Incentives. During fiscal 1993 Mr. Branch was granted 108,675
stock options and no options were granted in fiscal 1994 or fiscal 1995.
TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Code denies a publicly-held company, such as the
Company, a federal income tax deduction for compensation in excess of $1,000,000
per year paid to or accrued for each of its chief executive officer and four
next most highly compensated executive officers. Certain "performance based"
compensation, such as a stock option awarded at fair market value, is not
subject to the limitation on deductibility provided that certain stockholder
approval and independent director requirements are met. The Committee has
determined not to take any specific action or to request stockholder action at
this time as it does not believe that, based upon current levels of
compensation, the provisions or regulations thereunder will have an adverse
impact on the compensation currently paid to this group of executive officers.
The Committee will continue to review this issue and evaluate whether changes
should be made in the future to meet deductibility requirements.
The Compensation Committee:
Lanty L. Smith, Chairman
Paul B. Edgerley
Paul W. Farris
Clinton D. Lauer
14
<PAGE> 18
PERFORMANCE GRAPH
The performance graph and chart which follows compare the cumulative total
return on the Common Stock of the Company for the period commencing October 27,
1993 (the date on which the Company's Common Stock commenced trading on the
NASDAQ National Market System as part of its IPO) with the CRSP Total Return
Index (US Companies) for the NASDAQ Stock Market, with the Peer Group Index used
in the 1994 Proxy Statement and with an Industry Index which consists of
suppliers to the automotive industry.
<TABLE>
<CAPTION>
Measurement Period MASLAND NASDAQ MARKET INDUSTRY PEER GROUP
(Fiscal Year Covered) CORPORATION INDEX INDEX INDEX
<S> <C> <C> <C> <C>
10/93 100.00 100.00 100.00 100.00
2/94 129.70 104.83 107.02 119.68
6/94 104.22 98.73 93.24 99.04
10/94 95.63 106.15 94.98 97.12
2/95 85.84 99.69 86.52 90.34
6/95 77.15 114.23 96.97 96.29
</TABLE>
COMPARISON OF 20 MONTH CUMULATIVE TOTAL RETURN TO STOCKHOLDERS(1)
<TABLE>
<CAPTION>
NASDAQ INDUSTRY 1994
MASLAND INDEX INDEX(2) PEER GROUP(3)
------- ------- -------- -------------
<S> <C> <C> <C> <C>
October 27, 1993.................................... $100.00 $100.00 $ 100.00 $100.00
February 28, 1994................................... 129.70 104.83 107.02 119.68
June 30, 1994....................................... 104.22 98.73 93.24 99.04
October 31, 1994.................................... 95.63 106.15 94.98 97.12
February 28, 1995................................... 85.84 99.69 86.52 90.34
June 30, 1995....................................... 77.15 114.23 96.97 96.29
</TABLE>
- -------------------------
(1) Assumes an initial investment of $100.00 and the reinvestment of dividends.
(2) Industry Index consists of 65 suppliers to the automotive industry known as
Media General's Automotive Parts and Accessories Group.
(3) Includes AO Smith Corp. Automotive Industries Holdings, Inc., Breed
Technologies, Donnelly Corp., Exide Corporation, Magna International, Inc.,
Mascotech, Inc., Simpson Industries, Inc., Standard Products Co. and Stant
Corporation, the returns of which have been weighted to reflect their
respective market capitalizations as of October 27, 1993, the date on which
the Company's Common Stock commenced trading on the NASDAQ National Market
System. The Company changed from a peer issuer group to the broader
published Industry Index in 1995 because of the ongoing consolidation of
suppliers in this industry.
15
<PAGE> 19
EMPLOYMENT AGREEMENTS
Lear, the Company and William J. Branch have entered into a Termination,
Consulting and Noncompete Agreement dated May 29, 1996 (the "Noncompete
Agreement") pursuant to which Mr. Branch has agreed to terminate his employment
with the Company effective upon consummation of the Offer, and for a period of
two years thereafter, subject to earlier termination for cause (as defined in
the Noncompete Agreement), to serve as a consultant for 20 days per year to, and
not compete with, the Company. Pursuant to the Noncompete Agreement, Mr. Branch
shall be paid $175,000 per year and will be provided with health and medical
benefits to be continued during the term of the Noncompete Agreement.
The Company has entered into an Employment Agreement dated as of May 29,
1996 (the "Employment Agreement") with Dr. Frank J. Preston, the Company's
President and Chief Executive Officer. The Employment Agreement has a term of
four years, effective upon consummation of the Offer (the "Effective Date"), and
is automatically renewed for one additional year on the second anniversary of
the Effective Date and each anniversary of the Effective Date thereafter. The
Employment Agreement provides for an initial base salary of $275,000 per annum
plus certain employee benefits. Pursuant to the Employment Agreement, the
Compensation Committee of Lear's Board of Directors has discretion to increase
Dr. Preston's base salary and award an annual incentive bonus. In addition, the
Employment Agreement provides that, upon consummation of the Merger, Dr.
Preston's options to purchase 90,000 Shares, which will be converted into
options to purchase Lear Common Stock, will become vested and exercisable.
The Employment Agreement provides that: (i) upon the death of Dr. Preston,
the Company will pay to his estate or designated beneficiary his full base
salary for an additional 12 months and any accrued bonus to the date of death;
(ii) upon termination for disability, Dr. Preston will receive all compensation
payable under the Company's disability and medical plans and programs plus an
additional payment from the Company so that the aggregate amount of salary
continuation from all sources equals his base salary through the remaining term
of the agreement; and (iii) upon termination by Dr. Preston for good reason (as
defined in the Employment Agreement) or by the Company without cause, Dr.
Preston will receive his full base salary and bonuses (calculated based on prior
bonuses) to the end of the term of the Employment Agreement. If the Employment
Agreement is terminated for cause (as defined in the Employment Agreement), or
by Dr. Preston other than for good reason, Dr. Preston is entitled to receive
unpaid salary and benefits, if any, accrued through the effective date of Dr.
Preston's termination.
The Company entered into a change of control termination agreement with
Daniel R. Perkins on May 29, 1996, which provides a severance benefit upon a
termination of employment within two years following a change of control,
payable in a lump sum and equal to his current year's base salary and the
three-year average of incentive bonus payments most recently earned by him. The
Agreement also provides for a continuation of health and medical benefits for a
period of eighteen months following termination, and guarantees continued
employment for six months following the change of control.
The Agreements with Dr. Preston and Mr. Branch provide that they are only
effective upon completion of the Offer and if the Purchasers do not purchase
Shares pursuant to the Offer then such Agreements are void and of no effect and
all plans or arrangements dealing with the employment or termination of Dr.
Preston and Mr. Branch previously in force will continue to apply. In this
connection see "Plans or Arrangements Relating to Employment Termination or a
Change in Control" and "EXECUTIVE DEFERRED COMPENSATION PLAN".
16
<PAGE> 20
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Please refer to the relationships between the Company, Lanty L. Smith and
Precision Fabrics Group, Inc. described under "COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION".
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires directors and certain officers
of the Company, as well as persons who own more than 10% of a registered class
of the Company's equity securities ("Reporting Persons"), to file reports of
ownership and changes in ownership on Forms 3, 4 and 5 with the Securities and
Exchange Commission and NASDAQ.
Based solely upon a review of the copies of such forms furnished to the
Company, or written representations that no Form 5 filings were required, the
Company believes that during the period from July 1, 1994 through June 30, 1995
all Section 16(a) filing requirements applicable to its officers, directors and
greater-than-ten-percent beneficial owners were complied with.
17
