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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
GLOBAL MOTORSPORT GROUP, INC.
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(Name of Registrant as Specified In Its Charter)
--Enter Company Name Here--
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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[LOGO OF GLOBAL MOTORSPORT GROUP, INC. APPEARS HERE]
GLOBAL MOTORSPORT GROUP, INC.
16100 JACQUELINE COURT
MORGAN HILL, CA 95037
Dear Fellow Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders (the
"Annual Meeting") of Global Motorsport Group, Inc. (formerly, Custom Chrome,
Inc.) ("Global Motorsport" or the "Company") which will be held on Wednesday,
November 5, 1997, at 10:00 a.m., local time, at the Company's principal
executive offices in Morgan Hill, California.
At the Annual Meeting, you will be asked to consider and vote upon the
following proposals: (i) the election of five directors of the Company; (ii)
the approval of the Company's 1997 Stock Plan and the reservation of 500,000
shares of Common Stock for issuance thereunder; (iii) the approval of the
Company's 1997 Director Option Plan and the reservation of 50,000 shares of
Common Stock for issuance thereunder; and (iv) the ratification of KPMG Peat
Marwick LLP as independent auditors of the Company for the year ending
January 31, 1998.
The enclosed Proxy Statement more fully describes the details of the
business to be conducted at the Annual Meeting.
The Company's Board of Directors has approved the proposals and recommends
that you vote IN FAVOR OF each such proposal.
After reading the Proxy Statement, please mark, date, sign and return, as
soon as possible the enclosed proxy card in the accompanying reply envelope.
YOUR SHARES CANNOT BE VOTED UNLESS YOU SIGN, DATE AND RETURN THE ENCLOSED
PROXY, OR ATTEND THE ANNUAL MEETING IN PERSON.
A copy of the Company's 1997 Annual Report is also enclosed.
We look forward to seeing you at the Annual Meeting.
Sincerely yours,
Ignatius J. Panzica
Chairman of the Board of Directors,Chief
Executive Officer and President
Morgan Hill, California
September 17, 1997
IMPORTANT
PLEASE MARK, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT AT YOUR EARLIEST
CONVENIENCE IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE SO THAT IF YOU ARE
UNABLE TO ATTEND THE ANNUAL MEETING, YOUR SHARES MAY BE VOTED.
<PAGE>
GLOBAL MOTORSPORT GROUP, INC.
----------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 5, 1997
----------------------------------------------
The Annual Meeting of Stockholders (the "Annual Meeting") of Global
Motorsport Group, Inc. (formerly, Custom Chrome, Inc.) ("Global Motorsport" or
the "Company") will be held at the Company's principal executive offices at
16100 Jacqueline Court, Morgan Hill, California 95037, on Wednesday, November
5, 1997, at 10:00 a.m., for the following purposes:
1. To elect five (5) directors to hold office until the next Annual Meeting
of Stockholders and until their respective successors are duly elected
and qualified. The nominees are Ignatius J. Panzica, James J. Kelly,
Jr., Lionel M. Allan, Joseph F. Keenan and Joseph Piazza;
2. To approve the Company's 1997 Stock Plan and the reservation of 500,000
shares of Common Stock for issuance thereunder;
3. To approve the Company's 1997 Director Option Plan and the reservation
of 50,000 shares of Common Stock for issuance thereunder;
4. To ratify the appointment of KPMG Peat Marwick LLP as independent
auditors of the Company for the year ending January 31, 1998; and
5. To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on September 15, 1997,
are entitled to receive notice of and to vote at the Annual Meeting.
All stockholders are cordially invited to attend the Annual Meeting in
person. However, to assure your representation at the meeting, please
carefully read the accompanying Proxy Statement which describes the matters to
be voted upon at the Annual Meeting and sign, date and return the enclosed
proxy card in the reply envelope provided. Should you receive more than one
proxy because your shares are registered in different names and addresses,
each proxy should be returned to assure that all your shares will be voted. If
you attend and vote at the Annual Meeting, your proxy vote will be revoked
automatically and only your vote at the Annual Meeting will be counted. The
prompt return of your proxy card will assist us in preparing for the Annual
Meeting.
By Order of the Board of Directors
James J. Kelly, Jr.
Executive Vice President, Finance, Chief
Financial Officer and Secretary
Morgan Hill, California
September 17, 1997
<PAGE>
GLOBAL MOTORSPORT GROUP, INC.
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PROXY STATEMENT
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INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of Global Motorsport Group, Inc.
(formerly, Custom Chrome, Inc.), a Delaware corporation ("Global Motorsport"
or the "Company"), with principal executive offices at 16100 Jacqueline Court,
Morgan Hill, California 95037, to be voted upon at the Annual Meeting of
Stockholders on Wednesday, November 5, 1997 (the "Annual Meeting") and at any
adjournment or adjournments thereof.
These proxy solicitation materials were mailed on or about September 17,
1997 to all stockholders entitled to vote at the meeting.
REVOCABILITY OF PROXIES
Any stockholder giving a proxy pursuant to this solicitation may revoke it
at any time prior to exercise of such proxy by providing written notice of
such revocation to the Secretary of the Company at its offices at 16100
Jacqueline Court, Morgan Hill, California 95037, or by providing a duly
executed proxy bearing a later date, or by attending the Annual Meeting and
voting in person.
RECORD DATE; VOTING AND SOLICITATION
Stockholders of record at the close of business on September 15, 1997 (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting. As
of the close of business on the Record Date, the Company had approximately
5,301,767 shares of Common Stock outstanding and entitled to vote and
approximately 277 stockholders of record. Each holder of Common Stock is
entitled to one vote for each share held as of the record date. All votes will
be tabulated by the inspector of election appointed for the meeting, who will
separately tabulate affirmative and negative votes, abstentions and broker
non-votes. Abstentions will be counted towards the tabulation of votes cast on
proposals presented to the stockholders and will have the same effect as
negative votes, whereas broker non-votes will not be counted for purposes of
determining whether a proposal has been approved or not.
The cost of soliciting these proxies, consisting of the printing, handling
and mailing of the proxy card and related material, and the actual expense
incurred by brokerage houses, custodians, nominees and fiduciaries in
forwarding proxy material to the beneficial owners of stock, will be paid by
the Company. The Company estimates that the cost of soliciting these proxies
will not exceed $15,000. In order to assure a majority vote will be present in
person or by proxy at the Annual Meeting, it may be necessary for certain
officers, directors, regular employees and other representatives of the
Company to solicit proxies by telephone, facsimile, telegraph or in person.
These persons will receive no extra compensation for their services. The
Company also reserves the right to have an outside solicitor conduct the
solicitation of proxies and to pay such solicitor for its services.
The Annual Report of the Company for the fiscal year ended January 31, 1997
has been mailed to all stockholders entitled to notice of and to vote at the
Annual Meeting. The Annual Report is not incorporated into this Proxy
Statement and is not considered proxy soliciting material.
STOCKHOLDER PROPOSALS
Under the present rules of the Securities and Exchange Commission
("Commission"), the deadline for stockholders to submit proposals to be
considered for inclusion in the Company's Proxy Statement for the next year's
Annual Meeting of Stockholders is expected to be July 8, 1998. Such proposals
may be included in next year's Proxy Statement if they comply with certain
rules and regulations promulgated by the Commission.
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
At the Annual Meeting, five (5) directors will be elected by stockholders to
serve until the next Annual Meeting and until their successors are elected and
qualified. THE BOARD OF DIRECTORS WILL VOTE ALL PROXIES RECEIVED BY THEM IN
FAVOR OF THE FIVE (5) NOMINEES LISTED BELOW UNLESS OTHERWISE INSTRUCTED IN
WRITING ON SUCH PROXY. In the event any nominee is unable to or declines to
serve as a director at the time of the Annual Meeting, the proxies will be
voted for an additional nominee who will be designated by the current Board of
Directors to fill the vacancy. As of the date of this Proxy Statement, the
Board of Directors is not aware of any nominee who is unable or will decline
to serve as director.
The five nominees receiving the highest number of votes in person or by
proxy at the Annual Meeting will be elected as directors.
INFORMATION WITH RESPECT TO NOMINEES
Set forth below is information regarding the nominees, including information
furnished by them as to their principal occupation at present and for the last
five years, certain other directorships held by them and their ages as of
August 31, 1997:
<TABLE>
<CAPTION>
NOMINEES POSITION(S) WITH THE COMPANY AGE
-------- ---------------------------- ---
<C> <C> <S>
Ignatius J. Panzica Chairman of the Board of Directors; 54
Chief Executive Officer and President
James J. Kelly, Jr. Executive Vice President, Finance; 46
Chief Financial Officer, Secretary and Director
Joseph F. Keenan Director 56
Lionel M. Allan Director 53
Joseph Piazza Director 62
</TABLE>
IGNATIUS ("NACE") J. PANZICA is a co-founder of the Company and has been
President of the Company since February 1991, Chief Executive Officer since
September 1991 and Chairman of the Board since January 1994. Mr. Panzica
served as Vice President, Operations of the Company from 1975 to 1991 and has
been a member of the Board of Directors of the Company since 1975.
JAMES J. KELLY, JR. has served as Executive Vice President, Finance of the
Company since November 1995, Vice President, Finance and Chief Financial
Officer of the Company since March 1992, Secretary of the Company since June
1992 and as a Director of the Company since July 1993. Prior to joining the
Company in March 1992, Mr. Kelly served as Vice President, Finance and Chief
Financial Officer of Canadian Marconi Company, an electronics company, for
eight years. Mr. Kelly is a member of the American Institute of Certified
Public Accountants, the California Society of Certified Public Accountants and
the Financial Executives Institute.
JOSEPH F. KEENAN has served as a Director of the Company since July 1993.
Mr. Keenan is currently in private law practice in San Francisco, California.
From 1989 to 1992, Mr. Keenan served as President and Chief Executive Officer
of Data East U.S.A. Inc., a privately owned manufacturer of coin operated and
home video electronics games. Mr. Keenan has also been a principal of Wilkes
Bashford Ltd., a specialty retailer of clothing and accessories in Northern
California. From 1980 to 1984, Mr. Keenan held the positions of President and
Chief Executive Officer at Pizza Time Theater, Inc. and, from 1974 to 1980
served as President at Atari, Inc.
LIONEL M. ALLAN has served as a Director of the Company since June 1994. For
more than five years, Mr. Allan has been President of Allan Advisors, Inc., a
board and legal consulting firm. Mr. Allan is a director (and in the past
served as Chairman of the Board) of KTEH Public Television Channel 54, in San
Jose, California, a director of Accom, Inc., a digital video systems company,
and a director of Catalyst Semiconductor, Inc., a semiconductor company.
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JOSEPH PIAZZA has served as a Director of the Company since April 1996. From
1989 until October 1992, Mr. Piazza served as Executive Vice President of Lacy
Diversified Industries, a privately-owned holding company, which owns Rocky
Cycle Co., a motorcycle parts and accessory distribution company. From 1975 to
1986, Mr. Piazza also served as President and Chief Executive Officer of Rocky
Cycle Co.
BOARD MEETINGS AND COMMITTEES
The Board of Directors held meetings or acted by written consent a total of
nine (9) times during the year ended January 31, 1997. The Company has an
Audit Committee and a Compensation Committee of the Board of Directors. Each
incumbent director attended at least 75% of the aggregate number of meetings
of the Board of Directors and of the Committees on which such directors served
and that were held during the period that such individual was a member of the
Board of Directors. There are no family relationships among executive officers
or directors of the Company.
The Audit Committee is primarily responsible for approving the services
performed by the Company's independent auditors and reviewing reports of the
Company's external auditors regarding the Company's accounting practices and
systems of internal accounting controls. This Committee currently consists of
Messrs. Allan and Keenan. The Audit Committee held meetings or acted by
written consent a total of two (2) times during the year ended January 31,
1997.
The Compensation Committee reviews and approves the Company's general
compensation policies, establishes the compensation levels for the Company's
executive officers and is responsible for administration of the Company's
Stock Option Plans. This Committee currently consists of Messrs. Keenan and
Piazza. The Compensation Committee held meetings or acted by written consent a
total of six (6) times during the year ended January 31, 1997.
REMUNERATION OF BOARD OF DIRECTORS
The Company currently pays all non-employee Board members a fee of $5,000
for each full fiscal quarter that they serve as a Board member and also
reimburses such individuals for the expenses incurred in connection with their
attendance at Board and Committee meetings.
The Company's 1995 Stock Option Plan ("1995 Plan") includes an automatic
option grant program under which each individual who first becomes a non-
employee Board member after September 30, 1994 will receive, at the time of
his or her initial election or appointment to the Board, an automatic option
grant to purchase 2,500 shares of Common Stock at an exercise price per share
equal to 100% of the fair market value per share on the grant date. In
addition, at each Annual Meeting of Stockholders, each individual who is to
continue to serve as a non-employee Board member after the meeting will
receive an additional option grant to purchase 2,500 shares of Common Stock.
The initial 2,500 share grant will become exercisable for 25% of the option
shares upon the optionee's completion of one year of Board service measured
from the grant date and will become exercisable for the balance of the option
shares in 36 equal and successive monthly installments upon the optionee's
completion of each additional month of Board service thereafter. Each
additional 2,500 share grant will vest upon the optionee's completion of one
year of Board service measured from the grant date. However, each option will
become immediately exercisable for all the option shares in the event the
Company is acquired by merger or asset sale or there should occur a change in
control of the Company, whether through a successful tender offer for more
than 50% of the outstanding Common Stock or a change in the majority of the
Board by one or more proxy contests. Each option will have a maximum term of
10 years, subject to earlier termination upon the optionee's cessation of
Board service. No further options will be granted to non-employee directors
under the 1995 Plan.
The 1997 Director Option Plan (the "Director Plan") was adopted by the Board
of Directors on April 1, 1997 and is being submitted for approval by the
stockholders at this Annual Meeting. The Director Plan provides
3
<PAGE>
for the automatic grant on the date of each Annual Meeting of Stockholders of
nonstatutory stock options to non-employee directors who will continue as a
director of the Company following such Annual Meeting of Stockholders. See
"Proposal No. 3--Approval of the 1997 Director Option Plan."
PROPOSAL NO. 2
APPROVAL OF THE 1997 STOCK PLAN
On April 1, 1997, the Board of Directors adopted the 1997 Stock Plan (the
"Plan") and reserved 500,000 shares of Common Stock for issuance thereunder
subject to stockholder approval. As of August 31, 1997, options to purchase
389,000 shares of Common Stock and no stock purchase rights had been granted
pursuant to the Plan.
At the Annual Meeting, the stockholders are being asked to approve the Plan
and the reservation of shares thereunder.
SUMMARY OF THE PLAN
General. The purpose of the Plan is to attract and retain the best available
personnel for positions of substantial responsibility with the Company, to
provide additional incentive to the employees, directors and consultants of
the Company and to promote the success of the Company's business. Options and
stock purchase rights may be granted under the Plan. Options granted under the
Plan may be either "incentive stock options," as defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or nonstatutory stock
options.
Administration. The Plan may generally be administered by the Board or the
Committee appointed by the Board (as applicable, the "Administrator").
Eligibility; Limitations. Nonstatutory stock options and stock purchase
rights may be granted under the Plan to employees, directors and consultants
of the Company and any parent or subsidiary of the Company. Incentive stock
options may be granted only to employees. The Administrator, in its
discretion, selects the employees, directors and consultants to whom options
and stock purchase rights may be granted, the time or times at which such
options and stock purchase rights shall be granted, and the number of shares
subject to each such grant.
Section 162(m) of the Code places limits on the deductibility for federal
income tax purposes of compensation paid to certain executive officers of the
Company. In order to preserve the Company's ability to deduct the compensation
income associated with options granted to such persons, the Plan provides that
no employee, director or consultant may be granted, in any fiscal year of the
Company, options to purchase more than 100,000 shares of Common Stock.
Notwithstanding this limit, however, in connection with such individual's
initial employment with the Company, he or she may be granted options to
purchase up to an additional 100,000 shares of Common Stock.
Terms and Conditions of Options. Each option is evidenced by a stock option
agreement between the Company and the optionee, and is subject to the
following additional terms and conditions:
(a) Exercise Price. The Administrator determines the exercise price of
options at the time the options are granted. The exercise price of an
incentive stock option may not be less than 100% of the fair market
value of the Common Stock on the date such option is granted; provided,
however, the exercise price of an incentive stock option granted to a
10% stockholder may not be less than 110% of the fair market value of
the Common Stock on the date such option is granted. The fair market
value of the Common Stock is generally determined with reference to the
closing sale price for the Common Stock (or the closing bid if no sales
were reported) on the last market trading day prior to the date the
option is granted.
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(b) Exercise of Option; Form of Consideration. The Administrator determines
when options become exercisable, and may in its discretion, accelerate
the vesting of any outstanding option. Stock options granted under the
Plan generally vest and become exercisable over four years. The means
of payment for shares issued upon exercise of an option is specified in
each option agreement. The Plan permits payment to be made by cash,
check, promissory note, other shares of Common Stock of the Company
(with some restrictions), cashless exercises, a reduction in the amount
of any Company liability to the optionee, any other form of
consideration permitted by applicable law, or any combination thereof.
(c) Term of Option. The term of an incentive stock option may be no more
than ten (10) years from the date of grant; provided that in the case
of an incentive stock option granted to a 10% stockholder, the term of
the option may be no more than five (5) years from the date of grant.
No option may be exercised after the expiration of its term.
(d) Termination of Employment. If an optionee's employment or consulting
relationship terminates for any reason (other than death or
disability), then all options held by the optionee under the Plan
expire on the earlier of (i) the date set forth in his or her notice of
grant or (ii) the expiration date of such option. To the extent the
option is exercisable at the time of such termination, the optionee may
exercise all or part of his or her option at any time within the time
specified in optionee's agreement or if no such time is specified,
three (3) months following such termination.
(e) Death or Disability. If an optionee's employment or consulting
relationship terminates as a result of death or disability, then all
options held by such optionee under the Plan expire on the earlier of
(i) 12 months from the date of such termination or (ii) the expiration
date of such option. The optionee (or the optionee's estate or the
person who acquires the right to exercise the option by bequest or
inheritance), may exercise all or part of the option at any time before
such expiration to the extent that the option was exercisable at the
time of such termination.
(f) Nontransferability of Options: Options granted under the Plan are
generally not transferable other than by will or the laws of descent
and distribution, and may be exercised during the optionee's lifetime
only by the optionee.
(g) Other Provisions: The stock option agreement may contain other terms,
provisions and conditions not inconsistent with the Plan as may be
determined by the Administrator.
Stock Purchase Rights. In the case of stock purchase rights, unless the
Administrator determines otherwise, the Restricted Stock Purchase Agreement
shall grant the Company a repurchase option exercisable upon the voluntary or
involuntary termination of the purchaser's employment with the Company for any
reason (including death or disability). The purchase price for Shares
repurchased pursuant to the Restricted Stock Purchase Agreement shall be the
original price paid by the purchaser and may be paid by cancellation of any
indebtedness of the purchaser to the Company. The repurchase option shall
lapse at a rate determined by the Administrator.
Adjustments Upon Changes in Capitalization. In the event that the stock of
the Company changes by reason of any stock split, reverse stock split, stock
dividend, combination, reclassification or other similar change in the capital
structure of the Company effected without the receipt of consideration,
appropriate adjustments shall be made in the number and class of shares of
stock subject to the Plan, the number and class of shares of stock subject to
any option or stock purchase right outstanding under the Plan, and the
exercise price of any such outstanding option or stock purchase right.
In the event of a liquidation or dissolution, any unexercised options or
stock purchase rights will terminate. The Administrator may, in its discretion
provide that each optionee shall have the right to exercise all of the
optionee's options and stock purchase rights, including those not otherwise
exercisable, until the date fifteen (15) days prior to the consummation of the
liquidation or dissolution.
In connection with any merger or acquisition of assets of the Company, each
outstanding option or stock purchase right shall be assumed or an equivalent
option or right substituted by the successor corporation. If the successor
corporation refuses to assume the options and stock purchase rights or to
substitute substantially
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<PAGE>
equivalent options and stock purchase rights, the optionee shall have the
right to exercise the option or stock purchase right as to all the optioned
stock, including shares not otherwise exercisable. In such event, the
Administrator shall notify the optionee that the option or stock purchase
right is fully exercisable for fifteen (15) days from the date of such notice
and that the option or stock purchase right terminates upon expiration of such
period.
In the event of a change of control of the Company, the optionee shall have
the right to exercise the option as to all the optioned stock, including
shares not otherwise exercisable. In such event, the Administrator shall
notify the optionee that the option is fully exercisable for fifteen (15) days
from the date of such notice and that the option terminates upon expiration of
such period.
Amendment and Termination of the Plan. The Board may amend, alter, suspend
or terminate the Plan, or any part thereof, at any time and for any reason.
However, the Company shall obtain stockholder approval for any amendment to
the Plan to the extent necessary to comply with Section 162(m) and Section 422
of the Code, or any similar rule or statute. No such action by the Board or
stockholders may alter or impair any option or stock purchase right previously
granted under the Plan without the written consent of the optionee. Unless
terminated earlier, the Plan shall terminate ten years from the date of its
approval by the stockholders or the Board of the Company, whichever is
earlier.
FEDERAL INCOME TAX CONSEQUENCES
Incentive Stock Options. An optionee who is granted an incentive stock
option does not recognize taxable income at the time the option is granted or
upon its exercise, although the exercise may subject the optionee to the
alternative minimum tax. Upon a disposition of the shares more than two years
after grant of the option and one year after exercise of the option, any gain
or loss is treated as long-term capital gain or loss. On August 5, 1997,
legislation was enacted which reduced to twenty percent (20%) the maximum rate
of tax on long-term capital gains on most capital assets held by an individual
more than eighteen (18) months, and under which gain on most capital assets
held by an individual more than one (1) year and up to eighteen (18) months
are subject to tax at a maximum rate of twenty-eight percent (28%). If these
holding periods are not satisfied, the optionee recognizes ordinary income at
the time of disposition equal to the difference between the exercise price and
the lower of (i) the fair market value of the shares at the date of the option
exercise or (ii) the sale price of the shares. Any gain or loss recognized on
such a premature disposition of the shares in excess of the amount treated as
ordinary income is treated as long-term or short-term capital gain or loss,
depending on the holding period. A different rule for measuring ordinary
income upon such a premature disposition may apply if the optionee is also an
officer, director, or 10% stockholder of the Company. The Company is entitled
to a deduction in the same amount as the ordinary income recognized by the
optionee.
Nonstatutory Stock Options. An optionee does not recognize any taxable
income at the time he or she is granted a nonstatutory stock option. Upon
exercise, the optionee recognizes taxable income generally measured by the
excess of the then fair market value of the shares over the exercise price.
Any taxable income recognized in connection with an option exercise by an
employee of the Company is subject to tax withholding by the Company. The
Company is entitled to a deduction in the same amount as the ordinary income
recognized by the optionee. Upon a disposition of such shares by the optionee,
any difference between the sale price and the optionee's exercise price, to
the extent not recognized as taxable income as provided above, is treated as
long-term or short-term capital gain or loss, depending on the holding period.
Stock Purchase Rights. Stock purchase rights will generally be taxed in the
same manner as nonstatutory stock options. However, restricted stock is
generally purchased upon the exercise of a stock purchase right. At the time
of purchase, restricted stock is subject to a "substantial risk of forfeiture"
within the meaning of Section 83 of the Code. As a result, the purchaser will
not recognize ordinary income at the time of purchase. Instead, the purchaser
will recognize ordinary income on the dates when a stock ceases to be subject
to a substantial risk of forfeiture. The stock will generally cease to be
subject to a substantial risk of forfeiture when it is no longer subject to
the Company's right to repurchase the stock upon the purchaser's termination
of employment with the
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Company. At such times, the purchaser will recognize ordinary income measured
as the difference between the purchase price and the fair market value of the
stock on the date the stock is no longer subject to a substantial risk of
forfeiture.
The following table sets forth the number of stock options granted under the
Plan to (i) the Named Executive Officers (as defined below in Executive
Compensation and Related Information), (ii) all current executive officers as
a group and (iii) all employees, including all current officers who are not
executive officers, as a group.
1997 STOCK PLAN
BENEFITS TABLE
<TABLE>
<CAPTION>
OPTIONS
NAME AND POSITION GRANTED (#)
----------------- -----------
<S> <C>
Ignatius J. Panzica ............................................ 110,000
Chairman of the Board, President and Chief Executive Officer
James J. Kelly, Jr.............................................. 35,000
Executive Vice President, Finance, Chief Financial Officer and
Secretary
All current executive officers as a group....................... 235,000
All employees, including all current officers who are not
executive officers, as a group................................. 154,000
</TABLE>
REQUIRED VOTE
At the Annual Meeting, the stockholders are being asked to approve the
adoption of the 1997 Stock Plan. The affirmative vote of the holders of a
majority of the shares represented and voting at the Annual Meeting will be
required to approve the adoption of the 1997 Stock Plan
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE APPROVAL
OF THE COMPANY'S 1997 STOCK PLAN.
PROPOSAL NO. 3
APPROVAL OF THE 1997 DIRECTOR OPTION PLAN
On April 1, 1997, the Board of Directors adopted the 1997 Director Option
Plan (the "Director Plan") and reserved 50,000 shares of Common Stock for
issuance thereunder subject to stockholder approval. As of August 31, 1997, no
options to purchase stock had been granted pursuant to the Director Plan.
At the Annual Meeting, the stockholders are being asked to approve the
Director Plan and the reservation of shares thereunder.
SUMMARY OF THE DIRECTOR PLAN
General. The purpose of the Director Plan is to attract and retain the best
available personnel for positions for service as non-employee directors of the
Company, to provide additional incentive to the non-employee directors of the
Company and to encourage their continued service on the Board of Directors.
Administration; Option Grants. The Director Plan provides for the automatic
grant of a nonstatutory stock options as follows: with respect to any person
who first becomes a non-employee director subsequent to the date on which the
Director Plan was approved by the Board (excluding any person who, immediately
prior to becoming a non-employee director, was an employee director of the
Company), the Director Plan provides for the automatic grant of a nonstatutory
stock option to purchase 2,500 shares on the date on which the person first
becomes a non-employee director. In addition, at each Annual Meeting of
Stockholders, non-employee directors are automatically granted a nonstatutory
stock option to purchase 2,500 shares of Common Stock.
7
<PAGE>
Terms and Conditions of Options. Each option is evidenced by a director
option agreement between the Company and the optionee, and is subject to the
following additional terms and conditions:
(a) Exercise Price. The exercise price of options granted under the
Director Plan is 100% of the fair market value per share of the Common
Stock, generally determined with reference to the closing sale price
for the Common Stock (or the closing bid if no sales were reported) on
the last market trading day prior to the date the option is granted.
(b) Exercise of Option; Form of Consideration. The shares subject to the
Option shall vest as to 25% of the optioned stock one year from the
date of grant, and 1/48 of the optioned stock shall vest each month
thereafter, provided the person continues to serve as a director on
such dates. The means of payment for shares issued upon exercise of an
option is specified in each option agreement. The Director Plan permits
payment to be made by cash, check, other shares of Common Stock of the
Company (with some restrictions), cashless exercises or any combination
thereof.
(c) Term of Option. The term the option shall be ten (10) years from the
date of grant. No option may be exercised after the expiration of its
term.
(d) Termination of Employment. If an optionee's status as a director
terminates for any reason (other than death or disability), then all
options held by the optionee under the Director Plan expire on the
earlier of (i) the date set forth in his or her notice of grant or (ii)
the expiration date of such option. To the extent the option is
exercisable at the time of such termination, the optionee may exercise
all or part of his or her option at any time within three (3) months
following the date of such termination.
(e) Death or Disability. If an optionee's status as a director terminates
as a result of death or disability, then all options held by such
optionee under the Director Plan expire on the earlier of (i) 12 months
from the date of such termination or (ii) the expiration date of such
option. The optionee (or the optionee's estate or the person who
acquires the right to exercise the option by bequest or inheritance),
may exercise all or part of the option at any time before such
expiration to the extent that the option was exercisable at the time of
such termination.
(f) Nontransferability of Options: Options granted under the Director Plan
are not transferable other than by will or the laws of descent and
distribution, and may be exercised during the optionee's lifetime only
by the optionee.
(g) Other Provisions: The director option agreement may contain other
terms, provisions and conditions not inconsistent with the Director
Plan as may be determined by the Administrator.
Adjustments Upon Changes in Capitalization. In the event that the stock of
the Company changes by reason of any stock split, reverse stock split, stock
dividend, combination, reclassification or other similar change in the capital
structure of the Company effected without the receipt of consideration,
appropriate adjustments shall be made in the number and class of shares of
stock subject to the Director Plan, the number and class of shares of stock
subject to any option outstanding under the Director Plan, and the exercise
price of any such outstanding option.
In the event of a liquidation or dissolution, any unexercised options will
terminate.
In the event of a merger of the Company or the sale of substantially all of
the assets of the Company, each option may be assumed or an equivalent option
substituted for by the successor corporation. If an option is assumed or
substituted for by the successor corporation, it shall continue to vest as
provided in the Director Plan. However, if a non-employee director's status as
a director of the Company or the successor corporation, as applicable, is
terminated other than upon a voluntary resignation by the non-employee
director, each option granted to such non-employee director shall become fully
vested and exercisable. If the successor corporation does not agree to assume
or substitute for the option, each option shall become fully vested and
exercisable for a period of thirty days from the date the Board notifies the
optionee of the option's full exercisability, after which period the option
shall terminate.
8
<PAGE>
Amendment and Termination of the Director Plan. The Board may amend, alter,
suspend or terminate the Director Plan, or any part thereof, at any time and
for any reason. However, the Company shall obtain stockholder approval for any
amendment to the Director Plan to the extent necessary to comply with
applicable laws. No such action by the Board or stockholders may alter or
impair any option previously granted under the Director Plan without the
written consent of the optionee. Unless terminated earlier, the Director Plan
shall terminate ten years from the date of its approval by the stockholders or
the Board of the Company, whichever is earlier.
FEDERAL INCOME TAX CONSEQUENCES
An optionee does not recognize any taxable income at the time he or she is
granted a nonstatutory stock option. Upon exercise, the optionee recognizes
taxable income generally measured by the excess of the then fair market value
of the shares over the exercise price. Any taxable income recognized in
connection with an option exercise by an employee of the Company is subject to
tax withholding by the Company. The Company is entitled to a deduction in the
same amount as the ordinary income recognized by the optionee. Upon a
disposition of such shares by the optionee, any difference between the sale
price and the optionee's exercise price, to the extent not recognized as
taxable income as provided above, is treated as long-term or short-term
capital gain or loss, depending on the holding period.
REQUIRED VOTE
At the Annual Meeting, the stockholders are being asked to approve the
adoption of the 1997 Director Option Plan. The affirmative vote of the holders
of a majority of the shares represented and voting at the Annual Meeting will
be required to approve the adoption of the 1997 Director Option Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE APPROVAL
OF THE COMPANY'S 1997 DIRECTOR OPTION PLAN.
PROPOSAL NO. 4
RATIFICATION OF SELECTION OF
INDEPENDENT AUDITORS
The firm of KPMG Peat Marwick LLP served as independent auditors for the
Company for the year ended January 31, 1997. The Board of Directors has
selected that firm to continue in this capacity for the current fiscal year.
The Company is asking the stockholders to ratify the selection by the Board of
Directors of KPMG Peat Marwick LLP, as independent auditors, to audit the
accounts and records of the Company for the year ending January 31, 1998, and
to perform other appropriate services. A representative of KPMG Peat Marwick
LLP is expected to be present at the Annual Meeting to respond to
stockholders' questions, and if he or she so desires, will be given an
opportunity to make a brief statement.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE RATIFICATION OF THE
SELECTION OF KPMG PEAT MARWICK LLP. In the event that a majority of the shares
voted at the Annual Meeting do not vote for the ratification, the Board of
Directors will reconsider such selection. Under all circumstances, the Board
of Directors retains the corporate authority to change its independent
auditors at a later date.
9
<PAGE>
EXECUTIVE COMPENSATION AND RELATED INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the compensation earned by the Company's
Chief Executive Officer and the Company's only other executive officer whose
compensation for the year ended January 31, 1997 was at least $100,000 for
services rendered in all capacities to the Company (the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------- ------------
NUMBER OF
YEAR SECURITIES
ENDED UNDERLYING ALL OTHER
JANUARY 31, SALARY ($)(1) BONUS($) OPTIONS(#) COMPENSATION
----------- ------------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Ignatius J. Panzica..... 1997 328,038 653,910 100,000 500(2)
Chairman of the Board,
President and 1996 337,550 614,805 100,000 500(2)
Chief Executive Officer 1995 325,964 467,126 241,088 500(2)
James J. Kelly, Jr., Di-
rector................. 1997 134,189 5,293(3) 32,250 500(2)
Executive Vice Presi-
dent, Finance, 1996 131,005 4,551(3) 32,250 500(2)
Chief Financial Offi-
cer, Secretary 1995 135,511 12,676(4) 30,000 500(2)
</TABLE>
- --------
(1) Includes (i) salary deferral contributions made by the executive officer
to the Company's 401(k) Plan and (ii) compensation for accrued vacation
time not taken.
(2) Represents matching contributions made by the Company on behalf of such
executive officers to the Company's 401(k) Plan.
(3) Represents forgiveness of interest accrued during calendar year 1995 and
1996 on a loan made to Mr. Kelly by the Company in June 1994. See "Certain
Relationships and Related Transactions."
(4) Includes forgiveness of interest accrued of $2,676 during calendar year
1994 on a loan made to Mr. Kelly by the Company in June 1994 and a cash
bonus of $10,000, which was applied as payment toward the outstanding
principal balance on the loan. See "Certain Relationships and Related
Transactions."
10
<PAGE>
OPTION GRANTS
The following table provides information with respect to the stock option
grants made during the year ended January 31, 1997 to the Named Executive
Officers. No stock appreciation rights were granted to these individuals
during such fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL
RATE OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
--------------------------------------------- -------------------
% OF TOTAL
OPTIONS EXERCISE
GRANTED TO OR BASE
OPTIONS EMPLOYEE IN PRICE EXPIRATION 10%
GRANTED(#) FISCAL YEAR ($/SH)(1) DATE 5% ($)(2) ($)(2)
---------- ----------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Ignatius J. Panzica..... 100,000(3) 29.5% 18.13 09/12/06 1,140,186 2,889,455
James J. Kelly, Jr...... 32,250(4) 9.5% 18.13 09/12/06 367,710 931,849
</TABLE>
- --------
(1) The exercise price may be paid in cash, in shares of Common Stock valued
at fair market value on the exercise date or through a cashless exercise
procedure involving a same-day sale of the purchased shares. The Company
may also finance the option exercise by loaning the optionee sufficient
funds to pay the exercise price for the purchased shares and the federal
and state income tax liability incurred by the optionee in connection with
such exercise.
(2) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by the Securities and Exchange Commission. There is no
assurance provided to any executive officer or any other holder of the
Company's securities that the actual stock price appreciation over the 10-
year option term will be at the assumed 5% and 10% levels or at any other
defined level. Unless the market price of the Common Stock appreciates
over the option term, no value will be realized from the option grants
made to the executive officers.
(3) Such option will become exercisable for 100% of the option shares upon the
optionee's completion of one year of service with the Company, measured
from the September 12, 1996 grant date. However, the option will become
immediately exercisable for all the option shares in the event the Company
is acquired by a merger or asset sale, unless the option is assumed or
replaced by the acquiring entity. The Compensation Committee also has the
authority to provide for the automatic acceleration of such option in the
event there is a hostile take-over of the Company, whether by successful
tender offer for more than 50% of the Company's outstanding voting
securities or contested election of Board membership. The option has a
maximum term of 10 years, subject to earlier termination in the event of
the optionee's cessation of employment with the Company.
(4) Options will become exercisable for 25% of the option shares upon
optionee's completion of one year of service with the Company, measured
from the September 12, 1996 grant date, and will become exercisable for
the balance of the shares in 36 equal and successive monthly installments
upon the optionee's completion of each additional month of service
thereafter. However, the option will become immediately exercisable for
all the option shares in the event the Company is acquired by a merger or
asset sale, unless the option is assumed or replaced by the acquiring
entity. The Compensation Committee also has the authority to provide for
the automatic acceleration of such option in the event there is a hostile
take-over of the Company, whether by successful tender offer for more than
50% of the Company's outstanding voting securities or contested election
of Board membership. The option has a maximum term of 10 years, subject to
earlier termination in the event of the optionee's cessation of employment
with the Company.
11
<PAGE>
OPTION EXERCISES AND HOLDINGS
The table below sets forth information concerning the exercise of options
during the fiscal year ended January 31, 1997 and unexercised options held as
of the end of such year by the Named Executive Officers. No stock appreciation
rights were exercised during such fiscal year or outstanding as of the end of
that fiscal year.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
SHARES UNEXERCISED IN-THE-MONEY
ACQUIRED ON AGGREGATE OPTIONS AT OPTIONS AT
EXERCISE VALUE FY-END (#) FY-END($)(2)
NAME (#) REALIZED($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Ignatius J. Panzica..... 133,332 1,176,317 323,385/70,204 227,339/207,880
James J. Kelly, Jr...... 14,081 156,799 29,447/31,640 44,565/113,394
</TABLE>
- --------
(1) Value Realized is equal to the market price of the purchased shares at the
time the option is exercised, less the aggregate exercise price paid for
such shares. Value Realized does not take into account the federal and
state income taxes payable by the individual in connection with the option
exercise or the subsequent sale of the shares.
(2) Market price at fiscal year end ($19.25) less exercise price. For purposes
of this calculation, the fiscal year end market price of the shares is
deemed to be the closing sale price of the Company's Common Stock as
reported on the Nasdaq National Market on Wednesday, January 31, 1997.
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
IGNATIUS J. PANZICA entered into an employment agreement with the Company in
August 1989. This agreement, which was subsequently amended in September 1991,
provides for an employment relationship terminable at will by either party at
any time for any reason. Pursuant to this agreement, Mr. Panzica is entitled
to a minimum level of annual base salary, which as a result of periodic
increases authorized by the Compensation Committee is at $300,000, effective
February 1, 1994. In addition, Mr. Panzica is to be paid an annual bonus based
upon the Company's operating income for each fiscal year. Under the bonus
formula, Mr. Panzica will earn an aggregate bonus each year equal to 3% of
operating income up to $5,400,000, 4% of operating income between $5,400,000
and $8,000,000 and 5% of operating income in excess of $8,000,000. Operating
income is defined as the consolidated net income of the Company and its
subsidiaries, as reflected in the Company's audited financial statements, but
adjusted to exclude extraordinary gains or losses and to add back certain
nonrecurring charges, interest on long-term debt, income taxes and
amortization and depreciation. The bonus will be payable in a lump sum
following the close of the fiscal year for which earned. When the cumulative
gross amounts paid to Mr. Panzica after February 1, 1991 on account of salary
in excess of $125,000 per year for fiscal years through January 31, 1994 and
$300,000 per year for fiscal years beginning January 31, 1994 and bonus exceed
$6,093,000, no further bonuses under this agreement will be payable.
JAMES J. KELLY, JR. entered into an employment agreement with the Company in
March 1992, when he first joined the Company as Chief Financial Officer.
Pursuant to that agreement, Mr. Kelly is entitled to a minimum level of annual
base salary, which as a result of periodic increases authorized by the
Compensation Committee is at $125,000 effective March 1, 1994, plus a bonus of
up to 20% of his base salary awarded in the sole discretion of the
Compensation Committee.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
The members of the Board of Directors, the executive officers of the Company
and persons who hold more than ten percent (10%) of the Company's outstanding
Common Stock are subject to the reporting requirements
12
<PAGE>
of Section 16(a) of the Securities Exchange Act of 1934, which requires such
individuals to file reports with respect to their ownership of and
transactions in the Company's securities. Officers, directors and greater than
ten percent (10%) stockholders are required to furnish the Company with copies
of all such reports they file.
Based upon the copies of those reports furnished to the Company and written
representations that no other reports were required to be filed, the Company
believes that all reporting requirements under Section 16(a) for the year
ended January 31, 1997 were met in a timely manner by executive officers,
Board members and greater than ten percent (10%) stockholders.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors has general
responsibility for establishing the compensation payable to the Company's
executive officers and other key executives and has the sole and exclusive
authority to administer the Company's 1991, 1995 and 1997 Stock Option Plans
under which grants may be made to such individuals. However, the compensation
payable to the Company's Chief Executive Officer (Mr. Panzica) and the
Company's Chief Financial Officer (Mr. Kelly) was initially established by
direct negotiation between such individuals and the Board of Directors. Those
agreements provide each individual with the right to receive a minimum level
of cash compensation each year, subject to such increases and additional
compensation, whether in the form of cash bonuses or equity incentives, as the
Compensation Committee may deem appropriate. Accordingly, for the year ended
January 31, 1997, the cash compensation paid to Mr. Panzica and Mr. Kelly was
based primarily upon the terms and provisions of their existing employment
agreements, and the additional compensation paid to them for the year ended
January 31, 1997 was determined by the Compensation Committee on the basis of
the factors summarized in this report.
This report is divided into three parts. Part One is a brief description of
the employment agreements in effect for the year ended January 31, 1997 for
Mr. Panzica and Mr. Kelly. Part Two is a discussion of the general
compensation policy which the Compensation Committee has established for the
Company's other officers and key executives and which the Committee took into
account in awarding additional compensation in the form of cash bonuses and
stock option grants to Mr. Panzica and Mr. Kelly. Part Three is a discussion
of the factors which governed the compensation payable to Mr. Panzica as Chief
Executive Officer for the year ended January 31, 1997.
PART ONE--EXISTING EMPLOYMENT AGREEMENTS.
The Board of Directors entered into an employment agreement with Mr. Kelly
in March 1992, when he first joined the Company as Chief Financial Officer.
Pursuant to that agreement, Mr. Kelly is entitled to a minimum base salary of
$10,317 per month, subject to periodic increases as determined by the
Compensation Committee, plus a bonus of up to 20% of his base salary awarded
in the sole discretion of the Compensation Committee.
See "Part Three--CEO Compensation" for a discussion of Mr. Panzica's
employment agreement.
PART TWO--GENERAL COMPENSATION POLICY.
Under the supervision of the Compensation Committee, the Company's
compensation policy is designed to attract and retain qualified key executives
critical to the Company's growth and long-term success. It is the objective of
the Compensation Committee to have a portion of each executive's compensation
contingent upon the Company's performance as well as upon the individual's
personal performance. Accordingly, each executive officer's compensation
package is comprised of three elements: (i) base salary which reflects
individual performance and expertise; (ii) variable performance awards payable
in cash and tied to the achievement of certain performance goals which the
Compensation Committee establishes from time to time for the Company; and
(iii) long-term stock-based incentive awards which are designed to strengthen
the mutuality of interests between the executive officers and the Company's
stockholders. As indicated above, however, a substantial portion of the cash
compensation paid to Messrs. Panzica and Kelly for the year ended January 31,
1997 was established pursuant to their existing employment agreements.
13
<PAGE>
The summary below describes in more detail the factors which the
Compensation Committee considers in establishing each of the three primary
components of the compensation package provided the executive officers.
Base Salary
The level of base salary is established primarily on the basis of the
individual's qualifications and relevant experience, the strategic goals for
which he has responsibility, the compensation levels at companies which
compete with the Company for business and executive talent, and the incentives
necessary to attract and retain qualified management. Base salary is reviewed
annually and, if appropriate, is adjusted to take into account the
individual's performance and to maintain a competitive salary structure.
Company performance does not play a significant role in the determination of
base salary.
Incentive Compensation
Cash bonuses are awarded to executive officers on the basis of their success
in achieving designated personal goals and the Company's success in attaining
certain performance targets, such as earnings growth and stock price
appreciation. The corporate performance goals established for the year ended
January 31, 1997 related primarily to pre-tax profitability growth.
Long-Term Incentive Compensation
The Company has utilized the 1991 Stock Option Plan and the 1995 Stock
Option Plan and will similarly utilize the 1997 Stock Plan to provide
executives and other key employees with incentives to maximize long-term
stockholder value. Awards under these plans by the Compensation Committee take
the form of stock options designed to give the recipient a significant equity
stake in the Company and thereby closely align his interests with those of the
Company's stockholders. Factors considered in making such awards include the
individual's position in the Company, his performance and responsibilities and
internal comparability considerations. In addition, the Compensation Committee
has established certain general guidelines in making option grants to the
executive officers in an attempt to target a fixed number of untested option
shares based upon each individual's position with the Company and his existing
holdings of untested options. However, the Compensation Committee does not
adhere strictly to these guidelines and will vary the size of the option grant
made to each executive officer as it feels the circumstances warrant.
Each option grant allows the officer to acquire shares of Common Stock at a
fixed price per share (the closing selling price on the date of grant) over a
specified period of time (up to 10 years). The options typically vest in
periodic installments over a four-year period, contingent upon the executive
officer's continued employment with the Company. Accordingly, the option will
provide a return to the executive officer only if he remains in the Company's
service, and then only if the market price of the Common Stock appreciates
over the option term.
Tax Information
As a result of federal tax legislation enacted in 1993, a publicly-held
company such as Global Motorsport will not be allowed a federal income tax
deduction for compensation paid to certain executive officers, to the extent
that compensation exceeds $1 million paid to the Company's Chief Executive
Officer and its four other highest paid executive officers. However,
compensation payable to certain executive officers under their existing
employment agreements and outstanding options may be entitled to the
transitional relief provisions of the new law and would not have to be taken
into account for purposes of the $1 million limitation.
14
<PAGE>
PART THREE--CEO COMPENSATION.
Pursuant to the terms of his existing employment agreement with the Company,
Mr. Panzica is entitled to a minimum annual base salary of $300,000. Mr.
Panzica is also entitled to a performance bonus for each fiscal year based
upon the Company's operating income for that year. This bonus is tied to an
escalating percentage of operating income, ranging from 3% of the first
$5,400,000 of operating income to 5% of operating income over $8,000,000. No
further bonuses will become payable to Mr. Panzica under this arrangement once
the sum of (i) his salary in excess of $125,000 per year, beginning with the
1992 fiscal year, and in excess of $300,000 per year, beginning with the 1995
fiscal year, and (ii) the bonuses paid on the basis of the operating income
formula reaches $6,093,000. For a more detailed description of this agreement
and the bonus arrangement, see the section of this Proxy Statement below
entitled "Employment Contracts and Change of Control Arrangements." Based on
this operating income formula, Mr. Panzica earned a bonus in the amount of
$653,910 for the year ended January 31, 1997.
The Compensation Committee also granted Mr. Panzica a stock option for
100,000 shares in September 1996. Such option grant was made to replenish Mr.
Panzica's option holdings to a level which the Compensation Committee believed
appropriate in view of his tenure and position with the Company and the equity
holdings of similarly situated chief executive officers. These options were
subsequently repriced to the fair market value of the Common Stock on April 1,
1997 in connection with Company's option exchange program.
MEMBERS OF THE COMPENSATION COMMITTEE
Joseph F. Keenan
Joseph Piazza
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Mr. Keenan and (since April
1996) Joseph Piazza. Neither Mr. Keenan nor Mr. Piazza was at any time during
the year ended January 31, 1997 or at any other time an officer or employee of
the Company.
No executive officer of the Company serves as a member of the board of
directors or compensation committee of any entity which has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On June 11, 1994, the Company loaned James J. Kelly, Jr., the Executive Vice
President, Finance, Chief Financial Officer, Secretary, and a Director of the
Company, $100,000, at an annual interest rate of 5.64%, compounded annually.
The loan was made for the sole purpose of assisting Mr. Kelly with the
purchase of Mr. Kelly's principal residence in Morgan Hill, California, and
the loan is secured by a Second Deed of Trust on such residence. The entire
principal balance of the loan, together with all accrued and unpaid interest,
was due and payable on July 11, 2001. The Company agreed to forgive the
interest accrued on the unpaid total balance on the loan as a yearly bonus at
the end of each calendar year while the loan remained outstanding; in turn,
75% of the cash portion of any annual bonus received by Mr. Kelly was to be
applied as payment toward the outstanding principal balance on the loan.
During the year ended January 31, 1997, the largest amount outstanding under
Mr. Kelly's loan was $25,000, and on April 15, 1996, Mr. Kelly repaid the
entire remaining amount outstanding under the loan.
15
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total stockholder
returns for the Company, the NASDAQ Total Return Index and the Standard &
Poors Small Cap 600 Index. The graph assumes $100 invested in the Company's
Common Stock and in each index on January 31, 1992 through fiscal year ended
January 31, 1997.
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
1/31/92 1/29/93 1/31/94 1/31/95 1/31/96 1/31/97
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Global Motorsport Group, Inc... $100 $144 $268 $190 $278 $214
NASDAQ Total Return Index...... $100 $133 $131 $123 $174 $227
Standard & Poors Small Cap 600
Index (1)..................... $100 $114 $134 $121 $158 $193
</TABLE>
- --------
(1) The Company has not found a comparable published industry or line of
business index and does not believe it can reasonably identify a peer
group. The comparison with the Standard & Poors Small Cap 600 Index, which
includes the Company, is provided in compliance with Item 8 of Regulation
14A of the Securities and Exchange Act of 1934, as amended.
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
Securities Exchange Act of 1934, as amended, which might incorporate future
filings made by the Company under those statutes, the preceding Compensation
Committee Report on Executive Compensation and Performance Graph are not to be
incorporated by reference into any of those previous filings; nor is such
report or graph to be incorporated by reference into any future filings which
the Company may make under those statues.
16
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company with
respect to the beneficial ownership of the Company's Common Stock as of August
31, 1997 by (i) all persons who are beneficial owners of five percent or more
of the Company's Common Stock, (ii) each director and nominee, (iii) each
executive officer of the Company named in the Summary Compensation Table
above, and (iv) all current directors and executive officers as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS,
IF REQUIRED, OF SHARES PERCENT OF SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED
----------------- ------------------ ------------------
<S> <C> <C>
Ignatius J. Panzica (1) ................ 511,373 10.94%
Global Motorsport Group, Inc.
16100 Jacqueline Court
Morgan Hill, CA 95037
FMR Corp. (2)........................... 526,100 12.91%
82 Devonshire Street
Boston, MA 02109
State of Wisconsin Investment Board (3). 470,300 10.9%
121 E. Wilson Street
Madison, WI 53702
Putnam Investment Management, Inc. (4).. 322,200 7.47%
One Post Office Square
Boston, MA 02109
T. Rowe Price Associates, Inc. (5)...... 313,300 7.26%
100 East Pratt Street
Baltimore, MD 21202
The Prudential Insurance Company of
America (6)............................ 264,800 6.14%
751 Broad Street
Newark, NJ 07102-377
Strong Capital Management, Inc. (7)..... 218,025 5.05%
100 Heritage Reserve
Menomonee Falls, WI 53051
James J. Kelly, Jr. (8)................. 55,461 *
Lionel M. Allan (9)..................... 10,071 *
Joseph F. Keenan (10)................... 5,374 *
Joseph Piazza(11)....................... 1,614 *
All current directors and executive of-
ficers as a group (8 persons) (12)..... 693,836 14.36%
</TABLE>
- -------
* Less than one percent (1%).
(1) Includes 359,840 shares issuable upon the exercise of options which are
currently exercisable or which will become exercisable within 60 days of
August 31, 1997.
(2) Based on a Schedule 13G/A filed on July 9, 1997, by FMR Corp.
(3) Based on a Schedule 13G/A filed on January 24, 1997, by the State of
Wisconsin Investment Board.
(4) Based on a Schedule 13G/A filed on January 30, 1997, by Putnam Investment
Management, Inc.
(5) Based on a Schedule 13G/A filed on January 24, 1997, by T. Rowe Price
Associates, Inc.
(6) Based on a Schedule 13G/A filed on February 5, 1997, by The Prudential
Insurance Company of America.
(7) Based on a Schedule 13G/A filed on March 10, 1997, by Strong Capital
Management, Inc.
(8) Includes 53,448 shares issuable upon the exercise of options which are
currently exercisable or which will become exercisable within 60 days
after August 31, 1997.
(9) Includes 10,071 shares issuable upon the exercise of options which are
currently exercisable or which will become exercisable within 60 days
after August 31, 1997.
(10) Includes 2,874 shares issuable upon the exercise of options which are
currently exercisable or which will become exercisable within 60 days
after August 31, 1997.
(11) Includes 1,614 shares issuable upon the exercise of options which are
currently exercisable or which will become exercisable within 60 days
after August 31, 1997.
(12) Includes 514,837 shares issuable upon the exercise of options which are
currently exercisable or which will become exercisable within 60 days
after August 31, 1997.
17
<PAGE>
OTHER BUSINESS
The Board of Directors is not aware of any other matter which may be
presented for action at the Annual Meeting other than the matters set forth in
this Proxy Statement. Should any other matter requiring a vote of the
stockholders arise, it is intended that the persons named as proxy holders on
the enclosed proxy card will vote the shares represented thereby in accordance
with their best judgment in the interest of the Company. Discretionary
authority with respect to such other matters is granted by the execution of
the enclosed proxy.
By Order of the Board of Directors,
James J. Kelly, Jr.
Executive Vice President,
Finance, Chief Financial Officer
and Secretary
Dated: September 17, 1997
18
<PAGE>
[X] Please mark your votes as in this example
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1. Election of Directors [ ] For [ ] WITHHOLD AUTHORITY TO VOTE NOMINEES: Ignacius J. Panzica
TO VOTE FOR ALL NOMINEES James J. Kelly, Jr.
Lionel M. Allan
Joseph F. Keenan
Joseph Piazza
</TABLE>
FOR all nominees EXCEPT nominee(s) below:
- -----------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FOR AGAINST ABSTAIN
2. Proposal to approve the Company's 1997 Stock Plan
and the reservation of 500,0000 shares of Common
Stock for issuance thereunder. [ ] [ ] [ ]
3. Proposal to approve the Company's 1997 Director
Stock Option Plan and the reservation of 50,000
shares of Common Stock for issuance thereunder. [ ] [ ] [ ]
4. Proposal to ratify the appointment of independent
auditors for fiscal year ending January 31, 1998. [ ] [ ] [ ]
</TABLE>
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED AND IF NO
DIRECTION IS INDICATED, WILL BE VOTED FOR THE ELECTION OF EACH OF THE NOMINEES
AND FOR EACH OF PROPOSAL E, PROPOSAL 3 AND PROPOSAL 4.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF AND PROXY STATEMENT
FOR THE AFORESAID ANNUAL MEETING.
SIGNATURE(S) DATE
------------------------------------------- --------------------
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such. If signer is a corporation, sign in the corporate name
by authorized officer.
<PAGE>
GLOBAL MOTORSPORT GROUP, INC.
(Formerly Custom Chrome, Inc.)
This proxy solicited by the Board of Directors for the
Annual Meeting on November 5, 1997
The undersigned hereby appoints Ignatius J. Panzica and James J. Kelly,
Jr., and each of them, with full powers of substitution, the attorneys and
proxies of the undersigned to attend the Annual Meeting of Stockholders of
Global Motorsport Group, Inc. to be held on November 5, 1997 at 10:00 a.m.,
Pacific Standard Time and at any adjournments thereof, hereby revoking any
proxies heretofore given, to vote all shares of stock of the Company held or
owned by the undersigned as indicated on the proposals as more fully set forth
in the Proxy Statement, and in their discretion upon such other matters as may
come before the meeting.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
