SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
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Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Confidential, for use of the Commmission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
SAFETY COMPONENTS INTERNATIONAL, INC.
-------------------------------------
(Name of Registrant as Specified In Its Charter)
-------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it is determined):
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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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4) Date Filed:
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
2160 North Central Road
Fort Lee, New Jersey 07024
----------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
SEPTEMBER 9, 1998
----------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Safety Components International, Inc. (the "Corporation") will be held at 10:30
A.M., local time, on September 9, 1998, at The Sky Club, 200 Park Avenue, 56th
Floor, New York, New York, for the following purposes:
1. To elect two Class III directors of the Corporation to hold office for
a term expiring at the Annual Meeting of Stockholders occurring in 2001
and until the election and qualification of each of the Class III
director's successor;
2. To approve the amendments to the Safety Components International, Inc.
1994 Stock Option Plan (the "Plan") to reallocate the number of shares
of the Corporation's common stock issuable under the Plan to officers,
key employees and consultants on the one hand and non-employee
directors on the other hand from 1,000,000 and 50,000 shares in the
aggregate, respectively, to 975,000 and 75,000 shares in the aggregate,
respectively;
3. To approve the adoption of the Safety Components International, Inc.
Senior Management Incentive Plan;
4. To approve the adoption of the Safety Components International, Inc.
Stock Appreciation Rights Award Plan;
5. To ratify the appointment of Arthur Andersen LLP as independent
accountants for fiscal year 1999; and
6. To transact such other business as may properly come before the
meeting.
Only holders of record of the Corporation's common stock at the close of
business on July 22, 1998 are entitled to notice of, and to vote at, the meeting
and any adjournment thereof. Such Stockholders may vote in person or by proxy.
STOCKHOLDERS WHO FIND IT CONVENIENT ARE CORDIALLY INVITED TO ATTEND THE
MEETING IN PERSON. IF YOU ARE NOT ABLE TO DO SO AND WISH THAT YOUR STOCK BE
VOTED, YOU ARE REQUESTED TO FILL IN, SIGN, DATE AND RETURN THE ACCOMPANYING
PROXY IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED
STATES.
By Order of the Board of Directors,
GEORGE D. PAPADOPOULOS
Secretary
July 25, 1998
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<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
2160 North Central Road
Fort Lee, New Jersey 07024
----------------------------
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Safety Components International, Inc., a Delaware
corporation (the "Corporation"), of proxies to be used at the Annual Meeting of
Stockholders of the Corporation to be held at 10:30 A.M., local time, on
September 9, 1998, at The Sky Club, 200 Park Avenue, 56th Floor, New York, New
York, and at any adjournment thereof. The purposes of the meeting are:
1. To elect two Class III directors of the Corporation to hold office for
a term expiring at the Annual Meeting of Stockholders occurring in 2001
and until the election and qualification of each of the Class III
director's successor;
2. To approve the amendments to the Safety Components International, Inc.
1994 Stock Option Plan (the "Plan") to reallocate the number of shares
of the Corporation's common stock, par value $.01 per share (the
"Common Stock") issuable under the Plan to officers, key employees and
consultants on the one hand and non-employee directors on the other
hand from 1,000,000 and 50,000 shares in the aggregate, respectively,
to 975,000 and 75,000 shares in the aggregate, respectively;
3. To approve the adoption of the Safety Components International, Inc.
Senior Management Incentive Plan (the "Senior Management Plan");
4. To approve the adoption of the Safety Components International, Inc.
Stock Appreciation Rights Award Plan (the "SAR Plan");
5. To ratify the appointment of Arthur Andersen LLP as independent
accountants for fiscal year 1999; and
6. To transact such other business as may properly come before the
meeting.
If proxy cards in the accompanying form are properly executed and returned,
the shares of Common Stock represented thereby will be voted as instructed on
the proxy. If no instructions are given, such shares will be voted (i) for the
election as Class III directors of the nominees of the Board of Directors named
below; (ii) in favor of the proposal to approve the amendments to the Plan;
(iii) in favor of the proposals to approve the adoption of the Senior Management
Plan and the SAR Plan; and (iv) in the discretion of the Proxies named in the
proxy card on any other proposals to properly come before the meeting or any
adjournment thereof, provided that, the Corporation did not have notice of any
such proposals on or before June 22, 1998 (or, in the event of any adjournment,
within a reasonable time before the Corporation mails its proxy materials for
the current fiscal year). Any proxy may be revoked by a stockholder prior to its
exercise upon written notice to the Secretary of the Corporation, or by the vote
of a stockholder cast in person at the meeting. The approximate date of mailing
of this Proxy Statement is July 29, 1998.
VOTING
Holders of record of Common Stock on July 22, 1998, will be entitled to
vote at the Annual Meeting or any adjournment thereof. A majority of outstanding
shares as of the record date will constitute a quorum for the transaction of
business. As of July 22, 1998 there were 5,144,883 shares of Common Stock
outstanding and entitled to vote. Abstentions and broker non-votes are counted
for purposes of determining the presence or absence of a quorum for the
transaction of business. Each share of Common Stock entitles the holder thereof
to one vote on all matters to come before the Annual Meeting.
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<PAGE>
The favorable vote of a plurality of the votes of the shares of Common
Stock present in person or represented by proxy at the Annual Meeting is
necessary to elect the nominees for Class III directors of the Corporation, and
the favorable vote of a majority of the votes of the shares of Common Stock
present in person or represented by proxy at the Annual Meeting is necessary to
approve the amendment to the Plan and the adoption of the Senior Management Plan
and SAR Plan and to ratify the appointment of Arthur Andersen LLP. Abstentions
are counted as a vote against the proposals being considered, except for the
election of directors as to which they will have no effect. Broker non-votes
will have no effect on the outcome of the proposals set forth above. The Board
of Directors recommends a vote FOR each of the proposals set forth above.
ITEM 1. ELECTION OF DIRECTORS
The Board of Directors is divided into three classes. The term of the
current Class I director, Mr. DioGuardi, expires in 1999; the term of the
current Class II directors, Messrs. Suozzi and Torok, expires in 2000 and the
term of the current Class III directors, Messrs. Zummo and Kaplan, expires at
the Annual Meeting. Directors hold office until the Annual Meeting of
Stockholders of the Corporation in the year in which the term of their class
expires and until their successors have been duly elected and qualified. At each
Annual Meeting of Stockholders of the Corporation, the successors to the class
of directors whose term expires will be elected for a three-year term.
Messrs. Zummo and Kaplan, the nominees for Class III directors, are
currently serving in that capacity and have indicated their willingness to
continue to serve if elected. Unless authority to do so is withheld, the persons
named in the accompanying proxy will vote the shares represented thereby for
such nominees. While it is not anticipated that the nominees will be unable to
serve, if any of the nominees should be unable to act as a director, the persons
named in the accompanying proxy may vote for any substitute nominee proposed by
the Board of Directors (unless authority to vote for the election of the
director is withheld).
Nominees and Continuing Directors
The following is certain information, as of July 22, 1998, with respect to
the nominees for Class III directors and with respect to each other director
whose term of office continues after the Annual Meeting.
NOMINEES FOR CLASS III DIRECTORS
(to be elected to serve until 2001)
Robert A. Zummo. Age 57, Director since 1994. Mr. Zummo has served as
Chairman of the Board, President and Chief Executive Officer of the Corporation
since its inception in January 1994. Mr. Zummo is also the Chief Executive
Officer of Valentec International Corporation, LLC, a wholly-owned limited
liability company of the Corporation (as successor in interest to Valentec
International Corporation) ("Valentec"), which was acquired by the Corporation
in May 1997, and has served in such capacity since 1989. Valentec is a
manufacturer of automotive and defense-related metal components. From 1985 to
1989, Mr. Zummo was President and Chief Executive Officer of General Defense
Corporation, a defense contractor located in Hunt Valley, Maryland, where he
previously served as Executive Vice President and Chief Operating Officer from
1983 to 1985. Mr. Zummo has more than 30 years experience in the defense and
aerospace manufacturing industries.
Jeffrey J. Kaplan. Age 50, Director since February 1997. Mr. Kaplan has
served as Executive Vice President, Chief Financial Officer and a Director of
the Corporation since February 1997. From October 1993 to February 1997, Mr.
Kaplan served as Executive Vice President, Chief Financial Officer and a
Director of International Post Limited ("IPL"), a leading provider of
post-production services for commercial and advertising markets; and he served
as Senior Vice President and Chief Financial Officer of Video Services
Corporation from September 1987 to February 1994. For ten years prior to
September 1987, Mr. Kaplan served as Chief Financial Officer of two public
companies.
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<PAGE>
CLASS II DIRECTORS
(to continue in office until 2000)
Francis X. Suozzi. Age 57, Director since 1994. Mr. Suozzi has served as
the Senior Vice President, Corporate Development of Nabisco Holdings Corporation
since July 1998. From March 1995 until June 1998, Mr. Suozzi served as the
Treasurer and Senior Vice President of Nabisco Holdings Corporation. Prior to
taking such position in March 1995, Mr. Suozzi was a Vice President of RJR
Nabisco, Inc., involved in financings and acquisitions. Mr. Suozzi is also a
director of First Intercontinental Group, an investment banking concern based in
Washington, D.C. Prior to forming First Intercontinental Group in 1991, Mr.
Suozzi was Regional Director of Corporate Finance for Gruntal & Co., a
securities firm headquartered in New York City, from 1988 to 1991. From 1975
through 1984, Mr. Suozzi was a director of Avco Community Developers Inc., a
real estate development company which was publicly traded from 1975 to 1978, and
was also a director of Nashville City Bank from 1979 to 1982.
Robert J. Torok. Age 67, Director since 1994. Until May 1996, when Mr.
Torok retired, Mr. Torok was a Vice President and Partner of Korn/Ferry
International, an executive search firm based in New York City, and had served
in such position since 1980. Prior to 1980, Mr. Torok was Senior Vice President
of Sikorsky Aircraft, a division of United Technologies Corporation, a
diversified manufacturing company based in Hartford, Connecticut, where Mr.
Torok worked from 1958 to 1980. Mr. Torok has 22 years of experience in
engineering, manufacturing and management.
CLASS I DIRECTOR
(to continue in office until 1999)
Joseph J. DioGuardi. Age 58, Director since 1994. Mr. DioGuardi was a
member of the United States House of Representatives from 1985 through 1989,
representing the 20th Congressional District in Westchester County, New York.
Since leaving Congress, Mr. DioGuardi founded and now chairs a non-partisan
foundation named "Truth in Government," aimed at promoting fiscal responsibility
and budgetary reform. Mr. DioGuardi is an international spokesman for human
rights and is Chairman of the Albanian American Civic League. Mr. DioGuardi, a
Certified Public Accountant, has 22 years of public accounting experience with
Arthur Andersen & Co. (currently known as Arthur Andersen LLP), serving as
Partner from 1972 to 1984. Mr. DioGuardi is also a director of Neurocorp, Ltd.,
a publicly held corporation in the business of utilizing software, databases and
medical devices for the diagnosis and treatment of brain-related disorders.
5
<PAGE>
MEETINGS OF THE BOARD
During the fiscal year ended March 28, 1998, 11 meetings of the Board of
Directors were held.
The Board of Directors has an Audit Committee consisting of Messrs.
DioGuardi, Suozzi and Torok. The Audit Committee held 5 meetings during the
fiscal year ended March 28, 1998. The general functions of the Audit Committee
include selecting the independent auditors (or recommending such action to the
Board of Directors), evaluating the performance of the independent auditors and
their fees for services, reviewing the scope of the annual audit with the
independent auditors and the results of the audit with management and the
independent auditors, consulting with management, internal auditors, if any, and
the independent auditors as to the systems of internal accounting controls, and
reviewing the nonaudit services performed by the independent auditors and
considering the effect, if any, on their independence.
The Board of Directors has a Compensation Committee, which also acts as a
Stock Option Committee, composed of Messrs. DioGuardi, Suozzi and Torok. The
Compensation Committee held 10 meetings during the fiscal year ended March 28,
1998. The general functions of the Compensation Committee include approval (or
recommendation to the Board of Directors) of the compensation arrangements for
senior management, directors and other key employees and review of benefit plans
in which officers and directors are eligible to participate. The general
function of the Stock Option Committee includes a periodic review of the equity
compensation plans of the Corporation and the grants under such plans.
The Board of Directors has no standing nominating committee. During the
fiscal year ended March 28, 1998, each of the directors attended 75% or more of
the aggregate number of meetings of the Board of Directors and committee(s) on
which he served.
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<PAGE>
SECURITY OWNERSHIP BY CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Except as otherwise indicated, the following table and notes set forth
certain information regarding the beneficial ownership of the Common Stock as of
July 22, 1998 by all person(s) known by the Corporation to be the beneficial
owner of more than 5% of the Common Stock, by each director of the Corporation,
by each of the Named Executives (as defined herein) and by all directors and
executive officers of the Corporation as a group. Except as otherwise indicated,
each beneficial owner has the sole power to vote, as applicable, and to dispose
of all shares of Common Stock owned by such beneficial owner.
<TABLE>
<CAPTION>
Amount and Nature of Percent of
Name and Address of Beneficial Owner Beneficial Ownership Common Stock(1)
- ------------------------------------ -------------------- ---------------
<S> <C> <C>
Robert A. Zummo (2)(3).......................................... 1,044,910(4) 20.0%
Cramer, Rosenthal McGlynn, Inc.................................. 390,900(5) 7.6%
707 Westchester Avenue
White Plains, New York 10604
Victor Guadagno (2)............................................. 18,333(6) *
John L. Hakes (2)............................................... 35,000(6) *
Jeffrey J. Kaplan (2)........................................... 75,001(6) 1.4%
Thomas W. Cresante (2).......................................... 50,000(7) 1.0%
Joseph J. DioGuardi (2)......................................... 4,833(6) *
Francis X. Suozzi (2)(3)........................................ 330,634(8) 6.4%
Robert J. Torok (2)............................................. 4,833(6) *
All executive officers and directors as a group
(consisting of 11 individuals) (9)..................... 1,563,544(10) 28.9%
</TABLE>
- -------------
* Less than 1%.
(1) Shares beneficially owned, as recorded in this table, expressed as a
percentage of the shares of Common Stock outstanding, net of treasury
shares. For purposes of computing the percentage of outstanding shares
held by each person or group of persons named in this table, any
securities which such person or group of persons has the right to
acquire within 60 days from July 22, 1998 is deemed to be outstanding
for purposes of computing the percentage ownership of such person or
persons, but is not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person.
(2) Address for each person is c/o Safety Components International, Inc.,
2160 North Central Road, Fort Lee, New Jersey 07024.
(3) In connection with the Valentec Acquisition (as defined herein),
Messrs. Zummo and Suozzi entered into an agreement, pursuant to which
it was agreed, among other things, that for a period of three years
from the date thereof, Mr. Suozzi will vote all shares of Common Stock
beneficially owned by him on any manner put to a vote of the
shareholders of the Corporation in the same manner as recommended by a
majority of the Board
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<PAGE>
of Directors of the Corporation or if no such recommendation has been
made, as directed by Mr. Zummo; provided, that such agreement shall
terminate if Mr. Suozzi shall cease to be on the Board of Directors
(other than as a result of his resignation).
(4) Includes options which are currently exercisable (or exercisable within
60 days) to purchase 68,334 shares of Common Stock. On September 17,
1997, the vesting schedule of all options granted by the Corporation
under the Plan was accelerated. Accordingly, such options now vest in
three equal annual installments (rather than four equal annual
installments) commencing one year from the date of grant.
(5) Represents the number of shares beneficially owned by Cramer,
Rosenthal McGlynn, Inc. ("CRMI"), an investment company registered
under Section 8 of the Investment Advisers Act of 1940, according to a
Schedule 13G filed by CRMI with the Securities and Exchange Commission
in February 1998.
(6) Represents only options which are currently exercisable (or exercisable
within 60 days) to purchase shares of Common Stock. On September 17,
1997, the vesting schedule of all options granted by the Corporation
under the Plan was accelerated. Accordingly, such options now vest in
three equal annual installments (rather than four equal annual
installments) commencing one year from the date of grant.
(7) Represents only options which are currently exercisable to purchase
shares of Common Stock. See "Executive Compensation--Employment
Agreements."
(8) Includes options which are currently exercisable (or exercisable within
60 days) to purchase 4,833 shares of Common Stock. On September 17,
1997, the vesting schedule of all options granted by the Corporation
under the Plan was accelerated. Accordingly, such options now vest in
three equal annual installments (rather than four equal annual
installments) commencing one year from the date of grant.
(9) Includes Messrs. Cresante and Hakes who are Named Executives but
resigned as employees of the Corporation in May 1998 and are currently
consultants to the Corporation. See "--Employment Agreements."
(10) Includes options which are currently exercisable (or exercisable within
60 days) to purchase 271,167 shares of Common Stock.
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<PAGE>
EXECUTIVE OFFICERS OF THE CORPORATION
The following table sets forth the names, ages and all positions and
offices with the Corporation held by the Corporation's present executive
officers.
<TABLE>
<CAPTION>
Name Age Positions and Offices Presently Held
<S> <C> <C>
Robert A. Zummo................................. 57 Chairman of the Board, President and Chief
Executive Officer
Jeffrey J. Kaplan............................... 50 Director, Executive Vice President and Chief
Financial Officer
Stephen Duerk................................... 56 Vice President; President, North American
Automotive Group
Victor Guadagno................................. 58 Vice President; President, Systems Group
Philip Lelliott................................. 41 Vice President; President, Europe/Asia
Pacific Automotive Group
Robert Sepulveda................................ 45 Vice President; President, Metal Components
Group
George D. Papadopoulos.......................... 27 Corporate Controller and Secretary
Daniel R. Smith................................. 29 Treasurer
</TABLE>
Following is information with respect to the Corporation's executive
officers who are not also directors of the Corporation:
Stephen B. Duerk. Mr. Duerk has served as President of the Corporation's
North American Automotive Group since April 1998 and as President of Safety
Components Fabric Technologies, Inc., a wholly-owned subsidiary of the
Corporation ("SCFTI"), since January 1998. From July 1997 to January 1998, Mr.
Duerk served the Corporation as Co-Managing Director of SCFTI. Prior to the
Corporation's acquisition (the "JPS Acquisition") of the Air Restraint and
Technical Fabrics Division of JPS Automotive L.P., through SCFTI, in July 1997,
Mr. Duerk served the JPS Textile Group as Vice President of Air Restraint
Fabrics in the Greenville, South Carolina facility from October 1988. From 1965
to October 1988, Mr. Duerk served in various positions for JP Stevens, most
recently as the Vice President of the Industrial Synthetic Group.
Victor Guadagno. Mr. Guadagno has served as President of Valentec Systems,
Inc. since the inception of the Corporation's Systems business in 1994 and had
served as Vice President/General Manager of Valentec's Wells Division from
September 1994 until September 1995. Mr. Guadagno joined Valentec in 1986 as
Vice President/General Manager of the Product Development Division, and was
promoted to Vice President of Corporate Marketing in 1989. Prior to joining
Valentec, Mr. Guadagno was President and sole stockholder of Target Research,
Inc., a business engaged in the research and development of ammunition for the
United States Army. Mr. Guadagno began his career as a development engineer with
the United States Army and has over 35 years of experience in the defense
industry, including systems contracting.
Philip M. Lelliott. Mr. Lelliott has served as President of the
Corporation's Europe/Asia Pacific Automotive Group since June 1998. From January
1995 to June 1998, Mr. Lelliott served as Chief Executive Officer of Courtaulds
Textiles Automotive Products, the automotive division of Courtaulds Textiles,
PLC, a company engaged in the manufacture of textile products. From July 1984 to
December 1994, Mr. Lelliott served AL-KO Kober AG, a company
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<PAGE>
engaged in the manufacture of automotive components, as Managing Director of its
United Kingdom and Australian Automotive Divisions. From July 1979 to July 1984,
Mr. Lelliott served CI Group PLC, a company engaged in the manufacture of
recreational vehicles and related products, in various positions, most recently
as Manager of Production and Product Development for the HGV Trailer Division in
South Africa.
Robert E. Sepulveda. Mr. Sepulveda has served as President of the
Corporation's Metal Components Group and President of Valentec International
Corporation, LLC since March 1998. From March 1989 through March 1998, Mr.
Sepulveda served in numerous capacities at TRW Safety Systems, including Plant
Operations Manager for Driver Airbag Operations, Director of Materials for
Driver Airbag Operations and Materials Manager for Driver Airbag Operations.
Prior to joining TRW, Mr. Sepulveda was employed by Morton Thiokol, where he
served as Material Systems Manager.
George D. Papadopoulos. Mr. Papadopoulos has served as Corporate Controller
and Secretary of the Corporation since March 1997. From April 1996 to March
1997, Mr. Papadopoulos served as Corporate Controller of International Post
Limited, a leading provider of post-production services for commercial and
advertising markets. From July 1993 to April 1996, Mr. Papadopoulos was employed
by Arthur Andersen LLP, a leading public accounting firm, serving in various
capacities, the most recent of which was as a Senior Accountant.
Daniel R. Smith. Mr. Smith has served as Treasurer of the Corporation since
March 1997. From July 1991 to March 1997, Mr. Smith was employed by Arthur
Andersen LLP, a leading public accounting firm, as a Manager.
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<PAGE>
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to the Chief
Executive Officer of the Corporation and the four other most highly compensated
executive officers of the Corporation for the Corporation's fiscal year ended
March 28, 1998 (each person appearing in the table is referred to as a "Named
Executive").
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
-----------------------------------------------------
Annual Compensation Awards Payouts
--------------------------------------------- -------------------------- -----------------------
Securities LTIP All Other
Other Annual Restricted Underlying Payouts Compensation
Name and Salary Bonus Compensation Stock Options/SARs ($) ($)
Principal Position Year ($) ($) ($) Awards($) (#)
- -------------------------- ---- -------- ------- ------------ --------- ------------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert A. Zummo......... 1998 439,185 248,000(1) 0 0 55,000/40,000 0 89,925(2)
Chairman of the Board, 1997 297,000 0 0 0 10,000/0 0 9,600
President and Chief 1996 275,000 60,000 0 0 10,000/0 0 7,680
Executive Officer
Jeffrey J. Kaplan....... 1998 233,018 109,000(4) 0 0 150,000/20,000 0 35,168(5)
Executive Vice President 1997 27,500 0 0 0 125,000/0 0 0
and Chief Financial
Officer(3)
Victor Guadagno......... 1998 162,000 0 0 0 0/0 0 7,635(6)
Vice President; President, 1997 162,000 0 0 0 5,000/0 0 6,000
Systems Group 1996 150,000 25,000 0 0 15,000/0 0 6,231
Thomas W. Cresante...... 1998 205,393 70,000 0 0 85,667/0(8) 0 43,716(9)
Executive Vice President
and Chief Operating
Officer(7)
John L. Hakes........... 1998 228,835 0 0 0 0/0 0 0
President, 1997 164,273 45,000(10) 0 0 10,000/0 0 0
European 1996 147,000 46,500 0 0 25,000/0 0 0
Operations(11)
- ---------
</TABLE>
(1) Includes $173,000 earned by Mr. Zummo under the Senior Management Plan and
a $75,000 transactional bonus earned by Mr. Zummo based on Mr. Zummo's
performance in connection with the JPS Acquisition. See "Compensation
Committee Report on Executive Compensation."
(2) Amount reflects $78,140 of life insurance premiums (which constitutes a
gross-up amount to offset income tax exposure), a $9,600 automobile
allowance, a $2,020 matching contribution under the Corporation's 401(k)
plan and $165 long-term disability insurance premiums.
(3) Mr. Kaplan joined the Corporation in February 1997.
(4) Includes $79,000 earned by Mr. Kaplan under the Senior Management Plan and
a $30,000 transactional bonus earned by Mr. Kaplan based on Mr. Kaplan's
performance in connection with the JPS Acquisition, the Valentec
Acquisition (as defined herein) and the related financings.
(5) Amount reflects $18,395 of life insurance premiums (which constitutes a
gross-up amount to offset income tax exposure), a $7,200 car allowance, a
$2,208 matching contribution under the Corporation's 401(k) plan and $165
long-term disability insurance premiums.
(6) Amount reflects a $6,000 car allowance and a $1,635 matching contribution
under the Corporation's 401(k) plan.
(7) From May 1997 until the time of Mr. Cresante's resignation as an employee
of the Corporation in May 1998, Mr. Cresante served as Executive Vice
President and Chief Operating Officer.
(8) Mr. Cresante received options to purchase 225,000 shares of Common Stock
under his employment Agreement and SARs with respect to 20,000 shares of
Common Stock under the SAR Plan during fiscal year 1998. However, options
to purchase 139,333 of such shares of Common Stock and all of such SARs
were subsequently forfeited by Mr. Cresante in connection with his
resignation as an employee of the Corporation and under the terms of the
Cresante Consulting Agreement. See "--Employment Agreements."
(9) Amount reflects $28,667 of life insurance premiums (which constitutes a
gross-up amount to offset income tax exposure), a $12,600 car allowance, a
$2,284 matching contribution under the Corporation's 401(k) plan and $165
of long-term disability insurance premiums.
(10) Represents the value of an automobile awarded to Mr. Hakes as a bonus.
(11) From June 1995 until the time of Mr. Hakes' resignation as an employee of
the Corporation in May 1998, Mr. Hakes served as President, European
Operations.
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<PAGE>
Option/SAR Grants in Last Fiscal Year
The following options and SARs (as defined herein) were granted to the
Named Executives during fiscal year 1998 under the Plan and SAR Plan,
respectively.
<TABLE>
<CAPTION>
Potential Realized
Value at Assumed
Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term
--------------------------------------------------------------- -------------------------
Number of % of Total
Securities Options/SARs Exercise or
Underlying Granted to Base
Options/SARs Employees in Price Expiration
Name Granted(#) Fiscal Year ($/sh)(1) Date 5%($) 10%($)
- ---- ------------ ------------ ----------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert A. Zummo........... 5,000(2) 0.8% $12.38 7/17/2002(6) $ 17,102 $ 37,791
Robert A. Zummo........... 50,000(2) 8.2% $14.13 3/26/2008(6) $444,314 $1,125,979
Robert A. Zummo........... 40,000(3) 36.9% $10.00 3/31/2001(7) $ 63,050 $ 132,400
Jeffrey J. Kaplan......... 50,000(2) 8.2% $10.00 4/02/2007(6) $314,447 $ 796,871
Jeffrey J. Kaplan......... 50,000(2) 8.2% $12.13 8/14/2007(6) $381,425 $ 966,605
Jeffrey J. Kaplan......... 50,000(2) 8.2% $14.13 3/26/2008(6) $444,314 $1,125,979
Jeffrey J. Kaplan......... 20,000(3) 18.4% $10.00 3/31/2001(7) $ 31,525 $ 66,200
Victor Guadagno........... 0 0.0% N/A N/A N/A N/A
Thomas W. Cresante........ 85,667(2)(4) 14.0% $10.25 6/14/2000 $138,408 $ 290,647
John L. Hakes............. 0(5) 0.0% N/A N/A N/A N/A
- -----------------
</TABLE>
(1) Figures have been rounded to the nearest hundredth.
(2) Represents options to purchase Common Stock granted by the Corporation to
the Named Executive under the Plan during fiscal year 1998.
(3) Represents SARs granted by the Corporation to the Named Executive under the
SAR Plan during fiscal year 1998.
(4) Mr. Cresante received options to purchase 225,000 shares of Common Stock
under his employment agreement and SARs with respect to 20,000 shares of
Common Stock under the SAR Plan during fiscal year 1998. However, options
to purchase 139,333 of such shares of Common Stock and all of such SARs
were subsequently forfeited by Mr. Cresante in connection with his
resignation as an employee of the Corporation and under the terms of the
Cresante Consulting Agreement. See "-Employment Agreements."
(5) Mr. Hakes received SARs with respect to 6,000 shares of Common Stock under
the SAR Plan during fiscal year 1998. However, such SARs were forfeited in
connection with Mr. Hakes' resignation as an employee of the Corporation
and under the terms of the Hakes Consulting Agreement. See "--Employment
Agreements."
(6) Becomes exercisable in three equal annual installments with the first
installment commencing one year from the date of grant.
(7) Becomes exercisable on the termination date of the SAR.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
The following table summarizes for each of the Named Executives the number
of stock options and SARs exercised during the fiscal year ended March 28, 1998,
the aggregate dollar value realized upon exercise, the total number of
unexercised options and SARs, if any, held at March 28, 1998 and the aggregate
dollar value of in-the-money, unexercised options and SARs, held at March 28,
1998. The value realized upon exercise is the difference between the fair market
value of the underlying stock on the exercise date and the exercise or base
price of the option or SAR, respectively. The value of unexercised, in-the-money
options or SARs at fiscal year-end is the difference between its exercise or
base price and the fair market value of the underlying stock on March 30,
1998 (the next business day), which was $14.25 per share.
12
<PAGE>
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Value Options and SARs at and SARs at
Acquired on Realized Fiscal Year-End (#) Fiscal Year-End ($)
Name Exercise (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------ -------- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert A. Zummo...................... 0 N/A 60,000/65,000 (1) $172,767/$16,133
Robert A. Zummo...................... 0 N/A 0/40,000 (2) 0/$170,000
Jeffrey J. Kaplan.................... 0 N/A 41,667/233,333(1) $114,584/$554,166
Jeffrey J. Kaplan.................... 0 N/A 0/20,000 (2) 0/$85,000
Victor Guadagno...................... 0 N/A 21,667/8333 (1) $2,284/$4,566
Thomas W. Cresante................... 0 N/A 85,667/0 (1)(3) $342,668/0
John L. Hakes........................ 0 N/A 20,000/15,000 (1)(4) $4,566/$9,134
</TABLE>
- ------------
(1) Represents options to purchase Common Stock granted by the Corporation to
the Named Executive under the Plan.
(2) Represents SARs granted by the Corporation to the Named Executive under the
SAR Plan.
(3) Mr. Cresante received options to purchase 225,000 shares of Common Stock at
an exercise price of $10.25 per share under his employment agreement during
fiscal year 1998. However, options to purchase 139,333 of such shares of
Common Stock were subsequently forfeited by Mr. Cresante in connection with
his resignation as an employee of the Corporation and under the terms of
the Cresante Consulting Agreement. See "--Employment Agreements."
(4) In connection with his resignation as an employee of the Corporation and
under the terms of the Hakes Consulting Agreement (as defined herein), Mr.
Hakes became fully vested in all of such options. Accordingly, after giving
effect to Mr. Hakes' resignation as an employee of the Corporation and the
consummation of the transactions contemplated by the Hakes Consulting
Agreement, the value of Mr. Hakes' unexercised in-the-money options at the
end of fiscal year 1998 would have been $13,700. See "--Employment
Agreements."
Employment Agreements
Mr. Zummo serves as President and Chief Executive Officer of the
Corporation pursuant to a five-year employment agreement which became effective
upon the consummation of the Corporation's initial public offering. The
employment agreement provides that Mr. Zummo will allocate at least 80% of his
working time, attention and energies to the affairs of the Corporation and the
remaining 20% to Valentec; however, Mr. Zummo has been spending substantially
all of his working time performing services for the Corporation since the
closing of the Valentec Acquisition. Mr. Zummo's base salary for the first year
of the term was $250,000, subject to annual increases at the discretion of the
Board of Directors. In each of August 1997 and March 1998, the Compensation
Committee of the Board of Directors approved an increase of salary payable to
Mr. Zummo under his employment agreement to $450,000 and $525,000, respectively.
In addition to the base salary, the employment agreement provides for an annual
incentive bonus. In the event Mr. Zummo's employment is terminated without
"Cause" (as defined in the employment agreement), the Corporation is required to
pay Mr. Zummo an amount equal to his full salary and incentive bonus in effect
for the year immediately preceding termination for the remainder of the full
term. If Mr. Zummo's employment is terminated by the Corporation in connection
with a "change in control" (as defined in the employment agreement), the
Corporation is required to pay Mr. Zummo an amount equal to two times his full
salary and bonus in respect of the year immediately preceding termination. In
addition, if Mr. Zummo's employment agreement is not renewed by the Corporation
after the expiration of the initial five-year term other than for "Cause," the
Corporation would be required to continue to pay Mr. Zummo's full salary and
incentive bonus in effect for the year immediately preceding termination for a
period of one year from the time of termination.
Mr. Kaplan serves as Executive Vice President and Chief Financial Officer
of the Corporation pursuant to a three-year employment agreement which became
effective in February 1997. The employment agreement provides that Mr. Kaplan
will allocate at least 80% of his working time, attention and energies to the
affairs of the Corporation and the remaining 20% to Valentec; however, Mr.
Kaplan has been spending substantially all of his working time performing
services for the Corporation since the closing of the Valentec Acquisition. Mr.
Kaplan's base salary for the first year of the term is $220,000, subject to
annual increases at the discretion of the Board of Directors. In each of
13
<PAGE>
September 1997 and March 1998, the Compensation Committee of the Board of
Directors approved an increase of salary payable to Mr. Kaplan under his
employment agreement to $242,000 and $300,000, respectively. In addition to the
base salary, the employment agreement provides for an annual incentive bonus,
including a minimum bonus of $30,000 for fiscal 1998. Pursuant to the terms of
the employment agreement, Mr. Kaplan was awarded options under the Plan in
accordance with the following schedule: (i) options to purchase 125,000 shares
of Common Stock were issued on February 15, 1997; (ii) options to purchase
50,000 shares of Common Stock were issued on April 1, 1997 and (iii) options to
purchase 50,000 shares of Common Stock were to be issued on April 1, 1998, but
were actually issued on August 13, 1997 after approval by the Compensation
Committee of the acceleration of the issuance of such options. On September 17,
1997, the vesting schedule of all options granted by the Corporation under the
Plan was accelerated. Accordingly, all of the options granted to Mr. Kaplan by
the Corporation under the Plan now vest in three equal annual installments
(rather than four equal annual installments) commencing one year from the date
of grant. The issuance of such options was subject to the conditions set forth
in the employment agreement, including the approval by the stockholders of the
Corporation of any increase in the number of shares authorized for issuance
under the Plan as may have been necessary for the issuance of such options. In
the event Mr. Kaplan's employment is terminated without "Cause" (as defined in
the employment agreement), the Corporation is required to pay Mr. Kaplan an
amount equal to his full salary and incentive bonus in effect for the year
immediately preceding termination for the remainder of the full term. If Mr.
Kaplan's employment is terminated by the Corporation in connection with a
"change in control" (as defined in the employment agreement), the Corporation is
required to pay Mr. Kaplan an amount equal to two times his full salary and
incentive bonus in respect of the year immediately preceding termination. In
addition, if Mr. Kaplan's employment agreement is not renewed by the Corporation
after the expiration of the initial three-year term other than for "Cause," the
Corporation would be required to continue to pay Mr. Kaplan's full salary and
incentive bonus in effect for the year immediately preceding termination for a
period of one year from the time of termination.
Mr. Duerk serves as Vice President of the Corporation and President of the
Corporation's North American Automotive Group. The Corporation expects to enter
into a two-year employment agreement with Mr. Duerk shortly after the
dissemination of this Proxy Statement. The Corporation anticipates that the
employment agreement will provide for a base salary for the first year of the
term of $175,000, subject to annual increases at the discretion of the Board of
Directors. Mr. Duerk's current annual base salary is $175,000. The Corporation
anticipates that the employment agreement will also provide for an annual
incentive bonus under the Corporation's Management Incentive Plan. Mr. Duerk
earned a bonus of approximately $73,000 for fiscal year 1998 under such plan. In
addition, the Corporation expects that the employment agreement will provide
that (i) in the event Mr. Duerk's employment is terminated without "Cause" (as
such term will be defined in the employment agreement), the Corporation would be
required to continue to pay Mr. Duerk's full salary for a period of twelve
months from the time of termination, (ii) if Mr. Duerk's employment is
terminated by the Corporation in connection with a "change of control" (as such
term will be defined in the employment agreement), the Corporation would be
required to pay Mr. Duerk an amount equal to two times his full salary and
incentive bonus in respect of the year immediately preceding termination, and
(iii) if Mr. Duerk's employment agreement is not renewed by the Corporation
after the expiration of the term other than for Cause, the Corporation would be
required to continue to pay Mr. Duerk's full salary for a period of six months
from the time of termination.
Mr. Guadagno serves as Vice President of the Corporation and President of
the Corporation's Systems Group, pursuant to a two-year employment agreement
which became effective in September 1994, the term of which was extended to
September 1997. Mr. Guadagno's base salary for the first year of the term was
$150,000, and is subject to annual increases at the discretion of the Board of
Directors. In addition to the base salary, the employment agreement provides for
an annual incentive bonus. If Mr. Guadagno's employment agreement is not renewed
by the Corporation after the expiration of the term other than for Cause, the
Corporation would be required to continue to pay Mr. Guadagno's full salary for
a period of six months from the time of termination.
Mr. Lelliott serves as Vice President of the Corporation and President of
the Corporation's Europe/Asia Pacific Automotive Group pursuant to the terms of
an offer letter dated as of January 23, 1998. The offer letter provides for an
annual base salary of (pound)90,000 British pounds (approximately $147,900 as of
July 21, 1998), which is subject to annual increases at the
14
<PAGE>
discretion of the Board of Directors. In addition to the base salary, the offer
letter also provides for an annual incentive bonus under the Corporation's
Management Incentive Plan. Mr. Lelliott received a signing bonus of
(pound)10,000 British pounds (approximately $16,500 as of July 21, 1998) upon
commencing employment with the Corporation in May 1998. Pursuant to the terms of
the offer letter, Mr. Lelliott was awarded options to purchase 25,000 shares of
Common Stock under the Plan. Such options vest in three equal annual
installments with the first installment commencing one year from the date of
grant. The Corporation expects to enter into a two-year employment agreement
with Mr. Lelliott on substantially the same terms as the offer letter shortly
after the dissemination of this Proxy Statement. The Corporation anticipates
that the employment agreement will provide that (i) in the event Mr. Lelliott's
employment is terminated without "Cause" (as such term will be defined in the
employment agreement), the Corporation would be required to continue to pay Mr.
Lelliott's full salary for a period of twelve months from the time of
termination and (ii) if Mr. Lelliott's employment agreement is not renewed by
the Corporation after the expiration of the term other than for Cause, the
Corporation would be required to continue to pay Mr. Lelliott's full salary for
a period of six months from the time of termination.
Mr. Sepulveda serves as Vice President of the Corporation and the President
of the Corporation's Metal Components Group pursuant to a two-year employment
agreement which became effective in March 1998. The employment agreement
provides for a base salary for the first year of the term of $130,000, subject
to annual increases at the discretion of the Board of Directors. The employment
agreement also provides for an annual incentive bonus under the Corporation's
Management Incentive Plan commencing with fiscal year 1999. Pursuant to the
terms of the employment agreement, Mr. Sepulveda was awarded options to purchase
20,000 shares of Common Stock under the Plan. In addition, the employment
agreement provides that (i) in the event Mr. Sepulveda's employment is
terminated without "Cause" (as such term is defined in the employment
agreement), the Corporation would be required to continue to pay Mr. Sepulveda's
full salary for a period of twelve months from the time of termination and (ii)
if Mr. Sepulveda's employment agreement is not renewed by the Corporation after
the expiration of the term other than for Cause, the Corporation would be
required to continue to pay Mr. Sepulveda's full salary for a period of six
months from the time of termination.
From June 1995 until his resignation as an employee of the Corporation in
May 1998, Mr. Hakes served as President, European Operations pursuant to an
employment agreement (the "Hakes Employment Agreement"). The agreement had an
initial term of one year and was terminable thereafter on twelve months' notice
by either the Corporation or Mr. Hakes. Mr. Hakes' base salary for the first
year of the term was (pound)95,000 British pounds (approximately $156,100 as of
July 21, 1998), and was subject to annual increases at the discretion of the
Board of Directors. In addition to the base salary, the Hakes Employment
Agreement provided for an annual incentive bonus. Mr. Hakes was not awarded a
bonus for fiscal 1998. Pursuant to the Hakes Employment Agreement, if Mr. Hakes'
employment was terminated by the Corporation in connection with "a change in
control" (as defined in the Hakes Employment Agreement), the Corporation would
have been required to pay Mr. Hakes an amount equal to his full salary effective
on the date of the change in control for a period of one full year. Pursuant to
the Hakes Employment Agreement, Mr. Hakes also provided services to VIL (as
defined herein) in return for compensation paid by VIL. The Corporation has
entered into a consulting agreement (the "Hakes Consulting Agreement") with Mr.
Hakes, pursuant to which (i) the Hakes Employment Agreement was terminated, (ii)
all SARs granted to Mr. Hakes under the SAR Plan were forfeited, and (iii) Mr.
Hakes will (a) provide certain consulting services to the Corporation and (b)
serve as the Managing Director of VIL for a term of one year. In consideration
for such services, Mr. Hakes received a lump sum payment of approximately
(pound)146,700 British pounds (approximately $241,100 as of July 21, 1998) (less
applicable withholding taxes), which is equal to his annual base salary at the
time of termination of the Hakes Employment Agreement; options to purchase an
aggregate of 35,000 shares of Common Stock previously granted to Mr. Hakes under
the Plan have been fully vested pursuant to the Hakes Consulting Agreement and
are available for exercise until thirty days after the termination date of the
Hakes Consulting Agreement; and the Corporation will provide to Mr. Hakes
certain life insurance benefits. Approximately (pound)117,350 British pounds
(approximately $192,900 as of July 21, 1998) of the lump sum payment under the
severance agreement was made by the Corporation.
From May 1997 until his resignation as an employee from the Corporation in
May 1998, Mr. Cresante served as Executive Vice President and Chief Operating
Officer of the Corporation pursuant to a three-year employment
15
<PAGE>
agreement. The employment agreement provided that Mr. Cresante would
allocate at least 80% of his working time, attention and energies to the affairs
of the Corporation and the remaining 20% to Valentec; however, Mr. Cresante had
been spending substantially all of his working time performing services for the
Corporation since the closing of the Valentec Acquisition. Mr. Cresante's base
salary for the first year of the term was $235,000, subject to annual increases
at the discretion of the Board of Directors. In addition to the base salary, the
employment agreement provided for an annual bonus, including a minimum bonus of
$50,000 for fiscal 1998. Pursuant to the terms of the employment agreement, Mr.
Cresante was awarded options to purchase 225,000 shares of Common Stock issued
on May 19, 1997 under the Plan. Pursuant to the employment agreement, in the
event Mr. Cresante's employment was terminated without "Cause" (as defined in
the employment agreement), the Corporation would have been required to pay Mr.
Cresante an amount equal to his full salary and incentive bonus in effect for
the year immediately preceding termination for the remainder of the full term.
If Mr. Cresante's employment was terminated by the Corporation in connection
with a "change in control" (as defined in the employment agreement), the
Corporation would have been required to pay Mr. Cresante an amount equal to two
times his full salary and incentive bonus in respect of the year immediately
preceding termination. In addition, if Mr. Cresante's employment agreement was
not renewed by the Corporation after the expiration of the initial three-year
term other than for "Cause," the Corporation would have been required to
continue to pay Mr. Cresante's full salary and incentive bonus in effect for the
year immediately preceding termination for a period of one year from the time of
termination. The Corporation has entered into a consulting agreement (the
"Cresante Consulting Agreement") with Mr. Cresante pursuant to which Mr.
Cresante's employment agreement was terminated and he will instead provide
consulting services to the Corporation for a term of two years. As compensation
for such services, Mr. Cresante will receive $100,000 per year, payable at least
on a monthly basis and options to purchase 85,667 shares of Common Stock
previously granted to Mr. Cresante under the Plan have been fully vested
pursuant to the Cresante Consulting Agreement and are available for exercise
until thirty days after the termination date of the Cresante Consulting
Agreement. The remaining stock options granted by the Corporation to Mr.
Cresante under his employment agreement have been forfeited. In addition,
pursuant to the Cresante Consulting Agreement, the Corporation will provide to
Mr. Cresante certain benefits under the Corporation's benefit plans as well as
certain life and health insurance benefits.
Senior Management Plan
The Compensation Committee has approved, and the Board has subsequently
ratified, the Senior Management Plan, which provides for annual performance
based bonuses to certain key executive officers, primarily based on
pre-determined target levels of the Corporation's earnings. See "Item 3 --
Approval of Senior Management Plan." Messrs. Zummo, Kaplan and Cresante earned a
bonus of $173,000, $79,000 and $70,000, respectively, for fiscal year 1998 under
the Senior Management Plan.
Directors' Compensation
Directors who are employees of the Corporation receive no compensation, as
such, for service as members of the Board. Directors who are not employees of
the Corporation receive an annual retainer of $20,000 and an attendance fee of
$1,250 for each Board meeting or committee meeting attended in person by that
director and $300 for each telephonic Board meeting or committee meeting in
which such director participated; provided that fees for in-person meetings of
the Board and committees shall not exceed $1,250 per day. All Directors are
reimbursed for expenses incurred in connection with attendance at meetings.
Each non-employee director currently receives an automatic option grant
under the Plan, vesting in equal installments over a three-year period, at the
beginning of each calendar year in which he serves as a director of the
Corporation. On January 14, 1998, the Board of Directors approved an amendment
to the Plan which increased the size of the annual formula grant to non-employee
directors under the Plan from an option to purchase 2,500 shares of Common Stock
to an option to purchase 4,000 shares of Common Stock. In addition, each
non-employee director received discretionary option grants to purchase an
aggregate of 11,500 shares of Common Stock under the Plan during fiscal year
1998. The exercise price of the shares of Common Stock subject to options
granted to each non-employee
16
<PAGE>
director is the fair market value of the shares of Common Stock on the date of
grant. Options granted to non-employee directors, with limited exceptions, may
only be exercised within ten years of the date of grant and while the recipient
of the option is a director of the Corporation.
Compensation Committee Interlocks and Insider Participation
Mr. Suozzi served as a member of the Compensation Committee of the Board of
Directors during fiscal year 1998. Mr. Suozzi is a director of Valentec and
owned approximately 21% of all of the issued and outstanding shares of Valentec
prior to selling all such shares to the Corporation pursuant to the Valentec
Acquisition. See "Certain Transactions."
CERTAIN TRANSACTIONS
Pursuant to a definitive Stock Purchase Agreement, dated as of May 22,
1997, the Corporation acquired (the "Valentec Acquisition") all of the issued
and outstanding capital stock of Valentec from Robert A. Zummo, Francis X.
Suozzi and the Valentec International Corporation Employee Stock Ownership Plan
(the "ESOP"). Valentec was the Corporation's largest shareholder immediately
prior to the Valentec Acquisition owning approximately 27% of the issued and
outstanding shares of Common Stock. Immediately prior to the Valentec
Acquisition, Robert A. Zummo, the Chairman of the Board, President and Chief
Executive Officer of the Corporation, was also a director, the President, Chief
Executive Officer and owner of approximately 74% of all of the issued and
outstanding shares of Valentec, and Francis X. Suozzi, a consultant to and a
director of Valentec and a director of the Corporation, was the owner of
approximately 21% of all of the issued and outstanding shares of Valentec. The
consideration paid to the shareholders of Valentec in connection with the
Valentec Acquisition consisted of an aggregate of 1,369,200 newly issued shares
of Common Stock, which was approximately equal to the number of shares of Common
Stock held by Valentec. The shares of Common Stock held by Valentec have become
treasury shares and are not considered outstanding. Therefore, there has been no
increase in the Corporation's outstanding shares as a result of the Valentec
Acquisition. In addition, Messrs. Zummo and Suozzi and the ESOP received demand
and piggyback registration rights in connection with the Valentec Acquisition.
In January 1998, the Corporation filed a registration statement on Form S-1,
which included the registration of the shares of Common Stock received by Mr.
Suozzi under the Valentec Acquisition. Indebtedness assumed by the Corporation
in connection with the Valentec Acquisition was approximately $14.7 million as
of May 22, 1997 (inclusive of intercompany indebtedness of approximately $4.3
million, which has been eliminated in consolidation as a result of the Valentec
Acquisition), of which approximately $7.1 million has been repaid. The
indebtedness assumed by the Corporation included $2.8 million in indebtedness to
Valentec International Limited, a corporation formed under the laws of the
United Kingdom ("VIL"), of which $800,000 was evidenced by a demand note which
has been paid in full and $2.0 million was evidenced by a five year note payable
in monthly installments of approximately $40,000. Both such notes bore interest
at 7% per annum. Subsequent to the closing of the Valentec Acquisition through
March 28, 1998, the five year note has been paid in full by the Corporation at a
discount to the Corporation of approximately 16%.
The purchase price for the Valentec Acquisition was negotiated between
Valentec and a special committee consisting of independent members of the Board
of Directors of the Corporation. The special committee was advised by
independent legal counsel and an independent financial advisor. The
Corporation's Board of Directors received an opinion from the special
committee's financial advisor as to the fairness from a financial point of view
of the consideration received by the Corporation to the Corporation's
shareholders other than Valentec.
Immediately prior to the Valentec Acquisition, Mr. Zummo acquired the 88.8%
equity interest in VIL owned by Valentec for a cash payment of $75,000.
Prior to the Valentec Acquisition, certain agreements and arrangements
existed between the Corporation and Valentec. Robert A. Zummo has been an
officer and director of Valentec since 1993, and until the Valentec Acquisition,
17
<PAGE>
was a stockholder of Valentec. Until his departure from the Corporation in May
1997, W. Hardy Myers was an officer and director of Valentec. Prior to the
consummation of the Valentec Acquisition, Messrs. Zummo, Cresante and Kaplan
were required to spend at least 80% of their working time performing services
for the Corporation with the remaining portion of their time spent performing
services for Valentec and they were compensated separately by Valentec and the
Corporation for the respective services rendered as employees to each
Corporation. Messrs. Zummo and Kaplan presently spend (and subsequent to the
Valentec Acquisition and prior to Mr. Cresante's resignation as an employee of
the Corporation, Mr. Cresante spent) substantially all of their working time
performing services for the Corporation. Mr. Hakes also provides part time
services as a managing director to VIL pursuant to the Hakes Consulting
Agreement and is paid separately for such services by VIL.
Prior to the Valentec Acquisition, the Corporation purchased from Valentec
metal components for inclusion in its passenger side airbags at prices approved
by the Corporation's customers for automotive airbags. Purchases by the
Corporation from Valentec for such components during the portion of fiscal year
1998 prior to the Valentec Acquisition totaled $66,000. Valentec also supplies
directly to such customers metal components for inclusion in airbag systems
manufactured by such customers.
The Corporation's U.K. subsidiary and VIL are parties to a Shared Services
Agreement, relating to administration, financial, engineering and other shared
costs. Payments from the Corporation to VIL for fiscal 1998 were $570,000 under
the Shared Services Agreement.
The Corporation sub-leases space from VIL for its European automotive
operations pursuant to a separate sub-lease agreement and facility usage
agreement in the U.K. In addition to the lease payments of approximately
(pound)70,000 per year under the sub-lease agreement, the facility usage
agreement provides for the Corporation to be allocated its pro rata portion of
the manufacturing overhead (e.g., utilities, plant security) and general and
administrative expenses of the facility (e.g., purchasing, plant accounting).
These allocations are based primarily on square footage and on volume of
production. The sub-lease and facility usage agreement relating to the European
automotive operations each have an initial term expiring in 2003. Payments from
the Corporation to VIL under the lease for fiscal year 1998 were $195,000.
During fiscal 1998, the Corporation served as a sales representative in
procuring a defense supply contract for VIL and arranging its sub-contractors.
In connection with such services rendered by the Corporation on behalf of VIL,
at March 28, 1998, the Corporation had receivables from VIL aggregating
approximately $500,000. This amount represents 3% of the total defense supply
contract value. In addition, during fiscal year 1998, the Corporation provided
certain management services on behalf of VIL. In exchange for such services, the
Corporation charged VIL approximately $700,000 for which it has a $700,000
receivable from VIL. VIL has agreed to repay these receivables during fiscal
year 1999.
In connection with the termination of the Hakes Employment Agreement and
Mr. Hakes' resignation as an employee of the Corporation, the Corporation and
VIL entered into the Hakes Consulting Agreement with Mr. Hakes, pursuant to
which (i) the Hakes Employment Agreement was terminated, (ii) all SARs granted
to Mr. Hakes under the SAR Plan were forfeited, and (iii) Mr. Hakes will (a)
provide certain consulting services to the Corporation and (b) serve as the
Managing Director of VIL for a term of one year. In consideration for such
services, Mr. Hakes received a lump sum payment of (pound)146,700 British pounds
(approximately $241,100 as of July 21, 1998) (less applicable withholding
taxes), which is equal to his annual base salary at the time of termination of
the Hakes Employment Agreement; options to purchase an aggregate of 35,000
shares of Common Stock previously granted to Mr. Hakes under the Plan have been
fully vested pursuant to the severance agreement and are available for exercise
within a thirty day period from the termination date of the severance agreement;
and the Corporation will provide to Mr. Hakes certain life insurance benefits.
Approximately (pound)117,350 British pounds (approximately $192,900 as of July
21, 1998) of the lump sum payment under the severance agreement was paid by the
Corporation.
Under federal law, the Corporation and certain of its subsidiaries would be
subject to liability for the consolidated federal income tax liabilities of the
consolidated group during the period when Valentec was the common
18
<PAGE>
parent. As part of the transfer by Valentec to the Corporation of the Valentec
Automotive Division and Valentec Galion immediately prior to the Corporation's
initial public offering ( the "Transfer of Assets"), Valentec agreed, however,
to indemnify the Corporation and such subsidiaries for such federal income tax
liability (and certain state and local tax liabilities) that the Corporation or
any such subsidiary is actually required to pay. Prior to the Valentec
Acquisition and to the extent that Valentec could offset the taxable income
generated by Valentec against losses, if any, generated by such subsidiaries for
periods prior to the Transfer of Assets, the agreements relating to the Transfer
of Assets may have benefited Valentec insofar as loss carry-forwards which would
otherwise have been available to the Corporation would be utilized by Valentec.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Philosophy and Policy
The Compensation Committee's policy is to design executive compensation
packages that reward the achievement of both short-term and long-term objectives
of the Corporation. Under this approach, the attainment of yearly growth in
earnings per share is compensated through yearly bonuses and long-term
performance of the Corporation is rewarded through the grant of stock options
under the Plan and/or stock appreciation rights ("SARs") under the SAR Plan. See
"Item 4 -- Approval of the SAR Plan." The bonuses, stock options and SARs are in
addition to executives' yearly base salaries, which are determined in a manner
to be competitive with companies which are similarly situated to the
Corporation.
The Compensation Committee has determined that yearly bonuses will be
awarded to the officers under the Senior Management Plan and the Corporation's
Management Incentive Plan, as applicable, primarily based on pre-determined
target levels of the Corporation's earnings per share in the case of the Senior
Management Plan and earnings before income taxes, depreciation and amortization
("EBITDA") at the divisional level in the case of the Management Incentive Plan.
See "Item 3 -- Approval of Senior Management Plan." The Compensation Committee
believes that earnings per share and EBITDA are an appropriate measure of
performance because it promotes the achievement of corporate-wide goals. In
determining yearly bonuses, if any, outside of the Senior Management Plan and
the Corporation's Management Incentive Plan, the Compensation Committee also
considers outstanding achievement in areas other than the Corporation's earnings
per share or EBITDA. For example, the Corporation has considered the
contributions made by its executive officers in diversifying the Corporation's
customer base, attaining major new customers, identifying appropriate
acquisition candidates and the consummation of significant financing
transactions of the Corporation.
The Compensation Committee believes that, since the long-term performance
of the Corporation is reflected in the value of the Corporation's Common Stock,
the grant of stock options and/or SARs is an appropriate method of compensating
executives for the long-term performance of the Corporation. The Compensation
Committee also believes that the grant of stock options and/or SARs aligns the
interest of the executives with those of the Corporation's stockholders. The
Compensation Committee determines the recipients of stock option and SAR grants
and the size of the grants consistent with these principles, and based on the
employee's performance and position with the Corporation. The Corporation
generally utilizes vesting periods to encourage executives to continue in the
employ of the Corporation.
To date, the Compensation Committee approved the grant of (i) options to
purchase a total of 1,208,999 shares of Common Stock under the Plan to a number
of employees and executives officers since the Corporation's initial public
offering, of which options to purchase a total of 233,357 shares of Common Stock
have been forfeited prior to vesting and (ii) SARs with respect to a total of
206,500 shares of Common Stock under the SAR Plan to a number of employees and
executive officers since April 1, 1997, the effective date of the SAR Plan.
These grants were intended to reward employees for their efforts in contributing
to the dramatic growth of the Corporation's business and to incentivize the
Corporation's employees to continue to contribute to such growth. The
Compensation Committee believed it was
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appropriate to grant Options and SARs at these levels in order to attract
executive officers of the caliber of these individuals.
Compensation of the Chief Executive Officer
Effective as of the closing of the Corporation's initial public offering,
Mr. Zummo's compensation has been determined pursuant to a five-year employment
agreement. See "Executive Compensation--Employment Agreements." Pursuant to such
employment agreement, Mr. Zummo's base salary is subject to annual increases at
the discretion of the Board of Directors. In August 1997 and March 1998, the
Compensation Committee of the Board of Directors approved an increase of base
salary payable to Mr. Zummo under his employment agreement to $450,000 and
$525,000, respectively. In approving such increases, the Compensation Committee
considered, among other things, Mr. Zummo's experience, background and strong
performance record.The Compensation Committee also took into account the
increase in the size of the Corporation as a result of the JPS Acquisition in
determining that his compensation package was low as compared to the
compensation packages paid to similarly situated chief executive officers. The
level of Mr. Zummo's salary is based on a number of factors, including a review
of compensation paid by companies which are similarly situated to the
Corporation. In July 1997, the Compensation Committee of the Board of Directors
approved a transactional bonus to Mr. Zummo of $75,000, contingent upon the
completion of the JPS Acquisition, which was consummated on July 24, 1997, based
on Mr. Zummo's performance in connection with such acquisition. In approving the
bonus, the Compensation Committee took into account, among other things, Mr.
Zummo's contribution in identifying, negotiating and consummating the JPS
Acquisition which is in line with the Corporation's strategic objectives of
obtaining new airbag business and diversifying the Corporation's customer base,
integrating low-cost manufacturing capabilities and increasing manufacturing
capacity and pursuing geographic expansion. The Compensation Committee also
approved a bonus to Mr. Zummo of $173,000 under the Senior Management Plan for
fiscal year 1998 based upon the achievement of earnings per share targets. In
addition, in line with the Compensation Committee's philosophy of rewarding
long-term performance goals through the granting of stock options and SARs, Mr.
Zummo was awarded options to purchase 55,000 shares of Common Stock under the
Plan and SARs with respect to 40,000 shares of Common Stock during fiscal year
1998. Mr. Zummo was also awarded SARs with respect to 50,000 shares of Common
Stock during fiscal year 1999. From time to time, the Compensation Committee
consults with an independent consulting firm on issues of executive
compensation, including the compensation package of Mr. Zummo.
Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to publicly held corporations for compensation over $1,000,000 paid to
the Corporation's Chief Executive Officer and certain other highly compensated
executive officers. Qualifying performance-based compensation will not
constitute "applicable employee remuneration" (as defined for purposes of
Section 162(m) of the Code) subject to the deduction limit if certain
requirements are met. Option grants under the Plan and awards granted to
employees under the Senior Management Plan and SAR Plan during a fiscal year
beginning on or after March 29, 1998 are intended to comply with these
requirements. The awards granted to employees under the Senior Management Plan
and SAR Plan for fiscal 1998 and awards granted, or to be granted, to employees
under the Corporation's Management Incentive Plan do not comply with these
requirements. The Compensation Committee does not believe that the applicable
remuneration to be paid to the Chief Executive Officer or such other highly
compensated executives will exceed the deduction limit set by Section 162(m).
Compensation Committee
Joseph J. DioGuardi
Francis X. Suozzi
Robert J. Torok
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<PAGE>
Performance Graph
The following graph compares the cumulative total stockholder return on the
Common Stock for the period from May 6, 1994 (the date the Corporation's stock
became publicly traded) through March 28, 1998 with the cumulative total return
of the Nasdaq Composite Index (U.S.) and an index of peer companies constructed
by the Corporation. Included in the peer group are Arvin Industries, Inc., Breed
Technologies Incorporated, OEA Inc., Special Devices, Inc., and Tower
Automotive, Inc. The graph assumes that the value of the investment in the
Common Stock was $100 on May 6, 1994 and that all dividends were reinvested.
[GRAPH]
<TABLE>
<CAPTION>
Total Return Analysis 5/06/94 3/31/95 3/31/96 3/31/97 3/28/98
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Safety Components International........................... $100.00 $163.44 $120.43 $ 86.02 $122.58
Peer Group................................................ $100.00 $ 82.76 $ 96.71 $123.64 $136.86
Nasdaq Composite (U.S.)................................... $100.00 $111.51 $150.28 $166.71 $248.84
21
</TABLE>
<PAGE>
ITEM 2. APPROVAL OF THE AMENDMENTS TO THE 1994 STOCK OPTION PLAN
On January 27, 1994, the Board of Directors of the Corporation adopted, and
the stockholders approved, the Plan. On May 4, 1996, July 29, 1996 and July 22,
1997, the Board of Directors approved certain amendments to the Plan which were
subsequently approved by the stockholders of the Corporation. The Plan currently
provides for the issuance of options (each an "Option") to purchase up to
1,050,000 shares of Common Stock. Of this total, 1,000,000 shares are issuable
pursuant to either Incentive Stock Options ("ISOs") qualifying under Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), or Non-Qualified
Stock Options ("NQSOs") granted to officers, key employees and, in the case of
NQSOs, consultants (collectively, approximately 38 persons) of the Corporation
and 50,000 shares are issuable pursuant to NQSOs granted to non-employee
directors of the Corporation (currently 3 persons). The Plan is designed to
provide an incentive to officers, key employees, consultants and non-employee
directors of the Corporation by making available to them an opportunity to
acquire a proprietary interest or to increase their proprietary interest in the
Corporation. As of July 22, 1998, Options to purchase 840,434 shares of Common
Stock were granted under the Plan to officers, key employees and consultants and
Options to purchase 63,000 shares of Common Stock were issued to the
non-employee directors (of which Options to purchase 13,000 shares have been
issued to the non-employee directors of the Corporation subject to approval by
the shareholders of the Corporation of the reallocation described below).
The Board of Directors of the Corporation believes that the reallocation in
the number of shares of Common Stock issuable under the Plan so that more shares
are issuable to non-employee directors would assist the Corporation in
attracting and retaining qualified individuals to serve as directors of the
Corporation. Accordingly, the Board of Directors has approved an amendment to
the Plan. On May 28, 1998, the Board of Directors approved an amendment to the
Plan which would reallocate the number of shares of Common Stock issuable under
the Plan to officers, key employees and consultants on the one hand and
non-employee directors on the other hand from 1,000,000 shares and 50,000 shares
in the aggregate, respectively, to 975,000 shares and 75,000 shares in the
aggregate, respectively. The Board of Directors recommended that such amendment
to the Plan be presented to the Corporation's stockholders for approval. If such
amendment to the Plan is not approved, an aggregate of 13,000 Options granted to
the Corporation's non-employee directors in fiscal year 1998, which are subject
to stockholder approval, would not be issued and no additional Options would be
granted to non-employee directors of the Corporation under the Plan.
The following is a summary of the material provisions of the Plan. Such
summary should, however, be read in conjunction with, and is qualified in its
entirety by reference to, the complete text of the Plan, as proposed to be
amended, as set forth in Exhibit A to this Proxy Statement.
Administration of the Plan. The Stock Option Committee of the Board of
Directors administers the Plan. The Stock Option Committee has the full power
and authority, subject to the provisions of the Plan, to designate participants,
grant Options and determine the terms of all Options, except that non-employee
directors are, in addition to discretionary grants, automatically granted
Options on an annual basis pursuant to the formula described below. In addition,
the Plan currently provides that no participant may be granted NQSOs to purchase
more than 200,000 shares of Common Stock in any one fiscal year. The Stock
Option Committee is required to make adjustments with respect to Options granted
under the Plan in order to prevent dilution or expansion of the rights of any
holder. The Plan requires that the Stock Option Committee be composed of at
least two directors each of whom is an "outside director" as that term is
defined for purposes of Section 162(m) of the Code. The Plan also requires that
the Stock Option Committee members be "Non-Employee Directors" within the
meaning of Rule 16b-3 promulgated under the Exchange Act. Each member of the
Stock Option Committee is a "Non-Employee Director" within the meaning of Rule
16b-3 under the Exchange Act and an "outside director" as that term is defined
for purposes of Section 162(m) of the Code.
Amendment. The Plan may be wholly or partially amended or otherwise
modified, suspended or terminated at any time or from time to time by the Board
of Directors of the Corporation, but no amendment without the approval of the
stockholders of the Corporation shall be made if shareholder approval would be
required under Section 162(m) of the Code, Section 422 of the Code, Rule 16b-3
under the Exchange Act or any other law or rule of any governmental
22
<PAGE>
authority, stock exchange or other self-regulatory organization to which the
Corporation is subject. Neither the amendment, suspension nor termination of the
Plan shall, without the consent of the holder of such Option, alter or impair
any rights or obligations under any Option theretofore granted.
Options Issued Under Stock Option Plan. The terms of specific Options are
determined by the Stock Option Committee. The per share exercise price of the
Common Stock subject to an Option shall not be less than 100% of the fair market
value of the shares of Common Stock on the date of grant. However, in the case
of an ISO granted to a holder of shares representing at least 10% of the total
combined voting power of the Corporation, or of any subsidiary or parent thereof
(a "10% Shareholder"), the per share exercise price shall not be less than 110%
of the fair market value of the Common Stock on the date of the grant. The term
of each NQSO will be specified by the Stock Option Committee, which will
generally not exceed 10 years from the date of grant. However, the term of ISOs
must not exceed 10 years after the date of the grant (five years, if granted to
a 10% Shareholder). In addition, the fair market value of shares of Common Stock
subject to ISOs (determined as of the date such ISOs are granted) exercisable
for the first time by any individual during any calendar year may in no event
exceed $100,000.
Upon the exercise of an Option, the Option holder shall pay the Corporation
the exercise price plus the amount of the required federal and state withholding
taxes, if any. At the Stock Option Committee's discretion, the Plan allows the
participant to pay the exercise price (i) in cash, shares of Common Stock,
outstanding Options or other consideration or any combination thereof or (ii)
pursuant to a broker-assisted cashless exercise program, provided in each case
that such methods avoid "short-swing" trading profits to the participant under
Section 16(b) of the Exchange Act. The Plan also allows participants to elect to
have shares withheld upon exercise for the payment of withholding taxes.
The unexercised portion of any Option granted to an officer or key employee
under the Plan will generally be terminated (a) thirty (30) days after the date
on which the optionee's employment is terminated for any reason other than (i)
Cause (as defined in the Plan), (ii) retirement or mental or physical
disability, or (iii) death; (b) immediately upon the termination of the
optionee's employment for Cause; (c) three months after the date on which the
optionee's employment is terminated by reason of retirement or mental or
physical disability; or (d)(i) 12 months after the date on which the optionee's
employment is terminated by reason of the death of the optionee, or (ii) three
months after the date on which the optionee shall die if such death shall occur
during the three-month period following the termination of the optionee's
employment by reason of retirement or mental or physical disability. Generally,
any Option granted under the Plan which is forfeited, expires or terminates
prior to vesting or exercise will again be available for award under the Plan.
Directors' Options. The current Plan provides that each non-employee
director who is serving on the Board on December 31 of a year during the term of
the Plan beginning in calendar year 1998 will automatically receive a NQSO to
purchase shares of Common Stock on January 1 of the following year. On January
14, 1998, the Board of Directors approved an amendment to the Plan, which was
not subject to stockholder approval, that increased the size of such annual
formula grant under the Plan from an Option to purchase 2,500 shares of Common
Stock for each non-employee director to an Option to purchase 4,000 shares of
Common Stock. On January 14, 1998, the Board of Directors also approved an
amendment to the Plan, which was not subject to stockholder approval,
authorizing discretionary Option grants to non-employee directors under the
Plan. In addition, on May 28, 1998, the Board of Directors approved an amendment
to the Plan, subject to stockholder approval, which would reallocate the number
of shares of Common Stock issuable under the Plan to officers, key employees and
consultants on the one hand and non-employee directors on the other hand from
1,000,000 shares and 50,000 shares in the aggregate, respectively, to 975,000
shares and 75,000 shares in the aggregate, respectively. The exercise price of
the shares of Common Stock subject to Options granted to each non-employee
director shall be 100% of the fair market value of the shares of Common Stock on
the date of grant. Options granted to non-employee directors, with limited
exceptions, may only be exercised within ten years of the date of grant and
while the recipient of the Option is a director of the Corporation. Options
granted to non-employee directors terminate (i) upon termination of the
director's service as a director of the Corporation for any reason other than
mental or physical disability or death, (ii) three months after the date the
director ceases to serve as a director of the Corporation due to physical or
mental disability or (iii) (A) 12 months after the date the director ceases to
serve as a director due to the death of the director or (B) three months after
the death of the director if such death shall occur during the three month
period following the date the director ceased
23
<PAGE>
to serve as a director of the Corporation due to physical or mental disability.
Except as discussed herein, Options granted to non-employee directors are on the
same terms and conditions as all other Options granted pursuant to the Plan.
As of July 22, 1998 the following individuals and groups had been granted
Options under the Plan in the amounts indicated: Robert A. Zummo (Chairman of
the Board, President and Chief Executive Officer): 125,000 shares; Jeffrey J.
Kaplan (Executive Vice President and Chief Financial Officer): 275,000 shares;
Victor Guadagno (Vice President and President, Systems Group): 30,000 shares;
Thomas W. Cresante (former Executive Vice President and Chief Operating
Officer): 225,000 shares (of which options to purchase 139,333 shares were
forfeited in connection with Mr. Cresante's resignation as an employee of the
Corporation and under the terms of the Cresante Consulting Agreement); John L.
Hakes (former President, European Operations): 35,000 shares; W. Hardy Myers
(former President, North American Automotive Operations): 70,000 shares; Joseph
J. DioGuardi (Director): 21,000 shares; Francis X. Suozzi (Director): 21,000
shares; Robert J. Torok (Director): 21,000 shares; all current executive
officers as a group: 555,000 shares; all current non-executive officer directors
as a group: 63,000 shares; and all employees, including all current officers,
who are not executive officers, as a group: 148,766 shares. As of July 22, 1997,
the market value of the Common Stock underlying outstanding Options was
approximately $13,664,439.
Interest of Certain Persons in Matters to be Acted Upon
Each of Messrs. DioGuardi, Suozzi and Torok has a direct interest in the
approval of the amendments to the Plan to reallocate the number of shares of
Common Stock issuable under the Plan to officers, key employees and consultants
on the one hand and non-employee directors on the other hand from 1,000,000 and
50,000 shares in the aggregate to 975,000 and 75,000 shares in the aggregate,
respectively, thereby increasing the number of shares of Common Stock available
for issuance to non-employee directors under the Plan, by reason of a portion of
their Options under the Plan being subject to the approval of such amendment by
the Corporation's stockholders.
New Plan Benefits
The following table sets forth the amount of Options which will be granted
to the three non-employee directors, as a group, under the Plan in each year:
Option Plan
Name and Position Dollar Value Number of Units
- ----------------- ------------ ---------------
Non-Employee Director Group .............. * 12,000 Shares
- ----------
* Options would be granted at 100% of the fair market value of the shares
of Common Stock on the date of grant.
Federal Income Tax Consequences
Set forth below is a description of the federal income tax consequences
under the Code, of the grant and exercise of the benefits awarded under the
Plan.
There will be no federal income tax consequences to employees, consultants,
directors or the Corporation on the grant of a NQSO. On the exercise of a NQSO,
the employee, consultant or director generally will have taxable ordinary
income, subject, in the case of an employee, to withholding, in an amount equal
to the excess of the fair market value of the shares of Common Stock received on
the exercise date over the option price of the shares. The Corporation will be
entitled to a tax deduction in an amount equal to such excess, provided the
Corporation complies with applicable reporting and/or withholding rules. Any
ordinary income realized by an employee, consultant or director upon exercise of
a NQSO will increase his tax basis in the Common Stock thereby acquired. Upon
the sale of Common Stock acquired by exercise of a NQSO, employees, consultants
and directors will realize capital gain or loss, which capital gain may be
subject to reduced rates of tax depending upon the holding period for such
stock.
24
<PAGE>
An employee, consultant or director who surrenders shares of Common Stock
in payment of the exercise price of a NQSO will not recognize gain or loss on
his surrender of such shares, but will recognize ordinary income on the exercise
of the NQSO as described above. Of the shares received in such an exchange, that
number of shares equal to the number of shares surrendered will have the same
tax basis and capital gains holding period as the shares surrendered. The
balance of the shares received will have a tax basis equal to their fair market
value on the date of exercise, and the capital gains holding period will begin
on the date of exercise.
With respect to ISOs, no compensation income is recognized by a
participant, and no deduction is available to the Corporation upon either the
grant or exercise of an ISO. However, the difference between the exercise price
of an ISO and the market price of the Common Stock acquired on the exercise date
will be included in alternative minimum taxable income of a participant for the
purposes of the "alternative minimum tax." Generally, if an optionee holds the
shares acquired upon exercise of ISOs until the later of (i) two years from the
grant of the ISOs or (ii) one year from the date of acquisition of the shares
upon exercise of an ISO, any gain recognized by the participant on a sale of
such shares will be treated as capital gain. The gain recognized upon the sale
is the difference between the option price and the sale price of the Common
Stock. The net federal income tax effect on the holder of ISOs is to defer,
other than for alternative minimum tax purposes, until the shares are sold,
taxation of any increase in the value of the Common Stock from the time of grant
to the time of exercise. If the optionee sells the shares prior to the
expiration of the holding period set forth above, the optionee will realize
ordinary compensation income in the amount equal to the difference between the
exercise price and the fair market value on the date of exercise. The
compensation income will be added to the optionee's basis for purposes of
determining the gain on the sale of the shares. Such gain will be capital gain
if the shares are held as capital assets. If the application of the
above-described rule would result in a loss to the optionee, the compensation
income required to be recognized thereby would be limited to the excess, if any,
of the amount realized on the sale over the basis of the shares sold. If an
optionee disposes of shares obtained upon exercise of an ISO prior to the
expiration of the holding period described above, the Corporation will be
entitled to a deduction in the amount of the compensation income that the
optionee recognizes as a result of the disposition, subject to the Corporation
satisfying its withholding and/or reporting obligations.
If an optionee is permitted to, and does, make the required payment of the
option price by delivering shares of Common Stock, the optionee generally will
not recognize any gain as a result of such delivery, but the amount of gain, if
any, which is not so recognized will be excluded from his basis in the new
shares received. However, the use by an optionee of shares previously acquired
pursuant to the exercise of an ISO to exercise an Option will be treated as a
taxable disposition if the transferred shares have not been held by the optionee
for the requisite holding period described above.
If the Corporation delivers cash, in lieu of fractional shares, or shares
of Common Stock to an employee pursuant to a cashless exercise program, the
employee will recognize ordinary income equal to the cash paid and the fair
market value of any shares issued as of the date of exercise. An amount equal to
any such ordinary income will be deductible by the Corporation, provided it
complies with applicable withholding requirements.
Section 162(m) of the Code, which generally disallows a tax deduction for
compensation over $1,000,000 paid to the Chief Executive Officer and certain
other highly compensated employees of publicly held corporations, provides that
"performance-based" compensation will not be subject to the $1,000,000 deduction
limitation. Since an employer is not, except in the case of a disqualifying
disposition, entitled to a deduction upon the grant or exercise of an ISO in any
event, this provision generally does not affect the Corporation's tax treatment
with regard to ISOs. Options (other than ISOs) granted by "outside directors"
under a plan approved by stockholders with an exercise price equal to the fair
market value of the underlying stock as of the date of grant are considered
performance-based compensation, if certain requirements are met. The Plan meets
such requirements and, accordingly, income realized by employees with respect to
the Plan is not subject to the deduction limitation of Section 162(m).
The Plan is not subject to any provisions of the Employee Retirement Income
Security Act of 1974 and is not required to be qualified under Section 401(a) of
the Code.
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The Board of Directors recommends a vote FOR approval of the amendments to
the Plan.
ITEM 3. APPROVAL OF THE SENIOR MANAGEMENT PLAN
The Senior Management Plan was approved by the Compensation Committee on
October 13, 1997, effective as of April 1, 1997, and subsequently ratified by
the Board on May 28, 1998. Initial Awards under the Senior Management Plan,
which were granted for the fiscal year ended March 28, 1998, did not qualify as
performance-based compensation for purposes of Section 162(m) of the Code.
However, the Senior Management Plan provides that any awards which relate to a
fiscal year commencing on or after the first day of fiscal year 1999 are
conditioned upon the approval of the Senior Management Plan by the Corporation's
stockholders entitled to vote thereon at the Annual Meeting in accordance with
Section 162(m) of the Code. The Board of Directors of the Corporation believes
that the authorization of the Senior Management Plan would assist the
Corporation in attracting and retaining qualified executive officers. If the
Senior Management Plan is not approved, the conditional awards currently
outstanding thereunder will be void ab initio and no further incentive awards
will be granted under the Senior Management Plan.
The Board has determined to seek stockholder approval of the Senior
Management Plan in order to qualify compensation payable thereunder as
performance-based compensation for purposes of Section 162(m) of the Code. As
discussed earlier, Section 162(m) of the Code generally disallows a tax
deduction to publicly held corporations for "applicable employee remuneration"
of more than $1,000,000 paid in any year to a corporation's Chief Executive
Officer and to the four other most highly compensated employees. Qualifying
performance-based compensation will not be subject to the deduction limitation
if certain requirements are met. The Corporation believes that compensation
payable under the Senior Management Plan with respect to fiscal years of the
Corporation beginning on or after March 29, 1998, will qualify as
performance-based compensation upon stockholder approval of the Senior
Management Plan so long as the Senior Management Plan continues to be
administered by a committee comprised solely of two or more "outside directors"
within the meaning of Code Section 162(m).
The following is a summary of the material provisions of the Senior
Management Plan. Such summary should, however, be read in conjunction with, and
is qualified in its entirety by reference to, the complete text of the Senior
Management Plan, as set forth in Exhibit B to this Proxy Statement.
Purpose. The purpose of the Senior Management Plan is to benefit and
advance the interests of the Corporation by rewarding selected Key Executive
Officers of the Company (as defined below) for their contributions to the
Company's financial success and thereby motivating them to continue to make such
contributions in the future by granting them annual performance based awards
("Awards").
Administration of the Senior Management Plan. Under its terms, the Senior
Management Plan must be administered by the Compensation Committee of the Board
of Directors or another duly established committee of the Board of Directors.
The Compensation Committee is composed of three members, each of whom is an
"outside director" within the meaning of Section 162(m) of the Code. The
Compensation Committee has the full power and authority, subject to the
provisions of the Senior Management Plan, to designate participants, grant
Awards and determine the terms of all Awards.
Eligibility. Under the terms of the Senior Management Plan, only the
President, Chief Executive Officer, Chief Financial Officer, Chief Operating
Officer, Executive Vice President, Secretary and Treasurer of the Corporation
and such other executive officers of the Corporation as may be designated by the
Compensation Committee are eligible to participate in the Senior Management Plan
("Key Executive Officers"). Currently, four Key Executive Officers are eligible
to receive Awards under the Plan.
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<PAGE>
Awards. The Senior Management Plan provides for participating Key Executive
Officers of the Corporation to receive Awards in each fiscal year based on a
fixed percentage of a participant's base salary and certain weighted formulae
which take into account the achievement of certain financial targets and
performance thresholds established by the Compensation Committee in respect of
the relevant fiscal year.
Pursuant to the Senior Management Plan, prior to the beginning of any
fiscal year of the Corporation, with respect to each participant in the Senior
Management Plan (or, with respect to eligible persons commencing employment
after the beginning of a fiscal year, prior to any later date described in
Treasury Regulation 1.162-27(e)(2)) the Compensation Committee shall select the
participants for the fiscal year to be covered by any Award. With respect to
each such participant, the Compensation Committee then sets each of the
following: (i) one or more targets based on certain financial criteria for such
fiscal year on an absolute or relative basis (including comparisons of results
for the relevant fiscal year to either (x) results for the prior fiscal year or
(y) budget for the relevant fiscal year), and where applicable, measured before
or after interest, depreciation, amortization, service fees, extraordinary items
and/or special items, each as determined in accordance with generally accepted
accounting principles; (ii) the percentage of such participant's base salary to
be used to establish the amount payable as an Award depending on the degree of
satisfaction of the participant's target or targets; (iii) a performance
threshold with respect to each target based upon one or more financial criteria
determined by the Compensation Committee representing a minimum amount, which if
not achieved, would result in no Award being made to such participant under the
Senior Management Plan and (iv) a mathematical formula or matrix containing
weighting for each target and indicating the extent to which Awards will be made
depending on the degree to which such participants performance threshold and
targets are achieved or exceeded. The Compensation Committee has discretion
under the Senior Management Plan to determine the financial criteria upon which
targets may be based. The Compensation Committee has determined that targets
will be based upon one or more of the following financial criteria: (i) net
sales, (ii) pre-tax earnings, (iii) after-tax earnings, (iv) operating earnings,
and (v) earnings per share, each as determined in accordance with generally
accepted accounting principles. No payments may be made under the Senior
Management Plan until the Compensation Committee certifies in writing that the
applicable performance objectives have been satisfied.
Notwithstanding anything to the contrary, the Senior Management Plan
provides that no participant may be granted an Award in excess of $2,000,000 in
any one fiscal year under the Senior Management Plan.
It is a condition to receipt of any Award under the Senior Management Plan
that no participant shall have any right to receive payment of any Award unless
such participant remains in the employ of the Corporation through the date of
certification of such Award by the Compensation Committee; provided, however,
that the Compensation Committee may, in its sole discretion, pay all or any part
of an Award to any participant whose employment with the Corporation is
terminated prior to such date of certification by reason of death, disability or
retirement (as defined in the Senior Management Plan), or where other special
circumstances exist with respect to such participant.
As soon as practicable after the end of a fiscal year, and subject to
verification by the Compensation Committee, based upon the audited financial
statements of the Company, of the applicable financial criteria, the
Compensation Committee shall determine, with respect to each participant,
whether and the extent to which such participant's performance threshold(s) is
met or exceeded, including the extent to which, if any, the applicable target(s)
was attained or exceeded. Each participant's Award, if any, shall be calculated
in accordance with the mathematical formula or matrix established by the
Compensation Committee, subject to the $2,000,000 maximum limitation. The
Compensation Committee shall certify in writing to the Board the amount of such
Awards and satisfy itself that each material term of the Senior Management Plan
relating to such Award(s) has been satisfied. The determination of the
Compensation Committee shall be final and conclusive. Such Award shall become
payable in cash as promptly as practicable after certification of the Award.
However, from time to time, prior to the beginning of a fiscal year, the
Compensation Committee may, subject to the $2,000,000 maximum limitation and in
its sole discretion, offer participants the opportunity to defer receipt of all
or a portion of any Award that is made for such fiscal year.
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Amendment. The Compensation Committee may at any time alter, amend, suspend
or terminate the Senior Management Plan in whole or in part; provided that, no
such amendment alters the Award, target or other criteria relating to an Award
applicable to a participant in the Senior Management Plan for the fiscal year in
which such amendment is made or any prior fiscal year, except any such amendment
that may be made without causing such Award to cease to qualify as
performance-based compensation under Section 162(m)(4)(C) of the Code. In
addition, no amendment shall be made which adversely affects the rights of a
participant in the Senior Management Plan with respect to an outstanding Award,
without the consent of such participant.
Change of Control. Upon the occurrence of a change of control of the
Corporation (as defined in the Senior Management Plan), prior to the end of a
fiscal year to which an Award relates or the date of certification of an Award
earned in such fiscal year, unless otherwise specifically prohibited under
applicable laws or by the rules and regulations of any governing governmental
agencies or national securities exchanges, the target relating to such fiscal
year in which the date of the change of control occurs shall be deemed to have
been achieved; provided, however, that if the actual performance of the
Corporation for the portion of such fiscal year completed prior to the change of
control, when pro rated over the entire fiscal year, exceeds such target, then
the Awards payable to a participant shall be based upon the actual performance
of the Corporation as so calculated (subject to the $2,000,000 limitation set
forth above). Payments of Awards shall be made as promptly as practicable after
the date that the change of control occurs.
Interests of Certain Persons in Matters to be Acted Upon
Each of Messrs. Zummo and Kaplan has a direct interest in the approval of
the Senior Management Plan, by reason of future Awards to be made to them under
the Senior Management Plan being subject to the approval of the Senior
Management Plan by the Corporation's stockholders.
Since future Awards under the Senior Management Plan are at the discretion
of the Compensation Committee and will be based upon the future performance of
the Corporation, actual payments cannot be determined at this time. See
"Executive Compensation" for Awards granted to the Named Executives during
fiscal Year 1998.
Federal Income Tax Consequences
Compensation payable under the Senior Management Plan in the future will be
ordinary income subject to withholding, and will be allowed as a deduction to
the Corporation, subject to the Corporation satisfying its reporting and/or
withholding obligations. Although awards granted under the Senior Management
Plan are not exempt from the application of Section 162(m) of the Code, no
portion of the compensation paid pursuant to awards granted in fiscal year 1998
will be denied by virtue of Section 162(m) of the Code as a deduction to the
Corporation, because no "covered employee" (as defined for purposes of Section
162(m) of the Code) earned in excess of $1,000,000 of applicable employee
remuneration during such fiscal year.
The Board of Directors recommends a vote FOR approval of the Senior
Management Plan.
ITEM 4. APPROVAL OF THE SAR PLAN
The SAR Plan was approved by the Compensation Committee on October 13,
1997, effective as of April 1, 1997, and subsequently ratified by the Board on
May 28, 1998. Initial awards under the SAR Plan, which were granted for the
fiscal year ended March 28, 1998, did not satisfy certain requirements under
Section 162(m) of the Code, and therefore compensation payable upon exercise of
such SARs may be subject to the deduction limitations of Section 162(m) of the
Code. The SAR Plan provides that any SARs granted on or after the first day of
fiscal year 1999 are conditioned upon the approval of the SAR Plan by the
Corporation's stockholders entitled to vote thereon at the Annual Meeting in
accordance with Section 162(m) of the Code. The Board of Directors of the
Corporation believes that the authorization of the SAR Plan would assist the
Corporation in attracting and retaining qualified officers and employees.
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If the SAR Plan is not approved, conditional SAR awards currently
outstanding under the SAR Plan will be void ab initio and no further SAR awards
will be granted under the SAR Plan.
The Board has determined to seek stockholder approval of the SAR Plan in
order to qualify compensation payable thereunder as performance-based
compensation for purposes of Section 162(m) of the Code. As discussed earlier,
Section 162(m) of the Code generally disallows a tax deduction to publicly held
corporations for compensation of more than $1,000,000 paid in any year to a
corporation's Chief Executive Officer and to the four other most highly
compensated employees. Qualifying performance-based compensation will not be
subject to the deduction limitation if certain requirements are met. SARs
granted by a committee consisting solely of two or more "outside directors"
under a plan approved by shareholders will qualify as performance-based
compensation. The Corporation believes that compensation payable under the SAR
Plan with respect to SARs effective on and after the first day of fiscal year
1999, will qualify as performance-based compensation upon stockholder approval
of the SAR Plan so long as the SAR Plan continues to be administered by a
committee of at least two "outside directors."
The following is a summary of the material provisions of the SAR Plan. Such
summary should, however, be read in conjunction with, and is qualified in its
entirety by reference to, the complete text of the SAR Plan, as set forth in
Exhibit C to this Proxy Statement.
Purpose. The purpose of the SAR Plan is to benefit and advance the
interests of the Corporation by rewarding selected employees of the Corporation
and its subsidiaries for their contributions to the Corporation's financial
success and thereby motivating them to continue to make such contributions in
the future by allowing them to acquire a proprietary interest in the growth and
performance of the Corporation thus enhancing the value of the Corporation for
the benefit of its stockholders.
Administration of the SAR Plan. Under its terms, the SAR Plan must be
administered by the Compensation Committee of the Board of Directors or another
duly established committee of the Board of Directors. The Compensation Committee
is composed of three members, each of whom is an "outside director" within the
meaning of Section 162(m) of the Code. The Compensation Committee has the full
power and authority, subject to the provisions of the SAR Plan, to designate
participants, grant SARs under the SAR Plan and determine the terms of all SARs.
Eligibility. Under the terms of the SAR Plan, all officers and other key
employees of the Corporation are eligible to participate in the SAR Plan.
Currently, 10 employees of the Corporation are eligible to participate in the
SAR Plan.
Awards. Pursuant to the SAR Plan, the Compensation Committee may grant
participating officers and key employees of the Corporation SARs, which entitle
the recipients thereof to receive payments in cash equal to the appreciation in
the fair market value of a specified number of shares of Common Stock from the
date of grant until the date of exercise (the "Excess Value").
Pursuant to the SAR Plan, prior to the beginning of any fiscal year of the
Corporation, the Compensation Committee shall select the participants for such
fiscal year to be covered by an award of SARs and, with respect to each such
participant, shall adopt in writing the terms and amount of such award. Each
Participant selected, shall be granted effective on the first day of the
relevant fiscal year, an award of SARs as shall have been determined by the
Committee in its sole discretion in accordance with the SAR Plan.
In addition to the awards of SARs described above, SARs may be granted to
participants at any time and from time to time as shall be determined by the
Compensation Committee. The Compensation Committee shall have complete
discretion in determining the number of SARs granted to each participant
(subject to the maximum SAR award limitation set forth below) and, consistent
with the provisions of the SAR Plan, in determining the terms and conditions
pertaining to such SARs.
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Each award of SARs granted to a participant shall be evidenced by an award
agreement executed by the Corporation and such participant that shall specify
the term of the SAR and such other provisions as the Compensation Committee
shall determine. All award agreements shall be subject to the terms of the SAR
Plan.
The term of an SAR granted under the SAR Plan shall be determined by the
Compensation Committee, in its sole discretion; provided, however, that unless
otherwise designated by the Compensation Committee, such term shall not exceed
ten (10) years. In the absence of a designation by the Compensation Committee,
the term of a SAR shall be three (3) years. The SAR shall expire on the last day
of the term.
Upon the exercise of an SAR, a participant shall be entitled to receive a
cash payment from the Corporation in an amount equal to the Excess Value. Such
payment shall be made in cash, within thirty (30) days following the exercise
date. To the extent that an SAR has not been (x) terminated, (y) exercised or
(z) deemed to have been exercised prior to expiration, it will be deemed to have
been exercised on the last day of the term.
Unless and until the Compensation Committee determines that an award of
SARs to a Participant shall not be designed to comply with the exception for
performance-based compensation from the tax deductibility limitations of Section
162(m) of the Code, the maximum aggregate number of shares of Common Stock with
respect to which SARs may be granted under the SAR Plan in any one fiscal year
to a participant shall be 100,000.
Termination of Employment. Each award agreement relating to SARs shall set
forth the circumstances, if any, under which the participant shall have the
right to exercise the SARs granted thereunder following termination of the
participant's employment with the Corporation. Such provisions shall be
determined in the sole discretion of the Compensation Committee. Unless
otherwise provided in the relevant award agreement, upon termination of a
participant's employment prior to the expiration of any SAR held by such
participant (i) for any reason other than death or disability, retirement or a
change of control (as each such term is defined in the SAR Plan) including, a
termination by the Corporation without cause, all such SARs held by the
participant shall expire and all rights thereunder shall be forfeited and (ii)
as a result of death, disability or retirement of the participant, all SARs held
by such the participant shall be deemed to have been exercised as of the date of
such termination of employment by reason of such death, disability or retirement
and a cash payment shall be made equal to the Excess Value on such deemed date
of exercise.
Change of Control. Upon the occurrence of a change of control, unless
otherwise specifically prohibited under applicable laws, or by the rules and
regulations of any governing governmental agencies or national securities
exchanges, all SARs granted under the SAR Plan shall become fully exercisable as
of the date of such change of control and each outstanding SAR award shall be
deemed to have been exercised on such date and entitled to an immediate cash
payment in an amount equal to the Excess Value on such deemed date of exercise;
provided, however, that if, following such date, the Common Stock shall continue
to be quoted on NASDAQ (or a successor quotation system) or publicly traded on
an exchange, the participant shall have the option whether or not his or her
employment continues after such date, to exercise his or her respective SARs in
whole, but not in part (i) upon the date of such change in control or (ii) at
any time until the earlier of (x) the expiration date thereof or (y) the date
upon which the Common Stock shall cease to be quoted or publicly traded and in
the case of such delisting, the SAR shall be deemed to have been exercised on
the date of such delisting.
Amendment. The SAR Plan may be wholly or partially amended or otherwise
modified, suspended or terminated at any time by the Board, but no amendment
without the approval of the stockholders shall be made if stockholder approval
would be required under Section 162(m) of the Code or any other law or rule of
any governmental authority, stock exchange or other self-regulatory organization
to which the Corporation is subject. No such amendment which alters an award of
SARs shall be effective if such amendment would be treated as a cancellation and
new grant under Treasury Regulation Section 1.162-27(e)(2)(vi)(B), if such new
grant would be otherwise prohibited by the limitations set forth in the SAR Plan
or otherwise would cause compensation upon the exercise of such SAR award to
cease to qualify as performance-based compensation under Section 162(m)(4)(C) of
the Code. In addition, no
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amendment shall be made which adversely affects the rights of a participant with
respect to an outstanding award of SARs, without the consent of such
participant.
The following individuals and groups had been granted SARs during fiscal
year 1998 under the SAR Plan with respect to the number of shares of Common
Stock indicated, the compensation payable upon the exercise of which SARs will
not be performance-based compensation for purposes of Section 162(m) of the
Code: Robert A. Zummo (Chairman of the Board, President and Chief Executive
Officer): 40,000 shares; Jeffrey J. Kaplan (Executive Vice President and Chief
Financial Officer): 20,000 shares; Thomas W. Cresante (former Executive Vice
President and Chief Operating Officer): 20,000 shares (all of which have been
forfeited in connection with Mr. Cresante's resignation as an employee of the
Corporation and under the terms of the Cresante Consulting Agreement); John L.
Hakes (former President, European Operations): 6,000 shares (all of which have
been forfeited in connection with Mr. Hake's resignation as an employee of the
Corporation and under the terms of the Hakes Consulting Agreement); all current
executive officers as a group: 72,000 shares; and all employees, including all
current officers, who are not executive officers, as a group: 10,500 shares. As
of July 22, 1998, the market value of the Common Stock which are the subject of
outstanding SARs granted during fiscal year 1998 was approximately
$1,247,813.
As of July 22, 1998, the following individuals and groups had been granted
SARs during fiscal year 1999 under the SAR Plan with respect to the number of
shares of Common Stock indicated, the compensation payable upon the exercise of
which SARs will be performance-based compensation for purposes of Section 162(m)
of the Code if stockholder approval is obtained: Robert A. Zummo (Chairman of
the Board, President and Chief Executive Officer): 50,000 shares; Jeffrey J.
Kaplan (Executive Vice President and Chief Financial Officer): 40,000 shares;
all current executive officers as a group: 118,000 shares; and all employees,
including all current officers, who are not executive officers, as a group:
6,000 shares. As of July 22, 1998, the market value of the Common Stock which
are the subject of outstanding SARs granted during fiscal year 1999 was
approximately $1,875,500. All other SARs, if any, to be granted under the
SAR Plan after the first day of fiscal year 1999 are also subject to the
approval by the Corporation's stockholders of the SAR Plan.
Interests of Certain Persons in Matters to be Acted Upon
Each of Messrs. Zummo and Kaplan has a direct interest in the approval of
the SAR Plan, by reason of the SARs awarded to them during fiscal year 1999 and
awards for future years under the SAR Plan being subject to the approval of the
SAR Plan by the Corporation's stockholders.
Since future awards of SARs under the SAR Plan are at the discretion of the
Compensation Committee, actual awards of SARs cannot be determined at this time.
See "Executive Compensation" for SARs granted to the Named Executives during
fiscal year 1998.
Federal Income Tax Consequences
With respect to SARs granted during fiscal year 1999 under the SAR Plan,
the amount of cash received by a participant upon the exercise of any such SAR
will be ordinary income subject to withholding, and will be allowed as a
deduction to the Corporation, subject to the Corporation satisfying its
reporting and/or withholding obligations, and subject, in the case of SARs
granted during fiscal year 1998 to a person who is a "covered employee" (as
defined for purposes of Section 162(m) of the Code) on the last day of the
fiscal year of the exercise, to the deduction limitation of Section 162(m) of
the Code.
The Board of Directors recommends a vote FOR approval of the SAR Plan.
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ITEM 5. APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Audit Committee of the Board of Directors of the Corporation has
appointed Arthur Andersen LLP as independent accountants for fiscal year 1999.
See "Relationship with Independent Public Accountants." The Board of Directors
has determined that it is appropriate to seek ratification of the appointment of
Arthur Andersen LLP as independent accountants for fiscal year 1999. The Audit
Committee appointed Arthur Andersen LLP because of its high standing in its
field and because it is considered to be eminently qualified to perform this
important function. A representative of Arthur Andersen LLP is expected to be
present at the Annual Meeting and will have the opportunity to make a statement
if desired, and such representative is expected to be available to respond to
appropriate questions.
The Board of Directors recommends a vote FOR the ratification of the
appointment of Arthur Andersen LLP.
In the event the stockholders fail to ratify the appointment, the selection
of the independent accountants will be reconsidered by the Audit Committee.
Because it is difficult and not cost effective to make any change in independent
accountants so far into the year, the appointment of Arthur Andersen LLP would
probably be continued for fiscal year 1999, unless the Audit Committee or the
Board finds additional good reason for making an immediate change.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Corporation's executive officers and directors are required under the
Exchange Act to file reports of ownership and changes in ownership with the
Securities and Exchange Commission. Copies of those reports must also be
furnished to the Corporation. To the Corporation's knowledge, based solely on
the Corporation's review of the copies of such reports it has received, the
Corporation believes that during the fiscal year ended March 28, 1998, (i) each
of Robert A. Zummo, Jeffrey J. Kaplan, Stephen Duerk, Thomas W. Cresante, John
L. Hakes, Joseph J. DioGuardi, Robert J. Torok and Francis X. Suozzi failed to
file one report on Form 5 with respect to Options granted in fiscal 1998 to each
such executive officer or non-employee director, as the case may be, under the
Plan, (ii) each of Robert A. Zummo, Jeffrey J. Kaplan, Stephen Duerk, Paul M.
Betz and Richard R. Vande Voorde failed to file one report on Form 5 with
respect to SARs granted in fiscal 1998 to each such executive officer under the
SAR Plan, (iii) each of Thomas W. Cresante and John L. Hakes failed to file one
report on Form 5 with respect to SARs granted in fiscal 1998 to each such
executive officer under the SAR Plan (which SARs were subsequently forfeited in
connection with their respective resignations as employees of the Corporation
and under the terms of the Cresante Employment Agreement and Hakes Consulting
Agreement, as applicable, (iv) Robert A. Zummo filed one late report on Form 4
with respect to Common Stock acquired directly by him in connection with the
Valentec Acquisition and failed to file one report on Form 5 with respect to an
Option granted to Mr. Zummo during fiscal year 1997 (which Option was
subsequently disclosed on a report on Form 4), (v) Francis X. Suozzi filed one
late report on Form 4 with respect to Common Stock acquired by him in connection
with the Valentec Acquisition and failed to file one report on Form 5 with
respect to an Option granted to Mr. Suozzi in each of fiscal year 1996 and 1997
(which Options were subsequently disclosed on a report on Form 4), and (vi) Paul
L. Sullivan failed to file one report on Form 4 with respect to the exercise of
certain Options, and the subsequent sale of the underlying shares thereof,
pursuant to a broker-assisted cashless exercise program.
OTHER BUSINESS
The Board of Directors of the Corporation currently knows of no other
matters to be presented at the Annual Meeting. However, if any other matters
properly come before the meeting, or any adjournment thereof, it is intended
that proxies in the accompanying form will be voted in accordance with the
judgment of the persons named therein.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the next annual
meeting of the Corporation's Stockholders must be received by the Corporation
for inclusion in the Corporation's 1999 Proxy Statement and form of proxy on or
prior to April 8, 1999 in accordance with Rule 14a-8(d) promulgated under the
Exchange Act. Notice of proposals of stockholders submitted outside of the
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processes of Rule 14a-8 is considered untimely if they were received by the
Corporation after June 22, 1998.
ANNUAL REPORTS AND FINANCIAL STATEMENTS
The Annual Report to Stockholders of the Corporation for the year ended
March 28, 1998 (the "Annual Report") is being furnished simultaneously herewith.
Such Annual Report is not to be considered a part of this Proxy Statement. Upon
the written request of any stockholder, management will provide, free of charge,
a copy of the Corporation's annual report on Form 10-K for the fiscal year ended
March 28, 1998 (without exhibits), including the financial statements and
schedules thereto. Requests should be directed to Secretary, Safety Components
International, Inc., 2160 North Central Road, Fort Lee, NJ 07024.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Effective January 9, 1998, the Audit Committee of the Board of Directors
approved the appointment of Arthur Andersen LLP as the Corporation's independent
certified public accountants. The Corporation's financial statements for the
fiscal year ended March 28, 1998 have been examined by the firm of Arthur
Andersen LLP, independent certified public accountants. Representatives of
Arthur Andersen LLP are expected to be present at the Annual Meeting of
Stockholders to make a statement if they so desire and they are expected to be
available to respond to appropriate questions.
On January 9, 1998, the Corporation dismissed Price Waterhouse LLP as its
independent accountants. The decision to change independent accountants was
approved by the Audit Committee of the Board of Directors of the Corporation.
The reports of Price Waterhouse LLP on the financial statements of the
Corporation for the two fiscal years ended March 31, 1997 contained no adverse
opinion or disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principles.
In connection with its audits for the two most recent fiscal years and
through January 9, 1998, there have been no disagreements between the
Corporation and Price Waterhouse LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of Price Waterhouse LLP would
have caused it to make reference thereto in their report on the financial
statements for such years.
There were no "reportable events" as described in Item 304(a)(1)(v) of
Regulation S-K with respect to the Corporation within the two fiscal years
ending March 31, 1997 and the subsequent interim period prior to January 9,
1998.
The Company engaged Arthur Andersen LLP as its new independent accountants
as of January 12, 1998. During the two fiscal years ended March 31, 1997 and
through January 12, 1998, the Corporation did not consult with Arthur Andersen
LLP regarding either (i) the application of accounting principles to a specified
transaction, either completed or proposed; or the type of audit opinion that
might be rendered on the Corporation's financial statements, and neither a
written report was provided to the Corporation or oral advice was provided that
Arthur Andersen LLP concluded was an important factor considered by the
Corporation in reaching a decision as to the accounting, auditing or financial
reporting issue; or (ii) any matter that was either the subject of a
disagreement, as that term is defined in Item 304(a)(1)(iv) of Regulation S-K
and the related instructions to Item 304 of Regulation S-K, or a reportable
event, as that term is defined in Item 304(a)(1)(v) of Regulation S-K.
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COST OF SOLICITATION
The cost of soliciting proxies in the accompanying form has been or will be
borne by the Corporation. Directors, officers and employees of the Corporation
may solicit proxies personally or by telephone or other means of communications.
Although there is no formal agreement to do so, arrangements may be made with
brokerage houses and other custodians, nominees and fiduciaries to send proxies
and proxy material to their principals, and the Corporation may reimburse them
for any attendant expenses.
It is important that your shares be represented at the meeting. If you are
unable to be present in person, you are respectfully requested to sign the
enclosed proxy and return it in the enclosed stamped and addressed envelope as
promptly as possible.
By Order of the Board of Directors,
GEORGE D. PAPADOPOULOS
Secretary
Dated: July 25, 1998
Fort Lee, New Jersey
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Exhibit A
SAFETY COMPONENTS INTERNATIONAL, INC.
1994 STOCK OPTION PLAN
Section 1. Purpose
The purposes of this Safety Components International, Inc. 1994 Stock
Option Plan (the "Plan") are to encourage selected employees, consultants and
directors of Safety Components International, Inc. (together with any successor
thereto, the "Company") and its Affiliates (as defined below) to acquire a
proprietary interest in the growth and performance of the Company, to generate
an increased incentive to contribute to the Company's future success and
prosperity, thus enhancing the value of the Company for the benefit of its
stockholders, and to enhance the ability of the Company and its Affiliates to
attract and retain qualified individuals upon whom, in large measure, the
sustained progress, growth, and profitability of the Company depend.
Section 2. Definitions
As used in the Plan, the following terms shall have the meanings set forth
below:
(a) "Affiliate" shall mean (i) any entity that, directly or through one
or more intermediaries, is controlled by, controls or is under common control
with the Company and (ii) any entity in which the Company has a significant
equity interest, as determined by the Committee.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(d) "Committee" shall mean a committee of the Board designated by the
Board to administer the Plan and composed of not less than two directors, each
of whom is both a "Non-Employee Director" within the meaning of Rule 16b-3 and
an "outside director" as that term is defined for purposes of Section 162(m) of
the Code.
(e) "Consultant" shall mean any Person who contracts to provide
services to the Company as an independent contractor.
(f) "Fair Market Value" shall mean, with respect to Shares or other
securities (i) the closing price per Share of the Shares on the principal
exchange on which the Shares are then trading, if any, on such date, or, if the
Shares were not traded on such date, then on the next preceding trading day
during which a sale occurred; or (ii) if the Shares are not traded on an
exchange but are quoted on NASDAQ or a successor quotation system, (1) the last
sales price (if the Shares are then listed as a National Market Issue under the
NASDAQ National Market System) or (2) the mean between the closing
representative bid and asked prices (in all other cases) for the Shares on such
date as reported by NASDAQ or such successor quotation system; or (iii) if the
Shares are not publicly traded on an exchange and not quoted on NASDAQ or a
successor quotation system, the mean between the closing bid and asked prices
for the Shares on such date as determined in good faith by the Committee; or
(iv) if the Shares are not publicly traded, the fair market value established by
the Committee acting in good faith.
(g) "Incentive Stock Option" shall mean an option granted under Section
6 of the Plan that meets the requirements of Section 422 of the Code or any
successor provision thereto.
(h) "Independent Director" shall mean each member of the Board who is
not an employee of the Company or any Affiliate.
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(i) "Key Employee" shall mean any officer, director or other key
employee (as determined by the Board) who is a regular full-time employee of the
Company or its present and future Affiliates.
(j) "Non-Qualified Stock Option" shall mean an option granted under
Section 6 of the Plan that is not an Incentive Stock Option or an Option granted
under Section 7.
(k) "Option" shall mean an Incentive Stock Option or a Non-Qualified
Stock Option.
(1) "Option Agreement" shall mean a written agreement, contract, or
other instrument or document evidencing an Option granted under the Plan.
(m) "Participant" shall mean a Key Employee, Consultant or Independent
Director who has been granted an Option under the Plan.
(n) "Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, or
government or political subdivision thereof.
(o) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities
and Exchange Commission under the Securities Exchange Act of 1934, as amended,
or any successor rule or regulation thereto.
(p) "Shares" shall mean the common stock of the Company, $.01 par
value, and such other securities or property as may become the subject of
Options pursuant to an adjustment made under Section 4(b) of the Plan.
(q) "Ten Percent Stockholder" shall mean a Person, who together with
his or her spouse, children and trusts and custodial accounts for their benefit,
immediately at the time of the grant of an Option and assuming its immediate
exercise, would beneficially own, within the meaning of Section 424(d) of the
Code, Shares possessing more than ten percent (10%) of the total combined voting
power of all of the outstanding capital stock of the Company.
Section 3. Administration
(a) Generally. The Plan shall be administered by the Committee. Unless
otherwise expressly provided in the Plan, all designations, determinations,
interpretations and other decisions under or with respect to the Plan or any
Option shall be within the sole discretion of the Committee, may be made at any
time, and shall be final, conclusive, and binding upon all Persons, including
the Company, any Affiliate, any Participant, any holder or beneficiary of any
Option, any stockholder of the Company or any Affiliate, and any employee of the
Company or of any Affiliate.
(b) Powers. Subject to the terms of the Plan and applicable law and
except as provided in Section 7 hereof, the Committee shall have full power and
authority to: (i) designate Participants; (ii) determine the type or types of
Options to be granted to each Participant under the Plan; (iii) determine the
number of Shares to be covered by Options; (iv) determine the terms and
conditions of any Option; (v) determine whether, to what extent, and under what
circumstances Options may be settled or exercised in cash, Shares, other
Options, or other property, or canceled, forfeited, or suspended, and the method
or methods by which Options may be settled, exercised, canceled, forfeited, or
suspended; (vi) interpret and administer the Plan and any instruments or
agreements relating to, or Options granted under, the Plan; (vii) establish,
amend, suspend, or waive such rules and regulations and appoint such agents as
it shall deem appropriate for the proper administration of the Plan; and (viii)
make any other determination and take any other action that the Committee deems
necessary or desirable for the administration of the Plan.
(c) Reliance, Indemnification. The Committee may employ attorneys,
consultants, accountants or other persons and the Committee, the Company and its
officers and directors shall be entitled to rely upon the advice, opinions or
valuations of any such persons. No member of the Committee shall be personally
liable for any action, determination or interpretation taken or made in good
faith with respect to the Plan, or Options granted thereunder, and all members
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of the Committee shall be fully indemnified and protected by the Company in
respect of any such action, determination or interpretation.
Section 4. Shares Available for Options
(a) Shares Available. Subject to adjustment as provided in Section 4(b):
(i) Limitation on Number of Shares. Options issuable under the
Plan are limited such that the maximum aggregate number of Shares which
may issued pursuant to, or by reason of, Options is 1,050,000, of which
975,000 may be issued pursuant to, or by reason of, Options granted to
Key Employees and Consultants and 75,000 may be issued pursuant to, or
by reason of, Options granted to Independent Directors. Further, no
Participant shall be granted Non-Qualified Stock Options to purchase
more than 200,000 Shares in any one fiscal year. To the extent that an
Option granted to a (A) Key Employee or Consultant or (B) an
Independent Director ceases to remain outstanding by reason of
termination of rights granted thereunder, forfeiture or otherwise, the
Shares subject to such Option shall again become available for award
under the Plan to (x) Key Employees and Consultants and (y) Independent
Directors, respectively; provided, however, that in the case of the
cancellation or termination of a Non-Qualified Stock Option in the same
fiscal year that such Non-Qualified Stock Option was granted, both the
canceled Non-Qualified Stock Option and the newly granted Non-Qualified
Stock Option shall be counted in determining whether the recipient has
received the maximum number of such Options under the Plan for such
fiscal year.
(ii) Accounting for Awards. For purposes of this Section 4,
the number of Shares covered by an Option to a (A) Key Employee or
Consultant or (B) Independent Director shall be counted on the date of
grant of such Option against the aggregate number of Shares available
for granting Options under the Plan to (x) Key Employees and
Consultants or (y) Independent Directors, respectively.
(iii) Sources of Shares Deliverable Under Options. Any Shares
delivered pursuant to an Option may consist, in whole or in part, of
authorized and unissued Shares or of treasury Shares.
(b) Adjustments. In the event that the Committee shall determine that
any (i) subdivision or consolidation of Shares, (ii) dividend or other
distribution (whether in the form of cash, Shares, other securities, or other
property), (iii) recapitalization or other capital adjustment of the Company or
(iv) merger, consolidation or other reorganization of the Company or other
rights to purchase Shares or other securities of the Company, or other similar
corporate transaction or event, affects the Shares such that an adjustment is
determined by the Committee to be appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan, then the Committee shall, in such manner as it may deem
necessary to prevent dilution or enlargement of the benefits or potential
benefits intended to be made under the Plan, adjust any or all of (x) the number
and type of Shares which thereafter may be made the subject of Options, (y) the
number and type of Shares subject to outstanding Options, and (z) the grant,
purchase, or exercise price with respect to any Option or, if deemed
appropriate, make provision for a cash payment to the holder of an outstanding
Option; provided, however, in each case, that (i) with respect to Incentive
Stock Options no such adjustment shall be authorized to the extent that such
adjustment would cause the Plan to violate Section 422 of the Code or any
successor provision thereto; (ii) each such adjustment shall be made in such
manner as not to constitute a cancellation and reissuance of a Non-Qualified
Stock Option for purposes of Section 162(m) of the Code, or the regulations
promulgated thereunder, to the extent that such reissuance would result in the
grant of such Options in excess of the maximum permitted to be granted to any
Participant in any fiscal year; and (iii) the number of Shares subject to any
Option denominated in Shares shall always be a whole number.
Section 5. Eligibility
In addition to Section 7, Options may be granted only to Key Employees,
Independent Directors and Consultants; provided, that Incentive Stock Options
may be granted only to Key Employees of the Company, any parent corporation or
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any subsidiary, as these terms are defined in Section 424 of the Code. In
determining the Persons to whom Options shall be granted and the number of
Shares to be covered by each Option, the Committee shall take into account the
nature of the Person's duties, such Person's present and potential contributions
to the success of the Company and such other factors as it shall deem relevant
in connection with accomplishing the purposes of the Plan. A Key Employee or
Consultant who has been granted an Option or Options under the Plan may be
granted an additional Option or Options, subject to such limitations as may be
imposed by the Code on the grant of Incentive Stock Options.
Section 6. Option
The Committee is hereby authorized to grant Options to Participants
upon the following terms and the conditions (except to the extent otherwise
provided in Section 7) and with such additional terms and conditions, in either
case not inconsistent with the provisions of the Plan, as the Committee shall
determine:
(a) Exercise Price. The purchase price per Share purchasable
under Options shall not be less than 100% of the Fair Market Value of a
Share on the date of grant; provided that the purchase price per Share
purchasable under Incentive Stock Options granted to Ten Percent
Stockholders shall be not less than 110% of the Fair Market Value of a
Share on the date of grant.
(b) Option Term. The term of each Non-Qualified Stock Option
shall be fixed by the Committee but generally shall not exceed 10 years
from the date of grant. The term of each Incentive Stock Option shall
in no event be more than 10 years from the date of grant, or in the
case of an Incentive Stock Option granted to a Ten Percent Stockholder,
5 years from the date of grant.
(c) Time and Method of Exercise. The Committee shall determine
the time or times at which an Option may be exercised in whole or in
part, and the method or methods by which, and the form or forms in
which, payment of the option price with respect thereto may be made or
deemed to have been made (including, without limitation, (i) cash,
Shares, outstanding Options or other consideration, or any combination
thereof, having a Fair Market Value on the exercise date equal to the
relevant option price and (ii) a broker-assisted cashless exercise
program established by the Committee), provided in each case that such
methods avoid "short-swing" profits to the Participant under Section
16(b) of the Securities Exchange Act of 1934, as amended. The payment
of the exercise price of an Option may be made in a single payment or
transfer, in installments, or on a deferred basis, in each case in
accordance with rules and procedures established by the Committee.
(d) Early Termination. The unexercised portion of any Option
granted to a Key Employee under the Plan will generally be terminated
(i) thirty (30) days after the date on which the Key Employee's
employment is terminated for any reason other than (A) Cause (as
defined below), (B) retirement or mental or physical disability, or (C)
death; (ii) immediately upon the termination of the Key Employee's
employment for Cause; (iii) three months after the date on which the
Key Employee's employment is terminated by reason of retirement or
mental or physical disability; or (iv)(A) 12 months after the date on
which the Key Employee's employment is terminated by reason of the
death of the Key Employee, or (B) three months after the date on which
the Key Employee shall die if such death shall occur during the
three-month period following the termination of the Key Employee's
employment by reason of retirement or mental or physical disability.
The term "Cause," as used herein, shall mean (w) the Key Employee's
willful misconduct or fraud in the performance of his duties under such
Key Employee's employment arrangement with the Company, (x) the
continued failure or refusal of the Key Employee (following written
notice thereof) to carry out any reasonable request of the Board for
the provision of services under such Key Employee's employment
arrangement with the Company, (y) the material breach by the Key
Employee of his employment arrangement with the Company or (z) the
entering of a plea of guilty or nolo contendere to or the conviction of
the Key Employee for a felony or any other criminal act involving moral
turpitude, dishonesty, theft or unethical business conduct. For
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purposes of this paragraph (d), no act shall be considered willful
unless done or omitted to be done not in good faith and without
reasonable belief that such action or omission was in the best interest
of the Company.
(e) Incentive Stock Options. All terms of any Incentive Stock
Options granted under the Plan shall comply in all respects with the
provisions of Section 422 of the Code, or any successor provision
thereto, and any regulations promulgated thereunder.
(f) No Cash Consideration for Awards. Awards shall be granted
for no cash consideration or such minimal cash consideration as may be
required by applicable law.
(g) Limits on Transfer of Options. Subject to Code Section
422, no Option and no right under any such Option, shall be assignable,
alienable, saleable, or transferable by a Participant otherwise than by
will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined in the Code or Title I of
the Employee Retirement Income Security Act, or the rules thereunder;
provided, however, that, if so determined by the Committee, a
Participant may, in the manner established by the Committee, designate
a beneficiary or beneficiaries to exercise the rights of the
Participant, and to receive any property distributable, with respect to
any Option upon the death of the Participant. Each Option, and each
right under any such Option, shall be exercisable during the
Participant's lifetime, only by the Participant or, if permissible
under applicable law with respect to any Option that is not an
Incentive Stock Option, by the Participant's guardian or legal
representative. No Option and no right under any such Option, may be
pledged, alienated, attached, or otherwise encumbered, and any
purported pledge, alienation, attachment, or encumbrance thereof shall
be void and unenforceable against the Company or any Affiliate.
(h) Term of Options. Except as set forth in Section 6(b) and
Section 7, the term of each Option shall be for such period as may be
determined by the Committee.
(i) Share Certificates. All certificates for Shares or other
securities of the Company delivered under the Plan pursuant to any
Option or the exercise thereof shall be subject to such stop transfer
orders and other restrictions as the Committee may deem advisable under
the Plan or the rules, regulations, and other restrictions of the
Securities and Exchange Commission, any stock exchange upon which such
Shares or other securities are then listed, and any applicable Federal
or state securities laws, and the Committee may cause a legend or
legends to be put on any such certificates to make appropriate
reference to such restrictions.
Section 7. Options Awarded to Independent Directors
Each Independent Director who is a member of the Board on December 31 of a
year during the term of the Plan beginning in calendar year 1998 shall
automatically be granted a Non-Qualified Stock Option to purchase 4,000 Shares
on January 1 of the following year. All Options granted pursuant to this Section
7 shall (a) be at an exercise price per Share equal to 100% of the Fair Market
Value of a Share on the date of the grant; (b) have a term of 10 years; (c)
terminate (i) upon termination of an Independent Director's service as a
director of the Company for any reason other than mental or physical disability
or death, (ii) three months after the date the Independent Director ceases to
serve as a director of the Company due to physical or mental disability or
(iii)(A) 12 months after the date the Independent Director ceases to serve as a
director due to the death of the Independent Director or (B) three months after
the death of the Independent Director if such death shall occur during the three
month period following the date the Independent Director ceased to serve as a
director of the Company due to physical or mental disability; and (d) be
otherwise on the same terms and conditions as all other Options granted pursuant
to the Plan.
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Section 8. Amendment and Termination
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an Option Agreement or in the Plan:
(a) Amendments to the Plan. The Plan may be wholly or partially amended
or otherwise modified, suspended or terminated at any time or from time to time
by the Board, but no amendment without the approval of the stockholders of the
Company shall be made if stockholder approval would be required under Section
162(m) of the Code, Section 422 of the Code, Rule 16b-3 or any other law or rule
of any governmental authority, stock exchange or other self-regulatory
organization to which the Company is subject. Neither the amendment, suspension
nor termination of the Plan shall, without the consent of the holder of such
Option, alter or impair any rights or obligations under any Option theretofore
granted.
(b) Adjustments of Options Upon Certain Acquisitions. In the event the
Company or any Affiliate shall assume outstanding employee awards in connection
with the acquisition of another business or another corporation or business
entity, the Committee may make such adjustments, not inconsistent with the terms
of the Plan, in the terms of Options as it shall deem appropriate in order to
achieve reasonable comparability or other equitable relationship between the
assumed awards and the Options granted under the Plan as so adjusted.
(c) Adjustments of Options Upon the Occurrence of Certain Unusual or
Nonrecurring Events. The Committee shall be authorized to make adjustments in
the terms and conditions of, and the criteria included in, Options in
recognition of unusual or nonrecurring events (including, without limitation,
the events described in Section 4(b) hereof) affecting the Company, any
Affiliate, or the financial statements of the Company or any Affiliate or of
changes in applicable laws, regulations, or accounting principles, whenever the
Committee determines that such adjustments are appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits to be made
available under the Plan.
(d) Correction of Defects, Omissions, and Inconsistencies. The
Committee may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Option in the manner and to the extent it shall
deem desirable to carry the Plan into effect.
Section 9. Election to Have Shares Withheld
(a) In combination with or in substitution for cash withholding or any
other legal method of satisfying federal and state withholding tax liability, a
Participant may elect to have Shares withheld by the Company in order to satisfy
federal and state withholding tax liability (a "share withholding election"),
provided, (i) the Committee shall not have revoked its advance approval of the
holder's share withholding election; and (ii) the share withholding election is
made on or prior to the date on which the amount of withholding tax liability is
determined (the "Tax Date"). If a Participant elects within thirty (30) days of
the date of exercise to be subject to withholding tax on the exercise date
pursuant to the provisions of Section 83(b) of the Code, then the share
withholding election may be made during such thirty (30) day period.
Notwithstanding the foregoing, a holder whose transactions in Common Stock are
subject to Section 16(b) of the Securities Exchange Act of 1934, as amended, may
make a share withholding election only if the following additional conditions
are met: (i) the share withholding election is made no sooner than six (6)
months after the date of grant of the Option, except, however, such six (6)
month condition shall not apply if the Participant's death or disability (as
shall be determined by the Committee) occurs within such six (6) month period;
and (ii) the share withholding election is made (x) at least six (6) months
prior to the Tax Date, or (y) during the period beginning on the third business
day following the date of release of the Company's quarterly or annual financial
results and ending on the twelfth business day following such date.
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(b) A share withholding election shall be deemed made when written
notice of such election, signed by the Participant, has been hand delivered or
transmitted by registered or certified mail to the Secretary of the Company at
its then principal office. Delivery of said notice shall constitute an
irrevocable election to have Shares withheld.
(c) If a Participant has made a share withholding election pursuant to
this Section 9; and (i) within thirty (30) days of the date of exercise of the
Option, the Participant elects pursuant to the provisions of Section 83(b) of
the Code to be subject to withholding tax on the date of exercise of the Option,
then such Participant will be unconditionally obligated to immediately tender
back to the Company the number of Shares having an aggregate fair market value
(as determined in good faith by the Committee), equal to the amount of tax
required to be withheld plus cash for any fractional amount, together with
written notice to the Company informing the Company of the Participant's
election pursuant to Section 83(b) of the Code; or (ii) if the Participant has
not made an election pursuant to the provisions of Section 83(b) of the Code,
then on the Tax Date, such Participant will be unconditionally obligated to
tender back to the Company the number of Shares having an aggregate fair market
value (as determined in good faith by the Committee), equal to the amount of tax
required to be withheld plus cash for any fractional amount.
Section 10. Vesting Limitation on Incentive Stock Options
The Fair Market Value of Shares subject to Incentive Stock Options
(determined as of the date such Incentive Stock Options are granted) exercisable
for the first time by any individual during any calendar year shall in no event
exceed $100,000.
Section 11. General Provisions
(a) No Rights to Awards. No Key Employee or Consultant shall have any
claim to be granted any Option under the Plan, and there is no obligation for
uniformity of treatment of Key Employees or Consultants or holders or
beneficiaries of Options under the Plan. The terms and conditions of Options
need not be the same with respect to each recipient.
(b) No Limit on Other Plans. Nothing contained in the Plan shall
prevent the Company or any Affiliate from adopting or continuing in effect other
or additional compensation arrangements and such arrangements may be either
generally applicable or applicable only in specific cases.
(c) No Right to Employment. The grant of an Option shall not be
construed as giving a Participant the right to be retained in the employ of the
Company or any Affiliate. Further, the Company or an Affiliate may at any time
dismiss a Participant from employment, free from any liability, or any claim
under the Plan, unless otherwise expressly provided in the Plan or in any Option
Agreement.
(d) Governing Law. The validity, construction, and effect of the Plan
and any rules and regulations relating to the Plan shall be determined in
accordance with the laws of the State of Delaware and applicable Federal law.
(e) Severability. If any provision of the Plan or any Option is or
becomes or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction, or would disqualify the Plan or any Option under any law deemed
applicable by the Committee, such provision shall be construed or deemed amended
to conform to applicable laws, or if it cannot be construed or deemed amended
without, in the determination of the Committee, materially altering the intent
of the Plan, such provision shall be deemed void, stricken and the remainder of
the Plan and any such Option shall remain in full force and effect.
(f) No Trust or Fund Created. Neither the Plan nor any Option shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Affiliate and a Participant or
any other Person. To the extent that any Person acquires a right to receive
payments from the Company or any Affiliate pursuant to an Option, such right
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shall be no greater than the right of any unsecured general creditor of the
Company or any Affiliate.
(g) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Option, and the Committee shall determine
whether cash, other securities, or other property shall be paid or transferred
in lieu of any fractional Shares or whether such fractional Shares or any rights
thereto shall be canceled, terminated, or otherwise eliminated.
(h) Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision hereof.
Section 12. Effective Date of the Plan
The Plan is effective as of May 13, 1994.
Section 13. Term of the Plan
The Plan shall continue until the earlier of (i) the date on which all
Options issuable hereunder have been issued, (ii) the termination of the Plan by
the Board or (iii) May 12, 2004. However, unless otherwise expressly provided in
the Plan or in an applicable Option Agreement, any Option theretofore granted
may extend beyond such date and the authority of the Committee to amend, alter,
adjust, suspend, discontinue, or terminate any such Option or to waive any
conditions or rights under any such Option, and the authority of the Board to
amend the Plan, shall extend beyond such date.
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Exhibit B
SAFETY COMPONENTS INTERNATIONAL, INC.
SENIOR MANAGEMENT INCENTIVE PLAN
Section 1. Purpose. The purpose of the Safety Components
International, Inc. Senior Management Incentive Plan (the "Plan") is to benefit
and advance the interests of Safety Components International, Inc., a Delaware
corporation (the "Company"), by rewarding selected Key Executive Officers of the
Company (as hereinafter defined) for their contributions to the Company's
financial success and thereby motivating them to continue to make such
contributions in the future by granting annual performance based awards
("Awards").
Section 2. Definitions. The following terms when used in the Plan
shall, for purposes of the Plan, have the following meanings:
"Awards" shall have the meaning ascribed thereto in Section 1 hereof.
"Base Salary" shall mean the actual base salary paid to a Participant
during a Performance Period.
"Base Salary Percentage" shall mean that number, as determined by the
Committee for each Participant, representing the percentage of the Participant's
Base Salary which shall be payable as an Award (subject to limitation under
Section 7 hereof).
"Board" shall mean the Board of Directors of the Company.
"Change of Control" shall have the meaning ascribed thereto in Section
9(b) hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
the rules and regulations promulgated thereunder.
"Committee" shall mean the Compensation Committee of the Board or any
other duly established committee or subcommittee of the Board that the Board
hereinafter determines shall act as the Committee for purposes of the Plan.
"Company" shall have the meaning ascribed thereto in Section 1 hereof.
"Conditional Award" shall have the meaning ascribed thereto in Section
10(m) hereof.
"Continuing Director" shall mean, as of any date of determination, any
member of the Board who (i) was a member of the Board on the effective date of
the Plan or (ii) was nominated for election or elected to such board with the
affirmative vote of a majority of the Continuing Directors who were members of
the Board at the time of such nomination or election.
"Determination Date" shall have the meaning ascribed thereto in
Section 5 hereof.
"Disability" shall mean a termination of employment as determined by
the Committee, by reason of a Participant's inability to perform his/her duties
under his/her employment with the Company by reason of illness, injury or
incapacity (whether physical, mental, emotional or psychological) for a period
of either (i) ninety (90) consecutive days or (ii) one hundred eighty (180) days
in any consecutive three hundred sixty-five (365) day period. "Effective Date"
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shall have the meaning ascribed thereto in Section 10(m) hereof.
"Eligible Persons" shall have the meaning ascribed thereto in Section
4 hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Financial Criteria" shall have the meaning ascribed thereto in
Section 5(a) hereof.
"Fiscal Year" shall mean the fiscal year ending on March 31 or such
other period that the Company may hereafter adopt as its fiscal year.
"Key Executive Officer" shall mean each of the President, Chief
Executive Officer, Chief Financial Officer, Chief Operating Officer, Executive
Vice President, Secretary and Treasurer of the Company and such other executive
officers of the Company as may be designated by the Committee.
"Participant" shall mean each Key Executive Officer who has been
designated for participation in the Plan by the Committee in accordance with
Section 5 hereof.
"Performance Period" shall mean the Fiscal Year of the Company to
which an Award relates.
"Performance Threshold" shall have the meaning ascribed thereto in
Section 5 hereof.
"Plan" shall have the meaning ascribed thereto in Section 1 hereof.
"Retirement" shall mean termination of the employment of an employee
with the Company on or after the employee's 65th birthday.
"Rules and Regulations" shall mean the rules and regulations
promulgated under the Securities Exchange Act of 1934, as amended.
"Target" shall have the meaning ascribed thereto in Section 5(a)
hereof.
Section 3. Administration of the Plan.
(a) Generally. The Plan shall be administered by the
Committee. The Committee is authorized to administer, interpret and apply the
Plan and from time to time may adopt such rules, regulations and guidelines
consistent with the provisions of the Plan as it may deem advisable to carry out
the Plan, except that, to the extent permitted by Code Section 162(m), the
Committee may authorize any one or more of its members, or any officer of the
Company, to execute and deliver documents on behalf of the Committee. The
Committee's interpretations of the Plan, and all actions taken and
determinations made by the Committee pursuant to the powers vested in it
hereunder, shall be conclusive and binding on all parties concerned, including
the Company, its shareholders and the Participants. The Committee shall have
authority to determine the terms and conditions of the Awards granted to
Participants.
(b) Reliance and Indemnification. The Committee may employ
attorneys, consultants, accountants or other persons in connection with its
administration, interpretation and application of the Plan, and the Committee,
the Company and its officers and directors shall be entitled to rely upon the
advice, opinions or valuations of any such persons. No member of the Committee
shall be personally liable for any action, determination or interpretation taken
or made in good faith by the Committee with respect to the Plan or Awards
granted hereunder, and all members of the Committee shall be fully indemnified
and protected by the Company in respect of any such action, determination or
interpretation.
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Section 4. Participants. Only Key Executive Officers are eligible
to participate in the Plan ("Eligible Persons"). An individual shall not be
deemed an employee for purposes of the Plan unless such individual receives
compensation from the Company for services performed as an employee of the
Company.
Section 5. Determination of Targets. Prior to the beginning of
each Performance Period or, with respect to Eligible Persons commencing
employment after the beginning of a Performance Period, prior to any later date
described in Treasury Regulation 1.162-27(e)(2) (or any successor thereto) (each
a "Determination Date"), the Committee shall select the Participants for the
Fiscal Year or Fiscal Years to be covered by any Award or Awards and adopt in
writing, with respect to each Participant, each of the following:
(a) One or more Targets (each a "Target"), which shall be
equal to a desired level or levels for any Fiscal Year of any or a combination
of certain financial criteria on an absolute or relative basis (including
comparisons of results for the Performance Period to either (x) results for the
prior Fiscal Year or (y) budget for the Performance Period), and where
applicable, measured before or after interest, depreciation, amortization,
service fees, extraordinary items and/or special items, each as determined in
accordance with generally accepted accounting principles consistently applied
for the Company on a consolidated basis (collectively, the "Financial
Criteria"). The initial Financial Criteria (which shall continue to be the
Financial Criteria until a substitute criteria is designated by the Committee)
shall be earnings per share of the Company's common stock as determined in
accordance with generally accepted accounting principles.
(b) The Base Salary Percentage, which shall be used to
establish the amount which shall be payable as an Award depending upon the
degree of satisfaction of the Participant's Target.
(c) A performance threshold (the "Performance Threshold")
with respect to each Target based upon one or more Financial Criteria
representing a minimum amount, which if not achieved, would result in no Award
being made to a Participant under the Plan.
(d) A mathematical formula or matrix which shall contain
weighting for each Target and indicate the extent to which Awards will be made
(subject to limitation under Section 7 hereof) if such Participant's Performance
Threshold(s) is not exceeded, including if such Participant's Target(s) is
achieved or exceeded.
Section 6. Calculation of Awards; Certification; Payment;
Deferral. Awards may be granted only to Participants with respect to each
Performance Period, subject to the terms and conditions set forth in the Plan.
As soon as practicable after the end of the Performance Period, and subject to
verification by the Committee, based upon the audited financial statements of
the Company, of the applicable Financial Criteria, the Committee shall
determine, with respect to each Participant, whether and the extent to which
such Participant's Performance Threshold(s) is met or exceeded, including the
extent to which, if any, the applicable Target(s) was attained or exceeded. Each
Participant's Award, if any, shall be calculated in accordance with the
mathematical formula or matrix determined pursuant to Section 5 hereof, and
subject to limitation under Section 7 hereof. The Committee shall certify in
writing to the Board the amount of such Awards and satisfy itself that each
material term of the Plan relating to such Award(s) has been satisfied. The
determination of the Committee shall be final and conclusive. Subject to Section
8 hereof, such Award shall become payable in cash as promptly as practicable
after certification of the Award. However, from time to time, prior to the
beginning of a Performance Period, the Committee may, in its sole discretion
(under uniform rules applicable to all Participants and in compliance with
applicable law in effect at such time), offer Participants the opportunity to
defer receipt of all or a portion of any Award that is made (subject to
limitation under Section 7 hereof) for such Performance Period.
Section 7. Limitations. The aggregate amount of any Award to any
Participant for any Performance Period shall not exceed $2,000,000.
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Section 8. Employment Requirement. Employment Requirement. Except
as provided in Section 9 hereof, no Participant shall have any right to receive
payment of any Award unless such Participant remains in the employ of the
Company through the date of certification of such Award by the Committee;
provided, however, that the Committee may, in its sole discretion, pay all or
any part of an Award to any Participant whose employment with the Company is
terminated, prior to such date of certification, by reason of death, Disability
or Retirement, or where other special circumstances exist with respect to such
Participant.
Section 9. Change of Control.
(a) Change of Control. Upon the occurrence of a Change of
Control of the Company, prior to the end of a Performance Period or the date of
certification of an Award earned in such Performance Period, unless otherwise
specifically prohibited under applicable laws, or by the rules and regulations
of any governing governmental agencies or national securities exchanges, the
Target relating to the Performance Period in which the date of the Change of
Control occurs shall be deemed to have been achieved; provided, however, that if
the actual performance of the Company for the portion of such Performance Period
completed prior to the Change of Control, when pro rated over the entire
Performance Period, exceeds such Target, then the Awards payable to a
Participant shall be based upon the actual performance of the Company as so
calculated (subject to the limitation under Section 7 hereof). Payments of
Awards shall be made as promptly as practicable after the date that the Change
of Control occurs.
(b) Definition. A "Change of Control" of the Company means
and includes each of the following: (i) the acquisition, in one or more
transactions, of beneficial ownership (within the meaning of Rule 13d-3 of the
Rules and Regulations) by any person or entity or any group of persons or
entities who constitute a group (within the meaning of Section 13(d)(3) of the
Rules and Regulations) (other than Robert A. Zummo, a member of his immediate
family, a trust or similar estate planning vehicle established by Mr. Zummo, or
an entity in which Mr. Zummo owns, directly or indirectly, a majority of the
equity securities or voting rights), of any securities of the Company such that,
as a result of such acquisition, such person, entity or group either (A)
beneficially owns (within the meaning of Rule 13d-3 of the Rules and
Regulations), directly or indirectly, more than 30% of the Company's outstanding
voting securities entitled to vote on a regular basis for a majority of the
members of the Board or (B) otherwise has the ability to elect, directly or
indirectly, a majority of the members of the Board; (ii) a change in the
composition of the Board such that a majority of the members of the Board are
not Continuing Directors; (iii) the closing date of a merger or consolidation of
the Company with any other corporation, other than a merger or consolidation
which results in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at least 80% of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation; (iv) the stockholders of the Company approve a plan of complete
liquidation of the Company; or (v) the closing date of the sale or disposition
by the Company (if consummated in more than one transaction, the initial closing
date) of all or substantially all of the Company's assets, following shareholder
approval of such sale or disposition.
Notwithstanding the foregoing, the preceding events shall
not be deemed to be a Change of Control if, prior to any transaction or
transactions causing such change, a majority of the Continuing Directors shall
have voted not to treat such transaction or transactions as resulting in a
Change of Control.
Section 10. Miscellaneous.
(a) No Contract; No Rights to Awards or Continued
Employment. The Plan is not a contract between the Company and any Participant
or other employee. No Participant or other employee shall have any claim or
right to receive Awards under the Plan. Neither the Plan nor any action taken
hereunder shall be construed as giving any employee any right to be retained by
the Company.
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(b) No Right to Future Participation. Participation in the
Plan during one Performance Period shall not guarantee participation during any
other Performance Period.
(c) Restriction on Transfer. The rights of a Participant
with respect to Awards under the Plan shall not be transferable by the
Participant to whom such Award is granted (other than by will or the laws of
descent and distribution to the extent permitted by the Committee pursuant to
Section 8 hereof), and any attempted assignment or transfer shall be null and
void and shall permit the Committee, in its sole discretion, to extinguish the
Company's obligation under the Plan to pay any Award with respect to such
Participant.
(d) Tax Withholding. The Company shall have the right to
deduct from all payments made under the Plan to a Participant or to a
Participant's beneficiary or beneficiaries any Federal, state or local taxes
required by law to be withheld with respect to such payments.
(e) No Restriction on Right of Company to Effect Changes.
The Plan shall not affect in any way the right or power of the Company or its
shareholders to make or authorize any recapitalization, reorganization, merger,
acquisition, divestiture, consolidation, spin off, combination, liquidation,
dissolution, sale of assets, or other similar corporate transaction or event
involving the Company or a subsidiary thereof or any other event or series of
events, whether of a similar character or otherwise.
(f) Source of Payments. The Plan shall be unfunded. The Plan
shall not create or be construed to create a trust or separate fund or
segregation of assets of any kind or a fiduciary relationship between the
Company and a Participant or any other individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, or
government or political subdivision thereof. To the extent that any Participant
is granted an Award under Section 6 hereof (subject to limitation under Section
7 hereof), such Participant's right to receive such Award shall be no greater
than the right of any unsecured general creditor of the Company.
(g) No Interest. If the Company for any reason fails to make
payment of an Award at the time such Award becomes payable, the Company shall
not be liable for any interest or other charges thereon.
(h) Amendment and Termination.
(i) Amendment and Termination of the Plan. The
Committee may at any time and from time to time alter, amend, suspend or
terminate the Plan in whole or in part; no such amendment shall be effective
which alters the Award, Target or other criteria relating to an Award applicable
to a Participant for the Performance Period in which such amendment is made or
any prior Performance Period, except any such amendment that may be made without
causing such Award to cease to qualify as performance-based compensation under
Section 162(m)(4)(C) of the Code. In addition, no amendment shall be made which
adversely affects the rights of the Participant with respect to an outstanding
Award, without the consent of such Participant.
(ii) Correction of Defects, Omissions and
Inconsistencies. The Committee may correct any defect, supply any omission or
reconcile any inconsistency in the Plan or any Award in the manner and to the
extent it shall desire to carry the Plan into effect.
(i) Governmental Regulations. The Plan, and all Awards
hereunder, shall be subject to all applicable rules and regulations of
governmental or other authorities.
(j) Headings. The headings of sections and subsections
herein are included solely for convenience of reference and shall not affect the
meaning of any of the provisions of the Plan.
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(k) Governing Law. The validity, construction,
interpretation, administration and effect of the Plan and of its rules and
regulations, and rights relating to the Plan, shall be determined solely in
accordance with the laws of the State of Delaware, without regard to the
choice-of-law principles thereof, and applicable federal law.
(l) Severability. If any term or provision of the Plan or
the application thereof (i) as to any Participant or circumstance (other than as
described in clause (ii)) is, to any extent, found to be illegal or invalid, or
(ii) would cause any Award to any Participant not to constitute
performance-based compensation under Section 162(m)(4)(C) of the Code, then the
Committee shall sever such term or provision from the Plan and, thereupon, such
term or provision shall not be a part of the Plan.
(m) Effective Date. The Plan shall be effective as of April
1, 1997 (the "Effective Date"); provided, however, that it shall be a condition
to the effectiveness of any Awards which relate to a Performance Period
commencing on or after the first day of fiscal year 1999 ("Conditional Awards"),
that the shareholders of the Company entitled to vote thereon approve the Plan
at the 1998 Annual Meeting of Shareholders of the Company. Such approval shall
meet the requirements of Section 162(m) of the Code and the regulations
thereunder. If such approval is not obtained, then any Conditional Award shall
be void ab initio.
(n) Approval and Re-approval by Shareholders. To the extent
required under Section 162(m) of the Code, (i) any change to the material terms
of the Financial Criteria shall be disclosed to and approved by the shareholders
of the Company entitled to vote thereon at the next Annual Meeting of
Shareholders of the Company to be held following such change, and (ii) the
material terms of the Financial Criteria shall be disclosed to and re-approved
by the shareholders of the Company entitled to vote thereon no later than the
Annual Meeting of Shareholders of the Company that occurs in the fifth year
following the year in which shareholders of the Company approve the Financial
Criteria.
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Exhibit C
SAFETY COMPONENTS INTERNATIONAL, INC.
STOCK APPRECIATION RIGHTS AWARD PLAN
Section 1. Purpose. The purpose of the Safety Components
International, Inc. Stock Appreciation Rights Award Plan (the "Plan") is to
benefit and advance the interests of Safety Components International, Inc., a
Delaware corporation (the "Company"), by rewarding selected employees of the
Company and its Subsidiaries (as defined herein) for their contributions to the
Company's financial success and thereby motivating them to continue to make such
contributions in the future by allowing them to acquire a proprietary interest
in the growth and performance of the Company thus enhancing the value of the
Company for the benefit of its stockholders.
Section 2. Definitions. The following terms when used in the Plan
shall, for purposes of the Plan, have the following meanings:
"Awards" shall mean an award of Stock Appreciation Rights under
the Plan.
"Award Agreement" shall have the meaning ascribed thereto in
Section 7(c) hereof.
"Base Price" shall mean the Fair Market Value of the Common stock
to which an SAR relates on the date of grant thereof.
"Board" shall mean the Board of Directors of the Company.
"Change of Control" shall have the meaning ascribed thereto in
Section 10(b) hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended,
and the regulations promulgated thereunder.
"Committee" shall mean the Compensation Committee of the Board or
any other duly established committee or subcommittee of the Board that the Board
hereinafter determines shall act as the Committee for purposes of the Plan.
"Common Stock" shall mean the common stock of the Company, par
value .01 per share.
"Company" shall have the meaning ascribed thereto in Section 1
hereof.
"Conditional Award" shall have the meaning ascribed thereto in
Section 11(m) hereof.
"Continuing Director" shall mean, as of any date of
determination, any member of the Board who (i) was a member of the Board on the
effective date of the Plan or (ii) was nominated for election or elected to such
board with the affirmative vote of a majority of the Continuing Directors who
were members of the Board at the time of such nomination or election.
"Delisting Date" shall have the meaning ascribed thereto in
Section 10(a) hereof.
"Disability" shall mean termination of employment as determined
by the Committee, by reason of a Participant's inability to perform his/her
duties under his/her employment with the Company or any of its Subsidiaries by
reason of illness, injury or incapacity (whether physical, mental, emotional or
psychological) for a period of either (i) ninety (90) consecutive days or (ii)
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one hundred eighty (180) days in any consecutive three hundred sixty-five (365)
day period.
"Eligible Person" shall have the meaning ascribed thereto in
Section 5 hereof.
"Effective Date" shall have the meaning ascribed thereto in
Section 11(m) hereof.
"Excess Value" shall mean the excess of the Fair Market Value of
the Common Stock to which the SAR relates on the date of exercise (or the deemed
date of exercise pursuant to Section 7(e) or 9(b) hereof) over the Base Price.
"Fair Market Value" shall mean, with respect to shares of Common
Stock (i) the closing price per share of Common Stock on the principal exchange
on which the Common Stock is then trading, if any, on such date, or, if the
Common Stock was not traded on such date, then on the next preceding trading day
during which a sale occurred; or (ii) if the Common Stock is not traded on an
exchange but is quoted on NASDAQ or a successor quotation system, (1) the last
sales price (if the Common Stock is then listed as a National Market Issue under
the NASDAQ National Market) or (2) the mean between the closing representative
bid and asked prices (in all other cases) for the Common Stock on such date as
reported by NASDAQ or such successor quotation system; or (iii) if the Common
Stock is not publicly traded on an exchange and not quoted on NASDAQ or a
successor quotation system, the mean between the closing bid and asked prices
for the Common Stock on such date as determined in good faith by the Committee;
or (iv) if the Common Stock is not publicly traded, the fair market value
established by the Committee acting in good faith.
"Fiscal Year" shall mean the fiscal year ending on March 31 or
such other period that the Company may hereafter adopt as its fiscal year.
"Participant" shall mean any Eligible Person that has been
designated for participation in the Plan by the Committee in accordance with
Section 6 hereof.
"Performance Period" shall mean the Fiscal Year of the Company to
which an Award relates.
"Plan" shall have the meaning ascribed thereto in Section 1
hereof.
"Retirement" shall mean termination of the employment of an
employee with the Company or a Subsidiary on or after the employee's 65th
birthday.
"Rules and Regulations" shall mean the rules and regulations
promulgated under the Securities and Exchange Act of 1934, as amended.
"Stock Appreciation Right" or "SAR" shall mean the right of a
Participant to receive an amount, which shall be payable in cash equal to the
Excess Value.
"Subsidiary" shall mean with respect to any person, any
corporation, association or other business entity of which securities
representing more than 50% of the combined voting power of all classes of equity
interests (or in the case of an association or other business entity which is
not a corporation, 50% or more of the equity interest) is at the time owned or
controlled, directly or indirectly, by that person, corporation, association or
other business entity or one or more of its Subsidiaries or a combination
thereof.
Section 3. Administration of the Plan.
(a) Generally. The Plan shall be administered by the
Committee. The Committee is authorized to administer, interpret and apply the
Plan and from time to time may adopt such rules, regulations and guidelines
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consistent with the provisions of the Plan as it may deem advisable to carry out
the Plan, except that the Committee may authorize any one or more of its
members, or any officer of the Company, to execute and deliver documents on
behalf of the Committee. The Committee's interpretations of the Plan, and all
actions taken and determinations made by the Committee pursuant to the powers
vested in it hereunder, shall be conclusive and binding on all parties
concerned, including the Company, its shareholders and the Participants. The
Committee shall have authority to determine the terms and conditions of the
Awards granted to Participants.
(b) Reliance and Indemnification. The Committee may employ
attorneys, consultants, accountants or other persons in connection with its
administration, interpretation and application of the Plan, and the Committee,
the Company and its officers and directors shall be entitled to rely upon the
advice, opinions or valuations of any such persons. No member of the Committee
shall be personally liable for any action, determination or interpretation taken
or made in good faith by the Committee with respect to the Plan or Awards
granted hereunder, and all members of the Committee shall be fully indemnified
and protected by the Company in respect of any such action, determination or
interpretation.
Section 4. Adjustments. In the event that any change in
capitalization, such as a stock split or dividend, or a corporate transaction
such as a merger, consolidation, separation or other transaction of a type
described in Treasury Regulation Section 1.162-27(e)(2)(iii)(C) is effected,
such that an adjustment is determined by the Committee to be appropriate in
order to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan, then the Committee shall, in such
manner as it may deem necessary to prevent dilution or enlargement of the
benefits or potential benefits intended to be made under the Plan, adjust any or
all of (i) the number and type of shares with respect to which SARs may be
granted, (ii) the number and type of shares which may be issued upon the
exercise of SARs, and (iii) the grant, purchase or Fair Market Value of the
Common Stock with respect to any SAR or, if deemed appropriate, make provision
for a cash payment to the holder of an outstanding SAR. In computing any
adjustment under this Section, any fractional share shall be eliminated.
Section 5. Eligible Persons; Participants. All officers and other
key employees of the Company or its Subsidiaries (each an "Eligible Person")
shall be eligible to participate in the Plan. An individual shall not be deemed
an employee for purposes of the Plan unless such individual receives
compensation from either the Company or one of its Subsidiaries for services
performed as an employee of the Company or any one of its Subsidiaries.
Section 6. Determination of Awards. The Committee shall select
the Participants for the Fiscal Year or Fiscal Years to be covered by any Award
or Awards and adopt in writing, with respect to each Participant, the terms and
amount of each Award to be granted to each Participant under Section 7(a)
hereof.
Section 7. Stock Appreciation Rights.
(a) Annual Grant of SARs. Each Participant selected pursuant
to Section 6 hereof, shall be granted effective on the first day of the
Performance Period that the Common Stock is traded, an Award as shall have been
determined by the Committee in its sole discretion in accordance with Section 6
hereof.
(b) Discretionary Grant of SARs. In addition to the Awards
provided for in Subsection (a) hereof, Awards may be granted to Participants at
any time and from time to time as shall be determined by the Committee. The
Committee shall have complete discretion in determining the number of SARs
granted to each Participant (subject to limitation under Section 8 hereof) and,
consistent with the provisions of the Plan, in determining the terms and
conditions pertaining to such SARs.
(c) Award Agreements. Each Award granted to a Participant
shall be evidenced by an Award Agreement (an "Award Agreement") executed by the
Company and such Participant that shall specify the term of the SAR and such
other provisions as the Committee shall determine. All Award Agreements shall be
subject to the terms of the Plan.
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<PAGE>
(d) Term. The term of an SAR granted under the Plan shall be
determined by the Committee, in its sole discretion; provided, however, that
unless otherwise designated by the Committee, such term shall not exceed ten
(10) years. In the absence of a designation by the Committee, the Term shall be
three (3) years. The SAR shall expire on the last day of the Term.
(e) Exercise. Upon the exercise of an SAR (or the deemed
date of exercise pursuant to Section 9(b) hereof or this Section 7(e)), a
Participant shall be entitled to receive a cash payment from the Company in an
amount equal to the Excess Value. Such payment shall be made in cash, within
thirty (30) days following the exercise date (or the deemed date of exercise
pursuant to Section 9(b) hereof or this Section 7(e). To the extent that an SAR
has not been (x) terminated under Section 9, (y) exercised or (z) deemed to have
been exercised prior to expiration, it will be deemed to have been exercised on
the last day of the Term.
Section 8. Limitations. Unless and until the Committee determines
that an Award to a Participant shall not be designed to comply with the
exception for performance-based compensation from the tax deductibility
limitations of Section 162(m) of the Code, (i) subject to adjustment under
Section 4 hereof, the maximum aggregate number of shares of Common Stock with
respect to which SARs may be granted under the Plan in any one Fiscal Year to a
Participant shall be 100,000.
Section 9. Termination of Employment. Each Award Agreement shall
set forth the circumstances, if any, under which the Participant shall have the
right to exercise the SARs granted thereunder following termination of the
Participant's employment with the Company or any of its Subsidiaries. Such
provisions (i) shall be determined in the sole discretion of the Committee, (ii)
shall be included in the Award Agreement entered into with each Participant, and
(iii) need not be uniform among all SARs granted under the Plan. Subject to
Section 11 hereof, in the event that a Participant's Award Agreement does not
set forth such termination provisions, the following termination provisions
shall apply:
(a) Termination other than Death, Disability, Retirement or
Change of Control. If the Participant ceases to be an employee of the Company
and its Subsidiaries prior to the expiration of any SAR's granted hereunder for
any reason other than death or Disability, Retirement or a Change of Control
including, a termination by the Company without cause, all such SARs held by the
Participant shall expire and all rights thereunder shall be forfeited.
(b) Termination due to Death, Disability or Retirement. If
the Participant ceases to be an employee of the Company and its Subsidiaries
prior to the expiration of any SAR's granted hereunder as a result of death,
Disability or Retirement, all SARs held by the Participant shall be deemed to
have been exercised as of the date of such termination of employment by reason
of such death, Disability or Retirement and a cash payment shall be made equal
to the Excess Value on such deemed date of exercise.
(c) Intracompany Transfers. For purposes of the Plan,
transfers of employment between the Company and its Subsidiaries shall not be
deemed a termination of employment.
Section 10. Change of Control.
(a) Change of Control. Upon the occurrence of a Change of
Control, unless otherwise specifically prohibited under applicable laws, or by
the rules and regulations of any governing governmental agencies or national
securities exchanges, all SARs granted under the Plan shall become fully
exercisable as of the date of such Change of Control and each outstanding Award
shall be deemed to have been exercised on such date and entitled to an immediate
cash payment in an amount equal to the Excess Value on such deemed date of
exercise provided, however, that if, following such date, the Common Stock shall
continue to be quoted on NASDAQ (or a successor quotation system) or publicly
traded on an exchange, the Participant shall have the option whether or not his
or her employment continues after such date, to exercise his or her respective
SARs in whole, but not in part (i) upon the date of such Change in Control or
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(ii) at any time until the earlier of (x) the expiration date thereof or (y) the
date upon which the Common Stock shall cease to be quoted or publicly traded
(the "Delisting Date") and in the case of such delisting, the SAR shall be
deemed to have been exercised on the Delisting Date.
(b) Definition. "Change of Control" means and includes each
of the following: (i) the acquisition, in one or more transactions, of
beneficial ownership (within the meaning of Rule 13d-3 of the Rules and
Regulations) by any person or entity or any group of persons or entities who
constitute a group (within the meaning of Section 13(d)(3) of the Rules and
Regulations) (other than Robert A. Zummo, a member of his immediate family, a
trust or similar estate planning vehicle established by Mr. Zummo, or an entity
in which Mr. Zummo owns, directly or indirectly, a majority of the equity
securities or voting rights), of any securities of the Company such that, as a
result of such acquisition, such person, entity or group either (A) beneficially
owns (within the meaning of Rule 13d-3 of the Rules and Regulations), directly
or indirectly, more than 30% of the Company's outstanding voting securities
entitled to vote on a regular basis for a majority of the members of the Board
or (B) otherwise has the ability to elect, directly or indirectly, a majority of
the members of the Board; (ii) a change in the composition of the Board such
that a majority of the members of the Board are not Continuing Directors; or
(iii) the Closing Date of a merger or consolidation of the Company with any
other corporation, other than a merger or consolidation which results in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least 80% of the total voting
power represented by the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation; (iv) the
stockholders of the Company approve a plan of complete liquidation of the
Company; or (v) the closing date of the sale or disposition by the Company (if
consummated in more than one transaction, the initial closing date) of all or
substantially all of the Company's assets, following shareholder approval of
such sale or disposition.
Notwithstanding the foregoing, the preceding events shall
not be deemed to be a Change of Control if, prior to any transaction or
transactions causing such change, a majority of the Continuing Directors shall
have voted not to treat such transaction or transactions as resulting in a
Change of Control.
Section 11. Miscellaneous.
(a) No Contract; No Rights to Awards or Continued
Employment. The Plan is not a contract between the Company and any Participant
or other employee. No Participant or other employee shall have any claim or
right to receive Awards under the Plan. Neither the Plan nor any action taken
hereunder shall be construed as giving any employee any right to be retained by
the Company or any of its Subsidiaries.
(b) No Right to Future Participation. Participation in the
Plan during one Performance Period shall not guarantee participation during any
other Performance Period.
(c) Restriction on Transfer. Except as otherwise provided in
a Participant's Award Agreement, the rights of a Participant with respect to
Awards under the Plan shall not be transferable by the Participant to whom such
Award is granted (other than by will or the laws of descent and distribution),
and any attempted assignment, transfer or pledge shall be null and void and
shall permit the Committee, in its sole discretion, to extinguish the Company's
obligation under the Plan to make any payment with respect to such Award.
Further, except as otherwise provided in a Participant's Award Agreement, all
SARs granted to a Participant under the Plan shall be exercisable during his or
her lifetime only by such Participant.
(d) Tax Withholding. The Company or any of its Subsidiaries,
as appropriate, shall have the right to deduct from all payments made under the
Plan to a Participant or to a Participant's beneficiary or beneficiaries any
federal, state or local taxes required by law to be withheld with respect to
such payments.
(e) No Restriction on Right of Company to Effect Changes.
The Plan shall not affect in any way the right or power of the Company or its
shareholders to make or authorize any recapitalization,reorganization, merger,
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acquisition, divestiture, consolidation, spin off, combination, liquidation,
dissolution, sale of assets, or other similar corporate transaction or event
involving the Company or a Subsidiary thereof or any other event or series of
events, whether of a similar character or otherwise.
(f) Source of Payments. The Plan shall be unfunded. The Plan
shall not create or be construed to create a trust or separate fund or
segregation of assets of any kind or a fiduciary relationship between the
Company and a Participant or any other individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, or
government or political subdivision thereof. To the extent that any Participant
is granted an Award under Section 7 hereof, such Participant's right to receive
such Award shall be no greater than the right of any unsecured general creditor
of the Company.
(g) No Interest. If the Company for any reason fails to make
payment of an Award at the time such Award becomes payable, the Company shall
not be liable for any interest or other charges thereon.
(h) Amendment and Termination.
(i) Amendment and Termination of the Plan. The Plan may
be wholly or partially amended or otherwise modified, suspended or terminated at
any time or from time to time by the Board, but no amendment without the
approval of the shareholders of the Company shall be made if shareholder
approval would be required under Section 162(m) of the Code or any other law or
rule of any governmental authority, stock exchange or other self-regulatory
organization to which the Company is subject. No such amendment which alters an
Award shall be effective if such amendment would be treated as a cancellation
and new grant under Treasury Regulation Section 1.162-27(e)(2)(vi)(B), if such
new grant would be prohibited by the limitation contained in Section 8(a)(i)
hereof or otherwise would cause compensation upon the exercise of such Award to
cease to qualify as performance-based compensation under Section 162(m)(4)(C) of
the Code. In addition, no amendment shall be made which adversely affects the
rights of the Participant with respect to an outstanding Award, without the
consent of such Participant.
(ii) Correction of Defects, Omissions and
Inconsistencies. The Committee may correct any defect, supply any omission or
reconcile any inconsistency in the Plan or any Award in the manner and to the
extent it shall desire to carry the Plan into effect.
(i) Governmental Regulations. The Plan, and all Awards
hereunder, shall be subject to all applicable rules and regulations of
governmental or other authorities.
(j) Headings. The headings of sections and subsections
herein are included solely for convenience of reference and shall not affect the
meaning of any of the provisions of the Plan.
(k) Governing Law. The validity, construction,
interpretation, administration and effect of the Plan and of its rules and
regulations, and rights relating to the Plan, shall be determined solely in
accordance with the laws of the State of Delaware, without regard to the
choice-of-law principles thereof, and applicable federal law.
(l) Severability. If any term or provision of the Plan or
the application thereof (i) as to any Participant or circumstance (other than as
described in clause (ii)) is, to any extent, found to be illegal or invalid, or
(ii) would cause the compensation paid upon the exercise of an Award not to
constitute performance-based compensation under Section 162(m)(4)(C) of the
Code, then the Committee shall sever such term or provision from the Plan and,
thereupon, such term or provision shall not be a part of the Plan.
(m) Effective Date. The Plan shall be effective as of April
1, 1997 (the "Effective Date"); provided, however, that it shall be a condition
to the effectiveness of any Awards which are effective on or after the first day
of Fiscal Year 1999 ("Conditional Awards"), that the shareholders of the Company
entitled to vote thereon approve the Plan at the 1998 Annual Meeting of
Shareholders of the Company. Such approval shall meet the
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requirements of Section 162(m) of the Code and the regulations thereunder. If
such approval is not obtained, then any Conditional Award shall be void ab
initio.
(n) Duration of the Plan. Subject to Subsections (m) and (h)
hereof, the Plan shall commence on the Effective Date and remain in effect until
ten (10) years from the date thereof. However, unless otherwise expressly
provided in the Plan or in an applicable Award Agreement, any SAR theretofore
granted may extend beyond such date and the authority of the Committee to amend,
alter, adjust, suspend, discontinue, or terminate any such Award or to waive any
conditions or rights under any such Award, and the authority of the Board to
amend the Plan, shall extend beyond such date. Awards may only be granted during
the duration of the Plan.
(o) Approval and Re-approval by Shareholders. To the extent
required under Section 162(m) of the Code, any change to the material terms of
the Plan shall be disclosed to and approved by the shareholders of the Company
entitled to vote thereon at the next Annual Meeting of Shareholders of the
Company to be held following such change.
C-7
<PAGE>
[FRONT]
Safety Components International, Inc.
PROXY
Annual Meeting, September 9, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints [Robert A. Zummo and Jeffrey J. Kaplan] as
Proxies, each with full power to appoint his substitute, and hereby authorizes
them to appear and vote as designated below, all shares of Common Stock of
Safety Components International, Inc. held on record by the undersigned on July
22, 1998, at the Annual Meeting of Stockholders to be held on September 9, 1998,
and any adjournments thereof.
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE
The undersigned hereby directs this Proxy to be voted:
1. Election of directors:
[ ] FOR the election as Class III or [ ] WITHHOLD AUTHORITY
directors of all nominees listed to vote for all nominees
below (except as marked to the listed below.
contrary below).
Robert A. Zummo
Jeffrey J. Kaplan
(INSTRUCTIONS: To withhold authority to vote for any of the any of the
above listed nominees, please strike a line through that individual's name)
2. Proposal to approve the amendments to the Company's 1994 Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to approve the adoption of the Company's Senior Management
Incentive Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Proposal to approve the adoption of the Company's Stock Appreciation Rights
Award Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. Proposal to ratify the appointment of Arthur Andersen LLP as independent
accountants for the fiscal year 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. In their discretion, the named proxies may vote on such other business as
may properly come before the Annual Meeting, or any adjournments or
postponements thereof.
The undersigned acknowledges receipt of the accompanying Proxy Statement dated
July 25, 1998.
<PAGE>
[BACK]
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1, 2, 3, 4, 5 and 6.
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AT THE ANNUAL MEETING IN
ACCORDANCE WITH THE STOCKHOLDER'S SPECIFICATIONS ABOVE. THE PROXY CONFERS
DISCRETIONARY AUTHORITY IN RESPECT TO MATTERS NOT KNOWN OR DETERMINED AT THE
TIME OF THE MAILING OF THE NOTICE OF THE ANNUAL MEETING OF STOCKHOLDERS TO THE
UNDERSIGNED.
Date:___________________________
___________________________
Signature of stockholder
___________________________
Signature if held jointly
NOTE: Please mark date, sign and return
this Proxy promptly using the enclosed
envelope. When shares are held by joint
tenants, both should sign. If signing as
attorney, executor, administrator,
trustee or guardian, please give full
title. If a corporation or partnership,
please sign in corporate or partnership
name by an authorized person.
