<PAGE> 1
ANNEX I
TRION, INC.
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES EXCHANGE
ACT OF 1934 AND RULE 14F-1 THEREUNDER
INTRODUCTION
This Information Statement is being mailed on or about July 15, 1999 to
holders of shares of Common Stock, $0.50 par value (the "Common Stock"), of
Trion, Inc., a Pennsylvania corporation (the "Company"), in connection with the
anticipated designation of persons (the "Designated Directors") to the Board of
Directors of the Company (the "Board"). Such designation is to be made pursuant
to the Agreement and Plan of Merger (the "Merger Agreement"), dated as of July
12, 1999 by and among the Company, Fedders Corporation, a Delaware corporation
("Parent") and TI Acquisition Corp., a Pennsylvania corporation and an indirect,
wholly owned subsidiary of the Parent ("Purchaser"). On July 15, 1999, the
Purchaser commenced a tender offer (the "Offer") to purchase all outstanding
shares (the "Shares") of the Common Stock for $5.50 per share in cash (the
"Offer Price").
NO ACTION IS REQUIRED BY THE SHAREHOLDERS OF THE COMPANY IN CONNECTION WITH
THE APPOINTMENT OF THE DESIGNATED DIRECTORS. However, Section 14(f) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14f-1
promulgated thereunder require the mailing to the Company's shareholders of the
information set forth in this Information Statement prior to a change in a
majority of the Company's directors other than at a meeting of the Company's
shareholders.
You are urged to read this Information Statement carefully. You are not,
however, being asked to take any action.
The Merger Agreement provides that Parent shall be entitled to designate a
number of directors, rounded up to the next whole number, of the Board equal to
the product of the total number of directors on the Board (giving effect to the
directors designated by Parent) multiplied by a fraction of which the numerator
shall be the number of Shares which Parent and its subsidiaries (including
Purchaser) beneficially own at that time, and the denominator of which shall be
the total number of Shares then outstanding. The Directors so designated by
Parent will take office immediately after the purchase of and payment for any
Shares by Parent or any of its subsidiaries as a result of which Parent and its
subsidiaries owns beneficially at least a majority of the then outstanding
Shares. In furtherance thereof, the Company shall, upon request of Parent, use
its best efforts promptly either to increase the size of the Board or to secure
the resignation of such number of its incumbent directors, or both, as is
necessary to enable such designees of Parent to be so elected or appointed to
the Board, and the Company shall take all actions available to the Company to
cause such designees of Parent to be so elected or appointed. At such time, the
Company shall, if requested by Parent, also take all action necessary to cause
persons designated by Parent to constitute the same percentage (rounded up to
the next whole number) as is on the Board of (i) each committee of the Board,
(ii) each board of directors (or similar body) of each of the Company's
subsidiaries and (iii) each committee (or similar body) of each such board.
The Merger Agreement provides that in the event that Parent's designees are
elected or appointed to the Board, until the Effective Time (as such term is
defined in the Merger Agreement), the Board shall have at least two directors
who were directors as of the date of the Merger Agreement and who are not
employees of the Company ("Independent Directors"), provided that, in such
event, if the number of Independent Directors shall be reduced below two for any
reason whatsoever, the remaining Independent Director shall be entitled to
designate the person to fill such vacancy who shall be deemed to be an
Independent Director or, if no Independent Director then remains, the other
directors shall designate two persons to fill such vacancies who shall not be
shareholders, affiliates or associates of Parent or Purchaser, and such persons
shall be deemed to be Independent Directors. In the event that Parent's
designees constitute a majority of the directors on the
<PAGE> 2
Board, the affirmative vote of a majority of the Independent Directors shall be
required after the acceptance for payment of Shares pursuant to the Offer and
prior to the Effective Time, to (a) amend or terminate the Merger Agreement by
the Company, (b) exercise and waive any of the Company's rights, benefits or
remedies contained in the Merger Agreement if such exercise or waiver materially
and adversely affects holders of Shares other than Parent or Purchaser, or (c)
take any other action under or in connection with the Merger Agreement if such
action materially and adversely affects holders of Shares other than Parent or
Purchaser; provided, that, if there shall be no such directors, such actions may
be effected by unanimous vote of the entire Board.
The terms of the Merger Agreement, a summary of the events leading up to
the Offer and the execution of the Merger Agreement and certain other
information concerning the Offer and the Merger are contained in the Offer to
Purchase which is being mailed with this Information Statement, and in the
Solicitation/ Recommendation Statement on Schedule 14D-9 of the Company (the
"Schedule 14D-9") with respect to the Offer, of which this Annex I is a part.
Certain other documents (including the Merger Agreement) are filed with the
Securities and Exchange Commission (the "Commission") as exhibits to the
Schedule 14D-9 and as exhibits to the Tender Offer Statement on Schedule 14D-1
of Purchaser and Parent (the "Schedule 14D-1"). The exhibits to the Schedule
14D-9 and the Schedule 14D-1 may be examined at, and copies thereof may be
obtained from the Commission (except that the exhibits thereto cannot be
obtained from the regional offices of the Commission). In addition, the Company
is an electronic filer pursuant to the Commission's Electronic Data Gathering,
Analysis and Retrieval ("EDGAR") System. Accordingly, the aforementioned reports
and other information may be obtained by searching in the "EDGAR ARCHIVES" at
the Commission's worldwide website (http://www.sec.gov). Finally, such materials
may be inspected and copied at the offices of the National Association of
Securities Dealers, Inc., Nasdaq Reports Section, 1735 K Street, N.W.,
Washington, D.C. 20006-1506 as the Shares are listed on the Nasdaq National
Market System.
The information contained in this Information Statement concerning Parent,
Purchaser and the Designated Directors has been furnished to the Company by
Parent. The Company assumes no responsibility for the accuracy or completeness
of such information.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
GENERAL
At the close of business on July 12, 1999, there were (i) 7,161,247 Shares
issued and outstanding and (ii) an aggregate of 391,524 shares of Common Stock
issuable upon the exercise of outstanding options. No securities other than the
Common Stock are entitled to vote for the election of directors.
SECURITY OWNERSHIP OF MANAGEMENT.
The following table sets forth certain information regarding beneficial
ownership of Common Stock as of July 12, 1999 by (i) each director of the
Company, (ii) each named executive officer of the Company, (iii) all executive
officers and directors of the Company as a group and (iv) holders of more than
5% of the Company's outstanding shares of Common Stock. Other than as set forth
below, there are no persons known by the Company to own beneficially more than
5% of the outstanding Common Stock.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) CLASS(1)(2)
- ------------------------------------ ---------------------- -----------
<S> <C> <C>
Brian H. Boender........................................... 19,398(3) --
Hugh E. Carr............................................... 387,349(4) 5.41%
1508 Von Cannon Circle
Sanford, North Carolina 27330
Joseph W. Deering.......................................... 13,584 --
Seddon Goode, Jr........................................... 86,075 1.20%
Charles A. Haynes.......................................... 11,640(5) --
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) CLASS(1)(2)
- ------------------------------------ ---------------------- -----------
<S> <C> <C>
James E. Heins............................................. 16,833 --
F. Trent Hill, Jr.......................................... 24,263 --
Grant R. Meyers............................................ 243,763 3.40%
Calvin J. Monsma........................................... 33,003(6) --
David M. Schlegel.......................................... 28,644(7) --
Steven L. Schneider........................................ 220,415(8) 3.03%
Samuel J. Wornom III....................................... 111,276(9) 1.55%
Directors and executive officers as a group................ 1,223,773(10) 16.58%
</TABLE>
- ---------------
(1) These figures include shares owned by the immediate families (i.e., wives,
minor children and relatives sharing the same home) of the respective
persons. Shares of Common Stock also include any shares which each person
has the right to acquire upon exercise of options which are exercisable
within sixty days of July 12, 1999.
(2) With respect to holdings of Common Stock, these percentages assume the
exercise of options exercisable within sixty days of July 12, 1999 owned by
the respective persons, but no other exercise, for each calculation.
(3) Includes 14,398 shares which were deemed outstanding because Mr. Boender
had the right to acquire them upon exercise of options which are
exercisable within sixty days of July 12, 1999.
(4) The amount of shares of Common Stock listed as being beneficially owned by
Mr. Carr includes 190,086 shares of Common Stock owned of record and
beneficially by his spouse, as to which she has sole voting and investment
power and as to which he disclaims beneficial ownership.
(5) Includes 10,825 shares which were deemed outstanding because Mr. Haynes had
the right to acquire them upon exercise of options which are exercisable
within sixty days of July 12, 1999.
(6) Includes 11,503 shares which were deemed outstanding because Mr. Monsma had
the right to acquire them upon exercise of options which are exercisable
within sixty days of July 12, 1999.
(7) Includes 28,644 shares which were deemed outstanding because Mr. Schlegel
had the right to acquire them upon exercise of options which are
exercisable within sixty days of July 12, 1999.
(8) Includes 102,546 shares which were deemed outstanding because Mr. Schneider
had the right to acquire them upon exercise of options which are
exercisable within sixty days of July 12, 1999. Also includes 14,869 shares
of Common Stock owned by the Trion Charitable Foundation with respect to
which Mr. Schneider shares the voting and investment power as one of three
co-trustees, but as to which he has no economic interest.
(9) Includes 35,000 shares which were deemed outstanding because Mr. Wornom had
the right to acquire them upon the exercise of options which are
exercisable within sixty days of July 12, 1999.
(10) Includes 220,190 shares which were deemed outstanding because the directors
and executive officers as a group had the right to acquire them upon
exercise of options which are exercisable within sixty days of July 12,
1999.
3
<PAGE> 4
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 of the Exchange Act requires the Company's directors and
executive officers to file reports with the Commission indicating their holdings
of and transactions in the Company's equity securities and to provide copies of
such reports to the Company. To the Company's knowledge insiders of the Company
complied with all such filing requirements for 1998.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
The Board presently consists of eight members. Pursuant to the Company's
Bylaws, the Board may consist of no less than three and no more than fifteen
members, classified into three classes, each with, as near as possible,
one-third of the members of the Board. It is expected that the Designated
Directors will assume office promptly following the purchase of Shares by the
Purchaser. This step will be accomplished at a meeting or by written consent of
the Board providing that the size of the Board will be increased and/or
sufficient numbers of current directors will resign such that, immediately
following such action, the number of vacancies to be filled by the Designated
Directors will be available. It is currently anticipated that each of the
current directors other than Messrs. Goode and Hill will resign and that Messrs.
Goode and Hill will be the initial Independent Directors.
The Parent and the Purchaser have informed the Company that they will
choose the Designated Directors from the persons listed below, each of whom has
consented to act as a director of the Company. If Purchaser acquires more than
50% of the Shares in the Offer, the Designated Directors will constitute a
majority of the Board after they are appointed.
DESIGNATED DIRECTORS
Parent Designees. The Parent has informed the Company that the Parent will
choose the following individuals as designees to the Board of Directors (the
"Parent Designees"): Sal Giordano, Jr., Robert L. Laurent, Jr., Michael
Giordano, Kent E. Hansen, Calvin J. Monsma and Steven L. Schneider. The names
and certain biographical information concerning the Parent Designees are set
forth below. The current business address of each Parent Designee is c/o Fedders
Corporation, 505 Martinsville Road, Liberty Corner, New Jersey 07983-0813,
except for Mr. Schneider and Mr. Monsma whose addresses are c/o Trion, Inc., 101
McNeill Road, Sanford, North Carolina 27331-0760.
The Parent and Purchaser have informed the Company that each of the Parent
Designees listed below has consented to act as a director of the Company.
Sal Giordano, Jr., 60, has been Vice Chairman, President and Chief
Executive Officer of Parent since 1988.
Robert L. Laurent, Jr., 43 has been Executive Vice President, Acquisitions
and Alliances of Parent since January 1999. Prior to that he had been Executive
Vice President, Finance and Administration and Chief Financial Officer of Parent
since 1993. Mr. Laurent joined Parent in 1980 and has served as internal
auditor, plant controller, corporate controller and Vice President, Finance.
Michael Giordano, 35, has been Vice President and Chief Financial Officer
of Fedders North America, Inc. and Parent since July 1, 1999. Mr. Giordano also
served as Senior Vice President of Fedders International, Inc. from 1998 until
being elected to his current positions. Mr. Giordano joined the Fedders
organization in 1990 and has held positions with Parent such as Assistant
Director of Sourcing, Sales Manager, Director of Sales and Marketing, Vice
President of Sales and Managing Director of the Singapore office of Fedders
International, Inc.
Kent E. Hansen, 51, was elected Senior Vice President and Secretary of
Parent in August 1996. Previously he was Vice President, Finance, General
Counsel and Chief Financial Officer of NYCOR, Inc. Prior thereto, he was Vice
President and General Counsel of Parent from 1989 to 1992.
4
<PAGE> 5
Steven L. Schneider, 55, has been the President, Chief Executive Officer
and a director of the Company since 1993.
Calvin J. Monsma, 48, has been Vice President and Chief Financial Officer
of the Company since 1994.
None of the Parent Designees has a familial relationship with any directors
or executive officers of the Company. The Company has been advised by Parent
that, to the best of Parent's knowledge, none of the Parent Designees has been
involved in any transactions with the Company or any of its directors, executive
officers or affiliates which are required to be disclosed herein pursuant to the
rules and regulations of the Commission, except as may be disclosed herein or in
the Schedule 14D-9. Four of the Parent Designees are executive officers of
Parent.
It is expected that the Parent Designees may assume office at any time
following the purchase by the Purchaser of Shares pursuant to the Offer, which
purchase cannot be earlier than 12:00 Midnight, New York City time, on August
11, 1999, and that, upon assuming the office, the Parent Designees will
thereafter constitute at least a majority of the Board.
CURRENT DIRECTORS AND EXECUTIVE OFFICERS
The following is certain biographical information with respect to the
current members of the Board of Directors and Executive Officers of the Company.
<TABLE>
<CAPTION>
DIRECTOR
CLASS(1)
TERM DIRECTOR
NAME EXPIRES AGE SINCE POSITION/OCCUPATION
- ---- -------- --- -------- -------------------
<S> <C> <C> <C> <C>
Brian H. Boender..................... N/A 50 N/A Mr. Boender is Vice President -- Sales
and Marketing for the Company. He has
served the Company in this capacity since
1993.
Hugh E. Carr......................... 2001 66 1968 Mr. Carr is the former Chairman and Chief
Executive Officer of the Company. Mr.
Carr is also a director of the Sanford,
N.C. Branch of Wachovia Bank of North
Carolina, the Company's principal banking
affiliation.
Joseph W. Deering.................... 2001 59 1995 Mr. Deering is the Chairman of the
Company's Board of Directors and
President of PMI Food Equipment Group (a
division of Premark International, Inc.),
a manufacturer of commercial food service
products.
Seddon Goode, Jr..................... 2001 67 1979 Mr. Goode is the President of University
Research Park, a 501(c)(6) corporation.
Mr. Goode is also a director of Riscorp,
Inc.
Calvin J. Monsma..................... N/A 48 N/A Mr. Monsma is Vice President and Chief
Financial Officer for the Company. He has
served the Company in this capacity since
1994.
Charles A. Haynes.................... N/A 50 N/A Mr. Haynes is Vice
President -- Engineering for the Company.
He has served the Company in this
capacity since 1994.
James E. Heins....................... 2002 68 1981 Mr. Heins is an independent
communications consultant in Pinehurst,
North Carolina. Mr. Heins is also a
director of BB&T Financial Corporation.
</TABLE>
5
<PAGE> 6
<TABLE>
<CAPTION>
DIRECTOR
CLASS(1)
TERM DIRECTOR
NAME EXPIRES AGE SINCE POSITION/OCCUPATION
- ---- -------- --- -------- -------------------
<S> <C> <C> <C> <C>
F. Trent Hill, Jr.................... 2002 47 1996 Mr. Hill is the Chief Financial Officer
of Sonoco Products Company, a
manufacturer of packaging products. Prior
to assuming his current position in 1995,
Mr. Hill was appointed Vice
President -- Finance in 1994 and was Vice
President -- Industrial Products
Division, N.A. from 1990 through 1994 for
Sonoco Products Company.
Grant R. Meyers...................... 2000 56 1976 Mr. Meyers is a Partner with Target
Sales, a manufacturers' representative
organization. He is also Vice President
of Island Trader, Inc., a retail store in
Key Largo, FL.
David M. Schlegel.................... N/A 47 N/A Mr. Schlegel is Vice President of the
Company and President and Chief Executive
Officer of Envirco Corporation, a wholly
owned subsidiary of the Company. Mr.
Schlegel assumed his current position
with the Company in 1995, following the
Company's acquisition of Envirco
Corporation. Prior to this time Mr.
Schlegel served as President and Chief
Executive Officer of Envirco Corporation.
Steven L. Schneider.................. 2002 55 1993 Mr. Schneider is the President and Chief
Executive Officer of the Company. He has
served the Company in this capacity since
1993.
R.G. Stephens........................ N/A 54 N/A Mr. Stephens has been the Vice
President -- Manufacturing of the Company
since 1998. Prior thereto from 1982 to
1998 he served as the Company's Director
of Manufacturing.
J. Gary Waters....................... N/A 53 N/A Mr. Waters is the Vice President
Finance -- Trion North America, a
position he has held since 1996. From
1993 to 1996 he served as the Vice
President of Operations and from 1989 to
1993 he served as Vice President and
Controller of the Company.
Samuel J. Wornom, III................ 2000 56 1982 Mr. Wornom is the President of Nouveau
Properties, Inc., a Company comprising
primarily real estate investments. Mr.
Wornom is also a director of Capital Bank
and of Carolina Pottery.
</TABLE>
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(1) Each director term is scheduled to expire in the year indicated when such
respective successors are elected and qualified.
There are no family relationships between any executive officers or
directors of the Company except that Messrs. Meyers and Carr are
brothers-in-law. Except as otherwise indicated, each director and executive
officer has held the principal occupation listed for five years or more.
6
<PAGE> 7
BOARD AND COMMITTEE MEETINGS
The Company has standing audit, compensation and nominating committees.
During 1998 the Board met twenty one times; the audit committee met twice; the
compensation committee met once; and the nominating committee met once. Each of
the directors attended at least 75% of the aggregate number of meetings of the
Board and of the committees on which he served. The functions of the audit
committee consist primarily of selecting the Company's independent auditors and
reviewing their independence; approving the scope of annual or special audit
activities and reviewing audit results; monitoring financial reporting and
accounting practices; and reviewing the adequacy of the Company's system of
internal accounting controls. The functions of the compensation committee are to
make recommendations to the Board on all matters of policy and procedures
relating to compensation of executive management; to conduct an annual review of
the performance of the Company's executives and to make recommendations to the
Board regarding the level and form of compensation to be awarded each executive,
including the granting of stock options; and to make reports and recommend
actions to the Board concerning compensation plans, including an annual
Management Incentive Plan. The functions of the nominating committee consist of
making recommendations to the Board concerning its size, the composition of its
classes and candidates for election as directors, including consideration of
individuals recommended by shareholders for election as a director.
DIRECTOR COMPENSATION
During 1998 and 1999, the Chairman of the Board was paid an annual retainer
of 3,000 shares of Common Stock and all other non-employee directors were paid
an annual retainer of 1,500 shares of Common Stock. In addition, all
non-employee directors receive a fee of $600 for participation in each meeting
of the Board and each committee meeting. Each director has $50,000 in life
insurance coverage and $200,000 in travel and accident coverage through the
Company's group plans.
7
<PAGE> 8
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following Summary Compensation Table sets forth information concerning
the compensation, during the periods indicated, of the President and Chief
Executive Officer of the Company and the other four most highly paid executive
officers of the Company in 1998:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
---------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------------- ----------------------- -------
OTHER RESTRICTED SECURITIES ALL
ANNUAL STOCK UNDERLYING LTIP OTHER
SALARY BONUS COMPENSATION AWARDS(S) OPTIONS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) ($) ($) ($)(1)
- --------------------------- ---- ------- ------- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
B. H. Boender................. 1998 110,600 17,077 N/A N/A 5,500 N/A 12,181
Vice President -- Sales 1997 106,250 60,818 N/A N/A 3,540 N/A 10,121
Marketing 1996 102,360 18,044 N/A N/A 5,280 N/A 8,896
C. A. Haynes.................. 1998 105,000 8,134 N/A N/A 5,500 N/A 8,755
Vice President -- 1997 98,282 34,474 N/A N/A 3,540 N/A 7,691
Engineering 1996 94,050 12,609 N/A N/A 4,511 N/A 8,186
C. J. Monsma.................. 1998 113,400 6,827 N/A N/A 5,500 N/A 12,237
Vice President and 1997 108,576 44,460 N/A N/A 3,540 N/A 10,028
Chief Financial Officer(2) 1996 104,200 13,806 N/A N/A 5,008 N/A 9,065
D. M. Schlegel................ 1998 180,000 0 18,146(3) N/A 5,500 N/A 54,319
Vice President, 1997 173,053 90,853 N/A N/A 3,540 N/A 52,163
President -- Envirco(4) 1996 166,397 35,051 N/A 20,000(5) 4,451 N/A 52,080
S. L. Schneider............... 1998 214,000 14,980 N/A N/A 11,000 N/A 20,606
President and Chief 1997 205,500 119,796 N/A N/A 7,080 N/A 18,461
Executive Officer(6) 1996 197,600 27,960 N/A N/A 9,912 N/A 16,195
</TABLE>
- ---------------
(1) Represents the Company's contribution to the applicable 401(k) retirement
plans for the accounts of the named executive officers. For Messrs.
Schneider, Boender, Monsma and Haynes amounts credited under the
Non-Qualified Retirement and Savings Plan, which provides for an annual
accrual equal to 7% of an eligible executives base salary plus interest
thereon, is included. The amounts credited in 1998, 1997 and 1996,
respectively, under the Non-Qualified Retirement and Savings Plan were as
follows: Mr. Schneider -- $17,877, $16,086 and $14,275; Mr.
Boender -- $9,840, $8,538 and $7,395; Mr. Monsma -- $9,468, $8,498 and
$7,528; and Mr. Haynes -- $8,755, $7,690 and $6,796. Also represents
non-compete payments of $50,000 in each of the years 1998, 1997 and 1996
received by Mr. Schlegel related to an employment agreement described under
the caption "Compensation Agreements."
(2) Mr. Monsma's employment arrangements are described under the caption
"Compensation Agreements."
(3) Represents Company paid fringe benefits and perquisites, including
automobile expenses in the amount of $13,743, provided to Mr. Schlegel
pursuant to an employment agreement described under the caption
"Compensation Agreements."
(4) Mr. Schlegel is employed pursuant to an employment agreement described under
the caption "Compensation Agreements."
(5) Mr. Schlegel was awarded non-qualified options to purchase the Company's
Common Stock pursuant to an employment agreement described under the caption
"Compensation Agreements."
(6) Mr. Schneider is employed pursuant to an employment agreement described
under the caption "Compensation Agreements."
8
<PAGE> 9
The following table sets forth information concerning stock option grants
during 1998 to the executive officers named in the Summary Compensation Table:
OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE
UNDERLYING GRANTED TO EXERCISE APPRECIATION FOR
OPTIONS EMPLOYEES OR BASE OPTION TERM
GRANTED IN FISCAL PRICE EXPIRATION --------------------
NAME (#)(1) YEAR(2) ($/SH) DATE 5%($) 10%($)
- ---- ---------- ---------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
B. H. Boender.................. 5,500 5.70 5.3125 2/10/03 8,073 17,838
C. A. Haynes................... 5,500 5.70 5.3125 2/10/03 8,073 17,838
C. J. Monsma................... 5,500 5.70 5.3125 2/10/03 8,073 17,838
D. M. Schlegel................. 5,500 5.70 5.3125 2/10/03 8,073 17,838
S. L. Schneider................ 11,000 11.40 5.3125 2/10/03 16,145 35,677
</TABLE>
- ---------------
(1) All stock options reflected in the table were granted under the Company's
1995 Incentive Stock Option Plan and are incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended. The
options become exercisable ratably over three years from the first
anniversary of the date of grant.
(2) Based upon options to purchase 96,500 shares granted during 1998.
The following table sets forth information concerning the options exercised
during 1998 and the unexercised options held at December 31, 1998 by the
executive officers named in the Summary Compensation Table:
AGGREGATED OPTION EXERCISES IN 1998 AND 1998 YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES VALUE OPTIONS AT FISCAL OPTIONS AT FISCAL
ACQUIRED ON REALIZED YEAR-END (#) YEAR-END($)(1)
NAME EXERCISE(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
B. H. Boender............. -- -- 13,653 9,620 0
C. A. Haynes.............. -- -- 11,308 9,364 0
C. J. Monsma.............. -- -- 21,820 9,530 0
D. M. Schlegel............ -- -- 24,147 9,344 0
S. L. Schneider........... -- -- 103,421 19,024 0
</TABLE>
- ---------------
(1) The exercise price of all of the options listed above are in excess of or
equal to the closing sales price of the Common Stock as reported on the
NASDAQ National Market System on December 31, 1998 of $3.00 per share.
PENSION BENEFITS
Prior to January 31, 1999, the Company maintained a noncontributory defined
benefit retirement plan (the "Plan") for all domestic employees of the Company
who completed one year of service with the Company and reached the age of 21.
Historically, benefits under the Plan were calculated for participants on
two separate bases. With respect to any years of service prior to January 1,
1982, benefits were based on the participant's average monthly earnings during
the period from January 1, 1977 to December 31, 1981. With respect to years of
service beginning January 1, 1982, through December 31, 1995, benefits for each
participant were determined based on the individual's actual earnings, and the
annual amounts as calculated were aggregated.
9
<PAGE> 10
Beginning January 1, 1996, the Company amended the Plan to a cash balance
basis. Under the terms of the conversion to a cash balance pension plan,
benefits became based on hypothetical account balances. The benefit accrued by
each participant prior to January 1, 1996 was converted into an actuarially
equivalent cash balance amount. For 1997 and 1996, each participant accrued an
additional benefit equal to 2.75% of eligible compensation and interest was
credited on their hypothetical account balance at a rate fixed by the Board. The
rate for both 1997 and 1996 was 6.5%. Eligible compensation for purposes of the
Plan includes salary and bonus, as referenced in the Summary Compensation Table,
subject to maximum annual compensation of $150,000 which is indexed for
inflation. For 1998, the maximum annual pension payable under the Plan was
$130,000.
The normal form of benefit payment was calculated as a straight life
annuity with joint and survivor options available. With the conversion to a cash
balance pension plan, lump sum distributions were also permitted.
On October 24, 1997, the Board acted to freeze the Plan effective December
31, 1997 and terminate the Plan upon approval from the Internal Revenue Service.
Approval was received on November 16, 1998. Effective January 31, 1999, the plan
was terminated and all participants became fully vested and were either paid a
lump sum distribution, provided an annuity, or rolled over their accumulated
benefit balance. All Plan assets were distributed to Plan participants. Pursuant
to this distribution the named executive officers received the following amounts
on January 31, 1999: Mr. Schneider -- $51,552; Mr. Boender -- $23,377; Mr.
Monsma -- $13,784; and Mr. Haynes -- $13,290.
Prior to the termination, the estimated annual benefit payable under the
Plan at the normal retirement age of 65 to the named executive officers was: Mr.
Schneider -- $8,631; Mr. Boender -- $5,505; Mr. Monsma -- $3,595; and Mr.
Haynes -- $2,995. Mr. Schlegel was an employee of the Company's subsidiary,
Envirco Corporation ("Envirco") which maintained only a defined contribution
pension plan.
Agreements under the Company's 1985 Incentive Stock Option Plan
Certain of the executive officers and key management employees of the
Company and its subsidiaries hold options granted under the Trion, Inc. 1985
Incentive Stock Option Plan (the "1985 Incentive Plan") under which options were
granted to full-time executives and other key management employees of the
Company or any subsidiary for the purchase of Common Stock. All options granted
under the 1985 Incentive Plan were evidenced by an Incentive Stock Option
Agreement between the Company and the optionee. The 1985 Incentive Plan was
approved by the Company's shareholders on April 16, 1985. The maximum number of
shares of Common Stock approved for issuance under the 1985 Incentive Plan was
161,000. Options granted under the 1985 Incentive Plan were intended to qualify
as incentive stock options. Options were granted for a term not exceeding ten
years (five years in the case of an incentive stock option granted to a person
who owned more than ten percent of the voting stock of the Company or one of its
subsidiaries) and are not transferrable other than by will or the laws of
descent and distribution. The Board terminated the 1985 Incentive Plan on April
18, 1995. The option price for the Common Stock covered by any option could not
be less than 100% of the fair market value of said Common Stock on the date the
option was granted (110% in the case of an incentive stock option granted to a
person who owns more than ten percent of the voting stock of the Company or one
of its subsidiaries). All options granted under the 1985 Incentive Plan are
fully exercisable.
Agreements under the Company's 1995 Incentive Stock Option Plan
Certain of the officers and other key employees of the Company and its
subsidiaries hold options or performance awards granted under the Trion, Inc.
1995 Incentive Stock Option Plan (the "1995 Incentive Plan") under which options
(either incentive stock options or non-statutory stock options), stock
appreciation rights, performance awards and other awards of Common Stock which
are valued in part by reference to the Common Stock may be granted to officers
and other key employees of the Company or any subsidiary (collectively,
"Awards"). All Awards granted under the 1995 Incentive Plan are evidenced by an
agreement between the Company and the grantee. The 1995 Incentive Plan was
approved by the Company's shareholders
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on April 18, 1995. The maximum number of shares of Common Stock approved for
issuance under the 1995 Incentive Plan is 285,000 (subject to adjustment in
certain events). Options may be granted for a term not to exceed ten years (five
years in the case of an incentive stock option granted to a person who owns more
than ten percent of the voting stock of the Company or one of its subsidiaries)
and are not transferrable other than by will or the laws of descent and
distribution. The Board may terminate the 1995 Incentive Plan at any time prior
to its stated termination date, provided that such termination not, subject to
certain conditions, alter or impair any of the rights or obligations pursuant to
any option theretofore granted under the 1995 Incentive Plan. The option price
for the Common Stock covered by any option cannot be less than 100% of the fair
market value of said Common Stock on the date the option is granted (110% in the
case of an incentive stock option granted to a person who owns more than ten
percent of the voting stock of the Company or one of its subsidiaries). Upon a
change in control, all options outstanding become immediately and fully
exercisable.
Stock Awards under the Non-Employee Director Stock Plan
On January 16, 1995 the Board adopted the 1995 Non-Employee Director Stock
Plan. The shareholders of the Company approved the 1995 Non-Employee Director
Stock Plan at their 1995 annual meeting. On December 10, 1998 the Board adopted,
and the shareholders of the Company approved on April 20, 1999, an amendment to
the 1995 Non-Employee Director Stock Plan. As amended, the 1995 Non-Employee
Director Stock Plan is referred to herein as the "Director Stock Plan". The
purposes of the Director Stock Plan are to promote the interests of the Company
and its shareholders by attracting, retaining and providing an incentive to
non-employee directors by giving them an increased proprietary interest in the
Company, thereby more closely aligning their interests with those of the
shareholders of the Company. The Director Stock Plan became effective on April
18, 1995 and will remain effective until the close of business on April 18,
2000, unless the Director Stock Plan is terminated earlier by the Board. The
Director Stock Plan provides that each individual elected, reelected or
continuing as a non-employee director as of each annual meeting date shall
automatically receive an award (the "Annual Award") in an amount to be
determined by the Board. Pursuant to that authority, during 1998 and 1999 the
Board fixed the amount of the annual award to be 3,000 shares of Common Stock to
the Chairman of the Board of the Company and 1,500 shares of Common Stock for
the other non-employee directors. The aggregate number of shares of Common Stock
which may be issued under the Director Stock Plan is 45,000 shares of Common
Stock. The Board administers the Director Stock Plan and may amend or terminate
it; provided, however, that no amendment may be made without shareholder
approval if such approval is required by Rule 16b-3 under the Exchange Act
(unless the Board determines that such compliance is no longer desired) or under
any other applicable law.
COMPENSATION AGREEMENTS
Mr. Schneider's Employment Arrangement
On March 31, 1993 the Company and Steven L. Schneider entered into an
employment agreement which was subsequently amended and restated on July 28,
1995 and again on May 20, 1998, (as so amended and restated, the
"Schneider/Trion Agreement"), providing for his employment as President and
Chief Executive Officer for a five-year term commencing on May 24, 1993 (the
"Commencement Date"). In accordance with its terms, the Schneider/Trion
Agreement is automatically extended for additional one year periods on each
anniversary date of the Commencement Date, unless either party gives written
notice of termination at least 90 days prior to the anniversary date. The
current term of the Schneider/Trion Agreement ends on May 23, 2000. The
Schneider/Trion Agreement provides for a base salary of $214,000 per year,
subject to review and adjustment by the Board or the Compensation Committee. The
initial Schneider/Trion Agreement also provided for the grant of options to
purchase an aggregate of 175,000 shares of Common Stock described in more detail
below. In the event of Mr. Schneider's death, disability or resignation or
discharge by the Company other than a termination without cause or resignation
with good reason (as described below), the Company would pay him all accrued
obligations including his base salary through the date of termination, the
amount of any accrued bonus and incentive, deferred or other cash compensation,
and all accrued benefits under the Company's retirement, incentive and other
benefit plans. In the event of a termination without cause or resignation with
good reason, he is entitled to receive the product of three times the highest
base salary
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during the term of the Schneider/Trion Agreement plus the full target award
fixed for Mr. Schneider under the Trion, Inc. Management Incentive Plan (the
"Management Incentive Plan" and each such target award, a "target award") for
the then-current fiscal year; a pro rata incentive bonus equal to the full
target award for the then-current fiscal year; an amount equal to the sum of (A)
the maximum contributions that could have been made by the Company on Mr.
Schneider's behalf to all defined contribution plans of the Company and (B) the
present value of the benefits that Mr. Schneider could have accrued under all
defined benefit plans of the Company, had Mr. Schneider continued to participate
in such plans for a three year period following termination; and, for a period
of two years after such termination, the Company must continue to provide Mr.
Schneider insurance coverage generally provided for other Company executives or
until such time as Mr. Schneider is provided with substantially equivalent
benefits by another employer. For this purpose, a termination without cause or
resignation with good reason includes a discharge by the Company without cause
or a resignation by Mr. Schneider within one year after a substantial reduction
of Mr. Schneider's compensation or duties, a relocation of Mr. Schneider's
principal place of business to a location which is more than 50 miles from its
current location, a substantial change in the duties and responsibilities of Mr.
Schneider's current position, the giving of notice by the Company that it elects
not to extend the Schneider/Trion Agreement or a failure by the Company to cause
a successor to assume the Company's obligations under the Schneider/Trion
Agreement. The Schneider/Trion Agreement provides that the Company will
indemnify Mr. Schneider to the fullest extent permitted by law against claims
relating to his service as a director, officer or employee of the Company or any
other enterprise for which he acts in such capacity at the Company's request.
On March 31, 1993, pursuant to the Schneider/Trion Agreement, the Company
and Mr. Schneider also entered into a Stock Option Agreement pursuant to which
the Company granted to Mr. Schneider nonstatutory stock options to purchase an
aggregate of 175,000 shares of Common Stock; consisting of options on 100,000
shares which vested on the Commencement Date at an exercise price of $2.50 per
share (the "1993 Options") and options on 75,000 shares which vested on May 24,
1994 at an exercise price of $3.00 per share (the "1994 Options"). The fair
market value of Common Stock at the time of grant of the options was $3.75 per
share. During 1995 and 1997 Mr. Schneider exercised all of the 1993 Options.
As a condition to Parent's entering into the Merger Agreement, Parent and
Mr. Schneider entered into an employment agreement on July 12, 1999 (the
"Schneider/Parent Agreement"), providing for Mr. Schneider's employment as
Senior Vice President of Parent and Chairman and Chief Executive Officer of
Indoor Air Quality ("Indoor Air Quality"), until August 31, 2002. The
Schneider/Parent Agreement replaces and supersedes the Schneider/Trion
agreement, including the change in control provision thereof. The effectiveness
of the Schneider/Parent Agreement is conditioned upon the consummation of the
Offer. The Schneider/ Parent Agreement will be automatically extended for an
additional year as of August 31, 2002 and on each anniversary thereof unless
either party gives written notice of termination at least 180 days prior to any
such date.
The Schneider/Parent Agreement provides for a base salary of $214,000 per
year (the "Schneider Base Salary"), subject to review and adjustment by the
Board of Directors of the Parent or the compensation committee of the Parent.
Mr. Schneider's compensation under the Schneider/Parent Agreement also includes
an annual discretionary incentive bonus equal to 50% of the Schneider Base
Salary based on the performance of the Indoor Air Quality unit and certain
individual performance targets established by the chief executive officer of
Parent. In addition, Mr. Schneider will receive as incentive compensation an
amount equal to 1/4% of the total purchase price of acquisitions of businesses
included in the Indoor Air Quality unit.
Pursuant to the Schneider/Parent Agreement, on the date the Merger is
consummated, Mr. Schneider will be granted options to purchase 100,000 shares of
the Class A Stock of the Parent at an exercise price equal to the closing price
of Class A Stock on the New York Stock Exchange on such date. The
Schneider/Parent Agreement provides that one third of the options will vest each
year on the anniversary date of the Schneider/Parent Agreement.
In the event of Mr. Schneider's death, disability or resignation or
discharge by Parent other than a termination without "cause" (as defined in the
Schneider/Parent Agreement), or resignation with "good
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reason" (as defined in the Schneider/Parent Agreement), Parent will pay Mr.
Schneider: (i) all accrued obligations including the Schneider Base Salary
through the date of termination, and (ii) all accrued benefits under Parent's
retirement, incentive or other benefit plans. In the event of a termination
without cause or resignation with good reason (i) Parent will pay Mr. Schneider
all accrued obligations including the Schneider Base Salary through the date of
termination; (ii) Parent will pay Mr. Schneider a lump sum equal to the balance
of the Schneider Base Salary and any incentive compensation then in effect for
the remainder of the term of the Schneider/Parent Agreement; (iii) an amount
equal to the maximum contributions that could have been made by Parent on Mr.
Schneider's behalf to all defined contribution plans of Parent on the same basis
as in effect on the date of termination of the Schneider/Parent Agreement for
the remainder of the term of the Schneider/Parent Agreement shall be paid to the
trustees of such plans; however, in the event any such plans will not allow such
payment, the Parent will pay to Mr. Schneider a lump sum in cash equal to the
total amount not accepted by such plan; (iv) Mr. Schneider shall be entitled to
receive all benefits accrued by him under the retirement, incentive or other
benefit plans in which he was participating; (v) Parent will pay all premiums
under COBRA for Mr. Schneider and his dependents if they elect coverage; and
(vi) in the event Mr. Schneider is so terminated or resigns during the initial
three year term of the Schneider/Parent Agreement, any unvested Parent stock
options granted to Mr. Schneider pursuant to the Schneider/Parent Agreement
shall vest immediately and Mr. Schneider will have 30 days to exercise such
options.
For purposes of the Schneider/Parent Agreement, a termination without cause
or resignation with good reason includes (i) a discharge by Parent without
cause, (ii) a resignation by Mr. Schneider within one year after a substantial
reduction of Mr. Schneider's compensation, (iii) a relocation of Mr. Schneider's
principal place of business to a location which is more than 50 miles from its
current location, (iv) a substantial change in the duties and responsibilities
of Mr. Schneider's current position, or (v) any material breach of the
Schneider/Parent Agreement. The Schneider/Parent Agreement provides that Parent
will indemnify Mr. Schneider to the fullest extent permitted by law against
claims relating to his service as an officer or employee of Parent or any other
enterprise for which he acts in such capacity at Parent's request.
Mr. Schlegel's Employment Arrangement
On August 1, 1995 and in conjunction with the Company's acquisition of
Envirco, Mr. Schlegel, the Company and Envirco entered into an employment
agreement providing for Mr. Schlegel's employment as President and Chief
Executive of Envirco for a term continuing until August 1, 2000 (the "Schlegel
Employment Agreement"). The agreement provided for (i) an annual base salary of
$166,397 with increases at the sole discretion of the Board, based upon Mr.
Schlegel's performance and that of Envirco, (ii) participation in the Company's
Management Incentive Plan, (iii) participation in the Company's Incentive Stock
Option Plan, and (iv) participation in all other fringe benefit plans of
Envirco. In addition, the agreement provided for a Stock Option Award Agreement
by which Mr. Schlegel would be eligible for awards of options to purchase up to
20,000 shares of Common Stock, at a per share price fixed at five days prior to
the award but in no event less than $6.00 per share, in each of the five years
of the employment agreement based upon specific performance targets established
for Envirco. Under this Stock Option Award Agreement, Mr. Schlegel was awarded
20,000 shares at an exercise price of $6.00 per share for Envirco's performance
in 1995 and no awards were made for 1996, 1997 or 1998. In the event of death or
disability, Mr. Schlegel was to be paid all accrued wages, incentives and
benefits to which he is entitled under the retirement, incentive and other
benefit plans. Pursuant to the Schlegel Employment Agreement, in the event of
Mr. Schlegel's termination without cause, Mr. Schlegel was to continue to be
paid his base salary then in effect for a period of the lesser of (i) twenty
four months or (ii) the remaining employment term, with such amount being
reduced by his other gross earnings during the period such payments are payable.
Additionally, the employment agreement called for Mr. Schlegel to be paid five
annual payments of $50,000, on August 1 of each of the five years commencing
August 1, 1995 for the covenant not to compete included in the employment
agreement. The covenant includes Mr. Schlegel's agreement to protect and not
disclose confidential information.
The Schlegel Employment Agreement was amended by the First Amendment to
Employment Agreement and Agreement Regarding Certain Other Matters dated April
21, 1999 between Mr. Schlegel, the Company and Envirco (the "Amended Schlegel
Employment Agreement"). Pursuant to the Amended
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Schlegel Employment Agreement, Mr. Schlegel's employment as President and Chief
Executive Officer of Envirco will terminate on August 1, 1999. He is to serve as
a consultant to the Company and Envirco from August 1, 1999 to December 31,
1999. As of August 1, 1999, Mr. Schlegel's compensation and benefits will be
governed by the Amended Schlegel Employment Agreement rather than the Schlegel
Employment Agreement. The Amended Schlegel Employment Agreement provides that
Mr. Schlegel will (i) be paid $75,000 on January 5, 2000 as compensation for the
consulting services he performs under the Amended Schlegel Employment Agreement;
(ii) be paid by February 28, 2000 his prorated incentive bonus for 1999 through
July 31, 1999, (iii) as of August 1, 1999, no longer be eligible to participate
in the Bonus Incentive Plan, Envirco's 401(k) plan or the Company's Incentive
Stock Option Plan; (iv) be able to participate in Envirco's life and medical
insurance plans; (v) as of August 1, 1999, no longer be eligible for any stock
option awards under the Stock Option Award Agreement; (vi) be paid for any of
his accrued and unused vacation time on August 1, 1999; and (vii) be paid
$50,000 on August 1, 1999 in consideration of Mr. Schlegel agreeing to Section 6
of the Schlegel Employment Agreement to not compete with Envirco for two years
following termination of his employment with Envirco.
Mr. Monsma's Employment Agreement.
On May 19, 1998 the Company and Calvin J. Monsma entered into a Change in
Control Agreement (the "Control Agreement") providing for certain severance
payments being made to Mr. Monsma in the event of his termination without cause
or resignation with good reason should there be a change in control of the
Company. The term of the agreement is for three years and, in the event of a
change in control of the Company, for two years from the date of the change in
control. The Control Agreement provides that, in the event of a termination
without cause or resignation with good reason, Mr. Monsma is entitled to receive
(i) the product of two times the sum of the highest base salary during the term
of the Control Agreement plus the full target award fixed for the then-current
year; (ii) a pro rata incentive bonus equal to the full target award for the
then-current fiscal year; (iii) the sum of (A) the maximum contribution that
could have been made by the Company on Mr. Monsma's behalf to all defined
contribution plans of the Company and (B) the present value of the benefits that
Mr. Monsma could have accrued under all defined benefit plans of the Company,
had Mr. Monsma continued to participate in such plans for a three year period
following termination; and (iv) insurance coverage providing substantially
similar benefits to those which he was receiving immediately prior to the
effective date for two years or until such time as Mr. Monsma is provided with
substantially equivalent benefits by another employer. For this purpose, a
termination without cause or resignation with good reason includes (i) a
discharge by the Company without cause or a resignation by Mr. Monsma within one
year after a substantial reduction of Mr. Monsma's compensation or duties, (ii)
a relocation of Mr. Monsma's principal place of business to a location which is
more than 50 miles from its current location, (iii) a substantial change in the
duties and responsibilities of Mr. Monsma's current position, (iv) the giving of
notice by the Company that it elects not to extend the Control Agreement or (v)
a failure by the Company to cause a successor to assume the Company's
obligations under the Control Agreement.
As a condition to Parent's entering into the Merger Agreement, the Company
and Mr. Monsma entered into an employment agreement on July 12, 1999 (the
"Monsma Agreement"), providing for Mr. Monsma's employment as Vice President and
Chief Financial Officer of the Company until August 31, 2002. The Monsma
Agreement replaces and supersedes the Control Agreement. The effectiveness of
the Monsma Agreement is conditioned upon the consummation of the Offer. The
Monsma Agreement will be automatically extended for an additional year as of
August 31, 2002 and on each anniversary thereof unless either party gives
written notice of termination at least 90 days prior to any such date.
The Agreement provides for a base salary of $113,400 per year (the "Monsma
Base Salary"), subject to review and adjustment by the Company. Mr. Monsma's
compensation will also include an annual discretionary bonus equal to 35% of the
Monsma Base Salary which will be based on the performance of the Company and
certain individual performance targets established by the chief executive
officer of Parent's Indoor Air Quality unit. In addition, Mr. Monsma will
receive as incentive compensation an amount equal to 1/8% of the total purchase
price of acquisitions of businesses by the Company.
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Pursuant to the Monsma Agreement, at the Effective Time, Mr. Monsma will be
granted options to purchase 25,000 shares of the Class A Stock of Parent at an
exercise price equal to the closing price of the Class A Stock on such date. The
Monsma Agreement provides that one third of the options will vest each year on
the anniversary date of the Monsma Agreement.
In the event of Mr. Monsma's death, disability or resignation or discharge
by the Company other than a termination without "cause" (as defined in the
Monsma Agreement) or resignation with good reason (as defined in the Monsma
Agreement), the Company will pay Mr. Monsma: (i) all accrued obligations
including the Monsma Base Salary through the date of termination, and (ii) all
accrued benefits under the Company's retirement, incentive or other benefit
plans. In the event of a termination without cause or resignation with good
reason, (i) the Company will pay Mr. Monsma all accrued obligations including
the Monsma Base Salary through the date of termination; (ii) the Company will
pay Mr. Monsma a lump sum equal to the balance of the Monsma Base Salary and any
incentive compensation then in effect for the remainder of the term of the
Monsma Agreement; (iii) an amount equal to the maximum contributions that could
have been made by the Company on Mr. Monsma's behalf to all defined contribution
plans of the Company on the same basis as in effect on the date of termination
of the Monsma Agreement for the remainder of the term of the Monsma Agreement
shall be paid to the trustees of such plan(s); however, in the event any of such
plans will not allow such payment, the Company will pay to Mr. Monsma a lump sum
in cash equal to the total amount not accepted by such plans; (iv) Mr. Monsma
shall be entitled to receive all benefits accrued by him under the retirement,
incentive or other benefit plans in which Mr. Monsma was participating; (v) the
Company will pay all premiums under COBRA for Mr. Monsma and his dependents if
they elect coverage and (vi) in the event Mr. Monsma is so terminated or resigns
during the initial three year term of the Monsma Agreement, any unvested Parent
stock options granted to Mr. Monsma pursuant to the Monsma Agreement shall vest
immediately and Mr. Monsma shall have 30 days to exercise such options.
For purposes of the Monsma Agreement, a termination without cause or
resignation with good reason includes (i) a discharge by Parent without cause or
a resignation by Mr. Monsma within one year after a substantial reduction of
Monsma's compensation, (ii) a relocation of Mr. Monsma's principal place of
business to a location which is more than 50 miles from its current location,
(iii) a substantial change in the duties and responsibilities of Mr. Monsma's
current position, or (iv) any material breach of the Monsma Agreement. The
Monsma Agreement provides that the Parent will indemnify Mr. Monsma to the
fullest extent permitted by law against claims relating to his service as an
officer or employee of the Company or any other enterprise for which he acts in
such capacity at the Company's request.
Mr. Haynes' Change in Control Agreement
On March 29, 1999 the Company and Charles A. Haynes, Vice President of
Engineering of the Company, entered into a Change in Control Agreement (the
"Haynes Control Agreement"). The Haynes Control Agreement requires that the
Company employ Mr. Haynes for one year from the date of a Change in Control (as
defined in the recitals to the Haynes Control Agreement). During this one year
period following the date of a Change in Control, the Company must (i) pay Mr.
Haynes a base salary no less than the amount the Company paid Mr. Haynes
immediately prior to the date of a Change in Control; (ii) permit Mr. Haynes to
participate in any pension, retirement, profit sharing, health, life,
disability, vacation, bonus, incentive, stock option or similar plan or program
established by the Company in the same manner and to the same extent as other
similarly situated executives of the Company; (iii) permit Mr. Haynes to be
entitled to perquisites of office, fringe benefits and other similar benefits
consistent with the Company's practices; and (iv) reimburse Mr. Haynes for
reasonable business expenses and disbursements incurred by him in the course of
the performance of his duties.
The Haynes Control Agreement provides that in the event of a termination
without cause Mr. Haynes is entitled to receive (i) an amount equal to his
highest annual base salary during the term of the Haynes Control Agreement; (ii)
an amount equal to the full target award for the then-current year; (iii) a pro
rata share of the full target award for the then-current year; (iv) the sum of
(A) the maximum contribution that could have been made by the Company on Mr.
Haynes' behalf to all defined contribution plans of the Company and (B) the
present value of the benefits that Mr. Haynes could have accrued under all
defined
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benefit plans of the Company, had Mr. Haynes continued to participate in such
plans for a one year period following termination of employment; (v), to the
extent not paid, an amount equal to (A) his base salary through the date of his
termination of employment, (B) any bonus, incentive compensation, deferred
compensation and other cash compensation accrued by him as of the date of his
termination of employment (to the extent not included in (iii) above), and (C)
any vacation, expense reimbursements and other cash entitlements accrued by Mr.
Haynes as of the date of his termination of employment; and (vi) insurance
coverage providing substantially similar benefits to those which he was
receiving immediately prior to the date of his termination of employment for a
period of one year following the date of the termination of Mr. Haynes'
employment or until such time as Mr. Haynes is provided with substantially
equivalent benefits by another employer. Under the Haynes Control Agreement,
"termination without cause" means the occurrence within one year of the date of
a Change in Control of one of the following: a discharge by the Company of Mr.
Haynes without Cause (as defined in the Haynes Control Agreement), a substantial
reduction of Mr. Haynes' base salary, benefits or perquisites, or a relocation
of Mr. Haynes' principal place of business to a location which is more than 50
miles from its current location.
The Haynes Control Agreement prohibits Mr. Haynes from disclosing
confidential information regarding the Company during and after his employment
with the Company.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board makes recommendations to the Board
concerning compensation plans for the Company generally and the specific forms
and levels of compensation for executive officers of the Company. The
Compensation Committee, which is comprised of three members, each of whom is a
non-employee director, makes the following report on executive compensation:
COMPENSATION PHILOSOPHY
The executive compensation policies established by the Board are intended
to provide compensation to the Company's executive officers at competitive
levels in order to attract and retain qualified executive officers, to reward
executive officers based on the Company's annual and long-term performance, and
to thereby enhance shareholder value. The Compensation Committee views
stock-based awards as an important means of linking compensation to corporate
performance and providing executive officers with an added incentive to enhance
shareholder value.
The Company will not be affected for the 1998 tax year by the limitation on
deductibility of executive compensation imposed by Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"), and it is not presently
anticipated that Section 162(m) will affect the Company's compensation
deductions in future years. The Compensation Committee intends to review this
issue periodically.
ELEMENTS OF EXECUTIVE COMPENSATION
Compensation of the Company's executive officers currently consists of the
following elements: base salary, cash payments under the Management Incentive
Plan as adopted for a particular year, and stock option awards, including awards
under the 1995 Incentive Plan.
Base Salary. As to all executive officers other than the Chief Executive
Officer, the Compensation Committee establishes base salaries primarily on the
basis of the Chief Executive Officer's recommendations. The Chief Executive
Officer's approach to determining recommended base salary for a new executive
officer includes consideration of responsibilities of the position, the
candidate's experience, skills and expertise, prior accomplishments, current
compensation, competitive salary data including various national reports and
surveys and cost of living comparisons of new location versus old location. In
order to ensure that a new officer's base salary bears a reasonable relation to
the base salaries paid to others, the compensation levels of existing executive
officers are also considered. The primary factors influencing the Chief
Executive Officer's annual recommended changes in base salaries for existing
executive officers are his personal evaluation of individual performances for
the prior year including attainment of personal objectives and goals, attainment
of
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Company performance goals, the Company's salary structure, competitive salary
data including various national reports and surveys and the prior year's
national percentage increase in the cost of living.
Management Incentive Plan. Each year a Management Incentive Plan is
adopted by the Board to provide executive officers and key management employees
with cash compensation commensurate with the level of attainment of certain
performance goals. Target amounts payable under the Management Incentive Plan to
individual executives are determined at the discretion of the Board and amounts
earned, if any, are paid annually early in the succeeding year. Target amounts
are earned if certain pre-established Company and individual performance goals
are achieved. The structure and elements of each year's Management Incentive
Plan historically have been similar from year to year. Company goals under the
Management Incentive Plan for 1998 were comprised of targeted amounts of net
sales and operating income. Individual performance goals are established by the
executive officer to whom the individual reports, after consultation with the
individual. The target amounts which may be earned by individual executive
officers if performance goals are achieved are set at a specified percentage of
base salary. The target percentages for 1998 for executive officers other than
the Chief Executive Officer ranged from 35% to 50% of base salary and were set
by the Board based on the Chief Executive Officer's recommendations. The target
percentage for the Chief Executive Officer was set at 50% for 1998 by the Board.
Incentive compensation can be earned at levels below and above the targeted
percentages of base salary, with the minimum and maximum amounts for 1998 being
0% and 150% of each individual's target percentage. Threshold and maximum
Company performance criteria are established in addition to the target
performance criteria, and actual percentages of base salary earned are
determined by proration based on the level of achievement within the range
between the threshold and maximum performance criteria. No payments are made if
the threshold criteria are not met.
Options. The grant of stock options is intended to provide long-term
performance-based compensation to executive officers of the Company. Options
also are intended to provide executive officers with an additional incentive to
increase and promote shareholder value. The Compensation Committee approved
incentive stock option grants in 1998. Grants were based on a pool of shares
determined by the number of participants, with established minimum and maximum
numbers of shares if certain performance goals were attained. The specific
number of shares granted to individuals was provided in the recommendation. The
exercise price of the options is equal to the fair market value of the Common
Stock on the date of grant. The Board has generally granted incentive stock
options within the meaning of Section 422 of the Code, and all options granted
in 1998 were incentive stock options. The Compensation Committee also from time
to time recommends that the Board award, in its discretion, non-statutory stock
options to executive officers, particularly where a one-time grant involving a
significant number of shares is considered appropriate in connection with the
recruitment of a new executive to the Company, such as the options granted to
the Company's Chief Executive Officer in 1993 as described under the caption
"Compensation Agreements."
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Mr. Schneider's employment agreement as currently in effect and related
Stock Option Agreement are described under the caption "Compensation
Agreements."
As is the case for each of the Company's executive officers, Mr.
Schneider's compensation currently includes three primary components: base
salary, cash payments under the Management Incentive Plan and stock option
awards. His target award under the 1998 Management Incentive Plan was 50% of
base salary, to be based 80% on Company performance and 20% on his individual
performance goals. Targeted Company performance goals established for 1998 at
the end of 1997 were weighted 40% to net sales and 60% to operating income. The
Company did not achieve the necessary corporate financial performance targets in
1998. Mr. Schneider achieved 70% of his individual performance goals. The
resulting award to Mr. Schneider was 7.0% of base salary as incentive
compensation under the 1998 Management Incentive Plan. The grant to Mr.
Schneider in February 1998 of options to purchase 11,000 shares of Common Stock
at an exercise price of
17
<PAGE> 18
$5.3125 per share was determined pursuant to the process described above under
"Elements of Executive Compensation -- Options".
SUBMITTED BY THE COMPENSATION COMMITTEE
Joseph W. Deering, Chairman Seddon Goode, Jr. James E. Heins
CORPORATE PERFORMANCE
The following table represents a performance comparison of cumulative total
returns on the Company's Common Stock compared to the NASDAQ Market (U.S.
companies) and to NASDAQ Non-Financial Stocks for the period of five years ended
December 31, 1998.
The Company has chosen the latter index because it cannot reasonably
identify a peer group or specific industry index for comparison purposes. Most
of the Company's competitors are minor components of large enterprises or are
privately held.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS
PERFORMANCE GRAPH FOR
TRION, INC.
[CORPORATE PERFORMANCE GRAPH]
LEGEND
<TABLE>
<CAPTION>
CRSP TOTAL RETURNS INDEX FOR: 12/1993 12/1994 12/1995 12/1996 12/1997 12/1998
- ----------------------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Trion, Inc.................................... 100.0 92.5 104.0 84.9 102.0 63.2
Nasdaq Stock Market (US Companies)............ 100.0 97.8 138.3 170.0 208.6 293.2
Nasdaq Non-Financial Stocks SIC 0100-3999,
7000-9999 US & Foreign...................... 100.0 96.2 134.0 162.8 191.0 279.8
</TABLE>
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