SCHEDULE I
NATIONAL PICTURE & FRAME COMPANY
702 Highway 82 West
Greenwood, Mississippi 38930
(601) 451-4800
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF
THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about September 11, 1997
as part of the Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of National Picture & Frame Company, a Delaware corporation
(the "Company"), to holders of record of shares of Common Stock, par value $.01
per share, of the Company (the "Shares") at the close of business on or about
September 4, 1997. You are receiving this Information Statement in connection
with the possible election or appointment of persons designated by NPF
Acquisition Corporation (the "Purchaser") to a majority of the seats on the
Board of Directors of the Company.
On September 4, 1997, the Company, Purchaser, NPF Holding Corporation (the
"Parent"), and Colonnade Capital, L.L.C. ("Colonnade"), entered into an
Agreement and Plan of Merger (the "Merger Agreement") in accordance with the
terms and subject to the conditions of which (i) Purchaser will commence a
tender offer (the "Offer") for all outstanding Shares at a price of $12.00 per
Share, net to the seller in cash, and (ii) Purchaser will be merged with and
into the Company (the "Merger"). As a result of the Offer and the Merger, the
Company will become a wholly owned subsidiary of the Parent.
The Merger Agreement requires the Company to use all reasonable efforts to
cause Purchaser's designees to be elected or appointed to the Board of Directors
of the Company under the circumstances described therein. This Information
Statement is required by Section 14(f) of the Securities Exchange Act of 1934,
as amended, and Rule 14f-1 promulgated thereunder. See "RIGHT TO DESIGNATE
DIRECTORS; PURCHASER DESIGNEES."
You are urged to read this Information Statement carefully. You are not,
however, required to take any action in connection with the matters herein
discussed. Capitalized terms used herein and not otherwise defined herein have
the meanings set forth in the Schedule 14D-9.
Pursuant to the Merger Agreement, Purchaser commenced the Offer on
September 11, 1997. The Offer is scheduled to expire at 5:00 p.m., New York City
time, on October 9, 1997, unless the Offer is extended.
The information contained in this Information Statement concerning
Purchaser and Purchaser's designees for the Company's Board of Directors (the
"Purchaser Designees") has been furnished to the Company by Purchaser, and the
Company assumes no responsibility for the accuracy or completeness of such
information.
RIGHT TO DESIGNATE DIRECTORS; PURCHASER DESIGNEES
Pursuant to the Merger Agreement, promptly following the purchase by and
payment for Shares pursuant to the terms, and subject to the conditions of the
Offer, Purchaser will be entitled to designate such number of directors as will
give Purchaser representation on the Board of Directors of the Company equal to
the product of (x) the number of directors on the Board (giving effect to any
increase in the number of directors pursuant to the Merger Agreement) and (y)
the percentage that such number of shares so purchased bears to the aggregate
number of shares outstanding. The Merger Agreement requires that the Company
will, upon request by and at the option of the Parent, either increase the size
of the Board of Directors and/or secure the resignation of current directors to
enable Purchaser Designees to be elected or appointed to the Board of Directors
and to constitute a majority of the Company's Board of Directors. The Board of
Directors of the Company currently consists of six members. The Board of
Directors of the Company expects that several directors will resign from the
Board following the consummation of the Offer or, if necessary, the Board will
increase the size of the Board by resolutions to satisfy this requirement.
Purchaser Designees may assume office at any time following the purchase by
Purchaser of Shares pursuant to the terms, and subject to the conditions of the
Offer, which purchase cannot be earlier than October 9, 1997.
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None of Purchaser Designees (a) is currently a director of, or holds any
position with, the Company, (b) has a familial relationship with any of the
directors or executive officers of the Company or (c) to the best knowledge of
Purchaser, beneficially owns any securities (or rights to acquire any
securities) of the Company. The Company has been advised by Purchaser that, to
the best of Purchaser's knowledge, none of Purchaser 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 pursuant to the rules and
regulations of the Securities and Exchange Commission, except as may be
disclosed herein or in the Schedule 14D-9.
Purchaser has informed the Company that it will choose Purchaser Designees
from Purchaser's directors and executive officers listed below. Purchaser has
informed the Company that each of Purchaser Designees has consented to act as a
director, if so designated. The names of Purchaser Designees, their ages as of
September 4, 1997, and certain other information about them are set forth below.
All of Purchaser Designees are officers and directors of Purchaser and the
business address of each such executive officer and director is Riverfront Plaza
West, 901 East Byrd Street, Suite 1300, Richmond, Virginia 23219. Unless
otherwise indicated below, each occupation set forth opposite an individual's
name refers to employment with the Parent.
NAME OF PURCHASER DESIGNEE AGE PRINCIPAL OCCUPATION DURING THE PAST FIVE YEARS
- --------------------------- --- --------------------------------------------------------------------------------------
John T. Herzog 35 President and a director of Parent (1997-Present); Vice President, Secretary and
Treasurer and a director of Purchaser (1997-present); Managing Partner, Colonnade
(1995-present); Chief Financial Officer, Eskimo Pie Corporation (1993-1995); Corporate
Finance Vice President, Wheat First Butcher Singer (1991-1993).
James C. Wheat, III 45 Vice President, Secretary and Treasurer and a director of Parent (1997-present);
President and a director of Purchaser (1997-present); Managing Partner, Colonnade
(1993-present); Managing Partner, Riverfront Partners (1992-present); Managing
Director, Wheat First Butcher Singer (1984-1992). Mr. Wheat is a director of Huddle
House, Max Media, Tredegar Trust Company and State Affairs Company.
DIRECTORS OF THE COMPANY
The Board of Directors is currently comprised of six directors. The
following sets forth information as to each director, including age as of
September 4, 1997, principal occupation and employment during the past five
years, directorships in other publicly held companies, membership on committees
of the Board of Directors and period of service as a director of the
Corporation.
PETER B. FOREMAN Age: 61
Mr. Foreman has served as the President of Sirius Corporation, an
investment management company, since 1994. Mr. Foreman was a founding partner of
Harris Associates, L.P., an investment management company, from 1976 to 1994.
Mr. Foreman has served as a director of Eagle Food Centers Inc., a retail food
store company, since 1988. Mr. Foreman has served as a director of Glacier Water
Services, Inc., a bottled water distribution company, since 1991 and has served
as a director of PCA International Inc., a company involved in the photography
business, since 1994. Mr. Foreman has been a Director since July 15, 1994.
ARTHUR L. GOESCHEL Age: 75
Mr. Goeschel is presently retired. Mr. Goeschel served as the Chairman of
the Board of Rexene Corporation, a manufacturer of plastic film and plastic
resins, from March 1992 until his resignation in 1997. Mr. Goeschel has served
as a member of the board of trustees of Laurel Mutual Funds. Mr. Goeschel was
formerly the Executive Vice President of Merck & Company, Inc. and President of
Calgon Corporation, a Merck corporation subsidiary, and is a member of the Board
of Directors of Calgon Corporation, a producer of granular activated carbon. Mr.
Goeschel has been a Director since July 15, 1994.
DANIEL J. HENNESSY Age: 39
Mr. Hennessy has, since August 1988, been a General Partner of CHS
Management, the General Partner of Code, Hennessy & Simmons Limited Partnership
("CHS"), a limited partnership engaged in private equity investing, and a
principal of Code, Hennessy and Simmons, Inc. ("CHSI"), a company engaged in
private equity investing. Mr. Hennessy has served as Chairman of the Board and
has been a Director since July 31, 1992.
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JOHN F. LEVY Age: 50
Mr. Levy was the President and Chief Executive Officer of Waban Inc., a
retailing company, until May 30, 1993. Mr. Levy is a director of Selfcare, Inc.,
a public biotechnology company. Mr. Levy has been a Director since July 15,
1994.
JESSE C. LUXTON Age: 54
Mr. Luxton has been with the Company for 19 years. He has served as the
Company's President and Chief Executive Officer since 1987 and prior to that Mr.
Luxton served as the Company's General Manager and Vice President of Sales and
Marketing. Mr. Luxton has been a Director since July 31, 1992.
JON S. VESELY Age: 31
Mr. Vesely is a principal of CHSI. Mr. Vesely was an associate of CHS
Management from 1991 to 1994 and a managing director of CHSI from 1994 to 1997.
Prior to such date, he was a Corporate Finance Officer with First Chicago
Corporation. Mr. Vesely has served as a Director since July 31, 1992.
There are no family relationships among the foregoing persons.
BOARD AND COMMITTEE MEETINGS
The Board of Directors held four meetings (exclusive of committee meetings)
during the fiscal year ended April 30, 1997. The Board of Directors has
established the following committees, the functions and current members of which
are noted below. Each current director except Mr. Vesely attended 75% or more of
the number of meetings held during the fiscal year ended April 30, 1997 of the
Board of Directors and any committees on which such director served.
COMPENSATION COMMITTEE. The Compensation Committee of the Board of
Directors consists of Messrs. Hennessy, Foreman, Goeschel, Levy and Vesely. The
Compensation Committee reviews and makes recommendations to the Board of
Directors regarding salaries, compensation and benefits of executive officers
and key employees of the Corporation and grants options to purchase Common Stock
of the Corporation. The Compensation Committee met two times during the fiscal
year ended April 30, 1997.
AUDIT COMMITTEE. The Audit Committee of the Board of Directors consists of
Messrs. Hennessy and Vesely. The Audit Committee, among other duties, reviews
the internal and external financial reporting of the Corporation, reviews the
scope of the independent audit and considers comments by the auditors regarding
internal controls and accounting procedures and management's response to those
comments. The Audit Committee met once during the preceding fiscal year.
The Corporation does not have a nominating committee.
COMPENSATION OF DIRECTORS
Management directors are not entitled to receive any fees for their service
on the Board of Directors. Nonmanagement directors are reimbursed for
out-of-pocket expenses incurred in connection with attending meetings. In
addition, all non-management directors received annual compensation of $10,000
for service on the Board of Directors during 1996. Pursuant to the Non-Employee
Directors' Stock Option Plan (the "Director Plan"), non-management directors may
elect to receive payment of fees for their services as directors in the form of
options to acquire Shares. The Director Plan provides for the issuance of
options to non-employee directors at an option price per share equal to the
closing sale price for Shares as of the most recent trading day preceding the
date the option is granted. Options granted under the Director Plan generally
become exercisable one year after the date of grant, and become immediately
exercisable upon the occurrence of certain change of control events.
EXECUTIVE OFFICERS
Set forth below is information regarding the executive officers of the
Company.
JESSE C. LUXTON Age: 54
Mr. Luxton has been with the Company for 19 years. He has spent the past 10
years as the Company's President and Chief Executive Officer and prior to that
as General Manager and Vice President of Sales and Marketing.
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M. WESLEY JORDAN, JR. Age: 48
Mr. Jordan is the Company's chief financial officer. Mr. Jordan joined the
Company as Vice President of Finance on May 8, 1995. Prior to joining the
Company, he was the Senior Vice President of Finance and Administration for the
Georgia Lottery Corporation for approximately one year. Prior to the Georgia
Lottery Corporation, Mr. Jordan was a partner with the accounting firm of
Coopers & Lybrand. Mr. Jordan is a Certified Public Accountant in the States of
Georgia and Texas.
BILLY D. MOORE Age: 56
Mr. Moore has worked with the Company for over 23 years in various
manufacturing positions. He has served as Vice President of Operations and
General Manager since 1989. Prior to joining the Company, Mr. Moore held several
manufacturing positions with Baldwin Piano Company.
RICHARD A. BEATTIE Age: 45
Mr. Beattie has been with the Company for the past 11 years in various
sales and marketing positions. He has held his most recent position as Vice
President of Sales and Marketing for the past five years. Prior to joining the
Company, Mr. Beattie worked with Jack Shine & Associates, a manufacturer's
representative organization, for eight years.
ROBERT T. LITTLEJOHN Age: 52
Mr. Littlejohn has been with the Company as Controller for the past 15
years. Prior to joining the company, Mr. Littlejohn worked in several accounting
functions with various companies. He is a Certified Public Accountant in the
State of Mississippi.
There are no family relationships among the foregoing persons.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers, directors and persons who beneficially own more than ten
percent of a registered class of the Company's equity securities to file reports
of securities ownership and changes in such ownership with the Securities and
Exchange Commission (the "SEC"). Officers, directors and greater than
ten-percent beneficial owners also are required by rules promulgated by the SEC
to furnish the Company with copies of all Section 16(a) forms they file.
Based solely upon a review of the copies of such forms furnished to the
Company, or written representations that no Form 5 filings were required, the
Company believes that each of its officers, directors and greater than ten
percent beneficial owners complied with all Section 16(a) filing requirements
applicable to them during the period from May 1, 1996 through September 4, 1997.
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SECURITY OWNERSHIP
The following information with respect to the outstanding shares of Common
Stock beneficially owned by each Director and nominee for Director, the chief
executive officer and the four other executive officers, and the Directors and
executive officers as a group and all beneficial owners of more than five
percent of the Common Stock is furnished as of September 4, 1997.
BENEFICIAL OWNERSHIP(1)
-----------------------
NUMBER OF PERCENT OF
NAME SHARES(2) CLASS(2)
- ------------------------------------------------------------------------------------------------------ ---------- ----------
Code, Hennessy & Simmons Limited Partnership(3)....................................................... 1,581,625 31.81%
Andrew W. Code(4)(5).................................................................................. 1,582,025 31.81%
Daniel J. Hennessy(4)(6).............................................................................. 1,582,925 31.83%
Brian P. Simmons(4)................................................................................... 1,585,125 31.88%
Hesperus Partners, Ltd.(7)............................................................................ 317,655 6.34%
Peter B. Foreman(7)(8)................................................................................ 328,605 6.59%
White Dwarf Partners, L.P.(9)......................................................................... 279,845 5.63%
Frank C. Meyer(9)..................................................................................... 279,845 5.63%
Arthur L. Goeschel(8)................................................................................. 15,950 *
John F. Levy(8)....................................................................................... 10,950 *
Jesse C. Luxton(10)................................................................................... 468,795 9.17%
M. Wesley Jordan(11).................................................................................. 21,181 *
Billy D. Moore(12).................................................................................... 219,504 4.36%
Richard A. Beattie(13)................................................................................ 112,771 2.24%
Robert T. Littlejohn(14).............................................................................. 90,745 1.81%
Jon S. Vesely(15)..................................................................................... 1,551 *
All executive officers (ten persons).................................................................. 2,856,477 53.65%
- ---------------
(1) "Beneficial owner" means generally any person who, directly or indirectly,
has or shares voting power or investment power with respect to a security.
All information with respect to the beneficial ownership of any stockholder
has been furnished by such stockholder or is based on reports filed with
the SEC by or on behalf of such stockholder. The Company believes that,
except as otherwise indicated, each stockholder has sole voting and
investment power with respect to shares listed as beneficially owned by
such stockholder.
(2) Based on 4,972,686 shares of Common Stock outstanding as of September 4,
1997 plus, determined with respect to any person, the number of shares of
Common Stock issuable upon exercise of any options held by such person as
of September 4, 1997. Percentages less than 1.0% are denoted by an
asterisk.
(3) The business address of Code, Hennessy & Simmons Limited Partnership
("CHS") is 10 South Wacker Drive, Suite 3175, Chicago, IL 60606.
(4) 1,581,625 of such shares of Common Stock are held of record by CHS and
beneficially by Messrs. Code, Hennessy and Simmons. Such persons are
general partners of the general partner of CHS and share investment and
voting power with respect to its securities held by CHS. Each of Messrs.
Code, Hennessy and Simmons disclaims beneficial ownership of such shares
except to the extent of his pecuniary interest therein. The business
address of each such person is c/o CHS, 10 South Wacker Drive, Suite 3175,
Chicago, IL 60606.
(5) 400 of such shares of Common Stock are held by Mr. Code as custodian for
minor children under the Uniform Gifts to Minors Act.
(6) 800 of such shares of Common Stock are held by Mr. Hennessy as custodian
for minor children under the Uniform Gifts to Minors Act.
(7) All of such shares are held by Hesperus Partners, Ltd., an Illinois limited
partnership. Mr. Foreman controls the general partner of the general
partner of Hesperus and possesses investment and voting power with respect
to securities held by Hesperus. The business address of each of Hesperus
Partners, Ltd. and Mr. Foreman is 225 W. Washington Street, Suite 1650,
Chicago, IL 60606. The foregoing is based solely on information contained
in a Schedule 13D dated April 30, 1997.
(8) Share amount includes exercisable options for 10,950 shares of the Common
Stock granted to each Non-Employee Director participating in the Director
Plan.
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(9) All of such shares are held by White Dwarf Partners, L.P., a Delaware
limited partnership. Mr. Meyer controls the general partner of White Dwarf
and possesses investment and voting power with respect to the securities
held by White Dwarf. The business address of each of White Dwarf and Mr.
Meyer is 225 W. Washington Street, Suite 1650, Chicago, Illinois 60606. The
foregoing is based solely on information contained in a Schedule 13D dated
April 30, 1997.
(10) The business address of Mr. Luxton is c/o National Picture & Frame Company,
702 Highway 82 West, Greenwood, MS 38930. Share amount shown includes
exercisable options for 139,000 shares of the Common Stock granted to Mr.
Luxton under the Company's Long Term Incentive Plan.
(11) Share amounts for Mr. Jordan includes exercisable options for 20,000 shares
of the Common Stock granted to Mr. Jordan under the Company's Long Term
Incentive Plan.
(12) Share amount shown includes exercisable options for 61,000 shares of the
Common Stock granted to Mr. Moore under the Company's Long Term Incentive
Plan.
(13) Share amount shown includes exercisable options for 58,000 shares of the
Common Stock granted to Mr. Beattie under the Company's Long Term Incentive
Plan.
(14) Share amount shown includes exercisable option for 41,000 shares of the
Common Stock granted to Mr. Littlejohn under the Company's Long Term
Incentive Plan.
(15) Mr. Vesely is an employee of Code, Hennessy & Simmons, Inc., an affiliate
of CHS, but does not share investment or voting discretion with respect to
the securities held by CHS.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following summary compensation table sets forth the components of the
compensation of the Company's chief executive officer and the other four
executive officers (the "Named Executive Officers") for all services rendered in
all capacities for the fiscal years ended April 30, 1997, April 30, 1996 and
April 30, 1995.
ANNUAL COMPENSATION STOCK
FISCAL --------------------- OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (#) COMPENSATION(1)
- ------------------------------------------------------------------ ------ --------- --------- ------- ---------------
Jesse C. Luxton 1997 $ 405,169 $ 88,166 0 $ 8,429
President and Chief Executive Officer 1996 385,875 24,473 0 15,910
1995 367,500 191,500 0 18,093
M. Wesley Jordan, Jr. (2) 1997 133,127 18,396 0 7,853
Vice President Financial and Chief Financial Officer 1996 124,386 1,700 40,000(3) 1,388
Billy D. Moore 1997 202,584 36,111 0 8,266
Vice President of Operations 1996 192,937 4,400 0 8,609
and General Manager 1995 183,750 77,700 0 12,603
Richard A. Beattie 1997 202,584 35,861 0 8,241
Vice President of Sales and Marketing 1996 192,937 4,150 0 8,609
1995 183,750 77,450 0 11,548
Robert T. Littlejohn 1997 133,127 18,721 0 7,861
Controller 1996 126,787 2,850 0 6,105
1995 120,750 38,950 0 8,347
- ---------------
(1) The 1995 amounts represent (i) estimated contributions by the Company to the
Retirement Plan and (ii) insurance premiums paid by the Company for the
benefit of the Named Executive Officers in the following amounts: Mr.
Luxton, $15,208 and $2,885, respectively; Mr. Moore, $10,883 and $1,720,
respectively; Mr. Beattie, $10,712 and $836, respectively; and Mr.
Littlejohn, $7,070 and $1,277, respectively. The 1996 amounts represent (i)
contributions by the Company to the Retirement Plan and (ii) insurance
premiums paid by the Company for the benefit of the Named Executive Officers
in the following amounts: Mr. Luxton, $13,301 and $2,609, respectively; Mr.
Moore, $6,901 and $1,708 respectively; Mr. Beattie, $6,911 and $1,698,
respectively; Mr. Littlejohn, $4,706 and $1,399, respectively; and Mr.
Jordan, $0 and $1,388 respectively. The 1997 amounts represent (i) estimated
contributions by the Company to the Retirement Plan and (ii) insurance
premiums paid by the Company for the benefit of the Named Executive
Officers, in the following amounts: Mr. Luxton, $4,316 and $4,113,
respectively; Mr. Moore, $4,316 and $3,950, respectively; Mr. Beattie,
$4,316 and $3,925, respectively; Mr. Littlejohn, $3,964 and $3,897,
respectively; and Mr Jordan, $3,956 and $3,897, respectively.
(2) Mr. Jordan became an Officer of the Company on May 8, 1995.
(3) Stock Options subject to five year vesting.
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OPTION GRANTS IN LAST FISCAL YEAR
There were no option grants made to any of the named executive officers
during the last fiscal year.
NUMBER OF
UNEXERCISED OPTIONS
AT FISCAL YEAR END
SHARES ACQUIRED VALUE REALIZED (#) EXERCISABLE/
NAME ON EXERCISE(1) ($)(1) UNEXERCISABLE(1)
- -------------------------------------------------- --------------- -------------- -------------------
Jesse C. Luxton................................... -0- -0- 139,000/25,000
M. Wesley Jordan, Jr.............................. -0- -0- 10,000/30,000
Billy D. Moore.................................... -0- -0- 61,000/10,000
Richard A. Beattie................................ -0- -0- 57,000/10,000
Robert Littlejohn................................. -0- -0- 41,000/7,000
VALUE OF UNEXERCISED
IN-THE-MONEY
OPTIONS AT FISCAL
YEAR END ($)
EXERCISABLE/
NAME UNEXERCISABLE(1)
- -------------------------------------------------- ----------------------
Jesse C. Luxton................................... 0/0
M. Wesley Jordan, Jr.............................. 3,750/11,250
Billy D. Moore.................................... 0/0
Richard A. Beattie................................ 0/0
Robert Littlejohn................................. 0/0
- ---------------
(1) No options were exercised by the Named Executive Officers during the last
fiscal year. As of the end of the fiscal year, none of the options held by
the Named Executive Officers (other than Mr. Jordan) was in-the-money. As of
the end of the fiscal year, all of the options held by Mr. Jordan were
in-the-money.
LONG TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
There were no long term incentive plan awards made to any of the named
executives during the fiscal year.
EMPLOYMENT AGREEMENTS WITH THE COMPANY
Each of the Named Executive Officers other than Mr. Jordan is party to an
employment agreement with the Company dated as of April 30, 1993 (the
"Employment Agreements"). The Employment Agreements establish base salaries for
Messrs. Luxton, Moore, Beattie and Littlejohn at $350,000, $175,000, $175,000
and $115,000, respectively, for fiscal year 1994, subject to 5% annual increases
and further increases at the discretion of the Board of Directors. The
Employment Agreements provide, in part, for the payment of annual cash incentive
bonuses. Annual cash incentive bonuses begin to accrue once EBIT growth reaches
10% and fully vest once EBIT growth of 20% is achieved. The maximum annual cash
bonuses (as a percentage of base salary) for Messrs. Luxton, Moore, Beattie and
Littlejohn are 50%, 40%, 40% and 30%, respectively. A 5% increase in Mr.
Jordan's fiscal year 1996 salary of $126,787.50 for fiscal year 1997 was
negotiated at the time Mr. Jordan became Chief Financial Officer of the Company.
The Company also intends that Mr. Jordan will receive annual cash incentive
bonus payments not to exceed 30% of Mr. Jordan's base salary, determined
according to the formula applied in calculating annual bonus payments for the
other Named Executive Officers. In addition to the foregoing, each Named
Executive Officer is entitled to receive a holiday bonus in accordance with the
Company's holiday bonus program. Holiday bonuses for fiscal year 1997 were
$23,275 for the Named Executive Officers in the aggregate, which amounts are
included in the summary compensation table above.
The Employment Agreements expire on October 31, 1997.
INCENTIVE AND SEVERANCE AGREEMENTS WITH THE COMPANY
Each of Messrs. Luxton, Jordan, Beattie, Moore and Littlejohn is a party to
letter agreements with the Company dated November 7, 1996 and April 30, 1997.
The letters provide that, in the event that a change of control transaction is
consummated with Colonnade on or prior to October 31, 1997, each executive will
be entitled to receive an amount equal to the unpaid portion of the maximum
annual cash incentive bonus under his Employment Agreement for the fiscal year
ended April 30, 1997. Each executive has to date received approximately 39% of
the maximum cash incentive bonus for the fiscal year ended April 30, 1997, and
hence approximately 61% of the maximum cash incentive bonus for the fiscal year
ended April 30, 1997 is payable under the letter agreements. The amounts which
would be payable to the executives under the letter agreements are as follows:
approximately $123,000 in the case of Mr. Luxton, approximately $49,000 each in
the case of Messrs. Moore and Beattie and approximately $24,000 each in the case
of Messrs. Littlejohn and Jordan. Agreements in place with the executives also
provide for severance payments equal to one year's base salary if their
employment is terminated without cause (either actually or constructively) on or
prior to October 31, 1997.
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EMPLOYMENT, CONSULTING AND SUBSCRIPTION AGREEMENTS WITH PURCHASER
Purchaser has advised the Company that it intends to enter into employment
agreements with Messrs. Beattie and Moore and a consulting agreement with Mr.
Luxton. Purchaser has also advised the Company that it intends to enter into
subscription and exchange agreements with Messrs. Beattie, Moore and Littlejohn,
pursuant to which they will subscribe for stock in Purchaser in exchange for a
portion of their shares in the Company. See Item 3(b) of the Schedule 14D-9 for
a description of these agreements.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The following is the report of the Compensation Committee on executive
compensation. The Compensation Committee reviews and makes recommendations to
the Board of Directors regarding salaries, compensation and benefits of
executive officers and key employees of the Company and develops and administers
programs providing stock-based incentives. The following Compensation Committee
report documents the components of the Company's executive officer compensation
programs and describes the bases upon which compensation has been determined by
the Committee with respect to the Named Executive Officers.
This Compensation Committee report shall not be deemed incorporated by
reference into any filing under the Securities Act of 1933, as amended, or under
the Securities Exchange Act of 1934, as amended, except to the extent that the
Company specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such Acts.
COMPENSATION PHILOSOPHY. The compensation philosophy of the Company is to
endeavor to link executive compensation to continuous improvements in corporate
performance and increases in stockholder value. The Compensation Committee has
adopted the following objectives as guidelines for compensation decisions.
-- Display a willingness to pay levels of compensation that are necessary
to attract and retain highly qualified executives.
-- Be willing to compensate executive officers in recognition of superior
individual performance, new responsibilities or new positions within
the Company.
-- Take into account historical levels of executive compensation and the
overall competitiveness of the market for high quality executive
talent.
-- Implement a balance between short-term and long-term compensation to
complement the Company's annual and long-term business objectives and
strategy and encourage executive performance in furtherance of the
fulfillment of those objectives.
-- Provide variable compensation opportunities based on the performance of
the Company, encourage stock ownership by executives and align
executive remuneration with the interest of stockholders.
COMPENSATION PROGRAM COMPONENTS. The particular elements of the
compensation program for the Named Executive Officers as set forth in their
respective Employment Agreements are explained below.
BASE SALARIES. The base pay level for each of the Named Executive Officers
is set forth in each such executive's employment agreement. Base pay levels were
negotiated with each Named Executive Officer other than Mr. Jordan in connection
with the Company's initial public offering in 1993. Mr. Jordan's base pay level
was negotiated in connection with his hiring in May 1995. See "Executive
Compensation -- Employment Agreements with the Company."
ANNUAL INCENTIVES. Annual bonuses for each of the Named Executive Officers
other than Mr. Jordan are determined according to formulae set forth in his
respective employment agreement. Annual bonus formulae were negotiated with each
Named Executive Officer other than Mr. Jordan in connection with the Company's
initial public offering. Annual bonuses for Mr. Jordan are determined according
to the formula set forth in Mr. Littlejohn's employment agreement. Annual
bonuses for Mr. Jordan were negotiated in connection with his hiring in May
1995. See "Executive Compensation -- Employment Agreements with the Company."
SPECIAL INCENTIVE. In order to incentivize the Named Executive Officers
during the Company's pursuit of strategic alternatives, special incentive
arrangements were put in place in November 1996 and April 1997. These
arrangements offer the Named Executives an additional opportunity to earn their
maximum annual incentive for fiscal 1997 in the event that a change in control
transaction is consummated prior to October 31, 1997. See "Executive
Compensation -- Incentive and Severance Agreements with the Company."
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STOCK OWNERSHIP. The Compensation Committee strongly believes that by
providing those persons who have substantial responsibility over the management
and growth of the Company with an opportunity to establish a meaningful
ownership position in the Company, the interest of stockholders and executives
will be closely aligned. See "Security Ownership.".
PRESIDENT AND CHIEF EXECUTIVE OFFICER COMPENSATION. The base pay level and
annual incentive bonus compensation for Mr. Luxton, the Company's President and
Chief Executive Officer, are determined according to formulae set forth in his
employment agreement. Pursuant to his employment agreement, Mr. Luxton's base
salary for fiscal year 1994 was set at $350,000, subject to 5% annual increases
and further increases at the discretion of the Board. Mr. Luxton's base salary
for fiscal year 1997 was $405,169. Mr. Luxton received a bonus for fiscal year
1997 of $88,166. This amount consisted of a formula bonus under his employment
agreement of $79,616 and a holiday bonus of $8,550. See "Security Ownership" and
"Executive Compensation -- Employment Agreements with the Company."
CERTAIN TAX CONSIDERATIONS. Section 162(m) of the Internal Revenue Code of
1986, as amended, limits the deductibility on the Company's tax returns of
compensation over $1 million to any of the Named Executive Officers unless, in
general the compensation is paid pursuant to a plan which is performance-based,
non-discretionary and has been approved by the Company's stockholders. The
Compensation Committee's policy with respect to Section 162(m) is to make
reasonable efforts to ensure that compensation is deductible without limiting
the Company's ability to attract and retain qualified executives.
SUMMARY. The Compensation Committee believes that the total compensation
program for executives of the Company is focused on increasing values for
stockholders and enhancing corporate performance. The Compensation Committee
currently believes that the compensation of executive officers is properly tied
to stock appreciation.
Compensation Committee
Peter B. Foreman
Daniel J. Hennessy
Arthur L. Goeschel
Jon S. Vesely
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PERFORMANCE GRAPH
The following graph compares the Company's cumulative total stockholder
return since the Common Stock became publicly traded on October 5, 1993 with the
Total Return Index for the Nasdaq Stock Market and with the Total Return Index
for publicly-traded non-financial companies with a market capitalization within
one percentage point of the Company's market capitalization on April 30, 1997.
The Company has chosen this group for comparison because the Company does not
believe that it can reasonably identify a peer group or a published industry or
line-of-business index that contains companies in a similar line of business.
Cumulative total stockholder return is defined as share price appreciation
assuming a $100 initial investment and reinvestment of dividends.
COMPARE CUMULATIVE TOTAL RETURN
AMONG NATIONAL PICTURE & FRAME
NASDAQ MARKET INDEX AND PEER GROUP INDEX
NATIONAL PICTURE
& FRAME PEER GROUP NASDAQ MARKET
10/05/1993 100.00 100.00 100.00
4/29/1994 89.47 90.34 101.58
10/28/1994 107.89 90.51 107.34
4/28/1995 98.68 90.55 110.50
10/30/1995 94.74 80.89 126.80
4/30/1996 102.63 98.27 142.88
10/31/1996 121.05 74.68 146.20
4/30/1997 98.68 66.49 151.37
ASSUMES $100 INVESTED ON OCT. 05, 1993
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING APR. 30, 1997
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TRANSACTIONS WITH DIRECTORS AND MANAGEMENT
The Company currently does business with Direct Connection Travel, a
company in which Mr. Luxton and his wife each have a 25% interest. During fiscal
1997, the Company made payments to Direct Connection Travel totaling
approximately $169,877. The Company believes that the terms of such arrangement
are substantially comparable to those available with other travel agencies.
The Company currently does business with Butch Chamblee, DBA Disposal
Service, a company wholly owned by Mr. Butch Chamblee who is the brother-in-law
of Mr. Moore. During fiscal 1997, the Company made payments to Disposal Service
totaling approximately $78,150. The Company made certain of those payments
pursuant to a contract for solid waste removal which was negotiated based on a
competitive bidding process involving Disposal Service and other third parties.
The Company believes that the terms of such arrangements are substantially
comparable to those available with other solid waste management companies.
VOTING AGREEMENT
The Company and certain stockholders, including CHS and Messrs. Luxton,
Vesely, Moore, Beattie and Littlejohn, which in the aggregate own approximately
49% of all outstanding shares of the Common Stock, are parties to a Voting
Agreement that provides for, among other things, voting with respect to the
election of Directors. CHS is entitled to designate three Directors and Mr.
Luxton is entitled to be designated as a Director for so long as he is the Chief
Executive Officer, after which time his successor would be designated. The
remaining Directors are to be independent Directors, unaffiliated with CHS. The
agreement automatically terminates at such time when CHS ceases to hold at least
ten percent of the Common Stock. The Voting Agreement was amended on September
4, 1997 to permit CHS and Messrs. Luxton, Vesely, Moore, Beattie and Littlejohn
to enter into Stockholder Tender Agreements in connection with the Merger
Agreement.
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