SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ] Check
the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14
Bandag, Incorporated
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
BANDAG, INCORPORATED
Bandag Headquarters
2905 North Highway 61
Muscatine, Iowa 52761-5886
April 5, 1999
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 4, 1999
To The Shareholders:
The Annual Meeting of the Shareholders of Bandag, Incorporated, an Iowa
corporation, will be held at the Bandag, Incorporated Learning Center, 2000
Bandag Drive, Muscatine, Iowa, on May 4, 1999, commencing at ten o'clock a.m.,
Central Daylight Time, for the following purposes:
(1) To elect three directors for terms of three years.
(2) To act upon a proposal to approve and adopt the Bandag,
Incorporated Stock Award Plan.
(3) To ratify the selection of Ernst & Young LLP as independent
auditors of the Corporation for the fiscal year ending December
31, 1999.
(4) If properly presented at the Annual Meeting, to consider and act
upon a shareholder proposal to request the Board to amend the
Corporation's By-laws to provide that the Corporation's Board of
Directors consist of a majority of independent directors.
(5) To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed March 12, 1999 as the record date for
the determination of shareholders entitled to notice of and to vote at the
meeting.
You are invited to attend the meeting; however, if you do not expect to
attend in person, you are urged to sign, date and return immediately the
enclosed Proxy, which is solicited by the Board of Directors. You may revoke
your Proxy and vote in person should you attend the meeting.
By Order of the Board of Directors
/s/Warren W. Heidbreder
WARREN W. HEIDBREDER, Secretary
BANDAG, INCORPORATED
Bandag Headquarters
2905 North Highway 61
Muscatine, Iowa 52761-5886
April 5, 1999
P R O X Y S T A T E M E N T
This Proxy Statement is furnished in connection with the solicitation of proxies
by the Board of Directors of Bandag, Incorporated (the "Corporation") to be
voted at the Annual Meeting of the Shareholders of the Corporation to be held on
Tuesday, May 4, 1999, or at any adjournment thereof, for the purposes set forth
in the foregoing Notice of Annual Meeting. Any shareholder giving a proxy may
revoke it at any time prior to its exercise.
Shareholders of record at the close of business on March 12, 1999, will
be entitled to vote at the meeting or any adjournment thereof. At the close of
business on March 12, 1999, there were 9,085,551 outstanding $1.00 par value
shares of Common Stock and 2,046,043 outstanding $1.00 par value shares of Class
B Common Stock. Each share of Common Stock is entitled to one vote and each
share of Class B Common Stock is entitled to ten votes at the meeting.
The Corporation's Annual Report for the fiscal year ended December 31,
1998, this Proxy Statement and the enclosed form of proxy are being mailed to
shareholders on or about April 5, 1999.
The following table sets forth information as to the Common, Class A
Common and Class B Common shares of the Corporation beneficially owned by each
director and director-nominee, each of the executive officers named in the
Summary Compensation Table and by all directors and executive officers as a
group as of March 12, 1999:
- --------------------------------------------- ----------------------- ---------------------- -----------------------
Percentage of
Aggregate
Voting Power
Percentage of Common
of Outstanding Stock
Amount Stock of and Class B
Directors, Nominees and Beneficially Respective Common
Executive Officers Owned[1] Class[1] Stock**
- --------------------------------------------- ----------------------- ---------------------- -----------------------
Lucille A. Carver
Common Stock 2,615,685 29%
Class A Common Stock 3,730,431 34% 47%
Class B Common Stock 1,114,746 54%
- --------------------------------------------- ----------------------- ---------------------- -----------------------
Martin G. Carver [2] [3]
Common Stock 132,125 1%
Class A Common Stock 561,259 5% 17%
Class B Common Stock 502,622 25%
- --------------------------------------------- ----------------------- ---------------------- -----------------------
Roy J. Carver, Jr.
Common Stock -0- -0-
Class A Common Stock 179,000 2% 14%
Class B Common Stock 400,732 20%
- --------------------------------------------- ----------------------- ---------------------- -----------------------
Robert T. Blanchard
Common Stock 200 *
Class A Common Stock -0- -0- *
Class B Common Stock -0- -0
- --------------------------------------------- ----------------------- ---------------------- -----------------------
- --------------------------------------------- ----------------------- ---------------------- -----------------------
Gary E. Dewel
Common Stock -0- -0-
Class A Common Stock 1,200 * *
Class B Common Stock -0- -0-
- --------------------------------------------- ----------------------- ---------------------- -----------------------
James R. Everline
Common Stock 100 *
Class A Common Stock 1,950 * *
Class B Common Stock 350 *
- --------------------------------------------- ----------------------- ---------------------- -----------------------
Phillip J. Hanrahan
Common Stock -0- -0-
Class A Common Stock 500 * *
Class B Common Stock -0- -0-
- --------------------------------------------- ----------------------- ---------------------- -----------------------
Edgar D. Jannotta
Common Stock 7,000 *
Class A Common Stock 7,000 * *
Class B Common Stock -0- -0-
- --------------------------------------------- ----------------------- ---------------------- -----------------------
R. Stephen Newman
Common Stock 2,500 *
Class A Common Stock 6,000 * *
Class B Common Stock -0- -0-
- --------------------------------------------- ----------------------- ---------------------- -----------------------
Nathaniel L. Derby II
Common Stock 5,458 *
Class A Common Stock 10,119 * *
Class B Common Stock -0- -0-
- --------------------------------------------- ----------------------- ---------------------- -----------------------
Sam Ferrise II
Common Stock 2,291 *
Class A Common Stock 2,572 * *
Class B Common Stock -0- -0-
- --------------------------------------------- ----------------------- ---------------------- -----------------------
Warren W. Heidbreder
Common Stock 4,274 *
Class A Common Stock 8,304 * *
Class B Common Stock -0- -0-
- --------------------------------------------- ----------------------- ---------------------- -----------------------
John C. McErlane
Common Stock 962 *
Class A Common Stock 827 * *
Class B Common Stock -0- -0-
- --------------------------------------------- ----------------------- ---------------------- -----------------------
All Directors, Nominees and
Executive Officers as a
Group (14 Persons)
Common Stock 2,771,605 31% 78%
Class A Common Stock 4,510,073 42%
Class B Common Stock 2,018,450 99%
============================================= ======================= ====================== -----------------------
* Shares owned constitute less than 1% of shares outstanding and less than
1% of votes entitled to be cast.
** Shares of Class A Common Stock are non-voting.
[1] Beneficial owners exercise both sole voting and sole investment power
unless otherwise stated. The Class B Common Stock is convertible on a
share-for-share basis into Common Stock at the option of the shareholder.
As a result, pursuant to Rule 13d-3(d)(1) of the Securities Exchange Act
of 1934, a shareholder is deemed to have beneficial ownership of the
shares of Common Stock which such shareholder may acquire upon conversion
of the Class B Common Stock. In order to avoid overstatement, the amount
of Common Stock beneficially owned does not take into account such shares
of Common Stock which may be acquired upon conversion (an amount which is
equal to the number of shares of Class B Common Stock held by a
shareholder). The percentage of outstanding Common Stock is based on the
total number of shares of Common Stock outstanding as of March 12, 1999
(9,085,551 shares), and does not take into account shares of Common Stock
which may be issued upon conversion of the Class B Common Stock.
[2] Mr. Carver disclaims beneficial ownership of 45,567 shares of Common
Stock, 9,525 shares of Class A Common Stock and 525 shares of Class B
Common Stock held by members of his family.
[3] Includes 60,000 shares of Common Stock and 60,000 shares of Class A
Common Stock which Mr. Carver has the right to acquire upon exercise of
stock options within 60 days after March 12, 1999.
Shareholders Owning More Than Five Percent. The following table provides
information concerning persons known by the Corporation to beneficially own more
than five percent of any class of the Corporation's voting securities as of
March 12, 1999, other than the ownership of Lucille A. Carver, Martin G. Carver
and Roy J. Carver, Jr., which is contained in the previous table:
- ------------------------------------------------- -------------------- --------------------- -----------------------
Percentage
Of
Amount Outstanding Percentage of
Beneficially Common Aggregate
Name and Address Owned Stock Voting Power
- ------------------------------------------------- -------------------- --------------------- -----------------------
Capital Guardian Trust Company(1)
Capital International, Inc.
Capital International S.A.
333 South Hope Street
Los Angeles, CA 90071 1,119,5001) 12.3% 3.8%
- ------------------------------------------------- -------------------- --------------------- -----------------------
(1) Shares shown as beneficially owned is based on a jointly filed Schedule
13G filed with the Securities and Exchange Commission for the period
ended December 31, 1998 by Capital Guardian Trust Company, Capital
International, Inc. and Capital International S.A., affiliated entities.
Of the shares shown, such parties have sole voting power over 985,500 of
such shares, and share voting power over none of such shares and have
sole power to dispose or direct the disposition of all such shares. Such
parties disclaimed membership in a group for all purposes other than the
joint Schedule 13G filing.
3
Proposal No.1 -ELECTION OF DIRECTORS
The Articles of Incorporation require election of directors to staggered
terms of three years, providing that three of the directors are elected each
year. Three nominees this year are to be elected for three-year terms.
Proxies will be voted for the election of each of the nominees listed
below, unless the shareholder giving the proxy votes against, or abstains from
voting for, any nominee. If, as a result of unforeseen circumstances, any such
nominee shall be unable to serve as director, proxies will be voted for the
election of such person or persons as the Board may select. Information about
the nominees is set forth below:
NOMINEES FOR ELECTION TO BOARD OF DIRECTORS
LUCILLE A. CARVER, age 81, has for more than five years served as
Treasurer of the Corporation. She is a member of the Contributions Committee and
the Nominating Committee. Mrs. Carver has been a Director since 1957.
MARTIN G. CARVER, age 50, was elected Chairman of the Board effective
June 23, 1981, Chief Executive Officer effective May 18, 1982, and President
effective May 25, 1983. Mr. Carver was also Vice Chairman of the Board from
January 5, 1981 to June 23, 1981. He is a member of the Executive Committee,
Management Continuity and Compensation Committee, Nominating Committee, the
Strategic Planning Committee and the Special Committee on Executive
Compensation. Mr. Carver has been a Director since 1978.
EDGAR D. JANNOTTA, age 67. On January 2, 1997, William Blair & Company
converted from a partnership to a limited liability company, at which time Mr.
Jannotta became Senior Director of William Blair & Company, L.L.C. From January
1, 1995 to January 2, 1997 Mr. Jannotta was Senior Director of William Blair &
Company, after having served as Managing Partner for more than five years. He
holds directorships in AAR Corp., Aon Corporation, Molex Incorporated, Oil-Dri
Corporation of America, and Unicom Corporation. William Blair & Company, L.L.C.
provided investment banking services to the Corporation in 1998 and the
Corporation anticipates that services may be provided to the Corporation in the
current fiscal year. He is a member of the Audit Committee, Management
Continuity and Compensation Committee and the Nominating Committee. Mr. Jannotta
has been a Director since 1973.
DIRECTORS CONTINUING IN OFFICE
ROBERT T. BLANCHARD, age 54, since January 1, 1999 has been
President-Global Skin Care and Cosmetics, The Procter & Gamble Company, a
consumer products company. Mr. Blanchard joined The Procter & Gamble Company in
1967 and has held numerous positions with The Procter & Gamble Company,
including President, North American Beauty Care Sector, Vice President/General
Manager--Northern European Division, Vice President/General Manager--Beverages
Division, and Group Vice President, Global Strategic Planning--Health and Beauty
Care. Mr. Blanchard is a member of the Audit Committee, Management Continuity
and Compensation Committee, Stock Option Committee and Strategic Planning
Committee. Mr. Blanchard has been a Director since May 1996. His term expires in
2000.
GARY E. DEWEL, age 56, since August 1997 has been Vice President, Supply
Chain for Solutia Inc., St. Louis, Missouri, a spinoff of the chemical
businesses of Monsanto Company. Prior to joining Solutia Inc., Mr. Dewel was
Vice President, Supply Chain of Monsanto Company (1994-August 1997) and held
several Vice President positions with Navistar International Corporation
(1979-1993). Mr. Dewel is a member of the Audit Committee, Stock Option
4
Committee, Strategic Planning Committee and the Special Committee on Executive
Compensation. Mr. Dewel has been a Director since August 1997. His term expires
in 2000.
R. STEPHEN NEWMAN, age 55, on January 11, 1999 was appointed Chief
Executive Officer and President of PRIMEDIA Information, Inc., a group of
information operating companies within PRIMEDIA Inc. Mr. Newman continues as
Chief Executive Officer of Bacon's Information, Inc., where he served as Chief
Executive Officer and President from 1994 to 1999 and President and Chief
Operating Officer from 1990 to 1994. Mr. Newman is a member of the Audit
Committee, Management Continuity and Compensation Committee, Stock Option
Committee, Strategic Planning Committee and the Special Committee on Executive
Compensation. Mr. Newman has been a Director since 1983. His term expires in
2000.
ROY J. CARVER, JR., age 55, is Chairman of the Board of Directors and
Chief Executive Officer of Carver Pump Company, Muscatine, Iowa. During 1989,
Mr. Carver acquired a chain of hardware stores and is President of the
Muscatine, Iowa based company, Carver Hardware Real Estate, Inc. Mr. Carver is
President of Carver Aero, Inc., which operates fixed base operations at airports
in Muscatine, Iowa; Davenport, Iowa and Clinton, Iowa and President of Carver
Hotel Enterprises, Inc., a Muscatine, Iowa based hotel and restaurant operation.
Mr. Carver holds directorships in Catalyst, Inc., Iowa First Bancshares Corp.
and Met-Coil Systems Corporation. He is a member of the Contributions Committee,
Management Continuity and Compensation Committee, Nominating Committee and the
Strategic Planning Committee. Mr. Carver has been a Director since 1982. His
term expires in 2001.
JAMES R. EVERLINE, age 57, is President of Everline & Co., a mergers and
acquisitions/management consulting company. Previously, Mr. Everline was
President, Investment Banking Division, of Henry & Company (1990-December 1991).
Henry & Company is engaged in the venture capital and investment banking
business. Prior to Mr. Everline's employment by Henry & Company, he was a
Partner of Founders Court Investors Inc. (1988-1989) and served as Vice
President, Capital Markets Group, Bank of America (1981-1988). He is a member of
the Audit Committee, Executive Committee, Management Continuity and Compensation
Committee, Nominating Committee and Stock Option Committee. Mr. Everline has
been a Director since 1982. His term expires in 2001.
PHILLIP J. HANRAHAN, age 60, has been for more than five years a partner
in the Milwaukee law firm of Foley & Lardner. In 1998, the Corporation paid fees
for legal services to Foley & Lardner, and the Corporation anticipates that
similar services may be provided by Foley & Lardner in the current fiscal year.
Mr. Hanrahan's fees as a Director are paid to Foley & Lardner, which credits the
sums to the Corporation's legal services account. Mr. Hanrahan is a member of
the Executive Committee and Management Continuity and Compensation Committee.
Mr. Hanrahan has been a Director since August 1997. His term expires in 2001.
Directors are elected by a majority of the votes cast (assuming a quorum
is present). Consequently, any shares not voted at the Annual Meeting, whether
due to abstentions, broker non-votes or otherwise, will have no impact on the
election of directors.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors met five times in 1998.
The Audit Committee met three times in 1998; its functions are to review
major accounting decisions with management and the independent auditors, to
confer with such auditors with respect to the scope and results of the annual
audit, to review the annual audit and evaluate the auditors' performance, to
recommend to the Board of Directors annually the selection of independent
auditors for the ensuing year, to recommend the scope and format of financial
5
information to be submitted to the Board of Directors, to review the scope of
financial information included in the Annual Report to Shareholders, to review
the program of internal audit for the year, to review the financial data
included in all required governmental reports, and to review the audits of all
pension, profit sharing and other trust funds held for the benefit of employees
of the Corporation. The Committee also reviews various insurance coverages of
the Corporation and the Corporation's compliance with the Foreign Corrupt
Practices Act.
The Management Continuity and Compensation Committee met four times in
1998; its functions are to review, evaluate and determine executive level
compensation and to recommend to the Board of Directors the election of
corporate officers.
The Nominating Committee met two times in 1998; its duties relate to the
evaluation and recommendation to the Board of Directors of prospective
candidates for election as directors of the Corporation. The Nominating
Committee will consider recommended nominations for the position of director
which are submitted in writing by the shareholders and addressed to the
Committee in care of the Corporation at Muscatine, Iowa.
The Stock Option Committee met three times in 1998; its function is to
select key employees and to award options and restricted stock grants to those
key employees whose judgment, initiative and efforts contribute materially to
the successful performance of the Corporation.
The Strategic Planning Committee met two times in 1998; its function is
to participate in the creation of the Corporation's business objectives,
strategies and action plans; and to review their perspectives on them with the
full Board. This participation is purely advisory and the Committee has no
formal approval role.
The Special Committee on Executive Compensation met three times in 1998;
its function is to investigate various incentive compensation approaches for key
members of management and to make recommendations and proposals to the Board of
Directors.
REMUNERATION OF EXECUTIVE OFFICERS AND DIRECTORS
Summary Compensation Information
The following table sets forth certain information concerning compensation paid
for the last three fiscal years to the Corporation's Chief Executive Officer and
each of its four other most highly compensated executive officers as of December
31, 1998 whose total cash compensation exceeded $100,000 in fiscal 1998. The
persons named in the table are sometimes referred to herein as the "named
executive officers."
6
Summary Compensation Table
============================ ======= ============ ========= ============== ================= ==================
Long Term
Compensation
Other Annual Restricted
Compensation Stock All Other
Name and Principal Position Year Salary Bonus [1] Award(s)[2] Compensation [3]
- ---------------------------- ------- ------------ --------- -------------- ----------------- -----------------
Martin G. Carver 1998 $ 497,233 $0 $ 78,152 $ 93,928 $13,890
Chairman of the Board, 1997 345,942 0 124,947 152,171 13,722
Chief Executive Officer 1996 332,424 0 124,707 151,876 13,181
and President
- ---------------------------- ------- ------------ --------- -------------- ----------------- -----------------
Sam Ferrise II 1998 $ 346,154 $0 $ 42,064 $51,697 $13,890
Executive Vice President, 1997 283,140 0 33,663 40,514 13,722
Chief Operating Officer 1996 219,126 0 35,213 40,312 11,637
- ---------------------------- ------- ------------ --------- -------------- ----------------- -----------------
Warren W. Heidbreder 1998 $ 329,654 $0 $ 26,947 $31,310 $13,890
Vice President, 1997 248,406 0 35,406 40,514 13,128
Chief 1996 208,400 0 30,722 40,312 11,101
Financial Officer and
Secretary
- ---------------------------- ------- ------------ --------- -------------- ----------------- -----------------
Nathaniel L. Derby II 1998 $ 316,385 $0 $ 23,789 $26,213 $13,890
Vice President, 1997 242,508 0 36,424 40,514 12,833
Manufacturing 1996 215,538 0 34,979 40,312 11,458
Design
- ---------------------------- ------- ------------ --------- -------------- ----------------- -----------------
John C. McErlane 1998 $ 312,372 $0 $ 24,080 $ 28,761 $13,890
Vice President, 1997 184,803 0 9,017 11,858 9,948
Marketing 1996 116,943 0 4,139 6,562 6,528
and Sales
============================ ======= ============ ========= ============== ================= ==================
[1] Amounts shown represent the tax reimbursement or "gross up" with respect
to restricted stock awards and certain other fringe benefits.
[2] At December 31, 1998 the number of shares held and the aggregate market
value of restricted stock held by the named executive officers are as
follows: Martin G. Carver, 10,420 shares Common Stock, value $416,149,
and 6,560 shares Class A Common Stock, value $228,780; Sam Ferrise II,
1,720 shares Common Stock, value $68,693, and 1,720 shares Class A Common
Stock, value $59,985; Warren W. Heidbreder, 1,860 shares Common Stock,
value $74,284, and 1,500 shares Class A Common Stock, value $52,313;
Nathaniel L. Derby II, 1,750 shares Common Stock, value $69,891, and
1,410 shares Class A Common Stock, value $49,174; and John C. McErlane,
585 shares Common Stock, value $23,363, and 585 shares Class A Common
Stock, value $20,402. Dividends are paid on the shares of restricted
stock prior to vesting.
[3] Of the amounts shown in this column for 1998 for each of the named
executive officers, $13,250 is the Corporation's contribution under its
Salaried Profit Sharing, Retirement and Savings Plan for each of such
individuals (of which, because of limitations under the Internal Revenue
Code of 1986, as amended, $8,000 was paid into such Plan and the balance
to be paid by the Corporation outside such Plan) and $640 is the
Corporation's contribution to its Bandag Security Program, a combination
defined benefit and defined contribution plan.
Stock Options
The following table sets forth information regarding the exercise of
stock options and the fiscal year-end value of unexercised options held by the
named executive officers:
7
Aggregate Option Exercises in Last
Fiscal Year and Fiscal Year-End Option Values
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options
Fiscal Year-End at Fiscal Year-End[2]
--------------- ---------------------
Shares
Name on Exercise Realized Exercisable Exercisable
---- ----------- -------- ----------- -----------
Martin G. Carver 40,000 $515,000 120,000[1] $1,713,750
[1] Comprised of 60,000 shares of Common Stock and 60,000 shares of Class A
Common Stock. The options were granted in 1987 at an exercise price equal
to the closing price of the Corporation's Common Stock on the New York
Stock Exchange on the date of grant.
[2] The dollar values are calculated by determining the difference between
the fair market value of the underlying Common Stock and Class A Common
Stock, respectively, at fiscal year-end and the exercise price of the
options.
Pension Plan Benefits. The following table sets forth annual normal
retirement age pension benefits under the Bandag Salaried Pension Plan at the
specified remuneration and years-of-service classifications. The table assumes
retirement in 1998. To the extent benefits are not paid under the Salaried
Pension Plan due to limitations under the Internal Revenue Code of 1986, as
amended, they are paid by the Corporation.
PENSION PLAN TABLE
Annual Pension Per Years of Service
-----------------------------------
Highest 5-Year
Average Annual
Compensation 5-Years 10-Years 15-Years 20-Years 25-Years 30-Years 35-Years
------------ ------- -------- -------- -------- -------- -------- --------
$ 50,000 $ 3,031 $ 6,063 $ 9,094 $11,700 $14,200 $16,450 $ 17,700
$100,000 $ 7,094 $14,188 $21,281 $26,700 $31,700 $36,200 $ 38,700
$200,000 $15,219 $30,438 $45,656 $56,700 $66,700 $75,700 $ 80,700
$250,000 $19,281 $38,563 $57,844 $71,700 $84,200 $95,450 $101,700
$300,000 $19,931 $39,863 $59,794 $74,100 $87,000 $98,610 $105,060
$350,000 $19,931 $39,863 $59,794 $74,100 $87,000 $98,610 $105,060
$400,000 $19,931 $39,863 $59,794 $74,100 $87,000 $98,610 $105,060
$450,000 $19,931 $39,863 $59,794 $74,100 $87,000 $98,610 $105,060
$500,000 $19,931 $39,863 $59,974 $74,100 $87,000 $98,610 $105,060
8
Pension amounts are based upon an employee's base salary and credited
years of service. The base salaries for each of the last three fiscal years to
the named executive officers are set forth in the Summary Compensation Table
under "Salary." As of March 12, 1999, Messrs. Carver, Ferrise, Heidbreder, Derby
and McErlane had completed approximately 20, 18, 17, 28 and 14 years of credited
service under the Corporation's pension plan, respectively. Benefits shown in
the table are computed as a straight line single life annuity assuming
retirement at age 65 and are not subject to offset for Social Security Benefits.
In addition, each named executive officer also has a "Bandag Security
Program" benefit under the Bandag Salaried Pension Plan. The annual defined
benefit payable at age 62 for each of the named executive officers is fixed and
is as follows: Martin G. Carver, $700; Sam Ferrise II, $611; Warren W.
Heidbreder, $542; Nathaniel L. Derby II, $1,108; and John C. McErlane, $404.
Report of Management Continuity and Compensation Committee on Executive
Compensation
The seven-member Management Continuity and Compensation Committee of the
Board of Directors (the "Compensation Committee") makes all decisions regarding
compensation of the Corporation's executive officers, except for the awarding of
stock options and restricted stock, which is done by the Stock Option Committee.
Set forth below is a report submitted by the Compensation Committee addressing
the Corporation's compensation policies for 1998 applicable to the Corporation's
executive officers, including the executive officers named in the Summary
Compensation Table.
1998 Compensation
The Corporation implemented the Midpoint Compensation System (the
"System") in 1992. Salary survey information was used to ensure that the
salaries were fair and competitive with those of other companies similar in size
to the Corporation.
Under the System, an executive officer, including the Chief Executive
Officer, received an annual salary determined by the Compensation Committee,
restricted stock awards determined by the Stock Option Committee, tax "gross up"
payments related to such awards, and Corporation contributions to the
Corporation's Salaried Profit Sharing, Retirement and Savings Plan as determined
by the Compensation Committee.
Under the System, a "midpoint" for each executive officer, including the
Chief Executive Officer, is established through the use of executive
compensation salary surveys, financial performance of the Corporation, national
trends in compensation, and the Corporation's competitive need to retain and to
recruit the very best and most capable people. Salary survey information of
manufacturing companies with revenues from $500 million to $1 billion was used
to assist in fixing 1998 compensation. In reviewing the Corporation's financial
performance, the Compensation Committee considered the Corporation's revenues,
net income and net income per share in light of the competitive and economic
conditions during the fiscal year. In addition, the Compensation Committee
considered the Corporation's financial performance resulting from investment in
marketing programs, research and development, plant, machinery and equipment and
in personnel and related programs.
For each executive officer position, the "midpoint" represented the 75th
percentile of competitive market salaries from executive compensation surveys,
as adjusted by the Compensation Committee based on an evaluation of the
importance of the particular executive position to the Corporation. The
"midpoints" were adjusted by the Compensation Committee based on a review of the
factors outlined in the immediately preceding paragraph.
9
The "midpoints" were used to calculate the annual increase for each
executive officer by multiplying the "midpoint" (not the current base salary) by
a percentage established by the Compensation Committee. The resulting amount was
then added to the current base salary. Multiplying the "midpoint" for a given
position by the annual percentage increases base salaries which are currently
below the "midpoint" by a greater amount than if the base salaries were
multiplied by the annual percentage. Likewise, base salaries which are currently
in excess of the "midpoint" for a given position will receive a smaller increase
than would be the case if the actual base salaries were multiplied by the annual
percentage.
In determining the percentage increase for base salary, the Compensation
Committee considered a variety of factors, including inflation rate, the
Corporation's financial performance, and trends in salaried employee
compensation increases, as disclosed by published salary budget forecasts.
Due to changes in organizational structure and a review of and changes to
the "midpoints", base salary increases were awarded to Martin G. Carver, Chief
Executive Officer; Sam Ferrise II, Chief Operating Officer; Warren W.
Heidbreder, Chief Financial Officer; Nathaniel L. Derby II, Vice President,
Manufacturing Design and John C. McErlane, Vice President, Marketing & Sales
(the "Executive Leadership Team") effective February 16, 1998, to bring their
salaries more in line with the competitive market. The Compensation Committee
concluded that the salary of the Chief Executive Officer, in particular, was
significantly lower than competitive salaries as indicated by executive
compensation survey information. This was in a large part due to the reluctance
of the Chief Executive Officer to take full salary increases under the "System"
in previous years.
Although the Compensation Committee considers the Corporation's financial
performance in determining the total compensation for executive officers,
including the Chief Executive Officer, there is no specific formula or target
performance against which executive compensation is to be compared or judged.
Rather, the Corporation's performance is part of the total mix of information
which the Compensation Committee considers in making its decisions on executive
compensation.
Because the Corporation's performance was significantly less than
expected in 1998 and because of the Corporation's desire to decrease expenses in
1999, the percentage increase (for all U.S. salaried employees, except for the
Executive Leadership Team) was set at 3.0% rather than 4.0%, the estimated
industry average. This increase was effective January 1, 1999 and did not affect
1998 compensation. The Executive Leadership Team recommended and the
Compensation Committee agreed not to increase the base salaries for the members
of the Executive Leadership Team for 1999.
Bandag, Incorporated Management
Continuity and Compensation Committee
Robert T. Blanchard Phillip J. Hanrahan
Roy J. Carver, Jr. Edgar D. Jannotta
Martin G. Carver R. Stephen Newman, Chairman
James R. Everline
Special Committee on Executive Compensation.
In August 1998, the Board of Directors established a Special Committee on
Executive Compensation, with membership consisting of Martin G. Carver, Chief
Executive Officer; R. Stephen Newman, non-employee Director; Gary E. Dewel,
non-employee Director; and Warren W. Heidbreder, Chief Financial Officer (the
"Executive Compensation Committee"). The duties of this committee were to
investigate various incentive compensation approaches for key members of
management and to make recommendations and proposals to the Board of Directors.
10
The Corporation's current executive compensation plan allocates
compensation between two pay components: Base salary, and long term restricted
stock with seven-year vesting.
In researching opportunities for improvement in the Corporation's
executive compensation program, the Executive Compensation Committee
recommended, and the Board of Directors approved, that the Corporation:
* Focus on the Executive Leadership Team for executive compensation plan
changes in 1999.
* Allocate compensation for the Executive Leadership Team between the
following three (rather than two) pay components, thereby increasing the
amount of pay at risk for these executives:
- - Base salary
- - Annual or short-term award based on achievement of an established
"earnings-per-share" target, paid out in restricted stock in the year
2000 with a three-year vesting. (The earnings-per-share measurement is
expected to be in use only for 1999. The Corporation anticipates
finalizing plans for an alternative performance measurement to be used
for 2000.)
- - Long-term award, consisting of periodic grants of non-qualified stock
options with a ten-year exercise period and five-year step vesting.
* Develop an implementation plan to shift from current pay practices to the
target program.
* Develop a plan to transition other executives into a similar compensation
plan in 2000.
* Request approval from shareholders of a reserve of 900,000 shares of
Class A Common Stock for a "Stock Award Plan".
The Executive Compensation Committee and the Compensation Committee
agreed that the plan recommendations outlined above should serve the long-term
interests of shareholders by achieving the following objectives:
* Increases the alignment of executive compensation and rewards with the
interests of the Corporation's shareholders;
* Provides a closer linkage between executive compensation earned and the
short-and-long-term performance of the Corporation; and
* Provides the opportunity to better position executive compensation with
competitive market levels as the Corporation's performance dictates.
Report of Stock Option Committee on Executive Compensation
The Stock Option Committee of the Board of Directors (the "Stock Option
Committee"), which is composed of four non-employee directors, makes all
decisions regarding the granting of stock options and the granting of restricted
stock awards. No grants of stock options were made in 1998.
The purpose of the Corporation's Restricted Stock Grant Plan is to
provide long-term incentive compensation which will attract and retain superior
executive personnel. Under the Plan, the Stock Option Committee awards stock to
key executives each year. The shares are held by a custodian until seven years
have elapsed, when they are then transferred to the executive. If an executive
who has not attained age 60 leaves the Corporation before the end of the
seven-year restriction period, the shares are forfeited, except in the case of
death or disability. An executive who has attained age 60 and who leaves the
Corporation prior to the end of the seven-year retention period does not forfeit
the shares.
During 1998, restricted stock was granted based on a percentage of the
"midpoint" established for each executive position, including the Chief
Executive Officer. The percentages were established taking into consideration
total compensation, as well as each executive's level of responsibility,
including that of the Chief Executive Officer.
11
The number of restricted shares granted was computed by multiplying the
"midpoint" for an executive officer by the percentage established by the Stock
Option Committee, and then dividing such amount by the per share market value of
the Corporation's Common Stock and Class A Common Stock on the date of grant. In
determining the awards for all executives, the Stock Option Committee considered
the Corporation's performance in the same manner as the Compensation Committee
did in determining other components of executive compensation for 1998 (see
"Report of Management Continuity and Compensation Committee on Executive
Compensation").
The restricted stock awards for the Corporation's executive officers were
calculated in the manner described in the preceding paragraph, except for the
Executive Leadership Team. Again, because the Corporation's performance was
significantly less than expected in 1998 and because of the Corporation's desire
to decrease expenses in 1999, the restricted stock awards for the Executive
Leadership Team, including the award for the Chief Executive Officer, were
reduced by 50% from the number of restricted shares which would have normally
been granted.
Bandag, Incorporated
Stock Option Committee
Robert T. Blanchard James R. Everline
Gary E. Dewel R. Stephen Newman, Chairman
Compensation Committee Interlocks and Insider Participation
The Management Continuity and Compensation Committee (the "Compensation
Committee") consists of Messrs. Robert T. Blanchard, Martin G. Carver, Roy J.
Carver, Jr., James R. Everline, Phillip J. Hanrahan, Edgar D. Jannotta and R.
Stephen Newman. The Stock Option Committee consists of Messrs. Robert T.
Blanchard, Gary E. Dewel, James R. Everline and R. Stephen Newman. Mr. Martin G.
Carver is Chairman of the Board, Chief Executive Officer and President of the
Corporation. Mr. Roy J. Carver owns Carver Aero, Inc., which sold $151,875 of
aviation fuel and charter services to the Corporation in 1998 (see "Transactions
with Management/Principal Shareholders" herein). Mr. Hanrahan is a partner of
the law firm of Foley & Lardner, Milwaukee, Wisconsin, which has served as legal
counsel to the Corporation for several years. Mr. Jannotta is Senior Director of
William Blair & Company, L.L.C., which provided investment banking services to
the Corporation in 1998.
Remuneration of Directors. Directors who are also full-time employees of
the Corporation do not receive remuneration for acting as directors.
Non-employee directors are compensated in accordance with the following
schedule:
Annual Fees - Chairman of Committee - $37,500. Other Directors - $35,500.
Board Meeting Attendance - $1,250 per meeting.
Committee Meeting Attendance - Chairman - $1,500 per meeting. Other
Directors - $1,250 per meeting.
Transactions with Management/Principal Shareholders. Roy J. Carver, Jr.,
son of Lucille A. Carver and brother of Martin G. Carver, owns 100% of Carver
Aero, Inc., which operates fixed base operations at airports in Muscatine, Iowa;
Davenport, Iowa, and Clinton, Iowa. During 1998, it sold $151,875 of aviation
fuel and charter services to the Corporation at competitive prices based on
volume purchased and services utilized.
12
SHAREHOLDER RETURN PERFORMANCE INFORMATION
Set forth on the following page is a line graph comparing the yearly
percentage change during the last five years in the cumulative total shareholder
return (assuming reinvestment of dividends) on the Corporation's Common Stock
and Class A Common Stock with the cumulative total return of the Standard &
Poor's 500 Stock (Index) and the Dow Jones & Co., Inc. Automobile Parts &
Equipment-All (Index).
Bandag, Incorporated
Stock Performance Chart
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
Among Bandag, Incorporated, S&P 500 Stock (Index)
and the Dow Jones & Co., Inc. Automobile Parts & Equipment -
All (Index)
[GRAPHIC OMITTED]
- --------------------------------------------------------------------------------------------------------------------
December 31
- --------------------------------------------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------------------------------------------
Bandag, Incorporated $100 $108 $103 $ 91 $100 $ 76
- --------------------------------------------------------------------------------------------------------------------
S&P 500 Stock (Index) $100 $101 $139 $171 $229 $294
- --------------------------------------------------------------------------------------------------------------------
Automobile Parts & Equipment-All
(Index) $100 $ 85 $106 $120 $153 $144
- --------------------------------------------------------------------------------------------------------------------
Assumes $100 Invested on December 31, 1993 in Bandag,
Incorporated Common Stock and Class A Common Stock, the S&P
500 Stock (Index) and the Dow Jones & Co., Inc. Automobile
Parts & Equipment-All (Index)
13
Proposal No. 2-APPROVE AND ADOPT THE BANDAG, INCORPORATED STOCK AWARD PLAN
The success of Bandag, Incorporated ("Bandag") depends, in large measure,
on its ability to promote the teamwork of its employees and reward them for
outstanding performance. The Board of Directors (the "Board") also believes
there is a need to align shareholder and employee interests by encouraging
employee stock ownership.
In order to accomplish these objectives, the Board has adopted, subject
to approval by the shareholders, the Bandag, Incorporated Stock Award Plan (the
"Plan").
Summary Description of the Plan
The following summary of the terms of the Plan is qualified in its
entirety by reference to the text of the Plan, which is attached as Appendix A
to this Proxy Statement. If adopted by the shareholders, the Plan will be
effective as of February 8, 1999.
Administration. The Plan will be administered by the Board or by any
committee appointed by the Board to administer the Plan (the "Committee"). The
Board has appointed the Stock Option Committee as the Committee to administer
the Plan. To the extent that the Board has delegated to the Committee authority
and responsibility under the Plan, all applicable references to the Board in
this disclosure shall be to the Committee.
Eligibility. All employees of Bandag and its subsidiaries and directors
of Bandag who are not employees of Bandag or its subsidiaries are eligible to
participate in the Plan.
Approximately 4,800 employees of Bandag and its subsidiaries and 8
nonemployee directors of Bandag will currently be eligible to participate;
however, because the Plan provides for broad discretion in selecting
participants and in making awards, the total number of persons who will
participate and the respective benefits to be accorded to them cannot be
determined at this time.
Stock Available for Issuance Through the Plan. The Plan provides for
three forms of stock-based compensation, as further described below. Up to
900,000 shares of Bandag's Class A Common Stock will be authorized for issuance
under the Plan. On March 19, 1999, the closing price for a share of Bandag's
Class A Common Stock, as reported on the New York Stock Exchange composite tape,
was $25.625.
Description of Awards Under the Plan. The Board may award to eligible
employees and directors incentive stock options, nonqualified stock options, and
restricted stock.
Stock Options. The Board will have discretion to award incentive stock
options ("ISOs"), which are intended to comply with Section 422 of the Internal
Revenue Code, or nonqualified stock options ("NQSOs"), which are not intended to
comply with Section 422 of the Internal Revenue Code. Each option issued under
the Plan must be exercised within a period of ten years from the date of grant,
and the exercise price of an option may not be less than the fair market value
of the underlying shares of Class A Common Stock on the date of grant. Subject
to the specific terms of the Plan, the Board will have discretion to set such
additional limitations on option grants as it deems appropriate.
Options granted to participants under the Plan will expire at such times
as the Board determines at the time of the grant; provided, however, that no
option will be exercisable later than ten years from the date of grant. Each
option award agreement will set forth the extent to which the participant will
have the right to exercise the option following termination of the participant's
employment with Bandag. The termination provisions will be determined within the
discretion of the
14
Board, may not be uniform among all participants and may reflect distinctions
based on the reasons for termination of employment.
Upon the exercise of an option granted under the Plan, the option price
is payable in full to Bandag, either: (a) in cash or its equivalent, or (b) if
permitted in the award agreement, by tendering shares of Bandag's Class A Common
Stock and/or Common Stock having a fair market value at the time of exercise
equal to the total option price (provided such shares have been held for at
least six months prior to their tender), or (c) if permitted in the award
agreement, a combination of (a) and (b). In addition, if permitted by the Board,
the option price may also be payable through a cashless exercise of shares
through a participant's broker.
Restricted Stock. The Board will also be authorized to award shares of
restricted Class A Common Stock under the Plan upon such terms and conditions as
it may establish. The participants may be required to pay a stipulated purchase
price for each share of restricted stock granted. The award agreement will
specify the period(s) of restriction, the number of shares of restricted Class A
Common Stock granted, any restrictions based upon achievement of specific
performance objectives and/or restrictions under applicable federal or state
securities laws. The Board may also establish performance standards as criteria
for the issuance of restricted stock. To the extent applicable, the recipients
may have the right to vote these shares from the date of grant. However, they
will not have the right to sell or otherwise transfer the shares during the
applicable period of restriction or until earlier satisfaction of other
conditions imposed by the Board in its sole discretion. Participants may be
entitled to receive dividends on their shares of restricted stock and the Board,
in its discretion, will determine how such dividends on restricted shares are to
be paid. Participants may also receive payments to compensate them for tax
liabilities arising from their restricted stock awards and the Board, in its
discretion, will determine how such payments are to be determined and under what
conditions they will be made.
Each award agreement for restricted stock will set forth the extent to
which the participant will have the right to retain unvested restricted stock
following termination of the participant's employment with Bandag. These
provisions will be determined in the sole discretion of the Board, need not be
uniform among all shares of restricted stock issued pursuant to the Plan and may
reflect distinctions based on reasons for termination of employment. Except in
the case of terminations connected with a change in control and terminations by
reason of death or disability, the vesting of restricted stock which qualifies
as performance-based compensation under Section 162(m) of the Internal Revenue
Code and which are held by "covered employees" under Section 162(m) shall occur
at the time it otherwise would have, but for the employment termination.
Performance Measures. The Board may grant awards under the Plan to
eligible employees subject to the attainment of certain specified performance
measures. The performance measures are earnings per share, net income (before or
after taxes), return measures (including, but not limited to, return on assets,
equity, or sales), cash flow return on investments which equals net cash flows
divided by owners equity, earnings before or after taxes, gross revenues, share
price (including, but not limited to, growth measures and total shareholder
return), and economic profit (generally defined as, but not limited to,
after-tax operating profit less the cost of capital). The number of
performance-based awards granted to any participant in any year will be
determined by the Board in its sole discretion. Following the end of a
performance period, the Board shall determine the value of the performance-based
awards granted for the period based on the attainment of the preestablished
objective performance goals. The Board shall have discretion to increase or
decrease the award depending upon the attainment of the preestablished
performance goals, except that the Board shall only have discretion to reduce
(but not to increase) the value of a performance-based award designed to satisfy
the standards for deductibility under Section 162(m) of the Internal Revenue
Code.
15 Adjustment and Amendments. The Plan provides for appropriate
adjustments in the number of shares of Class A Common Stock subject to awards
and available for future awards in the event of changes in outstanding common
stock by reason of a merger, stock split, or certain other changes in corporate
capitalization. If shares of Class A Common Stock covered by an award are
forfeited, or if any award otherwise terminates, expires or is cancelled, then
the number of shares covered by any such awards shall again be available for
issuance under the Plan. In case of a change of control of Bandag, outstanding
options granted under the Plan will become immediately exercisable and will
remain exercisable throughout their entire term and restriction periods and
restrictions imposed on shares of restricted stock shall immediately lapse.
The Plan may be modified or amended by the Board at any time and for any
purpose which the Board deems appropriate subject to the terms of the Plan.
However, no such amendment shall adversely affect any outstanding awards without
the participant's written consent.
Nontransferability. No options granted pursuant to, and no right to
payment under, the Plan shall be assignable or transferable by a Plan
participant except by will or by the laws of descent and distribution or except
as otherwise provided in the Plan or a participant's award agreement, and any
option or similar right shall be exercisable during a participant's lifetime by
only the participant or by the participant's guardian or legal representative
except as otherwise provided in the participant's award agreement.
Deferrals. The Board may permit or require a participant to defer such
participant's receipt of the delivery of shares that would otherwise be due to
such participant by virtue of the exercise of an option or the lapse or waiver
of restrictions with respect to restricted stock. If any such deferral election
is required or permitted, the Board shall, in its sole discretion, establish
rules and procedures for such payment deferrals.
Duration of the Plan. The Plan will remain in effect until all options
and rights granted thereunder have been satisfied or terminated pursuant to the
terms of the Plan.
Federal Income Tax Consequences
Options. With respect to options which qualify as ISOs, a Plan
participant will not recognize income for federal income tax purposes at the
time options are granted or exercised. If the participant disposes of shares
acquired by exercise of an ISO either before the expiration of two years from
the date the options are granted or within one year after the issuance of shares
upon exercise of the ISO (the "holding periods"), the participant will recognize
in the year of disposition: (a) ordinary income, to the extent that the lesser
of either (1) the fair market value of the shares on the date of option
exercise, or (2) the amount realized on disposition, exceeds the option price;
and (b) capital gain, to the extent the amount realized on disposition exceeds
the fair market value of the shares on the date of option exercise. Bandag will
be entitled to a deduction for federal income tax purposes to the extent of the
ordinary income recognized. If the shares are sold after expiration of the
holding periods, the participant generally will recognize capital gain or loss
equal to the difference between the amount realized on disposition and the
option price.
With respect to NQSOs, the participant will recognize no income upon
grant of the option, and, upon exercise, will recognize ordinary income to the
extent of the excess of the fair market value of the shares on the date of
option exercise over the amount paid by the participant for the shares and
Bandag will be entitled to a deduction for federal income tax purposes to the
extent of the ordinary income recognized. Upon a subsequent disposition of the
shares received under the option, the participant generally will recognize
capital gain or loss to the extent of the difference between the fair market
value of the shares at the time of exercise and the amount realized on the
disposition.
16
Restricted Stock. A participant holding restricted stock will, at the
time the shares vest, realize ordinary income in an amount equal to the fair
market value of the shares and any cash received at the time of vesting, and
Bandag will be entitled to a corresponding deduction for federal income tax
purposes. Dividends paid to the participant on the restricted stock during the
restriction period will generally be ordinary income to the participant and
deductible as such by Bandag.
However, to the extent that the participant files an election pursuant to
and in accordance with Section 83(b) of the Internal Revenue Code, the
participant will realize ordinary income in an amount equal to the fair market
value of the shares and any cash received at the date of grant, and Bandag will
be entitled to a corresponding deduction for federal income tax purposes.
Section 162(m). Under Section 162(m) of the Internal Revenue Code,
compensation paid to certain executives in excess of $1 million for any taxable
year is not deductible unless an exemption from such rules exists. Compensation
paid by Bandag in excess of $1 million for any taxable year to "covered
employees" will generally be deductible by Bandag or its affiliates for federal
income tax purposes if it is based on the performance of Bandag, is paid
pursuant to a plan approved by shareholders of Bandag, and meets certain other
requirements. Generally, "covered employee" under Section 162(m) means the Chief
Executive Officer and the four other highest paid executive officers of Bandag
as of the last day of the taxable year.
It is presently anticipated that the Board will take the effect of
Section 162(m) into consideration when delegating authority under this Plan to
the Committee and structuring Plan awards.
New Plan Benefits
Stock Options. On February 8, 1999, the Stock Option Committee granted
options to members of the Executive Leadership Team to purchase a total of
60,200 shares of Class A Common Stock under the Plan. Such options may not be
exercised without approval of the Plan by the Corporation's shareholders. The
following table lists the options granted under the Plan, as well as certain
other information relating to those grants.
17
Shares Percentage of
Underlying Total Options Exercise Grant Date
Options Granted to Price (per Expiration Present
Name and Position Granted(1) all Employees share)(2) Date(3) Value(4)
--------------- --------------- ------------- ----------- -----------------
Martin G. Carver 24,100 40.0% $33.875 2/7/09 $240,036
Chairman of the Board,
Chief Executive Officer
and President
Sam Ferrise II 14,100 23.4% $33.875 2/7/09 $140,436
Executive Vice
President, Chief
Operating Officer
Warren W. Heidbreder 9,000 15.0% $33.875 2/7/09 $89,640
Vice President, Chief
Financial Officer and
Secretary
Nathaniel L. Derby II 6,000 10.0% $33.875 2/7/09 $59,760
Vice President,
Manufacturing Design
John C. McErlane 7,000 11.6% $33.875 2/7/09 $69,720
Vice President,
Marketing and Sales
All Optionees (Executive 60,200 100% $33.875 2/7/09 $599,592
Officers)
- ---------------
(1) These options are nonqualified stock options under the Internal Revenue
Code.
(2) An option holder can pay the exercise price of options in cash, by
delivering previously issued shares of the Corporation's Class A Common
Stock and/or Common Stock, or a combination of both.
(3) Options are exercisable at the rate of 20% per year, beginning February
8, 2000.
(4) The option values presented are based on the Black-Scholes option pricing
model adapted for use in valuing stock options. The actual value, if any,
that an optionee may realize upon exercise will depend on the excess of
the market price of the Class A Common Stock over the option exercise
price on the date the option is exercised. There is no assurance that the
actual value realized by an optionee upon the exercise of an option will
be at or near the value estimated under the Black-Scholes model. The
estimated values under the Black-Scholes model are based on arbitrary
assumptions as to variables such as interest rates, the stock price
volatility and future dividend yield, including the following: (a) an
assumed United States Treasury security rate of 4.9%; (b) stock price
volatility of 20.67% (based on six-month stock price history ending
February 8, 1999); and (c) a dividend yield of 2.15% (based on the
weighted average dividend yield of the Class A Common Stock for the three
years ended February 8, 1999).
Restricted Stock. On February 8, 1999 the Stock Option Committee made
contingent awards of restricted stock to the five members of the Executive
Leadership Team. The awards are for variable dollar values of shares of
restricted stock (valued as of the date of the actual granting of the restricted
stock which is planned for the month of February 2000) contingent upon the
Corporation achieving certain earnings per share (EPS) goals for 1999. All such
contingent awards are subject to shareholder approval of the Plan. Information
concerning the contingent awards is as follows:
18
EPS Performance Goals(1) and Awards
EPS of
Name and Position EPS Below $2.57 EPS of $2.57 EPS of $2.72 $3.00 and above
- ----------------- --------------- ------------ ------------ ---------------
Martin G. Carver 0 $120,000 $240,000 $420,000
Chairman of the Board,
Chief Executive Officer
and President
Sam Ferrise II 0 $70,000 $140,000 $245,000
Executive Vice
President, Chief
Operating Officer
Warren W. Heidbreder 0 $45,000 $90,000 $157,500
Vice President, Chief
Financial Officer and
Secretary
Nathaniel L. Derby II 0 $30,000 $60,000 $105,000
Vice President,
Manufacturing Design
John C. McErlane 0 $35,000 $70,000 $122,500
Vice President,
Marketing and Sales
- ---------------
(1) If EPS falls between the various EPS goals, arithmetic interpolation will
be used to determine the restrictive stock award value.
Vote Required to Approve Stock Award Plan
Assuming a quorum is present, approval of the Plan requires that more
votes of shares of Common and Class B Common Stock be voted in favor of approval
of the Plan than are voted against approval of the Plan. Any shares not voted at
the Annual Meeting with respect to the Plan (whether as a result of abstentions,
broker non-votes, or otherwise) will have no impact on the vote.
THE BOARD RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE STOCK AWARD PLAN.
SHARES REPRESENTED BY PROXIES RECEIVED WILL BE VOTED "FOR" APPROVAL OF THE PLAN,
UNLESS A VOTE AGAINST SUCH APPROVAL OR TO ABSTAIN FROM VOTING IS SPECIFICALLY
INDICATED ON THE PROXY.
Proposal No. 3-RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors, based upon the recommendation of the Audit
Committee, which consists of Robert T. Blanchard, Gary E. Dewel, James R.
Everline, Edgar D. Jannotta and R. Stephen Newman, directors of the Corporation,
has appointed Ernst & Young LLP as the Corporation's independent auditors for
the fiscal year ending December 31, 1999.
Ernst & Young LLP served as the Corporation's independent auditors for
the fiscal year ended December 31, 1998. Representatives of Ernst & Young LLP
will be present at the Annual Meeting and will be available to respond to any
questions raised at the meeting and make any comments they deem appropriate.
Although this appointment is not required by law to be submitted to a
vote by shareholders, the Board believes it appropriate, as a matter of policy,
to request that the shareholders ratify the appointment of Ernst & Young LLP as
independent auditors for 1999. If the shareholders should not ratify, the Board
will reconsider the appointment.
Assuming a quorum is present, ratification of the appointment requires
that more votes of shares of Common and Class B Common Stock be voted in favor
of such ratification than are voted
19
against such ratification. Any shares not voted at the Annual Meeting with
respect to such ratification (whether as a result of abstentions, broker
non-votes or otherwise) will have no impact on the vote.
Proposal No. 4-SHAREHOLDER'S PROPOSAL REGARDING BOARD OF DIRECTORS
The New York City Teacher's Retirement System ("Proponent"), 1 Centre
Street, New York, New York 10007-2341, has notified the Corporation that, as of
October 8, 1998, it has been the beneficial owner of 16,600 shares of the
Corporation's Common Stock continuously for more than 12 months, and that it
intends to offer the following proposal for consideration and approval at the
Annual Meeting.
PROPONENT'S PROPOSAL
"MAJORITY OF INDEPENDENT OUTSIDE DIRECTORS
"Submitted on behalf of the New York City Teachers' Retirement System
(the "System") by Alan G. Hevesi, Comptroller of the City of New York.
"WHEREAS, the New York City Teachers' Retirement System is concerned
about the long-term economic performance of the companies in which it owns
stock, and
"WHEREAS, the board of directors of a company is accountable to
shareholders for the performance of management and the company, and the System
believes that a majority of directors should be independent of management, and
"WHEREAS, the board of directors is meant to be an independent body
elected by shareholders and is charged by law and by shareholders with the duty,
authority and responsibility to formulate and direct corporate policies, and
"WHEREAS, the board of directors should monitor the activities of
management in the implementation of those policies for the best interest of
shareholders, and
"WHEREAS, the company's interests can best be served by having directors
who are independent of management and who represent a breadth of experience,
"NOW THEREFORE, BE IT RESOLVED THAT: the shareholders request that the
board of directors amend the By-Laws to provide that the board of directors
consists of a majority of independent directors. For those purposes an
independent director is someone whose only nontrivial connection to the
corporation is that person's directorship.
"A director will not generally be considered independent if he or she:
"(a) has been employed by the corporation or an affiliate in an
executive capacity;
"(b) is an employee or owner of a firm that is one of the
corporation's or its affiliate's paid advisers or
consultants;
"(c) is employed by a significant customer or supplier;
"(d) has a personal services contract with the corporation or
one of its affiliates;
20
"(e) is employed by a foundation or university that receives
significant grants or endowments from the corporation or
one of its affiliates;
"(f) is a relative of an executive of the corporation or one of
its affiliates;
"(g) is part of an interlocking directorate in which the CEO or
other executive officer of the corporation serves on the
board of another corporation that employs the director."
THE CORPORATION'S STATEMENT IN OPPOSITION
The Board of Directors is responsible for overall direction of the
business and affairs of the Corporation. The Nominating Committee regularly
assesses the composition of the Board, and seeks to achieve a balance of
knowledge, experience and capability on the Board. The Committee and the Board
believe the composition of the current Board, including the current slate of
nominees to the Board, is consistent with this objective of balance. The
Committee and the Board also believe that the current Board does act in an
independent manner and in the best interests of all shareholders of the
Corporation.
The number of employees, relatives of Corporation executives or persons
having business dealings with the Corporation which the Corporation may wish to
have serve as Directors will vary from time to time depending on the make-up of
the Board as a whole and the further development of the Corporation's business.
Implementation of this proposal would deprive the Board of needed flexibility in
creating a balance of knowledge, experience and capability on the Board.
The Board finds certain elements of the proposal's definition of
"independent" to be arbitrary and vague. For example, it would disqualify
individuals who are members in a firm that is a current advisor to the
Corporation, even though that would not necessarily undermine a person's
independence. The proposal also would disqualify individuals employed by a
"significant customer or supplier," or by a foundation or university that
receives "significant grants or endowments" from the Corporation, but the
proposal provides no guidance as to what it means by "significant". As a result,
the Board believes the proposal would exclude otherwise worthy candidates and
would make the Nominating Committee's objective of selecting qualified Directors
more difficult. The Board feels it would be imprudent to apply such criteria
rigidly, without evaluating the substance of the relationship in question and
the overall qualifications of a potential nominee.
Overall, the Board feels this proposal attaches a disproportionate
importance to a very rigid definition of "independence" as set forth in the
proposal. For this reason and the others stated above, the Board believes this
proposal is unnecessary and unwise, is not an appropriate or practical basis for
regulating the composition of the Board, and is not in the best interests of the
Corporation or its shareholders.
Vote Required to Approve Proponent's Proposal
Assuming a quorum is present, approval of the Proponent's proposal
requires that more votes of shares of Common and Class B Common Stock be voted
in favor of the proposal than are voted against the proposal. Any shares not
voted at the Annual Meeting with respect to such proposal (whether as a result
of abstentions, broker non-votes or otherwise) will have no impact on the vote.
THE BOARD RECOMMENDS A VOTE "AGAINST" THE APPROVAL OF THE PROPOSAL.
SHARES REPRESENTED BY PROXIES RECEIVED WILL BE VOTED "AGAINST" APPROVAL OF THE
PROPOSAL, UNLESS A VOTE "FOR" SUCH APPROVAL OR TO ABSTAIN FROM VOTING IS
SPECIFICALLY INDICATED ON THE PROXY.
21
Proposal No. 5-OTHER MATTERS
The management of the Corporation knows of no matters to be presented at
the meeting other than those set forth in the Notice of Annual Meeting. However,
if any other matters properly come before the meeting, it is intended that the
persons named in the enclosed proxy will vote on such matters in accordance with
their best judgments.
2000 SHAREHOLDERS' PROPOSALS
The date by which proposals of shareholders intended to be presented at
the 2000 Annual Meeting of the Corporation must be received by the Corporation
for inclusion in its proxy statement and form of proxy relating to that meeting
is December 6, 1999. The Corporation may exercise discretionary voting authority
under proxies solicited by it for the 2000 Annual Meeting of the Corporation if
it receives notice of a proposed non-Rule 14a-8 shareholder action after
February 20, 2000.
MISCELLANEOUS
The expense of preparing, printing and mailing this Proxy Statement and
the proxies solicited hereby will be borne by the Corporation.
Some of the officers and regular employees of the Corporation may,
without extra remuneration, solicit proxies personally or by telephone, telex or
telefax. The Corporation will request brokerage houses, nominees, custodians and
fiduciaries to forward proxy materials to the beneficial owners of shares held
of record and will reimburse such persons for their expenses.
By Order of the Board of Directors
/s/Warren W. Heidbreder
WARREN W. HEIDBREDER, Secretary
22
Proxy
BANDAG, INCORPORATED
Muscatine, Iowa
PROXY FOR ANNUAL MEETING - MAY 4, 1999
Lucille A. Carver and Martin G. Carver, or either of them each with
power of substitution, are authorized to vote all shares of Common Stock (COM)
and Class B Common Stock (CLB) which the undersigned is entitled to vote at the
annual Meeting of Shareholders of Bandag, Incorporated to be held May 4, 1999
and at any adjournment thereof.
This proxy is solicited on behalf of the Company's Board of Directors.
Every properly signed proxy will be voted as directed. The Board of Directors
recommends a vote FOR the nominees in Item (1), FOR Items (2) and (3) and
AGAINST Item (4). Unless otherwise directed, proxies will be voted in accordance
with the foregoing sentence and in the discretion of the Board of Directors in
connection with Item (5).
You are encouraged to specify your choices by marking the appropriate
boxes, SEE REVERSE SIDE, but you need not mark any boxes if you wish to vote in
accordance with the Board of Directors' recommendations. The proxy holders
cannot vote your shares unless you sign and return this card.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
|X| Please
mark votes
as in this
example.
The signer revokes all proxies heretofore given by the signer to vote at said
meeting or any adjournment thereof.
1. Election of FOR AGAINST ABSTAIN
Directors.
Lucille A. Carver |_| |_| |_|
FOR AGAINST ABSTAIN
Martin G. Carver |_| |_| |_|
Edgar D. Jannotta FOR AGAINST ABSTAIN
|_| |_| |_|
FOR AGAINST ABSTAIN
2. Action re Bandag, |_| |_| |_|
Incorporated Stock Award
Plan.
FOR AGAINST ABSTAIN
3. Action re selection of |_| |_| |_|
Ernst & Young LLP as
independent auditors
for the fiscal year
ending December 31,
1999.
FOR AGAINST ABSTAIN
4. Action re shareholder |_| |_| |_|
proposal requesting the
Board to amend By-laws
concerning independence
of directors.
5. In their discretion
upon such other
matters as may
properly come before
the meeting.
MARK HERE FOR |_| MARK HERE |_|
COMMENTS/ADDRESS IF YOU PLAN
CHANGE AND NOTE TO ATTEND
AT LEFT THE MEETING
Please sign exactly as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee, or guardian, please give
full title as such.
Signature _________________________ Date: ________________
Signature _________________________ Date: ________________