DREW INDUSTRIES INCORPORATED
200 MAMARONECK AVENUE
WHITE PLAINS, NEW YORK 10601
---------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 16, 2002
---------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of DREW
INDUSTRIES INCORPORATED (the "Company") will be held at The Crescent Club, 17th
Floor, 200 Crescent Court, Dallas, Texas 75201 on May 16, 2002 at 9:00 A.M., for
the following purposes:
(1) To elect a Board of seven Directors;
(2) To consider and act upon a proposal to adopt the Drew Industries
Incorporated 2002 Equity Award and Incentive Plan (the "2002 Plan") to
replace the existing Stock Option Plan, and permit the Company to grant
stock options, as well as restricted and deferred stock, bonus stock,
performance awards, and stock appreciation rights. The 2002 Plan would
modify the terms of executive compensation, performance goals, and the
incentive compensation plan approved by stockholders in 2000;
(3) To ratify the selection of KPMG LLP as independent auditors for
the Company for the year ending December 31, 2002; and
(4) To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
Holders of record of the Company's Common Stock at the close of business on
the 1st day of April, 2002 shall be entitled to vote on all matters to be
considered at the meeting or any adjournment or postponement thereof.
A list of all stockholders entitled to vote at the meeting will be
available for inspection for the ten days prior to the meeting at the office of
the Company and will be available for inspection at the time of the meeting, at
the place thereof.
By Order of the Board of Directors
EDWARD W. ROSE, III
CHAIRMAN OF THE BOARD OF DIRECTORS
Dated: April 10, 2002
White Plains, N.Y.
- --------------------------------------------------------------------------------
NOTICE TO HOLDERS OF COMMON STOCK
IF YOU DO NOT EXPECT TO ATTEND THE MEETING, PLEASE SIGN AND RETURN THE ENCLOSED
PROXY SO THAT YOU WILL BE REPRESENTED. A POST-PAID ENVELOPE IS ENCLOSED
FOR YOUR CONVENIENCE.
- -------------------------------------------------------------------------------
DREW INDUSTRIES INCORPORATED
200 MAMARONECK AVENUE
WHITE PLAINS, NEW YORK 10601
--------------
PROXY STATEMENT
--------------
The accompanying Proxy is solicited by the Board of Directors of Drew
Industries Incorporated, a Delaware corporation (the "Company"), for use at the
Annual Meeting of Stockholders to be held at The Crescent Club, 17th Floor, 200
Crescent Court, Dallas, Texas 75201 on May 16, 2002 at 9:00 A.M., or any
adjournment or postponement thereof, at which holders of record of the Company's
Common Stock, par value $0.01 per share (the "Common Stock"), at the close of
business on April 1, 2002 shall be entitled to vote on all matters considered at
the meeting.
The cost of solicitation by the Company, including postage, printing and
handling, and the expenses incurred by brokerage firms, custodians, nominees and
fiduciaries in forwarding proxy material to beneficial owners will be borne by
the Company. The solicitation is to be made primarily by mail, but may be
supplemented by telephone calls, telegrams and personal solicitation. Management
may also use the services of directors and employees of the Company to solicit
Proxies, without additional compensation.
Each Proxy executed and returned by holders of the Common Stock may be
revoked at any time thereafter, except as to matters upon which, prior to such
revocation, a vote shall have been cast pursuant to the authority conferred by
such Proxy. A Proxy may be revoked by giving written notice of revocation to the
Secretary of the Company or to any of the other persons named as proxies, or by
giving a Proxy with a later date. The Proxies will be voted at the meeting for
the Directors set forth herein in the manner indicated and if no contrary
instructions are indicated, in favor of the other matters set forth herein; if
specific instructions are indicated, the Proxies will be voted in accordance
therewith. This Statement and the form of Proxy solicited from holders of the
Common Stock are expected to be sent or given to stockholders on or about April
10, 2002.
The Annual Report to Stockholders of the Company for the year ended
December 31, 2001 is being mailed herewith to each stockholder of record.
THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
2001, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (INCLUDING THE
CONSOLIDATED FINANCIAL STATEMENTS AND THE SCHEDULE THERETO) WILL BE FURNISHED TO
ANY STOCKHOLDER WITHOUT CHARGE UPON REQUEST TO THE COMPANY AT 200 MAMARONECK
AVENUE, WHITE PLAINS, NEW YORK 10601, TELEPHONE (914) 428-9098.
THE COMPANY
The Company was incorporated under the laws of Delaware on March 20, 1984.
The Company's principal executive and administrative offices are located at 200
Mamaroneck Avenue, White Plains, New York 10601; telephone number (914)
428-9098; e-mail: drew@drewindustries.com.
VOTING SECURITIES
The Company had outstanding on the record date 9,681,563 shares of Common
Stock. Each holder of Common Stock is entitled to one vote for each share of
stock held.
PRINCIPAL HOLDERS OF VOTING SECURITIES
Set forth below is information with respect to each person known to the
Company on March 21, 2002 to be the beneficial owner of more than five percent
of any class of the Company's voting securities, which consists of Common Stock
only (including options):
AMOUNT AND
NATURE OF APPROXIMATE
NAME AND ADDRESS BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER OWNERSHIP CLASS
------------------- ----------- ------------
Edward W. Rose, III(1) .................. 2,032,380(2) 18.9%
500 Crescent Court
Dallas, Texas 75201
L. Douglas Lippert(1) ................... 2,028,434(2) 18.8%
2375 Tamiami Trail
Suite 110
Naples, Florida 34103
FMR Corp. ............................... 961,000(3) 8.9%
82 Devonshire Street
Boston, Massachusetts 02108
- -----------------
(1) The person named has sole voting and investment power with respect to such
shares.
(2) See "VOTING SECURITIES--Security Ownership of Management."
(3) As of December 31, 2001.
To the knowledge of the Company, other than persons acting as nominees or
custodians for various stock brokerage firms and banks, which persons do not
have beneficial ownership of the Common Stock, no other person owns of record or
beneficially more than five percent of the voting securities of the Company.
SECURITY OWNERSHIP OF MANAGEMENT
Set forth below is information with respect to beneficial ownership at
March 21, 2002 of the Common Stock (including options) by each Director and
nominee and by all Directors, nominees and Executive Officers of the Company as
a group.
AMOUNT AND
NATURE OF APPROXIMATE
NAME AND ADDRESS BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER OWNERSHIP CLASS
------------------ ----------- ------------
Leigh J. Abrams(1) ...................... 285,308(2) 2.6%
200 Mamaroneck Avenue
White Plains, New York 10601
Edward W. Rose, III(1) .................. 2,032,380(2) 18.9%
500 Crescent Court
Dallas, Texas 75201
David L. Webster(1) ..................... 272,840(4) 2.5%
4381 Green Oaks Blvd.
Arlington, Texas 76016
L. Douglas Lippert ...................... 2,028,434(5) 18.8%
2375 Tamiami Trail
Suite 110
Naples, Florida 34103
2
AMOUNT AND
NATURE OF APPROXIMATE
NAME AND ADDRESS BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER OWNERSHIP CLASS
------------------ ----------- ------------
James F. Gero(1) .......................................... 129,160(6) 1.2%
11900 North Anna Cade Road
Rockwall, Texas 75087
Gene H. Bishop(1) ......................................... 117,600(7) 1.1%
1601 Elm Street, 47th Floor
Dallas, Texas 75201
Frederick B. Hegi, Jr. .................................... 0 --
750 North St. Paul
Dallas, Texas 75201
All Directors, Nominees, and Executive Officers as a
group (10 persons including the above-named) ............ 4,978,862(8) 46.2%
- ----------------
(1) Pursuant to Rules 13-1 (f)(1)-(2) of Regulation 13-D of the General Rules
and Regulations under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") on May 31, 1989, the persons indicated, together with
certain other persons, jointly filed a single Schedule 13-D Statement (as
amended) with respect to the securities listed in the foregoing table. Such
persons made the single, joint filing because they may be deemed to
constitute a "group" within the meaning of Section 13(d)(3) of the Exchange
Act, although neither the fact of the filing nor anything contained therein
shall be deemed to be an admission by such persons that a group exists.
(2) Mr. Abrams has sole voting and investment power with respect to the shares
owned by him. Includes 4,002 shares of Common Stock held by Mr. Abrams as
Custodian under the New York Uniform Gifts to Minors Act for the benefit of
a member of his immediate family. Mr. Abrams disclaims any beneficial
interest in the shares held as Custodian. In January 1997 and November
1999, Mr. Abrams was granted options pursuant to the Company's Stock Option
Plan to purchase, respectively, 10,000 shares of Common Stock at $12.125
per share, and 50,000 shares of Common Stock at $9.3125 per share. Although
no part of such options has been exercised, all shares subject to such
options are included in the above table as beneficially owned.
(3) Mr. Rose has sole voting and investment power with respect to the shares
owned by him. Includes 84,000 shares owned by each of Cardinal Investment
Company, Inc. Pension Plan and Cardinal Investment Company, Inc. Profit
Sharing Plan, of each of which Mr. Rose is Trustee. Also includes 100,700
shares owned by Cardinal Partners, L.P., of which Cardinal Investment
Company, Inc. is the general partner. Mr. Rose is the sole stockholder of
Cardinal Investment Company, Inc. Excludes 100,000 shares of Common Stock
held in trusts for the benefit of members of Mr. Rose's immediate family.
Mr. Rose's wife has sole voting and investment power with respect to an
additional 13,920 shares owned by her of record. Mr. Rose disclaims any
beneficial interest in such shares. As a member of the Stock Option
Committee, Mr. Rose was automatically awarded the following options, each
of which is to purchase 5,000 shares of Common Stock: on December 31, 1997
at $12.475 per share; on December 31, 1998 at $11.792 per share; on
December 31, 1999 at $9.204 per share; on December 31, 2000 at $5.679 per
share; and on December 31, 2001 at $9.25 per share. Although no part of
such options has been exercised, all shares subject to such options are
included in the above table as beneficially owned.
(4) Mr. Webster has sole voting and investment power with respect to such
shares. In May 1997 and November 1999, Mr. Webster was granted options
pursuant to the Company's Stock Option Plan to purchase, respectively,
15,000 shares of Common Stock at $12.125 per share, and 50,000 shares of
Common Stock at $9.3125 per share. Although no part of such options has
been exercised, all shares subject to such options are included in the
above table as beneficially owned.
(FOOTNOTES CONTINUED ON NEXT PAGE)
3
(FOOTNOTES CONTINUED FROM PREVIOUS PAGE)
(5) Includes 614,721 shares held by L. Douglas Lippert as Trustee for trusts
for the benefit of members of Mr. Lippert's immediate family, over which
Mr. Lippert has sole voting and dispositive power. Mr. Lippert disclaims
beneficial ownership of such shares. Pursuant to Rules 13-1(f)(1)-(2) of
Regulation 13-D of the General Rules and Regulations under the Exchange
Act, on October 17, 1997, Mr. Lippert, together with certain other persons,
jointly filed a single Schedule 13-D Statement (as amended) with respect to
the securities listed in the foregoing table. Such persons made the single,
joint filing because they may be deemed to constitute a "group" within the
meaning of Section 13(d)(3) of the Exchange Act, although neither the fact
of the filing nor anything contained therein shall be deemed to be an
admission by such persons that a group exists. In November 1999, Mr.
Lippert was granted an option pursuant to the Company's Stock Option Plan
to purchase 50,000 shares of Common Stock at $9.3125 per share. Although no
part of such option has been exercised, all shares subject to such option
are included in the above table as beneficially owned.
(6) Mr. Gero shares voting and investment power with respect to such shares
with his wife. As a member of the Stock Option Committee, Mr. Gero was
automatically awarded the following options each of which is to purchase
5,000 shares of Common Stock: on December 31, 1997 at $12.475 per share; on
December 31, 1998 at $11.792 per share; on December 31, 1999 at $9.204 per
share; on December 31, 2000 at $5.679 per share; and on December 21, 2001
at $9.25 per share. Although no part of such options has been exercised,
all shares subject to such options are included in the above table as
beneficially owned.
(7) Includes 2,000 shares owned by Mr. Bishop's children. Mr. Bishop has sole
voting and investment power with respect to such shares. As a member of the
Stock Option Committee, Mr. Bishop was automatically awarded the following
options each of which is to purchase 5,000 shares of Common Stock: on
December 31, 1997 at $12.475 per share; on December 31, 1998 at $11.792 per
share; on December 31, 1999 at $9.204 per share; on December 31, 2000 at
$5.679 per share; and on December 31, 2001 at $9.25 per share. Although no
part of such options has been exercised, all shares subject to such options
are included in the above table as beneficially owned.
(8) Includes 303,000 shares subject to options.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors, and persons who beneficially own more than ten percent of the
Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission and the exchange on which
the securities are traded. Officers, directors and greater than ten-percent
shareholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.
Based on its review of the copies of such forms received by it, the Company
believes that during 2001 all such filing requirements applicable to its
officers and directors (the Company not being aware of any ten percent holder
other than Edward W. Rose, III and L. Douglas Lippert, directors) were complied
with.
4
PROPOSAL 1. ELECTION OF DIRECTORS
It is proposed to elect a Board of seven directors to serve until the next
annual election or until their successors are elected and qualify.
Unless contrary instructions are indicated, the persons named as proxies in
the form of Proxy solicited from holders of the Common Stock will vote for the
election of the nominees indicated below. All such nominees are presently
directors of the Company, except for Mr. Hegi. If any such nominees should be
unable or unwilling to serve, the persons named as proxies will vote for such
other person or persons as may be proposed by Management. Management has no
reason to believe that any of the named nominees will be unable or unwilling to
serve. Election of directors by holders of the Common Stock will be by a
plurality of the votes cast at the meeting, in person or by proxy, by holders of
the Common Stock entitled to vote at the meeting.
The following table lists the current directors of the Company and the
nominees proposed by Management for election by the holders of the Common Stock,
all other positions and offices with the Company presently held by them and
their principal occupations, in each case as furnished by them to the Company.
NAME AND AGE DIRECTOR
OF NOMINEE POSITION SINCE
-------------- -------- --------
Leigh J. Abrams .................. President, Chief Executive
(Age 59) Officer and Director. 1984
Edward W. Rose, III .............. Chairman of the Board of
(Age 61) Directors. 1984
David L. Webster ................. President and Chief Executive Officer
(Age 66) of Kinro, Inc. and Director. 1984
L. Douglas Lippert ............... President and Chief Executive Officer
(Age 54) Lippert Components, Inc., Lippert
Tire & Axle, Inc. and Coil Clip, Inc.
and Director. 1997
James F. Gero .................... Director. 1992
(Age 57)
Gene H. Bishop ................... Director. 1995
(Age 72)
Frederick B. Hegi, Jr. ........... Nominee. --
(Age 58)
LEIGH J. ABRAMS, since July 1994, has also been President, Chief Executive
Officer and a Director of LBP, Inc. ("LBP"). See Summary Compensation Table,
footnote 1. Since April 2001, Mr. Abrams has been a director of Impac Mortgage
Holdings, Inc., a publicly-owned specialty finance company organized as a real
estate investment trust.
EDWARD W. ROSE, III, for more than the past five years, has been President
and sole stockholder of Cardinal Investment Company, Inc., an investment firm.
Mr. Rose also serves as a director of the following public companies: Liberte
Investors Inc., engaged in real estate loans and investments; and ACE Cash
Express, Inc., engaged in check cashing services. Since July 1994, Mr. Rose has
also been Chairman of the Board of LBP.
DAVID L. WEBSTER, since November 1980, has been President of Kinro, Inc., a
subsidiary of the Company ("Kinro"), and has been Chairman of Kinro since
November 1984.
L. DOUGLAS LIPPERT, since October 1997, has been President and Chief
Executive Officer of Lippert Components, Inc., a subsidiary of the Company, and
President of the predecessor of Lippert Components, Inc. since 1978. Mr. Lippert
has also been President of Coil Clip, Inc., a subsidiary of the Company, since
its acquisition in December 1998, and President of Lippert Tire & Axle, Inc.
since September 1, 1999.
5
JAMES F. GERO, since March 1992, has been Chairman and Chief Executive
Officer of Sierra Technologies, Inc., a manufacturer of defense systems
technologies, and a director of its affiliates. Since May, 1995, Mr. Gero has
been Chairman of Clearwire, Inc., a provider and servicer of high-speed wireless
Internet access. Mr. Gero also serves as a director of Orthofix International
NV, a publicly-owned international supplier of orthopedic devices for bone
fixation and stimulation. Since July 1994, Mr. Gero has also been a director of
LBP.
GENE H. BISHOP, from March 1975 until July 1990, was Chief Executive
Officer of MCorp, a bank holding company, and from October 1990 to November
1991, was Vice Chairman and Chief Financial Officer of Lomas Financial
Corporation, a financial services company. From November 1991 until his
retirement in October 1994, Mr. Bishop served as Chairman and Chief Executive
Officer of Life Partners Group, Inc., a life insurance holding company. Mr.
Bishop also serves as a director of the following publicly-owned companies:
Liberte Investors Inc., engaged in real estate loans and investments, and
Southwest Airlines Co., a regional airline.
FREDERICK B. HEGI, JR., nominated to the Board of Directors of the Company
to fill the vacancy on the Board created by the resignation of J. Thomas
Schieffer. Mr. Hegi is a founding partner of Wingate Partners, including the
indirect general partner of each of Wingate Partners L.P. and Wingate Partners
II, L.P. Since May 1982, Mr. Hegi has served as President of Valley View Capital
Corporation, a private investment firm. He is a director of Lone Star
Technologies, Inc., a publicly-owned diversified company engaged in the
manufacture of tubular products. Mr. Hegi was also Chairman, President and Chief
Executive Officer of Kevco, Inc., a publicly-owned distributor of building
products to the manufactured housing and recreational vehicle industries, which
filed for protection under Chapter 11 of the United States Bankruptcy Code on
February 5, 2001.
J. THOMAS SCHIEFFER, elected a director of the Company in May 2000,
resigned as a director on July 27, 2001, after his appointment and confirmation
as United States Ambassador to Australia.
FREDRIC M. ZINN, not a nominee for election as a director, has been Chief
Financial Officer of the Company for more than the past five years, and
Executive Vice President of the Company since February 2001. Mr. Zinn has also
been Chief Financial Officer of LBP since July 1994. Mr. Zinn is a Certified
Public Accountant.
HARVEY J. KAPLAN, not a nominee for election as a director, has been
Secretary and Treasurer of the Company for more than the past five years, and
has also been Secretary and Treasurer of LBP since July 1994. Mr. Kaplan is a
Certified Public Accountant.
Directors of the Company serve until the Company's next annual meeting of
stockholders, and until their successors are elected and qualified. Executive
officers serve at the discretion of the Board of Directors. To the knowledge of
the Company, no executive officer or director is related by blood, marriage or
adoption to any other. Each of the nominees named above was elected to his
present term of office at the Annual Meeting of Stockholders held on May 16,
2001, except for Mr. Hegi. During the year ended December 31, 2001, the Board of
Directors held five meetings. All directors attended all meetings of the Board
of Directors, except that Mr. Bishop missed one meeting.
6
-----------------------------
REPORT OF THE AUDIT COMMITTEE
-----------------------------
The Audit Committee of the Board of Directors (the "Committee") is
responsible for providing independent, objective oversight of the Company's
accounting functions and internal controls.
The Committee is composed of four independent directors and functions
pursuant to a written charter adopted by the Board of Directors on May 17, 2000.
The members of the Committee are Edward W. Rose, III, James F. Gero, Gene H.
Bishop and, until his resignation on July 27, 2001, J. Thomas Schieffer. The
Committee held five meetings during the year ended December 31, 2001. The
Committee recommends to the Board of Directors, subject to stockholder
ratification, the selection of the Company's independent accountants.
Management is responsible for the Company's internal controls and the
financial reporting process. The independent accountants are responsible for
performing an independent audit of the Company's consolidated financial
statements in accordance with auditing standards generally accepted in the
United States of America, and to issue a report thereon.
The Committee has met and held discussions with management and the
independent accountants. Management represented to the Committee that the
Company's consolidated financial statements were prepared in accordance with
accounting principles generally accepted in the United States of America, and
the Committee has reviewed and discussed the consolidated financial statements
with management and the independent accountants. The Committee discussed with
the independent accountants matters required to be discussed by Statement on
Auditing Standards No. 61 (Communication with Audit Committees).
The Company's independent accountants also provided to the Committee the
written disclosures required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees), and the Committee discussed
with the independent accountants that firm's independence.
The Committee considered whether non-audit services provided by the
independent accountants are compatible with maintaining the auditor's
independence. The Committee concluded that non-audit services provided by KPMG
LLP during the year ended December 31, 2001 were compatible with KPMG LLP's
independence.
The aggregate fees billed for professional services rendered by KPMGLLP for
the audit of the Company's annual financial statements for the year ended
December 31, 2001, and the reviews of the condensed financial statements
included in the Company's quarterly Reports on Form 10-Q for the year ended
December 31, 2001, were $285,500. The aggregate fees billed for all non-audit
services, consisting of tax advice, rendered by KPMGLLP during the year ended
December 31, 2001, were $21,450.
Based on the Committee's discussion with management and the independent
accountants and the Committee's review of the representations of management and
the report of the independent accountants to the Committee, the Committee
recommended that the Board of Directors include the audited consolidated
financial statements in the Company's Annual Report on Form 10-K for the year
ended December 31, 2001 filed with the Securities and Exchange Commission.
AUDIT COMMITTEE
Edward W. Rose, III
James F. Gero
Gene H. Bishop
7
OTHER COMMITTEES
The Company has a Stock Option Committee, consisting of Messrs. Rose, Gero
and Bishop. Mr. Schieffer was a member of the Stock Option Committee until his
resignation on July 27, 2001. The functions of the Stock Option Committee are to
determine and designate employees and directors of the Company who are to be
granted options, the number of shares subject to options, the nature and terms
of the options to be granted, and to otherwise administer the Stock Option Plan.
See Proposal 1. "ELECTION OF DIRECTORS--Executive Compensation." The Stock
Option Committee held one meeting during the year ended December 31, 2001.
The Company has a Compensation Committee of the Board of Directors
consisting of Messrs. Rose, Gero and Bishop. Mr. Schieffer was a member of the
Compensation Committee until his resignation on July 27, 2001. The functions of
the Compensation Committee are to develop compensation policies with respect to
the Company's executive officers based, in part, on performance-related
criteria, and to make recommendations to the Board of Directors regarding
compensation of executive officers in accordance with such policies. The
Compensation Committee held one meeting during the year ended December 31, 2001.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table sets forth the annual and long-term cash and noncash
compensation for each of the last three calendar years awarded to or earned by
the President and Chief Executive Officer of the Company and the Company's four
other most highly compensated executive officers (such five executive officers
collectively, the "named executive officers") during the year ended December 31,
2001.
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION(1) COMPENSATION
---------------------------------- -----------------
NAME AND CALENDAR OTHER ANNUAL NUMBER OF STOCK ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(2) COMPENSATION OPTIONS AWARDED COMPENSATION
- ------------------ -------- ------- --------- -------------- ---------------- --------------
Leigh J. Abrams(3) ............ 2001 $400,000 $ 32,022 $ 9,567 $5,250
President and Chief 2000 300,000 30,000 7,766 5,250
Executive Officer 1999 300,000 404,775 5,675 50,000 5,000
David L. Webster(4) ........... 2001 $400,000 $ 623,000 $ 11,009 $5,250
President of Kinro, 2000 400,000 829,000 13,675 5,250
Inc. 1999 400,000 1,109,000 3,537 50,000 5,000
L. Douglas Lippert(5) ......... 2001 $400,000 $ 0 $ 12,000 $6,800
President and Chief 2000 400,000 0 12,000 7,398
Executive Officer of 1999 300,000 240,807 12,000 50,000 7,403
Lippert Components, Inc.,
Coil Clip, Inc. and Lippert
Tire & Axle, Inc.
Fredric M. Zinn ............... 2001 $160,000 $ 161,583 $ 14,030 12,000 $5,250
Executive Vice President 2000 155,000 131,398 14,216 5,250
and Chief Financial 1999 145,000 175,828 11,945 15,000 5,000
Officer
Harvey J. Kaplan .............. 2001 $110,000 $113,296 $10,339 10,000 $5,250
Secretary and 2000 110,000 98,296 10,202 5,250
Treasurer 1999 107,500 103,296 8,062 7,500 5,000
(FOOTNOTES ON NEXT PAGE)
8
- ----------------
(1) In connection with the July 29, 1994 spin-off of Leslie Building Products,
Inc. (now known as LBP, Inc.) by the Company (the "Spin-off"), the Company
and LBP entered into a Shared Services Agreement. Pursuant to the Shared
Services Agreement, following the Spin-off, the Company and LBP share
certain administrative functions and employee services, such as management
overview and planning, acquisition searches, tax preparation, financial
reporting, coordination of independent audit, stockholder relations, and
regulatory matters. The Company is reimbursed by LBP for such services,
which included services provided by Messrs. Abrams, Zinn and Kaplan. LBP is
a dissolved corporation currently completing its liquidation, and the
Shared Services Agreement was renewed on a month-to-month basis until the
liquidation is completed. For the year ended December 31, 2001, the Company
was reimbursed $94,000 by LBP for such services.
(2) Messrs. Abrams, Webster, Rose, Zinn and Kaplan, receive payments pursuant
to a discretionary retirement bonus program. These bonuses must be used to
purchase specified tax deferred annuities and/or cash value life insurance.
For 2001, Mr. Abrams received $30,000, Mr. Webster received $50,000, Mr.
Rose received $30,000, Mr. Zinn received $21,583 and Mr. Kaplan received
$13,296 pursuant to the discretionary retirement bonus program.
(3) For 2001, Mr. Abrams was entitled to receive incentive compensation equal
to 2 1/2% of the Company's income before income taxes and extraordinary
items, subject to certain adjustments, in excess of $14,714,000. Based on
this formula, for 2001, Mr. Abrams was entitled to receive incentive
compensation of $2,022. For 2000 and 1999, Mr. Abrams was entitled to
receive incentive compensation equal to 2 1/2% of the Company's income
before income taxes and extraordinary items, subject to certain
adjustments, in excess of $13,575,000. Effective January 1, 2001, Mr.
Abrams' annual salary was increased to $400,000. See Proposal 2. "Approval
of the 2002 Equity Award and Incentive Plan" for a discussion of the
proposal to approve and adopt the 2002 Plan that results in modification of
the Company's performance-based annual incentive compensation program.
(4) Effective September 1, 1999, Kinro extended and amended its employment
agreement with Mr. Webster which provides for Mr. Webster's employment
through December 31, 2004. Commencing January 1, 1999, in addition to
annual base salary of $400,000, Mr. Webster received (i) for the year
ending December 31, 1999 (A) 7.3% of the amount by which the aggregate
earnings before interest and taxes (without deduction for costs of
corporate administration or amortization of goodwill) ("Operating Profit")
of Kinro and Shoals (now known as Lippert Tire & Axle, Inc.) for the eight
months ended August 31, 1999 exceeded $7,237,000, plus (B) 7.3% of the
amount by which the Operating Profit of Kinro for the four months ended
December 31, 1999 exceeded $1,946,000; and (ii) for the year ending
December 31, 2000, 7.3% of the amount by which the Operating Profit of
Kinro exceeded $5,837,000.Mr. Webster's existing compensation plan provides
that for each year commencing with the year ending December 31, 2001 and
terminating on December 31, 2004, in addition to annual base salary of
$400,000, he is entitled to receive 5% of the amount by which the Operating
Profit of Kinro exceeds $5,837,000. See Proposal 2. "Approval of the 2002
Equity Award and Incentive Plan" for a discussion of the proposal to
approve and adopt the 2002 Plan that modifies the Company's
performance-based annual incentive compensation program.
As a result of the acquisition of Better Bath, a revised incentive
compensation plan for Mr. Webster was recommended by the Compensation
Committee of the Board of Directors and adopted by the Board of Directors
on February 12, 2002, effective as of June 1, 2001, subject to stockholders
approval. The revised incentive compensation plan provides that, in
addition to annual base salary of $400,000, Mr. Webster will receive (i)
for the year ending December 31, 2001 (A) 5% of the amount by which
Operating Profit of Kinro, excluding Better Bath, exceeds $5,837,000, plus
(B) 5% of the amount by which the Operating Profit of Better Bath exceeds
$1,488,000; and (ii) for each year commencing with the year ending December
31, 2002 and terminating on December 31, 2004, 5% of the amount by which
the Operating Profit of Kinro, including Better Bath, exceeds $7,522,000.
For 2001, Mr. Webster received a base salary of $400,000, performance-based
incentive compensation of $573,000, and a payment of $50,000 pursuant to a
discretionary retirement bonus program. For 2001, no incentive compensation
was
9
awarded with respect to Better Bath. See Proposal 2. "Approval of the 2002
Equity Award and Incentive Plan" for a discussion of the proposal to
approve and adopt the 2002 Plan that results in modification of the
Company's performance-based annual incentive compensation program.
(5) On October 7, 1997, Mr. Lippert entered into an Employment and
Non-Competition Agreement with Lippert Components, Inc. providing for Mr.
Lippert to serve, through December 31, 2003, as President and Chief
Executive Officer of Lippert Components, Inc. Mr. Lippert receives annual
salary of $400,000 plus, subject to certain conditions, performance-based
incentive compensation equal to 5% of the amount by which the operating
profits of Lippert Components, Inc. and Coil Clip, Inc. (as defined in the
Agreement) exceeds $10.1 million. For 2001, Mr. Lippert received no
incentive bonus. See Proposal 2. "Approval of the 2002 Equity Award and
Incentive Plan" for a discussion of the proposal to approve and adopt the
2002 Plan that results in modification of the Company's performance-based
annual incentive compensation program.
STOCK OPTION PLAN
On June 13, 1995, stockholders initially approved the Drew Industries
Incorporated Amended and Restated Stock Option Plan, which was further amended
and restated on June 1, 1999 (the "Existing Plan").
SEE PROPOSAL 2. "APPROVAL OF THE 2002 EQUITY AWARD AND INCENTIVE PLAN" FOR
A DISCUSSION OF THE PROPOSAL TO APPROVE AND ADOPT A NEW PLAN (THE "2002 PLAN"),
TO REPLACE THE EXISTING PLAN, THAT WOULD PERMIT THE COMPANY TO GRANT STOCK
OPTIONS, AS WELL AS RESTRICTED AND DEFERRED STOCK, BONUS STOCK, PERFORMANCE
AWARDS, AND STOCK APPRECIATION RIGHTS.
Under the Existing Plan, since 1995 the Stock Option Committee has granted
non-qualified options to purchase 1,373,640 shares of Common Stock, and is
authorized to grant options to purchase up to an additional 70,666 shares. The
70,666 shares available for grant have been allocated 25,000 shares to
Non-Employee Directors and members of the Stock Option Committee, and 45,666
shares to eligible employees. No grantee, whether or not now a participant in
the Existing Plan, can be granted options to purchase more than an aggregate of
50,000 shares under the Existing Plan subsequent to June 1, 1999. All options
granted to date are non-qualified options.
The Stock Option Committee has sole and complete authority to determine the
individuals eligible to receive stock options under the Existing Plan, and to
determine the number of stock options to be granted to eligible individuals, as
well as the terms and conditions under which grants will be made (including
limitations, restrictions or prohibitions upon the exercise of stock options),
except that Non-Employee Directors are not eligible for incentive stock options
("ISOs"). The Stock Option Committee determines the period for which each stock
option may be exercisable, but in no event may a stock option be exercisable
more than 10 years from the date of grant thereof. The number of shares
available under the Existing Plan, and the exercise price of options granted
under the Existing Plan, are subject to adjustments that may be made by the
Stock Option Committee to reflect stock splits, stock dividends,
recapitalizations, mergers, or other major corporate action.
The exercise price for options granted under the Existing Plan is
determined by the Stock Option Committee in its sole discretion, provided that
the exercise price is at least equal to 100% of the fair market value of the
Common Stock subject to such option on the date of grant. The exercise price may
be paid in cash or in shares of Common Stock that have been held at least six
months. Options granted under the Existing Plan become exercisable in annual
installments determined by the Stock Option Committee and may be subject to
performance criteria. An ISO may not be granted to an individual who is treated
as a "10% Shareholder" of the Company under Section 422 of the Internal Revenue
Code of 1986, as amended, unless the exercise price is 110% of fair market value
on the date of grant and the ISO is exercisable for a period not longer than
five years from the date of grant.
The Board of Directors is authorized to terminate, suspend or amend the
Existing Plan; provided that the amendment or termination cannot affect the
validity of any then outstanding stock option previously granted under the
Existing Plan, and provided further that the Board of Directors cannot without
stockholder approval: (a) increase the maximum number of shares covered by the
Existing Plan or change the class of employees eligible to receive stock
options; (b) reduce the option price below the fair market value of the Common
Stock on the date of the grant of such option; or (c)
10
extend beyond l0 years from the date of the grant the period within which an
option may be exercised. The Existing Plan will terminate on December 31, 2007
and no option may be granted after such termination date. Options granted prior
to the termination date may be exercised in accordance with their terms beyond
the termination date.
The Existing Plan provides that each member of the Stock Option Committee
is automatically awarded an option ("Formula Option") to purchase 5,000 shares
of Common Stock on the December 31st of each year in which such Stock Option
Committee member has served not less than twelve consecutive months as a
Director of the Company. Such Formula Options vest immediately and are
exercisable during the five-year period following the date of grant. The
purchase price of the Common Stock subject to the Formula Options is not less
than 100% of the fair market value (as defined in the Existing Plan) of the
Common Stock on the date such Formula Option is granted, subject to adjustment
as provided in the Existing Plan.
If the 2002 Plan is approved and adopted by stockholders, the Existing Plan
will terminate as of May 16, 2002.
OPTION GRANTS IN 2001
The following table summarizes stock options granted during 2001 to the named
executive officers.
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
------------------------------------------------- ----------------------
NUMBER OF % OF TOTAL
SHARES OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES EXERCISE EXPIRATION
NAME GRANTED IN 2001 PRICE DATE 5% 10%
------ ---------- ---------- -------- ----------- --- ----
Edward W. Rose, III ........... 5,000(1) 1.9% $9.25 12/31/06 $12,778 $28,236
Fredric M. Zinn ............... 12,000 4.6% $9.10 11/15/07 $37,138 $84,254
Harvey J. Kaplan .............. 10,000 3.8% $9.10 11/15/07 $30,949 $70,212
- ----------------
(1) Represents a Formula Option.
YEAR-END OPTION VALUES
The following table presents the value of unexercised options held by the
named executive officers at December 31, 2001.
NUMBER OF VALUE OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT OPTIONS AT
DECEMBER 31, 2001 DECEMBER 31, 2001(1)
EXERCISABLE (E) EXERCISABLE (E)
NAME UNEXERCISABLE (U) UNEXERCISABLE (U)
----- ---------------------- ---------------------
Leigh J. Abrams .................... 28,000(E) $28,800(E)
32,000(U) $43,200(U)
David L. Webster ................... 32,000(E) $28,800(E)
33,000(U) $43,200(U)
L. Douglas Lippert ................. 20,000(E) $28,800(E)
30,000(U) $43,200(U)
Edward W. Rose, III ................ 25,000(E) $40,600(E)
Fredric M. Zinn .................... 10,000(E) $11,640(E)
22,000(U) $37,260(U)
Harvey J. Kaplan ................... 5,800(E) $ 5,820(E)
15,200(U) $25,230(U)
- -----------------
(1) Market value of Common Stock at December 31, 2001 ($10.75) minus the
exercise price.
11
COMPENSATION OF DIRECTORS
Edward W. Rose, III, Chairman of the Board of Directors, receives an annual
director's fee of $48,000, payable $4,000 per month, plus $2,000 for attendance
at each meeting of the Board of Directors and $1,000 for attendance at each
Committee meeting. In 2001, Mr. Rose received a $30,000 payment pursuant to a
discretionary retirement bonus program intended to provide retirement income.
Messrs. James F. Gero and Gene H. Bishop each receive an annual director's fee
of $18,000, payable $1,500 per month, plus $1,000 for attendance at each meeting
of the Board of Directors and $500 for attendance at each Committee meeting.
EMPLOYMENT CONTRACTS
See footnotes 4 and 5 to the Summary Compensation Table for a description
of the employment agreements between (i) Kinro, a subsidiary of the Company, and
David L. Webster, President and Chief Executive Officer of Kinro and a director
of the Company, and (ii) Lippert Components, Inc., a subsidiary of the Company,
and L. Douglas Lippert, President and Chief Executive Officer of Lippert
Components, Inc., Lippert Tire & Axle, Inc. and Coil Clip, Inc., and a director
of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No executive officer of the Company serves on the Compensation Committee,
and there are no "interlocks," as defined by the Securities and Exchange
Commission.
12
- --------------------------------------------------------------------------------
REPORT OF THE COMPENSATION COMMITTEE
- --------------------------------------------------------------------------------
COMPENSATION POLICY
The Compensation Committee of the Board of Directors (the "Committee")
consists of three non-employee directors, Edward W. Rose, III, James F. Gero and
Gene H. Bishop. J. Thomas Schieffer was a member of the Compensation Committee
until his resignation on July 27, 2001. The Committee has the responsibility of
developing the policies which govern compensation for executive officers, and
making recommendations to the Board of Directors regarding compensation of
executive officers in accordance with such policies.
The Company's executive compensation policy is designed to enable the
Company to attract, motivate and retain senior management by providing a
competitive compensation opportunity based significantly on performance. The
objective is to provide fair and equitable compensation to senior management in
a way that rewards management for reaching and exceeding objectives. The
compensation policy links a significant portion of executive compensation to the
Company's performance, recognizes individual contribution as well as overall
business results, and aligns executive and stockholder interests. The primary
components of the Company's executive compensation are base salary,
performance-related incentive compensation, stock options and discretionary
bonuses. While the components of compensation are considered separately in this
report, the Committee takes into account the full compensation package provided
by the Company to each of its executives, including pension benefits, severance
obligations, insurance and other benefits.
It is the policy of the Board of Directors not to include earnings of
acquired companies in computing compensation pursuant to performance-based
incentive compensation plans in effect prior to the acquisition. Accordingly,
with respect to those executives who receive performance-based incentive
compensation, subsequent to an acquisition the Board of Directors will modify
existing performance-based incentive compensation plans to raise the level of
base earnings.
The Committee reviews the Company's compensation policy utilizing both
internal and external sources of information and analysis relating to corporate
performance, total return to stockholders of comparable companies, and
compensation afforded to executives by competitors of the Company. If
appropriate, changes will be recommended.
See Proposal 2. "Approval of the 2002 Equity Award and Incentive Plan" for
a discussion of the proposal to adopt the 2002 Equity Award and Incentive Plan
(the "2002 Plan") to replace the existing Stock Option Plan, and permit the
Company to grant stock options, as well as restricted and deferred stock, bonus
stock, performance awards, and stock appreciation rights. The 2002 Plan would
modify the incentive compensation plan approved by stockholders in 2000.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER IN 2001
The compensation policy applied by the Company in establishing the
compensation for Leigh J. Abrams, the Company's President and Chief Executive
Officer, is essentially the same as for other senior executives of the
Company--to provide a competitive compensation opportunity that rewards
performance and recognizes individual contribution.
For 2001, Mr. Abrams received base compensation of $400,000 plus incentive
compensation of $2,022 equal to 2 1/2% of the Company's income before income
taxes and extraordinary items, subject to certain adjustments, in excess of
$14,714,000. The level of income before incentive compensation became applicable
was raised for 2001 to give effect to the acquisition of Better Bath. Mr. Abrams
receives medical and life insurance, and certain other benefits. In 2001, Mr.
Abrams was also awarded an additional payment of $30,000 pursuant to a
discretionary retirement bonus program intended to provide retirement income.
This bonus must be used to purchase specified tax deferred annuities or cash
value life insurance contracts.
13
COMPENSATION OF EXECUTIVE OFFICERS IN 2001
As with the Chief Executive Officer, compensation of other executive
officers is intended to reward performance and recognize individual
contribution. Accordingly, the chief executive officers of the Company's
subsidiaries receive compensation based upon the results of operations of such
subsidiaries.
On May 17, 2000, effective as of September 1, 1999, the stockholders of the
Company approved the adoption of a performance-based incentive compensation plan
applicable to David L. Webster, President and Chief Executive Officer of Kinro.
For calendar 2001, Mr. Webster received base salary of $400,000. In addition,
for 2001, Mr. Webster was entitled to receive 5.0% of the amount by which the
Operating Profit of Kinro (as defined) exceeded $5,837,000. However, as a result
of the June 2001 acquisition of Better Bath by Kinro, the Board of Directors
modified Mr. Webster's performance-based incentive compensation plan to raise
the level of Operating Profit before incentive compensation would become
applicable. In accordance with the modified plan, for 2001 Mr. Webster's
performance-based incentive compensation was $573,000. See Proposal 2. "Approval
of the 2002 Equity Award and Incentive Plan" which would modify the Company's
annual incentive compensation program. For 2001, Mr. Webster also received a
payment of $50,000 pursuant to a discretionary retirement bonus program intended
to provide retirement income. This bonus must be used to purchase specified tax
deferred annuities or cash value life insurance contracts.
On October 7, 1997, L. Douglas Lippert entered into an Employment and
Non-Competition Agreement with Lippert Components, Inc. providing for Mr.
Lippert to serve as President and Chief Executive Officer of Lippert Components,
Inc. Effective January 1, 2000, the Agreement was extended to December 2003. For
2001, Mr. Lippert received a salary of $400,000. Mr. Lippert is also entitled to
receive, subject to certain conditions, performance-based incentive compensation
equal to 5% of the excess of operating profit of Lippert Components, Inc. and
Coil Clip, Inc. (as defined in the Agreement) over $10.1 million. For 2001, Mr.
Lippert did not receive incentive compensation because the operating profit of
Lippert Components, Inc. and Coil Clip, Inc. did not exceed $10.1 million.
Other Executive Officers of the Company and its subsidiaries receive
bonuses based upon their respective levels of organizational responsibility and
the performance of the Company or the subsidiary by which they are employed.
STOCK OPTIONS
The Company's existing Stock Option Plan provides for the grant of options
to employees of the Company and its subsidiaries, and to directors of the
Company, to purchase the Company's Common Stock. See Proposal 1. "Election of
Directors--Stock Option Plan." A Stock Option Committee consisting of Edward W.
Rose, III, James F. Gero, Gene H. Bishop and, until his resignation on July 27,
2001, J. Thomas Schieffer, administers the existing Stock Option Plan and
determines and designates employees and directors who are to be granted options.
The existing Stock Option Plan provides for automatic awards of options to
members of the Stock Option Committee under certain circumstances.
Because all options which have been granted under the existing Stock Option
Plan have been granted at fair market value, any value which is ultimately
realized by Executive Officers through stock options is based entirely on the
Company's performance, as perceived by investors in the Company's Common Stock
who establish the price for the Common Stock on the open market.
See Proposal 2. "Approval of the 2002 Equity Award and Incentive Plan" for
a discussion of the proposal to adopt the 2002 Plan to replace the existing
Stock Option Plan, and permit the Company to grant stock options, as well as
restricted and deferred stock, bonus stock, performance awards, and stock
appreciation rights.
14
BENEFITS
The Company maintains certain broad-based employee benefit plans in which
Executive Officers participate, including an employee retirement savings plan
(401(k) Plan) and other retirement, life, disability and health insurance plans.
The Company also provides an automobile or automobile allowance to its Executive
Officers.
CONCLUSION
A significant portion of the Company's executive compensation is linked
directly to individual performance and Company earnings. The Committee intends
to continue to determine compensation based upon these factors.
COMPENSATION COMMITTEE
Edward W. Rose, III
James F. Gero
Gene H. Bishop
15
COMPARATIVE STOCK PERFORMANCE
The following graph compares, for the last five calendar years, the
cumulative stockholder return on the Common Stock of the Company with the
cumulative return on the common stocks of the companies included in the Russell
2000 Index and on the common stocks of a representative peer group of companies
engaged in similar businesses as the Company.
The graph assumes investment of $100 on December 31, 1996 in the Company's
Common Stock, the Russell 2000 Index, and the common stocks of the peer group
companies, and assumes that any dividends were reinvested.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG DREW INDUSTRIES INCORPORATED, THE RUSSELL 2000 INDEX
AND A PEER GROUP
[Data below represents line chart in the printed piece]
DREW INDUSTRIES
INCORPORATED RUSSELL 2000 PEER GROUP
---------------- ------------ ---------
"12/96" 100 100 100
"12/97" 115.91 122.36 102.69
"12/98" 105.68 119.25 135.92
"12/99" 81.82 144.6 97.32
"12/00" 52.27 140.23 82.37
"12/01" 97.73 143.71 126.57
* $100 INVESTED ON 12/31/96 IN STOCK OR INDEX-
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31.
INDEMNIFICATION
Section 145 of the Delaware General Corporation Law empowers a domestic
corporation to indemnify any of its officers, directors, employees or agents
against expenses, including reasonable attorney's fees, judgments, fines and
amounts paid in settlement which were actually and reasonably incurred by such
person in connection with any action, suit or similar proceeding brought against
them because of their status as officers, directors, employees or agents of the
Company if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Company. If the claim was brought against any such person by or in the right of
the Company, the Company may indemnify such person for such expenses if such
person acted in good faith and in a manner reasonably believed by such person to
be in or not opposed to the best interests of the Company, except no indemnity
shall be paid if such person shall be adjudged
16
to be liable for negligence or misconduct unless a court of competent
jurisdiction, upon application, nevertheless permits such indemnity (to all or
part of such expenses) in view of all the circumstances.
The Company's Restated Certificate of Incorporation provides that the
Company may indemnify its officers, directors, employees or agents to the full
extent permitted by Section 145 of the Delaware General Corporation Law.
Accordingly, no director of the Company is liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit.
PROPOSAL 2. APPROVAL OF THE 2002 EQUITY AWARD AND INCENTIVE PLAN
GENERAL
The Board of Directors has determined that it is in the best interests of
the Company to adopt the Drew Industries Incorporated 2002 Equity Award and
Incentive Plan (the "2002 Plan"), with the approval of stockholders, to enhance
the ability of the Company to link compensation to performance, including
through the use of stock options.
The Board of Directors and the Compensation Committee (the "Committee")
believe that attracting and retaining directors, executives and other key
employees of high quality is essential to the Company's growth and success. To
this end, a comprehensive compensation program which includes different types of
incentives for motivating employees, and rewards for outstanding service
contributes to the Company's future success. In particular, the Company can
grant stock options and stock-related awards as an important element of
compensation for executives and other employees, because such awards enable them
to acquire or increase their proprietary interest in the Company, thereby
promoting a closer identity of interests between them and the Company's
stockholders. In addition, annual incentive awards and other performance-based
awards will provide incentives for achieving specific performance objectives.
The Board and the Committee therefore view the 2002 Plan as a key part of the
Company's compensation program.
The 2002 Plan would replace the Drew Industries Incorporated Amended and
Restated Stock Option Plan (the "Existing Plan"), which has been in effect since
1995 and was most recently approved by stockholders in 1999, and also
incorporates the Company's annual incentive compensation program. The 2002 Plan
will allow the Company to grant option awards similar to those under the
Existing Plan, but would also authorize a broad range of other awards
(collectively, "Awards"), including restricted and deferred stock, bonus stock,
performance awards, and stock appreciation rights ("SARs").
REASONS FOR STOCKHOLDER APPROVAL
The Board and Committee seek stockholder approval of the 2002 Plan to
satisfy certain legal requirements and to provide tax advantages to the Company
and participants. Therefore, the Company is seeking stockholder approval of the
material terms of performance awards to be granted to named executives under the
2002 Plan, in order to meet a key requirement for such awards to qualify as
"performance-based" compensation under Code Section 162(m) of the Internal
Revenue Code (the "Code"). Code Section 162(m) limits the deductions a publicly
held company can claim for compensation in excess of $1,000,000 paid to certain
executive officers (generally, the officers who are "named executive officers"
in the Summary Compensation Table). "Performance-based" compensation is not
counted against the $1,000,000 deductibility amount. If the 2002 Plan is
approved by stockholders, performance awards intended by the Committee to
qualify as "performance-based" compensation will be payable only upon
achievement of pre-established performance goals, subject to any additional
requirements and terms as the Committee may establish. Such performance awards
can be used to place strong emphasis on the building of value for all
stockholders. For purposes of Code Section 162(m), approval of the 2002 Plan
will be deemed also to include (i) approval of the eligibility of executive
officers and other eligible persons to
17
participate ("Participant"), (ii) the per-person limitations described below
under the caption "SHARES AVAILABLE AND AWARD LIMITATIONS," and (iii) the
general business criteria upon which performance objectives for performance
awards are based, described below under the caption "PERFORMANCE-BASED AWARDS."
Because stockholder approval of general business criteria, without specific
targeted levels of performance, qualifies performance awards for a period of
approximately five years, stockholder approval of such business criteria will
meet the requirements under Code Section 162(m) until 2007. Stockholder approval
of the performance goal inherent in stock options and SARs (increases in the
market price of shares) is not subject to a time limit under Code Section
162(m).
Stockholder approval will also allow the Committee to designate options as
"incentive stock options," if it chooses, which may provide tax advantages to
Participants. These potential advantages are explained below.
DESCRIPTION OF THE 2002 EQUITY AWARD AND INCENTIVE PLAN
The following is a brief description of the material features of the 2002
Plan. This description is qualified in its entirety by reference to the full
text of the Plan, a copy of which is attached to this Proxy Statement as Exhibit
A.
SHARES AVAILABLE AND AWARD LIMITATIONS. Under the 2002 Plan, the number of
shares of Common Stock reserved and available for awards will be 850,000 plus
70,666 representing the number of shares that remain available for issuance
under the Existing Plan after all awards thereunder have been settled. As
discussed below, this number is subject to adjustment in the event of stock
splits, stock dividends, and other extraordinary events. In addition, there are
options outstanding under the Existing Plan to purchase 1,090,500 shares. If
stockholders approve the 2002 Plan, awards under the Existing Plan will be
discontinued.
The total number of available shares under the 2002 Plan would be 920,666
shares, or 7.9% of the shares outstanding on April 1, 2002, assuming exercise of
all options and awards. Of the 920,666 available shares under the 2002 Plan, a
maximum of 500,000 shares may be used for awards other than options or SARs. The
total of the shares available under the 2002 Plan plus the shares subject to
options outstanding under the Existing Plan is 2,011,166 shares or 17.2% of the
Company's shares outstanding on April 1, 2002, assuming exercise of all options
and awards outstanding and available under both plans.
Shares subject to forfeited or expired Awards or to Awards settled in cash
or otherwise terminated without issuance of shares to the Participant, and
shares withheld by or surrendered to the Company to satisfy withholding tax
obligations or in payment of the exercise price of an Award, will be deemed to
be available for new Awards under the 2002 Plan. These same share counting rules
will apply to awards under the Existing Plan, for purposes of determining which
shares will become available under the 2002 Plan. Under the 2002 Plan, shares
subject to an Award granted in substitution for an award of a company or
business acquired by the Company or a subsidiary will not count against the
number of shares reserved and available. Shares delivered under the 2002 Plan
may be either newly issued or treasury shares. On April 1, 2002, the last
reported sale price of the Company's Common Stock on the American Stock Exchange
was $12.50 per share.
In addition, the 2002 Plan includes a limitation on the amount of Awards
that may be granted to any one Participant in a given year to qualify Awards as
"performance-based" compensation not subject to the limitation on deductibility
under Code Section 162(m). Under this annual per-person limitation, no
Participant may in any year be granted share-denominated Awards under the 2002
Plan relating to more than his or her "Annual Limit" for each type of Award. The
Annual Limit is 50,000 shares plus the amount of the Participant's unused Annual
Limit relating to the same type of Award as of the close of the previous year,
subject to adjustment for splits and other extraordinary corporate events.
Options, SARs, restricted stock, deferred stock and bonus stock, are separate
types of awards subject to a separate limitation. In the case of Awards not
relating to shares in a way in which the share limitation can apply, no
Participant may be granted Awards authorizing the earning during any year of an
amount that exceeds the Participant's Annual Limit, which is $1,200,000, plus
the amount of the Participant's unused cash Annual Limit as of the close of the
18
previous year. The Annual Limit for non-stock-based Awards of $1,200,000 is
separate from the Annual Limit of 50,000 shares for each type of stock-based
Award.
Unless otherwise approved or ratified by holders of a majority of the
Company's outstanding shares of Common Stock, no shares authorized under the
2002 Plan may be used for any award which could be characterized as a
"repricing" of outstanding options.
ELIGIBILITY. Executive officers and other employees of the Company and its
subsidiaries, and non-employee directors, consultants and others who provide
substantial services to the Company and its subsidiaries, are eligible to be
granted Awards under the 2002 Plan. In addition, any person who has been offered
employment by the Company or a subsidiary may be granted Awards, but such
prospective employee may not receive any payment or exercise any right relating
to the Award until he or she has commenced employment.
ADMINISTRATION. The 2002 Plan is administered by the Committee, except that
the Board of Directors ("Board") may appoint any other committee to administer
the 2002 Plan and may itself act to administer the Plan. The Board must perform
the functions of the Committee for purposes of granting Awards to non-employee
directors. (References to the "Committee" below mean the committee or the full
Board exercising authority with respect to a given Award.) Subject to the terms
and conditions of the 2002 Plan, the Committee is authorized to select
Participants, determine the type and number of Awards to be granted and the
number of shares to which Awards will relate or the amount of a performance
award, specify times at which Awards will be exercisable or settled, including
performance conditions that may be required as a condition thereof, set other
terms and conditions of such Awards, prescribe forms of Award agreements,
interpret and specify rules and regulations relating to the Plan, and make all
other determinations which may be necessary or advisable for the administration
of the 2002 Plan. Nothing in the 2002 Plan precludes the Committee from
authorizing payment of other compensation, including bonuses based upon
performance, to officers and employees, including the executive officers. The
2002 Plan provides that Committee members shall not be personally liable, and
shall be fully indemnified, in connection with any action, determination, or
interpretation taken or made in good faith under the 2002 Plan.
STOCK OPTIONS AND SARS. The Committee is authorized to grant stock options,
including both incentive stock options ("ISOs"), which can result in potentially
favorable tax treatment to the Participant, and non-qualified stock options, and
SARs entitling the Participant to receive the excess of the fair market value of
a share on the date of exercise or other specified date over the grant price of
the SAR. The exercise price of an option and the grant price of an SAR is
determined by the Committee, but generally may not be less than the fair market
value of the shares on the date of grant (except as described below). The
maximum term of each option or SAR, the times at which each option or SAR will
be exercisable, and provisions requiring forfeiture of unexercised options at or
following termination of employment or upon the occurrence of other events,
generally are fixed by the Committee, subject to a restriction that no ISO, or
SAR in tandem therewith, may have a term exceeding ten years. At the discretion
of the Committee, options may be exercised by payment of the exercise price in
cash, shares or other property (possibly including broker-assisted cashless
exercise procedures) or by surrender of other outstanding awards having a fair
market value equal to the exercise price. Methods of exercise and settlement and
other terms of SARs will be determined by the Committee. SARs granted under the
2002 Plan may include limited SARs exercisable for a stated period of time
following a Change in Control of the Company, as discussed below. No award of
shares which could constitute a repricing will be made under the 2002 Plan
without stockholder approval.
RESTRICTED AND DEFERRED STOCK. The Committee is authorized to make Awards
of restricted stock and deferred stock. Prior to the end of the restricted
period, shares received as restricted stock may not be sold or disposed of by
Participants, and may be forfeited in the event of termination of employment.
The restricted period generally is established by the Committee. An Award of
restricted stock entitles the Participant to all of the rights of a stockholder
of the Company, including the right to vote the shares and the right to receive
any dividends thereon, unless otherwise determined by the Committee. Deferred
stock gives Participants the right to receive shares at the end of a specified
deferral period, subject to forfeiture of the Award in the
19
event of termination of employment under certain circumstances prior to the end
of a specified period (which need not be the same as the deferral period). Prior
to settlement, deferred stock Awards carry no voting or dividend rights or other
rights associated with stock ownership.
BONUS SHARES, AND AWARDS IN LIEU OF CASH OBLIGATIONS. The Committee is
authorized to grant shares as a bonus free of restrictions, or to grant shares
or other Awards in lieu of the Company's obligations under other plans or
compensatory arrangements, subject to such terms as the Committee may specify.
The number of shares granted to an executive officer or non-employee director in
place of salary, fees or other cash compensation must be reasonable, as
determined by the Committee.
PERFORMANCE-BASED AWARDS. The Committee may require satisfaction of
pre-established performance goals, consisting of one or more business criteria
and a targeted performance level with respect to such criteria, as a condition
of Awards being granted or becoming exercisable or settleable under the 2002
Plan, or as a condition to accelerating the timing of such events. If so
determined by the Committee, to avoid the limitations on deductibility under
Code Section 162(m), the business criteria used by the Committee in establishing
performance goals applicable to performance Awards to named executives will be
selected from among the following: (1) growth in revenues or assets; (2)
earnings from operations, earnings before or after taxes, earnings before or
after interest, depreciation, amortization, or extraordinary or special items;
(3) net income or net income per common share (basic or diluted); (4) return on
assets, return on investment, return on capital, or return on equity; (5) cash
flow, free cash flow, cash flow return on investment, or net cash provided by
operations; (6) interest expense after taxes; (7) economic profit; (8) operating
profit, operating margin or gross margin; (9) stock price or total stockholder
return; and (10) strategic business criteria, consisting of one or more
objectives based on market penetration, geographic business expansion goals,
customer satisfaction, employee satisfaction, management of employment practices
and employee benefits, and goals relating to acquisitions or divestitures of
subsidiaries, affiliates or joint ventures. The Committee may specify that any
such criteria will be measured before or after extraordinary or non-recurring
items, before or after service fees, or before or after payments of Awards under
the 2002 Plan. The Committee may set the levels of performance required in
connection with performance Awards as fixed amounts, goals relative to
performance in prior periods, goals compared to the performance of one or more
comparable companies or an index covering multiple companies, goals relating to
acquisitions, or in any other way the Committee may determine.
OTHER TERMS OF AWARDS. Awards may be settled in cash, shares, other Awards
or other property, in the discretion of the Committee. The Committee may require
or permit Participants to defer the settlement of all or part of an Award in
accordance with such terms and conditions as the Committee may establish,
including payment or crediting of interest on any deferred amounts. The
Committee is authorized to place cash, shares or other property in trusts or
make other arrangements to provide for payment of the Company's obligations
under the 2002 Plan. The Committee may condition Awards on the payment of taxes
such as by withholding a portion of the shares or other property to be
distributed (or receiving previously acquired shares or other property
surrendered by the Participant) in order to satisfy tax obligations. Awards
granted under the 2002 Plan generally may not be pledged or otherwise encumbered
and are not transferable except by will or by the laws of descent and
distribution, or to a designated beneficiary upon the Participant's death,
except that the Committee may permit transfers in individual cases, including
for estate planning purposes.
Awards under the 2002 Plan are generally granted without a requirement that
the Participant pay consideration in the form of cash or property for the grant
(as distinguished from the exercise), except to the extent required by law. The
Committee may, however, grant Awards in substitution for, exchange for or as a
buyout of other Awards under the 2002 Plan, awards under other Company plans, or
other rights to payment from the Company, and may exchange or buyout outstanding
Awards for cash or other property. The Committee also may grant Awards in
addition to and in tandem with other Awards, awards, or rights as well. In
granting a new Award, the Committee may
20
determine that the in-the-money value of any surrendered Award may be applied to
reduce the exercise price of any option, grant price of any SAR, or purchase
price of any other Award.
VESTING, FORFEITURES, AND ACCELERATION THEREOF. The Committee may, in its
discretion determine the vesting schedule of options and other Awards, the
circumstances that will result in forfeiture of the Awards, the post-termination
exercise periods of options and similar Awards, and the events that will result
in acceleration of the ability to exercise and the lapse of restrictions, or the
expiration of any deferral period, on any Award. In addition, the 2002 Plan
provides that, in the event of a Change in Control of the Company, outstanding
Awards will immediately vest and be fully exercisable, any restrictions,
deferral of settlement and forfeiture conditions of such Awards will lapse, and
goals relating to performance-based awards will be deemed met or exceeded to the
extent specified in the performance-award documents. A Change in Control means
generally (i) any person or group becomes a beneficial owner of 30% or more of
the voting power of the Company's voting securities, (ii) a change in the
Board's membership such that the current members, or those elected or nominated
by vote of a majority of the current members and successors elected or nominated
by them, cease to represent a majority of the Board in any period of less than
two years, (iii) certain mergers or consolidations reducing the percentage of
voting power held by stockholders prior to such transactions to under 51%, (iv)
stockholder approval of a sale or liquidation of all or substantially all of the
assets of the Company and (v) upon the sale of all or substantially all of the
Company's assets.
AMENDMENT AND TERMINATION OF THE 2002 PLAN. The Board may amend, alter,
suspend, discontinue, or terminate the 2002 Plan or the Committee's authority to
grant awards thereunder without stockholder approval unless stockholder approval
is required by law, regulation, or stock exchange rule. Under these provisions,
stockholder approval will not necessarily be required for amendments that might
increase the cost of the 2002 Plan or broaden eligibility. No awards may be made
after the tenth anniversary of the effective date of the plan. Unless earlier
terminated, the 2002 Plan will terminate at such time that no shares reserved
under the 2002 Plan remain available and the Company has no further rights or
obligations with respect to any outstanding Award.
FEDERAL INCOME TAX IMPLICATIONS OF THE 2002 PLAN
The following is a brief description of the federal income tax consequences
generally arising with respect to Awards that may be granted under the 2002
Plan. The grant of an option (including a stock-based award in the nature of a
purchase right) or an SAR will create no federal income tax consequences for the
Participant or the Company. A Participant will not have taxable income upon
exercising an option which is an ISO (except that the alternative minimum tax
may apply). Upon exercising an option which is not an ISO, the Participant must
generally recognize ordinary income equal to the difference between the exercise
price and the fair market value of the freely transferable and nonforfeitable
shares acquired on the date of exercise. Upon exercising an SAR, the Participant
must generally recognize ordinary income equal to the cash received.
Upon a disposition of shares acquired upon exercise of an ISO before the
end of the applicable ISO holding periods, the Participant must generally
recognize ordinary income equal to the lesser of (i) the fair market value of
the shares at the date of exercise of the ISO minus the exercise price or (ii)
the amount realized upon the disposition of the ISO shares minus the exercise
price. Otherwise, a Participant's disposition of shares acquired upon the
exercise of an option generally will result in short-term or long-term capital
gain or loss measured by the difference between the sale price and the
Participant's tax "basis" in such shares (generally, the tax "basis" is the
exercise price plus any amount previously recognized as ordinary income in
connection with the exercise of the option).
The Company generally will be entitled to a tax deduction equal to the
amount recognized as ordinary income by the participant in connection with
options and SARs. The Company generally is not entitled to a tax deduction
relating to amounts that represent a capital gain to a Participant. Accordingly,
the Company will not be entitled to any tax deduction with respect to an ISO if
the Participant holds the shares for the applicable ISO holding periods prior to
disposition of the shares.
With respect to other Awards granted under the 2002 Plan that result in a
transfer to the Participant of cash or shares or other property that is either
not restricted as to transferability or not
21
subject to a substantial risk of forfeiture, the Participant must generally
recognize ordinary income equal to the cash or the fair market value of shares
or other property actually received. Except as discussed below, the Company
generally will be entitled to a deduction for the same amount. With respect to
Awards involving shares or other property that is restricted as to
transferability and subject to a substantial risk of forfeiture, the Participant
must generally recognize ordinary income equal to the fair market value of the
shares or other property received at the earliest time the shares or other
property become transferable or not subject to a substantial risk of forfeiture.
Except as discussed below, the Company generally will be entitled to a deduction
in an amount equal to the ordinary income recognized by the Participant. A
Participant may elect to be taxed at the time of receipt of shares (e.g.,
restricted stock) or other property rather than upon lapse of restrictions on
transferability or the substantial risk of forfeiture, but if the Participant
subsequently forfeits such shares or property he or she would not be entitled to
any tax deduction, including as a capital loss, for the value of the shares or
property on which he or she previously paid tax.
As discussed above, compensation that qualifies as "performance-based"
compensation is excluded from the $1 million deductibility cap of Code Section
162(m), and therefore remains fully deductible by the company that pays it.
Under the 2002 Plan, options granted with an exercise price or grant price at
least equal to 100% of fair market value of the underlying shares at the date of
grant will be, and Awards which are conditioned upon achievement of performance
goals may be, intended to qualify as such "performance-based" compensation. A
number of requirements must be met, however, in order for particular
compensation to so qualify. Accordingly, there can be no assurance that such
compensation under the 2002 Plan will be fully deductible under all
circumstances. In addition, other Awards under the 2002 Plan generally will not
so qualify, so that compensation paid to certain executives in connection with
such Awards may, to the extent it and other compensation subject to Code Section
162(m)'s deductibility cap exceed $1 million in a given year, be subject to the
limitation of Code Section 162(m).
The foregoing provides only a general description of the application of
federal income tax laws to certain types of Awards under the 2002 Plan. This
discussion is intended for the information of stockholders considering how to
vote at the Annual Meeting and not as tax guidance to Participants in the 2002
Plan, as the consequences may vary with the types of awards made, the identity
of the recipients and the method of payment or settlement. Different tax rules
may apply, including in the case of variations in transactions that are
permitted under the 2002 Plan (such as payment of the exercise price of an
option by surrender of previously acquired shares). The summary does not address
the effects of other federal taxes (including possible "golden parachute" excise
taxes) or taxes imposed under state, local, or foreign tax laws.
VOTE
The favorable vote of a majority of the votes cast at the Annual Meeting is
required to approve the adoption of the 2002 Plan.
Management recommends that you vote FOR approval of the adoption of the
2002 Plan.
PROPOSAL 3. APPOINTMENT OF AUDITORS
It is proposed that the stockholders ratify the appointment by the Board of
Directors of KPMG LLP as independent auditors for the purpose of auditing and
reporting upon the consolidated financial statements of the Company for the year
ending December 31, 2002. It is expected that a representative of that firm will
be present at the Annual Meeting of Stockholders to be held on May 16, 2002 and
will be afforded the opportunity to make a statement and respond to appropriate
questions from stockholders present at the meeting.
Management recommends that you vote FOR ratification of the appointment of
KPMG LLP as independent auditors for the year ending December 31, 2002.
22
TRANSACTION OF OTHER BUSINESS
As of the date of this Proxy Statement, the only business which Management
intends to present or knows that others will present at the meeting is that set
forth herein. If any other matter or matters are properly brought before the
meeting, or any adjournment or postponement thereof, it is the intention of the
persons named in the form of Proxy solicited from holders of the Common Stock to
vote the Proxy on such matters in accordance with their judgment.
STOCKHOLDER PROPOSALS
All proposals which stockholders of the Company desire to have presented at
the Annual Meeting of Stockholders to be held in May 2003 must be received by
the Company at its principal executive offices on or before February 1, 2003.
By Order of the Board of Directors
EDWARD W. ROSE, III
CHAIRMAN OF THE BOARD OF DIRECTORS
April 10, 2002
23
EXHIBIT A
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DREW INDUSTRIES INCORPORATED
2002 EQUITY AWARD AND INCENTIVE PLAN
DREW INDUSTRIES INCORPORATED
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2002 EQUITY AWARD AND INCENTIVE PLAN
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PAGE
1. Purpose ............................................................... 1
2. Definitions ........................................................... 1
3. Administration ........................................................ 2
4. Stock Subject to Plan ................................................. 3
5. Eligibility; Per-Person Award Limitations ............................. 4
6. Specific Terms of Awards .............................................. 5
7. Performance Awards, Including Annual Incentive Awards ................. 7
8. Certain Provisions Applicable to Awards ............................... 9
9. Change in Control ..................................................... 9
10. General Provisions .................................................... 11
DREW INDUSTRIES INCORPORATED
2002 EQUITY AWARD AND INCENTIVE PLAN
1. PURPOSE. The purpose of this 2002 Equity Award and Incentive Plan (the
"Plan") is to aid Drew Industries Incorporated, a Delaware corporation
(the "Corporation"), in attracting, retaining, motivating and rewarding
employees, non-employee directors, and other persons who provide
substantial services to the Corporation or its subsidiaries or
affiliates, to provide for equitable and competitive compensation
opportunities, to recognize individual contributions and reward
achievement of Corporation goals, and promote the creation of long-term
value for stockholders by closely aligning the interests of
Participants with those of stockholders. The Plan authorizes
stock-based and cash-based incentives for Participants.
2. DEFINITIONS. In addition to the terms defined in Section 1 above and
elsewhere in the Plan, the following capitalized terms used in the Plan
have the respective meanings set forth in this Section:
(a) "Annual Incentive Award" means a type of Performance Award granted
to a Participant under Section 7(c) representing a conditional
right to receive cash, Stock or other Awards or payments, as
determined by the Committee, based on performance in a performance
period of one fiscal year or a portion thereof.
(b) "Award" means any Option, SAR, Restricted Stock, Deferred Stock,
Stock granted as a bonus or in lieu of another award, Performance
Award or Annual Incentive Award, together with any related right
or interest, granted to a Participant under the Plan.
(c) "Beneficiary" means the legal representatives of the Participant's
estate entitled by will or the laws of descent and distribution to
receive the benefits under a Participant's Award upon a
Participant's death, provided that, if and to the extent
authorized by the Committee, a Participant may be permitted to
designate a Beneficiary, in which case the "Beneficiary" instead
will be the person, persons, trust or trusts (if any are then
surviving) which have been designated by the Participant in his or
her most recent written beneficiary designation filed with the
Committee to receive the benefits specified under the
Participant's Award upon such Participant's death. Unless
otherwise determined by the Committee, any designation of a
Beneficiary other than a Participant's spouse shall be subject to
the written consent of such spouse.
(d) "Board" means the Corporation "s Board of Directors.
(e) "Change in Control" and related terms have the meanings specified
in Section 9.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
References to any provision of the Code or regulation (including a
proposed regulation) thereunder shall include any successor
provisions and regulations.
(g) "Committee" means a committee of two or more directors designated
by the Board to administer the Plan; provided, however, that,
directors appointed or serving as members of a Board committee
designated as the Committee shall not be employees of the
Corporation or any subsidiary or affiliate. In appointing members
of the Committee, the Board will consider whether a member is or
will be a Qualified Member, but such members are not required to
be Qualified Members at the time of appointment or during their
term of service on the Committee. The full Board may perform any
function of the Committee hereunder, in which case the term
"Committee" shall refer to the Board.
(h) "Covered Employee" means an Eligible Person who is a Covered
Employee as specified in Section 10(j).
(i) "Deferred Stock" means a right, granted to a Participant under
Section 6(f), to receive Stock or other Awards or a combination
thereof at the end of a specified deferral period.
(j) "Effective Date" means the effective date specified in Section
10(q).
1
(k) "Eligible Person" has the meaning specified in Section 5.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended. References to any provision of the Exchange Act or rule
(including a proposed rule) thereunder shall include any successor
provisions and rules.
(m) "Fair Market Value" of the Stock shall be determined in good faith
by the Committee in accordance with applicable provisions of the
Code and Treasury Department rulings and regulations thereunder.
(n) "Incentive Stock Option" or "ISO" means any Option designated as
an incentive stock option within the meaning of Code Section 422
or any successor provision thereto and qualifying thereunder.
(o) "Option" means a right, granted to a Participant under Section
6(b), to purchase Stock or other Awards at a specified price
during specified time periods.
(p) "Participant" means a person who has been granted an Award under
the Plan which remains outstanding, including a person who is no
longer an Eligible Person.
(q) "Performance Award" means a right, granted to a Participant under
Sections 6(g) and 7, to receive Awards or payments based upon
performance criteria specified by the Committee.
(r) "Preexisting Plan" means the Drew Industries Incorporated Stock
Option Plan Amended and Restated June 1, 1999.
(s) "Qualified Member" means a member of the Committee who is a
"Non-Employee Director" within the meaning of Rule 16b-3(b)(3) and
an "outside director" within the meaning of Regulation 1.162-27
under Code Section 162(m).
(t) "Restricted Stock" means Stock granted to a Participant under
Section 6(e) that is subject to certain restrictions and to a risk
of forfeiture.
(u) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
(v) "Stock" means the Corporation's Common Stock, par value $.01 per
share, and any other equity securities of the Corporation that may
be substituted or resubstituted for Stock pursuant to Section
10(c).
(w) "Stock Appreciation Rights" or "SAR" means a right granted to a
Participant under Section 6(c).
3. ADMINISTRATION.
(a) AUTHORITY OF THE COMMITTEE. The Plan shall be administered by the
Committee, which shall have full and final authority, in each case
subject to and consistent with the provisions of the Plan, to
select Eligible Persons to become Participants; to grant Awards;
to determine the type and number of Awards, the dates on which
Awards may be exercised and on which the risk of forfeiture or
deferral period relating to Awards shall lapse or terminate, the
acceleration of any such dates, the expiration date of any Award,
whether, to what extent, and under what circumstances an Award may
be settled, or the exercise price of an Award may be paid, in
cash, Stock, other Awards, or other property, and other terms and
conditions of, and all other matters relating to, Awards; to
prescribe documents evidencing or setting terms of Awards (such
Award documents need not be identical for each Participant),
amendments thereto, and rules and regulations for the
administration of the Plan and amendments thereto; to construe and
interpret the Plan and Award documents and correct defects, supply
omissions or reconcile inconsistencies therein; and to make all
other decisions and determinations as the Committee may deem
necessary or advisable for the administration of the Plan.
Decisions of the Committee with respect to the administration and
interpretation of the
2
Plan shall be final, conclusive, and binding upon all persons
interested in the Plan, including Participants, Beneficiaries,
transferees under Section 10(b) and other persons claiming rights
from or through a Participant, and stockholders. The foregoing
notwith-standing, the Board shall perform the functions of the
Committee for purposes of granting Awards under the Plan to
non-employee directors (authority with respect to other aspects of
non-employee director awards is not exclusive to the Board,
however).
(b) MANNER OF EXERCISE OF COMMITTEE AUTHORITY. At any time that a
member of the Committee is not a Qualified Member, (i) any action
of the Committee relating to an Award intended by the Committee to
qualify as "performance-based compensation" within the meaning of
Code Section 162(m) and regulations thereunder may be taken by a
subcommittee, designated by the Committee or the Board, composed
solely of two or more Qualified Members, and (ii) any action
relating to an Award granted or to be granted to a Participant who
is then subject to Section 16 of the Exchange Act in respect of
the Corporation may be taken either by such a subcommittee or by
the Committee but with each such member who is not a Qualified
Member abstaining or recusing himself or herself from such action,
provided that, upon such abstention or recusal, the Committee
remains composed of two or more Qualified Members. Such action,
authorized by such a subcommittee or by the Committee upon the
abstention or recusal of such non-Qualified Member(s), shall be
the action of the Committee for purposes of the Plan. The express
grant of any specific power to the Committee, and the taking of
any action by the Committee, shall not be construed as limiting
any power or authority of the Committee. The Committee may
delegate to officers or managers of the Corporation or any
subsidiary or affiliate, or committees thereof, the authority,
subject to such terms as the Committee shall determine, to perform
such functions, including administrative functions, as the
Committee may determine, to the extent that such delegation will
not result in the loss of an exemption under Rule 16b-3(d) for
Awards granted to Participants subject to Section 16 of the
Exchange Act in respect of the Corporation and will not cause
Awards intended to qualify as "performance-based compensation"
under Code Section 162(m) to fail to so qualify.
(c) LIMITATION OF LIABILITY. The Committee and each member thereof,
and any person acting pursuant to authority delegated by the
Committee, shall be entitled, in good faith, to rely or act upon
any report or other information furnished by any executive
officer, other officer or employee of the Corporation or a
subsidiary or affiliate, the Corporation's independent auditors,
consultants or any other agents assisting in the administration of
the Plan. Members of the Committee, any person acting pursuant to
authority delegated by the Committee, and any officer or employee
of the Corporation or a subsidiary or affiliate acting at the
direction or on behalf of the Committee or a delegee shall not be
personally liable for any action or determination taken or made in
good faith with respect to the Plan, and shall, to the extent
permitted by law, be fully indemnified and protected by the
Corporation with respect to any such action or determination.
4. STOCK SUBJECT TO PLAN.
(a) OVERALL NUMBER OF SHARES AVAILABLE FOR DELIVERY. Subject to
adjustment as provided in Section 10(c), the total number of
shares of Stock reserved and available for delivery in connection
with Awards under the Plan shall be (i) 850,000, plus (ii) the
number of shares that remain available for issuance under the
Preexisting Plan after all awards thereunder have been settled,
plus (iii) the number of shares subject to awards under the
Preexisting Plan that become available in accordance with Section
4(b) after the Effective Date; provided, however, (A) that the
total number of shares with respect to which ISOs may be granted
shall not exceed the number specified under clause (i) above, and
(B) no more than 500,000 shares may be awarded under this Plan for
awards other than Options and/or SARs. Any shares of Stock
delivered under the Plan shall consist of authorized and unissued
shares or treasury shares.
3
(b) SHARE COUNTING RULES. The Committee may adopt reasonable counting
procedures to ensure appropriate counting, avoid double counting
(as, for example, in the case of tandem or substitute awards) and
make adjustments if the number of shares of Stock actually
delivered differs from the number of shares previously counted in
connection with an Award. Shares subject to an Award or an award
under the Preexisting Plan that is canceled, expired, forfeited,
settled in cash or otherwise terminated without a delivery of
shares to the Participant will again be available for Awards, and
shares withheld in payment of the exercise price or taxes relating
to an Award or Preexisting Plan award and shares equal to the
number surrendered in payment of any exercise price or taxes
relating to an Award or Preexisting Plan award shall be deemed to
constitute shares not delivered to the Participant and shall be
deemed to again be available for Awards under the Plan. In
addition, in the case of any Award granted in substitution for an
award of a company or business acquired by the Corporation or a
subsidiary or affiliate, shares issued or issuable in connection
with such substitute Award shall not be counted against the number
of shares reserved under the Plan, but shall be available under
the Plan by virtue of the Corporation's assumption of the plan or
arrangement of the acquired company or business. This Section 4(b)
shall apply to the number of shares reserved and available for
ISOs only to the extent consistent with applicable regulations
relating to ISOs under the Code.
(c) REPRICINGS. Unless otherwise approved or ratified by holders of a
majority of the Corporation's outstanding shares of Stock, no
shares authorized under this Plan shall be used for any award that
could be characterized as a "repricing" of outstanding options.
5. ELIGIBILITY; PER-PERSON AWARD LIMITATIONS. Awards may be granted under
the Plan only to Eligible Persons. For purposes of the Plan, an
"Eligible Person" means an employee of the Corporation or any
subsidiary or affiliate, including any executive officer, a
non-employee director of the Corporation, a consultant or other person
who provides substantial services to the Corporation or a subsidiary or
affiliate, and any person who has been offered employment by the
Corporation or a subsidiary or affiliate, provided that such
prospective employee may not receive any payment or exercise any right
relating to an Award until such person has commenced employment with
the Corporation or a subsidiary or affiliate. An employee on leave of
absence may be considered as still in the employ of the Corporation or
a subsidiary or affiliate for purposes of eligibility for participation
in the Plan. In each calendar year during any part of which the Plan is
in effect, an Eligible Person may be granted Awards intended to qualify
as "performance-based compensation" under Code Section 162(m) under
each of Section 6(b), 6(c), 6(d), 6(e), 6(f), or 6(g) relating to up to
his or her Annual Limit (such Annual Limit to apply separately to the
type of Award authorized under each specified subsection). A
Participant's Annual Limit, in any calendar year during any part of
which the Participant is then eligible under the Plan, shall equal
50,000 shares plus the amount of the Participant's unused Annual Limit
relating to the same type of Award as of the close of the previous
year, subject to adjustment as provided in Section 10(c). In the case
of an Award which is not valued in a way in which the limitation set
forth in the preceding sentence would operate as an effective
limitation satisfying Treasury Regulation 1.162-27(e)(4) (including a
Performance Award under Section 7 not related to an Award specified in
Section 6), an Eligible Person may not be granted Awards authorizing
the earning during any calendar year of an amount that exceeds the
Participant's Annual Limit, which for this purpose shall equal
$1,200,000 plus the amount of the Participant's unused cash Annual
Limit as of the close of the previous year (this limitation is separate
and not affected by the number of Awards granted during such calendar
year subject to the limitation in the preceding sentence). For this
purpose, (i) "earning" means satisfying performance conditions so that
an amount becomes payable, without regard to whether it is to be paid
currently or on a deferred basis or continues to be subject to any
service requirement or other non-performance condition, and (ii) a
Participant's Annual Limit is used to the extent an amount or number of
shares may be potentially earned or paid under an Award, regardless of
whether such amount or shares are in fact earned or paid.
4
6. SPECIFIC TERMS OF AWARDS.
(a) GENERAL. Awards may be granted on the terms and conditions set
forth in this Section 6. In addition, the Committee may impose on
any Award or the exercise thereof, at the date of grant or
thereafter (subject to Section 10(e)), such additional terms and
conditions, not inconsistent with the provisions of the Plan, as
the Committee shall determine, including terms requiring
forfeiture of Awards in the event of termination of employment or
service by the Participant and terms permitting a Participant to
make elections relating to his or her Award. The Committee shall
retain full power and discretion with respect to any term or
condition of an Award that is not mandatory under the Plan. The
Committee shall require the payment of lawful consideration for an
Award to the extent necessary to satisfy the requirements of the
Delaware General Corporation Law, and may otherwise require
payment of consideration for an Award except as limited by the
Plan.
(b) OPTIONS. The Committee is authorized to grant Options to Eligible
Persons on the following terms and conditions:
(i) EXERCISE PRICE. The exercise price per share of Stock
purchasable under an Option (including both ISOs and
non-qualified Options) shall be determined by the Committee,
provided that such exercise price shall be not less than the
Fair Market Value of a share of Stock on the date of grant
of such Option.
(ii) OPTION TERM; TIME AND METHOD OF EXERCISE. The Committee
shall determine the term of each Option, (provided that no
term of any ISO or SAR in tandem therewith will exceed ten
years from the grant date), the circumstances under which on
Option may be exercised, the methods by which such exercise
price may be paid, the form of such payment (subject to
Section 10(k)), (including through "cashless exercise"
arrangements, to the extent permitted by applicable law),
and the methods by or forms in which Stock will be delivered
in satisfaction of Options to Participants.
(iii) ISOS. The terms of any ISO granted under the Plan shall
comply in all respects with the provisions of Code Section
422.
(c) Stock Appreciation Rights. The Committee is authorized to grant
SARs to Eligible Persons on the following terms and conditions:
(i) RIGHT TO PAYMENT. An SAR shall confer on the Participant to
whom it is granted a right to receive, upon exercise
thereof, the excess of (A) the Fair Market Value of one
share of Stock on the date of exercise (or, in the case of a
"Limited SAR," the Fair Market Value determined by reference
to the Change in Control Price) over (B) the grant price of
the SAR as determined by the Committee.
(ii) OTHER TERMS. The Committee shall determine at the date of
grant or thereafter the time or times at which and the
circumstances under which an SAR may be exercised, the
method of exercise and settlement, form of consideration
payable in settlement, forms in which Stock will be
delivered to Participants, and whether or not an SAR shall
be free-standing or in tandem or combination with another
Award. Limited SARs that may only be exercised in connection
with a Change in Control or other event as specified by the
Committee may be granted on such terms, not inconsistent
with this Section 6(c), as the Committee may determine.
(d) BONUS STOCK AND AWARDS IN LIEU OF OBLIGATIONS. The Committee is
authorized to grant Stock as a bonus, or to grant Stock or other
Awards in lieu of obligations of the Corporation or a subsidiary
or affiliate to pay cash or deliver other property under the Plan
or under other plans or compensatory arrangements, subject to such
terms as shall be determined by the Committee.
(e) RESTRICTED STOCK. The Committee is authorized to grant Restricted
Stock to Eligible Persons on the following terms and conditions:
5
(i) GRANT AND RESTRICTIONS. Restricted Stock shall be subject to
such restrictions on transferability, risk of forfeiture and
any other restrictions the Committee may impose, which
restrictions may lapse separately or in combination at such
times, under such circumstances (including based on
achievement of performance goals and/or future service
requirements), in such installments or otherwise and under
such other circumstances as the Committee may determine at
the date of grant or thereafter. Except to the extent
restricted under the terms of the Plan and any Award
document relating to the Restricted Stock, a Participant
granted Restricted Stock shall have all of the rights of a
stockholder, including the right to vote the Restricted
Stock and the right to receive dividends thereon (subject to
any mandatory reinvestment or other requirement imposed by
the Committee).
(ii) FORFEITURE. Except as otherwise determined by the Committee,
upon termination of employment or service during the
applicable restriction period, Restricted Stock that is at
that time subject to restrictions shall be forfeited and
reacquired by the Corporation; provided that the Committee
may provide, by rule or regulation or in any Award document,
or may determine in any individual case, that restrictions
or forfeiture conditions relating to Restricted Stock will
lapse in whole or in part, including in the event of
terminations resulting from specified causes.
(iii) CERTIFICATES FOR STOCK. Restricted Stock granted under the
Plan may be evidenced in such manner as the Committee shall
determine. If certificates representing Restricted Stock are
registered in the name of the Participant, the Committee may
require that such certificates bear an appropriate legend
referring to the terms, conditions and restrictions
applicable to such Restricted Stock, that the Corporation
retain physical possession of the certificates, and that the
Participant deliver a stock power to the Corporation,
endorsed in blank, relating to the Restricted Stock.
(iv) DIVIDENDS AND SPLITS. As a condition to the grant of an
Award of Restricted Stock, the Committee may require that
any dividends paid on a share of Restricted Stock shall be
either (A) paid with respect to such Restricted Stock at the
dividend payment date in cash, in kind, or in a number of
shares of unrestricted Stock having a Fair Market Value
equal to the amount of such dividends, or (B) automatically
reinvested in additional Restricted Stock or held in kind,
which shall be subject to the same terms as applied to the
original Restricted Stock to which it relates, or (C)
deferred as to payment, either as a cash deferral or with
the amount or value thereof automatically deemed reinvested
in shares of Deferred Stock, other Awards or other
investment vehicles, subject to such terms as the Committee
shall determine or permit a Participant to elect. Unless
otherwise determined by the Committee, Stock distributed in
connection with a Stock split or Stock dividend, and other
property distributed as a dividend, shall be subject to
restrictions and a risk of forfeiture to the same extent as
the Restricted Stock with respect to which such Stock or
other property has been distributed.
(f) DEFERRED STOCK. The Committee is authorized to grant Deferred
Stock to Eligible Persons, which are rights to receive Stock,
other Awards, or a combination thereof at the end of a specified
deferral period, subject to the following terms and conditions:
(i) AWARD AND RESTRICTIONS. Issuance of Stock will occur upon
expiration of the deferral period specified for an Award of
Deferred Stock by the Committee (or, if permitted by the
Committee, as elected by the Participant). In addition,
Deferred Stock shall be subject to such restrictions on
transferability, risk of forfeiture and other restrictions,
if any, as the Committee may impose, which restrictions may
lapse at the expiration of the deferral period or at earlier
specified times (including based on achievement of
performance goals and/or future service requirements),
separately or in combination, in installments or otherwise,
and under such other
6
circumstances as the Committee may determine at the date of
grant or thereafter. Deferred Stock may be satisfied by
delivery of Stock, other Awards, or a combination thereof
(subject to Section 10(k)), as determined by the Committee
at the date of grant or thereafter.
(ii) FORFEITURE. Except as otherwise determined by the Committee,
upon termination of employment or service during the
applicable deferral period or portion thereof to which
forfeiture conditions apply (as provided in the Award
document evidencing the Deferred Stock), all Deferred Stock
that is at that time subject to such forfeiture conditions
shall be forfeited; provided that the Committee may provide,
by rule or regulation or in any Award document, or may
determine in any individual case, that restrictions or
forfeiture conditions relating to Deferred Stock will lapse
in whole or in part, including in the event of terminations
resulting from specified causes.
(g) PERFORMANCE AWARDS. Performance Awards, denominated in cash or in
Stock or other Awards, may be granted by th e Committee in
accordance with Section 7.
7. PERFORMANCE AWARDS, INCLUDING ANNUAL INCENTIVE AWARDS.
(a) PERFORMANCE AWARDS GENERALLY. The Committee is authorized to grant
Performance Awards on the terms and conditions specified in this
Section 7. Performance Awards may be denominated as a cash amount,
number of shares of Stock, or specified number of other Awards (or
a combination) that may be earned upon achievement or satisfaction
of performance conditions specified by the Committee. In addition,
the Committee may specify that any other Award shall constitute a
Performance Award by conditioning the right of a Participant to
exercise the Award or have it settled, and the timing thereof,
upon achievement or satisfaction of such performance conditions as
may be specified by the Committee. The Committee may use such
business criteria and other measures of performance as it may deem
appropriate in establishing any performance conditions, and may
exercise its discretion to reduce or increase the amounts payable
under any Award subject to performance conditions, except as
limited under Sections 7(b) and 7(c) in the case of a Performance
Award intended to qualify as "performance-based compensation"
under Code Section 162(m).
(b) PERFORMANCE AWARDS GRANTED TO COVERED EMPLOYEES. If the Committee
determines that a Performance Award to be granted to an Eligible
Person who is designated by the Committee as likely to be a
Covered Employee should qualify as "performance-based
compensation" for purposes of Code Section 162(m), the grant,
exercise and/or settlement of such Performance Award shall be
contingent upon achievement of a pre-established performance goal
and other terms set forth in this Section 7(b).
(i) PERFORMANCE GOAL GENERALLY. The performance goal for such
Performance Awards shall consist of one or more business
criteria and a targeted level or levels of performance with
respect to each of such criteria, as specified by the
Committee consistent with this Section 7(b). The performance
goal shall be objective and shall otherwise meet the
requirements of Code Section 162(m) and regulations
thereunder (including Regulation 1.162-27 and successor
regulations thereto), including the requirement that the
level or levels of performance targeted by the Committee
result in the achievement of performance goals being
"substantially uncertain." The Committee may determine that
such Performance Awards shall be granted, exercised and/or
settled upon achievement of one or more performance goals.
Performance goals may differ for Performance Awards granted
to any one Participant or to different Participants.
(ii) BUSINESS CRITERIA. One or more of the following business
criteria for the Corporation, on a consolidated basis,
and/or for specified subsidiaries or affiliates or other
business units of the Corporation shall be used by the
Committee in
7
establishing performance goals for such Performance Awards:
(1) growth in revenues or assets; (2) earnings from
operations, earnings before or after taxes, earnings before
or after interest, depreciation, amortization, or
extraordinary or special items; (3) net income or net income
per common share (basic or diluted); (4) return on assets,
return on investment, return on capital, or return on
equity; (5) cash flow, free cash flow, cash flow return on
investment, or net cash provided by operations; (6) interest
expense after taxes; (7) economic profit; (8) operating
profit, operating margin or gross margin; (9) stock price or
total stockholder return; and (10) strategic business
criteria, consisting of one or more objectives such as
market penetration, geographic business expansion goals,
cost targets, customer or employee satisfaction, management
of employment practices and employee benefits, supervision
of litigation and information technology, and goals relating
to acquisitions or divestitures. The targeted level of
performance with respect to such business criteria may be
established at such levels and in such terms as the
Committee may determine, in its discretion, including in
absolute terms, as a goal relative to performance in prior
periods, or as a goal compared to the performance of one or
more comparable companies or an index covering multiple
companies.
(iii) PERFORMANCE PERIOD; TIMING FOR ESTABLISHING PERFORMANCE
GOALS. Achievement of performance goals in respect of such
Performance Awards shall be measured over a performance
period of up to one year or more than one year, as specified
by the Committee. A performance goal shall be established
not later than the earlier of (A) 90 days after the
beginning of any performance period applicable to such
Performance Award or (B) the time 25% of such performance
period has elapsed.
(iv) SETTLEMENT OF PERFORMANCE AWARDS; OTHER TERMS. Settlement of
such Performance Awards shall be in cash, Stock, other
Awards or other property, in the discretion of the
Committee. The Committee may, in its discretion, increase or
reduce the amount of a settlement otherwise to be made in
connection with such Performance Awards, but may not
exercise discretion to increase any such amount payable to a
Covered Employee in respect of a Performance Award subject
to this Section 7(b). Any settlement which changes the form
of payment from that originally specified shall be
implemented in a manner such that the Performance Award and
other related Awards do not, solely for that reason, fail to
qualify as "performance-based compensation" for purposes of
Code Section 162(m). The Committee shall specify the
circumstances in which such Performance Awards shall be paid
or forfeited in the event of termination of employment by
the Participant or other event (including a Change in
Control) prior to the end of a performance period or
settlement of such Performance Awards.
(c) ANNUAL INCENTIVE AWARDS GRANTED TO DESIGNATED COVERED EMPLOYEES.
The Committee may grant an Annual Incentive Award to an Eligible
Person who is designated by the Committee as likely to be a
Covered Employee. Such Annual Incentive Award will be intended to
qualify as "performance-based compensation" for purposes of Code
Section 162(m), and therefore its grant, exercise and/or
settlement shall be contingent upon achievement of pre-established
performance goals and other terms set forth in this Section 7(c).
(i) GRANT OF ANNUAL INCENTIVE AWARDS. Not later than the earlier
of 90 days after the beginning of any performance period
applicable to such Annual Incentive Award or the time 25% of
such performance period has elapsed, the Committee shall
determine the Covered Employees who will potentially receive
Annual Incentive Awards, and the amount(s) potentially
payable thereunder, for that performance period. The
amount(s) potentially payable shall be based upon the
achievement of a performance goal or goals based on one or
more of the business criteria set forth in Section 7(b)(ii)
in the given performance period, as specified by the
Committee.
8
In all cases, the maximum Annual Incentive Award of any
Participant shall be subject to the limitation set forth in
Section 5.
(ii) PAYOUT OF ANNUAL INCENTIVE AWARDS. After the end of each
performance period, the Committee shall determine the
amount, if any, of the Annual Incentive Award for that
performance period payable to each Participant. The
Committee may, in its discretion, determine that the amount
payable to any Participant as a final Annual Incentive Award
shall be reduced from the amount of his or her potential
Annual Incentive Award, including a determination to make no
final Award whatsoever, but may not exercise discretion to
increase any such amount. The Committee shall specify the
circumstances in which an Annual Incentive Award shall be
paid or forfeited in the event of termination of employment
by the Participant or other event (including a Change in
Control) prior to the end of a performance period or
settlement of such Annual Incentive Award.
(d) WRITTEN DETERMINATIONS. Determinations by the Committee as to the
establishment of performance goals, the amount potentially payable
in respect of Performance Awards and Annual Incentive Awards, the
level of actual achievement of the specified performance goals
relating to Performance Awards and Annual Incentive Awards, and
the amount of any final Performance Award and Annual Incentive
Award shall be recorded in writing in the case of Performance
Awards intended to qualify under Section 162(m). Specifically, the
Committee shall certify in writing, in a manner conforming to
applicable regulations under Section 162(m), prior to settlement
of each such Award granted to a Covered Employee, that the
performance objective relating to the Performance Award and other
material terms of the Award upon which settlement of the Award was
conditioned have been satisfied.
8. CERTAIN PROVISIONS APPLICABLE TO AWARDS.
(a) FORM AND TIMING OF PAYMENT UNDER AWARDS; DEFERRALS. Subject to the
terms of the Plan and any applicable Award document, payments to
be made by the Corporation or a subsidiary or affiliate upon the
exercise of an Option or other Award or settlement of an Award may
be made in such forms as the Committee shall determine, and may be
made in a single payment, in installments, or on a deferred basis.
The settlement of any Award may be accelerated, and cash paid in
lieu of Stock in connection with such settlement, in the
discretion of the Committee or upon occurrence of one or more
specified events (subject to Section 10(k)). Installment or
deferred payments may be required by the Committee (subject to
Section 10(e)) or permitted at the election of the Participant on
terms and conditions established by the Committee. Payments may
include, without limitation, provisions for the payment or
crediting of reasonable interest on installment or deferred
payments.
(b) EXEMPTIONS FROM SECTION 16(B) LIABILITY. With respect to a
Participant who is then subject to the reporting requirements of
Section 16(a) of the Exchange Act in respect of the Corporation,
transactions under the Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successors under the
Exchange Act. To the extent that compliance with any Plan
provision applicable solely to such Participants is not required
in order to bring a transaction by such Participants into
compliance with Rule 16b-3, it shall be deemed null and void as to
such transaction, to the extent permitted by law and deemed
advisable by the Committee. To the extent any provision of the
Plan or action by the Committee involving such Participants is
deemed not to comply with an applicable condition of Rule 16b-3,
it shall be deemed null and void as to such Participants, to the
extent permitted by law and deemed advisable by the Committee.
9. CHANGE IN CONTROL.
(a) EFFECT OF "CHANGE IN CONTROL" ON NON-PERFORMANCE BASED AWARDS. In
the event of a "Change in Control," the following provisions shall
apply to non-performance based Awards, including Awards as to
which performance conditions previously have been
9
satisfied or are deemed satisfied under Section 9(b), unless
otherwise provided by the Committee in the Award document:
(i) All deferral of settlement, forfeiture conditions and other
restrictions applicable to Awards granted under the Plan
shall lapse and such Awards shall be fully payable as of the
time of the Change in Control without regard to deferral and
vesting conditions, except to the extent of any waiver by
the Participant or other express election to defer beyond a
Change in Control and subject to applicable restrictions set
forth in Section 10(a);
(ii) Any Award carrying a right to exercise that was not
previously exercisable and vested shall become fully
exercisable and vested as of the time of the Change in
Control and shall remain exercisable and vested for the
balance of the stated term of such Award without regard to
any termination of employment or service by the Participant
other than a termination for "cause" (as defined in any
employment or severance agreement between the Corporation or
a subsidiary or affiliate and the Participant then in effect
or, if none, as defined by the Committee and in effect at
the time of the Change in Control), subject only to
applicable restrictions set forth in Section 10(a); and
(iii) The Committee may, in its discretion, determine to extend to
any Participant who holds an Option the right to elect,
during the 60-day period immediately following the Change in
Control, in lieu of acquiring the shares of Stock covered by
such Option, to receive in cash the excess of the Change in
Control Price over the exercise price of such Option,
multiplied by the number of shares of Stock covered by such
Option, and to extend to any Participant who holds other
types of Awards denominated in shares the right to elect,
during the 60-day period immediately following the Change in
Control, in lieu of receiving the shares of Stock covered by
such Award, to receive in cash the Change in Control Price
multiplied by the number of shares of Stock covered by such
Award.
(b) EFFECT OF "CHANGE IN CONTROL" ON PERFORMANCE-BASED AWARDS. In the
event of a "Change in Control," with respect to an outstanding
Award subject to achievement of performance goals and conditions,
such performance goals and conditions will be deemed to be met if
and to the extent so provided by the Committee in the Award
document governing such Award or other agreement with the
Participant.
(c) DEFINITION OF "CHANGE IN CONTROL." A "Change in Control" shall be
deemed to have occurred if, after the Effective Date, there shall
have occurred any of the following: (i) during any period of two
consecutive years, at least a majority of the Corporation's Board
of Directors shall cease to consist of "Continuing Directors"
(meaning directors of the Corporation who either were directors at
the beginning of such two-year period or who subsequently became
directors and whose election, or nomination for election by the
Corporation's stockholders, was approved by a majority of the then
Continuing Directors); or (ii) after the effective date of this
Plan, any "person" or "group" (as determined for purposes of
Section 13(d)(3) of the Securities Exchange Act of 1934), except
any majority-owned subsidiary of the Corporation or any employee
benefit plan of the Corporation or any trust thereunder, shall
have acquired "beneficial ownership" (as determined for purposes
of Securities and Exchange Commission ("SEC") Regulation 13d(3))
of shares of Stock of the Corporation having 30% or more of the
voting power of all outstanding shares of capital stock of the
Corporation, unless such acquisition is approved by a majority of
the directors of the Corporation in office immediately preceding
such acquisition; or (iii) a merger or consolidation occurs to
which the Corporation is a party, whether or not the Corporation
is the surviving corporation, in which outstanding shares of Stock
of the Corporation are converted into shares of another
corporation (other than a conversion into shares of voting Stock
of the successor corporation or a holding corporation thereof
representing at least 51% of
10
the voting power of all capital stock thereof outstanding
immediately after the merger or consolidation) or other securities
(of either the Corporation or another corporation) or cash or
other property; or (iv) the sale of all, or substantially all, of
the Corporation's assets occurs; or (v) the stockholders of the
Corporation approve a plan of complete liquidation of the
Corporation.
(d) DEFINITION OF "CHANGE IN CONTROL PRICE." The "Change in Control
Price" means an amount in cash equal to the higher of (i) the
amount of cash and Fair Market Value of property that is the
highest price per share paid (including extraordinary dividends)
in any transaction triggering the Change in Control or any
liquidation of shares following a sale of substantially all the
assets of the Corporation, or (ii) the highest Fair Market Value
per share at any time during the 60-day period preceding and
60-day period following the Change in Control.
10. GENERAL PROVISIONS.
(a) COMPLIANCE WITH LEGAL AND OTHER REQUIREMENTS. The Corporation may,
to the extent deemed necessary or advisable by the Committee,
postpone the issuance or delivery of Stock or payment of other
benefits under any Award until completion of such registration or
qualification of such Stock or other required action under any
federal or state law, rule or regulation, listing or other
required action with respect to any stock exchange or automated
quotation system upon which the Stock or other securities of the
Corporation are listed or quoted, or compliance with any other
obligation of the Corporation, as the Committee may consider
appropriate, and may require any Participant to make such
representations, furnish such information and comply with or be
subject to such other conditions as it may consider appropriate in
connection with the issuance or delivery of Stock or payment of
other benefits in compliance with applicable laws, rules, and
regulations, listing requirements, or other obligations. The
foregoing notwithstanding, in connection with a Change in Control,
the Corporation shall take or cause to be taken no action, and
shall undertake or permit to arise no legal or contractual
obligation, that results or would result in any postponement of
the issuance or delivery of Stock or payment of benefits under any
Award or the imposition of any other conditions on such issuance,
delivery or payment, to the extent that such postponement or other
condition would represent a greater burden on a Participant than
existed on the 90th day preceding the Change in Control.
(b) LIMITS ON TRANSFERABILITY; BENEFICIARIES. No Award or other right
or interest of a Participant under the Plan shall be pledged,
hypothecated or otherwise encumbered or subject to any lien,
obligation or liability of such Participant to any party (other
than the Corporation or a subsidiary or affiliate thereof), or
assigned or transferred by such Participant otherwise than by will
or the laws of descent and distribution or to a Beneficiary upon
the death of a Participant, and such Awards or rights that may be
exercisable shall be exercised during the lifetime of the
Participant only by the Participant or his or her guardian or
legal representative, except that Awards and other rights (other
than ISOs and SARs in tandem therewith) may be transferred to one
or more transferees during the lifetime of the Participant, and
may be exercised by such transferees in accordance with the terms
of such Award, but only if and to the extent such transfers are
permitted by the Committee, subject to any terms and conditions
which the Committee may impose thereon (including limitations the
Committee may deem appropriate in order that offers and sales
under the Plan will meet applicable requirements of registration
forms under the Securities Act of 1933 specified by the SEC). A
Beneficiary, transferee, or other person claiming any rights under
the Plan from or through any Participant shall be subject to all
terms and conditions of the Plan and any Award document applicable
to such Participant, except as otherwise determined by
the Committee, and to any additional terms and conditions deemed
necessary or appropriate by the Committee.
11
(c) ADJUSTMENTS. In the event that any large, special and
non-recurring dividend or other distribution (whether in the form
of cash or property other than Stock), recapitalization, forward
or reverse split, Stock dividend, reorganization, merger,
consolidation, spin-off, combination, repurchase, share exchange,
liquidation, dissolution or other similar corporate transaction or
event affects the Stock such that an adjustment is determined by
the Committee to be appropriate under the Plan, then the Committee
shall, in such manner as it may deem equitable, adjust any or all
of (i) the number and kind of shares of Stock which may be
delivered in connection with Awards granted thereafter, (ii) the
number and kind of shares of Stock by which annual per-person
Award limitations are measured under Section 5, (iii) the number
and kind of shares of Stock (including without limitation whether
such stock is restricted) subject to or deliverable in respect of
outstanding Awards and (iv) the exercise price, grant price or
purchase price relating to any Award or, if deemed appropriate,
the Committee may make provision for a payment of cash or property
to the holder of an outstanding Option (subject to Section 10(k)).
In addition, the Committee is authorized to make adjustments in
the terms, conditions and criteria included in any Awards in
recognition of unusual or nonrecurring events affecting the
Corporation or for any other reason deemed relevant by the
Committee acting in good faith; provided that no such adjustment
shall be authorized or made if and to the extent that the
existence of such authority (i) would cause Options, SARs, or
Performance Awards granted under Section 7 to Participants
designated by the Committee as Covered Employees and intended to
qualify as "performance-based compensation" under Code Section
162(m) and regulations thereunder to otherwise fail to qualify as
"performance-based compensation" under Code Section 162(m) and
regulations thereunder, or (ii) would cause the Committee to be
deemed to have authority to change the targets, within the meaning
of Treasury Regulation 1.162-27(e)(4)(vi), under the performance
goals relating to Options or SARs granted to Covered Employees and
intended to qualify as "performance-based compensation" under Code
Section 162(m) and regulations thereunder.
(d) TAX PROVISIONS.
(i) WITHHOLDING. The Corporation and any subsidiary or affiliate
is authorized to withhold from any Award granted, any
payment relating to an Award under the Plan, including from
a distribution of Stock, or any payroll or other payment to
any employee Participant, amounts of withholding and other
taxes due or potentially payable in connection with any
transaction involving an Award, and to take such other
action as the Committee may deem advisable to enable the
Corporation and employee Participants to satisfy obligations
for the payment of withholding taxes and other tax
obligations relating to any Award. This authority shall
include authority to withhold or receive Stock or other
property and to make cash payments in respect thereof in
satisfaction of an employee Participant's withholding
obligations, either on a mandatory or elective basis in the
discretion of the Committee. Other provisions of the Plan
notwithstanding, only the minimum amount of Stock or cash
deliverable in connection with an Award necessary to satisfy
statutory withholding requirements will be withheld.
(ii) REQUIREMENT OF NOTIFICATION OF CODE SECTION 83(B) ELECTION.
If any Participant shall make an election under Section
83(b) of the Code (to include in gross income in the year of
transfer the amounts specified in Code Section 83(b)) or
under a similar provision of the laws of a jurisdiction
outside the United States, such Participant shall notify the
Corporation of such election within ten days of filing
notice of the election with the Internal Revenue Service or
other governmental authority, in addition to any filing and
notification required pursuant to regulations issued under
Code Section 83(b) or other applicable provision.
12
(iii) REQUIREMENT OF NOTIFICATION UPON DISQUALIFYING DISPOSITION
UNDER CODE SECTION 421(B). If any Participant shall make any
disposition of shares of Stock delivered pursuant to the
exercise of an Incentive Stock Option under the
circumstances described in Code Section 421(b) (relating to
certain disqualifying dispositions), such Participant shall
notify the Corporation of such disposition within ten days
thereof.
(e) CHANGES TO THE PLAN. The Board may amend, suspend or terminate the
Plan or the Committee's authority to grant Awards under the Plan
without the consent of stockholders or Participants; provided,
however, that any amendment to the Plan shall be submitted to the
Corporation's stockholders for approval not later than the
earliest annual meeting for which the record date is after the
date of such Board action if such stockholder approval is required
by any federal or state law or regulation or the rules of any
stock exchange or automated quotation system on which the Stock
may then be listed or quoted.
(f) RIGHT OF SETOFF. The Corporation or any subsidiary or affiliate
may, to the extent permitted by applicable law, deduct from and
set off against any amounts the Corporation or a subsidiary or
affiliate may owe to the Participant from time to time, including
amounts payable in connection with any Award, owed as wages,
fringe benefits, or other compensation owed to the Participant,
such amounts as may be owed by the Participant to the Corporation,
although the Participant shall remain liable for any part of the
Participant's payment obligation not satisfied through such
deduction and setoff. By accepting any Award granted hereunder,
the Participant agrees to any deduction or setoff under this
Section 10(f).
(g) UNFUNDED STATUS OF AWARDS; CREATION OF TRUSTS. The Plan is
intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made
to a Participant or obligation to deliver Stock pursuant to an
Award, nothing contained in the Plan or any Award shall give any
such Participant any rights that are greater than those of a
general creditor of the Corporation; provided that the Committee
may authorize the creation of trusts and deposit therein cash,
Stock, other Awards or other property, or make other arrangements
to meet the Corporation's obligations under the Plan. Such trusts
or other arrangements shall be consistent with the "unfunded"
status of the Plan unless the Committee otherwise determines with
the consent of each affected Participant.
(h) NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by
the Board nor its submission to the stockholders of the
Corporation for approval shall be construed as creating any
limitations on the power of the Board or a committee thereof to
adopt such other incentive arrangements, apart from the Plan, as
it may deem desirable, including incentive arrangements and awards
which do not qualify under Code Section 162(m), and such other
arrangements may be either applicable generally or only in
specific cases.
(i) PAYMENTS IN THE EVENT OF FORFEITURES; FRACTIONAL SHARES. Unless
otherwise determined by the Committee, in the event of a
forfeiture of an Award with respect to which a Participant paid
cash consideration, the Participant shall be repaid the amount of
such cash consideration. No fractional shares of Stock shall be
issued or delivered pursuant to the Plan or any Award. The
Committee shall determine whether cash, other Awards or other
property shall be issued or paid in lieu of such fractional shares
or whether such fractional shares or any rights thereto shall be
forfeited or otherwise eliminated.
(j) COMPLIANCE WITH CODE SECTION 162(M). It is the intent of the
Corporation that Options and SARs granted to Covered Employees and
other Awards designated as Awards to Covered Employees subject to
Section 7 shall constitute qualified "performance-based
compensation" within the meaning of Code Section 162(m) and
regulations thereunder, unless otherwise determined by the
Committee at the time of allocation of an Award.
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Accordingly, the terms of Sections 7(b), (c), and (d), including
the definitions of Covered Employee and other terms used therein,
shall be interpreted in a manner consistent with Code Section
162(m) and regulations thereunder. The foregoing notwithstanding,
because the Committee cannot determine with certainty whether a
given Participant will be a Covered Employee with respect to a
fiscal year that has not yet been completed, the term Covered
Employee as used herein shall mean only a person designated by the
Committee as likely to be a Covered Employee with respect to a
specified fiscal year. If any provision of the Plan or any Award
document relating to a Performance Award that is designated as
intended to comply with Code Section 162(m) does not comply or is
inconsistent with the requirements of Code Section 162(m) or
regulations thereunder, such provision shall be construed or
deemed amended to the extent necessary to conform to such
requirements, and no provision shall be deemed to confer upon the
Committee or any other person discretion to increase the amount of
compensation otherwise payable in connection with any such Award
upon attainment of the applicable performance objectives.
(k) CERTAIN LIMITATIONS RELATING TO ACCOUNTING TREATMENT OF AWARDS.
Other provisions of the Plan notwithstanding, the Committee's
authority under the Plan is limited to the extent necessary to
ensure that any Option or other Award of a type that the Committee
has intended to be subject to fixed accounting with a measurement
date at the date of grant or the date performance conditions are
satisfied under APB 25 shall not become subject to "variable"
accounting solely due to the existence of such authority, unless
the Committee specifically determines that the Award shall remain
outstanding despite such "variable" accounting.
(l) GOVERNING LAW. The validity, construction, and effect of the Plan,
any rules and regulations relating to the Plan and any Award
document shall be determined in accordance with the laws of the
State of Delaware, without giving effect to principles of
conflicts of laws, and applicable provisions of federal law.
(m) AWARDS TO PARTICIPANTS OUTSIDE THE UNITED STATES. The Committee
may modify the terms of any Award under the Plan made to or held
by a Participant who is then resident or primarily employed
outside of the United States in any manner deemed by the Committee
to be necessary or appropriate in order that such Award shall
conform to laws, regulations, and customs of the country in which
the Participant is then resident or primarily employed, or so that
the value and other benefits of the Award to the Participant, as
affected by foreign tax laws and other restrictions applicable as
a result of the Participant's residence or employment abroad,
shall be comparable to the value of such an Award to a Participant
who is resident or primarily employed in the United States. An
Award may be modified under this Section 10(m) in a manner that is
inconsistent with the express terms of the Plan, so long as such
modifications will not contravene any applicable law or regulation
or result in actual liability under Section 16(b) of the Exchange
Act for the Participant whose Award is modified.
(n) LIMITATION ON RIGHTS CONFERRED UNDER PLAN. Neither the Plan nor
any action taken hereunder shall be construed as (i) giving any
Eligible Person or Participant the right to continue as an
Eligible Person or Participant or in the employ or service of the
Corporation or a subsidiary or affiliate, (ii) interfering in any
way with the right of the Corporation or a subsidiary or affiliate
to terminate any Eligible Person's or Participant's employment or
service at any time, (iii) giving an Eligible Person or
Participant any claim to be granted any Award under the Plan or to
be treated uniformly with other Participants and employees, or
(iv) conferring on a Participant any of the rights of a
stockholder of the Corporation unless and until the Participant is
duly issued or transferred shares of Stock in accordance with the
terms of an Award or an Option is duly exercised. Except as
expressly provided in the Plan and an Award document, neither the
Plan nor any Award document shall confer on any person other than
the Corporation and the Participant any rights or remedies
thereunder.
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(o) SEVERABILITY; ENTIRE AGREEMENT. If any of the provisions of this
Plan or any Award document is finally held to be invalid, illegal
or unenforceable (whether in whole or in part), such provision
shall be deemed modified to the extent, but only to the extent, of
such invalidity, illegality or unenforceability, and the remaining
provisions shall not be affected thereby; provided, that, if any
of such provisions is finally held to be invalid, illegal, or
unenforceable because it exceeds the maximum scope determined to
be acceptable to permit such provision to be enforceable, such
provision shall be deemed to be modified to the minimum extent
necessary to modify such scope in order to make such provision
enforceable hereunder. The Plan and any Award documents contain
the entire agreement of the parties with respect to the subject
matter thereof and supercede all prior agreements, promises,
covenants, arrangements, communications, representations and
warranties between them, whether written or oral with respect to
the subject matter thereof.
(p) AWARDS UNDER PREEXISTING PLAN. Upon approval of the Plan by
stockholders of the Corporation as required under Section 10(q)
hereof, no further awards shall be granted under the Preexisting
Plan.
(q) PLAN EFFECTIVE DATE AND TERMINATION. The Plan shall become
effective if, and at such time as, the stockholders of the
Corporation have approved it by the affirmative votes of the
holders of a majority of the voting securities of the Corporation
present, or represented, and entitled to vote on the subject
matter at a duly held meeting of stockholders. Unless earlier
terminated by action of the Board, the Plan will remain in effect
until such time as no Stock remains available for delivery under
the Plan and the Corporation has no further rights or obligations
under the Plan with respect to outstanding Awards under the Plan.
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