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SCHEDULE 14A
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[ ] Definitive proxy statement
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[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
DETROIT DIESEL CORPORATION
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(Name of Registrant as Specified in Its Charter)
DETROIT DIESEL CORPORATION
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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LOGO
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
DATE: TUESDAY, APRIL 27, 1999
TIME: 9:30 AM EASTERN DAYLIGHT TIME
LOCATION: DETROIT DIESEL CORPORATION
13400 OUTER DRIVE, WEST
DETROIT, MICHIGAN USA
To Detroit Diesel Stockholders,
We invite you to attend our 1999 Annual Meeting of Stockholders next month
at our world headquarters in Detroit. At this meeting, you and the other
stockholders will be able to vote on the following proposals, together with any
other business that may properly come before the meeting:
1.Elect three directors to three-year terms on the Board of Directors.
The board has nominated for re-election Dr. Eckhard Cordes, William
E. Hoglund and Roger S. Penske, all current directors.
2. Approve the Detroit Diesel Corporation 1998 Stock Incentive Plan.
The board has approved the plan, subject to stockholder approval.
3. Ratify the board's appointment of Deloitte & Touche LLP as the
company's independent auditors for fiscal year 1999. Deloitte &
Touche LLP served in this same capacity in fiscal 1998, with the
stockholders' approval.
You may vote on these proposals in person or by proxy. (See the attached
proxy statement for more details on voting by proxy.) If you cannot attend the
meeting, we urge you to complete and return the enclosed proxy promptly in the
enclosed self-addressed, stamped envelope, so that your shares will be
represented and voted at the meeting in accordance with your instructions. Of
course, if you attend the meeting, you may withdraw your proxy and vote your
shares. Only stockholders of record at the close of business on March 15, 1999,
will be entitled to vote at the meeting or any adjournment thereof.
By order of the Board of Directors
MARY LOU PERNICANO
Secretary
Detroit, Michigan
March 25, 1999
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CONTENTS
INTRODUCTION................................................ 1
This Proxy Solicitation................................... 1
The Annual Meeting........................................ 1
Stockholders.............................................. 1
VOTING...................................................... 2
How to Vote Your Shares................................... 2
How to Vote under 401(k) Plans............................ 2
Where to Find Voting Results.............................. 2
PROPOSALS................................................... 3
Election of Directors..................................... 3
Approval of 1998 Stock Incentive Plan..................... 3
Approval of Independent Auditors.......................... 6
Other Matters............................................. 6
BOARD OF DIRECTORS.......................................... 7
Directors Continuing in Office............................ 7
Meetings and Committees................................... 8
Director Compensation..................................... 8
Compensation Committee Interlocks and Insider
Participation.......................................... 8
Section 16(a) Beneficial Ownership Reporting Compliance... 8
EXECUTIVE COMPENSATION...................................... 9
Salary and Bonus.......................................... 9
Stock Options............................................. 9
Other Compensation and Benefits........................... 9
Compensation Committee Report on Executive Compensation... 10
CERTAIN STOCKHOLDERS........................................ 12
Diesel Project Development and Its Affiliates............. 12
Penske Corporation and Its Affiliates..................... 12
Appendix A -- Performance Graph............................. 14
Appendix B -- Detroit Diesel 1998 Stock Incentive Plan...... 15
Appendix C -- Stockholdings................................. 28
Appendix D -- Executive Compensation........................ 30
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DETROIT DIESEL CORPORATION
13400 OUTER DRIVE, WEST
DETROIT, MICHIGAN 48239-4001
PROXY STATEMENT
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March 29, 1999
INTRODUCTION
The Board of Directors is soliciting your proxy to encourage your
participation in the voting at the Annual Meeting and to obtain your support on
each of the proposals. You are invited to attend the Annual Meeting and vote
your shares directly. However, even if you do not attend, you may vote by proxy,
which allows you to direct another person to vote your shares at the meeting on
your behalf.
THIS PROXY SOLICITATION
There are two parts to this solicitation: the proxy card and this proxy
statement. The proxy card is the means by which you actually authorize another
person to vote your shares in accordance with your instructions.
This proxy statement provides you with a variety of information on the
proposals and other matters that you may find useful in determining how to vote.
It is divided into five sections following this Introduction:
- - "Voting", page 2.
- - "Proposals", page 3.
- - "Board of Directors", page 7.
- - "Executive Compensation", page 9.
- - "Certain Stockholders", page 12.
We have supplemented these sections with tables and other information, all
of which appears in the appendixes, beginning on page 13. For your reference, a
table showing the performance of the company's stock over the past four years is
included in Appendix A.
The company will pay for soliciting these proxies. The company's directors,
officers and employees may solicit proxies in person or by telephone or by mail,
telecopy, telegraph or letter. The company has also retained ChaseMellon
Shareholder Services, L.L.C. to assist in distributing proxy solicitation
materials and soliciting proxies at a cost of approximately $3,500, plus
reasonable out-of-pocket expenses. The company will reimburse brokers and other
nominees for their reasonable out-of-pocket expenses for forwarding proxy
materials to beneficial owners of stock held of record by them.
THE ANNUAL MEETING
As shown in the Notice of Annual Meeting, the Annual Meeting will be held
on Tuesday, April 27, 1999, at our world headquarters in Detroit, Michigan. The
company's bylaws require that a majority of the company's common stock be
represented at the Annual Meeting, whether in person or by proxy, in order to
transact business.
Abstentions and broker non-votes will be counted in determining whether or
not there is a quorum at the Annual Meeting. Abstentions will also be counted
when tabulating the votes cast on the proposals (other than the election of
directors), but broker non-votes will not be.
Representatives of Deloitte & Touche LLP, the company's independent
auditors, are expected to be present at the Annual Meeting. They will have the
opportunity to make a statement at the meeting if they desire to do so and are
expected to be available to respond to appropriate questions.
There were no stockholder proposals submitted for the Annual Meeting. The
company must receive stockholder proposals for the 2000 Annual Stockholders
Meeting at its principal executive offices by November 23, 1999.
STOCKHOLDERS
On March 15, 1999, the Company had issued and outstanding 24,703,566 shares
of common stock and there were approximately 2,500 stockholders. Based on the
latest information provided to the company, Penske Corporation beneficially owns
approximately 46% of the company's outstanding common stock, Diesel Project
Development, Inc. beneficially owns approximately 20%, and Husic Capital
Management beneficially owns approximately 5%.
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VOTING
You are entitled to one vote at the Annual Meeting for each share of the
company's common stock that you owned of record at the close of business on
March 15, 1999. The number of shares you own (and may vote) is listed at the top
of the back of the proxy card.
HOW TO VOTE YOUR SHARES
You may vote your shares at the Annual Meeting in person or by proxy. To
vote in person, you must attend the Annual Meeting, and obtain and submit a
ballot, which will be provided at the meeting. To vote by proxy, you must
complete and return the enclosed proxy card.
The proxy card is fairly simple to complete, with specific instructions
right on the card. By completing and submitting it, you will direct the
designated persons (known as "proxies") to vote your shares at the Annual
Meeting in accordance with your instructions. The board has appointed Roger S.
Penske and Robert E. Belts to serve as the proxies for the Annual Meeting.
Your proxy will be valid only if you sign, date and return it before the
Annual Meeting. If you complete all of the proxy card except the voting
instructions, then the designated proxies will vote your shares for the election
of the nominated directors, for the approval of the Detroit Diesel Corporation
1998 Stock Incentive Plan and for the ratification of the company's independent
auditors. If any nominee for election to the board is unable to serve, which is
not anticipated, or if any other matters properly come before the meeting, then
the designated proxies will vote your shares in accordance with their best
judgment.
You may revoke your proxy at any time before it is exercised by any of the
following means:
- - Notifying the company's Secretary in writing.
- - Submitting a later dated proxy.
- - Attending the Annual Meeting and voting. Your attendance at the Annual Meeting
will not by itself revoke a proxy; you must vote your shares.
HOW TO VOTE UNDER 401(K) PLANS
If you are a company employee participating in any of the company's 401(k)
plans, then you may be receiving this material because of shares held for you in
the plan. In that case, you may use the enclosed proxy card to instruct the plan
trustees how to vote those shares. The trustees will vote the shares in
accordance with your instructions and the terms of the plan.
The plan trustees may vote the shares held for you even if you do not
direct them how to vote. The trustees will vote any shares for which they do not
receive instructions in the same proportion as they vote the shares for which
they receive instructions.
WHERE TO FIND VOTING RESULTS
The company will publish the voting results in its Form 10Q for the first
quarter of 1999, which it will file with the Securities and Exchange Commission
in May 1999. You will also find the results in the investor information section
of the company's home page on the World Wide Web (www.detroitdiesel.com).
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PROPOSALS
The board has nominated three current directors -- Dr. Eckhard Cordes,
William E. Hoglund and Roger S. Penske -- for new, three-year terms and
recommends that you vote for their re-election. In addition, the board has
approved the Detroit Diesel Corporation 1998 Stock Incentive Plan and recommends
that you vote for approval of the plan. The board has approved Deloitte & Touche
LLP as the company's independent auditors for fiscal year 1999 and recommends
that you vote for their ratification.
ELECTION OF DIRECTORS
The first proposal on the agenda for the Annual Meeting will be electing
three directors to serve as Class III directors for three-year terms beginning
at this Annual Meeting and expiring at the 2002 Annual Stockholders Meeting.
(For a description of the three classes of directors, see the "Board of
Directors" section beginning on page 7.) The three nominees receiving the
greatest number of votes cast will be elected.
The Board of Directors has nominated Dr. Eckhard Cordes, William E. Hoglund
and Roger S. Penske for re-election as Class III directors. The following is a
brief biography of each nominee. You will find information on their holdings of
the company's stock in Appendix B.
DR. ECKHARD CORDES is 48 years old. He has been a director of the company
since March 1997, and his current term as a Class III director expires in 1999.
Dr. Cordes is a Member of the DaimlerChrysler Board of Management, responsible
for Corporate Development and Information Technology. Before that, he was a
Senior Vice President, Corporate Development of Daimler-Benz AG from 1995 to
1996; and Senior Vice President, Controlling, Corporate Planning and M&A of AEG
AG, a Daimler-Benz affiliate, from 1991 to 1994.
WILLIAM E. HOGLUND is 64 years old. He has been a director of the Company
since 1990, and his current term as a Class III director expires in 1999. Mr.
Hoglund retired as Executive Vice President of General Motors Corporate Affairs
and Staff Support Group in December 1994, a position he had held since the group
was established in November 1992. Before that, Mr. Hoglund was Executive Vice
President and Chief Financial Officer of General Motors from April 1992 to
November 1992. He had served as Executive Vice President of General Motors since
August 1988. Mr. Hoglund is also a member of the Boards of Directors of the Mead
Corporation, as well as the Sloan Foundation.
ROGER S. PENSKE is 62 years old. He has been Chairman and a director of the
company since its organization in 1987, and his current term as a Class III
director expires in 1999. Mr. Penske is also Chairman of the Board and Chief
Executive Officer of Penske Corporation. Penske Corporation is a privately-owned
diversified transportation services company which (among other things) holds,
through its subsidiaries, interests in a number of businesses, including Penske
Truck Leasing Co., L.P., Penske Motorsports, Inc., and Diesel Technology
Company. Mr. Penske is also a member of the Boards of Directors of General
Electric Company, Penske Motorsports, Inc., Gulfstream Aerospace Corporation and
Delphi Automotive Systems Corporation.
The Board of Directors recommends that you vote FOR the election of Dr.
Eckhard Cordes, William E. Hoglund and Roger S. Penske.
APPROVAL OF 1998 STOCK INCENTIVE PLAN
The next proposal on the agenda will be approving the Detroit Diesel
Corporation 1998 Stock Incentive Plan. The plan was approved by the board of
directors on October 27, 1998, although it will not be implemented until
approved by the stockholders. Such approval requires that a majority of the
shares represented at the meeting are voted in favor of the proposal.
The board of directors believes that the 1998 plan is necessary for the
company to attract, retain and motivate key employees. The company previously
used the 1993 Stock Incentive Plan to achieve these goals. However, because
there are no more shares available for granting awards under the 1993 plan, the
1998 plan is intended to replace the 1993 plan. The board of directors
recommends approval of the 1998 plan so that the company may continue to
motivate selected key employees to meet the
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company's long-range objectives and to enable the company to compete with other
major corporations in securing and retaining key employees.
The 1998 plan is attached as Appendix B to this proxy statement. The
following description of the 1998 plan is intended merely as a summary of its
principal features and is qualified in its entirety by reference to the
provisions of the 1998 plan.
GENERAL
Common Stock Available Under 1998 Plan. The company has reserved 1,200,000
shares of its common stock for issuance under the 1998 plan, however that number
is subject to adjustment for certain changes in the company's structure or
capitalization (such as stock splits, combinations, etc.) that affect the number
of shares of common stock outstanding. No awards have yet been issued under the
1998 plan. The closing price of common stock on the New York Stock Exchange on
March 15, 1999 was $21.75.
Administration. The 1998 plan is administered by a committee composed of
those members of the board's Compensation Committee who are "non-employee
directors" (as defined in Rule 16b-3(b)(3) under the Securities Exchange Act of
1934) and "outside directors" (as defined in Treasury Regulation Section
1.162-27(e)(3)). If there are not at least two such members, then the entire
board serves as the committee for purposes of the 1998 plan.
Types of Awards. Under the 1998 plan, the committee may award stock
options, stock appreciation rights, restricted stock, common stock and deferred
stock.
Eligibility. The committee selects key employees of the company and its
subsidiaries who will be eligible to receive awards under the 1998 plan and
approves awards to these key employees based upon their contribution to the
achievement of the company's objectives and other relevant matters. Because the
awards will be entirely within the discretion of the committee, it is not
possible to list the employees to whom awards will be granted under the 1998
plan, or the amount of the awards. There are approximately 80 key employees
currently eligible to receive awards under the 1998 plan.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
Terms of Options and Stock Appreciation Rights. The committee may award
incentive stock options (as described under Section 422 of the Internal Revenue
Code) and nonqualified stock options. Incentive stock options offer key
employees certain tax advantages that are not available under nonqualified stock
options. The committee determines the terms of the option awards, including the
amount, exercise price, vesting schedule and term. However, the option term may
not exceed ten years, and the per share exercise price may not be less than the
fair market value of a share of common stock on the date the option is granted.
When a key employee terminates employment, his or her option may expire
before the end of the option term. For example, if the key employee's employment
ends for a reason other than cause, retirement or disability, the key employee's
options remain exercisable for up to three months after termination of
employment.
A key employee may pay the exercise price of an option in cash or its
equivalent. Also, if permitted by the committee, a key employee may pay the
exercise price by surrendering common stock he or she holds, by surrendering
shares covered by the option or through the use of a stockbroker.
The committee may also grant stock appreciation rights in tandem with stock
options. These rights entitle key employees to receive cash instead of the
shares that they could otherwise acquire upon exercising the related stock
option. The cash amount will not exceed the difference between the fair market
value of the shares subject to the option on the day before exercise and the
option price of the shares. The related stock option terminates if an employee
exercises his or her stock appreciation right. Conversely, a stock appreciation
right terminates if the related stock option is exercised.
The committee may not in any calendar year grant to any employee options or
stock appreciation rights representing more than 100,000 shares of common stock.
This limit is subject to adjustment for certain changes in the company's
structure or capitalization that affect
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the number of shares of common stock outstanding.
Federal Income Tax Consequences. The company has been advised that the
federal income tax consequences of granting and exercising stock options and
stock appreciation rights under the 1998 plan are as follows (based on January
1, 1999 federal tax laws and regulations):
The grant of an option or a stock appreciation right does not result in
federal income tax consequences for the employee or a deduction for the company.
When an option is exercised, the federal income tax consequences depend on
whether the option is an incentive stock option or a nonqualified stock option.
A key employee exercising a nonqualified stock option will recognize ordinary
income equal to the difference between the fair market value of the shares
exercised (on the date of exercise) and the option price.
A key employee will not recognize taxable income as a result of acquiring
shares by exercising an incentive stock option. The difference between the fair
market value of the exercised shares on the date of exercise and the exercise
price will, however, generally be treated as an item of adjustment for purposes
of alternative minimum taxable income. If the key employee holds the shares he
receives on exercise of an incentive stock option for a required period of time,
the key employee will have a capital gain (or loss) when the shares are later
sold. If the key employee does not hold the shares for the required period of
time, the key employee will generally have ordinary income when the shares are
sold.
A key employee will recognize ordinary income upon exercising a stock
appreciation right equal to the cash payable upon exercise.
When a key employee recognizes ordinary income on the exercise of a
nonqualified stock option or stock appreciation right (or the sale of stock
acquired on exercise of an incentive stock option), the company is generally
entitled to a deduction in the same amount. Certain requirements, such as
reporting the income to the IRS, must be met for the deduction to be allowable.
Also, for the chief executive officer and the four other highest compensated
officers, the company's deduction may be contingent upon shareholder approval of
the 1998 plan, and the award being made by "outside directors."
RESTRICTED STOCK
The committee may make restricted stock awards to key employees. A
restricted stock award is an award of common stock that is subject to certain
restrictions during a specified period, such as an employee's continued
employment with the company or the company achieving certain financial goals.
The company holds the shares during the restriction period, and the key employee
cannot transfer the shares before termination of that period. The key employee,
is, however, entitled to vote the shares and receive any dividends during the
restriction period.
COMMON STOCK
The committee may also award common stock to key employees without
restrictions to recognize outstanding achievements or as a supplement to
restricted stock awards when the company's performance exceeds established
financial goals.
DEFERRED STOCK
The committee may also grant stock awards to employees on a deferred basis,
entitling key employees to receive a specified number of shares upon termination
of employment. During the deferral period, key employees receive cash payments
instead of dividends on the shares of deferred stock as if they actually owned
such shares.
MISCELLANEOUS
Transferability. Awards under the 1998 plan are not transferable, except by
will or under the laws of descent and distribution. However, the committee has
the authority to permit a key employee to transfer nonqualified stock options
and stock appreciation rights. If any transfers of nonqualified stock options
are permitted, the committee intends to allow transfers only to members of a key
employee's immediate family (or a trust or partnership for the benefit of
immediate family members).
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Acceleration of Vesting/Restriction Period. The committee may, in its
discretion, accelerate the date on which options or stock appreciation rights
may be exercised, and may accelerate the date of termination of the restrictions
applicable to a restricted stock award, if it determines that to do so would be
in the best interests of the company and the participants in the 1998 plan.
Change in Capitalization. If there is a change in the company's
capitalization that affects its outstanding common stock, the aggregate number
of shares subject to options and deferred stock awards, together with the option
exercise price, will be adjusted by the committee, as described in the 1998
plan.
Change in Control. Upon a change in control of the company, all outstanding
options and stock appreciation rights will become immediately and fully
exercisable, and all restrictions on restricted stock will immediately lapse. In
addition, certain key employees will be entitled, for a period following the
change of control, to surrender their unexercised options or stock appreciation
rights for cash equal to the difference between the fair market value (as
defined in the 1998 plan) of the common stock and the exercise price. Under
certain circumstances, the accelerated vesting or exercise of options or stock
appreciation rights, or the accelerated lapse of restrictions on restricted
stock, in connection with a change in control, might be deemed an "excess
parachute payment" for purposes of the golden parachute tax provisions of
federal tax law. In such cases, the key employee may be subject to a 20% excise
tax and the company may be denied a tax deduction.
Amendment/Termination of 1998 Plan. The board of directors may amend,
suspend or terminate the 1998 plan, but, without stockholder approval, cannot,
among other things, increase the number of shares of common stock issuable under
incentive stock options (except in the case of recapitalization, stock split, or
similar event), or change the class of employees who may receive incentive stock
options under the 1998 plan.
The Board of Directors recommends that you vote FOR the approval of the
1998 Stock Incentive Plan.
APPROVAL OF INDEPENDENT AUDITORS
The next proposal on the agenda for the Annual Meeting will be ratifying
the board's appointment of Deloitte & Touche LLP as the company's independent
auditors for fiscal year 1999.
Deloitte & Touche LLP served in this capacity for fiscal 1998, and has
reported on the company's 1998 consolidated financial statements. The Audit
Committee recommended to the board that Deloitte & Touche LLP be reappointed for
fiscal year 1999.
The Board of Directors recommends that you vote FOR the ratification of
Deloitte & Touche LLP as the company's independent auditors for fiscal year
1999.
OTHER MATTERS
Neither the company nor its directors intend to bring before the Annual
Meeting any matters other than the election of the three directors, the approval
of the 1998 Stock Incentive Plan and the ratification of the company's
independent auditors. Also, they have no present knowledge that any other
matters will be presented by others for action at the meeting.
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BOARD OF DIRECTORS
The Board of Directors consists of eleven directors divided into three
classes (Class I, Class II and Class III) serving staggered three-year terms.
The Class III directors are up for election at the Annual Meeting, and the
nominees for election are all currently Class III directors.
DIRECTORS CONTINUING IN OFFICE
The Class I and II directors will continue in office following this Annual
Meeting, and their terms will expire in 2000 (Class I) or 2001 (Class II). The
following are brief biographies of each of these directors. You will find
information on their holdings of the company's stock in Appendix C.
JOHN E. DODDRIDGE is 58 years old. He has been a director of the company
since January 1994, and his current term as a Class II director expires in 2001.
Mr. Doddridge is the Chairman and Chief Executive Officer of Intermet Corp., a
publicly-traded metal casting company. He was, from November 1992 to October
1994, the Vice Chairman of the Board of Directors and Chief Executive Officer of
Magna International, Inc., a publicly-traded manufacturer of technologically-
advanced automotive components, assemblies and systems. Mr. Doddridge was
President, North American Operations of Dana Corporation from April 1989 to
November 1992. Mr. Doddridge is also a member of the Board of Directors of
Standard Products Co.
GARY G. JACOBS is 57 years old. He has been a director of the company since
January 1994, and his current term as a Class I director expires in 2000. He is
the President and Chief Executive Officer of Laredo National Bancshares, Inc. (a
bank holding company) and Chairman of The Laredo National Bank.
LUDVIK F. KOCI is 62 years old. He has been a director of the company since
its organization in 1987, and his current term as a Class II director expires in
2001. Mr. Koci has been Vice Chairman of the company since November 1997. Before
that, he had been President and Chief Operating Officer of the company from 1989
to 1997 and Executive Vice President from the company's organization in 1987 to
1989. Prior to the company's commencement of operations in January 1988, Mr.
Koci had been employed by General Motors since 1954. Mr. Koci is also a member
of the Board of Directors of Wabash National Corporation.
DR. KURT J. LAUK is 52 years old. He has been a director of the company
since 1996, and his current term as a Class II director expires in 2001. Dr.
Lauk is the Head of the Commercial Vehicle Division of DaimlerChrysler and a
Member of its Board of Management. Before that, he was a member of the Board of
Management of VEBA, AG, Dusseldorf, responsible for finance and controlling,
from 1992 to 1996, and Deputy President of AUDI AG, Ingolstadt, responsible for
finance, business management and marketing, from 1989 to 1992.
TIMOTHY D. LEULIETTE is 49 years old. He has been a director and Vice
Chairman of the company since 1996, and his current term as a Class I director
expires in 2000. Before that, Mr. Leuliette had been President and Chief
Executive Officer of ITT Automotive, Inc., and Senior Vice President of ITT
Industries, Inc., since 1991, and was President and Chief Executive Officer of
Siemens Automotive, L.P. from 1988 to 1991. Mr. Leuliette is also a director and
the President and Chief Operating Officer of Penske Corporation. Mr. Leuliette
is a director of the Detroit Branch of The Federal Reserve Bank of Chicago. His
other affiliations have been with the Leukemia Society of America, Children's
Center, Vision 2000, Arthritis Foundation and Junior Achievement.
CHARLES G. MCCLURE is 45 years old. He has been President of the company
since August 1997 and a director since November 1997, and his current term as a
Class II director expires in 2001. Before that, Mr. McClure had been President,
and previously Vice President and General Manager, of The Americas Division of
Johnson Controls, Inc. from 1995 to 1997, and Vice President and Managing
Director of Johnson Controls' Automotive Systems Groups' Europe Operations from
1992 to 1995. Mr. McClure is also a director of Williams Controls, Inc.
JOSEPH F. WELCH is 64 years old. He has been a director of the company
since January 1994, and his current term as a Class I director expires in 2000.
He is the Chairman and Chief Executive Officer of The Bachman Company, a
producer of snack foods.
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R. JAMISON WILLIAMS, JR. is 57 years old. He has been a director of the
company since 1988, and his current term as a Class I director expires in 2000.
He is a shareholder in the law firm of Williams, Williams, Ruby & Plunkett,
P.C., in Birmingham, Michigan. He is also a director of Price Manufacturing,
Inc., a Canadian bedding manufacturer. Before February 1999, Mr. Williams
beneficially owned approximately 19% of the outstanding common stock of Atlantic
Detroit Diesel-Allison, Inc., an authorized Detroit Diesel distributor which in
1999 purchased from the company approximately $25 million of products and
received from the company approximately $8 million for the performance of
warranty services.
MEETINGS AND COMMITTEES
During 1998, the Board of Directors held five meetings and took action by
written consent twice in lieu of additional meetings.
The Board of Directors has a standing Audit Committee, consisting of Gary
G. Jacobs (Chairman), Joseph F. Welch and R. Jamison Williams, Jr. During 1998,
the Audit Committee held three meetings. The duties of the Audit Committee are
generally:
- - to recommend to the board independent auditors to audit annually the company's
books and records,
- - to review the activities and the reports of the company's independent
auditors, and
- - to report the results of its review to the board.
The Audit Committee also periodically reviews the activities of the company's
internal audit staff and the adequacy of the company's internal controls.
The board also has a standing Compensation Committee, consisting of John E.
Doddridge (Chairman), William E. Hoglund, Dr. Eckhard Cordes and Dr. Kurt J.
Lauk. During 1998, the Compensation Committee held two meetings. The duties of
the Compensation Committee are generally:
- - to recommend to the board the remuneration arrangements for senior management
and directors,
- - to recommend to the board compensation plans in which officers or directors
are eligible to participate, and
- - to grant awards under the company's stock incentive plan.
The company has no nominating committee.
Dr. Eckhard Cordes and Dr. Kurt J. Lauk each missed two board meetings and
one Compensation Committee meeting.
DIRECTOR COMPENSATION
Directors who are not employees of the company or DaimlerChrysler receive
directors' fees of $25,000 per year, plus $1,000 per day of attendance at
committee or other meetings relating to company business (other than for a day
on which there is a board meeting). These directors may elect to defer their
compensation under the company's Deferred Compensation Plan for Directors, a
non-qualified benefits plan for non-employee directors, into a cash account or a
unit account. Amounts deferred into a unit account are allocated based on the
price of the company's common stock at the time of deferral, and the value of
this account is directly related to the performance of the company's common
stock. In addition, the company reimburses its directors for expenses, including
travel, they incur in connection with attending meetings.
COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION
During 1998, the Compensation Committee consisted of John E. Doddridge,
William E. Hoglund, Eckhard Cordes and Kurt J. Lauk. Dr. Cordes is a Member of
the DaimlerChrysler Board of Management, responsible for Corporate Development
and Information Technology. Dr. Kurt J. Lauk is the Head of the Commercial
Vehicle Division of DaimlerChrysler and a Member of its Board of Management. You
will find more information regarding certain relationships between the company
and Diesel Project Development, and its affiliates (including DaimlerChrysler),
in the "Certain Stockholders" section beginning on page 12.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Calvin C. Sharp, Senior Vice President-Administration, filed an annual
statement of changes in beneficial ownership on Form 5 with the Securities and
Exchange Commission, which relates to an acquisition in 1998 that was not
previously reported.
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EXECUTIVE COMPENSATION
This section provides summary information regarding the compensation of
Roger S. Penske, Chairman, and the four most highly compensated officers other
than Mr. Penske: Ludvik F. Koci, Vice Chairman; Timothy D. Leuliette, Vice
Chairman; Charles G. McClure, President and Robert R. Allran, Executive Vice
President-Operations.
This section also includes a report of the board's Compensation Committee
(see page 10), which discusses the general compensation principles used by the
committee for senior executive officers, as well as the specific factors used to
determine Mr. Penske's compensation.
SALARY AND BONUS
Messrs. Penske, Koci, Leuliette, McClure and Allran did not have their
salaries reviewed or increased in 1998. This is consistent with the company's
compensation principles for executive officers, since their salaries had been
reviewed in late 1997. Messrs. Penske, Koci, Leuliette, McClure and Allran
received bonuses for 1998. You will find additional information regarding this
group's salaries and bonuses in Appendix C.
STOCK OPTIONS
Messrs. Penske, Koci, Leuliette, McClure and Allran each received options
during 1998. You will find additional information regarding options held by this
group of executive officers in Appendix C.
OTHER COMPENSATION AND BENEFITS
This group of executive officers receives medical, group life insurance and
other benefits (including matching contributions under the company's 401(k)
plans) that are available generally to all of the company's salaried employees.
They also participate in the company's salaried employees pension plan, which is
qualified under Section 401(a) of the Internal Revenue Code, and receive certain
other perquisites. In addition, the named executive officers are eligible to
defer their bonuses under the Deferred Compensation Plan for Executive Officers,
a non-qualified benefits plan for designated executive officers, into a cash
account or a unit account. Amounts deferred into a unit account are allocated
based on the price of the company's common stock at the time of deferral, and
the value of this account is directly related to the performance of the
company's common stock.
You will find additional information regarding the other compensation and
benefits in Appendix C.
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COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
In 1998, the Compensation Committee of the Board of Directors was composed
of John E. Doddridge (Chairman), Dr. Eckhard Cordes, William E. Hoglund and Dr.
Kurt J. Lauk. The board has delegated to this committee oversight of the
company's executive compensation program and authority to approve salaries and
incentive bonuses for senior executive officers.
EXECUTIVE COMPENSATION -- PHILOSOPHY AND PROGRAM COMPONENTS
The company's philosophy is to provide a comprehensive compensation program
to attract, retain and reward key members of management who contribute to the
company's success and to motivate the management team in the development and
execution of current and long-term business strategies and goals. An important
cornerstone of this philosophy is the linkage of management goals with
stockholders' interests in creating and increasing stockholder value. The
company therefore promotes employee ownership of company stock as one of the
most effective ways to align this mutual employee and stockholder interest.
During 1998, the committee approved stock ownership guidelines for certain key
executive officers.
The three primary components of executive compensation are: base salary,
cash bonuses and stock incentives. A combination of stock grants and options had
been made available to key employees under the Detroit Diesel Corporation 1993
Stock Incentive Plan. In 1998, the company exhausted the shares available under
this plan. As a result, the committee and the board approved the Detroit Diesel
Corporation 1998 Stock Incentive Plan. The stockholders will vote on this new
plan at the annual meeting. Executives also participate in certain benefit plans
available to all salaried employees. Certain senior executives can defer all or
a portion of bonus awards to provide them with flexible financial planning. The
company believes that a significant portion of the executive officers'
compensation should be placed at risk and, in keeping with that objective, a
substantial portion of the compensation package is comprised of a
performance-based cash bonus. Incentive stock options awarded from time to time
under the SIP are another important risk-related compensation element. During
1998, the committee asked the company to study adopting a long-term incentive
plan as a component of compensation for senior executive management to further
incent such management to increase stockholder value over the long term.
In 1998, base salaries for senior executive officers were based upon the
individual's responsibilities and experience, taking into account, among other
things, the individual's initiative, contributions to the company's overall
performance, managerial ability and handling of special projects. These same
factors are applied by management's Executive Committee, consisting of the
Chairman, Vice Chairmen and President, with the assistance of other senior
executive officers and the personnel administration department, to establish
base salaries for other key management employees. Base salaries for senior
executives generally are reviewed every 18 months for possible adjustment, but
are not necessarily changed that often. The committee also uses industry
comparisons to ensure that the base salaries of the senior executive officers
remain competitive in keeping with the objective of retaining key members of
management.
Cash bonuses for the Chairman, Vice Chairmen and President are established
by the committee at the beginning of the year based upon a specified percentage
of pre-tax earnings. For other key management employees, the committee approved
in early 1998 a bonus pool based on the company's profitability during the 1998
calendar year. The calculation of this bonus pool is based on 5% of the
company's earnings before interest and taxes. After the close of the year, the
bonus pool is divided among the key management employees, including the senior
executive officers, based upon each individual's contribution
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to the company's overall business results, the performance of the product line
or functional business area for which the manager or senior executive has direct
responsibility, and the attainment of corporate goals. The Compensation
Committee reviewed the 1998 bonus awards to the senior executive officers and
other key management employees which were recommended by the Executive Committee
after subjective performance reviews using the previously mentioned criteria,
and the committee approved them without change.
The stated purpose of the stock incentive plans is to provide financial
incentives to selected key management employees of the company and its
subsidiaries to promote long-term growth and financial success of that group by
(i) attracting and retaining employees of outstanding ability (ii) strengthening
that group's capability to develop, maintain and direct a competent management
team, (iii) providing an effective means for that group to acquire an ownership
interest in the company, (iv) motivating key employees to achieve long-range
performance goals and objectives, and (v) providing incentive compensation
competitive with other similar companies. The Compensation Committee administers
the stock incentive plan and makes grants under the plan, except that the full
board of directors makes grants to senior executive officers who are also
directors. All grants under the stock incentive plan are approved by a majority
of the members of the committee or the board of directors, as the case may be,
who are "disinterested persons" as that term is used in Rule 16b-3 of the
Securities and Exchange Commission. Awards under the stock incentive plan can
consist of incentive stock options, nonqualified stock options, stock
appreciation rights, restricted stock awards, unrestricted stock awards and
deferred stock awards.
Grants under the stock incentive plan were made in 1993, 1995, 1996, 1997
and again in 1998. In 1998, the committee awarded a total of 218,500
nonqualified stock options under the plan.
At various times in the past, the company has adopted certain broad-based
employee benefit plans in which the senior executive officers and other key
management employees have been permitted to participate, including the salaried
employees' pension plan, the salaried employees' 401(k) savings plan with
certain matching company contributions, and the life, health and disability
benefit plans available to all salaried employees. In 1997, the Compensation
Committee approved a Supplemental Executive Retirement Plan designed to restore
certain pension benefits lost due to federal limitations on distributions. This
plan is an unfunded, nonqualified plan for a limited number of key senior
executives designated by the committee. Key management employees also receive a
company provided automobile for business and personal use and some senior
executives are eligible for certain other perquisites. Other than with respect
to common stock held as an investment option under the 401(k) savings plan,
benefits under these plans are not directly or indirectly tied to company
performance.
CHIEF EXECUTIVE OFFICER COMPENSATION
As stated above, in late 1997, the committee approved a bonus plan for the
chief executive officer and other members of the Executive Committee based on a
percentage of the company's 1998 pre-tax earnings. Mr. Penske, the company's
Chairman, received a bonus of $633,000 in 1998, which reflects the
implementation of this plan.
By the Compensation Committee:
John E. Doddridge (Chairman)
Dr. Eckhard Cordes
William E. Hoglund
Dr. Kurt J. Lauk
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CERTAIN STOCKHOLDERS
You will find additional information regarding Penske Corporation and
Diesel Project Development, Inc. in Appendix C.
DIESEL PROJECT DEVELOPMENT AND ITS AFFILIATES
In 1998, the company and its affiliates had business relationships with
Diesel Project Development and its affiliates, including DaimlerChrysler, MTU
Motoren- und Turbinen-Union Friedrichshafen GmbH, and Freightliner Corporation.
Under the company's financing agreement with Diesel Project Development,
DDC Holdings, Inc. (a subsidiary of Penske Corporation) has agreed to vote for
the election to the company's board of a number of nominees designated by Diesel
Project Development in proportion to Diesel Project Development's percentage
interest in the total number of outstanding shares of the company's stock. One
Diesel Project Development nominee will also be a member of the board's
Compensation Committee. Diesel Project Development has agreed to vote its shares
of the company's stock for DDC Holdings' nominees, consistent with Diesel
Project Development's rights to board representation.
Dr. Eckhard Cordes and Dr. Kurt J. Lauk are the nominees of Diesel Project
Development serving on the board pursuant to this voting agreement. Both Dr.
Cordes and Dr. Lauk are members of the board's Compensation Committee. Under the
financing agreement, Diesel Project Development's consent is required on
significant business matters, including the company's business plan, certain
debt and equity issuances, acquisitions and major investments, and transactions
with affiliates.
The company paid DaimlerChrysler and its affiliates $1.3 million in 1998
for service parts pursuant to a North American distribution agreement for parts
and service for certain Mercedes-Benz industrial diesel engines and other
miscellaneous items. In 1998, the company sold approximately $140 million of
engines and related parts to DaimlerChrysler and approximately $581 million to
Freightliner.
In 1998, the company paid MTU $61 million for engine blocks for the Series
149 engine, parts for the Series 2000 and 4000 engines, engines and service
parts pursuant to an agreement for MTU products and services in North America,
and other miscellaneous items, and received from MTU approximately $5 million as
reimbursement for warranty services on MTU engines. The company will pay MTU
approximately $14 million over the next several years related to the allocation
of costs incurred under license agreements for the Series 2000 and Series 4000
engines.
The company and MTU entered in an agreement in 1996 to design and develop
an engine for the United States Marine Corps Advanced Amphibious Assault
Vehicle. The company will pay MTU approximately $40 million under the contract
through 2001, however, the United States Marine Corps will reimburse the company
for all of these amounts. In 1998, the company paid MTU approximately $9
million, all of which has been reimbursed.
PENSKE CORPORATION AND ITS AFFILIATES
The company and its affiliates had business relationships with Penske
Corporation and its affiliates, including Diesel Technology Company, in 1998.
The company paid $101 million to Diesel Technology for products. The company
also paid approximately $16.4 million in 1998 to Penske Corporation and its
affiliates for logistics services, vehicle lease charges, sales incentives,
office rent, charges associated with the use of aircraft, the use and
acquisition of demonstration products, and for various miscellaneous services.
The company rendered miscellaneous services for which it was paid approximately
$208,000 in 1998.
In February 1998, a wholly-owned subsidiary of Detroit Diesel, together
with the other members of Davco Manufacturing L.L.C., sold their membership
interests in Davco to Truck-Lite, Inc., an affiliate of Penske Capital Partners,
L.L.C. The Detroit Diesel subsidiary and another member each received
approximately $6.3 million for their interests, while the remaining member
received approximately $7.5 million. The differences in price (and other terms
related to the sales) were intended to reflect the circumstances under which
each member purchased its membership interest and its relative contribution to
Davco's operations. Truck-Lite is owned approximately 92% by Penske Capital
Partners, which in
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turn is owned approximately 30% by Penske Corporation.
In March 1998, the company acquired from Diesel Technology substantially
all of the assets used in remanufacturing fuel injection system components for
certain Detroit Diesel heavy-duty diesel and alternative fuel engines. The
purchase price was approximately $19.5 million. Diesel Technology was, at the
time of the transaction, owned approximately 80% by Penske Corporation.
By Order of the Board of Directors
MARY LOU PERNICANO
Secretary
Dated: March 29, 1999
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APPENDIX A -- PERFORMANCE GRAPH
The following graph compares the cumulative total return on the company's
common stock with the cumulative total return on the New York Stock Exchange
Composite Index and the Standard & Poor's Heavy-Duty Trucks & Parts Index. The
comparisons in this table are required by the Securities and Exchange Commission
and are not intended to forecast or be indicative of possible future performance
of the common stock or the referenced indexes.
COMPARISON OF CUMULATIVE TOTAL RETURN
FOR THE PERIOD FROM DECEMBER 30, 1994 TO DECEMBER 31, 1998
S & P HEAVY-DUTY TRUCKS
DETROIT DIESEL CORPORATION NYSE COMPOSITE INDEX & PARTS INDEX
-------------------------- -------------------- -----------------------
'12/30/94' 100.00 100.00 100.00
'12/29/95' 87.14 131.31 103.56
'12/31/96' 107.58 156.33 125.35
'12/31/97' 111.09 204.11 211.45
'12/31/98' 96.77 237.43 171.43
- -----------------------------------------------------------------------------------------------------
12/30/94 12/29/95 12/31/96 12/31/97 12/31/98
- -----------------------------------------------------------------------------------------------------
Detroit Diesel Corporation $100.00 $ 87.14 $107.58 $111.09 $ 96.77
NYSE Composite Index $100.00 $131.31 $156.33 $204.11 $237.43
S&P Heavy-Duty Trucks & Parts
Index $100.00 $103.56 $125.35 $211.45 $171.43
- -----------------------------------------------------------------------------------------------------
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APPENDIX B
DETROIT DIESEL CORPORATION 1998 STOCK INCENTIVE PLAN
EFFECTIVE DATE: OCTOBER 27, 1998
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DETROIT DIESEL CORPORATION 1998 STOCK INCENTIVE PLAN
ARTICLE I
PURPOSE AND EFFECTIVE DATE
1.1 Purpose. The purpose of the Plan is to provide financial incentives for
selected Key Employees of the Detroit Diesel Group, thereby promoting the
long-term growth and financial success of the Detroit Diesel Group by (i)
attracting and retaining employees of outstanding ability, (ii) strengthening
the Detroit Diesel Group's capability to develop, maintain, and direct a
competent management team, (iii) providing an effective means for selected Key
Employees to acquire and maintain ownership of Detroit Diesel Stock, (iv)
motivating Key Employees to achieve long-range performance goals and objectives,
and (v) providing incentive compensation opportunities competitive with those of
other major corporations.
1.2 Effective Date. The Plan shall be effective on the date on which it is
adopted by the Board; provided, however, that if the Plan is not approved by the
Company's stockholders, in the manner described in Treasury Regulation
sec.sec.1.162-27(e)(4)(vii) (to the extent that compliance with Section 162(m)
of the Code is desired) and 1.422-5, within 12 months after the Effective Date,
all Options and SARs granted under this Plan shall be null and void and no
additional Options or SARs shall be granted hereunder.
ARTICLE II
DEFINITIONS
The following words and phrases, as used in the Plan, shall have these
meanings:
2.1 "Award" means, individually or collectively, any Option, SAR,
Restricted Stock Award, Unrestricted Stock Award, or Deferred Stock Award.
2.2 "Board" means the Board of Directors of the Company.
2.3 "Code" means the Internal Revenue Code of 1986, as amended.
2.4 "Committee" means those members, not to be less than two, of the
Compensation Committee of the Board who are "non-employee directors" and who are
also, to the extent compliance with section 162(m) of the Code is desired,
"outside directors." For purposes of this Section 2.4, the term "non-employee
director" shall have the meaning set forth in Rule 16b-3(b)(3) under the
Securities Exchange Act of 1934, or any successor thereto, and the term "outside
director" shall have the meaning set forth in Treasury Regulation
sec.1.162-27(e)(3), or any successor thereto. In the event a committee comprised
solely of two or more "non-employee directors" has not been established, the
entire Board shall serve as the Committee for all purposes of the Plan. Each
member of the Committee, while serving as such, shall be deemed to be acting in
his or her capacity as a director of the Company.
2.5 "Company" means Detroit Diesel Corporation and its successors and
assigns.
2.6 "Deferred Stock Award" means an Award granted under Article VIII.
2.7 "Detroit Diesel Group" means the Company and all its Subsidiaries on
and after the Effective Date.
2.8 "Detroit Diesel Stock" means common stock of the Company.
2.9 "Effective Date" means the date the Plan is adopted by the Board.
2.10 "Fair Market Value" means, as of any specified date, an amount arrived
at by a good faith determination of the Committee and shall be (i) the quoted
closing price, if there is a market for Detroit Diesel Stock on a registered
securities exchange or in an over the counter market, on the date of grant, or
(ii) the weighted average of the quoted closing prices on the nearest date
before and the nearest date after the date of grant, if there are no sales on
the date of grant but there are sales on dates within a reasonable
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period both before and after the date of grant, or (iii) the mean between the
bid and asked prices, as reported by the National Quotation Bureau on the date
of grant, if actual sales are not available during a reasonable period beginning
before and ending after the date of grant, or (iv) such other method of
determining fair market value as shall be authorized by the Code, or the rules
or regulations thereunder, and adopted by the Committee. Where the fair market
value of the optioned shares of Detroit Diesel Stock is determined under (ii)
above, the average of the quoted closing prices on the nearest date before and
the nearest date after the date of grant is to be weighted inversely by the
respective numbers of trading days between the selling dates and the date of
grant (i.e.,the valuation date), in accordance with Treas. Reg. sec.20.2031-2(b)
(1).
2.11 "Incentive Stock Option" means an option within the meaning of section
422 of the Code.
2.12 "Key Employee" means an employee of the Detroit Diesel Group who
occupies a responsible executive, professional, or administrative position and
who has the capacity to contribute to the success of the Detroit Diesel Group.
2.13 "Nonqualified Stock Option" means an Option granted under the Plan
other than an Incentive Stock Option, and which, except as provided in Section
5.5(a), is so designated in the Stock Option Agreement.
2.14 "Option" means both a Nonqualified Stock Option and an Incentive Stock
Option to purchase Detroit Diesel Stock.
2.15 "Option Price" means the price at which Detroit Diesel Stock may be
purchased under an Option as provided in Section 5.4.
2.16 "Personal Representative" means the person or persons who, upon the
death, disability, or incompetency of a Key Employee, shall have acquired, by
will or by the laws of descent and distribution or by other legal proceedings,
the right to exercise an Option or the right to any Restricted, Unrestricted, or
Deferred Stock Award theretofore granted or made to such Key Employee.
2.17 "Plan" means the Detroit Diesel Corporation 1998 Stock Incentive Plan.
2.18 "Restricted Stock" means Detroit Diesel Stock subject to the terms and
conditions provided in Article VI.
2.19 "Restricted Stock Award" means an Award granted under Article VI.
2.20 "Restriction Period" means a period of time determined under Section
6.2 during which Restricted Stock is subject to the terms and conditions
provided in Section 6.3.
2.21 "SAR" means a stock appreciation right granted under Section 5.8.
2.22 "Stock Option Agreement" means an agreement entered into between a Key
Employee and the Company under Section 5.3.
2.23 "Subsidiary" means a subsidiary corporation within the meaning of
section 424(f) of the Code.
2.24 "Unrestricted Stock Award" means an Award granted under Article VII.
ARTICLE 111
ADMINISTRATION
3.1 Committee to Administer. The Plan shall be administered by the
Committee. The Committee shall have full power and authority to interpret and
administer the Plan, to establish and amend rules and regulations for its
administration, and to make such determinations and interpretations under, or in
connection with, the Plan as it deems necessary or advisable. The Committee's
decisions shall be final and conclusive with respect to the interpretation of
the Plan and any Award made under it. No member of the Board or the Committee
shall be liable for any action or determination made in good faith with respect
to the Plan or any Award granted under it.
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A majority of the members of the Committee shall constitute a quorum for
the conduct of business at any meeting. The Committee shall act by majority vote
of the members present at a duly convened meeting, which may include a meeting
by conference telephone call held in accordance with applicable law. Action may
be taken without a meeting if written consent thereto is given in accordance
with applicable law.
3.2 Powers of Committee.
(a) Subject to the provisions of the Plan, the Committee shall have
authority, in its discretion, to determine those Key Employees who shall receive
an Award, the time or times when such Award shall be made, and the type of Award
to be granted, whether an Incentive Stock Option or a Nonqualified Stock Option
shall be granted, and the number of shares to be subject to each Option and
Restricted, Unrestricted, and Deferred Stock Award.
(b) An Award may be granted by the Committee to a Key Employee who is a
Director of the Company. A Director shall not participate in a vote approving a
grant of an Award to himself or herself to the extent prohibited by the laws of
the State of Delaware governing corporate self-dealing.
(c) The Committee shall determine the terms, restrictions, and provisions
of the agreement relating to each Award, including the period over which the
Award shall vest and such terms, restrictions, and provisions as shall be
necessary to cause certain Options to qualify as Incentive Stock Options. The
Committee may correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any agreement relating to an Award, in such
manner and to the extent the Committee shall determine in order to carry out the
purposes of the Plan. The Committee may, in its discretion, accelerate (i) the
date on which any Option or SAR may be exercised or (ii) the date of termination
of the restrictions applicable to a Restricted Stock Award, if the Committee
determines that to do so will be in the best interests of the Company and the
Key Employees in the Plan.
ARTICLE IV
AWARDS
4.1 Awards. Awards under the Plan shall consist of Incentive Stock Options,
Nonqualified Stock Options, SARs, Restricted Stock Awards, Unrestricted Stock
Awards, and Deferred Stock Awards. All Awards shall be subject to the terms and
conditions of the Plan and to such other terms and conditions consistent with
the Plan as the Committee deems appropriate. Awards under a particular section
of the Plan need not be uniform and Awards under two or more sections may be
combined in one agreement. Any combination of Awards may be granted at one time
and on more than one occasion to the same Key Employee.
4.2 Eligibility for Awards. An Award may be made to any Key Employee
selected by the Committee. In making this selection and in determining the form
and amount of the Award, the Committee may give consideration to the functions
and responsibilities of the respective Key Employee, his or her present and
potential contributions to the success of the Detroit Diesel Group, the value of
his or her services to the Detroit Diesel Group, and such other factors deemed
relevant by the Committee.
4.3 Shares Available Under the Plan. The Detroit Diesel Stock to be offered
under the Plan pursuant to Awards may be authorized but unissued shares or
reacquired shares, and the Company may purchase shares required for this
purpose, from time to time, if it deems such purchase to be advisable. No more
than 1,200,000 shares of Detroit Diesel Stock shall be issuable upon exercise of
Options, SARs or pursuant to Restricted, Unrestricted or Deferred Stock Awards
granted under the Plan; provided, however, that the maximum number of shares of
Detroit Diesel Stock with respect to which Options or SARs may be granted to any
Key Employee in any calendar year shall not exceed 100,000. However, both limits
in the preceding sentence shall be subject to adjustment under Section 9.2.
Any shares of Detroit Diesel Stock subject to an Option which for any
reason is cancelled (excluding shares subject to an Option cancelled upon the
exercise of a related SAR) or terminated without having
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been exercised or any shares of Restricted Stock which are forfeited, shall
again be available for Awards under the Plan; provided, however, that (i) if an
Option or SAR is cancelled, the shares of Detroit Diesel Stock covered by the
cancelled Option or SAR shall be counted against the maximum number of shares
for which Options and SARs may be granted or awarded to any Key Employee, and
(ii) if the Option Price (or base amount on which an SAR is calculated) is
reduced after the date of grant (or award), the transaction shall be treated as
a cancellation of an Option (or SAR) and the grant of a new Option (or the award
of a new SAR) for purposes of counting the maximum number of shares for which
Options and SARs may be granted to any Key Employee. Shares subject to an Option
cancelled upon the exercise of an SAR shall not again be available for Awards
under the Plan.
ARTICLE V
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
5.1 Award of Stock Options. The Committee may, from time to time, subject
to Section 3.2(b) and other provisions of the Plan and such terms and conditions
as the Committee may prescribe, award Incentive Stock Options and Nonqualified
Stock Options to any Key Employee. Awards of Incentive Stock Options and
Nonqualified Stock Options shall be separate and not in tandem. No Incentive
Stock Option shall be granted under the Plan on or after the tenth anniversary
of the Effective Date of the Plan.
5.2 Period of Option.
(a) Unless otherwise provided in the related Stock Option Agreement, an
Option granted under the Plan shall be exercisable only after twelve months have
elapsed from the date of grant. After the twelve-month waiting period (or such
other period specified in the Stock Option Agreement), the Option may be
exercised at any time during the term of the Option, in whole or in
installments, as specified in the related Stock Option Agreement, upon
fulfillment of such other conditions (if any) as the Committee may specify in
the related Stock Option Agreement. Subject to Section 5.6, the duration of each
Option shall not be more than ten years from the date of grant.
(b) Except as provided in Section 5.6, an Option may not be exercised by a
Key Employee unless such Key Employee is then, and continually after the Option
has been granted, has been an employee of the Detroit Diesel Group.
5.3 Stock Option Agreement. Each Option shall be evidenced by a Stock
Option Agreement, in such form and containing such provisions not inconsistent
with the provisions of the Plan as the Committee from time to time shall
approve.
5.4 Option Price, Exercise and Payment. The Option Price of Detroit Diesel
Stock under each Option shall be determined by the Committee but shall be a
price not less than the greater of (i) 100 percent of the Fair Market Value of
Detroit Diesel Stock or (ii) the par value thereof, at the date such Option is
granted, as determined by the Committee.
Options may be exercised from time to time by giving written notice to the
Treasurer of the Company, specifying the number of shares to be purchased. No
Option may be exercised for less than 50 shares unless the issue of a lesser
number is enough to exhaust the Option. The notice of exercise shall be
accompanied by payment in full of the Option Price in cash or its equivalent,
provided, however, that if the Committee, in its discretion, so provides in the
related Stock Option Agreement, the Option Price may be paid in whole or in part
(i) through the transfer to the Company of shares of Detroit Diesel Stock
previously acquired by the Key Employee, provided that if such shares of Detroit
Diesel Stock were acquired through the exercise of an Incentive Stock Option and
are used to pay the Option Price of an Incentive Stock Option, such shares have
been held by the Key Employee for a period of not less than the holding period
described in section 422(a)(1) of the Code on the date of exercise, or if such
shares of Detroit Diesel Stock were acquired through exercise of a Nonqualified
Stock Option or of an option under a similar plan or through exercise of an
Incentive Stock Option and are used to pay the Option Price of a Nonqualified
Stock Option, such shares have been held by the Key Employee for a period of
more than one year on the date of exercise, (ii) through the transfer to the
Company of shares of Detroit Diesel
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Stock newly acquired by the Key Employee upon exercise of such Option (which
shall constitute a disqualifying disposition in the case of an Option which is
an Incentive Stock Option), (iii) through the transfer to the Company of any
combination of cash or its equivalent, previously acquired shares of Detroit
Diesel Stock or newly acquired shares of Detroit Diesel Stock, or (iv) by
delivering a properly executed notice of exercise of the Option to the Company
and a broker, with irrevocable instructions to the broker promptly to deliver to
the Company the amount of sale or loan proceeds necessary to pay the exercise
price of the Option. In no event, however, may Restricted Stock be transferred
as payment of the Option Price. In the event such Option Price is paid in whole
or in part, with shares of Detroit Diesel Stock, the portion of the Option Price
so paid shall be equal to the value, as of the date of exercise of the Option,
of such shares. The value of such shares shall be equal to the number of such
shares multiplied by the Fair Market Value of such shares on the date of
exercise (or the immediately preceding trading day if the date of exercise is
not a trading day). The Company shall not issue or transfer Detroit Diesel Stock
upon exercise of an Option until the Option Price is fully paid, except that, in
the case of an exercise arrangement approved by the Committee and described in
(iv) above, payment may be made as soon as practicable after the exercise. If
the related Stock Option Agreement so provides, the Key Employee may satisfy any
amount required to be withheld by the Company under applicable federal tax laws
in effect from time to time, by electing to have the Company withhold a portion
of the shares of Detroit Diesel Stock to be delivered for the payment of such
taxes on such terms and conditions as the Stock Option Agreement specifies.
5.5 Limitations on Incentive Stock Options.
(a) The aggregate Fair Market Value (determined as of the date the
Incentive Stock Option is granted) of the Detroit Diesel Stock with respect to
which Incentive Stock Options are exercisable for the first time by a Key
Employee during any calendar year (under this Plan and any other plan of the
Detroit Diesel Group) shall not exceed one hundred thousand dollars ($100,000).
If an Option intended as an Incentive Stock Option is granted to a Key Employee
and the Option may not be treated in whole or in part as an Incentive Stock
Option pursuant to the $100,000 limitation, the Option shall be treated as an
Incentive Stock Option to the extent it may be so treated under the limitation
and as a Nonqualified Stock Option as to the remainder. For purposes of
determining whether an Incentive Stock Option would cause the limitation to be
exceeded, Incentive Stock Options shall be taken into account in the order
granted.
(b) If the Key Employee owns more than ten percent (10%) of the total
combined voting power of all shares of stock of the Company or of a Subsidiary
at the time an Incentive Stock Option is granted to him or her, the Option price
for the Incentive Stock Option shall be not less than the greater of (i) one
hundred ten percent (110%) of the Fair Market Value of the optioned shares of
Detroit Diesel Stock on the date the Incentive Stock Option is granted, or (ii)
the par value thereof, and such Incentive Stock Option, by its terms, shall not
be exercisable after the expiration of five (5) years from the date the
Incentive Stock Option is granted.
(c) The conditions set forth in this Section 5.5 shall not apply to
Nonqualified Stock Options.
5.6 Termination of Employment.
(a) If the employment of a Key Employee with the Detroit Diesel Group is
terminated for reasons other than (i) death, (ii) discharge for "Cause," as
defined in Section 10.2, or (iii) retirement, the Key Employee may exercise an
Option at any time within three months after such termination, to the extent of
the number of shares covered by such Option which were purchasable at the date
of such termination; provided, however, that an Option shall be so exercisable
only until the earlier of the expiration of such three-month period or the
expiration date of such Option.
(b) If the employment of a Key Employee with the Detroit Diesel Group is
terminated for Cause, any Options of such Key Employee shall expire and any
rights thereunder shall terminate immediately. Any Option of a Key Employee who
retires may be exercised at any time within one year of such retirement (within
three months of such retirement if the Option is an Incentive Stock Option), to
the
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extent that the number of shares covered by such Option were purchasable at the
date of such retirement, except that an Option shall not be exercisable on any
date beyond the expiration date of such Option.
(c) Should a Key Employee die either while in the employ of the Detroit
Diesel Group or after termination of such employment but prior to the expiration
of the applicable period under Section 5.6(a) or (b), the Option rights of such
deceased Key Employee may be exercised by his or her Personal Representative at
any time within one year after the Key Employee's death to the extent of the
number of shares covered by such Option which were purchasable at the date of
such death, except that an Option shall not be so exercisable on any date beyond
the expiration date of such Option.
5.7 Shareholder Rights and Privileges. A Key Employee shall have no rights
as a shareholder with respect to any shares of Detroit Diesel Stock covered by
an Option until the issuance of a stock certificate to the Key Employee
representing such shares.
5.8 Award of SARs.
(a) At any time prior to six months before an Option's expiration date, the
Committee may award to the Key Employee an SAR related to the Option.
(b) The SAR shall represent the right to receive payment of an amount not
greater than the spread, if any, by which the Fair Market Value of Detroit
Diesel Stock on the trading day immediately preceding the date of exercise of
the SAR exceeds the greater of (i) the Option Price, or (ii) 100 percent of the
Fair Market Value of Detroit Diesel Stock on the date such SAR is awarded (in
the event such SAR is awarded on a date other than the date the Option is
granted).
(c) SARs awarded under the Plan shall be evidenced by either the Stock
Option Agreement or a separate agreement between the Company and the Key
Employee.
(d) An SAR shall be exercisable only at the same time and to the same
extent and subject to the same conditions as the Option related thereto is
exercisable, except that the Committee may prescribe additional conditions and
limitations on the exercise of any SAR. An SAR shall be transferable only when
the related Option is transferable, and under the same conditions. The exercise
of an SAR shall cancel the related Option. SARs may be exercised only when the
value of a share of Detroit Diesel Stock subject to the related Option exceeds
the Option Price. Such value shall be determined in the manner specified in
Section 5.8(b).
(e) An SAR shall be exercisable only by written notice to the Treasurer of
the Company and only to the extent that the related Option is exercisable.
However, an SAR shall in no event be exercisable during the first six months of
its term, except in the event of death or disability of the Key Employee prior
to the expiration of such six-month period.
(f) All SARs shall automatically be exercised on the last trading day prior
to the expiration of the related Option, so long as the value of a share of
Detroit Diesel Stock exceeds the Option Price, unless prior to such day the
holder instructs the Treasurer otherwise in writing. Such value shall be
determined in the manner specified in Section 5.8(b).
(g) Payment of the amount to which a Key Employee is entitled upon the
exercise of an SAR shall be made in cash, Detroit Diesel Stock, or partly in
cash and partly in Detroit Diesel Stock. The shares shall be valued in the
manner specified in Section 5.8(b).
(h) Each SAR shall expire on a date determined by the Committee at the time
of Award, or, if earlier, upon the termination of the related Option.
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ARTICLE VI
RESTRICTED STOCK
6.1 Award of Restricted Stock.
(a) The Committee may make a Restricted Stock Award to any Key Employee,
subject to this Article VI and to such other terms and conditions as the
Committee may prescribe.
(b) Each certificate for Restricted Stock shall be registered in the name
of the Key Employee and deposited by him or her, together with a stock power
endorsed in blank, with the Company.
6.2 Restriction Period. At the time of making a Restricted Stock Award, the
Committee shall establish the Restriction Period applicable to such Award. The
Committee may establish different Restriction Periods from time to time and each
Restricted Stock Award may have a different Restriction Period, in the
discretion of the Committee. Restriction Periods, when established for each
Restricted Stock Award, shall not be changed except as permitted by Section 6.3.
6.3 Other Terms and Conditions. Detroit Diesel Stock, when awarded pursuant
to a Restricted Stock Award, shall be represented by a stock certificate
registered in the name of the Key Employee who receives the Restricted Stock
Award. Such certificate shall be deposited with the Company as provided in
Section 6.1(b). The Key Employee shall be entitled to receive dividends during
the Restriction Period and shall have the right to vote such Detroit Diesel
Stock and all other shareholder's rights, with the exception that (i) the Key
Employee will not be entitled to delivery of the stock certificate during the
Restriction Period, (ii) the Company will retain custody of the Detroit Diesel
Stock during the Restriction Period, (iii) a breach of a restriction or a breach
of the terms and conditions established by the Committee pursuant to the
Restricted Stock Award will cause a forfeiture of the Restricted Stock Award.
The Committee may, in addition, prescribe additional restrictions, terms, or
conditions upon or to the Restricted Stock Award.
6.4 Restricted Stock Award Agreement. Each Restricted Stock Award shall be
evidenced by a Restricted Stock Award Agreement in such form and containing such
terms and conditions not inconsistent with the provisions of the Plan as the
Committee from time to time shall approve. If the Restricted Stock Award
Agreement so provides, the Key Employee may satisfy any amounts required to be
withheld by the Company under applicable federal tax laws in effect from time to
time, by electing to have the Company withhold a portion of the Restricted Stock
Award to be delivered for the payment of such taxes on such terms and conditions
as the Restricted Stock Award Agreement specifies.
6.5 Termination of Employment. The Committee may, in its sole discretion,
establish rules pertaining to the Restricted Stock Award in the event of
termination of employment (by retirement, disability, death, or otherwise) of a
Key Employee prior to the expiration of the Restriction Period.
6.6 Payment for Restricted Stock. Restricted Stock Awards may be made by
the Committee under which the Key Employee shall not be required to make any
payment for the Detroit Diesel Stock or, in the alternative, under which the Key
Employee, as a condition to the Restricted Stock Award, shall pay all (or any
lesser amount than all) of the Fair Market Value of the Detroit Diesel Stock,
determined as of the date the Restricted Stock Award is made. If the latter,
such purchase price shall be paid in cash as provided in the Restricted Stock
Award Agreement.
ARTICLE VII
UNRESTRICTED STOCK AWARDS FOR KEY EMPLOYEES
7.1 Awards of Unrestricted Stock. The Committee may make awards of
unrestricted Detroit Diesel Stock to Key Employees in recognition of outstanding
achievements or as a supplemental award for Key Employees who receive Restricted
Stock Awards when Company performance exceeds the established financial goals.
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7.2 Registration. Each certificate for unrestricted Detroit Diesel Stock
shall be registered in the name of the Key Employee and immediately be delivered
to him or her.
ARTICLE VIII
DEFERRED STOCK AWARDS
8.1 Deferred Stock Awards.
(a) The Committee may make a Deferred Stock Award to any Key Employee,
which shall give the Key Employee the right to receive a specified number of
shares of Detroit Diesel Stock upon his termination of employment, subject to
this Article VIII and to such other terms and conditions as the Committee may
prescribe.
(b) Ninety days after the termination of the Key Employee's employment with
the Company, the Company shall deliver to the Key Employee the shares of Detroit
Diesel Stock specified in the Deferred Stock Award.
8.2 Cash Payments. From the date of the Deferred Stock Award until the date
Detroit Diesel Stock is distributed to the Key Employee pursuant to Section
8.1(b), the Company shall pay to the Key Employee in cash the amount of any
dividends to which the Key Employee would be entitled if the Key Employee owned
such Detroit Diesel Stock. Such payments shall be made at the same time as
dividends are paid by the Company.
8.3 Deferred Stock Award Agreement. Each Deferred Stock Award shall be
evidenced by a Deferred Stock Award Agreement in such form and containing such
terms and conditions not inconsistent with the provisions of the Plan as the
Committee from time to time shall approve. If the Deferred Stock Award so
provides, the Key Employee may satisfy any amounts required to be withheld by
the Company upon delivery of Detroit Diesel Stock under applicable federal tax
laws in effect from time to time by electing to have the Company withhold a
portion of the Restricted Stock Award to be delivered for the payment of such
taxes on such terms and conditions as the Deferred Stock Award Agreement
specifies.
8.4 Obligation Unfunded. The Company's obligation to deliver Common Shares
and cash to the Key Employee pursuant to this Article VIII shall be unfunded.
All such amounts shall be paid from the Company's general assets, and the Key
Employee shall have only the rights of a general, unsecured creditor against the
Company for any distributions due under this Article VIII.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1 Transferability. No Incentive Stock Option, share of Restricted Stock
or Deferred Stock Award under the Plan shall be transferable by the Key Employee
otherwise than by will or, if the Key Employee dies intestate, by the laws of
descent and distribution. All Incentive Stock Options, shares of Restricted
Stock and Deferred Stock Awards shall be exercisable or received during the Key
Employee's lifetime only by such Key Employee or his or her Personal
Representative. Except as provided in the Option Agreement, such limits on
transfer and exercise shall also apply to Nonqualified Stock Options and SARs.
Any transfer contrary to this Section 9.1 shall nullify the Option, SAR, share
of Restricted Stock, or Deferred Stock Award.
If the Key Employee is married at the time of exercise and if the Key
Employee so requests at the time of exercise, the certificate or certificates
shall be registered in the name of the Key Employee and the Key Employee's
spouse, jointly, with right of survivorship.
9.2 Adjustments Upon Changes in Stock.
(a) The number of shares of Detroit Diesel Stock which may be issued under
the Plan and the maximum number of shares with respect to which Options or SARs
may be granted or awarded during a specified period to any Key Employee under
the Plan, as stated in Section 4.3 hereof, and the number of
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shares issuable upon exercise of outstanding Options under the Plan (as well as
the Option Price per share under such outstanding Options) or upon termination
of employment under a Deferred Stock Award, shall be adjusted, as may be deemed
appropriate by the Committee, to reflect any stock dividend, stock split, share
combination, or similar change in the capitalization of the Company; provided,
however, that no such adjustment shall be made to an outstanding Incentive Stock
Option if such adjustment would constitute a modification under Section 424(h)
of the Code, unless the Optionee consents to such adjustment.
(b) In the event of a corporate transaction (such as, for example, a
merger, consolidation, acquisition of property or stock, separation,
reorganization, or liquidation), each outstanding Option shall be assumed by the
surviving or successor corporation; provided, however, that, in the event of a
proposed corporate transaction, the Committee may terminate all or a portion of
the outstanding Options if it determines that such termination is in the best
interests of the Company. If the Committee decides to terminate outstanding
Options, the Committee shall give each Key Employee holding an Option to be
terminated not less seven (7) days' notice prior to any such termination by
reason of such a corporate transaction, and any such Option which is to be so
terminated may be exercised (if and only to the extent that it is then
exercisable) up to, and including the date immediately preceding such
termination. Further, as provided in Section 3.2(c) hereof the Committee, in its
discretion, may accelerate, in whole or in part, the date on which any or all
Options become exercisable.
(c) The Committee also may, in its discretion, change the terms of any
outstanding Option to reflect any such corporate transaction, provided that, in
the case of Incentive Stock Options, such change is excluded from the definition
of a "modification" under section 424(h) of the Code, unless the Optionee
consents to the change.
9.3 Amendment, Suspension, and Termination of Plan.
(a) The Board may suspend or terminate the Plan or any portion thereof at
any time, and may amend the Plan from time to time in such respects as the Board
may deem advisable in order that any Awards thereunder shall conform to any
change in applicable laws or regulations or in any other respect the Board may
deem to be in the best interests of the Company; provided, however, that no such
amendment shall, without approval of the holders of at least a majority of the
votes cast at a duly held shareholders' meeting at which a quorum representing a
majority of the outstanding shares of the Company is, either in person or by
proxy, present and voting on the action, (i) except as provided in Section 9.2,
increase the number of shares of Detroit Diesel Stock with respect to which ISOs
may be issued under the Plan, (ii) modify the requirements as to eligibility for
participation in the Plan with respect to ISOs, (iii) with respect to Options or
SARs, modify the material terms of the "performance goal" within the meaning of
Treasury Regulation sec.1.162-27(e)(4)(vi) or any successor thereto (to the
extent compliance with section 162(m) of the Code is desired), or (iv) extend
the date under Section 5.1 as to which Incentive Stock Options may no longer be
granted under the Plan. No such amendment, suspension, or termination shall
alter or impair any outstanding Options, SARs, shares of Restricted or
Unrestricted Stock, or Deferred Stock Awards, without the consent of the Key
Employee affected thereby.
(b) With the consent of the Key Employee affected thereby, the Committee
may amend or modify any outstanding Options, SARs, Restricted Stock Awards, or
Deferred Stock Awards, in any manner to the extent that the Committee would have
had the authority under the Plan initially to award such Options, SARs,
Restricted Stock Awards, or Deferred Stock Awards as so modified or amended,
including without limitation, to change the date or dates as of which such
Options or SARs may be exercised, or to remove the restrictions on shares of
Restricted Stock.
(c) No Award shall be made pursuant to the Plan after the Plan is
terminated, but Awards made prior to the termination date may extend beyond that
date.
9.4 Nonuniform Determinations. The Committee's determinations under the
Plan, including without limitation, (i) the determination of the Key Employees
to receive Awards, (ii) the form, amount, and timing of such Awards, (iii) the
terms and provisions of such Awards and (iv) the agreements evidencing
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the same, need not be uniform and may be made by it selectively among Key
Employees who receive, or who are eligible to receive, Awards under the Plan,
whether or not such Key Employees are similarly situated.
9.5 General Restriction. Each Award under the Plan shall be subject to the
condition that, if at any time the Committee shall determine that (i) the
listing, registration, or qualification of the shares of Detroit Diesel Stock
subject or related thereto upon any securities exchange or under any state or
federal law, (ii) the consent or approval of any government or regulatory body,
or (iii) an agreement by the Key Employee with respect thereto, is necessary or
desirable, then such Award shall not become exercisable in whole or in part
unless such listing, registration, qualification, consent, approval, or
agreement shall have been effected or obtained free of any conditions not
acceptable to the Committee. Without limiting the generality of the foregoing,
each Key Employee or his legal representative or beneficiary may also be
required to give satisfactory assurance that shares purchased upon exercise of
an Option are being purchased for investment and not with a view to
distribution, and certificates representing such shares may be legended
accordingly.
9.6 No Right To Employment. Neither the action of the Company in
establishing the Plan, nor any action taken by it or by the Board or the
Committee under the Plan, nor any provision of the Plan, shall be construed as
giving to any person the right to be retained in the employ of the Company or
any Subsidiary.
9.7 Governing Law. With respect to any Incentive Stock Options granted
pursuant to the Plan and the Stock Option Agreements thereunder, the Plan, such
Stock Option Agreements and any Incentive Stock Options granted pursuant thereto
shall be governed by the applicable Code provisions to the. maximum extent
possible. Otherwise, the laws of the State of Delaware shall govern the
operation of, and the rights of Key Employees under, the Plan, the Stock Option
Agreements and any Options granted thereunder.
9.8 Application of Funds. The proceeds received by the Company from the
sale of Detroit Diesel Stock pursuant to Options granted under the Plan shall be
used for general corporate purposes. Any cash received in payment for shares
upon exercise of an Option to purchase Detroit Diesel Stock shall be added to
the general funds of the Company and shall be used for its corporate purposes.
Any Detroit Diesel Stock received in payment for shares upon exercise of an
Option to purchase Detroit Diesel Stock shall become treasury stock.
ARTICLE X
CHANGE IN CONTROL OF THE COMPANY
10.1 Contrary Provisions. Notwithstanding anything contained in the Plan to
the contrary, the provisions of this Article X shall govern and supersede any
inconsistent terms or provisions of the Plan.
10.2 Definitions. For purposes of the Plan, the following words and phrases
shall have the meanings set forth below.
(a) Change in Control. "Change in Control" shall mean any of the following
events:
(i) The acquisition in one or more transactions by any "Person" (as
the term person is used for purposes of Section 13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended (the "1934 Act")) of
"Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under
the 1934 Act) of twenty-five percent (25%) or more of the combined voting
power of the Company's then outstanding voting securities (the "Voting
Securities"), provided, however, that for purposes of this Section
l0.2(a)(i), the Voting Securities acquired directly from the Company by any
Person shall be excluded from the determination of such Person's Beneficial
Ownership of Voting Securities (but such Voting Securities shall be
included in the calculation of the total number of Voting Securities then
outstanding); or
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(ii) The individuals who, as of the Effective Date, are members of the
Board (the "Incumbent Board"), cease for any reason to constitute at least
two-thirds of the Board; provided, however, that if the election, or
nomination for election by the Company's shareholders, of any new director
was approved by a vote of at least two-thirds of the Incumbent Board, such
new director shall, for purposes of the Plan, be considered as a member of
the Incumbent Board; or
(iii) Approval by shareholders of the Company of (1) a merger or
consolidation involving the Company if the shareholders of the Company,
immediately before such merger or consolidation, do not own, directly or
indirectly immediately following such merger or consolidation, more than
eighty percent (80%) of the combined voting power of the outstanding voting
securities of the corporation resulting from such merger or consolidation
in substantially the same proportion as their ownership of the Voting
Securities immediately before such merger or consolidation or (2) a
complete liquidation or dissolution of the Company or an agreement for the
sale or other disposition of all or substantially all of the assets of the
Company; or
(iv) Acceptance of shareholders of the Company of shares in a share
exchange if the shareholders of the Company, immediately before such share
exchange, do not own, directly or indirectly immediately following such
share exchange, more than eighty percent (80%) of the combined voting power
of the outstanding voting securities of the corporation resulting from such
share exchange in substantially the same proportion as their ownership of
the Voting Securities outstanding immediately before such share exchange.
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur
solely because twenty-five percent (25%) or more of the then outstanding Voting
Securities is acquired by (1) a trustee or other fiduciary holding securities
under one or more employee benefit plans maintained by the Company or any of its
subsidiaries or (2) any corporation which, immediately prior to such
acquisition, is owned directly or indirectly by the shareholders of the Company
in the same proportion as their ownership of stock in the Company immediately
prior to such acquisition.
Moreover, notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because any Person (the "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the Outstanding Voting Securities
as a result of the acquisition of Voting Securities by the Company which, by
reducing the number of Voting Securities outstanding, increases the proportional
number of shares Beneficially Owned by the Subject Person, provided that if a
Change in Control would occur (but for the operation of this sentence) as a
result of the acquisition of Voting Securities by the Company, and after such
share acquisition by the Company, the Subject Person becomes the Beneficial
Owner of any additional Voting Securities which increases the percentage of the
then outstanding Voting Securities Beneficially Owned by the Subject Person,
then a Change in Control shall occur.
(b) "Cause." "Cause" shall mean the termination of a Key Employee's
employment by reason of his or her (i) conviction of a felony or (ii) engaging
in conduct which constitutes willful gross misconduct which is demonstrably and
materially injurious to the Company, monetarily or otherwise. No act, nor
failure to act, on the Employee's part, shall be considered "willful" unless he
or she has acted, or failed to act, with an absence of good faith and without a
reasonable belief that his or her action or failure to act was in the best
interest of the Company.
(c) "Adjusted Fair Market Value." "Adjusted Fair Market Value" shall mean,
in the event of a Change in Control, the greater of (a) the highest price per
share of Detroit Diesel Stock paid to holders of the shares of Detroit Diesel
Stock in any transaction (or series of transactions) constituting or resulting
in a Change in Control or (b) the highest Fair Market Value of a share of
Detroit Diesel Stock during the ninety (90) day period ending on the date of a
Change in Control.
10.3 Effect of Change in Control.
(a) Upon a Change in Control, (i) all Options and SARs outstanding on the
date of such Change in Control shall become immediately and fully exercisable
and (ii) any Key Employee who may be subject to liability under Section 16(b) of
Securities Exchange Act of 1934, as amended, will be permitted to
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surrender for cancellation for a period of sixty (60) days commencing after the
later of such Change in Control or the expiration of six months from the date of
grant, any Option or SAR (or portion of an Option or SAR), to the extent not yet
exercised and the Key Employee will be entitled to receive a cash payment in an
amount equal to the excess, if any, in respect of each Option or SAR
surrendered, (1)(I) except as described in clause (II) below, the greater of (x)
the Fair Market Value, on the date preceding the date of surrender of the shares
subject to the Option or SAR (or portion thereof) surrendered or (y) the
Adjusted Fair Market Value of the Shares subject to the Option or SAR (or
portion thereof) surrendered or (II) in the case of an Incentive Stock Option or
an SAR issued in connection with an Incentive Stock Option, the Fair Market
Value, on the date preceding the date of surrender, of the Shares subject to the
Option or SAR (or portion thereof) surrendered, over (2) the aggregate purchase
price for such Shares under the Option or SAR.
(b) Upon a Change in Control, all restrictions upon any shares of
Restricted Stock shall lapse immediately and all such shares shall become fully
vested in the Key Employee and shall promptly be delivered to the Key Employee.
10.4 Amendment or Termination. This Article X shall not be amended or
terminated at any time if any such amendment or termination would adversely
affect the rights of any Key Employee under the Plan, unless a majority of the
Key Employees affected by the amendment or termination consent thereto.
IN WITNESS WHEREOF, DETROIT DIESEL CORPORATION has caused these presents to
be duly executed this 29(th) day of October, 1998.
DETROIT DIESEL CORPORATION
By: /s/ CHARLES G. MCCLURE
------------------------------------
Charles G. McClure
Its: President
Attest:
/s/ MARY LOU PERNICANO
- --------------------------------------
Mary Lou Pernicano
Secretary
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APPENDIX C -- STOCKHOLDINGS
This Appendix C contains stockholding information for persons known to the
company to own five percent or more of the company's common stock, the nominees
for election as directors, the directors continuing in office, and the company's
executive officers.
Ownership of the company's common stock is shown in terms of "beneficial
ownership." A person generally "beneficially owns" shares if he has either the
right to vote those shares or dispose of them. More than one person may be
considered to beneficially own the same shares.
In this proxy statement, unless otherwise noted, a person has sole voting
and dispositive power for those shares shown as beneficially owned by him.
Shares shown as beneficially owned by the company's executive officers includes
shares that they have the right to acquire by exercising options on or before
May 15, 1999. The percentages shown in this proxy statement compare the person's
beneficially owned shares with the total number of shares of the company's
common stock outstanding on March 15, 1999 (24,703,566 shares).
CERTAIN STOCKHOLDERS
The following table shows the beneficial ownership of the company's common
stock as of March 15, 1999, for persons known to the company to own five percent
or more of the company's common stock.
SHARES
BENEFICIALLY OWNED
---------------------
NAME AND ADDRESS NUMBER PERCENT
---------------- ------ -------
Penske Corporation.......................................... 11,240,000 46%
13400 Outer Drive, West
Detroit, Michigan 48239
Diesel Project Development, Inc. ........................... 4,935,361 20%
1201 North Market Street, 14th Floor
Wilmington, Delaware 19801
Husic Capital Management.................................... 1,285,600 5%
555 California Street, Suite 2900
San Francisco, California 94104
The shares shown in this table as beneficially owned by Penske Corporation
may also be considered to be beneficially owned by Roger S. Penske, although Mr.
Penske disclaims beneficial ownership. DDC Holdings, Inc., a wholly-owned
indirect subsidiary of Penske Corporation, is the record owner of this common
stock. Mr. Penske, who may be considered to beneficially own approximately 57%
of Penske Corporation's stock, is a director and the chief executive officer of
Penske Corporation and DDC Holdings. Mr. Penske also beneficially owns 121,750
shares of the company's common stock. DDC Holdings' address is 1105 North Market
Street, Suite 1300, Wilmington, Delaware 19801. Mr. Penske's address is 13400
Outer Drive, West, Detroit, Michigan 48239.
The shares shown in this table as beneficially owned by Diesel Project
Development may also be considered to be beneficially owned by DaimlerChrysler
AG, since Diesel Project Development is a wholly-owned indirect subsidiary of
DaimlerChrysler. DaimlerChrysler's address is Epplestrasse 225, 70546 Stuttgart,
Germany.
The shares shown in this table as beneficially owned by Husic Capital
Management may also be considered to be beneficially owned by Frank J. Husic and
Co. (the sole general partner of Husic Capital Management) and Frank J. Husic
(the sole shareholder of Frank J. Husic and Co.). The address of Frank J. Husic
and Co. and Mr. Husic is 555 California Street, Suite 2900, San Francisco,
California 94104.
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NOMINEES, CONTINUING DIRECTORS AND EXECUTIVE OFFICERS
The following table contains stockholding information for the nominees for
election as directors, the directors continuing in office, and the company's
executive officers.
SHARES OF
COMMON STOCK
BENEFICIALLY OWNED
TERM TO ------------------
NAME AGE POSITIONS WITH COMPANY EXPIRE NUMBER PERCENT
---- --- ---------------------- ------- ------ -------
NOMINEES FOR ELECTION AS DIRECTORS
Dr. Eckhard Cordes............. 48 Director 2002 0 *
William E. Hoglund............. 64 Director 2002 2,000 *
Roger S. Penske................ 62 Chairman and Director 2002 121,750 *
DIRECTORS CONTINUING IN OFFICE
John E. Doddridge.............. 58 Director 2001 1,000 *
Ludvik F. Koci................. 62 Vice Chairman and Director 2001 156,393 *
Dr. Kurt J. Lauk............... 52 Director 2001 0 *
Charles G. McClure............. 45 President and Director 2001 13,680 *
Gary G. Jacobs................. 57 Director 2000 3,800 *
Timothy D. Leuliette........... 49 Vice Chairman and Director 2000 38,750 *
Joseph F. Welch................ 64 Director 2000 1,000 *
R. Jamison Williams, Jr........ 59 Director 2000 3,100 *
OTHER EXECUTIVE OFFICERS
Executive Vice President -
Robert R. Allran............... 56 Operations -- 53,324 *
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP (19 PERSONS) 548,393 2.2%
- ---------------
* Under 1%.
The amount shown in this table for Mr. Penske includes 3,000 shares owned
by Mr. Penske as custodian for three of his children, but does not include
shares for which Mr. Penske disclaims beneficial ownership: 11,240,000 shares
owned by DDC Holdings and 1,000 shares owned by his wife. The amounts shown for
Dr. Cordes and Dr. Lauk do not include 4,935,361 shares of common stock owned by
Diesel Project Development for which each disclaims beneficial ownership.
For the executive officers, the amounts shown in the table include shares
that they have the right to acquire upon exercising options on or before May 15,
1999, as follows: Mr. Penske -- 88,750 shares; Mr. Leuliette -- 38,750 shares;
Mr. Koci -- 88,750 shares; Mr. McClure -- 8,750 shares; and Mr. Allran -- 19,500
shares. The executive officers, as a group, have the right to acquire 320,000
shares of the common stock upon exercising options on or before May 15, 1999.
The amounts shown for Messrs. Koci and Allran also include deferred stock
awards (Mr. Koci -- 41,024 shares and Mr. Allran -- 20,512 shares). The deferred
stock awards are vested and will be issued to a person 90 days after termination
of his employment. Until issued, these persons have no voting or disposition
rights on their deferred stock.
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APPENDIX D -- EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table provides compensation information for the 1998, 1997
and 1996 fiscal years for the company's chief executive officer -- Roger S.
Penske -- and the four most highly compensated executive officers other than Mr.
Penske -- Ludvik F. Koci, Timothy D. Leuliette, Charles G. McClure and Robert R.
Allran. Please note that the information for Mr. Leuliette and Mr. McClure
begins with the 1997 fiscal year, since that is the year in which they began to
receive compensation from the company.
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------ ------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
FISCAL SALARY BONUS COMPENSATION OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
--------------------------- ------ ------ ----- ------------ ---------- ------------
Roger S. Penske.............. 1998 $450,000 $633,000 0 15,000 0
Chairman 1997 $450,000 $455,000 0 20,000 0
1996 $450,000 $ 0 0 0 0
Ludvik F. Koci............... 1998 $435,000 $474,750 $ 800 15,000 $10,400
Vice Chairman 1997 $425,000 $341,000 $119,259 20,000 $10,400
1996 $415,000 $ 0 $138,269 0 $ 9,750
Timothy D. Leuliette......... 1998 $440,000 $474,750 0 15,000 0
Vice Chairman 1997 $425,000 $341,000 0 70,000 0
Charles G. McClure........... 1998 $425,000 $395,620 $ 95,600 15,000 $10,400
President 1997 $145,208 $325,000 0 20,000 0
Robert R. Allran............. 1998 $260,700 $210,000 $ 800 6,000 $10,400
Executive Vice President - 1997 $234,888 $167,000 $ 59,620 6,000 $10,400
Operations 1996 $215,000 $ 35,000 $ 84,992 0 $ 9,750
The compensation described in this table does not include medical, group
life insurance or other benefits that are available generally to all of the
company's salaried employees. It also does not include certain perquisites and
other personal benefits, securities or property received by these executive
officers, not material in amount.
The "Salary" column includes salary reduction elections made under the
company's 401(k) plan for salaried employees and its flexible benefits plan. The
"Other Annual Compensation" column includes for 1998, profit sharing; for 1998
for Mr. McClure, a special incentive payment; for 1996 and 1997 for Messrs. Koci
and Allran, reimbursements for taxes associated with the vesting of restricted
stock; and for 1996 for Messrs. Koci and Allran, imputed income associated with
a company-provided vehicle. The "All Other Compensation" column includes the
company's matching contributions under the company's 401(k) plan.
OPTION GRANTS IN FISCAL YEAR 1998
The following table provides information concerning stock options granted
to Messrs. Penske, Koci, Leuliette, McClure and Allran in 1998. This table
includes hypothetical gains that would exist for these options assuming annual
compounded stock price appreciation of 5% and 10% from the date the options were
granted over the full option term. Of course, actual gains, if any, on stock
option exercises and stock
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accruals will depend upon the future performance of the common stock, and there
can be no assurance that the amounts reflected in the table will be achieved.
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE AT
------------------------------------------------------------- ASSUMED ANNUAL
PERCENT RATES
OF TOTAL OF STOCK PRICE
NUMBER OF OPTIONS APPRECIATION FOR
SECURITIES GRANTED TO OPTION TERM
UNDERLYING EMPLOYEES -------------------
OPTIONS IN FISCAL EXERCISE 5% 10%
NAME GRANTED (#) YEAR PRICE ($/SH) EXPIRATION DATE ($) ($)
---- ----------- ---------- ------------ --------------- --- ---
Roger S. Penske........ 15,000 6.9% $22.69 April 29, 2008 $214,050 $542,400
Ludvik F. Koci......... 15,000 6.9% $22.69 April 29, 2008 $214,050 $542,400
Timothy D. Leuliette... 15,000 6.9% $22.69 April 29, 2008 $214,050 $542,400
Charles G. McClure..... 15,000 6.9% $22.69 April 29, 2008 $214,050 $542,400
Robert R. Allran....... 6,000 2.7% $22.69 April 29, 2008 $ 85,620 $216,960
The last two columns show gains that might exist at the end of the 10-year
option term. This valuation is hypothetical; if the stock price does not
increase above the exercise price, compensation to the named executive officers
will be zero. A 5% and 10% annually compounded increase in the company's stock
price from the date of grant to the end of the 10-year option term would result
in stock prices of $36.96 and $58.85 per share, respectively.
Each option becomes exercisable in four equal, annual increments beginning
in April 1999. The exercise price may be unpaid in cash, by delivery of already
owned shares subject to certain conditions or pursuant to a cashless exercise
procedure under which the optionee provides irrevocable instructions to a
brokerage firm to sell the purchased shares and to remit to the company, out of
the sale proceeds, an amount equal to the exercise price plus all applicable
withholding taxes.
OPTION VALUES AT FISCAL YEAR END
The following table shows the number of shares covered by both exercisable
and non-exercisable stock options held by Messrs. Penske, Koci, Leuliette
McClure and Allran as of December 31, 1998. This table also shows the value on
that date of their "in-the-money" options, which is the positive spread, if any,
between the exercise price of existing stock options and $20.69 per share (the
closing market price of the common stock on December 31, 1998). No options were
exercised in 1998 by any of these persons.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END AT FISCAL YEAR-END
(#) ($)
------------------------------ ------------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------------------- -------------------------
Roger S. Penske.......................... 88,750/21,250 $ 71,400/$ 36,900
Ludvik F. Koci........................... 88,750/21,250 $ 71,400/$ 36,900
Timothy D. Leuliette..................... 38,750/46,250 $129,150/$129,150
Charles G. McClure....................... 8,750/26,250 $ 0/$ 0
Robert R. Allran......................... 19,500/ 7,500 $ 17,970/$ 11,070
EMPLOYEE BENEFIT PLAN
The company maintains the Detroit Diesel Corporation Employees' Pension
Plan (the "Salaried Plan"), under which salaried employees of the company are
eligible to participate on the first of the month following 30 days of
employment. The Salaried Plan is qualified under Section 401(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), and is a defined benefit plan of
the type known as a "cash balance plan." Each payroll period during the plan
year, the company credits to a participant's hypothetical account an amount
equal to 6.25% of the participant's annual base salary; the participant's
account is increased annually at an indexed rate of interest, based on the rate
of return for one-year U.S.
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Treasury Bills. Upon retirement, a participant may elect to receive the value of
his account in a lump sum or in the form of an annuity. A minimum benefit is
payable under the Salaried Plan equal to 1.31% of the participant's highest five
year average annual compensation during the participant's last ten years of
employment times his years of service, plus 0.32% of average annual compensation
in excess of two times his "covered compensation" (based on Social Security
wages), times his years of service (up to a maximum of 35 years). The
compensation covered by the Salaried Plan is a participant's base pay during a
calendar year. A participant's compensation covered under the Salaried Plan is
generally the same as that shown in the "salary" column of the Summary
Compensation Table. However, pursuant to Section 401(a)(17) of the Code, the
amount of compensation that can be considered in computing benefits under the
Salaried Plan was $160,000 for each of 1997 and 1998 and will be $160,000 for
1999, and, under current law, will be raised in $10,000 increments in succeeding
years by annual cost-of-living adjustments determined by the U.S. Secretary of
the Treasury. In addition, the company has implemented the Detroit Diesel
Supplemental Executive Retirement Plan (the "SER Plan"), an unfunded,
nonqualified benefit plan for executive officers designated by the Compensation
Committee. Participants under this plan are entitled to a benefit that, when
aggregated with the amount that they receive under the Salaried Plan, would
cause them to receive an amount equal to the amount they would have received
under the Salaried Plan without applying the IRS compensation and maximum
benefit limits. Participants who formerly worked for General Motors will also
receive a benefit based on General Motors service and the formula in the General
Motors Pension Plan as in effect on December 31, 1987, and the participant's
average annual compensation at the time of retirement or termination of
employment.
The estimated annual benefits payable upon retirement, including the amount
of the benefit based on any General Motors service (based on an expected
retirement age of 65, straight life form of payments and deductions for social
security) and benefits under the SER Plan, are for Mr. Koci -- $265,824, Mr.
McClure -- $233,220 and Mr. Allran -- $173,827. Credited years of service under
the Salaried Plan as of December 31, 1997, are for Mr. Koci -- 44 years, Mr.
McClure -- 1 year and Mr. Allran -- 33 years.
Participants become 100% vested upon completion of five or more years of
service, or upon the attainment of age 65 or death while in the employ of the
company. Mr. McClure will not become vested until 2002.
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DETROIT DIESEL CORPORATION
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
APRIL 27, 1999
P
THIS PROXY IS SOLICITED ON BEHALF OF
R DETROIT DIESEL CORPORATION'S BOARD OF DIRECTORS.
O The undersigned hereby appoints Roger S. Penske and Robert E. Belts,
and each of them, proxies for the undersigned, with full power of
X substitution, to vote all shares of Detroit Diesel Corporation Common
Stock which the undersigned may be entitled to vote at the Annual
Y Meeting of Stockholders of Detroit Diesel Corporation, in Detroit,
Michigan on Tuesday, April 27, 1999, at 9:30 a.m., or at any
adjournment thereof, upon the matters set forth on the reverse side and
described in the accompanying Notice of Annual Meeting and Proxy
Statement and upon such other business as may properly come before the
meeting or any adjournment thereof.
Employees participating in the company's employee's savings plans
may use this proxy to instruct the plan trustees how to vote the shares
held for such employees, and the trustees will vote such shares, subject
to the applicable plan, in accordance with such instructions. The
trustees will vote any shares for which they do not receive instructions
in the same proportion as they vote the shares for which they receive
instructions.
PLEASE MARK THIS PROXY AS INDICATED ON THE REVERSE SIDE TO VOTE ON
ANY ITEM. IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS'
RECOMMENDATIONS, PLEASE SIGN AND DATE THE REVERSE SIDE; NO BOXES NEED TO
BE CHECKED.
COMMENTS/ADDRESS CHANGE: PLEASE MARK COMMENT/ADDRESS BOX ON REVERSE SIDE
(Continued and to be signed on other side)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
37
Please mark
your votes as
indicated in
this example \ X \
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1 AND 2
Item 1-ELECTION OF DIRECTORS WITHHELD Item 2-APPROVAL OF FOR AGAINST ABSTAIN
Nominees: FOR FOR ALL 1998 STOCK INCENTIVE PLAN \ \ \ \ \ \
Dr. Eckhard Cordes \ \ \ \
William E. Hoglund Item 3-APPROVAL OF FOR AGAINST ABSTAIN
Roger S. Penske DELOITTE & TOUCHE AS AUDITORS \ \ \ \ \ \
WITHHELD FOR: (WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW)
------------------------------------------------------------------
I PLAN TO ATTEND MEETING \ \
COMMENTS/ADDRESS CHANGE \ \
Please mark this box if you have
written comments/address change
on the reverse side.
RECEIPT IS HEREBY ACKNOWLEDGED OF THE DETROIT DIESEL
CORPORATION NOTICE OF ANNUAL MEETING AND PROXY
STATEMENT.
Signatures Date
--------------------------------------------------------- ------------------------------
NOTE: Please sign as name appears hereon. Joint owners should each sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE