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SCHEDULE 14A
(RULE 14a-101)
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, For Use
of the Commission
Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ASSOCIATED MATERIALS INCORPORATED
- --------------------------------------------------------------------------------
(Name of Registrant as specified in its Charter and Person
Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials:
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement no.:
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(3) Filing Party:
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(4) Date Filed:
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[ASSOCIATED MATERIALS LETTERHEAD]
April , 2001
Dear Stockholders:
You are cordially invited to attend our annual stockholders' meeting to be held
at 9:30 a.m. on Thursday, May 24, 2001, in the Keystone Room on the 40th Floor
of Chase Tower, 2200 Ross Avenue, Dallas, Texas 75201.
The proposals to be acted upon at the annual meeting include the election of
directors, an amendment to the Company's certificate of incorporation to provide
that all members of the Company's Board of Directors will be elected each year,
amendments to the Stock Incentive Plan and the Employee Stock Purchase Plan to
increase the number of authorized shares that may be issued under each plan and
the ratification of the appointment of Ernst & Young LLP as the Company's
independent auditors for 2001. I hope you will carefully read these proposals,
which are described in the accompanying proxy statement, and vote your shares.
It is important that your shares be represented at the annual meeting.
Accordingly, even if you plan to attend, please sign, date and promptly mail the
enclosed proxy card in the postage-prepaid envelope.
Sincerely,
William W. Winspear
Chairman, President and Chief
Executive Officer
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ASSOCIATED MATERIALS INCORPORATED
2200 ROSS AVENUE, SUITE 4100 EAST
DALLAS, TEXAS 75201
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PROXY STATEMENT
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SOLICITATION AND VOTING OF PROXIES
This proxy statement is being provided to you in connection with the
solicitation of proxies to be voted at the Annual Meeting of Stockholders of
Associated Materials Incorporated. Proxies are being solicited on behalf of the
Board of Directors of Associated Materials. The meeting will be held on
Thursday, May 24, 2001, starting at 9:30 a.m., in the Keystone Room on the 40th
Floor of Chase Tower, 2200 Ross Avenue, Dallas, Texas 75201. This proxy
statement and the enclosed proxy card are first being mailed on or about April
, 2001, to holders of the Company's common stock entitled to vote at
the Annual Meeting.
A Proxy Committee will vote the shares of common stock represented by each
proxy returned to Associated Materials. William W. Winspear and Robert L.
Winspear are the members of the Proxy Committee. Any stockholder giving a proxy
may change his or her vote at any time before it is voted at the Annual Meeting
by notifying the Secretary of Associated Materials in writing, by submitting a
new proxy card dated after the date of the proxy being revoked or by attending
the Annual Meeting and voting in person. Where a stockholder's proxy specifies a
choice with respect to a matter, the shares will be voted accordingly. If no
such specification is made, the shares will be voted, FOR the amendment to the
Company's certificate of incorporation to provide that all members of the
Company's Board of Directors will be elected each year, FOR the nominees for
director identified below, FOR the amendment to the Associated Materials Stock
Incentive Plan to increase the number of authorized shares that may be issued
under the plan, FOR the amendment to the Associated Materials Employee Stock
Purchase Plan to increase the number of authorized shares that may be issued
under the plan and FOR the ratification of the appointment of Ernst & Young LLP
as the Company's independent auditors.
RECORD DATE AND VOTING STOCK
April 12, 2001 has been set as the record date for the purpose of
determining stockholders entitled to notice of, and to vote at, the Annual
Meeting. As of the record date, there were 6,098,448 shares of common stock and
1,550,000 shares of Class B common stock outstanding. Each outstanding share of
common stock is entitled to one vote on each proposal submitted to a vote of the
stockholders at the Annual Meeting. Under the terms of Associated Materials'
certificate of incorporation, record holders of the Company's Class B common
stock are only entitled to vote on the proposal to amend the certificate of
incorporation. With respect to this proposal, each share of Class B common stock
is entitled to one vote and will be counted with all votes of common stock as a
single class. Only recordholders of common stock and Class B common stock at the
close of business on the record date are entitled to vote at the Annual Meeting
or any adjournment or postponement of the Annual Meeting.
A plurality of the votes of common stock cast at the Annual Meeting is
required to elect directors. The affirmative vote of the holders of a majority
of the shares of common stock and Class B common stock, voting together as a
single class, is required to approve the proposed amendment to the Company's
certificate of incorporation. A majority of the votes cast at the Annual Meeting
is required to approve the other actions proposed to be taken at the Annual
Meeting. Abstentions and broker non-votes will be included in determining the
number of shares of Company stock present or represented at the Annual Meeting
for purposes of determining whether a quorum exists. However, abstentions with
respect to any proposal brought to a vote at the Annual Meeting will have the
same effect as a vote against the proposal. Broker non-votes are treated as
shares not present for the purposes of the vote with respect to a specific
proposal and therefore will
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have no effect on the outcome of the vote on any proposal other than the
proposal to amend the Company's certificate of incorporation. Because this
proposal requires the approval of a majority of the outstanding shares of common
stock and Class B common stock, a broker non-vote with respect to the proposal
to amend the certificate has the same effect as a vote against the proposal.
AMENDMENT TO THE CERTIFICATE OF INCORPORATION
(PROPOSAL NO. 1)
The Company's certificate of incorporation currently provides that the
Board of Directors is divided into three classes, as nearly equal in size as
possible. Each class is currently elected to serve a three-year term and only
one class is elected each year.
The Board has unanimously approved an amendment to the Company's
certificate of incorporation that eliminates the three-class structure of its
Board. The amendment will provide that all directors will be elected annually
for a term of one year. Therefore, at each annual stockholders meeting the
Company's stockholders will elect all of the members of the Board. The text of
both the existing provision of the Company's certificate of incorporation
relating to the three-class structure of the Board and the proposed amendment is
set forth as Appendix A to the Proxy Statement.
The Board of Directors has unanimously determined that it is in the best
interests of Associated Materials and its stockholders to eliminate the
classified Board so that the stockholders elect all directors annually. The
proposed amendment to the Company's certificate of incorporation will allow
stockholders to review and express their opinions on the performance of all
directors each year. Because there is no limit on the number of terms an
individual may serve, the continuity and stability of the Board's membership is
not expected to be affected.
In order to facilitate the adoption of the proposed amendment, each of the
current directors of the Company has agreed to stand for re-election at the
Annual Meeting. See "Election of Directors" below.
William W. Winspear, the Company's Chairman, President and Chief Executive
Officer, beneficially owns a substantial percentage of the Company's outstanding
common stock. See "Beneficial Ownership of Common Stock." As a result, Mr.
Winspear has a significant influence over matters requiring approval by the
Company's stockholders, including the election of the Company's Board of
Directors. Mr. Winspear has informed the Company that he intends to vote these
shares of common stock for the proposed amendment.
THE BOARD RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE AMENDMENT TO THE
COMPANY'S CERTIFICATE OF INCORPORATION.
ELECTION OF DIRECTORS
(PROPOSAL NO. 2)
Associated Materials currently has three classes of directors serving
staggered three-year terms. Richard I. Galland and John T. Gray are currently
serving terms that expire at the Annual Meeting. In order to implement the
proposed amendment to the certificate of incorporation described above, each of
William W. Winspear, Michael Caporale, James F. Leary, Alan B. Lerner and A. A.
Meitz have agreed to stand for reelection at the Annual Meeting.
If the proposal to amend the certification of incorporation is approved by
the stockholders at the Annual Meeting and unless a proxy specifies otherwise,
the Proxy Committee will vote the shares of common stock covered by the proxy
for the election of William W. Winspear, Michael Caporale, Richard I. Galland,
John T. Gray, James F. Leary, Alan B. Lerner and A. A. Meitz as directors, each
with a term to expire at the Company's Annual Meeting of Stockholders in 2002
and until his successor is elected and duly qualified.
If the proposal to amend the certificate of incorporation is not approved
by the stockholders at the Annual Meeting and unless a proxy specifies
otherwise, the Proxy Committee will vote the shares of common stock covered by
the Proxy for the election of (1) Richard I. Galland and John T. Gray for a term
to expire at the
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Company's Annual Meeting of Stockholders in 2004, (2) William W. Winspear,
Michael Caporale and Alan B. Lerner for a term to expire at the Company's Annual
Meeting of Stockholders in 2003 and (3) James F. Leary and A. A. Meitz for a
term to expire at the Company's Annual Meeting of Stockholders in 2002.
Below are the names of each of the director-nominees, a description of the
positions or offices with Associated Materials, business experience covering at
least the last five years, certain other directorships presently held, age and
length of service as a director of Associated Materials.
WILLIAM W. WINSPEAR, AGE 67. Mr. Winspear has been Chairman of the Board,
President and Chief Executive Officer of the Company since its inception in
1983. Mr. Winspear was President and Chief Executive Officer of Chaparral Steel
Company from 1975 to 1982. Mr. Winspear is the father of Robert L. Winspear, the
Company's Vice President and Chief Financial Officer.
MICHAEL CAPORALE, JR., AGE 49. Mr. Caporale became a director of the
Company in February 2001. Mr. Caporale joined the Company in January 2000 as
President of the Company's Alside Window operations, became President and Chief
Operating Officer of the Company's Alside division in April 2000 and was named
Chief Executive Officer of the Alside division in February 2001. Prior to
joining the Company, Mr. Caporale was the President of Great Lakes Window, Inc.,
a subsidiary of Nortek, Inc., where he had been employed since 1995.
RICHARD I. GALLAND, AGE 84. Mr. Galland became a director of the Company
in 1984, is the Chairman of the Audit Committee and currently serves as a member
of the Compensation Committee. Mr. Galland also served as Chairman of the
Compensation Committee through February 2001. Mr. Galland was formerly Chairman
of the Board and Chief Executive Officer of American Petrofina Incorporated, an
integrated petroleum and petrochemical company, and formerly Of Counsel to the
law firm of Jones, Day, Reavis & Pogue. Mr. Galland is also a director of D. R.
Horton, Inc., a homebuilding company.
JOHN T. GRAY, AGE 65. Mr. Gray became a director of the Company in 1998
and serves as a member of the Compensation Committee. Mr. Gray is a General
Partner in Brynwood Partners, a private equity investment fund. From 1982 to
1995, Mr. Gray was President and Chief Executive Officer of the Genie Company, a
manufacturer of automatic garage door openers. Mr. Gray is also a director of
Lincoln Snacks, Inc., a snack food manufacturer and J.B. Williams Co., a
marketer of men's grooming and cold-care products.
JAMES F. LEARY, AGE 71. Mr. Leary became a director of the Company in 1984
and serves as a member of the Audit and Compensation Committees. Mr. Leary is a
managing director of Benefit Capital South West, Inc., a financial consulting
firm. From 1995 to 1998, Mr. Leary was Vice Chairman -- Finance and a director
of Search Financial Services Inc., a consumer finance company. In March 1998,
Search Financial filed a voluntary petition for reorganization under Chapter 11
of the Bankruptcy Code. Mr. Leary is also a director of certain mutual funds
managed by Capstone Asset Management Inc. and is a director of Prospect Street
High Income Fund, a mutual fund.
ALAN B. LERNER, AGE 70. Mr. Lerner became a director of the Company in May
1997 and serves as a member of the Audit Committee and became Chairman of the
Compensation Committee in February 2001. Mr. Lerner retired in 1993 as a Senior
Executive Vice President of Associates Corporation of North America, a consumer
and commercial finance company, where he had been employed since 1981.
A. A. MEITZ, AGE 63. Mr. Meitz became a director of the Company in 1993
and serves as a member of the Audit and Compensation Committees. Mr. Meitz
retired as Senior Vice President of the consulting firm of Booz, Allen &
Hamilton, Inc. where he was employed from 1965 through 1994. Mr. Meitz is also
currently a director of the Northern Bank of Texas.
THE BOARD RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES FOR ELECTION AS
DIRECTORS.
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BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
BOARD OF DIRECTORS. The Board currently consists of seven members. During
2000, the Board of Directors held five meetings. The Board has established
standing Audit and Compensation Committees to assist the Board in the discharge
of its responsibilities. The Board may also appoint other committees for
specialized functions as appropriate. In 2000, each Director attended all Board
and applicable committee meetings held during the period he was a director.
AUDIT COMMITTEE. The members of the Audit Committee are Mr. Galland
(Chairman), Mr. Leary, Mr. Lerner and Mr. Meitz. The Audit Committee met three
times in 2000. The Audit Committee is responsible for recommending an accounting
firm to serve as Associated Materials' independent auditors, reviewing the
annual audit of Associated Materials, reviewing audit and any nonaudit fees paid
to Associated Materials' independent auditors and reviewing the scope and
results of internal audit activities. The Audit Committee reports its findings
and recommendations to the Board for appropriate action. The report by the Audit
Committee appears elsewhere in this Proxy Statement. In addition, the Audit
Committee Charter is attached as Appendix B to this Proxy Statement.
COMPENSATION COMMITTEE. The members of the Compensation Committee are Mr.
Lerner (Chairman), Mr. Galland, Mr. Gray, Mr. Leary and Mr. Meitz. The
Compensation Committee met twice in 2000. The Compensation Committee supervises
Associated Materials' compensation policies, administers incentive plans,
reviews officers' salaries and bonuses, approves significant changes in employee
benefits and recommends to the Board other forms of compensation as it deems
appropriate. The report by the Compensation Committee discussing compensation
for executive officers of Associated Materials appears elsewhere in this Proxy
Statement.
DIRECTOR NOMINATIONS. The Company does not have a nominating committee.
The functions customarily performed by a nominating committee are performed by
the Board as a whole. Written nominations by stockholders for directors will be
considered, provided they are received by the Secretary of Associated Materials
at its principal executive offices pursuant to timely advance written notice in
accordance with Associated Materials' By-Laws. The Company's By-Laws require
that notice be given not less than 50 days in advance of the annual meeting,
subject to certain exceptions. The By-Laws also require that the certain
information be provided, including the identity and address of the nominating
stockholder, a representation that the stockholder is a holder of record and
entitled to vote for the election of directors as well as the information
regarding the proposed nominee that would be required to be included in a proxy
statement soliciting proxies for the proposed nominee.
DIRECTOR COMPENSATION. Directors, including directors who are employees of
the Company, receive an annual retainer of $16,000 plus $3,500 for each Board
meeting and $1,000 for each committee meeting attended. Directors are also
reimbursed for reasonable travel expenses incurred in attending Board and
committee meetings.
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BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth as of April 1, 2001, the beneficial
ownership of common stock by each director of the Company, each of the Company's
executive officers and all directors and executive officers of the Company as a
group.
SHARES
BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED PERCENTAGE
- ------------------------ ------------ ----------
William W. Winspear(1)...................................... 3,772,242 61.9%
Michael Caporale(2)......................................... 50,000 *
Richard I. Galland.......................................... 24,518 *
John T. Gray(2)............................................. 15,000 *
James F. Leary.............................................. 2,000 *
Alan B. Lerner(2)........................................... 55,000 *
A. A. Meitz(2).............................................. 40,000 *
Robert F. Hogan, Jr(2)...................................... 98,000 1.6%
Robert L. Winspear (2)(3)................................... 382,192 6.2%
All directors and executive officers as a group (9
persons).................................................. 65.0%
- ---------------
* Less than 1%.
(1) Includes 2,911,165 shares of common stock held of record by the Winspear
Family Limited Partnership ("Winspear Partnership") and 100,000 shares of
common stock held of record by Winspear Family Investments, Ltd. ("Winspear
Investments"). Mr. Winspear is the trustee of a trust that is the general
partner of the Winspear Partnership and is a general partner of Winspear
Investments. Also includes 351,709 shares of common stock held by a trust
established by Mr. Winspear's spouse, for which Mr. Winspear is the trustee.
Mr. Winspear disclaims beneficial ownership of the shares owned by this
trust. According to a Schedule 13G filed by Mr. Winspear, Mr. Winspear has
sole voting power with respect to 2,356,025 shares of common stock and sole
dispositive power with respect to 3,772,242 shares of common stock. The
address of Mr. Winspear, the Winspear Partnership and Winspear Investments
is 2200 Ross Avenue, Suite 4100 East, Dallas, Texas 75201.
(2) Includes options to purchase common stock held by Mr. Caporale (50,000
shares), Mr. Gray (15,000 shares), Mr. Hogan (18,000 shares), Mr. Lerner
(40,000 shares), Mr. Meitz (40,000 shares) and Mr. R.L. Winspear (32,000
shares).
(3) Includes 252,182 shares held of record by Winspear Partnership and 98,010
shares held of record by Winspear Investments, as to which Mr. Winspear has
voting rights. Mr. Winspear disclaims beneficial ownership of the shares
owned by Winspear Investments. According to a Schedule 13G filed by Mr.
Winspear, Mr. Winspear has sole voting power with respect to 382,192 shares
of common stock and sole dispositive power with respect to 32,000 shares of
common stock. Mr. Winspear's address is 2200 Ross Avenue, Suite 4100 East,
Dallas, Texas 75201.
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The following table sets forth information regarding the number and
percentage of shares of common stock beneficially owned by all persons and
entities who are known by the Company to beneficially own five percent or more
of the outstanding common stock, other than directors and executive officers of
the Company, whose share ownership is reflected in the table above. The
information regarding beneficial ownership of common stock by the entities
identified below is included in reliance on a report filed with the Securities
and Exchange Commission by such entity, except that the percentage is based upon
the Company's calculations made in reliance upon the number of shares reported
to be beneficially owned by the entity in such report and the number of shares
of common stock outstanding on April 1, 2001.
SHARES
BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED PERCENTAGE
- ------------------------ ------------ ----------
The Prudential Insurance Company of America(1).............. 1,551,000 20.3%
Wellington Management Company, LLP(2)....................... 473,000 7.8%
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(1) Prudential owns of record 1,550,000 shares of Class B common stock, or 100%
of all outstanding shares of the Company's Class B common stock. Shares of
Class B common stock may be converted at any time into common stock on a one
for one basis. The holder of shares of Class B common stock has rights and
privileges identical to the rights and privileges of holders of common
stock, except that the holder of shares of Class B common stock may vote
(with the holders of common stock) only on (a) any amendment to the
Company's certificate of incorporation, (b) any sale or other disposition of
all or substantially all of the Company's assets, (c) any merger or
consolidation of the Company, and (d) any liquidation, dissolution or
winding up of the Company. According to a Schedule 13G filed by Prudential,
in addition to the 1,550,000 shares of Class B common stock, Prudential
beneficially owns 1,000 shares of common stock. Prudential's address is 751
Broad Street, Newark, New Jersey 07102-3777.
(2) According to a Schedule 13G filed by Wellington Management Company, LLP,
Wellington has shared voting power with respect to 188,000 shares of common
stock and shared dispositive power with respect to 473,000 shares of common
stock. Wellington's business address is 75 State Street, Boston,
Massachusetts 02109.
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COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
INTRODUCTION
The Compensation Committee has responsibility for the Company's executive
compensation practices and policies. The Committee is currently composed of five
outside directors who are not officers or employees of the Company.
EXECUTIVE PAY POLICY
The Company's compensation programs are intended to attract, retain and
motivate the key people necessary to lead Associated Materials to achieve its
strategic objective of increased earnings per share over the long term,
reflecting the Committee's belief that executive compensation should seek to
align the interests of the Company's executives with those of its stockholders.
The program utilizes three components: base salary, short-term incentives and
long-term compensation in the form of stock options.
Early in 2000, the Compensation Committee reviewed survey data prepared by
an outside consulting firm regarding compensation practices of companies in
similar businesses and of similar size. In connection with its review,
compensation for the Company's chief executive officer, as well as its other
executive officers, was assessed against the practices of the survey group. In
establishing base salaries, the Compensation Committee has adopted a strategy of
setting executive salaries between the median salary and the 75th percentile of
those shown in the survey data. However, the Compensation Committee also
considered other subjective factors, such as experience and the prior
performance of the executives in making its salary determinations for 2000. The
Compensation Committee set the salary ranges in this manner to ensure that
Company's base salary practices do not put it at a competitive disadvantage in
retaining and attracting key executives while ensuring an appropriate cost
structure for the Company.
The Company has incentive compensation programs for virtually all employees
of the Company. For officers, this program provides for incentive compensation
opportunities based upon pre-tax profit or return on invested capital of the
Company or the division in which they are employed. For other employees,
incentive compensation is based upon the profitability of their particular
business unit, for example, a manufacturing plant or supply center. The
Compensation Committee believes that this program provides a direct incentive to
the Company's employees that should result in an increase in long-term
stockholder value.
BASE SALARY
The Compensation Committee increased Mr. Winspear's annual base salary from
$495,000 to $510,000 in March 2000. Mr. Winspear's base salary was determined by
reference to the median salary of chief executive officers of similar companies,
as reflected in the survey data described above. The base salaries of the other
executive officers were also adjusted based on the Committee's review of the
survey data.
SHORT-TERM INCENTIVE PROGRAM
Consistent with its historical practice, under the Company's 2000
short-term incentive program, Mr. Winspear was eligible to receive a cash bonus
award based upon the Company's pre-tax profit before extraordinary items. Under
this program, Mr. Winspear's bonus varies proportionately with the Company's
profits.
Because the Company's chief executive officer beneficially owns a
significant percentage of the Company's common stock, the Compensation Committee
does not believe that stock-based compensation is an appropriate incentive
arrangement for him. The Compensation Committee took this into consideration in
determining Mr. Winspear's cash bonus opportunity. Based on the Company's
financial performance in 2000, the Company's chief executive officer earned a
cash bonus of $612,870.
In 2000, each of the Company's other executive officers received a cash
bonus award based upon pre-tax profit before extraordinary items or return on
capital of either the Company or the executive's operating division.
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STOCK OPTIONS
The Company's stock incentive plan is administered by the Committee and is
designed to provide incentive compensation to the Company's executive officers
and other key management personnel. The grants are long-term incentives for
future performance, which is designed to align the interests of management with
those of the Company's stockholders. Options were granted to one executive
officer in 2000.
OTHER MATTERS
At the annual meeting in 1999, the Company's stockholders approved the
Incentive Bonus Plan in order to minimize the impact of the $1 million deduction
limitation on executive compensation which was implemented as part of the
Omnibus Budget Reconciliation Act of 1993. This Plan permits the Company to
continue its historical incentive compensation program while maximizing the
deductibility of the bonus payments under this Plan.
This report is submitted by the members of the Compensation Committee of
the Board.
THE COMPENSATION COMMITTEE OF THE BOARD
Richard I. Galland John T. Gray James F. Leary Alan B. Lerner A. A. Meitz
Chairman
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EXECUTIVE OFFICER COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the annual compensation paid by the Company
for services rendered in 2000, 1999 and 1998 by the chief executive officer and
each of the other executive officers of the Company.
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------- -----------------
FISCAL OTHER ANNUAL SHARES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS/SARS(2) COMPENSATION
- --------------------------- ------ -------- -------- --------------- ----------------- ------------
William W. Winspear....... 2000 $507,500 $612,870 -- 0 $39,450(3)
Chairman of the Board, 1999 $492,917 $512,500 -- 0 $36,000
President and Chief 1998 $467,500 $429,561 -- 0 $39,100
Executive Officer
Michael Caporale(4)....... 2000 $335,417 $140,000 $53,157 100,000 $74,282(5)
President and Chief
Executive Officer of the
Company's Alside division
Robert F. Hogan, Jr. ..... 2000 $249,167 $158,435 -- 0 $ 5,950(6)
President and Chief 1999 $238,750 $ 42,985 -- 0 $ 5,600
Executive Officer of the 1998 $220,833 $266,300 -- 30,000 $ 5,600
Company's AmerCable
division
Robert L. Winspear........ 2000 $197,500 $ 61,287 -- 0 $ 5,950(6)
Vice President and 1999 $181,667 $ 51,251 -- 0 $ 5,600
Chief Financial Officer 1998 $141,458 $ 42,956 -- 20,000 $ 4,951
Donald L. Kaufman......... 2000 $446,667 $233,764 -- 0 $40,300(7)
Former President and 1999 $428,333 $293,451 -- 0 $37,400
Chief Executive Officer 1998 $407,917 $242,031 -- 0 $33,500
of the Company's Alside
division
- ---------------
(1) Includes amounts for the payment of income taxes relating to relocation
expenses paid by the Company in 2000 and taxable to Mr. Caporale.
Perquisites and other personal benefits received by the Company's executive
officers are not included in the Summary Compensation Table because the
aggregate amount of such compensation, if any, did not meet disclosure
thresholds established under current regulations of the SEC.
(2) In January 2000, Mr. Caporale was granted an option to purchase 50,000
shares of common stock at $14.4375 per share, the fair market value on the
grant date. In March 2000, Mr. Caporale was granted an option to purchase an
additional 50,000 shares of common stock at $13.875 per share, the fair
market value on the grant date. These options vested 50% on the date of
grant and the balance vests on the second anniversary of the grant date. In
August 1998, Mr. Hogan and Mr. Robert Winspear were granted options to
purchase 30,000 and 20,000 shares of common stock, respectively, at $9.00
per share, the fair market value on the date of grant. These options vested
20% on the date of grant and the balance vests 20% on each anniversary of
the grant date.
(3) Includes directors fees of $33,500 and amounts accrued or allocated under a
defined contribution plan of $5,950.
(4) Mr. Caporale joined the Company in January 2000.
(5) Represents moving expenses incurred by Mr. Caporale and paid by the Company
under the terms of his Employment Agreement.
(6) Includes amounts accrued or allocated under a defined contribution plan.
(7) Includes directors fees of $33,500 and amounts accrued or allocated under a
defined contribution plan of $6,800.
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COMPENSATION AND INCENTIVE PROGRAMS
INCENTIVE BONUS PLAN. The Company maintains an Incentive Bonus Plan
providing for annual bonus awards to certain key employees, including each of
the executive officers of the Company. Bonus amounts are based on pre-tax
profits of the Company or, in the cases of Alside and AmerCable personnel, the
pre-tax profits or return on invested capital of these divisions. This Plan is
administered by the Compensation Committee, none of the members of which is
eligible for a bonus award pursuant to this Plan. Bonus payments under the
Incentive Bonus Plan are not guaranteed. Cash bonuses accrued in 2000, 1999 and
1998 to each of the Company's executive officers are set forth in the Summary
Compensation Table.
ALSIDE PENSION PLAN. Prior to January 1, 1999, the Company maintained a
defined benefit pension plan. This plan covered all Alside employees who had
completed one year of service, except for various designated groups of hourly
and union employees. Mr. Kaufman, who retired from the Company in March 2001,
was the only executive officer of the Company entitled to receive benefits under
this plan. Mr. Kaufman, who is age 69, receives a monthly pension of $11,667
under this plan.
EMPLOYMENT AGREEMENT. Associated Materials is a party to an Employment
Agreement with Michael Caporale pursuant to which he serves as the President and
Chief Executive Officer of the Company's Alside division. The Employment
Agreement has a three-year term, expiring in January 2003. Under his Employment
Agreement, Mr. Caporale receives an annual base salary of not less than $350,000
and was entitled to receive incentive compensation of not less than $100,000 in
2000. No specific amount of incentive compensation is guaranteed during the
remaining term of the Employment Agreement. Mr. Caporale also receives other
employee benefits made available to the Company's other senior executives. In
addition, beginning January 2001, Mr. Caporale will receive three annual
payments of $33,334 in consideration for forfeiting stock options granted to him
by his previous employer. In the event of an involuntary termination of his
employment (other than for cause or as a result of Mr. Caporale's death), Mr.
Caporale would receive severance pay in an amount equal to two years annual
salary and bonus (based on his last 12 months earnings) at a minimum of $500,000
per year, the remaining amount payable for forfeiting stock options from his
previous employer, employee benefits for two years and the immediate vesting of
his options to purchase Company common stock. Under the terms of this Employment
Agreement, Mr. Caporale was granted options to purchase 50,000 shares of common
stock in January 2000 at an exercise price of $14.4375 per share and options to
purchase an additional 50,000 shares of common stock in March 2000 at $13.875
per share, in each case the market value of the common stock on the grant date.
These option grants have ten-year terms and the options vested 50% on its grant
date with the remaining 50% vesting on the second anniversary of the grant date.
OPTION/SAR GRANTS IN 2000
The following table provides information regarding the grant of stock
options to each of the Company's executive officers in 2000.
INDIVIDUAL GRANTS
--------------------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF PERCENT OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS/SARS OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(2)
OPTIONS/SAR'S EMPLOYEES IN PRICE PER ---------------------------
NAME GRANTED(1) 2000 SHARE(1) EXPIRATION DATE 5% 10%
- ---- ------------- ---------------- --------- --------------- ----------- -------------
William W. Winspear... 0 0 -- -- 0 0
Michael Caporale...... 50,000 29.9% $14.4375 January 17, 2010 $453,983 $1,150,483
50,000 29.9% $13.8750 March 31, 2010 $436,296 $1,105,659
Robert F. Hogan....... 0 0 -- -- 0 0
Robert L. Winspear.... 0 0 -- -- 0 0
Donald Kaufman........ 0 0 -- -- 0 0
- ---------------
(1) The exercise price was equal to the fair market value of the common stock on
the date of grant. The options vest 50% on the grant date and the balance
vests on the second anniversary of the grant date. All options granted in
2000 were non-qualified stock options.
(2) The potential realizable value set forth in the table above illustrates the
value that would be realized upon exercise of the option immediately prior
to the expiration of its term, assuming the specified compounded rates of
appreciation on the common stock over the term of the option. The use of the
assumed 5% and 10% annual rates to stock price appreciation are established
by the Securities and Exchange Commission and is not intended by the Company
to forecast possible appreciation of the price of its common stock.
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AGGREGATED OPTION/SAR EXERCISES IN 2000
AND DECEMBER 31, 2000 OPTION/SAR VALUES
The following table provides information regarding the exercise of options
during 2000 and unexercised options held as of December 31, 2000 for each of the
Company's executive officers.
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
DECEMBER 31, 2000(1) DECEMBER 31, 2000(2)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- -------- ----------- ------------- ----------- -------------
William W. Winspear.......... 0 $0 0 0 $ 0 $ 0
Michael Caporale............. 0 $0 50,000 50,000 $ 85,938 $85,938
Robert F. Hogan.............. 0 $0 18,000 12,000 $123,750 $82,500
Robert L. Winspear........... 0 $0 32,000 8,000 $341,500 $55,000
Donald L. Kaufman............ 0 $0 100,000 0 $387,500 $ 0
- ---------------
(1) The Company has not granted stock appreciation rights.
(2) Based on a price of $15.875 per share of common stock, the closing sale
price on December 29, 2000, multiplied by the number of shares of common
stock issuable upon exercise of these options.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCKHOLDERS' AGREEMENT
The Prudential Insurance Company of America, the Winspear Partnership and
Associated Materials are parties to a Stockholders' Agreement. Pursuant to the
Stockholders' Agreement, Prudential and the Winspear Partnership have agreed
that (a) if the Winspear Partnership, or any subsequent holder of its shares of
common stock, intends to sell any of its shares (other than in a public
offering), to permit Prudential to participate in such sale on a pro rata basis
and (b) if the Winspear Partnership, or any subsequent holder of its shares of
common stock, elects to sell shares of common stock, to require Prudential and
subsequent holders of its shares to participate in the sale on a pro rata basis,
but only if the total number of shares of common stock to be sold exceeds 50% of
the outstanding shares of common stock and Class B common stock on a fully
diluted basis. The Stockholders' Agreement also requires, so long as Prudential
and certain Prudential affiliates beneficially own at least 15% of the
outstanding common stock on a fully diluted basis, all shares of common stock
subject to the Stockholders' Agreement to be voted to elect two or three persons
designated by Prudential to the Company's Board of Directors (depending on the
number of directors making up the Board), or if Prudential and certain
Prudential affiliates beneficially own at least 5% (but less than 15%) of the
common stock, to elect to the Board one person designated by Prudential. Unless
terminated earlier, the Stockholders' Agreement expires on August 19, 2003.
Prudential currently has the right to nominate three directors to the
Company's Board of Directors. Prudential has not nominated any person to the
Company's Board and Prudential has informed the Company that it does not
presently intend to exercise its right under the Stockholders' Agreement to
nominate persons to serve as directors of the Company.
REGISTRATION RIGHTS AGREEMENT
Under the terms of a Registration Rights Agreement among the Company,
Prudential and certain other stockholders, upon the request of either Prudential
or the Winspear Partnership and its private transferees the Company shall,
subject to certain exceptions, be required to effect two registrations of the
common stock, provided that certain minimum and maximum numbers of shares are
included in the request. The Registration Rights Agreement also grants secondary
offering rights ("piggy-back" rights) to Prudential, the Winspear Partnership
and certain other stockholders in connection with these requested registrations
and any other Company registration of common stock or common stock equivalents.
The registration rights may not be
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transferred, with certain exceptions, to persons who, after such transfer, would
hold less than 100,000 shares of common stock or Class B common stock.
The Registration Rights Agreement also provides that the Company will bear
all expenses associated with the Company's obligation to effect these
registrations, other than underwriting discounts, commissions and transfer
taxes, if any. The Company's obligation to pay such expenses includes the
out-of-pocket expenses (including legal and accounting expenses) for the first
registration of common stock by Prudential or its private transferees, up to
$100,000, and for the first registration of common stock by the Winspear
Partnership or its private transferees, up to $100,000. The Company has
reimbursed Prudential $100,000 for expenses incurred in connection with a prior
offering of common stock. Therefore, the Company has no obligation to reimburse
Prudential for any future expenses under this Agreement.
RELOCATION LOAN
In connection with his joining the Company, Mr. Caporale moved to the
Akron, Ohio area, where the Company's Alside division is located. As part of his
relocation benefits, on November 16, 2000 the Company made a non-interest
bearing loan to Mr. Caporale in the amount of $270,407 for the purchase of a new
home. Mr. Caporale repaid this loan in full on February 16, 2001.
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STOCK PERFORMANCE
The following graph compares the cumulative stockholder return on the
Company's common stock with the Standard & Poor's SmallCap 600 Index and the
Building Materials Sector of the Standard & Poor's SmallCap 600 Index. The
comparison assumes $100 was invested as of February 26, 1998 (the date on which
shares of the Company's common stock began trading on a "when issued" basis) and
the reinvestment of all dividends.
COMPARISON OF CUMULATIVE STOCKHOLDER RETURN
[PERFORMANCE GRAPH]
- -----------------------------------------------------------------------------------------------------------
26-Feb-98 30-June-98 31-Dec-98 30-June-99 31-Dec-99 30-June-00 31-Dec-00
- -----------------------------------------------------------------------------------------------------------
Associated
Materials 100 83.59 73.44 84.38 103.31 96.90 100.87
S&P Small Cap 600/
Building
Materials 100 103.03 94.40 109.37 99.40 90.54 72.35
S&P Small Cap 600
Index 100 98.89 91.97 96.61 103.38 110.50 115.58
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AMENDMENT TO ASSOCIATED MATERIALS INCORPORATED
AMENDED AND RESTATED 1994 STOCK INCENTIVE PLAN
(PROPOSAL NO. 3)
In February 2001, the Board adopted, subject to approval by the Company's
stockholders, an amendment to the Associated Materials Incorporated Amended and
Restated 1994 Stock Incentive Plan (the "Incentive Plan") to increase the number
of shares of common stock authorized to be issued under the Incentive Plan by
400,000. Options covering all 800,000 shares of common stock authorized for
issuance under the Incentive Plan have been issued. Further, options to purchase
an additional 30,000 shares of common stock have been granted to three
individuals, none of whom are executive officers of the Company. These grants
are contingent upon the approval of the proposed amendment to the Incentive Plan
at the Annual Meeting.
The Board believes that it is in the best interests of the Company to
attract and retain the services of experienced and knowledgeable employees. The
Incentive Plan is designed to provide an incentive to officers and other key
employees of the Company and is intended to align the interests of these
officers and employees with those of the Company's stockholders. In order for
the Incentive Plan to continue to serve its purpose, the Board has determined
that an increase in the number of shares available for issuance is necessary and
in the best interests of the Company's stockholders.
INCENTIVE PLAN SUMMARY
ELIGIBILITY. Directors, officers and other key employees of and
consultants to the Company may be selected by the Board of Directors to receive
benefits under the Incentive Plan. Currently, 24 individuals hold options to
purchase shares of common stock granted under the Incentive Plan.
OPTION RIGHTS. The Board of Directors may grant rights ("Option Rights")
that entitle the optionee to purchase shares of common stock at a price equal to
or greater than market value on the date of grant. The option price is payable
at the time of exercise (a) in cash or cash equivalent, (b) by the transfer to
the Company of shares of common stock that have been owned by the optionee for
at least six months and have a value at the time of exercise equal to the option
price, (c) with any other legal consideration the Board of Directors may deem
appropriate, or (d) by any combination of the foregoing methods of payment. Any
grant may provide for payment of the option price from the proceeds of sale
through a broker on the date of exercise of some or all of the shares of Common
Stock to which the exercise relates. The Board of Directors has the authority to
specify at any time that Restricted Shares (as defined below), or other shares
of common stock which are subject to risk of forfeiture or restrictions on
transfer will be accepted for part or all of the option price. In such event,
the Board of Directors may provide that the shares of Common Stock received upon
exercise of the stock option will be subject to the same risks of forfeiture or
restrictions on transfer which applied to the shares used as payment for the
option price.
Option Rights granted under the Incentive Plan may be Option Rights that
are intended to qualify as "incentive stock options" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
Option Rights that are not intended to so qualify or any combination of the
foregoing. At or after the date of grant of any nonqualified Option Rights, the
Board of Directors may provide for the payment of dividend equivalents to the
optionee on a current, deferred or contingent basis or may provide that dividend
equivalents be credited against the option price.
No Option Right may be exercised more than 10 years from the date of grant.
Each grant must specify the conditions, including as and to the extent
determined by the Board of Directors, the period of continuous employment or
continuous engagement of consulting services by the Company or any subsidiary,
that are necessary before the Option Rights will become exercisable, and may
provide for the earlier exercise of the Option Rights, including, without
limitation, in the event of a change in control of the Company or other similar
transaction or event. Successive grants may be made to the same optionee
regardless of whether Option Rights previously granted to him or her remain
unexercised.
RESTRICTED SHARES. An award of "Restricted Shares" involves the immediate
transfer by the Company to a participant of ownership of a specific number of
shares of common stock in consideration of the performance
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of services. The participant is entitled immediately to voting, dividend and
other ownership rights in the shares. The transfer may be made without
additional consideration or for consideration in an amount that is less than the
market value of the shares on the date of grant, as the Board of Directors may
determine.
Restricted Shares must be subject to a "substantial risk of forfeiture"
within the meaning of Section 83 of the Code for a period to be determined by
the Board of Directors. An example would be a provision that the Restricted
Shares would be forfeited if the participant ceased to serve the Company as an
officer or other key employee during a specified period of years. In order to
enforce these forfeiture provisions, the transferability of Restricted Shares
will be prohibited or restricted in a manner and to the extent prescribed by the
Board of Directors for the period during which the forfeiture provisions are to
continue. The Board of Directors may provide for a shorter period during which
the forfeiture provisions are to apply, including, without limitation, in the
event of a change in control of the Company or other similar transaction or
event.
DEFERRED SHARES. An award of "Deferred Shares" constitutes an agreement by
the Company to deliver shares of Common Stock to the participant in the future
in consideration of the performance of services, subject to the fulfillment of
such conditions during the Deferral Period (as defined in the Incentive Plan) as
the Board of Directors may specify. During the Deferral Period, the participant
has no right to transfer any rights under the award and no right to vote the
shares covered by the award. On or after the date of any grant of Deferred
Shares, the Board of Directors may authorize the payment of dividend equivalents
thereon on a current, deferred to contingent basis in either cash or additional
shares of Common Stock. Grants of Deferred Shares may be made without additional
consideration or for consideration in an amount that is less than the market
value of the shares on the date of grant. Deferred Shares must be subject to a
Deferral Period, as determined by the Board of Directors on the date of grant,
except that the Board of Directors may provide for a shorter Deferral Period,
including, without limitation, in the event of change in control of the Company
or other similar transaction or event.
TRANSFERABILITY. Except as permitted by the Board of Directors, no Option
Right, or other "derivative security" within the meaning of Rule 16b-3 under the
Exchange Act is transferable by a participant except by will or the laws of
descent and distribution. Except as permitted by the Board of Directors, Option
Rights may not be exercised during a participant's lifetime except by the
participant or, in the event of his or her incapacity, by his or her guardian or
legal representative acting in a fiduciary capacity on behalf of the participant
under state law and court supervision.
ADJUSTMENTS. The maximum number of shares of common stock that may be
issued or transferred under the Incentive Plan, the number of shares covered by
outstanding awards and the option prices per share applicable thereto, are
subject to adjustment in the event of stock dividends, stock splits,
combinations of shares, recapitalizations, mergers, consolidations, spin-offs,
reorganizations, liquidations, issuances of rights or warrants, and similar
transactions or events. In the event of any such transaction or event, the Board
of Directors may in its discretion provide in substitution for any or all
outstanding awards under the Stock Incentive Plan such alternative consideration
as it may in good faith determine to be equitable in the circumstances and may
require the surrender of all awards so replaced.
ADMINISTRATION. The Incentive Plan is administered by the Board of
Directors although the Board of Directors may delegate all or any portion of its
authority to a committee. In connection with its administration of the Incentive
Plan, the Board of Directors is authorized to interpret the Incentive Plan and
related agreements and other documents. The Board of Directors may make grants
to participants under any or a combination of all of the various categories of
awards that are authorized under the Incentive Plan and may provide for special
terms for awards to participants who are foreign nationals, as the Board of
Directors may consider necessary or appropriate to accommodate differences in
local law, tax policy or custom.
AMENDMENTS. The Incentive Plan may be amended from time to time by the
Board of Directors, but, without further approval by the stockholders of the
Company no such amendment (unless expressly allowed pursuant to the adjustment
provisions described above) may increase the aggregate number of shares that may
be issued or transferred plus the amount of shares covered by outstanding
awards.
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FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of certain of the federal income tax
consequences of certain transactions under the Incentive Plan based on federal
income tax laws in effect on the date of this Proxy Statement. This summary is
not intended to be exhaustive and does not describe state or local tax
consequences.
NONQUALIFIED OPTION RIGHTS. In general: (i) no income will be recognized
by an optionee at the time a nonqualified Option Right is granted; (ii) at the
time of exercise of a nonqualified Option Right, ordinary income will be
recognized by the optionee in an amount equal to the difference between the
option price paid for the shares and the fair market value of the shares if they
are nonrestricted on the date of exercise; and (iii) at the time of sale of
shares acquired pursuant to the exercise of a nonqualified Option Right, any
appreciation (or depreciation) in the value of the shares after the date of
exercise will be treated as either short-term or long-term capital gain (or
loss) depending on how long the shares have been held. Such long-term capital
gain may be eligible for reduced rates if applicable holding period requirements
are satisfied.
INCENTIVE STOCK OPTIONS. No income generally will be recognized by an
optionee upon the grant or exercise of an incentive stock option. If shares of
common stock are issued to an optionee pursuant to the exercise of an incentive
stock option and no disqualifying disposition of the shares is made by the
optionee within two years after the date of grant or within one year after the
transfer of the shares to the optionee, then upon the sale of the shares any
amount realized in excess of the option price will be taxed to the optionee as
long-term capital gain and any loss sustained will be long-term capital loss.
If shares of common stock acquired upon the timely exercise of an incentive
stock option are disposed of prior to the expiration of either the one or two
year holding period described above, the optionee generally will recognize
ordinary income in the year of disposition in an amount equal to any excess of
the fair market value of the shares at the time of exercise (or, if less, the
amount realized on the disposition of the shares in a sale or exchange) over the
option price paid for the shares. Any further gain (or loss) realized by the
optionee generally will be taxed as short-term or long-term capital gain (or
loss) depending on the holding period. Such long-term capital gain may be
eligible for reduced rates if applicable holding period requirements are
satisfied.
RESTRICTED SHARES. A recipient of Restricted Shares generally will be
subject to tax at ordinary income rates on the fair market value of the
Restricted Shares reduced by any amount paid by the recipient at such time as
the shares are no longer subject to a risk or forfeiture or restrictions on
transfer for purposes of Section 83 of the Code. However, a recipient who so
elects under Section 83(b) of the Code within 30 days of the date of transfer of
the shares will have taxable ordinary income on the date of transfer of the
shares equal to the excess of the fair market value of the share (determined
without regard to the risk of forfeiture or restrictions on transfer) over any
purchase price paid for the shares. If a Section 83(b) election has not been
made, any non-restricted dividends received with respect to Restricted Shares
that are subject at that time to a risk of forfeiture or restrictions on
transfer generally will be treated as compensation that is taxable as ordinary
income to the recipient.
DEFERRED SHARES. No income generally will be recognized upon the grant of
Deferred Shares. The recipient of a grant of Deferred Shares generally will be
subject to tax at ordinary income rates on the fair market value of
nonrestricted shares of common stock on the date that the Deferred Shares are
transferred to the recipient, reduced by any amount paid by the recipient, and
the capital gains or loss holding periods for the Deferred Shares will also
commence on that date.
SPECIAL RULES APPLICABLE TO OFFICERS AND DIRECTORS. In limited
circumstances where the sale of stock that is received as the result of a grant
of an award could subject an officer or director to suit under Section 16(b) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the tax
consequences to the officer or director may differ from the tax consequences
described above. In these circumstances, unless a special election has been
made, the principal difference usually will be to postpone valuation and
taxation of the stock received so long as the sale of stock received could
subject the officer or director to suit under Section 16(b) of the Exchange Act,
but no longer than six months.
TAX CONSEQUENCES TO THE COMPANY. To the extent that a participant
recognizes ordinary income in the circumstance described above, the Company for
which the participant performs services will be entitled to a
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corresponding deduction that, among other things, the income meets the test of
reasonableness, is an ordinary and necessary business expense, is not subject to
the annual compensation limitation set forth in Section 162(m) of the Code and
is not "excess parachute payment" within the meaning of Section 280G of the
Code.
THE BOARD RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENT TO THE
INCENTIVE PLAN.
AMENDMENT TO ASSOCIATED MATERIALS INCORPORATED
EMPLOYEE STOCK PURCHASE PLAN
(PROPOSAL NO. 4)
In February 2001, the Board adopted, subject to approval by the Company's
stockholders, an amendment to the Associated Materials Incorporated Employee
Stock Purchase Plan (the "Purchase Plan") to increase the number of shares of
common stock authorized to be issued by 250,000. Currently, 250,000 share of
common stock are authorized for issuance under the Purchase Plan, of which
182,119 shares have been issued, leaving 67,881 shares reserved for issuance
under the Purchase Plan.
The Purchase Plan provides a method for employees of the Company to
purchase shares of common stock. The purpose of the Purchase Plan is to promote
the interests of the Company by aligning the interests of employees and the
Company's stockholders through the ownership of common stock. Management
believes the Purchase Plan is an important factor in attracting and retaining
qualified employees essential to the continued success of the Company. In order
for the Purchase Plan to continue to serve its purpose, the Board has determined
that an increase in the number of shares available for issuance is necessary and
in the best interests of the Company's stockholders.
PURCHASE PLAN SUMMARY
The Purchase Plan is intended to qualify as an "employee stock purchase
plan" under Section 423 of the Code. Shares of common stock will be offered
under the Purchase Plan through a series of six-month periods, each referred to
as a Purchase Period, until the maximum number of shares authorized to be issued
under the Purchase Plan have been purchased or the Purchase Plan is terminated.
Any employee of the Company is eligible to participate in the Purchase Plan
if that employee customarily works 20 hours or more each week for more than five
months each calendar year. As of January 1, 2001, approximately 1,980 of the
Company's 2,150 employees were eligible to participate in the Purchase Plan. A
participant will be granted a purchase right on the first day of each Purchase
Period in which he or she elects to participate. The purchase right provides the
participant with the right to purchase shares of common stock on the Purchase
Date. Purchase rights will not be granted to an employee if immediately after
the grant the individual would own (within the meaning of Section 424(d) of the
Code) or hold outstanding options or other rights to purchase stock possessing
5% or more of the total combined voting power or value of all classes of stock
of the Company.
A maximum of 250,000 shares of common stock may currently be issued under
the Purchase Plan, or a maximum of 500,000 shares if the stockholders approve
the proposed amendment. However, should any change be made to the Company's
common stock by reason of a stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding common stock as a class without the Company's receipt of
consideration, appropriate adjustments will be made in the number of shares
issuable under the Purchase Plan.
Payroll deductions begin on the first pay day of each Purchase Period and
continue through the pay day ending on or immediately prior to the last day of
the Purchase Period, unless sooner terminated by the participant. The amounts
collected are credited to an account established for each participant by the
plan administrator under the Purchase Plan.
Purchase Periods run from January 1 to June 30 and from July 1 to December
31. However, the first Purchase Period began on October 1, 1998, and ended on
December 31, 1998. The last business day of each
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Purchase Period is the "Purchase Date" on which shares are actually purchased
under the Purchase Plan. During each Purchase Period, a participant may
authorize payroll deductions in (a) any whole multiple of 1% of the
participant's Eligible Compensation during the Purchase Period or (b) any whole
dollar amount of the Eligible Compensation paid to the participant during each
Purchase Period, provided the payroll deduction does not exceed a maximum of 25%
of the participant's Eligible Compensation.
The purchase price per share is 85% of the lower of (a) the Fair Market
Value per share of common stock on the first day of the Purchase Period or (b)
the Fair Market Value per share of common stock on the last day of each Purchase
Period. The closing price of the Company's common stock as reported on Nasdaq on
April , 2001 was $ .
The Purchase Plan is administered by a plan administrator. The plan
administrator is appointed by the Board and has the full authority and
discretion to interpret any provision of the Purchase Plan and the rules and
regulations as necessary to comply with the requirements of Section 423 of the
Code. The plan administrator also has the full authority and discretion to
retain third-party firms (such as brokerage and record keeping firms) from time
to time as he or she deems appropriate. Decisions of the plan administrator and
the Board are final and binding on all parties having an interest in the
Purchase Plan. The current plan administrator is Robert L. Winspear, Vice
President and Chief Financial Officer of the Company. The Board has the full
authority and discretion to decide any questions relating to the administration
of the Purchase Plan that are referred to it by the plan administrator and to
amend the Purchase Plan.
The Purchase Plan may be amended from time to time by the Board or any duly
authorized Board committee. All purchase rights outstanding at the effective
date of any such amendment will be subject to its terms and provisions. However,
the Board may not, without the approval of the Company's stockholders, increase
the number of shares issuable under the Purchase Plan, except to the extent
permitted in connection with changes in the Company's capital structure. The
board is authorized to terminate the Purchase Plan at any time, provided that no
termination will adversely affect the terms of any outstanding purchase rights.
The effective date of the Purchase Plan was October 1, 1998. Unless sooner
terminated by the Board, the Purchase Plan will terminate upon the earliest of:
- the last business day in December, 2008;
- the date on which all shares of common stock available for issuance under
the Purchase Plan have been sold; or
- the date on which all purchase rights are exercised in connection with a
"Corporate Transaction," which is defined under the Purchase Plan to mean
generally any merger, consolidation or reorganization of the Company, or
a sale of all or substantially all of the assets of the Company, in which
less than 50% of the voting securities of the surviving or successor
corporation or other legal entity are owned by the holders of the
Company's voting securities immediately prior to such transaction.
The Purchase Plan provides that in the event of a Corporate Transaction
each participant's right to purchase common stock will be automatically
exercised.
FEDERAL INCOME TAX CONSEQUENCES
The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law of participation in the
Purchase Plan and does not attempt to describe all possible federal or any
foreign, state, local or other tax consequences of such participation or tax
consequences based on particular circumstances.
Assuming the Purchase Plan is qualified under Section 423 of the Code, the
grant of the right to purchase and the purchase of shares of common stock under
the Purchase Plan are not taxable. All tax consequences are deferred until the
participant sells or otherwise disposes of shares or dies. The tax consequences
of a disposition of shares vary depending on the time period such shares are
held before their disposition. If a participant disposes of shares within two
years after the first day of a Purchase Period in which such shares are
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acquired (a "disqualifying disposition"), the participant recognizes ordinary
income in the year of disposition in an amount equal to the difference between
the Fair Market Value of the shares on the Purchase Date and the purchase price
paid for such shares. Any additional resulting gain or loss recognized by the
participant from the disposition of the shares is generally treated as a capital
gain or loss. If the participant disposes of shares more than two years after
the first day of a Purchase Period in which such shares were acquired, the
participant recognizes ordinary income in the year of disposition in an amount
equal to the lesser of (a) the difference between the Fair Market Value of the
shares on the date of disposition and the purchase price or (b) 15% of the Fair
Market Value of the shares on the first day of a Purchase Period in which such
shares are acquired. Any additional gain or loss recognized by the participant
on the disposition of the shares generally is a capital gain.
If the participant disposes of shares in a disqualifying disposition, the
Company generally is entitled to a federal income tax deduction in an amount
equal to the ordinary income recognized by the participant as a result of the
disposition, except to the extent such deduction is limited by applicable
provisions of the Code. In all other cases, no federal income tax deduction is
allowed the Company.
THE BOARD RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENT TO THE PURCHASE
PLAN.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
(PROPOSAL NO. 5)
Upon recommendation of the Audit Committee, the Board unanimously selected
Ernst & Young LLP to continue to serve as independent auditors for Associated
Materials for the fiscal year ending December 31, 2001, subject to ratification
by Associated Materials' stockholders. Ernst & Young has served as Associated
Materials' independent auditors since 1984.
Representatives of Ernst & Young are expected to be present at the Annual
Meeting. They will have the opportunity to make a statement and to respond to
appropriate questions raised at the Annual Meeting.
FEES BILLED TO ASSOCIATED MATERIALS BY ERNST & YOUNG
AUDIT FEES. Fees related to the fiscal year ended December 31, 2000 audit
of the Company's annual financial statements and review of those financial
statements included in the Company's quarterly reports on Form 10-Q totaled
$126,000.
FINANCIAL INFORMATION DESIGN AND IMPLEMENTATION FEES. The Company did not
engage Ernst & Young to provide advice to the Company regarding financial
information systems design and implementation during the fiscal year ended
December 31, 2000.
ALL OTHER FEES. Fees billed to the Company by Ernst & Young for all other
non-audit services rendered to the Company during the fiscal year ended December
31, 2000, including tax related services, totaled $50,900. The Audit Committee
considered whether the provision of non-audit services by Ernst & Young is
compatible with maintaining Ernst & Young's independence with respect to the
Company.
THE BOARD RECOMMENDS A VOTE "FOR" RATIFICATION OF THE APPOINTMENT OF ERNST
& YOUNG AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING
DECEMBER 31, 2001.
19
22
AUDIT COMMITTEE REPORT
The Board of Directors adopted a written Audit Committee Charter, a copy of
which is included as Appendix B to this Proxy Statement. All members of the
Audit Committee are independent as defined by The Nasdaq Stock Market's listing
standards.
The Audit Committee has reviewed and discussed with the Company's
management and Ernst & Young LLP, the Company's independent auditors, the
audited financial statements of the Company contained in the Company's Annual
Report on Form 10-K for the year ended December 31, 2000. The Audit Committee
has also discussed with the Company's independent auditors the matters required
to be discussed pursuant to SAS No. 61 (Codification of Statements on Auditing
Standards, Communication with Audit Committees).
The Audit Committee has received and reviewed the written disclosures and
the letter from Ernst & Young LLP required by Independence Standards Board
Standard No. 1 (titled, "Independence Discussions with Audit Committees"), and
has discussed with Ernst & Young LLP its independence. The Audit Committee has
also considered whether the provision of non-audit services to the Company by
Ernst & Young LLP is compatible with maintaining its independence.
Based on the review and discussions referred to above, the Audit Committee
recommended to the Board of Directors that the audited financial statements be
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000, filed with the Securities and Exchange Commission.
THE AUDIT COMMITTEE OF THE BOARD
Richard I. Galland James F. Leary Alan B. Lerner A. A. Meitz
Chairman
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934, as amended,
requires the Company's directors and executive officers, and persons who own
more than 10% of the Company's common stock, to file with the SEC initial
reports of ownership and reports of changes in ownership of the common stock
beneficially owned by them. Directors, executive officers and greater than 10%
stockholders are required to furnish the Company with copies of all Section
16(a) reports that they file with the SEC.
To the Company's knowledge, based solely on review of copies of such
reports furnished to the Company or written representations from certain
reporting persons, during the year ended December 31, 2000, all Section 16(a)
filing requirements applicable to the directors, executive officers and greater
than 10% stockholders were complied with by such persons.
COST OF SOLICITING PROXIES
The cost of soliciting of proxies, including expenses to prepare and mail
this Proxy Statement, will be paid by Associated Materials. Associated Materials
has retained Mellon Investor Services LLC to assist in soliciting proxies. For
its services, Mellon will receive a fee of $4,500. Mellon will also be
reimbursed its reasonable out-of-pocket expenses. Associated Materials does not
otherwise expect to pay for the solicitation of proxies, but will reimburse
brokers and nominees for their reasonable expenses for sending proxy materials
to principals and obtaining their proxies. In addition to soliciting proxies by
mail, directors, officers and employees of Associated Materials may solicit
proxies in person, by telephone or by other means.
20
23
STOCKHOLDER PROPOSALS
In order to be included in the Company's Proxy Statement for its Annual
Meeting of Stockholders in 2002, stockholder proposals must be received at the
Company's principal office, 2200 Ross Avenue, Suite 4100 East, Dallas, Texas
75201, Attention: Secretary, no later than December , 2001 as well as meet all
other SEC requirements. In addition, Associated Materials' By-Laws provide that
any stockholder who desires either to bring a stockholder proposal before an
annual meeting must give advance notice to Associated Materials' Secretary
regarding the proposal. The By-Laws generally require that written notice be
delivered to the Secretary not less than 80 days prior to the date of the
meeting and contain certain information regarding the stockholder desiring to
present a proposal. A copy of the By-Laws is available upon request from the
Secretary of Associated Materials.
ASSOCIATED MATERIALS INCORPORATED
Robert L. Winspear
Secretary
Dallas, Texas
April , 2001
21
24
APPENDIX A
AMENDMENT TO THE CERTIFICATE OF INCORPORATION
(PROPOSAL NO. 1)
Section 7.1 of Article VII of the Company's certificate of incorporation
currently reads as follows:
"Section 7.1. Number, Election and Terms of Directors. Subject to the
rights of the holders of Preferred Stock to elect additional Directors
under specific circumstances, the number of the Directors of the
Corporation shall be fixed from time to time by or pursuant to the
Bylaws of the Corporation. The Directors, other than those who may be
elected by the holders of Preferred Stock, shall be classified with
respect to the time for which they severally hold office into three
classes, as nearly their equal in number as possible, as shall be
provided in the manner specified in the Bylaws of the Corporation. At
each annual meeting of the stockholders of the Corporation, the
successors of the class of Directors whose term expires at that meeting
shall be elected by plurality vote of all votes cast at such meeting to
hold office for a term expiring at the annual meeting of stockholders
held in the third year following the year of their election."
If the proposal to amend the certificate of incorporation is approved by
the holders of a majority of the Company's outstanding common stock and Class B
common stock, voting together as a single class, Section 7.1 of Article VII of
the Company's certificate of incorporation will be amended and restated to read
as follows:
"Section 7.1 Number, Election and Terms of Directors. Subject to the
rights of the holders of Preferred Stock to elect additional Directors
under specific circumstances, the number of the Directors of the
Corporation shall be fixed from time to time by or pursuant to the
Bylaws of the Corporation. At each annual meeting of the stockholders of
the Corporation, the Directors, other than those who may be elected by
the holders of Preferred Stock, shall be elected by plurality vote of
all votes cast at such meeting to hold office for a term expiring at the
immediately following annual meeting of stockholders."
A-1
25
APPENDIX B
ASSOCIATED MATERIALS INCORPORATED
AUDIT COMMITTEE CHARTER
ORGANIZATION
This charter governs the operations of the audit committee. The committee
shall review and reassess the charter at least annually and obtain the approval
of the board of directors. The committee shall be appointed by the board of
directors and shall comprise at least three directors, each of whom are
independent of management and the Company. All committee members shall be
financially literate and at least one member shall have accounting or related
financial management expertise. Independence and financial literacy shall be
determined in accordance with the provisions of the NASD.
STATEMENT OF POLICY
The audit committee shall provide assistance to the board of directors in
fulfilling their oversight responsibility to the stockholders, potential
stockholders, the investment community, and others relating to the Company's
financial statements and the financial reporting process, the systems of
internal accounting and financial controls, the internal audit function, the
annual independent audit of the Company's financial statements, and the legal
compliance and ethics programs as established by management and the board. In so
doing, it is the responsibility of the committee to maintain free and open
communication between the committee, independent accountants, the internal
accountants and management of the Company. In discharging its oversight role,
the committee is empowered to investigate any matter brought to its attention
with full access to all books, records, facilities, and personnel of the Company
and the power to retain outside counsel or other experts for this purpose.
RESPONSIBILITIES AND PROCESSES
The primary responsibility of the audit committee is to oversee the
Company's financial reporting process on behalf of the board and report the
results of their activities to the board. Management is responsible for
preparing the Company's financial statements, and the independent accountants
are responsible for auditing those financial statements. The committee in
carrying out its responsibilities believes its policies and procedures should
remain flexible, in order to best react to changing conditions and
circumstances. The committee should take the appropriate actions to set the
overall corporate "tone" for quality financial reporting, sound business risk
practices, and ethical behavior.
The following shall be the principal recurring processes of the audit
committee in carrying out its oversight responsibilities. The processes are set
forth as a guide with the understanding that the committee may supplement them
as appropriate.
- The committee shall have a clear understanding with management and the
independent accountants that the independent accountants are ultimately
accountable to the board and the audit committee, as representatives of
the Company's stockholders. The committee shall have the ultimate
authority and responsibility to evaluate and, where appropriate, replace
the independent accountants. The committee shall discuss with the
accountants their independence from management and the Company and the
matters included in the written disclosures required by the Independence
Standards Board. Annually, the committee shall review and recommend to
the board the selection of the Company's independent accountants, subject
to stockholders' approval.
- The committee shall discuss with the internal auditors and the
independent accountants the overall scope and plans for their respective
audits including the adequacy of staffing and compensation. Also, the
committee shall discuss with management, the internal auditors, and the
independent accountants the adequacy and effectiveness of the accounting
and financial controls, including the Company's system to monitor and
manage business risk, and legal and ethical compliance programs. Further,
the
B-1
26
committee shall meet separately with the internal auditors and the
independent accountants, with and without management present, to discuss
the results of their examinations.
- The committee shall review the interim financial statements with
management and the independent accountants prior to the filing of the
Company's Quarterly Report on Form 10-Q. Also, the committee shall
discuss the results of the quarterly review and any other matters
required to be communicated to the committee by the independent
accountants under generally accepted auditing standards. The chair of the
committee may represent the entire committee for the purposes of the
review.
The committee shall review with management and the independent accountants
the financial statements to be included in the Company's Annual Report on Form
10-K (or the annual report to stockholders if distributed prior to the filing of
Form 10-K), including their judgment about the quality, not just acceptability,
of accounting principles, the reasonableness of significant judgments, and the
clarity of the disclosures in the financial statements. Also, the committee
shall discuss the results of the annual audit and any other matters required to
be communicated to the committee by the independent accountants under generally
accepted auditing standards.
B-2
27
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PROXY
ASSOCIATED MATERIALS INCORPORATED
Please date and sign on reverse side and return in the enclosed
postage-paid envelope.
The undersigned acknowledge(s) receipt of the Proxy Statement of
Associated Materials Incorporated (the "Company") relating to the 2001
Annual Meeting of Stockholders (the "Annual Meeting") and hereby
constitute(s) and appoint(s) William W. Winspear and Robert L.
Winspear, attorneys and proxies of the undersigned, with full power of
substitution and resubstitution to each and with all the powers the
undersigned would possess if personally present, to vote for and in the
name and place of the undersigned all shares of Common Stock of
Associated Materials Incorporated held or owned by the undersigned, or
standing in the name of the undersigned, at the Annual Meeting to be
held on, Thursday, May 24, 2001, commencing at 9:30 a.m., in the
Keystone Room on the 40th Floor of Chase Tower, 2200 Ross Avenue,
Dallas, Texas 75201, or any adjournment or postponement thereof, upon
the matters referred to in the Proxy Statement for the Annual Meeting
as stated below and on the reverse side. The proxies are further
authorized to vote, in their discretion, upon such other business as
may properly come before the Annual Meeting or any adjournment or
postponement thereof. Said attorneys and proxies present and acting at
the Annual Meeting (or if only one shall be present and act, then that
one), shall have and may exercise all the powers of all said attorneys
and proxies hereunder.
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
ASSOCIATED MATERIALS INCORPORATED. UNLESS OTHERWISE SPECIFIED BELOW OR
ON THE REVERSE SIDE, THIS PROXY WILL BE VOTED FOR AN AMENDMENT TO THE
COMPANY'S CERTIFICATE OF INCORPORATION, FOR THE NOMINEES OF THE BOARD
OF DIRECTORS LISTED BELOW, FOR AN AMENDMENT TO THE ASSOCIATED MATERIALS
INCORPORATED AMENDED AND RESTATED 1994 STOCK INCENTIVE PLAN TO INCREASE
THE NUMBER OF AUTHORIZED SHARES THAT MAY BE ISSUED UNDER THE PLAN, FOR
AN AMENDMENT TO THE ASSOCIATED MATERIALS INCORPORATED EMPLOYEE STOCK
PURCHASE PLAN TO INCREASE THE NUMBER OF SHARES THAT MAY BE ISSUED UNDER
THE PLAN AND FOR THE RATIFICATION OF ERNST & YOUNG LLP AS ASSOCIATED
MATERIALS INCORPORATED'S INDEPENDENT AUDITORS. DISCRETIONARY AUTHORITY
IS HEREBY CONFERRED AS TO ALL OTHER MATTERS THAT MAY COME BEFORE THE
ANNUAL MEETING.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 3, 4 and 5
AND FOR THE DIRECTOR NOMINEES LISTED UNDER PROPOSAL 2 BELOW.
1. AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION to
provide that all members of the Board of Directors will be
elected annually.
2. ELECTION OF SEVEN DIRECTORS. The nominees are William W.
Winspear, Michael Caporale, Richard I. Galland, John T. Gray,
James F. Leary, Alan B. Lerner and A. A. Meitz.
3. AMENDMENT TO THE ASSOCIATED MATERIALS INCORPORATED AMENDED AND
RESTATED 1994 STOCK INCENTIVE PLAN to increase the number of
authorized shares that may be issued under the plan.
4. AMENDMENT TO THE ASSOCIATED MATERIALS INCORPORATED EMPLOYEE
STOCK PURCHASE PLAN to increase the number of authorized
shares that may be issued under the plan.
5. RATIFICATION OF THE APPOINTMENT of Ernst & Young LLP as
independent auditors.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE
- --------------------------------------------------------------------------------
* FOLD AND DETACH HERE *
28
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Please mark
[X] votes as in
this example
This Proxy when executed will be voted in the manner directed herein. If no
direction is made, this Proxy will be FOR Proposals 1, 3, 4 and 5, and if
Proposal No. 1 is approved, FOR the election of the Director nominees listed
under Proposal No. 2, each for a term to expire at the Company's Annual Meeting
of Stockholders in 2002 and if Proposal No. 1 is not approved, FOR the election
of the Director nominees listed under Proposal No. 2 for terms to expire at the
Company's Annual Meeting of Stockholders in 2002, 2003 and 2004 as more fully
described in the Proxy Statement.
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1. Amendment to the Company's certificate of 3. Amendment to the Associated Materials Incorporated
incorporation to provide that all members of its Amended and Restated 1994 Stock Incentive Plan to
Board of Directors are elected annually. increase the number of authorized shares.
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
[ ] [ ] [ ] [ ] [ ] [ ]
2. Election of Directors (see reverse). 4. Amendment to the Associated Materials Incorporated
Employee Stock Purchase Plan to increase the number
of authorized shares.
FOR all WITHHOLD
Nominees listed AUTHORITY FOR AGAINST ABSTAIN
(except as marked to vote for all [ ] [ ] [ ]
to the contrary) nominees
[ ] [ ]
5. Ratification of Ernst & Young LLP as independent
auditors.
- ------------------------------------------------------ FOR AGAINST ABSTAIN
For all nominees except as noted above [ ] [ ] [ ]
- --------------------------------------------------------------------------------
MARK HERE
[ ] FOR ADDRESS
CHANGE AND
NOTE AT LEFT
Date:
-----------------------------------
Signature:
------------------------------
Signature:
------------------------------
IMPORTANT: Whether or not you expect to
attend the annual meeting in person,
please date, sign and return this proxy.
Joint owners should each sign. When
signing as attorney, executor,
administrator, trustee or guardian,
please give your full title in this
capacity.
- --------------------------------------------------------------------------------
* FOLD AND DETACH HERE *
THIS IS YOUR PROXY.
YOUR VOTE IS IMPORTANT.
Regardless of whether you plan to attend the Annual Meeting of Stockholders, you
can be sure your shares are represented at the Annual Meeting by promptly
returning your proxy in the enclosed envelope.