DAL-TILE INTERNATIONAL INC.
----------------
March 31, 1999
Dear Stockholder:
You are cordially invited to attend the 1999 Annual Meeting of Stockholders
of Dal-Tile International Inc. to be held on Thursday, April 29, 1999, at 10:00
a.m., local time, at The Hotel Crescent Court, 400 Crescent Court, Dallas, Texas
75201.
The Secretary's formal notice of the meeting and the Proxy Statement which
appear on the following pages will describe the matters to be acted upon at the
meeting.
We hope that you will be able to attend the meeting in person. However,
whether or not you plan to be present, please complete, sign, date and return
your proxy as soon as possible so that your vote will be counted.
Sincerely yours,
/s/ Jacques R. Sardas
Jacques R. Sardas
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND CHAIRMAN OF THE BOARD
DAL-TILE INTERNATIONAL INC.
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
---------------------
The 1999 Annual Meeting of Stockholders of Dal-Tile International Inc., a
Delaware corporation (the "Company"), will be held at The Hotel Crescent Court,
400 Crescent Court, Dallas, Texas 75201, on Thursday, April 29, 1999, at 10:00
a.m., local time, for the following purposes:
1. To elect eight directors for terms ending at the 2000 Annual Meeting
of Stockholders;
2. To amend the Company's 1997 Amended and Restated Stock Option Plan
to increase the number of shares reserved for issuance pursuant thereto;
3. To approve the Company's 1999 Employee Stock Purchase Plan;
4. To ratify the appointment by the Board of Directors of Ernst & Young
LLP, independent public accountants, as independent auditors for the Company
for the fiscal year ending December 31, 1999; and
5. To transact such other business as may properly come before the
meeting.
Stockholders of record as of the close of business on March 1, 1999 will be
entitled to vote at the meeting.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND
DATE THE ENCLOSED PROXY CARD AND PROMPTLY RETURN IT IN THE ACCOMPANYING
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. YOU MAY
REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS VOTED BY DELIVERY TO THE COMPANY OF A
SUBSEQUENTLY EXECUTED PROXY OR A WRITTEN NOTICE OF REVOCATION OR BY VOTING IN
PERSON AT THE MEETING.
By order of the Board of Directors,
/s/ Mark A. Solls
Mark A. Solls
SECRETARY
March 31, 1999
DAL-TILE INTERNATIONAL INC.
7834 C.F. HAWN FREEWAY
DALLAS, TEXAS 75217
------------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 29, 1999
------------------------
This proxy statement is furnished to stockholders of Dal-Tile International
Inc., a Delaware corporation (the "Company" or "Dal-Tile"), in connection with
the solicitation of proxies by the Board of Directors of the Company (the
"Board" or "Board of Directors") for use at the 1999 Annual Meeting of
Stockholders of the Company (the "Annual Meeting") to be held at 10:00 a.m.,
local time, on Thursday, April 29, 1999, at The Hotel Crescent Court, 400
Crescent Court, Dallas, Texas 75201, and any adjournments thereof.
Stockholders of record as of the close of business on March 1, 1999 (the
"Record Date") will be entitled to vote at the Annual Meeting or any
adjournments thereof. As of the Record Date, the Company had outstanding
53,577,946 shares of common stock, par value $.01 per share ("Common Stock"),
each entitled to one vote on all matters to be voted upon. This proxy statement,
the accompanying form of proxy and the Company's annual report to stockholders
for the fiscal year ended January 1, 1999 are being mailed on or about March 31,
1999 to each stockholder entitled to vote at the Annual Meeting.
VOTING AND REVOCATION OF PROXIES
VOTING
If the enclosed proxy is executed and returned in time and not revoked, all
shares represented thereby will be voted. Each proxy will be voted in accordance
with the stockholder's instructions. If no such instructions are specified,
signed proxies will be voted (a) FOR the election of each person nominated for
election as a director, (b) FOR the approval of the amendment to the Company's
1997 Amended and Restated Stock Option Plan, (c) FOR the approval of the
Company's 1999 Employee Stock Purchase Plan, and (d) FOR the ratification of the
appointment by the Board of Directors of Ernst & Young LLP as independent
auditors for the Company for the fiscal year ending December 31, 1999.
The holders of a majority in number of the total outstanding shares of
Common Stock entitled to vote at the Annual Meeting, present in person or by
proxy, constitutes a quorum. Assuming a quorum is present, the affirmative vote
of a plurality of the votes cast at the Annual Meeting and entitled to vote in
the election will be required for the election of directors and the affirmative
vote of a majority of the votes cast at the Annual Meeting and entitled to vote
thereon will be required to act on all other matters to come before the Annual
Meeting, including (i) the approval of the amendment to the Company's 1997
Amended and Restated Stock Option Plan, (ii) the approval of the Company's 1999
Employee Stock Purchase Plan, and (iii) the ratification of the appointment by
the Board of Directors of Ernst & Young LLP as independent auditors for the
Company. An automated system administered by the Company's transfer agent will
tabulate the votes. For purposes of determining the number of votes cast with
respect to any voting matter, only those cast "for" or "against" are included;
abstentions and broker non-votes are excluded. Accordingly, with respect to the
election of directors, abstentions and broker non-votes will have no effect on
the outcome. For purposes of determining whether the affirmative vote of a
majority of the votes cast at the Annual Meeting and entitled to vote has been
obtained, abstentions will be included in, and broker non-votes will be excluded
from, the number of shares present and entitled to vote. Accordingly, with
respect to any matter other than the election of directors, abstentions will
have the effect of a vote "against" the matter and broker non-votes will have
the effect of reducing the number of affirmative votes required to achieve the
majority vote.
REVOCATION
A stockholder giving a proxy may revoke it at any time before it is voted by
delivery to the Company of a subsequently executed proxy or a written notice of
revocation. In addition, returning your completed proxy will not prevent you
from voting in person at the Annual Meeting should you be present and wish to do
so.
ELECTION OF DIRECTORS
The Board of Directors currently consists of eight directors, with two
vacancies. Eight directors are nominated to be elected at the Annual Meeting to
hold office as directors until the 2000 Annual Meeting of Stockholders of the
Company or until their respective successors have been duly elected and
qualified. Unless otherwise directed, signed proxies in the accompanying form
will be voted FOR the nominees listed below. All nominees have consented to be
named and to serve if elected. If any one or more of the nominees is unable to
serve or for good cause will not serve, proxies will be voted for the substitute
nominee or nominees, if any, proposed by the Board of Directors. The Board has
no knowledge that any nominee will or may be unable to serve or will or may
withdraw from nomination. Each nominee will be elected if he receives the
affirmative vote of a plurality of the votes cast by holders of shares of Common
Stock at the Annual Meeting.
The Board of Directors proposes the election of the following nominees for a
term of one year. All of the nominees are presently directors of the Company.
Set forth below for each nominee are his name and age, all positions and offices
with the Company that he holds, if any, his principal occupations during at
least the last five years and any additional directorships in publicly held
companies or registered investment companies.
NAME AGE POSITION OR OFFICE HELD
- ------------------------------------------- --- ------------------------------------------
Jacques R. Sardas.......................... 68 Chairman of the Board, President and Chief
Executive Officer
Douglas D. Danforth........................ 76 Director
John F. Fiedler............................ 60 Director
John M. Goldsmith.......................... 35 Director
Vincent A. Mai............................. 58 Director
Charles J. Pilliod, Jr..................... 80 Director
Henry F. Skelsey........................... 40 Director
Norman E. Wells, Jr........................ 50 Director
JACQUES R. SARDAS, President, Chief Executive Officer and Chairman of the
Board of Directors-- Mr. Sardas has been President and Chief Executive Officer
of the Company since July 1997 and Chairman of the Board of Directors since
September 1997. Prior to joining the Company, Mr. Sardas was Chairman and Chief
Executive Officer of Sudbury, Inc. from 1992 to 1997. Prior to that, he spent 34
years at Goodyear Tire and Rubber Company, concluding as President of Goodyear
Worldwide Tire.
DOUGLAS D. DANFORTH, Director--Mr. Danforth has been a Director of the
Company since February 1997. He was Chairman and Chief Executive Officer of
Westinghouse Corporation from December 1983 to December 1987. Mr. Danforth is
also a director of Sola International Inc. and of Atlantic Express
Transportation Corporation.
JOHN F. FIEDLER, Director--Mr. Fiedler has been a Director of the Company
since July 1998. He is Chairman and Chief Executive Officer of Borg-Warner
Automotive, Inc. Prior to joining Borg-Warner in June of 1994, he was Executive
Vice President of The Goodyear Tire & Rubber Company where he was responsible
for North American Tires. Mr. Fiedler's 29 year career with Goodyear included
numerous sales, marketing and manufacturing positions in the U.S. and Far East.
2
JOHN M. GOLDSMITH, Director--Mr. Goldsmith has been a Director of the
Company since April 1996. Mr. Goldsmith is a Managing Director of AEA Investors
Inc. ("AEA Investors") (the managing member of DTI Investors LLC ("DTI
Investors"), a beneficial owner of Common Stock), and has been associated with
AEA Investors since 1989. Previously, he was a member of the Financial Services
practice of Ernst & Young LLP, an independent accounting firm.
VINCENT A. MAI, Director--Mr. Mai has been a Director of the Company since
October 1989. Mr. Mai has been a Director and Chief Executive Officer of AEA
Investors since April 1989 and Chairman of the Board of Directors of AEA
Investors since January 1998. He also served as President of AEA Investors from
April 1989 until December 1998. AEA Investors is the managing member of DTI
Investors, a beneficial owner of Common Stock. For the preceding 15 years, he
was a Managing Director of Lehman Brothers Inc., an investment banking firm. Mr.
Mai is also a director of Fannie Mae.
CHARLES J. PILLIOD, JR., Director--Mr. Pilliod has been a Director of the
Company since March 1990 and served as Chairman of the Board of Directors from
October 1993 through September 1997. From October 1993 through April 1994, Mr.
Pilliod also served as President and Chief Executive Officer of the Company. Mr.
Pilliod served as U.S. Ambassador to Mexico from 1986 to 1989. Prior to that, he
was the Chairman and Chief Executive Officer of Goodyear Tire & Rubber Company.
Mr. Pilliod is also a director of Marvin & Palmer Associates, Inc.
HENRY F. SKELSEY, Director--Mr. Skelsey has been a Director of the Company
since October 1989. Since August 1998, Mr. Skelsey has been Executive Vice
President and Chief Financial Officer of Tanning Technology Corporation, a
system integration and solution business. From March 1988 until August 1998, Mr.
Skelsey was a Managing Director of AEA Investors (the managing member of DTI
Investors, a beneficial owner of the Common Stock), and since August 1998, Mr.
Skelsey has acted as a consultant to AEA Investors.
NORMAN E. WELLS, JR., Director--Mr. Wells has been a Director of the Company
since December 1997. Mr. Wells joined Easco, Inc. as President and Chief
Executive Officer in November 1996. He is also a director of Easco, Inc. From
March 1993 to November 1996, he was President and Chief Executive Officer of
CasTech Aluminum Group Inc.
FURTHER INFORMATION CONCERNING THE BOARD
OF DIRECTORS AND COMMITTEES
The Board of Directors of the Company directs the management of the business
and affairs of the Company, as provided by Delaware law, and conducts its
business through meetings of the Board and its standing committees. During the
fiscal year ended January 1, 1999 (such fiscal year sometimes referred to herein
as "fiscal 1998"), the Company maintained three standing committees: Audit,
Compensation and Section 162(m). In addition, from time to time, special
committees may be established under the direction of the Board when necessary to
address specific issues. The Company has no nominating or similar committee.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of eight (8) meetings and
took two (2) actions by written consent during fiscal 1998. No director
participated in fewer than 75% of the aggregate number of meetings of the Board
of Directors and meetings of the committees of the Board on which he served.
The Audit Committee's principal functions are to review the scope of the
annual audit of the Company by its independent public accountants, review the
annual financial statements of the Company and the related audit report of the
independent auditors, review management's selection of an independent public
accounting firm each year and review audit and any non-audit fees paid to the
Company's
3
independent public accountants. The Company's Chief Financial Officer generally
attends Audit Committee meetings and delivers reports to and answers inquiries
from the Audit Committee. The Audit Committee reports its findings and
recommendations to the Board. The Audit Committee is comprised of three
non-employee directors. From the beginning of fiscal 1998 until February 26,
1998, the members of the Audit Committee included Douglas D. Danforth, John M.
Goldsmith and Frank A. Riddick III. From February 27, 1998 until February 18,
1999, the members of the Audit Committee were Douglas D. Danforth and Norman E.
Wells, Jr. On February 18, 1999, John F. Fiedler was appointed to the Audit
Committee. The Audit Committee held two (2) meetings in fiscal 1998.
The Compensation Committee is responsible generally for establishing and
administering the Company's compensation plans and programs. From the beginning
of fiscal 1998 until February 26, 1998, the members of the Compensation
Committee included Vincent A. Mai, Robert J. Shannon, Jr. and Henry F. Skelsey.
Since February 26, 1998, the members of the Compensation Committee have been
Vincent A. Mai and Henry F. Skelsey. The Compensation Committee held two (2)
meetings and did not take any actions by written consent in fiscal 1998.
The Section 162(m) Committee (the "162(m) Committee") is responsible for
establishing and administering the Company's executive compensation plans and
programs to the extent that such plans and programs relate to compensation which
the Company intends to qualify for an exemption from the deduction limitation of
Section 162(m) of the United States Internal Revenue Code of 1986, as amended
(the "Code"). From the beginning of fiscal 1998 until February 26, 1998, the
members of the 162(m) Committee included Douglas D. Danforth, George A. Lorch
and Norman E. Wells, Jr. From February 27, 1998 until February 18, 1999, the
162(m) Committee members were Norman E. Wells, Jr. and Douglas D. Danforth. The
162(m) Committee held four (4) meetings and did not take any actions by written
consent in fiscal 1998.
On February 18, 1999, the Compensation Committee and the 162(m) Committee
were combined. The resulting committee was named the Compensation Committee,
with its members being Norman E. Wells, Jr., Douglas D. Danforth and John F.
Fiedler.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following directors served on the Company's Compensation Committee
during fiscal 1998: Robert J. Shannon, Jr., Henry F. Skelsey and Vincent A. Mai.
The following directors served on the Section 162(m) Committee during fiscal
1998: Douglas D. Danforth, Norman E. Wells, Jr. and George A. Lorch. Vincent A.
Mai is the Chairman and Chief Executive Officer of AEA Investors (the managing
member of DTI Investors, a beneficial owner of Common Stock). Mr. Skelsey is a
consultant to AEA Investors. The Company receives the benefit of volume
discounts for certain office services and supplies made available to various
companies associated with AEA Investors pursuant to arrangements managed by a
subsidiary of AEA Investors.
DIRECTORS' COMPENSATION
Directors who are full-time employees of the Company receive no additional
compensation for serving on the Board or its committees. Directors who are not
full-time employees of the Company or employees of AEA Investors receive an
annual fee of $10,000 and $15,000 in market value of Common Stock, a quarterly
fee of $1,500, and $1,000 for each unscheduled Board and/or Committee meeting
attended, plus reimbursement for traveling costs and other out-of-pocket
expenses incurred in attending such meetings.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's executive officers and directors, and
persons who own more than ten percent of a registered
4
class of the Company's equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission ("SEC") and the
New York Stock Exchange ("NYSE"). Executive officers, directors and greater than
10% stockholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file. Based solely on its review of the
copies of such forms received by it, or written representations from certain
reporting persons, the Company believes that, during fiscal 1998, all filing
requirements applicable to its executive officers and directors and greater than
10% stockholders were complied with.
5
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of the Record Date with respect to (i) each
person known to Dal-Tile to own beneficially more than 5% of the outstanding
shares of Common Stock, (ii) each of Dal-Tile's directors, (iii) each of the
executive officers named in the table under "Compensation of Executive
Officers--Executive Compensation--Summary Compensation Table", and (iv) all the
Company's directors and executive officers as a group.
PERCENT OF
NUMBER OF COMMON STOCK
SHARES(1) OWNED
------------------ ---------------
DTI Investors LLC............................................................. 28,604,811 53.4%
c/o AEA Investors Inc.
65 East 55th Street
New York, NY 10022
AEA Investors Inc.(2)......................................................... 28,604,811 53.4
65 East 55th Street
New York, NY 10022
Perry Corp.................................................................... 3,459,300 6.5
599 Lexington Avenue
New York, NY 10022
Richard C. Perry (3).......................................................... 3,459,300 6.5
c/o Perry Corp.
599 Lexington Avenue
New York, NY 10022
John F. Fiedler............................................................... 2,429 *
Charles J. Pilliod, Jr. ...................................................... 312,429(4)(5) *
Dan L. Cooke.................................................................. 38,500(6) *
Douglas D. Danforth........................................................... 4,629(5) *
Vincent A. Mai................................................................ 52,500(5)(7) *
Henry F. Skelsey.............................................................. 33,000(5)(8) *
John M. Goldsmith............................................................. 14,000(5)(9) *
Jacques R. Sardas............................................................. 1,200,000(10) 2.2
Javier Eugenio Martinez Serna................................................. 129,780(11) *
Harold G. Turk................................................................ 202,974(12) *
W. Christopher Wellborn....................................................... 165,000(13) *
Norman E. Wells, Jr........................................................... 6,429 *
All directors and executive officers as a group (20 persons).................. 2,644,553 4.9
- ------------------------
* Less than 1%.
(1) For purposes of this table, a person or group of persons is deemed to have
beneficial ownership of any shares as of a given date which such person has
the right to acquire within 60 days after such date. For purposes of
computing the percentage of outstanding shares held by each person or group
of persons named above on a given date, any shares that such person or
persons have the right to acquire within 60 days after such date is deemed
to be outstanding, but are not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person.
6
(2) AEA Investors is the managing member of DTI Investors, and accordingly may
be deemed to beneficially own such shares.
(3) Richard C. Perry is the sole stockholder and President of Perry Corp., and
accordingly may be deemed to beneficially own such shares.
(4) Consists of 311,000 shares subject to options. 111,000 shares are held in
nominee name, Hertrus and Company.
(5) Such director is a member of DTI Investors. Under the rules of the SEC, as
such director does not have voting or investment power over the shares of
Common Stock owned by DTI Investors, such director does not have beneficial
ownership of such shares. Such director's membership interest in DTI
Investors represents a less than 1% indirect interest in the Common Stock,
which interest is in addition to any stock options held, or shares of Common
Stock identified herein as beneficially owned, by such director.
(6) Includes 37,500 shares subject to options.
(7) Excludes 28,604,811 shares owned by DTI Investors, the managing member of
which is AEA Investors. Mr. Mai is a member of DTI Investors, and serves as
an officer and director of AEA Investors. Mr. Mai disclaims beneficial
ownership of the shares beneficially owned by DTI Investors and AEA
Investors. Includes 2,500 shares held in family trust.
(8) Excludes 28,604,811 shares owned by DTI Investors, the managing member of
which is AEA Investors. Mr. Skelsey is a member of DTI Investors and serves
as a consultant to AEA Investors. Mr. Skelsey disclaims beneficial ownership
of the shares beneficially owned by DTI Investors and AEA Investors.
(9) Excludes 28,604,811 shares owned by DTI Investors, the managing member of
which is AEA Investors. Mr. Goldsmith serves as an officer of AEA Investors.
Mr. Goldsmith disclaims beneficial ownership of the shares beneficially
owned by DTI Investors and AEA Investors.
(10) Includes 1,000,000 shares subject to options and 200,000 shares held in a
family trust.
(11) Consists of 129,780 shares subject to options.
(12) Consists of 202,974 shares subject to options.
(13) Includes 155,000 shares subject to options.
7
COMPENSATION OF EXECUTIVE OFFICERS
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
annual and long-term compensation of the Company's Chief Executive Officer and
each of the Company's other four most-highly compensated executive officers
during fiscal 1998 who were serving in such capacity on January 1, 1999, in each
case for the fiscal years ended January 3, 1997, January 2, 1998 and January 1,
1999:
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS/SARS COMPENSATION
- --------------------------------------------------- --------- --------- --------- ------------- -------------------
Jacques R. Sardas.................................. 1998 $ 600,000 $ 900,000 2,343,000(1) $ 43,854(6)(7)(8)(9)
Chairman of the Board, President and Chief 4,250,000(2)
Executive Officer
1997 286,153 300,000 4,250,000(2) 18,410
1996 0 0 0 0
W. Christopher Wellborn............................ 1998 307,800 307,800 210,000(1) 13,920(6)(7)(8)(9)
Executive Vice President and Chief Financial 610,000(3)
Officer
1997 99,877 166,300 610,000(3) 87,423
1996 0 0 0 0
Harold G. Turk..................................... 1998 262,800 262,800 116,000(1) 11,490(6)(7)(8)(9)
Vice President, Sales Service Centers 1997 256,800 0 0 18,700
1996 255,000 139,768 0 8,012
Javier Eugenio Martinez Serna...................... 1998 250,000 237,138 102,000(1) 35,393(7)(10)
Vice President, Mexico Operations 57,631(4)
1997 227,710 32,153 0 36,494
1996 216,499 83,747 57,631(4) 39,813
Dan L. Cooke....................................... 1998 207,800 207,800 90,000(1) 9,213(6)(7)(8)(9)
Vice President, Information Technology 100,000(5)
1997 195,646 0 100,000(5) 12,324
1996 0 0 0 0
- ------------------------------
(1) Options granted in 1998. See Option/SAR Grant Tables.
(2) The amount shown includes 2,000,000 options and 2,250,000 SARs originally
granted in 1997. On February 20, 1998, the per share exercise price of the
options was reduced from $13.69 to $11.94 (market value on such date) and
the per share ceiling price of 2,000,000 of the SARs was reduced to $11.94
(250,000 SARs retained the per share ceiling price of $13.69). See
Option/SAR Repricing Table.
(3) The amount shown includes 310,000 options and 300,000 SARs originally
granted in 1997. On February 20, 1998, the per share exercise price of the
options was reduced from $13.69 to $11.94 (market value on such date) and
the per share ceiling price of 300,000 of the SARs was reduced to $11.94.
See Option/SAR Repricing Table.
(4) The amount shown includes options originally granted in 1996. On December
10, 1998, the per share exercise price of the options was reduced from $9.91
to $9.01. See Option/SAR Repricing Table.
(5) The amount shown includes 50,000 options and 50,000 SARs originally granted
in 1997. On February 20, 1998, the per share exercise price of the options
was reduced from $13.69 to $11.94 (market value on such date) and the per
share ceiling price of 50,000 of the SARs was reduced to $11.94. See
Option/SAR Repricing Table.
(6) The amounts shown include premium payments for long-term disability paid by
the Company during fiscal 1998 for Jacques R. Sardas, in the amount of
$2,302, W. Christopher Wellborn, in the amount of $2,302, Harold G. Turk, in
the amount of $2,076, and Dan L. Cooke, in the amount of $1,642.
8
(7) The amounts shown include premiums paid by the Company for life insurance
during fiscal 1998 for Jacques R. Sardas, in the amount of $13,860, W.
Christopher Wellborn, in the amount of $490, Harold G. Turk, in the amount
of $1,227, Javier Eugenio Martinez Serna, in the amount of $3,520, and Dan
L. Cooke, in the amount of $1,098.
(8) The amounts shown include contributions made by the Company to the Company's
401(k) Plan for fiscal 1998 to Jacques R. Sardas, in the amount of $5,000,
to W. Christopher Wellborn, in the amount of $5,000, to Harold G. Turk, in
the amount of $5,000, and Dan L. Cooke, in the amount of $4,315.
(9) The amounts shown include matching contributions made by the Company to the
Company's Supplemental Retirement Plan for fiscal 1998 to Jacques R. Sardas,
in the amount of $22,692, to W. Christopher Wellborn, in the amount of
$6,128, to Harold G. Turk, in the amount of $3,187 and to Dan L. Cooke, in
the amount of $2,158.
(10) The amount shown includes payments to Javier Eugenio Martinez Serna for
fiscal 1998 in the amount of $1,361 for contributions to a workers profit
sharing plan, $12,214 for scholarships, $1,109 for meals, $1,460 for
contributions to a savings fund, $15,524 for a car payment allowance and
$205 for medical insurance.
OPTION/SAR GRANT TABLE
The following table sets forth certain information regarding options and
SARs granted during fiscal 1998 by the Company to the individuals named in the
Summary Compensation Table:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------------------ VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES PERCENT OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS/SARS GRANTED TO EXERCISE OR OPTION TERM(6)
OPTIONS/SARS EMPLOYEES IN FISCAL BASE PRICE EXPIRATION ----------------------
NAME GRANTED YEAR PER SHARE DATE 5% 10%
- -------------------------- ------------- ----------------------- ------------- ----------- ---------- ----------
OPTIONS
Jacques R. Sardas......... 2,000,000 28.1% $ 11.94(1) 6/13/2007 $13,620,352 $33,785,579
2,000,000 28.1 9.01(2) 7/17/2008 11,332,681 28,719,239
343,000 4.8 8.69 12/10/2008 1,874,527 4,750,420
W. Christopher Wellborn... 310,000 4.4 11.94(1) 8/25/2007 2,158,613 5,379,882
120,000 1.7 9.01(2) 7/17/2008 679,961 1,723,154
90,000 1.3 8.69 12/10/2008 491,858 1,246,466
Harold G. Turk............ 40,000 0.6 9.01(2) 7/17/2008 226,654 574,385
76,000 1.1 8.69 12/10/2008 415,347 1,052,571
Javier E.M. Serna......... 30,000 0.4 9.01(2) 7/17/2008 169,990 430,789
72,000 1.0 8.69 12/10/2008 393,487 997,173
Dan L. Cooke.............. 50,000 0.7 11.94(1) 4/18/2007 332,916 821,920
30,000 0.4 9.01(2) 7/17/2008 169,990 430,789
60,000 0.8 8.69 12/10/2008 327,906 830,977
SARS
Jacques R. Sardas......... 2,000,000(3) 81.3 9.01 6/13/2007 5,860,000 5,860,000
W. Christopher Wellborn... 300,000(4) 12.2 9.01 8/25/2007 879,000 879,000
Harold G. Turk............ 0 0 NA NA NA NA
Javier E.M. Serna......... 0 0 NA NA NA NA
Dan L. Cooke.............. 50,000(5) 2.0 9.01 4/18/2007 146,500 146,500
- ------------------------------
(1) On February 20, 1998, the per share exercise price of options originally
granted in 1997 to Mr. Sardas, Mr. Wellborn and Mr. Cooke was reduced from
$13.69 to $11.94 (market value on such date). See Option/SAR Repricing
Table.
(2) On December 10, 1998, the per share exercise price of options originally
granted in July 1998 was reduced to $9.01 (the market value on such date was
$8.69). See Option/SAR Repricing Table.
(3) On February 20, 1998, the per share ceiling price of 2,000,000 of the SARs
originally granted in 1997 to Mr. Sardas was reduced from $13.69 to $11.94
(market value on such date). The per share base price remained at $9.01. See
Option/SAR Repricing Table.
9
(4) On February 20, 1998, the per share ceiling price of the 300,000 SARs
originally granted in 1997 to Mr. Wellborn was reduced from $13.69 to $11.94
(market value on such date). The per share base price remained at $9.01. See
Option/SAR Repricing Table.
(5) On February 20, 1998, the per share ceiling price of the 50,000 SARs
originally granted in 1997 to Mr. Cooke was reduced from $13.69 to $11.94
(market value on such date). The per share base price remained at $9.01. See
Option/SAR Repricing Table.
(6) In accordance with SEC rules, these columns show gains that might exist for
the respective options, assuming the market price of Dal-Tile's Common Stock
appreciates from the date of grant over a period of ten years at the
annualized rates of five and ten percent, respectively. If the stock price
does not increase above the exercise price at the time of exercise, realized
value to the named executives from these options and SARs will be zero.
10
OPTION/SAR EXERCISE TABLE
The following table sets forth the number of shares covered by both
exercisable and unexercisable stock options and SARs as of January 1, 1999. Also
reported are values for "in-the-money" options and SARs that represent the
positive spread between the respective exercise or base prices of outstanding
stock options and SARs and the value of the Common Stock as of January 1, 1999
based on its closing price on the New York Stock Exchange of $10.38. No options
or SARs were exercised during fiscal 1998.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
AT FISCAL YEAR-END AT FISCAL YEAR-END
SHARES ACQUIRED VALUE -------------------------- --------------------------
NAME ON EXERCISE (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------- --------------- ------------- ----------- ------------- ----------- -------------
OPTIONS
Jacques R. Sardas................. 0 0 1,000,000(1) 3,343,000(2) $ 0 $ 3,319,670
W. Christopher Wellborn........... 0 0 155,000(1) 365,000(3) 0 316,500
Harold G. Turk.................... 0 0 202,974(4) 116,000(5) 278,074 183,240
Javier E.M. Serna................. 0 0 129,780(4) 102,000(6) 177,799 162,780
Dan L. Cooke...................... 0 0 25,000(1) 115,000(7) 0 142,500
SARS
Jacques R. Sardas(8).............. 0 0 1,125,000 1,125,000 1,541,250 1,541,250
W. Christopher Wellborn(8)........ 0 0 150,000 150,000 205,500 205,500
Harold G. Turk.................... 0 0 0 0 0 0
Javier E.M. Serna................. 0 0 0 0 0 0
Dan L. Cooke(8)................... 0 0 25,000 25,000 34,250 34,250
- ------------------------------
(1) At fiscal year-end, the per share exercise price of such options was $11.94.
(2) At fiscal year-end, the per share exercise price of such options was $11.94
for options to acquire 1,000,000 shares of Common Stock, $9.01 for options
to acquire 2,000,000 shares of Common Stock, and $8.69 for options to
acquire 343,000 shares of Common Stock.
(3) At fiscal year-end, the per share exercise price of such options was $11.94
for options to acquire 155,000 shares of Common Stock, $9.01 for options to
acquire 120,000 shares of Common Stock, and $8.69 for options to acquire
90,000 shares of Common Stock.
(4) At fiscal year-end, the per share exercise price of such options was $9.01.
(5) At fiscal year-end, the per share exercise price of such options was $9.01
for options to acquire 40,000 shares of Common Stock, and $8.69 for options
to acquire 76,000 shares of Common Stock.
(6) At fiscal year-end, the per share exercise price of such options was $9.01
for options to acquire 30,000 shares of Common Stock, and $8.69 for options
to acquire 72,000 shares of Common Stock.
(7) At fiscal year-end, the per share exercise price of such options was $11.94
for options to acquire 25,000 shares of Common Stock, $9.01 for options to
acquire 30,000 shares of Common Stock, and $8.69 for options to acquire
60,000 shares of Common Stock.
(8) At fiscal year-end, the per share base price of such SARs was $9.01 and the
per share ceiling price of such SARs was $11.94, except for 250,000 SARs
granted to Mr. Sardas which have a ceiling price of $13.69.
11
OPTION/SAR REPRICING TABLE
The following table sets forth certain information regarding options and
SARs granted to all executive officers which were repriced during the last ten
fiscal years. See Compensation Committee and 162(m) Committee Report on
Executive Compensation for a discussion of the basis for repricings.
LENGTH OF
SECURITIES ORIGINAL
UNDERLYING OPTION TERM
NUMBER OF MARKET PRICE OF EXERCISE OR CEILING REMAINING AT
OPTIONS/SARS STOCK AT TIME OF PRICE AT TIME OF NEW EXERCISE OR DATE OF
REPRICED OR REPRICING OR REPRICING OR CEILING PRICE REPRICING OR
NAME DATE AMENDED (#) AMENDMENT ($) AMENDMENT ($) ($) AMENDMENT
- --------------------------- ------------ ------------- ----------------- ------------------- --------------- ------------
OPTIONS
Jacques R. Sardas.......... 10/10/97(1) 2,000,000 $ 13.69 $ 16.00 $ 13.69 6/13/2007
2/20/98(2) 2,000,000 11.94 13.69 11.94 6/13/2007
12/10/98(3) 2,000,000 8.69 9.44 9.01 7/17/2008
W. Christopher Wellborn.... 10/10/97(4) 400,000 13.69 16.81 13.69 8/25/2007
2/20/98(2) 310,000 11.94 13.69 11.94 8/25/2007
12/10/98(3) 120,000 8.69 9.44 9.01 7/17/2008
Harold G. Turk............. 12/10/98(3) 40,000 8.69 9.44 9.01 7/17/2008
Javier E.M. Serna.......... 12/10/98(3) 30,000 8.69 9.44 9.01 7/17/2008
12/10/98(6) 57,631 8.69 9.91 9.01 1/1/2006
Dan L. Cooke............... 2/20/98(2) 50,000 11.94 13.69 11.94 4/18/2007
12/10/98(3) 30,000 8.69 9.44 9.01 7/17/2008
D.D. Agostinelli........... 12/10/98(5) 40,000 8.69 12.31 9.01 2/27/2008
12/10/98(3) 30,000 8.69 9.44 9.01 7/17/2008
Silvano Cornia............. 12/10/98(3) 30,000 8.69 9.44 9.01 7/17/2008
12/10/98(6) 32,023 8.69 9.91 9.01 1/1/2006
David F. Finnigan.......... 2/20/98(2) 65,000 11.94 13.69 11.94 9/1/2007
12/10/98(6) 76,845 8.69 9.91 9.01 1/1/2006
12/10/98(3) 40,000 8.69 9.44 9.01 7/17/2008
William R. Hanks........... 12/10/98(6) 73,182 8.69 9.91 9.01 1/1/2006
12/10/98(3) 30,000 8.69 9.44 9.01 7/17/2008
William L. Justus.......... 12/10/98(7) 50,000 8.69 9.88 9.01 9/23/2008
Matthew J. Kahny........... 12/10/98(6) 96,059 8.69 9.91 9.01 1/1/2006
12/10/98(3) 30,000 8.69 9.44 9.01 7/17/2008
Mark A. Solls.............. 12/10/98(8) 100,000 8.69 12.63 9.01 12/10/2007
12/10/98(3) 10,000 8.69 9.44 9.01 7/17/2008
SARS
Jacques R. Sardas.......... 2/20/98(9) 2,000,000 11.94 13.69 11.94 6/13/2007
W. Christopher Wellborn.... 2/20/98(10) 300,000 11.94 13.69 11.94 8/25/2007
Harold G. Turk............. N/A N/A N/A N/A N/A N/A
Javier E.M. Serna.......... N/A N/A N/A N/A N/A N/A
Dan L. Cooke............... 2/20/98(10) 50,000 11.94 13.69 11.94 4/18/2007
David F. Finnigan.......... 2/20/98(10) 60,000 11.94 13.69 11.94 9/1/2007
- ------------------------------
(1) The per share exercise price of the options granted to Mr. Sardas in June
1997 was reduced on October 10, 1997 from $16.00 to $13.69 (market value on
such date). The option term was not amended.
(2) The per share exercise price of the options granted to Messrs. Sardas,
Wellborn, Cooke and Finnigan in 1997 was reduced on February 20, 1998 from
$13.69 to $11.94 (market value on such date). The option term was not
amended.
(3) The per share exercise price of the options granted to Messrs. Sardas,
Wellborn, Turk, Serna, Cooke, Agostinelli, Cornia, Finnigan, Hanks, Justus,
Kahny and Solls in July 1998 was reduced on December 10, 1998 from $9.44 to
$9.01 (the market value on such date was $8.69). The option term was not
amended.
(4) The per share exercise price of the options granted to Mr. Wellborn in
August 1997 was reduced on October 10, 1997 from $16.81 to $13.69 (market
value on such date). In connection with such repricing, Mr. Wellborn
forfeited 90,000 options. The option term was not amended.
12
(5) The per share exercise price of the options granted to Mr. Agostinelli in
February 1998 was reduced on December 10, 1998 from $12.31 to $9.01 (the
market value on such date was $8.69). The option term was not amended.
(6) The per share exercise price of the options granted to Messrs. Serna,
Cornia, Finnigan, Hanks and Kahny on January 1, 1996 was reduced on December
10, 1998 from $9.91 to $9.01 (the market value on such date was $8.69). The
option term was not amended.
(7) The per share exercise price of the options granted to Mr. Justus in
September 1998 was reduced on December 10, 1998 from $9.88 to $9.01 (the
market value on such date was $8.69). The option term was not amended.
(8) The per share exercise price of the options granted to Mr. Solls in December
1997 was reduced on December 10, 1998 from $12.63 to $9.01 (the market value
on such date was $8.69). The option term was not amended.
(9) The per share ceiling price of 2,000,000 of the 2,250,000 SARs granted to
Mr. Sardas in October 1997 was reduced on February 20, 1998 from $13.69 to
$11.94. The per share ceiling price of 250,000 SARs remained at $13.69.
(10) The per share ceiling price of the SARs granted to Messrs. Wellborn, Cooke
and Finnigan in October 1997 was reduced on February 20, 1998 from $13.69 to
$11.94.
13
EMPLOYMENT AGREEMENTS
The Company has entered into an agreement with Jacques R. Sardas providing
for his employment as the Company's President and Chief Executive Officer
through December 31, 2001. Pursuant to the agreement, Mr. Sardas receives a
minimum annual salary of $600,000 and is eligible to receive an annual bonus
equal to 100% of his annual salary upon attainment of a "target" performance
goal.
If the Company terminates Mr. Sardas' employment without cause (as defined
in the employment agreement) or Mr. Sardas terminates his employment for good
reason (as defined in the employment agreement), the Company shall pay to Mr.
Sardas (i) any salary accrued and unpaid as of the date of termination, (ii) his
annual salary through December 31, 2001, and (iii) the greater of (A) a PRO RATA
portion of Mr. Sardas' annual bonus for the year of termination based on the
performance of the Company from the beginning of the relevant bonus period to
the date of termination or (B) the annual bonus for the fiscal year preceding
the fiscal year of termination, PRO RATED based on the number of days elapsed in
the year of termination. The employment agreement also contains customary
non-competition, non-solicitation and non-disclosure covenants.
The Company has entered into an agreement with W. Christopher Wellborn
providing for his employment as the Company's Chief Financial Officer through
December 31, 2001. Pursuant to that agreement, Mr. Wellborn receives a minimum
annual salary of $300,000 and is eligible to receive an annual bonus of up to
100% of his annual salary upon attainment of certain financial performance
goals. Notwithstanding the foregoing, for fiscal 1997, the Company and Mr.
Wellborn agreed upon a fixed bonus of $150,000, which was PRO RATED for 1997. In
addition, the Company paid to Mr. Wellborn a "sign-on" bonus equal to $140,000,
subject to reimbursement to the Company by Mr. Wellborn of up to $40,000
thereof, in accordance with the "price protection" arrangement between the
Company and Mr. Wellborn pertaining to the sale of Mr. Wellborn's Pennsylvania
residence (after a $25,000 adjustment, Mr. Wellborn's sign-on bonus was
$115,000).
If the Company terminates Mr. Wellborn's employment without cause (as
defined in the employment agreement) or Mr. Wellborn terminates his employment
for good reason (as defined in the employment agreement), the Company shall pay
to Mr. Wellborn (i) any salary accrued and unpaid as of the date of termination,
(ii) his annual salary through December 31, 2001, (iii) the greater of (A) a PRO
RATA portion of Mr. Wellborn's annual bonus for the year of termination based on
the performance of the Company from the beginning of the relevant bonus period
to the date of termination or (B) the annual bonus for the fiscal year preceding
the fiscal year of termination, PRO RATED based on the number of days elapsed in
the year of termination, and (iv) a PRO RATA portion of any other bonus plan(s)
in which Mr. Wellborn participated for the year of termination based on the
performance of the Company from the beginning of the relevant bonus period to
the date of termination. If the Company does not renew Mr. Wellborn's employment
agreement at the end of the term (December 31, 2001), the Company shall pay or
provide, as the case may be, to Mr. Wellborn (i) any salary accrued and unpaid
as of the effective date of non-renewal, (ii) his annual salary and (iii) any
benefits to which he may be entitled under any Company employee benefit plan or
program from the effective date of non-renewal until the earlier of (A) one year
from the effective date of non-renewal, and (B) the acceptance by Mr. Wellborn
of employment other than with the Company. The employment agreement also
contains customary non-competition, non-solicitation and non-disclosure
covenants.
The Company has entered into an employment agreement with Harold G. Turk.
The agreement, which expires on December 31, 1999, provides for the payment of
an annual base salary of at least $225,000. The employment agreement described
herein contains provisions prohibiting Mr. Turk from competing with the Company
during the term of employment and, in certain cases, for a period thereafter.
14
COMPENSATION COMMITTEE AND 162(M) COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
During fiscal 1998, the Company's Compensation Committee and its 162(m)
Committee (the "Committees") were responsible for executive compensation,
including establishing the Company's compensation philosophy and policies. The
Committees also were responsible for administering the Company's executive
compensation plans and programs. The Committees reviewed the Company's executive
compensation plans on at least an annual basis to ensure that the programs
continue to meet the goals of the Committees' compensation philosophy. The
162(m) Committee performs these duties to the extent that they relate to
compensation which the Company intends to qualify for an exception to the
deduction limitation of Section 162(m) of the Code. In fiscal 1998, such
compensation constituted the annual cash bonus payable under the 1998 Management
Incentive Plan, options granted under the Company's stock option plan and the
stock appreciation rights held by five officers of the Company. On February 18,
1999, the Compensation Committee and the 162(m) Committee were combined, with
the resulting committee named the Compensation Committee.
COMPENSATION PHILOSOPHY
The Committees have four principal objectives in determining executive
compensation policies: (1) to support the development of a high-caliber
executive management team; (2) to establish a strong pay/ performance linkage;
(3) to focus executive management on the critical financial and operating
objectives of the Company; and (4) to attract, reward, motivate and retain key
executive talent. To achieve these objectives, the Committees have adopted the
following overriding policies:
- The Company will compensate competitively with the practices of other
leading companies in both the distribution and manufacturing sector.
- Generally, total compensation will be targeted at the 75th percentile of
the pay scale of other leading companies in both the distribution and
manufacturing sector if Company and individual performance meet expected
levels or better. However, if necessary, the Company will offer enhanced
compensation packages to attract talented executives to the Company.
- To achieve total compensation objectives that have a strong performance
emphasis, the use of variable incentive plans will be emphasized,
utilizing both annual cash bonus and longer term stock-based plans and
awards.
- It is expected that in future fiscal years stock options and other
incentive-based compensation will continue to constitute a significant
portion of the compensation of executive officers so that the interests of
executive officers will coincide with the interests of stockholders.
The Committees' specific executive compensation practices discussed below
are designed to implement the foregoing policies.
ELEMENTS OF EXECUTIVE COMPENSATION
The elements of the Company's compensation of executive officers are: (1)
annual cash compensation in the form of base salary and incentive bonuses; (2)
long-term incentive compensation in the form of stock options granted under the
Company's 1997 and 1998 Amended and Restated Stock Option Plans and in the form
of stock appreciation rights; and (3) other compensation and employee benefits
generally available to all employees of the Company, such as life and health
insurance and employer matching contributions under the Company's Employee
Retirement Savings Plan, a "401(k)" plan.
15
BASE SALARY
The Compensation Committee reviews base salary levels of the executive
officers annually. Adjustments, if any, generally are made effective March 1 of
each year. Salary ranges for each executive officer are determined by the
Compensation Committee. Historically, a mid-point base salary has been
established around the 75th percentile of the pay scale of other leading
companies in both the distribution and manufacturing sector. An executive
officer's progression through the salary range is based upon the Compensation
Committee's evaluation of the individual's job performance. Mr. Finnigan's and
Mr. Kahny's base salary was increased during fiscal 1998 to make such salaries
more in line with industry standards.
INCENTIVE BONUSES
The Committees' process for determining annual bonuses is designed to
motivate the Company's executive officers to perform to the best of their
abilities and to enhance stockholder value through achievement of the Company's
performance objectives. Therefore, a target bonus percentage is established for
each executive and is related to his or her potential impact on Company results,
while the percentage of bonus awarded is determined with reference to
performance-related criteria. Incentive bonuses are paid annually upon
certification by the Compensation Committee or 162(m) Committee of achievement
of the relevant performance targets.
The amount of an executive's bonus for fiscal 1998 was based on
pre-established performance measures based on the attainment by the Company of
certain levels of corporation or operating unit economic value added (EVA). EVA
is a financial measure of profitability compared to invested capital. The
establishment of EVA as the performance measure incentivized the Company's
managers to focus on all aspects of the Company's performance. As a result of
the Company's performance in fiscal 1998, all but two executive officers
received the maximum bonus payment for which they were eligible.
STOCK OPTIONS/STOCK APPRECIATION RIGHTS
The Committees believe that the use of stock options as long-term
compensation serves to motivate executive officers to maximize stockholder value
and to remain in the Company's employment. The number of options granted to each
executive is determined by the Committees, in their discretion. In making their
determination, the Committees consider the executive's position at the Company,
his or her individual contribution, the number of options (if any) to purchase
the Common Stock held by the executive and other factors, including an analysis
of the estimated amount potentially realizable from the options.
The options held by the Company's current executive officers were granted
using the above stated criteria. The Committees believe these holdings will
encourage retention of key officers.
During fiscal 1998, all options granted to executive officers had an
exercise price equal to or greater than the fair market value of the underlying
shares of Common Stock on the grant date. As the fair market value of the shares
subject to such options decreased below the exercise price, the exercise price
of certain of these options was reduced to or above the fair market value of the
underlying shares at the time of the repricing. This occurred in February and
December 1998. The Committees believe that the repricings were necessary to
achieve the purpose of the option grants to retain, motivate and adequately
compensate certain of the Company's senior executive officers. See "Executive
Compensation--Option/SAR Repricing Table."
In October 1997, the 162(m) Committee granted stock appreciation rights (the
"SARs") to five of the Company's most senior executive officers. The SARs
entitle a holder to a payment per share upon exercise equal to the excess of the
fair market value of the shares at the time of exercise over $9.01; provided
that the amount of such fair market value per share which can be taken into
account is limited to a "ceiling
16
price" of $11.94, except in the case of certain of the SARs held by Mr. Sardas,
where the "ceiling price" of 250,000 of such SARs is $13.69 per share. The
162(m) Committee believes that granting the SARs was necessary to retain,
motivate and adequately compensate certain of its most valuable executives by
appropriately supplementing their equity-based compensation represented by stock
options.
CEO COMPENSATION
Mr. Sardas joined the Company as its Chief Executive Officer on July 1,
1997, replacing Mr. Howard Bull. The Committees determined Mr. Sardas'
compensation on the same basis and under the same philosophy it uses in
determining the compensation of other executive officers of the Company. In
addition, Mr. Sardas' compensation reflects the Committees' views as to the
appropriate amount of compensation that was necessary to incentivize Mr. Sardas
to accept employment with the Company.
Mr. Sardas' annual base salary of $600,000 is consistent with industry
practice. To link Mr. Sardas' cash compensation to Company performance, a
substantial amount of Mr. Sardas' potential cash compensation for the fiscal
year ending December 31, 1999 will be tied to the Company's achievement of
objective financial targets. Mr. Sardas' bonus opportunity will be 150% of his
annual salary upon attainment of certain financial performance goals.
The 162(m) Committee believes that stock options and SARs are critical to
linking Mr. Sardas' compensation to Company performance and to aligning Mr.
Sardas' interests with those of the Company's shareholders. Upon commencement of
employment, the 162(m) Committee granted Mr. Sardas options to acquire 2,000,000
shares of Common Stock at a per share exercise price of $16.00, the fair market
of the shares on the grant date. The 162(m) Committee granted that number of
options so that a significant, if not the largest, portion of Mr. Sardas'
compensation would be tied to the value of the Company's stock. To ensure that
Mr. Sardas would continue to be properly motivated, on October 10, 1997 and
February 20, 1998, the 162(m) Committee reduced the exercise price of the
options to $13.69 per share and $11.94 per share, respectively, the fair market
value of the underlying shares at the time of the repricings.
On October 10, 1997, the 162(m) Committee granted to Mr. Sardas SARs
covering 2,250,000 shares of Common Stock. The SARs entitle Mr. Sardas to a
payment per share upon exercise equal to the excess of the fair market value of
the shares at the time of exercise over $9.01; provided that the amount of such
fair market value per share which can be taken into account is limited to $13.69
in the case of 250,000 of the SARs and $11.94 in the case of 2,000,000 of the
SARs. The 162(m) Committee believes that the SARs are essential to supplement
Mr. Sardas' other equity-based compensation represented by stock options.
On July 17, 1998 and on December 10, 1998, the 162(m) Committee granted to
Mr. Sardas options to acquire 2,000,000 shares of Common Stock at a per share
exercise price of $9.44 and options to acquire 343,000 shares of Common Stock at
a per share exercise price of $8.69 respectively, both representing the fair
market value of the underlying shares at the time of the grant. On December 10,
1998, the 162(m) Committee reduced the exercise price of the options to acquire
2,000,000 from $9.44 to $9.01 (the fair market value of the shares on December
10, 1998 was $8.69).
SECTION 162(m)
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally
disallows a deduction to any publicly-held corporation for compensation paid in
excess of $1 million in a taxable year to its chief executive officer or any of
the four other most highly compensated executive officers employed by such
corporation on the last day of its taxable year. The 162(m) Committee considered
the impact of Section 162(m) on the compensation of its executive officers. The
162(m) Committee expects that the deduction limitation does not, and will not,
in the near future, apply to executive officers' compensation. The 162(m)
Committee intends to monitor the impact of Section 162(m) and consider
structuring executive compensation arrangements so that the deduction limitation
will continue not to apply.
17
This Proxy Statement proposes that the Company's stockholders approve the
Company's Amended and Restated 1998 Stock Option Plan in order to exempt certain
grants thereunder from the deductibility limitation.
Respectfully submitted,
SECTION 162(M) COMMITTEE* COMPENSATION COMMITTEE*
- --------------------------------------- ------------------------------
Norman E. Wells, Jr., Chairman Vincent A. Mai, Chairman
Douglas D. Danforth Henry F. Skelsey
- ------------------------
* On February 18, 1999, the Compensation Committee and the 162(m) Committee
were combined. The resulting committee was named the Compensation
Committee, with its members being Norman E. Wells, Jr. (Chairman), Douglas
D. Danforth and John F. Fiedler.
18
PERFORMANCE GRAPH
The following graph compares the cumulative total return on $100 invested on
August 14, 1996 in each of the Common Stock of the Company, the Standard &
Poor's 500 Index and the Dow Jones Building Materials Index. The returns of the
Standard & Poor's Index and the Dow Jones Building Materials Index are
calculated assuming reinvestment of dividends. The Company has not paid any
dividends. The graph covers a period commencing August 14, 1996, when the
Company's Common Stock was first publicly traded, through January 1, 1999. The
stock price performance shown on the graph below is not necessarily indicative
of future price performance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG DAL-TILE INTERNATIONAL INC., THE S&P 500
INDEX AND THE DOW JONES BUILDING MATERIALS INDEX
Dal-Tile Intl
Inc Building Materials S&P Composite
8/14/96 $100.00 $100.00 $100.00
1/3/97 $138.39 $117.92 $116.85
1/2/98 $84.82 $141.34 $155.83
1/1/99 $74.11 $165.32 $200.36
ASSUMES $100 INVESTED ON AUG. 14, 1996
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING JAN. 01, 1999
AUGUST 14, JANUARY 3, JANUARY 2, JANUARY 1,
1996 1997 1998 1999
------------- ------------- ------------- -------------
Dal-Tile International Inc........................................ 100 138 85 74
S&P 500 Index..................................................... 100 117 156 200
Dow Jones Building Materials Index................................ 100 118 141 165
19
CERTAIN TRANSACTIONS
The Company receives the benefit of volume discounts for certain office
services and supplies made available to various companies associated with AEA
Investors (the managing member of DTI Investors, which is a beneficial owner of
Common Stock) pursuant to arrangements managed by a subsidiary of AEA Investors.
Messrs. Mai, Skelsey and Goldsmith are directors of the Company; Mr. Mai is the
Chairman and Chief Executive Officer of AEA Investors; Mr. Goldsmith is a Vice
President and Managing Director of AEA Investors; and Mr. Skelsey provides
consulting services to AEA Investors.
On December 29, 1995, Armstrong World Industries, Inc. ("AWI") acquired 37%
of the then outstanding capital stock of the Company in connection with the
acquisition pursuant to which the Company acquired American Olean Tile Company,
Inc. ("AO") and certain related assets of the ceramic tile business of AWI (the
"AO Acquisition"). In connection with the AO Acquisition, the Company entered
into agreements with AWI relating to (i) the use by the Company of certain
trademarks owned by AWI, and (ii) certain transition services (including
computer services and the supply of certain raw materials) to be supplied by AWI
or its affiliates to the Company. These agreements were negotiated in connection
with the AO Acquisition and have arm's-length terms and conditions. Transactions
pursuant to such agreements are in the ordinary course of business. The Company
also leases certain computer services from AWI for approximately $7 million per
year through May 31, 1999. On July 1, 1998 AWI completed its sale in a
registered public offering of 10,350,000 shares of Common Stock, and on November
18, 1998, AWI completed the sale in a registered public offering of all of its
remaining shares of the Common Stock. The Company did not receive any proceeds
from the sale by AWI of the Common Stock.
PROPOSAL TO AMEND THE COMPANY'S
1997 AMENDED AND RESTATED
STOCK OPTION PLAN
TO INCREASE THE NUMBER OF SHARES
RESERVED FOR ISSUANCE PURSUANT THERETO
INTRODUCTION
The Company is seeking stockholder approval to amend the Company's 1997
Amended and Restated Stock Option Plan (the "1997 Stock Option Plan" and, as
proposed to be amended, the "1998 Amended and Restated Stock Option Plan") to
increase from 7,836,425 to 10,586,425 the number of shares of Common Stock
reserved for issuance pursuant thereto. A copy of the proposed 1998 Amended and
Restated Stock Option Plan is attached hereto as Appendix A. The material
features of the 1998 Amended and Restated Stock Option Plan are described below;
such description is subject to, and is qualified in its entirety by, the full
text of the 1998 Amended and Restated Stock Option Plan. The Board of Directors
approved the 1998 Amended and Restated Stock Option Plan on July 17, 1998,
subject to approval of the Company's stockholders. DTI Investors, which
currently owns approximately 54% of the outstanding shares of Common Stock, has
informed the Company that it intends to vote in favor of adoption of the 1998
Amended and Restated Stock Option Plan.
The purpose of the 1998 Amended and Restated Stock Option Plan is to advance
the interests of the Company by providing additional incentives to attract and
retain qualified and competent employees, upon whose efforts and judgment the
success of the Company is largely dependent, through the encouragement of stock
ownership in the Company by such persons. Stockholder approval of the 1998
Amended and Restated Stock Option Plan is required under the rules of the NYSE
and in order for compensation attributable to grants thereunder not to be
subject to the deduction limitation of Section 162(m) of the Code. Section
162(m) of the Code generally disallows a federal income tax deduction to any
publicly-held corporation for compensation paid in excess of $1 million in any
taxable year to the chief executive officer or any of the four other most highly
compensated executive officers who are employed by the corporation on the last
day of the taxable year. Section 162(m), however, does not disallow a federal
income tax
20
deduction for qualified "performance-based compensation," the material terms of
which are disclosed to and approved by stockholders. The Company has established
and administered the 1998 Amended and Restated Stock Option Plan with the
intention that compensation attributable to Options (as defined below) granted
thereunder with an exercise price no less than the fair market value of the
underlying shares of the Common Stock on the date of grant would not be subject
to the deduction limitation.
DESCRIPTION OF 1997 STOCK OPTION PLAN
GENERAL
The Board of Directors adopted the 1997 Stock Option Plan effective as of
June 11, 1997. The 1997 Stock Option Plan is an amendment and restatement of the
Company's 1990 Stock Option Plan (as previously amended). The 1997 Stock Option
Plan is designed to help the Company attract and retain skilled individuals for
key positions within the Company by permitting the Company to offer such
individuals the opportunity to acquire an equity interest in the Company. The
1997 Stock Option Plan was approved by the Company's stockholders at its annual
meeting on April 30, 1998.
SUMMARY OF 1997 STOCK OPTION PLAN
The following summary description of the principal terms of the 1997 Stock
Option Plan does not purport to be complete and is qualified in its entirety by
the full text of the 1997 Stock Option Plan, a copy of which has previously been
filed with the SEC by the Company, and the description of the proposed
amendments to the 1997 Stock Option Plan set forth below.
Pursuant to the 1997 Stock Option Plan, key employees of the Company are
eligible to receive awards of stock options ("Options") in consideration for
services performed for the Company (such key employees, "Optionees"). Currently,
there are approximately 102 persons eligible to receive awards under the 1997
Stock Option Plan. Options granted under the 1997 Stock Option Plan may be
either nonqualified stock options or "incentive stock options," within the
meaning of Section 422 of the Code.
The total number of shares of Common Stock with respect to which Options may
be awarded under the 1997 Stock Option Plan (subject to antidilution and similar
adjustments) equals 7,836,425 minus the sum of the number of shares subject to
outstanding Options previously granted under the 1997 Stock Option Plan and the
number of shares previously issued pursuant to the exercise of Options granted
under the 1997 Stock Option Plan. As of July 17, 1998 (the date of approval by
the Board of Directors of the Company of the 1998 Amended and Restated Stock
Option Plan), Options for the purchase of 1,277,069 shares of Common Stock were
available for grant pursuant to the 1997 Stock Option Plan, and no shares had
been issued pursuant to the exercise of previously granted options.
The 1997 Stock Option Plan is administered by a committee consisting of at
least two members of the Board of Directors (the "Committee"). Subject to the
provisions of the 1997 Stock Option Plan, the Committee will determine when and
to whom Options will be granted, the number of shares covered by each Option and
the terms and provisions applicable to each Option; provided, however, that the
Committee may not award Options to any employee with respect to more than
4,000,000 shares of Common Stock in any fiscal year during the term of the 1997
Stock Option Plan. Awards may be made under the 1997 Stock Option Plan to such
key employees of the Company as the Committee in its sole discretion shall
decide. The Committee has the authority to interpret the 1997 Stock Option Plan
and may at any time adopt such rules and regulations for the 1997 Stock Option
Plan as it deems advisable.
An Option may be granted on such terms and conditions as the Committee may
approve, provided that all Options intended to qualify as "incentive stock
options" (as defined in Section 422 of the Code) must be granted with an
exercise price equal to the fair market value of the underlying shares as of the
date of grant (110% in the case of "incentive stock options" granted to a "ten
percent shareholder" (as defined in Section 422 of the Code). Payment of the
Option exercise price may be made by a certified or official
21
bank check or, subject to Committee consent, by the surrender of shares of
Common Stock. Unless the Committee otherwise provides in the agreement
evidencing the grant of an Option, an Option becomes exercisable with respect to
25% of the underlying shares on the date of grant, and with respect to an
additional 25% on each of the first three anniversaries of the date of grant.
Each Option shall be for such term as the Committee shall determine, provided
that no "incentive stock option" shall have a term of greater than ten years
(five years in the case of an "incentive stock option" granted to a "ten percent
shareholder"). In the event of certain change in control transactions, each
outstanding Option shall vest and entitle the holder thereof to receive, upon
exercise, the same amount and kind of stock, securities, cash, property or other
consideration that each holder of a share of the Common Stock would be entitled
to receive in such transaction in respect of such share.
The Board of Directors of the Company may at any time and from time to time
suspend, amend, modify or terminate the 1997 Stock Option Plan; provided,
however, that, to the extent required by Rule 16b-3 promulgated under the
Exchange Act or any other law, regulation or stock exchange rule, no such change
shall be effective without the requisite approval of the Company's stockholders.
In addition, no such change may impair any award previously granted, except with
the written consent of the grantee.
PROPOSED AMENDMENTS TO THE 1997 STOCK OPTION PLAN
The 1997 Stock Option Plan is proposed to be amended to increase from
7,836,425 to 10,586,425 the number of shares of Common Stock reserved for
issuance pursuant thereto and to increase the maximum number of shares of Common
Stock with respect to which options may be granted to any individual in any
fiscal year from 4,000,000 to 6,000,000. The principal purpose of these proposed
amendments was to enable the Company to provide a compensation package to Mr.
Jacques Sardas which included a sufficient number of Options. The terms of such
Options are described generally below. See also "Compensation of Executive
Officers--Employment Agreements." The Board of Directors of the Company adopted
the 1998 Amended and Restated Stock Option Plan effective as of July 17, 1998,
subject to approval by the Company's stockholders.
NEW PLAN BENEFITS
The Company cannot currently determine the number of shares of Common Stock
that may be subject to Options granted in the future to executive officers and
employees generally under the 1998 Amended and Restated Stock Option Plan.
Subject to stockholder approval of the 1998 Amended and Restated Stock Option
Plan, the Company has granted the following options to the following individuals
and groups of individuals under the 1998 Amended and Restated Stock Option Plan.
22
NEW PLAN BENEFITS
EXERCISE EXPIRATION
NUMBER OF PRICE (OR DATE (OR
NAME AND POSITION OPTIONS RANGE) RANGE)
- ------------------------------------------------------------------------------ ---------- ----------- ----------
Jacques R. Sardas............................................................. 2,000,000 $ 9.01 7/17/08
343,000 8.69 12/10/08
W. Christopher Wellborn....................................................... 120,000 9.01 7/17/08
90,000 8.69 12/10/08
Harold G. Turk................................................................ 40,000 9.01 7/17/08
76,000 8.69 12/10/08
Javier E.M. Serna............................................................. 30,000 9.01 7/17/08
72,000 8.69 12/10/08
Dan L. Cooke.................................................................. 30,000 9.01 7/17/08
60,000 8.69 12/10/08
Executive Group (12 persons).................................................. 3,540,000 8.69 - 7/17/08 -
9.01 3/01/09
Non-Executive Director Group.................................................. 0 N/A N/A
Non-Executive Officer Employee Group (61 persons)............................. 274,000 8.69 - 7/17/08 -
9.01 12/10/08
The closing price of a share of the Common Stock on March 25, 1999 was
$8.38.
In general, 25% of the shares subject to an Option vest on the date of
grant, and an additional 25% become vested on each of the first three
anniversaries thereof. With the exception of the shares subject to an Option
granted to Mr. Sardas and Mr. Wellborn, 33 1/3% of the shares subject to an
Option granted on July 17, 1998 vest on each of December 31, 1999, December 31,
2000 and December 31, 2001. Fifty percent (50%) of the shares subject to the
options granted to Mr. Sardas and Mr. Wellborn on July 17, 1998 become vested on
each of December 31, 2000 and December 31, 2001. One hundred percent (100%) of
the shares subject to an Option granted to the Executive Group on December 10,
1998 vest on December 31, 2001. Upon a termination of employment, generally an
Optionee forfeits his or her unvested options. In the case of Mr. Sardas and Mr.
Wellborn, in the event his employment is terminated by the Company without
"cause" or by Mr. Sardas or Mr. Wellborn with "good reason," 100% of such
Options shall become vested and remain exercisable through the remainder of its
ten year term.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a brief summary of the principal United States
Federal income tax consequences under current Federal income tax laws relating
to Options awarded under the 1998 Amended and Restated Stock Option Plan. This
summary is not intended to be exhaustive and, among other things, does not
describe state, local or foreign income and other tax consequences.
An Optionee will not recognize any taxable income upon the grant of a
nonqualified option and the Company will not be entitled to a tax deduction with
respect to such grant. Upon exercise of a nonqualified Option, the excess of the
fair market value of the Common Stock on the exercise date over the exercise
price will be taxable as compensation income to the Optionee. Subject to the
Optionee including such excess amount in income or the Company satisfying
applicable reporting requirements, the Company should be entitled to a tax
deduction in the amount of such compensation income. The Optionee's tax basis
for the Common Stock received pursuant to the exercise of an Option will equal
the sum of the compensation income recognized and the exercise price.
In the event of a sale of the Common Stock received upon the exercise of a
nonqualified Option, any appreciation or depreciation after the exercise date
generally will be taxed as capital gain or loss, provided
23
that any gain will be subject to reduced rates of tax if the shares were held
for more than twelve months after exercise.
Generally, an Optionee should not recognize taxable income at the time of
grant or exercise of an incentive stock option and the Company should not be
entitled to a tax deduction with respect to such grant or exercise. The exercise
of an incentive stock option generally will give rise to an item of tax
preference that may result in alternative minimum tax liability for the
Optionee.
A sale or other disposition by an Optionee of shares acquired upon the
exercise of an incentive stock option more than one year after the transfer of
the shares to such Optionee and more than two years after the date of grant of
the incentive stock option should result in any difference between the net sale
proceeds and the exercise price being treated as long-term capital gain or loss
to the Optionee with no deduction being allowed to the Company, provided that
any gain will be subject to reduced rates of tax if the shares were held for
more than twelve months after exercise. Upon a sale or other disposition of
shares acquired upon the exercise of an incentive stock option within one year
after the transfer of the shares to the Optionee or within two years after the
date of grant of the incentive stock option (including the delivery of such
shares in payment of the exercise price of another incentive stock option within
such period), any excess of (a) the lesser of (i) the fair market value of the
shares at the time of exercise of the Option and (ii) the amount realized on
such disqualifying sale or other disposition of the shares, over (b) the
exercise price of such shares, should constitute ordinary income to the Optionee
and the Company should be entitled to a deduction in the amount of such income.
The excess, if any, of the amount realized on a disqualifying sale over the fair
market value of the shares at the time of the exercise of the Option generally
will constitute short-term or long-term capital gain, depending on whether the
shares have been held for at least twelve months after the date of exercise.
Special rules may apply to Optionees who are subject to Section 16 of the
Exchange Act.
Under certain circumstances the accelerated vesting or exercise of Options
in connection with a change of control of the Company might be deemed an "excess
parachute payment" for purposes of the golden parachute tax provisions of
Section 280G of the Code. To the extent it is so considered, the Optionee may be
subject to a 20% excise tax and the Company may be denied a tax deduction.
Section 162(m) of the Code generally disallows a Federal income tax
deduction to any publicly-held corporation for compensation paid in excess of $1
million in any taxable year to the chief executive officer or any of the four
other most highly compensated executive officers who are employed by the Company
on the last day of the taxable year. The Company has established and
administered the 1998 Amended and Restated Stock Option Plan with the intention
that compensation attributable to Options granted thereunder with an exercise
price no less than the fair market value of the underlying shares of the Common
Stock on the date of grant would not be subject to the deduction limitation.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL
PROPOSAL TO APPROVE THE COMPANY'S
1999 EMPLOYEE STOCK PURCHASE PLAN
INTRODUCTION
The Company is seeking stockholder approval of the Company's 1999 Employee
Stock Purchase Plan (the "1999 Employee Stock Purchase Plan"). On February 18,
1999, the Company's Board of Directors adopted the 1999 Employee Stock Purchase
Plan, subject to approval by the Company's stockholders.
The 1999 Employee Stock Purchase Plan provides a method whereby employees of
the Company and its Eligible Subsidiary Corporations will have an opportunity to
acquire a proprietary interest in the
24
Company through the purchase of shares of the Common Stock. Only non-officer
employees shall be eligible to participate in the 1999 Employee Stock Purchase
Plan.
The Board's adoption of the 1999 Employee Stock Purchase Plan is subject to
approval by the holders of a majority of the shares of Common Stock present and
represented at the Annual Meeting. If the 1999 Employee Stock Purchase Plan is
not so approved, the 1999 Employee Stock Purchase Plan shall not become
effective.
It is the intention of the Company that the 1999 Employee Stock Purchase
Plan qualify as an "employee stock purchase plan" under Section 423 of the Code.
The provisions of the 1999 Employee Stock Purchase Plan shall be construed so as
to extend and limit participation in a manner consistent with the requirements
of that section of the Code.
The 1999 Employee Stock Purchase Plan is not subject to any provision of the
Employee Retirement Income Security Act of 1974, as amended.
DESCRIPTION OF THE 1999 EMPLOYEE STOCK PURCHASE PLAN
The following is a summary description of the 1999 Employee Stock Purchase
Plan. You should carefully review the 1999 Employee Stock Purchase Plan, a copy
of which is attached as Appendix B, for a more detailed description of the 1999
Employee Stock Purchase Plan. Capitalized terms used but not otherwise defined
herein shall have the meanings ascribed to them in the 1999 Employee Stock
Purchase Plan.
NATURE AND PURPOSE
The purpose of the 1999 Employee Stock Purchase Plan is to strengthen the
Company by providing a method whereby eligible employees have the opportunity to
acquire a proprietary interest in the Company through the purchase of shares of
Common Stock. These purchases are made through regular payroll deductions.
ELIGIBILITY AND PARTICIPATION
Each non-officer employee who has completed six consecutive months of
full-time employment with the Company or a Subsidiary Corporation and who is
employed by the Company or an Eligible Subsidiary Corporation on a full-time
basis may participate in the 1999 Employee Stock Purchase Plan with respect to
Offerings commencing after such six-month period. An eligible employee may
become a participant by completing and filing an authorization for payroll
deductions on the form provided by the Company prior to the Offering
Commencement Date for the next following Offering.
STOCK SUBJECT TO THE 1999 EMPLOYEE STOCK PURCHASE PLAN
The Board has reserved initially 500,000 shares of Common Stock for issuance
under the 1999 Employee Stock Purchase Plan, which shares shall be authorized
but unissued.
OFFERINGS
The 1999 Employee Stock Purchase Plan will be implemented by two offerings
of the Common Stock during each twelve-month period (the "Offerings"). An
Offering will begin on each July 1 and end on each December 31 and begin on each
January 1 and end on each June 30. The first day of an Offering is the "Offering
Commencement Date" and the last day is the "Offering Termination Date."
25
PAYROLL DEDUCTIONS
A participant may elect to deduct up to ten percent (10%) of his or her
gross cash wage, salary and overtime earnings (excluding bonus payments, expense
allowances and non-cash compensation) for each pay period during an Offering.
These payroll deductions will be credited to an account established for that
participant.
A participant may elect to reduce or increase future payroll deductions. The
effective date of any such increase or reduction will be the first day of the
next Offering following processing of the change form. A participant may
increase or reduce the amount of his or her payroll deductions only once with
respect to any Offering.
No interest will be paid or allowed on any payroll deductions paid into the
1999 Employee Stock Purchase Plan or credited to the account of or distributed
to any participant.
GRANTING OF OPTIONS
On each Offering Commencement Date, each participant will be deemed to have
been granted an option to purchase a maximum number of shares of Common Stock
the fair market value of which is equal to (i) that percentage of the
participant's Compensation which the participant has elected to have withheld
(but not in any case in excess of 10%) multiplied by (ii) the participant's
Compensation during the Offering then divided by (iii) the applicable Offering
Price. The maximum number of shares of Common Stock that a participant may
purchase pursuant to an Offering is 3,000.
The Offering Price is the lower of: (a) 85% of the closing price of the
stock on the Offering Commencement Date or the nearest prior business day on
which trading occurred on the NYSE; or (b) 85% of the closing price on the
Offering Termination Date for such Offering or the nearest prior business day on
which trading occurred on the NYSE.
EXERCISE OF OPTIONS
Each participant's option for the purchase of stock will be deemed to have
been exercised automatically on the applicable Offering Termination Date for the
purchase of the number of full shares of Common Stock which the accumulated
payroll deductions in the participant's account at the time will purchase at the
applicable Offering Price.
Fractional shares of Common Stock will not be issued under the 1999 Employee
Stock Purchase Plan. Any accumulated payroll deductions which would have been
used to purchase fractional shares, unless refunded as described below, will be
held for the purchase of Common Stock in the next following Offering, without
interest.
As promptly as practicable after the Offering Termination Date of each
Offering, the Company will deliver, in certified or in book entry form, to each
participant in such Offering, as appropriate, the shares of Common Stock
purchased therein upon exercise of such participant's option. The Company may
require a participant to dispose of the shares of Common Stock acquired pursuant
to the 1999 Employee Stock Purchase Plan through one or more brokers designated
by the Company.
TERMINATION OF PARTICIPATION/WITHDRAWAL
Generally, participants are not permitted to withdraw any amounts from the
accumulated payroll deductions in his or her account. However, a participant's
accumulated payroll deductions will be refunded to the participant as and to the
extent specified below upon termination of participation in the 1999 Employee
Stock Purchase Plan.
A participant may stop participating in the 1999 Employee Stock Purchase
Plan at any time by giving written notice to the Plan Representative. Upon
processing of any such written notice, no further payroll
26
deductions will be made from the participant's Compensation during such Offering
or thereafter, unless and until such participant elects to resume participation.
Such participant's payroll deductions accumulated prior to processing of such
notice to stop participation shall be applied toward purchasing full shares of
Common Stock in the then-current Offering. Any cash balance remaining after the
purchase of shares in such Offering shall be refunded promptly to such
participant. A participant may elect to resume participation in the 1999
Employee Stock Purchase Plan by providing written notice to the Plan
Representative. Such election to resume participation shall be effective as of
the first Offering commencing following the processing of such election.
A participant's withdrawal from any Offering will not have any effect upon
such participant's eligibility to participate in any succeeding Offering.
TERMINATION OF EMPLOYMENT
Upon termination of a participant's employment with the Company or any
Eligible Subsidiary Corporation (as the case may be) for any reason, including
retirement or death, the participant's payroll deductions accumulated prior to
such termination, if any, will be applied toward purchasing full shares of
Common Stock in the then-current Offering, and any cash balance remaining after
the purchase of shares in such Offering will be refunded to him or her, or, in
the case of his or her death, to the person or persons entitled thereto, and his
or her participation in the 1999 Employee Stock Purchase Plan will be
terminated.
RIGHTS AS A STOCKHOLDER
No participant will have any interest in shares of Common Stock covered by
any option held by such participant until such option has been exercised.
The Board of Directors of the Company may require as conditions to the
exercise of any option that the shares of Common Stock reserved for issuance
upon the exercise of such option shall have been duly listed, upon official
notice of issuance, upon a stock exchange or market, and that either: (a) a
registration statement under the Securities Act, with respect to said shares
shall be effective, or (b) the participant shall have represented at the time of
purchase, in form and substance satisfactory to the Company, that it is his or
her intention to purchase the shares for investment and not for resale or
distribution.
ADMINISTRATION
A committee consisting solely of no fewer than two "non-employee directors"
(as defined in Rule 16b-3(a)(3) promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) appointed by the Board (the "Compensation
Committee") will administer the 1999 Employee Stock Purchase Plan. Subject to
the express provisions of the 1999 Employee Stock Purchase Plan, the
Compensation Committee has the authority to interpret and construe any and all
provisions of the 1999 Employee Stock Purchase Plan, to adopt rules and
regulations for administering the 1999 Employee Stock Purchase Plan, and to make
all other determinations deemed necessary or advisable for administering the
1999 Employee Stock Purchase Plan. The Compensation Committee's determination of
the foregoing matters will be conclusive. In addition, the Board may from time
to time appoint members of the Compensation Committee in substitution for or in
addition to members previously appointed and may fill vacancies, however caused,
in the Compensation Committee.
TRANSFERABILITY
Neither payroll deductions credited to any participant's account nor any
option or rights with regard to the exercise of an option or the receipt of
Common Stock under the 1999 Employee Stock Purchase Plan may be assigned,
transferred, pledged, or otherwise disposed of in any way by the participant
other than by will or the laws of descent and distribution. Any such attempted
assignment, transfer, pledge or
27
other disposition shall be without effect, except that the Company may, in its
discretion, treat such act as an election to withdraw from participation in the
1999 Employee Stock Purchase Plan.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
If, while any options are outstanding under the 1999 Employee Stock Purchase
Plan, the outstanding shares of Common Stock of the Company have increased,
decreased, changed into, or been exchanged for a different number or kind of
shares or securities of the Company through any reorganization, merger,
recapitalization, reclassification, stock split, reverse stock split or similar
transaction, appropriate and proportionate adjustments may be made by the
Compensation Committee in the number and/or kind of shares which are subject to
purchase under outstanding options and in the Option Price applicable to such
outstanding options. In addition, in any such event, the number and/or kind of
shares which may be offered in the Offerings shall also be proportionately
adjusted. Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon a sale of substantially all of the property or capital stock of the
Company to another corporation, the holder of each option then outstanding under
the 1999 Employee Stock Purchase Plan will thereafter be entitled to receive at
the next Offering Termination Date (including the date of termination of the
plan), upon the exercise of such option, for each share as to which such option
shall be exercised, as nearly as reasonably may be determined, the cash,
securities and/or property which a holder of one share of the Common Stock was
entitled to receive upon and at the time of such transaction.
AMENDMENT AND TERMINATION
The Board of Directors of the Company shall have complete power and
authority to terminate or amend the 1999 Employee Stock Purchase Plan; provided,
however, that no termination, modification, or amendment of the 1999 Employee
Stock Purchase Plan may, without the consent of a participant then having an
option under the 1999 Employee Stock Purchase Plan to purchase shares of Common
Stock, adversely affect the rights of such participant under such option, except
that the foregoing shall not prohibit the Company from terminating the 1999
Employee Stock Purchase Plan at any time (including during an Offering) and
applying the amounts theretofore withheld from participants to the purchase of
shares of Common Stock as if the termination date of the 1999 Employee Stock
Purchase Plan were an Offering Termination Date.
FEDERAL INCOME TAX CONSEQUENCES
Common Stock is acquired upon exercise of options with after-tax dollars.
However, the 15% discount at which the options are granted and any stock
appreciation are tax-deferred until sale of the shares of stock. If a
participant sells the Common Stock acquired upon exercise of an option at least
two years after the grant date, any profit up to the amount of the 15% discount
will be taxable as ordinary income, and any further profit will be taxable as a
long-term capital gain. Any loss will be treated as a long-term capital loss.
If a participant sells the Common Stock acquired upon exercise of an option
sooner, the full amount of the discount will be taxable as ordinary income in
the year of the sale (regardless of the market price at the time of the sale).
Any additional profit received above the amount of the 15% discount will be
taxable as a capital gain (short-term if held for one year or less, or long-term
if held more than one year). If a participant sells the shares of Common Stock
at a price which is less than the fair market value of the shares at the date of
purchase, he or she will have a capital loss equal to the amount by which the
purchase date fair market value exceeds the sale price.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
28
RATIFICATION OF APPOINTMENT OF AUDITORS
Upon recommendation of the Audit Committee, the Board of Directors has
appointed Ernst & Young LLP, independent public accountants, to audit and report
on the consolidated financial statements of the Company for the fiscal year
ending December 31, 1999 and to perform such other services as may be required
of them. Ernst & Young LLP has served as auditors for the Company since 1980.
The Board of Directors has directed that management submit the appointment of
independent auditors for ratification by the stockholders at the Annual Meeting.
Representatives of Ernst & Young LLP are expected to be present at the meeting,
will have the opportunity to make a statement if they desire to do so and will
be available to respond to appropriate stockholder questions.
Proxies will be voted FOR ratification of the appointment of Ernst & Young
LLP as independent auditors for the Company for the fiscal year ending December
31, 1999, unless otherwise specified in the proxy. The Board of Directors
recommends a vote FOR ratification of the appointment of Ernst & Young LLP as
independent auditors.
EXPENSES OF SOLICITATION
The cost of soliciting proxies will be borne by the Company. In addition to
the solicitation of proxies by use of the mail, some of the officers, directors
and regular employees of the Company and its subsidiaries, none of whom will
receive additional compensation therefor, may solicit proxies in person or by
telephone, telegraph or other means. As is customary, the Company will, upon
request, reimburse brokerage firms, banks, trustees, nominees and other persons
for their out-of-pocket expenses in forwarding proxy materials to their
principals.
STOCKHOLDER PROPOSALS FOR THE 2000
ANNUAL MEETING OF STOCKHOLDERS
Stockholders may present proposals that may be proper subjects for inclusion
in the proxy statement and for consideration at an annual meeting of
stockholders. To be considered, proposals must be submitted on a timely basis.
Proposals for the 2000 Annual Meeting of Stockholders must be received by the
Company no later than December 17, 1999. Proposals, as well as any questions
related thereto, should be submitted in writing to the Secretary of the Company.
Proposals may be included in the proxy statement for the 2000 Annual Meeting of
Stockholders if they comply with certain rules and regulations promulgated by
the SEC and in connection with certain procedures described in the Company's
By-Laws, a copy of which may be obtained from the Secretary of the Company.
29
OTHER MATTERS
The Company knows of no other matter to be brought before the Annual
Meeting. If any other matter requiring a vote of the stockholders should come
before the Annual Meeting, it is the intention of the persons named in the proxy
to vote the same with respect to any such matter in accordance with their best
judgment.
The Company will furnish, without charge, to each person whose proxy is
being solicited upon written request, a copy of its Annual Report on Form 10-K
for fiscal 1998, as filed with the SEC (excluding exhibits). Copies of any
exhibits thereto also will be furnished upon the payment of a reasonable
duplicating charge. Requests in writing for copies of any such materials should
be directed to Mark A. Solls, Secretary, 7834 C.F. Hawn Freeway, Dallas, TX
75217.
By order of the Board of Directors,
/s/ Mark A. Solls
Mark A. Solls
SECRETARY
Dallas, Texas
March 31, 1999
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APPENDIX A
DAL-TILE INTERNATIONAL INC.
1998 AMENDED AND RESTATED
STOCK OPTION PLAN
ARTICLE 1
GENERAL
1.1 PURPOSE. The purpose of this Dal-Tile International Inc. 1998 Amended
and Restated Stock Option Plan (the "Plan") is to provide for certain key
employees of Dal-Tile International Inc. ("Dal-Tile"), a Delaware corporation,
its successors and assigns and its subsidiaries and affiliates (collectively,
the "Company"), an incentive (i) to join and remain in the service of the
Company, (ii) to maintain and enhance the long-term performance and
profitability of the Company and (iii) to acquire a proprietary interest in the
success of the Company. The grant and exercise of Options under the Plan is
intended to meet the requirements of Rule 16b-3 of the 1934 Act (as hereinafter
defined) at all times during which the Company and its Insiders (as hereinafter
defined) are subject to the requirements of Section 16 of the 1934 Act.
1.2 DEFINITION OF CERTAIN TERMS.
(a) "Agreement" means an agreement issued pursuant to Section 2.1.
(b) "Board" means the Board of Directors of Dal-Tile.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means the Committee appointed to administer the Plan in
accordance with Section 1.3.
(e) "Common Stock" means the shares of common stock, par value $.01 per
share, of Dal-Tile and, subject to Section 2.5, any other shares into which such
common stock shall thereafter be exchanged by reason of a recapitalization,
merger, consolidation, split-up, combination, exchange of shares or the like.
(f) "Date of Grant" means the date as of which an Option is granted by the
Committee under an Agreement.
(g) "Fair Market Value" per share as of a particular date means (i) the
closing sales price per share of Common Stock on the national securities
exchange on which the Common Stock is principally traded for the last date
(including the Date of Grant) on which there was a sale of such Common Stock on
such exchange, or (ii) if the shares of Common Stock are not then traded on a
national securities exchange, the average of the closing bid and asked prices
for the shares of Common Stock in the over-the-counter market on which the
Common Stock is principally traded for the last date (including the Date of
Grant) on which there was a sale of such Common Stock in such market, or (iii)
if the shares of Common Stock are not then listed on a national securities
exchange or traded in an over-the-counter market, such value as the Committee,
in its sole discretion, shall determine.
(h) "Insider" means an insider as so defined for purposes of Section 16 of
the 1934 Act.
(i) "Option" means any incentive stock option or nonqualified stock option,
both as described in Section 1.5, granted under the Plan.
(j) "Optionee" means an employee of the Company who has been awarded any
Option under this Plan.
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(k) The terms "parent corporation" and "subsidiary corporation" as used
herein shall have the meaning given those terms in Code section 425(e) and (f),
respectively. A corporation shall be deemed a parent or a subsidiary only for
such periods during which the requisite ownership relationship is maintained.
(l) "Plan" means this Dal-Tile International Inc. 1998 Amended and Restated
Stock Option Plan and any predecessor plan.
(m) "Termination With Cause," with respect to any Optionee, means, except as
otherwise provided in an Agreement, termination by the Company of such
Optionee's employment for: (i) misappropriation of corporate funds, (ii)
conviction of a crime, (iii) willful violation of written directions of the
Chief Executive Officer or the Board of Directors of the Company; or (iv) gross
negligence and willful misconduct.
(n) "1934 Act" means the Securities Exchange Act of 1934, as amended.
1.3 ADMINISTRATION.
(a) (i) Subject to Section 1.3(e), the Plan shall be administered by a
committee of the Board which shall consist of at least two members of the Board
and which shall have the power of the Board to authorize awards under the Plan.
At all times during which Dal-Tile and its Insiders are subject to the
requirements of Section 16 of the 1934 Act, all members of the Committee shall
be "Non-Employee Directors" as described in Rule 16b-3 of the 1934 Act. All
members of the Committee or a subcommittee shall be "outside directors" for
purposes of Section 162(m) of the Code with respect to any optionees whose
compensation may be subject to the deductibility limitations of Section 162(m)
of the Code. The members of the Committee shall be appointed by, and may be
changed from time to time at the discretion of, the Board.
(b) The Committee shall have the authority (i) to exercise all of the powers
granted to it under the Plan, (ii) to construe, interpret and implement the Plan
and any Agreement executed pursuant to Section 2.1, (iii) to prescribe, amend
and rescind rules and regulations relating to the Plan, (iv) to make all
determinations necessary or advisable in administering the Plan, and (v) to
correct any defect, supply any omission and reconcile any inconsistency in the
Plan and (vi) to grant Options on such terms, not inconsistent with the Plan, as
it shall determine.
(c) The determination of the Committee on all matters relating to the Plan
or any Agreement shall be conclusive.
(d) No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any award
thereunder.
(e) Notwithstanding anything to the contrary contained herein, the Board
may, in its sole discretion, at any time and from time to time, resolve to
administer the Plan. In such event, the term "Committee" as used herein shall be
deemed to mean the Board.
1.4 PERSONS ELIGIBLE FOR AWARDS. Awards under the Plan may be made from
time to time to such key employees of the Company as the Committee shall in its
sole discretion select, provided, however, that subject to Section 3.4, the
Committee may not award Options to any such employee with respect to more than
6,000,000 shares of Common Stock in any fiscal year during the term of the Plan.
1.5 TYPES OF AWARDS UNDER THE PLAN. Awards may be made under the Plan in
the form of (a) stock options which may, in the Committee's discretion, be
granted either as (i) nonqualified stock options subject to the provisions of
section 83 of the Code or (ii) incentive stock options described in section 422
of the Code, all as more fully set forth in Article 2.
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1.6 SHARES AVAILABLE FOR AWARDS.
(a) Subject to Section 3.4 (relating to adjustments upon changes in
capitalization), as of any date, the total number of shares of Common Stock with
respect to which Options may be outstanding under the Plan shall be equal to the
excess (if any) of (i) 10,586,425 shares over (ii) the sum of (A) the number of
shares subject to outstanding Options granted under the Plan and (B) the number
of shares previously transferred pursuant to the exercise of Options granted
under the Plan. In accordance with (and without limitation upon) the preceding
sentence, but subject to the requirements of Rule 16b-3 of the 1934 Act, if
applicable, shares of Common Stock covered by Options granted under the Plan
which expire or terminate for any reason shall again become available for award
under the Plan.
(b) Shares that are issued upon the exercise of Options awarded under the
Plan shall be authorized and unissued or treasury shares of Common Stock.
(c) Without limiting the generality of the preceding provisions of this
Section 1.6, the Committee may, but solely with the Optionee's consent, agree to
cancel any award of Options under the Plan and issue new Options in substitution
therefor, provided that the Options as so substituted shall satisfy all of the
requirements of the Plan as of the date such new Options are awarded.
1.7 OPTION PRICE. Except as the Committee may otherwise provide, the
exercise price of each Option shall not be less than 100% of the Fair Market
Value of the shares of Common Stock covered by the Option as of the Date of
Grant.
ARTICLE 2
STOCK OPTIONS
2.1 AGREEMENTS EVIDENCING STOCK OPTIONS.
(a) Options awarded under the Plan shall be evidenced by Agreements which
shall not be inconsistent with the terms and provisions of the Plan, and, in the
case of incentive stock options, of section 422 of the Code, and which shall
contain such provisions as the Committee may in its sole discretion deem
necessary or desirable. Without limiting the generality of the foregoing, the
Committee may in any Agreement impose such restrictions or conditions upon the
exercise of such Option or upon the sale or other disposition of the shares of
Common Stock issuable upon exercise of such Option as the Committee may in its
sole discretion determine. By accepting an award pursuant to the Plan each
Optionee shall thereby agree that each such award shall be subject to all of the
terms and provisions of the Plan, including, but not limited to, the provisions
of Section 1.3(d).
(b) Each Agreement shall set forth the number of shares of Common Stock
subject to the Option granted thereby.
(c) Each Agreement relating to Options shall set forth the amount payable by
the Optionee to Dal-Tile upon exercise of the Option evidenced thereby, subject
to adjustment by the Committee to reflect changes in capitalization as
contemplated by Section 3.4.
(d) An Option granted under this Plan shall be an incentive stock option
only if the relevant Agreement by its terms (i) expressly sets forth the rules
described in Sections 2.8 and 2.9 hereof, and (ii) expressly states that it is
intended to qualify as an incentive stock option. Any Option granted under this
Plan which does not satisfy the foregoing requirements of this Section 2.1(d) is
intended to be a nonqualified stock option subject to the provisions of section
83 of the Code, and is intended not to qualify for incentive stock option
treatment under section 422 of the Code.
2.2 TERM OF OPTIONS.
(a) Each Agreement shall set forth the period during which the Option
evidenced thereby shall be exercisable, whether in whole or in part, and any
vesting provisions applicable to the Option, such terms to
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be determined by the Committee in its discretion; provided that, notwithstanding
the foregoing or any other provision of the Plan, no Agreement shall permit an
incentive stock option to be exercisable more than 10 years after the Date of
Grant.
(b) Each Agreement shall set forth such other terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem
appropriate.
2.3 EXERCISE OF OPTIONS. Subject to the provisions of this Article 2, each
Option granted under the Plan shall be exercisable as follows:
(a) An Option shall become exercisable at such times and subject to such
conditions as the applicable Agreement or the Committee may otherwise provide.
(b) Unless the applicable Agreement otherwise provides, an Option granted
under the Plan may be exercised from time to time as to all or part of the
shares as to which such Option shall then be exercisable.
(c) An Option shall be exercised by the filing of a written notice of
exercise with Dal-Tile, on such form and in such manner as the Committee shall
in its sole discretion prescribe.
(d) Any written notice of exercise of an Option shall be accompanied by
payment of the exercise price for the shares being purchased. Except as the
Committee may otherwise provide, such payment shall be made by certified or
official bank check payable to Dal-Tile (or the equivalent thereof, including
shares of Common Stock). As soon as practicable after receipt of such payment,
Dal-Tile shall deliver to the Optionee a certificate or certificates for the
shares of Common Stock so purchased.
2.4 TERMINATION OF OPTIONS.
(a) Notwithstanding anything to the contrary in this Plan, except as the
Agreement or the Committee may otherwise provide and as set forth in Section
2.4(b) and Section 2.4(d), all incentive stock options and nonqualified stock
options granted to an Optionee (and already vested but not yet exercised) shall
terminate on the earliest to occur of the expiration of the term of the Option
and the date which is 45 days after termination of his employment with the
Company for any reason (one year after termination by reason of death,
disability or retirement at or after the Optionee's sixty-fifth birthday or at
such earlier retirement age as may be approved by the Committee).
(b) Notwithstanding anything to the contrary in this Plan, all Options
granted to an Optionee shall immediately expire and cease to be exercisable and
all rights granted to an Optionee under this Plan and such Optionee's Agreement
shall immediately expire in the event of a Termination With Cause of the
Optionee by the Company at any time.
(c) Unless the applicable Agreement or the Committee expressly provides
otherwise, Options awarded to Optionees under the terms of the Plan will be
exercisable only in accordance with the following vesting schedule:
CUMULATIVE
PERCENTAGE OF
VESTING DATE TOTAL SHARES
- -------------------------------------------------------------------------------- ---------------
On the date of the applicable Agreement......................................... 25%
On the first anniversary of the date of the Agreement........................... 50%
On the second anniversary of the date of the Agreement.......................... 75%
On the third anniversary of the date of the Agreement........................... 100%
The Committee may modify this vesting schedule in any manner that it deems
appropriate in any Agreement or otherwise and may provide different vesting
schedules in different Agreements in its sole discretion. Except as set forth in
an Agreement or as the Committee may provide, in the event that an Optionee's
employment with the Company is terminated for any reason prior to the date on
which the
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Optionee's right to exercise the Options has fully vested pursuant to this
Section 2.4(c), the Options will immediately cease to be exercisable with
respect to any and all shares which have not vested as of the date of such
termination.
2.5 Unless otherwise determined by the Committee coincident with the grant
of an Option or subsequently, in the event of a Transaction which does not also
constitute a Non-Control Transaction (as hereinafter defined), the Options shall
vest and each Optionee shall be entitled to receive in respect of each share of
Common Stock subject to his Options (whether or not vested), upon exercise, the
same amount and kind of stock, securities, cash, property or other consideration
that each holder of a share of Common Stock was entitled to receive in the
Transaction in respect of each share. In the event of a Non-Control Transaction,
each Optionee shall be entitled to receive in respect of each share of Common
Stock subject to his Options, upon exercise of such Options after the vesting
thereof, the same kind of stock, securities, cash, property or other
consideration that each holder of a share of Common Stock was entitled to
receive in the Non-Control Transaction in respect of a share. Unless otherwise
determined by the Committee, Options will not automatically vest upon the
occurrence of a Non-Control Transaction.
"Transaction" means, except as otherwise provided in an Agreement (i) the
approval by stockholders of the liquidation or dissolution of the Company, (ii)
a sale or other disposition of 80% or more of the outstanding voting stock of
the Company, or (iii) the merger or consolidation of the Company with or into
any entity. "Non-Control Transaction" means (i) a merger or consolidation in
which the Company is the surviving corporation and the shares of its outstanding
Common Stock are not changed into other securities or property pursuant to such
merger or consolidation, (ii) a merger or consolidation with an affiliate of the
Company following which those persons who owned directly or indirectly a
majority of the outstanding shares of voting stock immediately prior to such
merger or consolidation will own a majority of the outstanding shares of voting
stock of the surviving corporation, or (iii) a sale or other disposition of
capital stock of the Company following which those persons who owned directly or
indirectly a majority of the outstanding shares of voting stock of the Company
immediately prior to such sale will own a majority of the outstanding shares of
voting stock of the purchasing entity. Notwithstanding anything in the Plan, the
merger of DTI Merger Company with and into Dal-Tile (the "Merger"), pursuant to
which Dal-Tile is the surviving corporation, shall not affect the operation of
the Plan in any manner whatsoever, and, in particular, shall not be or be deemed
to be a Transaction and immediately subsequent to the Merger each Option shall
continue to be exercisable for Class A common stock, par value $.01 per share,
of Dal-Tile.
2.6 RULE 16B-3. Notwithstanding anything in the Plan to the contrary, the
Plan shall be administered, and Options shall be granted and exercised, in
accordance with the 1934 Act and, specifically, Rule 16b-3 thereof.
2.7 $100,000 LIMITATION ON ANNUAL VESTING OF INCENTIVE STOCK OPTIONS.
(a) Subject to the further provisions of this Section 2.7, to the extent
that the aggregate Fair Market Value of stock with respect to which incentive
stock options (determined without regard to the provisions of this Section 2.7)
are exercisable for the first time by any Optionee during any calendar year
(under all plans of the Optionee's employer corporation and its parent and
subsidiary corporations) exceeds $100,000 (or such limitation as set forth in
Section 422 of the Code as may be amended from time to time), such Options shall
be treated as Options that are nonqualified stock options.
(b) For purposes of Section 2.7(a), which shall be applied by taking options
into account in the order in which they were granted, the Fair Market Value of
any stock shall be determined as of the time the Option with respect to such
stock is granted.
(c) In applying the provisions of Section 2.7(a), there shall be taken into
account solely (i) incentive stock options granted to an Optionee under this
Plan, and (ii) incentive stock options granted to the Optionee after December
31, 1986 under all other stock option plans of his employer corporation, and its
parent or subsidiary corporations.
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(d) The foregoing provisions of this Section 2.7 shall in no way limit or
restrict the aggregate Fair Market Value of the stock which may be acquired in
any calendar year upon the exercise of nonqualified stock options granted under
the Plan or under any other stock option plan of the Optionee's employer
corporation, or its parent or subsidiary corporations.
2.8 SPECIAL RULES FOR 10% STOCKHOLDERS. Notwithstanding any provisions to
the contrary, an incentive stock option may not be granted under this Plan to an
individual who, at the time the Option is granted, owns stock possessing more
than 10% of the total combined voting power of all classes of stock of his
employer corporation or of its parent or subsidiary corporations (as such
ownership may be determined for purposes of section 422 of the Code) unless (a)
at the time such incentive stock option is granted the Option exercise price is
at least 110% of the Fair Market Value of the shares subject to the incentive
stock option and (b) the incentive stock option by its terms is not exercisable
after the expiration of 5 years from the date such incentive stock option is
granted.
ARTICLE 3
MISCELLANEOUS
3.1 AMENDMENT OF THE PLAN; MODIFICATION OF AWARDS.
(a) The Board may, without stockholder approval, from time to time suspend
or discontinue the Plan or revise or amend it in any respect whatsoever, except
that no such amendment shall impair any rights or obligations under any award
theretofore made under the Plan without the consent of the person to whom such
award was made, provided, further, that an amendment which requires stockholder
approval in order for the Plan to continue to comply with Rule 16b-3 or any
other law, regulation or stock exchange requirement shall not be effective
unless approved by the requisite vote of stockholders.
(b) With the consent of the Optionee and subject to the terms and conditions
of the Plan (including Section 3.1(a)), the Committee may amend outstanding
Agreements with such Optionee, for example, to (i) accelerate the time or times
at which an Option may be exercised or (ii) extend the scheduled expiration date
of the Option.
3.2 NONASSIGNABILITY. Except as the Committee may otherwise provide, no
right granted to any Optionee under the Plan or under any Agreement shall be
assignable or transferable other than by will or by the laws of descent and
distribution. Except as the Committee may otherwise provide, during the life of
the Optionee, all rights granted to the Optionee under the Plan or under any
Agreement shall be exercisable only by him.
3.3 WITHHOLDING OF TAXES.
(a) The Company shall be entitled to withhold from any payments to an
Optionee an amount sufficient to satisfy any federal, state and other
governmental tax required to be withheld in connection with the exercise of an
Option. Whenever under the Plan shares of Common Stock are to be delivered upon
exercise of an Option, Dal-Tile shall be entitled to require as a condition of
delivery that the Optionee remit an amount sufficient to satisfy all federal,
state and other governmental tax withholding requirements related thereto.
(b) DISPOSITION OF INCENTIVE STOCK OPTIONS. If an Optionee makes a
disposition, within the meaning of Section 424(c) of the Code and regulations
promulgated thereunder, of any share or shares of Common Stock issued to such
Optionee pursuant to the exercise of an Option granted as an incentive stock
option within the two-year period commencing on the date after the Date of Grant
or within the one-year period commencing on the date after the date of transfer
of such share or shares of Common Stock to the Optionee pursuant to such
exercise, the Optionee shall, within ten (10) days of such disposition, notify
Dal-Tile thereof, by delivery of written notice to Dal-Tile at its principal
executive office.
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3.4 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. The number of shares of
Common Stock or other stock or securities which may be issued pursuant to the
exercise of Options granted under the Plan in the aggregate and to any Optionee
and the exercise price of Options shall be equitably adjusted for any increase
or decrease in the number of issued shares of Common Stock resulting from the
subdivision or combination of shares of Common Stock or other capital
adjustments, or the payment of a stock dividend or extraordinary cash dividend
after the effective date of this Plan, or other increase or decrease in the
number of such shares of Common Stock effected without receipt of consideration
by Dal-Tile; provided, however, that any Options to purchase fractional shares
of Common Stock resulting from any such adjustment shall be eliminated.
Adjustments under this Section 3.4 shall be made by the Committee, whose
determination as to what adjustments shall be made, and the extent thereof,
shall be final, binding and conclusive.
3.5 RIGHT OF DISCHARGE RESERVED. Nothing in this Plan or in any Agreement
shall confer upon any employee or other person the right to continue in the
employment or service of the Company or affect any right which the Company may
have to terminate the employment or service of such employee or other person.
3.6 NO RIGHTS AS A STOCKHOLDER. No Optionee or other person holding an
Option shall have any of the rights of a stockholder of Dal-Tile with respect to
shares subject to an Option until the issuance of a stock certificate to him for
such shares. Except as otherwise provided in Section 3.4, no adjustment shall be
made for dividends, distributions or other rights (whether ordinary or
extraordinary, and whether in cash, securities or other property) for which the
record date is prior to the date such stock certificate is issued.
3.7 NATURE OF PAYMENTS.
(a) Any and all payments of shares of Common Stock or cash hereunder shall
be granted, transferred or paid in consideration of services performed by the
Optionee for the Company.
(b) All such grants, issuances and payments shall constitute a special
incentive payment to the Optionee and shall not, unless otherwise determined by
the Committee, be taken into account in computing the amount of salary or
compensation of the Optionee for the purposes of determining any pension,
retirement, death or other benefits under (i) any pension, retirement, life
insurance or other benefit plan of the Company or (ii) any agreement between the
Company and the Optionee.
3.8 NON-UNIFORM DETERMINATIONS. The Committee's determinations under the
Plan need not be uniform and may be made by it selectively among persons who
receive, or are eligible to receive, awards under the Plan (whether or not such
persons are similarly situated). Without limiting the generality of the
foregoing, the Committee shall be entitled, among other things, to make
non-uniform and selective determinations, and to enter into non-uniform and
selective Agreements, as to (i) the persons to receive awards under the Plan,
and (ii) the terms and provisions of awards under the Plan.
3.9 OTHER PAYMENTS OR AWARDS. Nothing contained in the Plan shall be
deemed in any way to limit or restrict the Company or the Committee from making
any award or payment to any person under any other plan, arrangement or
understanding, whether now existing or hereafter in effect.
3.10 RESTRICTIONS.
(a) If the Committee shall at any time determine that any Consent (as
hereinafter defined) is necessary or desirable as a condition of, or in
connection with, the granting of any award under the Plan, the issuance or
purchase of shares or other rights thereunder or the taking of any other action
thereunder (each such action being hereinafter referred to as a "Plan Action"),
then such Plan Action shall not be taken, in whole or in part, unless and until
such Consent shall have been effected or obtained to the full satisfaction of
the Committee.
(b) The term "Consent" as used herein with respect to any Plan Action means
(i) any and all listings, registrations or qualifications in respect thereof
upon any securities exchange or under any federal, state or
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local law, rule or regulation, (ii) any and all written agreements and
representations by the grantee with respect to the disposition of shares, or
with respect to any other matter, which the Committee shall deem necessary or
desirable to comply with the terms of any such listing, registration or
qualification or to obtain an exemption from the requirement that any such
listing, qualification or registration be made and (iii) any and all consents,
clearances and approvals in respect of a Plan Action by any governmental or
other regulatory bodies.
3.11 SECTION HEADINGS. The section headings contained herein are for the
purposes of convenience only and are not intended to define or limit the
contents of said sections.
3.12 INTERPRETATION. Unless expressly stated in the relevant Agreement,
each Option is intended to be performance-based compensation within the meaning
of Section 162(m)(4)(C) and the Committee shall interpret the Plan accordingly.
3.13 EFFECTIVE DATE AND TERM OF PLAN.
(a) The 1998 Amended and Restated Stock Option Plan was approved by the
Board effective as of July 17, 1998, subject to approval of the Plan by a
majority of the voting stockholders of the Company.
(b) The Plan shall terminate 10 years after its adoption by the Board, and
no awards shall thereafter be made under the Plan. Notwithstanding the
foregoing, all awards made under the Plan prior to the date on which the Plan
terminates shall remain in effect until such awards have been satisfied or
terminated in accordance with the terms and provisions of the Plan.
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APPENDIX B
DAL-TILE INTERNATIONAL INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I
INTRODUCTION
1.01 PURPOSE. The Dal-Tile International Inc. Employee Stock Purchase Plan
(the "Plan") is intended to provide a method whereby employees of Dal-Tile
International Inc. (the "Company") and its Eligible Subsidiary Corporations (as
defined below) will have an opportunity to acquire a proprietary interest in the
Company through the purchase of shares of the Common Stock (as defined below).
1.02 RULES OF INTERPRETATION. It is the intention of the Company to have
the Plan qualify as an "employee stock purchase plan" under Section 423 of the
Internal Revenue Code of 1986, as amended (the "Code"). The provisions of the
Plan shall be construed so as to extend and limit participation in a manner
consistent with the requirements of that section of the Code.
ARTICLE II
DEFINITIONS
2.01 "CODE" shall have the meaning set forth in Section 1.02.
2.02 "COMPANY" shall have the meaning set forth in Section 1.01.
2.03 "COMPENSATION" shall mean the gross cash compensation (including wage,
salary and overtime earnings) paid by the Company or any Eligible Subsidiary
Corporation to a participant in accordance with the terms of employment, but
excluding all bonus payments, expense allowances and compensation paid in a form
other than cash.
2.04 "COMMITTEE" shall have the meaning set forth in Section 11.01.
2.05 "COMMON STOCK" shall mean the common stock, par value $.01 per share,
of the Company.
2.06 "ELIGIBLE SUBSIDIARY CORPORATION" shall mean each Subsidiary
Corporation the employees of which are entitled to participate in the Plan, as
listed or referred to on Schedule 2.04 hereto.
2.07 "EMPLOYEE" shall have the meaning set forth in Section 3.01.
2.08 "OFFERING COMMENCEMENT DATE" shall have the meaning set forth in
Section 4.02.
2.09 "OFFERING PRICE" shall have the meaning set forth in Section 6.02.
2.10 "OFFERING TERMINATION DATE" shall have the meaning set forth in
Section 4.02.
2.11 "OFFERINGS" shall have the meaning set forth in Section 4.02.
2.12 "PLAN" shall have the meaning set forth in Section 1.01.
2.13 "PLAN REPRESENTATIVE" shall mean the person designated from time to
time by the Committee to receive certain notices and take certain other
administrative actions relating to participation in the Plan.
2.10 "SUBSIDIARY CORPORATION" shall mean any present or future corporation
which (i) is or becomes a "subsidiary corporation" (as that term is defined in
Section 424 of the Code) of the Company, and (ii) is designated as a
participating employer in the Plan by the Committee.
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ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.01 INITIAL ELIGIBILITY. Each non-officer employee who shall have
completed six consecutive months of full-time (I.E., more than twenty hours per
week) employment with the Company and/or any Eligible Subsidiary Corporation
shall be eligible to participate in Offerings which commence after such
six-month period has concluded, provided he or she is employed on a full-time
basis (I.E., more than twenty hours per week) by the Company or an Eligible
Subsidiary Corporation as of the relevant Offering Commencement Date (any such
eligible employee, an "Employee"). Persons who are not Employees shall not be
eligible to participate in the Plan.
3.02 RESTRICTIONS ON PARTICIPATION. Notwithstanding any provision of the
Plan to the contrary, no Employee shall be granted an option to purchase shares
of Common Stock under the Plan:
(a) if, immediately after the grant, such Employee would own stock and/or
hold outstanding options to purchase stock possessing 5% or more of the total
combined voting power or value of all classes of stock of the Company (for
purposes of this paragraph, the rules of Section 424(d) and Section 423(b)(3) of
the Code shall apply in determining stock ownership of any Employee); or
(b) which permits such Employee's rights to purchase stock under all
employee stock purchase plans of the Company to accrue at a rate which exceeds
$25,000 of fair market value of the Common Stock (determined at the time such
option is granted) for each calendar year in which such option is outstanding at
any time.
3.03 COMMENCEMENT OF PARTICIPATION. An eligible Employee may become a
participant by completing an authorization for payroll deductions on the form
provided by the Company and filing the completed form with the Plan
Representative on or before the filing date set therefor by the Committee, which
date shall be prior to the Offering Commencement Date for the next following
Offering. Payroll deductions for a participant shall commence in the next
payroll period following the Offering Commencement Date after the Employee's
authorization for payroll deductions becomes effective and shall continue until
termination of the Plan or the participant's earlier termination of
participation in the Plan. Each participant in the Plan shall be deemed to
continue participation until termination of the Plan or such participant's
earlier termination of participation in the Plan pursuant to Article VIII below.
ARTICLE IV
STOCK SUBJECT TO THE PLAN AND OFFERINGS
4.01 STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section
12.04, the Company's Board of Directors shall reserve initially for issuance
under the Plan an aggregate of five hundred thousand (500,000) shares of Common
Stock, which shares shall be authorized but unissued. The Company's Board of
Directors may from time to time reserve additional shares of authorized and
unissued Common Stock for issuance pursuant to the Plan; provided, however, that
at no time shall the number of shares of Common Stock reserved be greater than
permitted by applicable law.
4.02 OFFERINGS. The Plan will be implemented by two offerings of the
Common Stock during each twelve-month period (the "Offerings"). For so long as
the Plan is in effect, an Offering will begin on January 1 and end on June 30
and begin on July 1 and end on December 31. The first day of an Offering shall
be deemed the "Offering Commencement Date" and the last day the "Offering
Termination Date" for such Offering.
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ARTICLE V
PAYROLL DEDUCTIONS
5.01 AMOUNT OF DEDUCTION. The form described in Section 3.03 will permit a
participant to elect payroll deductions of any whole percentage from one percent
(1%) through ten percent (10%) of such participant's Compensation for each pay
period during an Offering.
5.02 PARTICIPANT'S ACCOUNT. All payroll deductions made for a participant
shall be credited to an account established for such participant under the Plan.
A participant may not make any separate cash payment into such account.
5.03 CHANGES IN PAYROLL DEDUCTIONS. A participant may reduce or increase
future payroll deductions (within the limits described in Section 5.01) by
filing with the Plan Representative a form provided by the Company for such
purpose. The effective date of any increase or reduction in future payroll
deductions will be the first day of the next Offering following processing of
the change form. A participant may increase or reduce the amount of his or her
payroll deductions only once with respect to any Offering.
ARTICLE VI
GRANTING OF OPTION
6.01 NUMBER OF OPTION SHARES. On the Offering Commencement Date (for each
Offering), each participating Employee shall be deemed to have been granted an
option to purchase a maximum number of shares of Common Stock the fair market
value of which is equal to (i) that percentage of the Employee's Compensation
which the Employee has elected to have withheld (but not in any case in excess
of 10%) multiplied by (ii) the Employee's Compensation during the Offering then
divided by (iii) the applicable Offering Price determined as provided in Section
6.02 below. Notwithstanding the foregoing, the maximum number of shares of
Common Stock that a participant may purchase pursuant to an Offering is three
thousand (3,000).
6.02 OPTION PRICE. The option price of stock purchased with payroll
deductions made during any Offering (the "Offering Price") for a participant
therein shall be the lower of:
(a) 85% of the closing price of the stock on the Offering Commencement Date
for such Offering or the nearest prior business day on which trading occurred on
the New York Stock Exchange; or
(b) 85% of the closing price on the Offering Termination Date for such
Offering or the nearest prior business day on which trading occurred on the New
York Stock Exchange. If the Common Stock of the Company is not admitted to
trading on any of the aforesaid dates for which closing prices of the stock are
to be determined, then reference shall be made to the fair market value of the
stock on each such date, as determined on such basis as shall be established or
specified by the Committee.
ARTICLE VII
EXERCISE OF OPTION
7.01 AUTOMATIC EXERCISE. Subject to Section 6.01, each Plan participant's
option for the purchase of stock with payroll deductions made during any
Offering will be deemed to have been exercised automatically on the applicable
Offering Termination Date for the purchase of the number of full shares of
Common Stock which the accumulated payroll deductions in the participant's
account at the time will purchase at the applicable Offering Price.
7.02 WITHDRAWAL OF ACCOUNT. No participant in the Plan shall be entitled
to withdraw any amount from the accumulated payroll deductions in his or her
account; provided, however, that a participant's accumulated payroll deductions
shall be refunded to the participant as and to the extent specified in Section
8.01 below upon termination of such participant's participation in the Plan.
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7.03 FRACTIONAL SHARES. Fractional shares of Common Stock will not be
issued under the Plan. Any accumulated payroll deductions which would have been
used to purchase fractional shares, unless refunded pursuant to Section 7.02
above, will be held for the purchase of Common Stock in the next following
Offering, without interest.
7.04 EXERCISE OF OPTIONS. During a participant's lifetime, options held by
such participant shall be exercisable only by such participant.
7.05 DELIVERY OF STOCK. As promptly as practicable after the Offering
Termination Date of each Offering, the Company will deliver to each participant
in such Offering, as appropriate, the shares of Common Stock purchased therein
upon exercise of such participant's option. The Company may deliver such shares
in certificated or book entry form, at the Company's sole election. The Company
may require a participant to dispose of the shares of Common Stock acquired
pursuant to the Plan through one or more brokers designated by the Company.
7.06 STOCK TRANSFER RESTRICTIONS. The Plan is intended to satisfy the
requirements of Section 423 of the Code. A participant will not obtain the
benefits of this provision if such participant disposes of shares of Common
Stock acquired pursuant to the Plan within two (2) years from the applicable
Offering Commencement Date.
ARTICLE VIII
WITHDRAWAL
8.01 IN GENERAL. A participant may stop participating in the Plan at any
time by giving written notice to the Plan Representative. Upon processing of any
such written notice, no further payroll deductions will be made from the
participant's Compensation during such Offering or thereafter, unless and until
such participant elects to resume participation. Such participant's payroll
deductions accumulated prior to processing of such notice to stop participation
shall be applied toward purchasing full shares of Common Stock in the
then-current Offering as provided in Section 7.01 above. Any cash balance
remaining after the purchase of shares in such Offering shall be refunded
promptly to such participant. A participant may elect to resume participation in
the Plan by providing written notice to the Plan Representative pursuant to
Section 3.03 above. Such election to resume participation shall be effective as
of the first Offering commencing following the processing of such election.
8.02 EFFECT ON SUBSEQUENT PARTICIPATION. A participant's withdrawal from
any Offering will not have any effect upon such participant's eligibility to
participate in any succeeding Offering or in any similar plan which may
hereafter be adopted by the Company and for which such participant is otherwise
eligible.
8.03 TERMINATION OF EMPLOYMENT. Upon termination of a participant's
employment with the Company or any Eligible Subsidiary Corporation (as the case
may be) for any reason, including retirement or death, the participant's payroll
deductions accumulated prior to such termination, if any, shall be applied
toward purchasing full shares of Common Stock in the then-current Offering, and
any cash balance remaining after the purchase of shares in such Offering shall
be refunded to him or her, or, in the case of his or her death, to the person or
persons entitled thereto under Section 12.01, and his or her participation in
the Plan shall be deemed to be terminated.
ARTICLE IX
INTEREST
9.01 PAYMENT OF INTEREST. No interest will be paid or allowed on any money
paid into the Plan or credited to the account of or distributed to any
participant.
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ARTICLE X
STOCK
10.01 PARTICIPANT'S INTEREST IN OPTION STOCK. No participant will have any
interest in shares of Common Stock covered by any option held by such
participant until such option has been exercised as provided in Section 7.01
above.
10.02 REGISTRATION OF STOCK. Shares of Common Stock purchased by a
participant under the Plan will be recorded in the books and records of the
Company in the name of the participant.
10.03 RESTRICTIONS ON EXERCISE. The Board of Directors of the Company may,
in its discretion, require as conditions to the exercise of any option that the
shares of Common Stock reserved for issuance upon the exercise of such option
shall have been duly listed, upon official notice of issuance, upon a stock
exchange or market, and that either:
(a) a registration statement under the Securities Act of 1933, as amended,
with respect to said shares shall be effective, or
(b) the participant shall have represented at the time of purchase, in form
and substance satisfactory to the Company, that it is his or her intention to
purchase the shares for investment and not for resale or distribution.
ARTICLE XI
ADMINISTRATION
11.01 APPOINTMENT OF COMMITTEE. The Board of Directors of the Company
shall appoint a committee (the "Committee") to administer the Plan, which shall
consist solely of no fewer than two "non-employee directors" (as defined in Rule
16b-3(a)(3) promulgated under the Securities Exchange Act of 1934, as amended).
11.02 AUTHORITY OF COMMITTEE. Subject to the express provisions of the
Plan, the Committee shall have plenary authority in its discretion to interpret
and construe any and all provisions of the Plan, to adopt rules and regulations
for administering the Plan, and to make all other determinations deemed
necessary or advisable for administering the Plan. The Committee's determination
of the foregoing matters shall be conclusive.
11.03 RULES GOVERNING THE ADMINISTRATION OF THE COMMITTEE. The Board of
Directors of the Company may from time to time appoint members of the Committee
in substitution for or in addition to members previously appointed and may fill
vacancies, however caused, in the Committee. The Committee may select one of its
members as its chairman, shall hold its meetings at such times and places as it
shall deem advisable, and may hold telephonic meetings. All determinations of
the Committee shall be made by a majority of its members. A decision or
determination reduced to writing and signed by a majority of the members of the
Committee shall be as fully effective as if it had been made by a majority vote
at a meeting duly called and held. The Committee may appoint a secretary and
shall make such rules and regulations for the conduct of its business as it
shall deem advisable.
ARTICLE XII
MISCELLANEOUS
12.01 DESIGNATION OF BENEFICIARY. A participant may file with the Plan
Representative a written designation of a beneficiary who is to receive any
shares of Common Stock and/or cash under the Plan upon the participant's death.
Such designation of beneficiary may be changed by the participant at any time by
written notice to the Plan Representative. Upon the death of a participant and
receipt by the Company of proof of identity and existence at the participant's
death of a beneficiary validly designated by
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the participant under the Plan, and subject to Article VIII above concerning
withdrawal from the Plan, the Company shall deliver such shares of Common Stock
and/or cash to such beneficiary. In the event of the death of a participant
lacking a beneficiary validly designated under the Plan who is living at the
time of such participant's death, the Company shall deliver such shares of
Common Stock and/or cash to the executor or administrator of the estate of the
participant, or if no such executor or administrator has been appointed (to the
knowledge of the Company), the Company, in its discretion, may deliver such
shares of Common Stock and/or cash to the spouse or to any one or more
dependents of the participant, in each case without any further liability of the
Company whatsoever under or relating to the Plan. No beneficiary shall, prior to
the death of the participant by whom he or she has been designated, acquire any
interest in the shares of Common Stock and/or cash credited to the participant
under the Plan.
12.02 TRANSFERABILITY. Neither payroll deductions credited to any
participant's account nor any option or rights with regard to the exercise of an
option or the receipt of Common Stock under the Plan may be assigned,
transferred, pledged, or otherwise disposed of in any way by the participant
other than by will or the laws of descent and distribution. Any such attempted
assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may, in its discretion, treat such act as an election to
withdraw from participation in the Plan in accordance with Section 8.01.
12.03 USE OF FUNDS. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose. The Company
shall not be obligated to segregate such payroll deductions.
12.04 ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
(a) If, while any options are outstanding under the Plan, the outstanding
shares of Common Stock of the Company have increased, decreased, changed into,
or been exchanged for a different number or kind of shares or securities of the
Company through any reorganization, merger, recapitalization, reclassification,
stock split, reverse stock split or similar transaction, appropriate and
proportionate adjustments may be made by the Committee in the number and/or kind
of shares which are subject to purchase under outstanding options and in the
Option Price applicable to such outstanding options. In addition, in any such
event, the number and/or kind of shares which may be offered in the Offerings
described in Article IV hereof shall also be proportionately adjusted.
(b) Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon a sale of substantially all of the property or capital stock of the
Company to another corporation, the holder of each option then outstanding under
the Plan will thereafter be entitled to receive at the next Offering Termination
Date (including the date of termination of the Plan), upon the exercise of such
option, for each share as to which such option shall be exercised, as nearly as
reasonably may be determined, the cash, securities and/or property which a
holder of one share of the Common Stock was entitled to receive upon and at the
time of such transaction. The Board of Directors of the Company shall take such
steps in connection with such transactions as it shall deem necessary to assure
that the provisions of this Section 12.04 shall thereafter be applicable, as
nearly as reasonably may be determined, in relation to the said cash, securities
and/or property as to which each such holder of any such option might hereafter
be entitled to receive.
12.05 AMENDMENT AND TERMINATION. The Board of Directors of the Company
shall have complete power and authority to terminate or amend the Plan;
provided, however, that the Board of Directors of the Company shall not, without
the approval of the shareholders of the Company, alter (i) the aggregate number
of shares of Common Stock which may be issued under the Plan (except pursuant to
Section 12.04 above), or (ii) the class of employees eligible to receive options
under the Plan, other than to designate additional Subsidiary Corporations as
Eligible Subsidiary Corporations; and provided further, however, that no
termination, modification, or amendment of the Plan may, without the consent of
an Employee then having an option under the Plan to purchase shares of Common
Stock, adversely affect the rights of
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such Employee under such option, except that the foregoing shall not prohibit
the Company from terminating the Plan at any time (including during an Offering)
and applying the amounts theretofore withheld from participants to the purchase
of shares of Common Stock as if the termination date of the Plan were an
Offering Termination Date.
12.06 EFFECTIVE DATE. The Plan shall become effective as of March 1, 1999,
subject to approval by the holders of a majority of the shares of Common Stock
present and represented at any special or annual meeting of the shareholders of
the Company duly held within 12 months after adoption of the Plan. If the Plan
is not so approved, the Plan shall not become effective.
12.07 NO EMPLOYMENT RIGHTS. The Plan does not, directly or indirectly,
create in any person any right with respect to continuation of employment by the
Company or any Subsidiary Corporation, and it shall not be deemed to interfere
in any way with the Company's or any Subsidiary Corporation's right to
terminate, or otherwise modify, any Employee's employment at any time.
12.08 EFFECT OF PLAN. The provisions of the Plan shall, in accordance with
its terms, be binding upon, and inure to the benefit of, all successors of each
Employee participating in the Plan, including, without limitation, such
Employee's estate and the executors, administrators or trustees thereof, heirs
and legatees, and any receiver, trustee in bankruptcy or representative of
creditors of such Employee.
12.09 GOVERNING LAW. The law of the State of Delaware will govern all
matters relating to this Plan except to the extent superseded by the federal
laws of the United States.
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SCHEDULE 2.04 TO
DAL-TILE INTERNATIONAL INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
ELIGIBLE SUBSIDIARY CORPORATIONS
1. Each Subsidiary Corporation organized under the laws of any of the states of
the United States of America.
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