UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
Proxy
Statement Pursuant to Section 14(a)
of the
Securities Exchange Act of 1934
| Filed by the Registrant x | Filed by a Party other than the Registrant o |
Check the
Appropriate Box:
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o
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Preliminary
Proxy Statement
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o
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Confidential,
for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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x
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Definitive
Proxy Statement
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o
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Definitive
Additional Materials
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o
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Soliciting
Material Under Rule 14a-12
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Drew
Industries Incorporated
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(Name
of Registrant as Specified in Its
Charter)
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(Name
of Person(s) Filing Proxy Statement if other than the
Registrant)
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Payment
of Filing Fee (Check the appropriate box):
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x
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No
fee required
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o
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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(1)
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Title
of each class of securities to which transaction
applies:
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(2)
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Aggregate
number of securities to which transaction
applies:
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(3)
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Per
unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was
determined):
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(4)
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Proposed
maximum aggregate value of
transaction:
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(5)
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Total
fee paid:
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o
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Fee
paid previously with preliminary
materials:
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o
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Check
box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its
filing.
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(1)
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Amount
Previously paid:
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(2)
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Form,
Schedule or Registration Statement
No.:
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(3)
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Filing
Party:
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(4)
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Date
Filed
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DREW
INDUSTRIES INCORPORATED
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200
Mamaroneck Avenue
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White
Plains, New York 10601
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Notice
of Annual Meeting of Stockholders
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to
be held May 19, 2010
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NOTICE IS
HEREBY GIVEN that the Annual Meeting of Stockholders of DREW INDUSTRIES
INCORPORATED (the “Company”) will be held at The Renaissance Dallas Hotel, 2222
Stemmons Freeway, Dallas, Texas 75207 on May 19, 2010 at 9:00 A.M., for the
following purposes:
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(1)
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To
elect a Board of eight Directors;
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(2)
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To
reapprove the performance criteria under the Drew Industries Incorporated
2002 Equity Award and Incentive
Plan;
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(3)
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To
ratify the selection of KPMG LLP as independent auditors for the Company
for the year ending December 31, 2010;
and
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(4)
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To
transact such other business as may properly come before the meeting or
any adjournment or postponement
thereof.
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Holders
of record of the Company’s Common Stock at the close of business on the 23rd day
of March, 2010 shall be entitled to vote on all matters to be considered at the
meeting or any adjournment or postponement thereof.
A list of
all stockholders entitled to vote at the meeting will be available for
inspection for the ten days prior to the meeting at the office of the Company
and will be available for inspection at the time of the meeting, at the place
thereof.
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By Order of the
Board of Directors
LEIGH J. ABRAMS
Chairman of the Board of
Directors
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Dated:
April 6, 2010
White
Plains, N.Y.
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NOTICE
TO HOLDERS OF COMMON STOCK
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IF
YOU DO NOT EXPECT TO ATTEND THE MEETING, PLEASE SIGN AND
RETURN
THE ENCLOSED PROXY CARD SO THAT YOU WILL BE
REPRESENTED.
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A
POST-PAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
IF
YOU ARE VOTING OVER THE INTERNET, PLEASE DO NOT RETURN
THE
ENCLOSED PROXY CARD.
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IMPORTANT
NOTICE REGARDING THE AVAILABILITY OF
PROXY
MATERIALS FOR THE ANNUAL STOCKHOLDER MEETING
TO
BE HELD ON MAY 19, 2010.
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THIS
PROXY STATEMENT AND OUR 2009 ANNUAL REPORT TO STOCKHOLDERS,
INCLUDING
OUR 2009 ANNUAL REPORT ON FORM 10-K, ARE AVAILABLE AT
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HTTP://WWW.PROXYVOTE.COM.
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TABLE
OF CONTENTS
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Page
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PROXY
STATEMENT
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3
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THE
COMPANY
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4
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VOTING
SECURITIES
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4
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Voting
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4
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Recommendations
of the Board of Directors
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4
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Principal
Holders of Voting Securities
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5
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Security
Ownership of Certain Beneficial Owners and Management
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6
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Compliance
with Section 16(a) of the Exchange Act
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8
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PROPOSAL
1. ELECTION OF DIRECTORS
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8
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Other
Executive Officers
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10
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Management
and Board Succession
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11
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Corporate
Governance and Related Matters
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11
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REPORT
OF THE AUDIT COMMITTEE
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15
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COMPENSATION
DISCUSSION AND ANALYSIS
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16
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COMPENSATION
COMMITTEE REPORT
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22
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SUMMARY
COMPENSATION TABLE
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23
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GRANTS
OF PLAN-BASED AWARDS TABLE
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25
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OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR END
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29
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OPTION
EXERCISES AND STOCK VESTED
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30
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NON-QUALIFIED
DEFERRED COMPENSATION
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30
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EMPLOYMENT
AND COMPENSATION AGREEMENTS
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31
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Potential
Payments on Termination or Change in Control
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33
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DIRECTOR
COMPENSATION
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36
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TRANSACTIONS
WITH RELATED PERSONS
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37
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Review,
Approval or Ratification of Transactions with Related
Persons
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37
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Indemnification
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37
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PROPOSAL
2. REAPPROVAL OF PERFORMANCE CRITERIA UNDER 2002 PLAN
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38
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PROPOSAL
3. APPOINTMENT OF AUDITORS
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39
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Fees
for Independent Auditors
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39
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TRANSACTION
OF OTHER BUSINESS
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39
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STOCKHOLDER
PROPOSALS
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40
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2
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DREW
INDUSTRIES INCORPORATED
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200
Mamaroneck Avenue
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White
Plains, New York 10601
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The
accompanying Proxy is solicited by the Board of Directors of Drew Industries
Incorporated, a Delaware corporation (the “Company”), for use at the Annual
Meeting of Stockholders to be held at The Renaissance Dallas Hotel, 2222
Stemmons Freeway, Dallas, Texas 75207 on May 19, 2010 at 9:00 A.M., or any
adjournment or postponement thereof, at which holders of record of the Company’s
Common Stock, par value $0.01 per share (the “Common Stock”), at the close of
business on March 23, 2010 (the “Record Date”) shall be entitled to vote on all
matters considered at the meeting.
The cost
of solicitation by the Company, including postage, printing and handling, and
the expenses incurred by brokerage firms, custodians, nominees and fiduciaries
in forwarding proxy material to beneficial owners will be borne by the Company.
The solicitation is to be made primarily by mail, but may be supplemented by
telephone calls, telegrams and personal solicitation. Management may also use
the services of directors and employees of the Company to solicit Proxies,
without additional compensation.
All
validly completed and executed Proxies received by the Company (whether by mail
or via the Internet) in time for the Annual Meeting will be voted for the
Directors named in Proposal 1 in the manner indicated on the proxies and, if no
contrary instructions are indicated, “FOR” Proposals 2 and 3. If specific
instructions are indicated, the Proxies will be voted in accordance with such
instructions. Each Proxy executed and returned by holders of the Common Stock
may be revoked at any time thereafter, except as to matters upon which, prior to
such revocation, a vote shall have been cast pursuant to the authority conferred
by such Proxy. A Proxy may be revoked by giving written notice of revocation to
the Secretary of the Company or to any of the other persons named as proxies, or
by giving a Proxy with a later date, or by attending the Annual Meeting and
voting in person. This Proxy Statement and the form of Proxy solicited from
holders of the Common Stock are expected to be sent or given to stockholders on
or about April 6, 2010.
If you
hold shares of the Company’s Common Stock in your own name and not through your
broker or another nominee, you can choose to vote via the Internet. The website
for Internet voting is www.proxyvote.com.
Internet voting is available 24 hours a day until 11:59 P.M., Eastern Time, on
May 18, 2010. You will be able to confirm that your instructions have been
properly recorded. If your shares are held in “street name” (that is, in the
name of a bank, broker or other holder of record), you will receive instructions
from the holder of record that you must follow in order for your shares to be
voted. Internet voting also will be available to stockholders owning shares held
in “street name”. If you vote via the Internet, you do not need to return your
proxy card.
The
Annual Report to Stockholders of the Company for the year ended December 31,
2009 together with this Proxy Statement is being mailed to each stockholder of
record who requested paper copies of these materials.
THE
COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2009 AS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (INCLUDING THE CONSOLIDATED
FINANCIAL STATEMENTS) IS PART OF THE ANNUAL REPORT TO STOCKHOLDERS WHICH
ACCOMPANIES THIS PROXY STATEMENT. ADDITIONAL COPIES WILL BE FURNISHED TO ANY
STOCKHOLDER WITHOUT CHARGE UPON REQUEST TO THE COMPANY AT 200 MAMARONECK AVENUE,
WHITE PLAINS, NEW YORK 10601, TELEPHONE (914) 428-9098, E-MAIL DREW@DREWINDUSTRIES.COM.
THE ANNUAL REPORT ON FORM 10-K IS ALSO AVAILABLE THROUGH LINKS ON THE COMPANY’S
WEBSITE WWW.DREWINDUSTRIES.COM
AND AT WWW.PROXYVOTE.COM.
3
The
Company was incorporated under the laws of Delaware on March 20, 1984. The
Company’s principal executive and administrative offices are located at 200
Mamaroneck Avenue, White Plains, New York 10601; telephone number (914)
428-9098; website: www.drewindustries.com;
e-mail: drew@drewindustries.com.
Note that the information
located on our website, whether or not referred to in this Proxy Statement, is
not incorporated by reference into this Proxy Statement.
The
Company’s Common Stock trades on the New York Stock Exchange (“NYSE”) under the
symbol “DW”.
Voting
Stockholders
of record will be entitled to one vote on each matter for each share of Common
Stock held on the Record Date. A majority of the outstanding shares of Common
Stock must be present or represented by proxy at the meeting in order to have a
quorum for the transaction of business at the meeting. Abstentions and broker
non-votes will be treated as shares present for the purpose of determining the
presence of a quorum.
In the
election of directors, Proposal 1, the eight nominees receiving the highest
number of affirmative votes will be elected.
Proposal
2, relating to the 2002 Plan, requires the affirmative vote of a majority of the
shares of Common Stock present or represented by proxy and voting at the
meeting.
Proposal
3, relating to the independent auditors, requires the affirmative vote of a
majority of the shares of Common Stock present or represented by proxy and
voting at the meeting.
If you
are a beneficial owner of shares held in “street name” and do not provide the
organization that holds your shares with specific voting instructions, under
NYSE rules, the organization that holds your shares may generally vote your
shares on routine matters but cannot vote your shares on non-routine matters. If
the organization that holds your shares does not receive instructions from you
on how to vote your shares on a non-routine matter, the organization that holds
your shares will not have the authority to vote on this matter with respect to
your shares. This is generally referred to as a “broker non-vote”.
The election of directors (Proposal 1)
is considered non-routine. A broker or other nominee cannot vote your shares
without instructions on non-routine matters, and therefore there may be broker
non-votes on Proposal 1. Reapproval of performance criteria under the 2002 Plan
(Proposal 2) and ratification of the appointment of KPMG LLP as the Company’s
independent auditor for 2010 (Proposal 3) are considered routine. A broker or
other nominee may vote your shares on routine matters, and therefore no broker
non-votes are expected to exist in connection with Proposals 2 and
3.
Only “FOR” and “AGAINST” votes are
counted for purposes of determining the votes received in connection with each
proposal. Therefore, broker non-votes and abstentions have no effect on Proposal
1 relating to the election of directors. In the case of Proposal 2, relating to
the reapproval of performance criteria under the 2002 Plan, and Proposal 3,
relating to ratification of the appointment of KPMG LLP, broker non-votes and
abstentions are not considered in determining whether the affirmative vote
constitutes a majority of the shares present or represented by proxy and voting
at the Annual Meeting. Approval of Proposals 2 and 3 also requires the
affirmative vote of a majority of the shares necessary to constitute a quorum.
Therefore, broker non-votes and abstentions could prevent the approval of these
Proposals because they do not count as affirmative votes.
In
order to minimize the number of broker non-votes, the Company encourages you to
provide voting instructions to the organization that holds your shares by
carefully following the instructions provided in the Notice.
If the
persons present or represented by proxy at the meeting constitute the holders of
less than a majority of the outstanding shares of Common Stock as of the Record
Date, the meeting may be adjourned to a subsequent date for the purpose of
obtaining a quorum. Votes will be tabulated by the inspector of election
appointed for the meeting, who will separately tabulate affirmative and negative
votes, abstentions and, if possible, broker non-votes.
The Board
of Directors recommends that you vote FOR each of the nominees for the Board of
Directors (Proposal 1), FOR reapproval of the performance criteria under the
2002 Plan (Proposal 2), and FOR ratification of the appointment of KPMG LLP as
the Company’s independent auditors for the fiscal year ending December 31, 2010
(Proposal 3).
4
Set forth
below is information with respect to each person known to the Company on March
23, 2010 to be the beneficial owner of more than five percent of any class of
the Company’s voting securities, which consists of Common Stock only (including
options which are exercisable within 60 days):
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Name
and Address
of
Beneficial Owner
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Amount
and Nature
of
Beneficial Ownership
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Approximate
Percent
of Class
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Columbia
Wanger Asset Management, LP(1)
227 West Monroe Street, Suite
3000
Chicago, IL
60606
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2,148,600(2)
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9.5%
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Edward
W. Rose, III(1)
2100 McKinney – Suite
1780
Dallas,
TX 75201
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2,088,545(3)
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9.2%
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T.
Rowe Price Associates, Inc.(1)
100 E. Pratt
Street
Baltimore, MD
21202
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1,844,000(2)
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8.1%
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Royce
& Associates, LLC(1)
745 Fifth Avenue
New York, NY
10151
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1,681,691(2)
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7.4%
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BlackRock,
Inc.(1)
40 East 52nd
Street
New York, NY
10022
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1,669,806(2)
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7.4%
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First
Manhattan Bank Co.
437 Madison
Avenue
New York, NY
10222
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1,484,586(2)
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6.5%
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(1)
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The
person named has sole voting and investment power with respect to such
shares.
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(2)
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As
of December 31, 2009.
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(3)
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See
“Voting Securities – Security Ownership of Certain Beneficial Owners and
Management”.
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To the
knowledge of the Company, other than persons acting as nominees or custodians
for various stock brokerage firms and banks, which persons do not have
beneficial ownership of the Common Stock, no other person owns of record or
beneficially more than five percent of the voting securities of the
Company.
5
Set forth
below is information with respect to beneficial ownership at March 23, 2010 of
the Common Stock (including options which are exercisable within 60 days) by
each Director, each of whom is a nominee for election, and by all Directors and
Executive Officers of the Company as a group, including the executive officers
named in the Summary Compensation Table.
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Name
of
Beneficial Owner
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Amount
and Nature
of
Beneficial Ownership
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Approximate
Percent
of Class
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Edward
W. Rose, III, Director(1)
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2,088,545(2)
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9.2%
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Leigh
J. Abrams, Director(1)
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273,279(3)
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1.2%
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Fredric
M. Zinn, Director and Executive Officer(1)
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100,380(4)
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0.4%
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Jason
D. Lippert, Director and Executive Officer
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149,853(5)
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0.7%
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Scott
T. Mereness, Executive Officer
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34,600(6)
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0.2%
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Joseph
S. Giordano III, Executive Officer
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19,800(7)
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0.1%
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James
F. Gero, Director(1)
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187,493(8)
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0.8%
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Frederick
B. Hegi, Jr., Director.
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105,958(9)
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0.5%
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David
A. Reed, Director
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46,311(10)
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0.2%
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John
B. Lowe, Jr., Director
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42,606(11)
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0.2%
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All
Directors and Executive Officers as a group (12
personsincluding
the
above-named. Persons in the group who are not directors,
nominees
or named executive officers, and who own individually
less
than 1%, are not listed)
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3,079,025(12)
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13.6%
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(1)
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Pursuant
to Rules 13-1(f)(1)-(2) of Regulation 13-D of the General Rules and
Regulations under the Exchange Act, on May 31, 1989, the persons
indicated, together with certain other persons, jointly filed a single
Schedule 13-D Statement (as amended) with respect to the securities listed
in the foregoing table. Such persons made the single, joint filing because
they may be deemed to constitute a “group” within the meaning of Section
13(d)(3) of the Exchange Act, although neither the fact of the filing nor
anything contained therein shall be deemed to be an admission by such
persons that a group exists.
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(2)
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Mr.
Rose has sole voting and dispositive power with respect to the shares
owned by him. Excludes deferred stock units representing 40,883 shares
granted to Mr. Rose in lieu of cash compensation in payment of director’s
fees which are not issuable within 60 days. Includes 196,000 shares owned
by Cardinal Investment Company, Inc. Profit Sharing Plan, of which Mr.
Rose is Trustee. Mr. Rose is the sole stockholder of Cardinal Investment
Company, Inc. Excludes 200,000 shares of Common Stock held in trusts for
the benefit of members of Mr. Rose’s immediate family. Mr. Rose’s wife has
sole voting and investment power with respect to an additional 27,840
shares owned by her of record, which are also excluded. Mr. Rose disclaims
any beneficial interest in such shares. In December 2004, Mr. Rose was
granted an option to purchase 10,000 shares of Common Stock at $16.15 per
share; in December 2005, 2006 and 2007, Mr. Rose was granted options to
purchase 7,500 shares at $28.71, $26.39 and $28.09 per share,
respectively; and in December 2008 and November 2009, Mr. Rose was granted
options to purchase 12,500 shares at $14.22 per share and 7,500 shares at
$20.99 per share, respectively. Although no part of such options has been
exercised, all shares subject to such options which are exercisable within
60 days are included in the above table as beneficially owned. See “Voting
Securities – Principal Holders of Voting
Securities”.
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(3)
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Mr.
Abrams has sole voting and dispositive power with respect to such shares.
In November 2005, 2007, 2008 and 2009, Mr. Abrams was granted options to
purchase, respectively, 25,000 shares at $28.33 per share, 20,000 shares
at $32.61 per share, 20,000 shares at $11.59 per share, and 11,400 shares
at $20.99 per share. Although no part of such options has been exercised,
all shares subject to such options which are exercisable within 60 days
are included in the above table as beneficially
owned.
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(4)
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Mr.
Zinn shares voting and dispositive power with respect to 58,944 of such
shares with his wife, and has sole voting and dispositive power with
respect to 12,800 of such shares. Excludes deferred stock units
representing 34,478 shares granted to Mr. Zinn in lieu of cash
compensation which are not issuable within 60 days. Includes 2,636 shares
owned of record by Mr. Zinn’s son. Mr. Zinn disclaims any beneficial
interest in such shares. In November 2005, 2007, 2008 and 2009, Mr. Zinn
was granted options to purchase, respectively, 20,000 shares at $28.33 per
share, 15,000 shares at $32.61 per share, 20,000 shares at $11.59 per
share, and 16,000 shares at $20.99 per share. Although no part of such
options has been exercised, all shares subject to such options which are
exercisable within 60 days are included in the above table as beneficially
owned.
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(5)
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Mr.
Lippert has sole voting and dispositive power with respect to such shares.
Mr. Lippert was granted the following options to purchase shares of Common
Stock: in November 2004, 15,000 shares at $16.155 per share, of which
3,000 have been exercised; in November 2005, 25,000 shares at $28.33 per
share; in November 2007, 20,000 shares at $32.61 per share; in November
2008, 30,000 shares at $11.59 per share, of which 7,000 have been
exercised, and in November 2009, 16,000 shares at $20.99 per share. All
shares subject to such options which are exercisable within 60 days are
included in the above table as beneficially
owned.
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(6)
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Mr.
Mereness has sole voting and dispositive power with respect to such
shares. Excludes deferred stock units representing 19,744 shares granted
to Mr. Mereness in lieu of cash compensation which are not issuable within
60 days. In November 2005, 2007, 2008 and 2009, Mr. Mereness was granted
options to purchase, respectively, 20,000 shares at $28.33 per share,
20,000 shares at $32.61 per share, 23,000 shares at $11.59 per share, and
12,000 shares at $20.99 per share. Although no part of such options has
been exercised, all shares subject to such options which are exercisable
within 60 days are included in the above table as beneficially
owned.
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(7)
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Mr.
Giordano has sole voting and dispositive power with respect to such
shares. Excludes deferred stock units representing 6,113 shares granted to
Mr. Giordano in lieu of cash compensation which are not issuable within 60
days. Mr. Giordano was granted the following options to purchase shares of
Common Stock: in November 2005, 15,000 shares at $28.33 per share; in
November 2007, 12,000 shares at $32.61 per share; in November 2008, 10,000
shares at $11.59 per share, and in November 2009, 10,000 shares at $20.99
per share. Although no part of such options has been exercised, all shares
subject to such options which are exercisable within 60 days are included
in the above table as beneficially
owned.
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(8)
|
Mr.
Gero shares voting and dispositive power with respect to such shares with
his wife. In December 2004, Mr. Gero was granted an option to purchase
10,000 shares of Common Stock at $16.15 per share; in December 2005, 2006
and 2007, Mr. Gero was granted options to purchase 7,500 shares at $28.71,
$26.39 and $28.09 per share, respectively; and in December 2008 and
November 2009, Mr. Gero was granted options to purchase 12,500 shares at
$14.22 per share, and 7,500 shares at $20.99 per share, respectively.
Although no part of such options has been exercised, all shares subject to
such options which are exercisable within 60 days are included in the
above table as beneficially owned.
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(9)
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Mr.
Hegi has sole voting and dispositive power with respect to such shares.
Excludes deferred stock units representing 19,066 shares granted to Mr.
Hegi in lieu of cash compensation in payment of director’s fees which are
not issuable within 60 days. In December 2004, Mr. Hegi was granted an
option to purchase 10,000 shares of Common Stock at $16.15 per share; in
December 2005, 2006 and 2007, Mr. Hegi was granted options to purchase
7,500 shares at $28.71, $26.39 and $28.09 per share, respectively; and in
December 2008 and November 2009, Mr. Hegi was granted options to purchase
12,500 shares at $14.22 per share and 7,500 shares at $20.99 per share,
respectively. Although no part of such options has been exercised, all
shares subject to such options which are exercisable within 60 days are
included in the above table as beneficially owned.
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| (10) |
Mr.
Reed has sole voting and dispositive power with respect to such shares. In
December 2005, 2006 and 2007, Mr. Reed was granted options to purchase
7,500 shares at $28.71, $26.39 and $28.09 per share, respectively; and in
December 2008 and November 2009, Mr. Reed was granted options to purchase
12,500 shares at $14.22 per share and 7,500 shares at $20.99 per share,
respectively. Although no part of such options has been exercised, all
shares subject to such options which are exercisable within 60 days are
included in the above table as beneficially
owned.
|
7
|
|
(11)
|
Mr.
Lowe has sole voting and dispositive power with respect to such shares.
Excludes deferred stock units representing 6,320 shares granted to Mr.
Lowe in lieu of cash compensation in payment of director’s fees which are
not issuable within 60 days. In December 2005, 2006 and 2007, Mr. Lowe was
granted options to purchase 7,500 shares of Common Stock at $28.71, $26.39
and $28.09 per share, respectively; and in December 2008 and November
2009, Mr. Lowe was granted options to purchase 12,500 shares at $14.22 per
share and 7,500 shares at $20.99 per share, respectively. Although no part
of such options has been exercised, all shares subject to such options
which are exercisable within 60 days are included in the above table as
beneficially owned.
|
| (12) |
Includes
372,800 shares of Common Stock subject to options which are exercisable
within 60 days.
|
Section
16(a) of the Exchange Act requires the Company’s executive officers and
directors, and persons who beneficially own more than ten percent of the
Company’s equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission (“SEC”) and the NYSE.
Officers, directors and greater than ten-percent stockholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
Based on
its review of the copies of such forms received by it, the Company believes that
during 2009 all such filing requirements applicable to its officers and
directors (the Company not being aware of any 10 percent holder during 2009
other than Edward W. Rose, III and Royce & Associates, LLC) were complied
with.
The Board
of Directors currently consists of eight directors. It is proposed to elect a
Board of eight directors to serve until the next annual election or until their
successors are elected and qualify.
Unless
contrary instructions are indicated, the persons named as proxies in the form of
Proxy solicited from holders of the Common Stock will vote for the election of
the nominees indicated below. All such nominees are presently directors of the
Company. If any such nominees should be unable or unwilling to serve, the
persons named as proxies will vote for such other person or persons as may be
proposed by the Board of Directors. The Board of Directors has no reason to
believe that any of the named nominees will be unable or unwilling to
serve.
The
following table lists the current directors of the Company, each of whom is a
nominee proposed by the Board of Directors for election by the holders of the
Common Stock, all other positions and offices with the Company presently held by
them, and their principal occupations, in each case as furnished by them to the
Company. Each of the following nominees was elected to his present term of
office at the Annual Meeting of Stockholders held on May 20, 2009.
8
|
Name
and Age of Nominee
|
Position
|
Director
Since
|
|
Leigh
J. Abrams
Age 67
|
Chairman
of the Board of Directors
|
1984
|
|
Edward
W. Rose, III
Age 69
|
Lead
Director
|
1984
|
|
Fredric
M. Zinn
Age 59
|
President
and Chief Executive Officer, and Director
|
2008
|
|
Jason
D. Lippert
Age 37
|
Chairman,
President and Chief Executive Officer of Lippert Components, Inc. and
Kinro, Inc.,subsidiaries
of the Company, and Director
|
2007
|
|
James
F. Gero
Age 65
|
Director
|
1992
|
|
Frederick
B. Hegi, Jr
Age 66
|
Director
|
2002
|
|
David
A. Reed
Age 62
|
Director
|
2003
|
|
John
B. Lowe, Jr
Age 70
|
Director
|
2005
|
LEIGH J.
ABRAMS, was Chief Executive Officer from March 1984 to December 31, 2008 and
President until May 2008. Since April 2001, Mr. Abrams has also been a director
of Impac Mortgage Holdings, Inc., a publicly-owned specialty finance company
organized as a real estate investment trust, and Lead Director of Impac Mortgage
Holdings, Inc. since June 2004. Mr. Abrams is a Certified Public
Accountant.
Mr.
Abrams has particular knowledge of our Company and the industries to which we
sell our products, extensive experience with corporate management, governance
and strategic planning, accounting and financial acumen, investor relations, and
public company board experience.
EDWARD W.
ROSE, III, was Chairman of the Board of Directors from March 1984 to December
31, 2008. For more than the past five years, Mr. Rose has been President and
sole stockholder of Cardinal Investment Company, Inc., an investment firm. Mr.
Rose also served as a director of ACE Cash Express, Inc., a publicly-owned
company engaged in check cashing services, until its sale in October 2006. From
April 1999 to January 2003, Mr. Rose was a director of TX C.C., Inc., a
privately-owned restaurant chain, against which an involuntary petition for
relief under Chapter 11 of the U.S. Bankruptcy Code was filed on February 21,
2003 in the U.S. Bankruptcy Court for the Northern District of Texas. A plan of
reorganization was confirmed on January 28, 2004. Cardinal Investment Company,
Inc., of which Mr. Rose is the sole stockholder, was an indirect General Partner
of MJ Designs, L.P., a privately-owned retailer of arts and crafts products,
which filed a petition for relief under Chapter 11 of the U.S. Bankruptcy Code
in January 2003 in the U.S. Bankruptcy Court for the Northern District of Texas,
later converted to a Chapter 7 liquidation.
Mr. Rose
has extensive knowledge and acumen with respect to financial and investment
matters, strategic planning, and stock markets, and has public and private
company board experience.
FREDRIC
M. ZINN, was Executive Vice President from February 2001 to May 2008 and Chief
Financial Officer from March 1984 to May 2008. Mr. Zinn is a Certified Public
Accountant.
Mr. Zinn
has particular knowledge of our Company and the industries to which we sell our
products, extensive experience with corporate management, acquisitions,
strategic planning, and investor relations, and has accounting and financial
acumen.
JASON D.
LIPPERT, was Executive Vice President and Chief Operating Officer of Lippert
Components, Inc., from May 2000 until February 2003, and served as Regional
Director of Operations of Lippert Components, Inc., from 1998 until 2000. Mr.
Lippert has been Chairman of Lippert Components, Inc. since January 2007, and
Chairman of Kinro, Inc. since January 2009.
9
Mr.
Lippert has particular knowledge of the industries to which we sell our
products, as well as extensive experience with strategic planning, acquisitions,
marketing, manufacturing, and sales of our products.
JAMES F.
GERO, is a private investor. Mr. Gero also serves as Chairman of the Board of
Orthofix International, N.V., a publicly-owned international supplier of
orthopedic devices for bone fixation and stimulation, and as a director of
Intrusion.com, Inc., a publicly-owned supplier of security
software.
Mr. Gero
has extensive experience with respect to corporate management and leadership,
strategic planning, and compensation matters, and has public company board
experience.
FREDERICK
B. HEGI, JR., is a founding partner of Wingate Partners, a private equity firm,
including the indirect general partner of each of Wingate Partners L.P. and
Wingate Partners II, L.P. Since May 1982, Mr. Hegi has served as President of
Valley View Capital Corporation, a private investment firm. Mr. Hegi is a
director of Texas Capital Bancshares, Inc., a publicly-owned regional bank; and
is Chairman of the Board of United Stationers, Inc., a publicly-owned wholesale
distributor of business products. From 1986 until its sale in 2007, Mr. Hegi was
a director of Lone Star Technologies, Inc., a diversified publicly-owned company
engaged in the manufacture of tubular products. From 1999 to 2001, Mr. Hegi was
Chairman, President and Chief Executive Officer of Kevco, Inc., a publicly-owned
distributor of building products to the manufactured housing and recreational
vehicle industries, which filed for protection under Chapter 11 of the United
States Bankruptcy Code on February 5, 2001, later converted to a Chapter 7
liquidation.
Mr. Hegi
has particular knowledge of the industries to which we sell our products, and
extensive experience with respect to corporate management and leadership,
strategic planning, governance matters, and has public company board
experience.
DAVID A.
REED, is President of Causeway Capital Management LLC, manager of a family
investment partnership. Mr. Reed retired as Senior Vice Chair for Ernst &
Young LLP in 2000 where he held several senior U.S. and global operating,
administrative and marketing roles in his 26-year tenure with the firm. He
served on Ernst & Young LLP’s Management Committee and Global Executive
Council from 1991-2000. Mr. Reed is a director of Penson Worldwide, Inc., a
publicly-owned company engaged in providing flexible technology-based processing
solutions to the investment industry. From 2005 until its sale in 2007, Mr. Reed
was a director of Lone Star Technologies, Inc., a diversified publicly-owned
company engaged in the manufacture of tubular products.
Mr. Reed
has accounting and financial acumen, with particular knowledge of financial
reporting and taxation, has been determined to be an “audit committee financial
expert” under the SEC’s rules and regulations, and has public company board
experience.
JOHN B.
LOWE, JR. has been Chairman of TDIndustries, Inc., a national
mechanical/electrical/plumbing construction and facility service company, since
1981. From January 1981 to January 2005, Mr. Lowe also served as Chief Executive
Officer of TDIndustries. Mr. Lowe is Chairman of the Board of Zale Corporation,
a publicly-owned specialty retailer of fine jewelry, and is a director of KDC
Platform, LLC, engaged in real estate development. Mr. Lowe also serves on the
Board of Trustees of the Dallas Independent School District.
Mr. Lowe
has extensive experience with respect to corporate management and leadership,
management development, strategic planning, compensation and governance matters,
has public and private company board experience, and extensive experience with
social responsibility organizations.
Directors
of the Company serve until the Company’s next annual meeting of stockholders,
and until their successors are elected and qualified. Executive officers serve
at the discretion of the Board of Directors. To the knowledge of the Company, no
executive officer or director is related by blood, marriage or adoption to any
other.
Other
Executive Officers
JOSEPH S.
GIORDANO III, age 41, not a nominee for election as a director, has been Chief
Financial Officer and Treasurer since May 2008. Mr. Giordano was Corporate
Controller and Treasurer from May 2003 to May 2008. From July 1998 to August
2002, Mr. Giordano was a Senior Manager at KPMG LLP, and from August 2002 to
April 2003, Mr. Giordano was a Senior Manager at Deloitte & Touche LLP. Mr.
Giordano is a Certified Public Accountant.
SCOTT T.
MERENESS, age 38, not a nominee for election as a director, has been Executive
Vice President and Chief Operating Officer of Lippert Components, Inc. since
February 2003 and of Kinro, Inc. since February 2010. From 2001 to 2003, Mr.
Mereness was Vice President of Operations of Lippert Components, Inc., and from
1999 to 2001 Mr. Mereness was Regional Vice President for Manufactured Housing
for Lippert Components, Inc. Mr. Mereness was Vice President of Kinro, Inc. from
January 2009 until February 2010.
10
HARVEY F.
MILMAN, age 68, not a nominee for election as a director, has been Vice
President-Chief Legal Officer since March 2005. Prior thereto, Mr. Milman was a
partner of the firm of Phillips Nizer LLP, counsel to the Company. Mr. Milman
has served as Secretary since May 2007, and as Assistant Secretary for more than
five years prior thereto.
CHRISTOPHER
L. SMITH, age 34, not a nominee for election as a director, has been Corporate
Controller since May 2008. Mr. Smith was Assistant Controller from August 2005
to May 2008. From January 2000 to June 2005, Mr. Smith served as Assistant
Controller of Key Components, LLC and from August 1997 to January 2000, Mr.
Smith was a Senior Associate at Ernst & Young LLP. Mr. Smith is a Certified
Public Accountant.
Management
and Board Succession
The
Company has a management succession plan, as required by the NYSE. The plan is
designed to ensure an effective transition of management of our operations to
qualified executives upon the retirement of senior executives.
In
November 2008, in accordance with the management succession plan, Edward W.
Rose, III, Chairman of the Board of Directors since 1984, was appointed Lead
Director; Leigh J. Abrams, President from March 1984 until May 2008, and Chief
Executive Officer from March 1984 until December 31, 2008, and a Director since
1984, was appointed Chairman of the Board of Directors; and Fredric M. Zinn,
Executive Vice President and Chief Financial Officer from 1986 to May 2008, and
President and a Director since May 2008, was, in addition to President,
appointed Chief Executive Officer. Each of these appointments became effective
January 1, 2009.
In
addition, in connection with the retirement, effective December 31, 2008, of
David L. Webster as Chairman, President and Chief Executive Officer of Kinro,
and in accordance with the management succession plan, Jason D. Lippert was
appointed to assume responsibility for the operations of Kinro while continuing
his duties as Chairman, President and Chief Executive Officer of Lippert
Components, and Scott T. Mereness, Chief Operating Officer of Lippert
Components, was appointed Vice President of Kinro while continuing his duties as
Chief Operating Officer of Lippert Components. Mr. Lippert’s appointment as
Chairman, President and Chief Executive Officer of Kinro, and Mr. Mereness’
appointment as Vice President of Kinro, were effective January 1, 2009. In
February 2010, Mr. Mereness was appointed Executive Vice President and Chief
Operating Officer of Kinro.
Effective
May 28, 2008, Joseph S. Giordano III, Corporate Controller and Treasurer of the
Company since 2003, was appointed Chief Financial Officer, and will continue to
serve as Treasurer, and Christopher L. Smith, Assistant Controller of the
Company since 2005, was appointed Corporate Controller.
Statement
Regarding Corporate Governance
The
Company regularly monitors developments in the area of corporate governance,
including the Sarbanes-Oxley Act of 2002 and rules promulgated by the SEC and
the NYSE. The Company complies with all laws and rules applicable to corporate
governance, and has continually implemented “best practices” as the Company
deems appropriate to protect and enhance stockholders’ interests.
Board
of Directors
The Board
is elected annually by the Company’s stockholders, and each director is
nominated for election every year. The Company does not have cumulative voting.
The Board currently consists of two directors who are employed by the Company,
Fredric M. Zinn and Jason D. Lippert; one director, Leigh J. Abrams, who served
as Chief Executive Officer from 1984 to December 2008 and who currently serves
as Chairman of the Board and renders services to the Company; and five
non-employee directors. The non-employee directors are Edward W. Rose, III,
James F. Gero, Frederick B. Hegi, Jr., David A. Reed and John B. Lowe, Jr.
Neither Messrs. Rose, Gero, Hegi, Reed nor Lowe, nor any members of their
immediate families, have any transactions or relationships with the Company or
its subsidiaries. Accordingly, the Board has determined that each of these five
directors meets the “independence” standards of the NYSE.
In making
the determination of independence, the Board applied the following standards, in
addition to other relevant facts and circumstances:
• A
director who is an employee, or whose immediate family member is an executive of
the Company, is not independent until three years after the end of such
employment relationship.
• A
director who receives, or whose immediate family member receives, more than
$120,000 per year in direct compensation from the Company, other than director
and committee fees and pension or other forms of deferred compensation for prior
service (provided such compensation is not contingent in any way on continued
service), generally is not independent until three years after he ceases to
receive more than $120,000 per year in such compensation.
11
• A
director is not independent if (i) the director or an immediate family member is
a current partner of a firm that is the Company’s internal or external auditor,
(ii) the director is a current employee of such a firm, (iii) the director has
an immediate family member who is a current employee of such a firm and who
participates in the firm’s audit, assurance or tax compliance (but not tax
planning) practice, or (iv) the director or an immediate family member was
within the last three years (but is no longer) a partner or employee of such a
firm and personally worked on the Company’s audit within that time.
• A
director who is employed, or whose immediate family member is employed, as an
executive officer of another company where any of the Company’s present
executives serve on that company’s compensation committee is not independent
until three years after the end of such service or the employment
relationship.
• A
director who is an executive officer or an employee, or whose immediate family
member is an executive officer, of another company that makes payments to, or
receives payments from, the Company for property or services in an amount which,
in any single fiscal year, exceeds the greater of $1 million or 2% of such other
company’s consolidated gross revenues, in each case is not independent until
three years after falling below such threshold.
• A
director who is, or whose immediate family member is, an officer, director or
trustee of a not-for-profit organization that received contributions from the
Company during the organization’s most recent fiscal year equal to or greater
than the lesser of $50,000 and 1% of the organization’s total annual donations
is not independent.
The
independent directors have complete access to, and are encouraged to communicate
with, the Company’s Chief Executive Officer and any other executives of the
Company. During the year ended December 31, 2009, the Board of Directors held 6
meetings. All directors attended at least 75 percent of the regularly scheduled
and special meetings of the Board and the Board committees on which they served,
except that due to illness, Edward W. Rose, III was unable to attend three of an
aggregate of ten meetings of the Board and Committee on which he
serves.
Board
members are expected to attend the Company’s annual meetings. At the Company’s
2009 annual meeting, all members of the Board, each of whom were nominees for
re-election, were present. It is anticipated that all Board members who are
standing for re-election will be present at the 2010 annual
meeting.
Leadership
Structure
The Company has continuously maintained
separate positions for Chairman of the Board and for Chief Executive Officer in
order to provide an independent and unbiased level of review and oversight of
senior management. Leigh J. Abrams serves as Chairman of the Board and Fredric
M. Zinn is Chief Executive Officer.
Lead
Director
The Board
of Directors has elected a non-management director to serve in a lead capacity
(Lead Director) to coordinate the activities of the other non-management
directors, and to perform any other duties and responsibilities that the Board
of Directors may determine. While the Board will elect a Lead Director annually,
it is generally expected that he or she will serve for more than one year.
Edward W. Rose, III is expected to be elected to continue to serve as Lead
Director effective May 19, 2010.
The role
of the Lead Director includes:
|
|
·
|
presiding
at executive sessions, with the authority to call meetings of the
independent directors;
|
|
|
·
|
functioning
as principal liaison on Board-wide issues between the independent
directors and both the Chairman and the
CEO;
|
|
|
·
|
assuring
that there is sufficient time for discussion of all items on Board meeting
agendas;
|
|
|
·
|
recommending
to the Chairman the retention of outside advisors and consultants who
report directly to the Board of Directors;
and
|
|
|
·
|
being
available for direct communication from
stockholders.
|
Executive
Sessions
The
independent directors meet regularly in executive sessions without management.
An executive session is held in conjunction with each regularly scheduled Board
meeting and is led by the Lead Director. Additional executive sessions may be
called by the Lead Director in his discretion or at the request of the
Board.
12
Risk
Management Oversight
The Company faces a number of material
risks, including financial and operational risks. Accordingly, the Company
conducts regular enterprise risk management reviews to identify and assess these
risks, and to implement effective plans to manage them. Although the entire
Board of Directors is directly involved with risk management functions, the
Audit Committee plays a key role. The Company’s Chief Executive Officer and
Chief Financial Officer meet regularly with the Audit Committee to discuss risks
facing the Company, the status and effectiveness of plans implemented to manage
such risks, and new risks as they arise. The Audit Committee regularly reports
to the entire Board to apprise the Directors of Management’s efforts in regard
to risk management.
Contacting
the Board of Directors.
Any
stockholder, or other interested party, who wishes to communicate with the Board
of Directors, or the Lead Director, or our independent directors as a group, or
any member of the Board, may do so electronically by sending an e-mail to drew@drewindustries.com
or by writing to any director c/o Drew Industries Incorporated, 200 Mamaroneck
Avenue, White Plains, N.Y. 10601. Communications received electronically or in
writing will be distributed to the Chairman, Lead Director or the other members
of the Board, as appropriate, depending on the facts and circumstances described
in communications received. For example, communications regarding accounting,
internal accounting, internal accounting controls and auditing matters generally
will be forwarded to the Chairman of the Audit Committee.
Board
Committees
The
Company has three standing committees of the Board of Directors: the Audit
Committee, the Corporate Governance and Nominating Committee, and the
Compensation Committee. All members of each Committee are non-employee directors
who meet the independence and experience standards of the NYSE. The Board
annually selects the directors who serve on the Committees. Each Committee
functions pursuant to a written Charter and written Key Practices adopted by the
Board of Directors.
The
Company’s Governance Principles, as well as the Charters and Key Practices of
the Audit Committee, the Corporate Governance and Nominating Committee, and the
Compensation Committee, in addition to the Company’s Guidelines for Business
Conduct and Code of Ethics for Senior Financial Officers, can be accessed on the
Company’s website at www.drewindustries.com.
A copy of any corporate governance document will be furnished, without charge,
upon written request to Secretary, Drew Industries Incorporated, 200 Mamaroneck
Avenue, White Plains, N.Y. 10601. Information on our website is not incorporated
by reference into this Proxy Statement.
-
Audit Committee
The
purpose of the Audit Committee of the Board of Directors is to assist the Board
in its oversight of (i) the conduct and integrity of the Company’s financial
reporting; (ii) the Company’s compliance with legal and regulatory requirements;
(iii) the independence, qualifications and performance of the Company’s
independent auditor; (iv) oversight of risk management; and (v) the performance
of the Company’s systems of internal control over financial reporting and
disclosure controls and procedures, and the Company’s internal audit function.
The Committee also prepares an annual report for inclusion in the Company’s
Proxy Statement. The Committee recommends to the Board of Directors, subject to
stockholder ratification, the selection of the Company’s independent
auditor.
The Audit
Committee of the Board of Directors currently consists of David A. Reed, James
F. Gero, Frederick B. Hegi, Jr. and John B. Lowe, Jr. Mr. Reed serves as
Chairman of the Committee and has been determined by the Board of Directors to
be an “audit committee financial expert” as defined by the SEC. This Committee
held 8 meetings during the year ended December 31, 2009.
-
Corporate Governance and Nominating Committee
The
purpose of the Corporate Governance and Nominating Committee of the Board of
Directors is to assist the Board in (i) identifying qualified individuals to
become Board members; (ii) determining the composition of the Board of Directors
and its Committees; (iii) monitoring a process to assess Board effectiveness;
(iv) developing and implementing the Company’s corporate governance principles;
(v) evaluating potential candidates for executive positions; (vi) overseeing the
development of executive succession plans; and (vii) coordinating with the
Compensation Committee with respect to compensation of directors.
The
Corporate Governance and Nominating Committee currently consists of Frederick B.
Hegi, Jr., James F. Gero, David A. Reed and John B. Lowe, Jr. Mr. Hegi serves as
Chairman of the Committee. This Committee held 2 meetings during the year ended
December 31, 2009.
The
Corporate Governance and Nominating Committee considers candidates for Board
membership suggested by members of the Committee and other Board members, as
well as by Management and stockholders. In this connection, the Committee
considers the composition of the Board with respect to experience, balance of
professional interests, required expertise and other factors. The Committee uses
the same criteria for evaluating candidates nominated by stockholders as it does
for those proposed by Board members or management. To be considered for
membership on the Board, a candidate must meet the following criteria, which are
also set forth in the Company’s Governance Principles: (a) should possess the
highest personal and professional ethics, integrity and values, and be committed
to representing the long-term interests of the stockholders; (b) should have an
inquisitive and objective perspective, practical wisdom and mature judgment; (c)
must be willing to devote sufficient time to carry out his or her duties and
responsibilities effectively; (d) should be committed to serving on the Board
for an extended period of time; (e) should be prepared to resign in the event of
any significant change in his or her personal circumstances which may impair his
or her ability to effectively serve on the Board; (f) directors who also serve
as CEOs or in equivalent positions should not serve on more than two Boards of
public companies in addition to the Company’s Board; and (g) directors who are
not CEOs or equivalent should not serve on more than four Boards of public
companies in addition to the Company’s Board.
13
The Committee seeks candidates who
have demonstrated exceptional ability and judgment and who can be most
effective, in conjunction with other Directors, to collectively serve the
long-term interests of our stockholders. The particular experience,
qualifications and skills of each nominee described on pages 9 and 10 of this
Proxy Statement reflect that our Board, taken as a whole, provides a broad
diversity of knowledge of our Company and industry, expertise in finance and
investment, competence in accounting and financial reporting, and leadership in
business and with socially-responsible organizations.
The
Corporate Governance and Nominating Committee met in March 2010 to recommend to
the Board each of the nominees for election as directors as set forth herein.
Stockholders may recommend a prospective nominee for consideration by the
Corporate Governance and Nominating Committee by sending the candidate’s name
and qualifications, in writing, to Secretary, Drew Industries Incorporated, 200
Mamaroneck Avenue, White Plains, N.Y. 10601. Recommendations must be received by
February 16, 2011 in order for a candidate to be considered for election at the
2011 annual meeting.
-
Compensation Committee
The
purpose of the Compensation Committee of the Board of Directors is: (i) to
assist the Board in discharging its responsibilities in respect of compensation
of the Company’s executive officers; and (ii) to prepare an annual report on
executive compensation and a Compensation Discussion and Analysis for inclusion
in the Company’s Proxy Statement.
The
Compensation Committee currently consists of James F. Gero, Edward W. Rose, III,
Frederick B. Hegi, Jr., David A. Reed, and John B. Lowe, Jr. Mr. Gero serves as
Chairman of the Committee. This Committee held 4 meetings during the year ended
December 31, 2009.
The
Compensation Committee is responsible for reviewing the performance and
development of the Company’s management in achieving corporate goals, and to
ensure that the Company’s senior executives are compensated consistent with the
long-term objectives of the Company as well as competitive practices. This
Committee provides oversight and guidance in the development of compensation and
benefit programs for senior executives of the Company, negotiates the
compensation terms for the Company’s Chief Executive Officer, administers the
Company’s 2002 Equity Award and Incentive Plan, approves equity awards, and
coordinates with the Corporate Governance and Nominating Committee with respect
to compensation of directors. The Compensation Committee ratified the
compensation, consisting of salary, incentive bonus, discretionary bonus, equity
awards and benefits paid in 2009 to the “named executive officers”, and to the
two executive officers of the Company who are not named executive officers. See
“Compensation Discussion and Analysis”.
Stock
Options and Deferred Stock Units
It has
been, and will continue to be, the Company’s policy to obtain stockholder
approval for any equity-based compensation plans for directors, officers and
employees. The Company’s existing equity-based compensation plan was approved by
stockholders in May 2002. See “Equity Award and Incentive Plan”.
Employees
and Directors Guidelines for Business Conduct
The
Company has Guidelines for Business Conduct which all management employees and
directors are required to annually sign and to follow in conducting the
Company’s business, and a Code of Ethics for Senior Financial Officers governing
the conduct of its Chief Executive Officer, the chief executive officer of its
subsidiaries, and the financial officers of the Company and its subsidiaries.
The Company has established a method, included in its Guidelines for Business
Conduct, by which employees can make anonymous and confidential reports about
the Company’s accounting practices, internal controls, auditing matters, or any
other concerns they may have.
Disclosure
Committee
The
Company has a Disclosure Committee, which holds regular quarterly meetings,
comprised of executive, financial, operating and legal management personnel. The
function of the Disclosure Committee is to develop and implement disclosure
controls and procedures intended to ensure that information required to be
disclosed by the Company in public reports is made available to Management and
reported within the specified time periods. Each quarter, the Company’s key
management personnel are required to certify in writing whether or not any
matters arose that should be considered for disclosure.
14
|
REPORT
OF THE AUDIT COMMITTEE
|
The Audit
Committee of the Board of Directors currently consists of David A. Reed, James
F. Gero, Frederick B. Hegi, Jr., and John B. Lowe, Jr. (the “Committee”). Mr.
Reed serves as Chairman of the Committee and has been determined by the Board of
Directors to be an “audit committee financial expert” as defined by the SEC. The
Committee is responsible for providing independent, objective oversight of the
Company’s accounting functions and internal controls.
Management
is responsible for the Company’s internal controls and the financial reporting
process. KPMG LLP, the Company’s independent registered public accounting firm,
is responsible for performing an audit of the Company’s consolidated financial
statements in accordance with the standards of the Public Company Accounting
Oversight Board, and to issue a report thereon. KPMG LLP is also responsible for
issuing a report on the effectiveness of the Company’s internal control over
financial reporting. As set forth in its Charter, the Committee acts only in an
oversight capacity and relies on the work and assurances of management as well
as KPMG LLP and other advisors retained by the Company.
The
Committee has met and held discussions with management and KPMG LLP. Management
represented to the Committee that the Company’s consolidated financial
statements were prepared in accordance with accounting principles generally
accepted in the United States of America, and the Committee has reviewed and
discussed with management their assessment of the effectiveness of the Company’s
internal controls over financial reporting. The Committee reviewed and discussed
with KPMG LLP the consolidated financial statements, and KPMG LLP’s evaluation
of the Company’s internal controls over financial reporting. The Committee also
discussed with KPMG the matters required to be discussed by Statement on
Auditing Standards No. 61 (Communication with Audit Committees) as
amended.
The
Committee has received the written disclosures and the letter from KPMG LLP
required by applicable requirements of the Public Company Accounting Oversight
Board regarding the independent auditor’s communications with the Committee
concerning independence, and has discussed with KPMG LLP their
independence.
The
Committee considered whether non-audit services provided by KPMG LLP are
compatible with maintaining their independence. The Committee concluded that
non-audit services provided by KPMG LLP during the year ended December 31, 2009,
which consisted of tax planning and compliance, and other accounting and
audit-related services, were compatible with KPMG LLP’s
independence.
Based on
the Committee’s discussion with management and KPMG LLP and the Committee’s
review of the representations of management and the report of KPMG LLP to the
Committee, the Committee recommended that the Board of Directors include the
audited consolidated financial statements in the Company’s Annual Report on Form
10-K for the year ended December 31, 2009 filed with the SEC.
|
AUDIT
COMMITTEE
David
A. Reed, Chairman
James
F. Gero
Frederick
B. Hegi, Jr.
John
B. Lowe, Jr.
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The
foregoing report of the Audit Committee shall not be deemed to be “soliciting
material” or to be “filed” with the SEC nor shall this information be
incorporated by reference into any future filing under the Securities Act of
1933 or the Securities Exchange Act of 1934, each as amended, except to the
extent that the Company specifically incorporates it by reference into a
filing.
15
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COMPENSATION
DISCUSSION AND ANALYSIS
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Compensation
Overview
Our
executive compensation policy is designed to enable the Company to attract,
motivate and retain highly-qualified senior executives (the “named executive
officers”) by providing a competitive compensation opportunity based
significantly on performance. Our intent is to provide fair and equitable
compensation in a way that rewards executives for achieving specified financial
goals. Our performance-related awards are structured to link a significant
portion of our executives’ total potential compensation to the Company’s
performance on both a long-term and short-term basis, to recognize individual
contribution, as well as overall business results, and to align executive and
stockholder interests.
What
We Reward
We seek
to motivate key executives by rewarding individual performance primarily with
incentive compensation designed to attract and retain executives capable of
superior performance.
Our
compensation policy has demonstrated over time that sound business decisions by
our executives which are in the best interests of the Company are also in the
best interests of our stockholders, and ultimately in the best interests of our
executives as well. Accordingly, we reward performance in excess of
pre-established targets of earnings and return on assets, and we avoid
establishing goals that could divert our executives’ attention from the
fundamentals of effective and efficient operations.
The
pay-for-performance compensation program applicable to our principal executive
officer and our other three highest compensated executive officers who are
intended to receive performance-based incentive compensation rewards, in part,
results which out-perform the industries we serve, and for our CEO, results
which also out-perform a designated group of peer companies, in both favorable
and unfavorable business conditions.
The
following table outlines our compensation criteria and practices, and the
reasons for our compensation decisions:
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Our compensation
criteria and practices
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Reasons for our
compensation decisions
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|
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The
Company’s performance compared to performance of the two industries to
which we sell our products.
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Rewards
superior performance in achieving profitability in excess of expectation
based on business conditions in the industries we
serve.
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|
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The
Company’s performance measured by current-year earnings compared to
prior-year earnings.
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Rewards
increases in earnings, which benefits the Company and its stockholders.
Impacts thresholds for future earnings targets which incentivizes
executives to invest in opportunities for long-term
growth.
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Pre-established
earnings target for each year in a three-year measurement period in excess
of results anticipated to be achieved for the first year.
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Provides
goal for substantial improvement in annual earnings.
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The
Company’s performance measured by return on assets relative to a
pre-established target.
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Rewards
effective asset utilization to increase cash available principally for
investment in expansion opportunities, and also reduce risk to asset
value.
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The
Company’s performance measured by long-term return on invested capital
relative to a designated peer group.
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Incentive
for effective long-term strategic planning, and long-term management of
assets.
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Portion
of executives’ incentive compensation payable in long-term deferred stock
units (“DSUs”).
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Increases
long-term equity ownership to align executive and stockholder
interests.
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Portion
of CEO’s incentive compensation payable in DSUs which are subject to
forfeiture.
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CEO
is responsible for achieving long-term goals and establishing strategic
direction, and is penalized if goals are not achieved.
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Awards
of non-qualified stock options (“NSOs”) that vest over five
years.
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Ensures
that executives have a continuing personal interest in the success of the
Company, and creates a culture of
ownership.
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16
What
We Do Not Reward
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•
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We
do not reward sales growth because we believe that growth in sales alone,
without consideration of the impact of growth on both short-term and
long-term earnings, could be achieved in a manner that does not benefit
our business and operations.
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|
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•
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We
do not grant bonuses for increases in the price of our stock because we
believe that stock price is frequently the result of market factors beyond
executives’ control.
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|
|
•
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We
exclude the pre-existing earnings of acquired companies at the date of
acquisition from the calculation of the incentive awards paid to our
executives by increasing the threshold level of base earnings that are not
subject to incentive awards for such
executives.
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|
|
•
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We
do not directly link the compensation of our Chief Financial Officer to
earnings levels because we believe our financial executive should be
totally objective in recording and reporting our financial
information.
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Elements
of Compensation
The
principal components of our executive compensation program are base salary,
performance-based incentive compensation and discretionary bonuses, equity-based
awards consisting principally of NSOs and DSUs, and other personal benefits.
While the components of compensation are considered separately in this
discussion, we take into account the full compensation package provided to each
of the named executive officers.
Base
Salaries
Based on
their business experience, the Compensation Committee established levels of base
salary for our senior executives appropriate for their level of
responsibility.
Incentive
Compensation
Consistent
with our emphasis on pay-for-performance compensation programs, in 2002, our
Board of Directors adopted, and our stockholders approved, the Drew Industries
Incorporated 2002 Equity Award and Incentive Plan (as amended, the “2002 Plan”).
The 2002 Plan authorizes the granting of performance-based awards in cash or
stock, based on pre-established performance criteria. The 2002 Plan is
structured so that our performance-based incentive compensation qualifies for
tax treatment that is favorable to us. See Proposal 2 regarding stockholder
reapproval of the performance criteria.
Discretionary
Bonus
Our Chief
Financial Officer receives a discretionary bonus based primarily on the
execution of his specific responsibilities. We believe it is not appropriate to
provide incentive compensation to our financial executives based on reported
levels of earnings.
Long-Term
Non-Qualified Stock Options
The NSOs
granted to our employees begin to vest one year after they are granted, at the
rate of one-fifth at the end of each year. The Company grants options every year
at our regular Board and Committee meetings in November, at an exercise price
equivalent to the closing market price on the day before the grant. Our regular
November meeting date is scheduled almost a year in advance. Accordingly, the
granting of options, as well as the exercise price of the options, are
determined independent of any general market conditions at that time or
intervening Company events which could affect the market price of our stock on
that date. The 2002 Plan does not permit re-pricing of our stock options or
cancelling outstanding options and replacing them with new options.
Because
all NSOs which are granted under the 2002 Plan are granted at market value of
the Common Stock, any value which is ultimately realized by the named executive
officers through the exercise of NSOs is based entirely on our performance, as
perceived by investors in our stock who establish the price for the stock on the
open market. To enhance the retention value of our executives, the Compensation
Committee requires that certain of the named executive officers hold for at
least one year stock received upon exercise of vested stock options, unless the
executive already owns a number of shares at least equivalent to the shares to
be sold by the executive on exercise of options.
Four of
the five current named executive officers have been with the Company
substantially their entire professional lives. We do not consider as a limiting
factor the level of their equity ownership or the unvested portion of prior
awards in granting NSOs. On the contrary, we believe that the greater the extent
of their equity interest in the Company, the more closely aligned their personal
interests become with the interests of our stockholders.
17
Long-Term
Deferred Stock Units
To
encourage our executives’ long-term ownership of the Common Stock of the
Company, the 2002 Plan provides for the award of DSUs in lieu of cash
compensation. The number of stock units is credited at the fair market value of
the stock on the date awarded. The DSUs provide for the distribution of shares
of our Common Stock at the end of a specified deferral period, generally at
least three years, subject to earlier distribution upon death, disability, or
certain changes of control of the Company. Until shares representing the
deferred stock are distributed, the executive does not have any rights of a
stockholder of the Company with respect to such shares, other than to receive
dividends in DSUs if dividends are issued to stockholders.
Other
Compensation Programs
In order
to be competitive with market employment and compensation practices, we maintain
the following benefit programs:
-
Retirement Plan
Discretionary
401(k) plan, covering all eligible employees, pursuant to which the Company
matched a portion of contributions up to the 2009 statutory maximum of $9,800
per employee. The aggregate amount of the Company’s contributions with respect
to the five named executive officers was $49,000 for 2009. We do not maintain
any defined benefits retirement plans or other pension or profit-sharing plans.
Although our 401(k) plan permits profit-sharing contributions, the Company has
not made any such contributions to the plan.
-
Supplemental Restricted Bonus
Each of
the named executive officers received a pre-determined taxable bonus payment,
the after-tax proceeds of which are required to be invested by the executive in
tax deferred annuities or cash value life insurance intended to provide
retirement income. The aggregate amount of these bonuses paid to the named
executive officers for 2009 was $134,600, and no individual bonus exceeded
$40,000. These bonuses are not based on pre-established specified measures of
corporate performance, but are intended as a partial substitute for pension or
retirement plans which the Company does not maintain.
-
Deferred Compensation Plan
The
Company maintains an Executive Non-Qualified Deferred Compensation Plan (“Plan”)
for certain executives. The Company does not make any contributions to the Plan
but is responsible for certain costs of Plan administration, which are not
significant. Pursuant to the Plan, the named executive officers are eligible to
defer all or a portion of their earned base salary and incentive compensation.
Each participant is fully vested in all deferred compensation and earnings on
investments credited to his or her account because the Plan participant has made
all the contributions. Pursuant to the Plan, payments to the participants will
be made from our general unrestricted assets, and the obligations pursuant to
the Plan are unfunded and unsecured.
Perquisites
and All Other Benefits
We
provide health insurance to the named executive officers, the aggregate cost of
which was $80,495 for 2009. We also provide other employee benefits in which the
named executive officers participate, including life, disability, and long-term
care insurance, and either an automobile together with related expenses or an
automobile allowance. The aggregate amount of these perquisites for all the
named executive officers for 2009 was $100,354, and for any individual recipient
these perquisites did not exceed $42,049.
We do not
provide or reimburse our executives for personal use of an airplane, or for
financial planning, tax preparation, or home security.
Post-Retirement
Benefits
The
Company does not maintain any structured post-retirement benefit plans, does not
assume any specific obligation or liability for post-retirement benefits, and
has made no representations to current or former executive officers, except for
the arrangements described below, with respect to the amount or nature of any
post-retirement benefits. In the past, the Company has granted limited
post-retirement compensation to certain retiring senior executives, in part for
consulting services to facilitate executive transitions, and has provided
limited post-retirement medical benefits, in each case on an individual basis
depending on the executive’s circumstances at the time of retirement. In this
connection, the Company expects to record an aggregate annual expense of
approximately $100,000 per annum with respect to these non-structured benefits
for all senior executives.
We have a
management succession plan, as required by the NYSE. The plan is designed to
ensure an effective transition of management of our operations to qualified
executives upon the retirement of senior executives.
Effective
January 1, 2009, in accordance with the management succession plan, Leigh J.
Abrams, Chief Executive Officer from 1984 until December 31, 2008, President
from 1984 to May 2008, and a Director since 1984, was appointed Chairman of the
Board of Directors, and Fredric M. Zinn was appointed Chief Executive Officer.
See Proposal 1. “Election of Directors – Management and Board Succession”.
In this connection, we entered into an Executive Compensation and Benefits
Agreement with Mr. Abrams, effective as of January 1, 2009 (the “Abrams
Agreement”). Under the Abrams Agreement, we granted retirement compensation and
benefits to Mr. Abrams for the period January 1, 2009 through March 31, 2011 in
the amount of $1.4 million, to be paid as described below in recognition of his
40-year commitment to our success, the Company’s performance during his 25-year
tenure as President and Chief Executive Officer, and the overall increase in
stockholder value during that period. In addition, as Chairman of the Board, Mr.
Abrams continues to render services to the Company, for which he is compensated
in accordance with the Abrams Agreement, and he has agreed to non-competition
restrictions on his future business activities.
18
Pursuant
to the Abrams Agreement, for 2009 Mr. Abrams received (a) base salary of
$400,000, plus (b) with respect to our 2009 results of operations, incentive
compensation equal to 85% of the amount (the “Formula Payment”) that would have
been paid to Mr. Abrams by applying the incentive compensation formula in effect
for him for 2008, subject to adjustment consistent with prior years for
acquisitions consummated since January 1, 2008. Based on this formula, for 2009,
Mr. Abrams did not receive incentive compensation. For 2010, and on a
pro-rata basis for the first quarter of 2011, Mr. Abrams will receive (a) base
salary of $400,000, plus (b) with respect to our 2010 and first-quarter 2011
results of operations on a pro-rata basis, incentive compensation equal to 75%
of the Formula Payment, subject to adjustment consistent with prior years for
acquisitions consummated since January 1, 2008. Commencing April 1, 2011, and
continuing for the period during which Mr. Abrams serves as Chairman of the
Board, Mr. Abrams will receive compensation as Chairman of the Board of
Directors, consistent with our past practices, and long-term NSOs as the
Compensation Committee determines. For 2009, Mr. Abrams received, and for each
of calendar years 2010 through 2013, Mr. Abrams will receive, personal benefits
in substantially the same nature and amount as provided to him during his tenure
as President and CEO, which we estimate cost approximately $100,000
annually.
Unexercised
NSOs owned by Mr. Abrams are shown in the table entitled “Outstanding Equity
Awards at Fiscal Year End”. NSOs to purchase 11,400 shares of Common Stock at
$20.99 per share were granted to Mr. Abrams in November 2009.
In addition, in accordance with the
management succession plan, and in connection with the retirement, effective
December 31, 2008, of David L. Webster as Chairman, President and Chief
Executive Officer of Kinro, we entered into an Executive Compensation and
Benefits Agreement with Mr. Webster, effective as of January 1, 2009 (the
“Webster Agreement”). We granted retirement compensation and benefits to Mr.
Webster in recognition of his contribution to our business, growth, and
reputation during a 28-year period. In addition, Mr. Webster has agreed to
non-competition restrictions on his future business activities.
Pursuant to the Webster Agreement, for
2009, Mr. Webster received, and for 2010 Mr. Webster will receive: (i) annual
compensation of $750,000; plus (ii) personal benefits in substantially the same
nature and amount as provided to Mr. Webster during his tenure as President and
CEO of Kinro, which we estimate will cost approximately $50,000 for
2010.
Change-in-Control
In 2003,
we entered into a “double-trigger” change-in-control severance agreement with
Fredric M. Zinn, our President and Chief Executive Officer, who has been with
the Company for 28 years. In 2006, we entered into a “double-trigger”
change-in-control severance agreement with Joseph S. Giordano III, our Chief
Financial Officer and Treasurer.
The
change-in-control benefits offer some protection for these executives in the
event the Company is acquired or otherwise undergoes a change in control, and we
believe would also encourage their effective assistance with change-in-control
transactions that could be in the best interest of stockholders. The specific
change-in-control provisions applicable to Messrs. Zinn and Giordano are
summarized in “Potential Payments on Termination or Change in
Control”.
Stock
Ownership Requirements
To
further align the personal interests of senior executives with the interests of
our stockholders, we have established guidelines for ownership of the Company’s
stock by certain named executive officers, as a multiple of the executive’s cash
salary. Under our current guidelines of stock ownership, Fredric M. Zinn, our
Chief Executive Officer, is required to own Company stock, which includes DSUs,
equal in value to 3.5 times his cash salary, equivalent to $1,575,000. Jason D.
Lippert, the Chief Executive Officer of our two operating subsidiaries, is
required to own Company stock equal in value to 2.5 times his cash salary,
equivalent to $1,750,000. As of December 31, 2009, Messrs. Zinn and Lippert were
in compliance with the guidelines.
Scott T.
Mereness, Chief Operating Officer of our two operating subsidiaries, is required
to own Company stock equal in value to 2 times his cash salary, equivalent to
$720,000. Joseph S. Giordano III, our Chief Financial Officer, is required to
own Company stock equal in value to 1.25 times his cash salary, equivalent to
$262,500. Messrs. Mereness and Giordano did not own sufficient stock to comply
with the guidelines as of December 31, 2009, but in accordance with the
guidelines will have until December 31, 2012 to comply. A portion of Mr.
Mereness’ salary and incentive compensation is required to be paid in DSUs, and
Mr. Giordano received a portion of his discretionary bonuses for 2008 and 2009
in DSUs.
Our
senior executives are prohibited from pledging shares of the Company’s stock
held by them, and from selling the Company’s stock short. Although no shares of
the Company’s stock owned by senior executives have been pledged as collateral
for loans, certain of our senior executives maintain their shares in broker
accounts, the terms of which may subject such shares, as well as other shares in
the account, to a lien in favor of the broker under certain
circumstances.
19
Tax
Deductibility of Compensation
Section
162(m) of the Internal Revenue Code disallows a Federal income tax deduction to
publicly-held companies for certain compensation paid to certain of their
executive officers, to the extent that compensation exceeds $1 million per
covered officer in any fiscal year. This limitation applies only to compensation
which is not considered performance-based under the Section 162(m) rules. Our
2002 Equity Award and Incentive Plan is structured so that compensation deemed
paid in connection with performance-based incentive compensation, whether paid
in cash or DSUs, or the exercise of NSOs granted under the 2002 Plan will
qualify as performance-based compensation which will not be subject to the $1
million limitation, resulting in favorable tax treatment to the Company. See
Proposal 2 regarding stockholder reapproval of the applicable performance
criteria.
2009
Executive Performance and Compensation
The
pay-for-performance compensation policy we applied in establishing the
compensation for four named executive officers for 2009 who are intended to
receive incentive compensation was intended to provide competitive compensation
that reflects overall results of operations and recognizes individual
contribution.
Commencing
in 2009, we instituted new individual performance objectives for our CEO and for
the CEO and COO of Lippert Components and Kinro, three of the named executive
officers who are intended to receive performance-based incentive compensation.
Incentive compensation formulas were tested before being adopted to help ensure
that the compensation outcomes resulting from various levels of performance of
our operations and the industries we serve would be appropriate under the
circumstances.
Chief
Executive Officer
The 2009
base salary paid to Fredric M. Zinn, our President and Chief Executive Officer,
was $500,000, payable $450,000 in cash and $50,000 in DSUs. Mr. Zinn also
received Incentive DSUs representing shares equivalent in value to $200,000,
subject to forfeiture based on the Company’s average return on invested capital
(“ROIC”) relative to the average ROIC of a designated peer group of companies
for the period 2009–2011.
In
addition, Mr. Zinn receives performance-based incentive compensation (the
“Profit Bonus”) that is specifically linked to our earnings per share (“EPS”).
This component of Mr. Zinn’s incentive compensation is calculated annually based
on our performance (i) compared to a multiple of the year-to-year percentage
increase or decrease in the RV and manufactured housing industries, measured by
an index of RV industry wholesale shipments as reported by the Recreational
Vehicle Industry Association, and to annual industry wholesale shipments of
manufactured homes as reported by the Institute for Building Technology, but not
in excess of 0.6% of pre-tax income, (ii) compared to prior year EPS, and (iii)
compared to a pre-established level of EPS. Mr. Zinn will benefit if we
out-perform our industries, and will be penalized if we under-perform our
industries. In accordance with his employment agreement, the total Profit Bonus
payable to Mr. Zinn is limited to a maximum of 5% of the Company’s pre-tax
income.
Based on
these pre-established performance targets, for 2009 Mr. Zinn received incentive
compensation of $34,680, solely because the Company out-performed the industries
we serve, primarily as a result of market share gains, new product
introductions, cost reductions and efficiency improvements.
For 2009,
DSUs were granted in lieu of cash compensation to Mr. Zinn, representing 18,246
shares having a value of $250,000 on the dates of grant, or 34% of his total
2009 salary and incentive compensation, of which 14,595 DSUs are subject to
forfeiture. Mr. Zinn is also entitled to receive 1,000 DSUs for each 0.1% that
the Company’s average ROIC for the three-year period is above the average ROIC
of the Company’s peer group, but not in excess of 100,000 DSUs. If the Company’s
average ROIC for the three-year period is below the peer group, DSUs issued to
Mr. Zinn during the period are forfeitable at the rate of 1,000 DSUs for each
0.1% that the Company’s average ROIC is below the peer group’s average ROIC for
the period.
The peer
group with which our performance is compared regarding return on invested
capital over the three-year measurement period consists of the following
companies in the RV and manufactured housing industries, as well as companies of
comparable size in similar industries (“Peer Group”): American Woodmark
Corporation, Apogee Enterprises, Inc., Champion Enterprises, Inc., Gentex
Corporation, Griffon Corporation, Noble International, Ltd., Patrick Industries,
Inc., PGT, Inc., Shiloh Industries Corporation, Spartan Motors, Inc. and
Winnebago Industries, Inc.
Other
compensation, including perquisites and other benefits, received by Mr. Zinn for
2009 in the aggregate amount of $76,449 are shown in the column entitled “All
Other Compensation” in the Summary Compensation Table. Unexercised NSOs owned by
Mr. Zinn are shown in the table entitled “Outstanding Equity Awards at Fiscal
Year End”. NSOs to purchase 16,000 shares of Common Stock at $20.99 per share
were granted to Mr. Zinn in November 2009.
20
Executive
Officers of our Subsidiaries
The 2009
base salary paid to Jason D. Lippert, Chief Executive Officer of Lippert
Components and Kinro, was $700,000, payable in cash. The 2009 base salary paid
to Scott T. Mereness, Executive Vice President and Chief Operating Officer of
Lippert Components and Kinro, was $420,000, payable $360,000 in cash and $60,000
in DSUs.
Messrs.
Lippert and Mereness also receive performance-based incentive compensation based
on combined operating profits of Lippert Components and Kinro in excess of
pre-established thresholds, and performance-based incentive compensation linked
to the year-to-year percentage increase or decrease in such operating profits as
compared to a multiple of the year-to-year percentage increase or decrease in
the RV industry wholesale shipments and manufactured housing industry wholesale
shipments. In addition, these executives receive performance-based incentive
compensation based on the combined annual return on assets achieved by Lippert
Components and Kinro in excess of a pre-established target. Approximately 20% of
such operating profits is allocated for payment of bonuses to all employees of
these operations, and the incentive awards paid to Messrs. Lippert and Mereness
are paid from such “bonus pool”.
In
accordance with their employment agreements, the total performance-based
incentive compensation is limited to a maximum of 8% of operating profits for
Mr. Lippert and 4.8% for Mr. Mereness. A portion of the total performance-based
incentive compensation payable to Messrs. Lippert and Mereness in excess of
agreed amounts is payable in DSUs, and the balance is payable in
cash.
Based on
these pre-established performance targets, for 2009 Mr. Lippert received
incentive compensation of $244,569, and Mr. Mereness received incentive
compensation of $146,741 (of which $15,580 was paid in DSUs), solely because on
a combined basis Lippert Components and Kinro out-performed the industries we
serve, primarily as a result of market share gains, new product introductions,
cost reductions and efficiency improvements.
The total
DSUs received by Mr. Mereness for 2009, having an aggregate value of $75,580 on
the dates of grant, or 13% of his total 2009 salary and incentive compensation,
represent an aggregate of 5,090 shares of Common Stock to be issued after a
three-year deferral.
Other
compensation, including perquisites and other benefits, received by Messrs.
Lippert and Mereness for 2009 in the aggregate amount of $64,054 and $40,374,
respectively, are shown in the column entitled “All Other Compensation” in the
Summary Compensation Table. Unexercised NSOs owned by Messrs. Lippert and
Mereness are shown in the table entitled “Outstanding Equity Awards at Fiscal
Year End”. NSOs to purchase 16,000 and 12,000 shares of Common Stock at $20.99
per share were granted, respectively, to Mr. Lippert and Mr. Mereness in
November 2009.
See,
“Employment and Compensation Agreements” for a detailed description of the terms
of compensation payable to Messrs. Zinn, Lippert and Mereness commencing in
2009.
Chief
Financial Officer
For 2009,
Joseph S. Giordano III, our Chief Financial Officer and Treasurer, in addition
to base salary of $210,000, received a discretionary bonus of $90,000, payable
$45,000 in cash and $45,000 in DSUs. Mr. Giordano’s bonus is discretionary,
rather than linked to operating results, because we do not believe it is
appropriate to compensate financial executives based on reported levels of
earnings. The DSUs received by Mr. Giordano represented 15% of his total 2009
salary and bonus, and represent an aggregate of 2,055 shares of Common Stock to
be issued after a three-year deferral.
Other
compensation, including perquisites and other benefits, received by Mr. Giordano
for 2009 in the aggregate amount of $82,067 are shown in the column entitled
“All Other Compensation” in the Summary Compensation Table. Unexercised NSOs
owned by Mr. Giordano are shown in the table entitled “Outstanding Equity Awards
at Fiscal Year End”. NSOs to purchase 10,000 shares of Common Stock at $20.99
per share were granted to Mr. Giordano in November 2009.
Compensation
Process
The
Compensation Committee is responsible for reviewing the performance of our
executive officers in achieving our long-term business objectives, and ensuring
that such executives are compensated consistent with the objectives, as well as
competitive practices. The Committee provides oversight and guidance in the
development of compensation and benefit programs for our senior executives, and
confirms that compensation paid to those named executive officers who have
employment agreements is in compliance with the agreements.
Performance
objectives for the Chief Executive Officer and Chief Operating Officer of our
operating subsidiaries, who are intended to receive performance-based incentive
compensation, were developed by Fredric M. Zinn, our Chief Executive Officer, in
conjunction with the Compensation Committee, and Mr. Zinn negotiated the terms
of the employment agreements of those executives. The Compensation Committee
negotiated with Mr. Zinn the compensation terms applicable to him.
21
At the
request of the Compensation Committee, we engaged Frederic W. Cook & Co.,
Inc. (the “Consultant”), an outside executive compensation consultant, to assess
the compensation proposal for Mr. Zinn. The Consultant provides no other
services or advice to the Company or to any executive or employee of the
Company, and has no other business relationship with us. The Consultant reviewed
the competitiveness of the proposed compensation package and the form of
compensation relative to performance measures established for Mr. Zinn. The
Consultant concluded that, while complex in design, overall, the compensation
package for Mr. Zinn provides the key elements of total compensation in the
competitive market, and addresses key performance objectives.
The
Compensation Committee also considered and ratified the recommendation of Mr.
Zinn with respect to the 2009 salary, discretionary bonus, and equity awards for
our Chief Financial Officer. Mr. Zinn has primary responsibility for evaluating
the performance of the Chief Financial Officer based upon the execution of his
duties with respect to financial reporting and internal controls, treasury and
tax functions, our financing arrangements and relationship with lenders,
planning and budgeting, and participation in investor relations. Mr. Zinn
developed a compensation package for the Chief Financial Officer based on this
evaluation, as well as the Chief Financial Officer’s experience and level of
expertise, and to a lesser extent, the Company’s results of
operations.
The
Compensation Committee periodically reviews our compensation policy utilizing
both internal and external sources of information and analysis relating to
financial results of operations, individual performance, long-term return to
stockholders, and compensation afforded by other employers to comparable-level
executives. If appropriate, changes are recommended. Our pay-for-performance
incentive compensation programs have over many years effectively linked
executive compensation to our long-term and short-term performance. Accordingly,
we have not engaged in formal benchmarking of our executive
compensation.
Total
Compensation Report
Compensation
“tally sheets” for each of the named executive officers were reviewed by the
Compensation Committee. The tally sheets reflected dollar amounts of all
components of the named executive officers’ 2009 compensation, including base
salary, performance-based incentive awards, discretionary bonuses, equity
awards, personal benefits, perquisites and, where applicable, potential
change-in-control severance payments. Based on the Compensation Committee’s
review of the tally sheets, the Committee determined that the amounts of
compensation paid to our named executive officers for 2009 were reasonable, and
were appropriate based on our financial results of operations and the individual
performance of each of the executives. The Compensation Committee intends to
review compensation tally sheets on an annual basis.
|
COMPENSATION
COMMITTEE REPORT
|
The
Compensation Committee has reviewed and discussed the Compensation Discussion
and Analysis with Management and based on such discussion, the Compensation
Committee recommended that the Board of Directors include the Compensation
Discussion and Analysis in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2009 filed with the SEC.
|
COMPENSATION
COMMITTEE
James
F. Gero, Chairman
Edward
W. Rose, III
Frederick
B. Hegi, Jr.
David
A. Reed
John
B. Lowe, Jr.
|
The
foregoing Compensation Committee Report shall not be deemed to be “soliciting
material” or to be “filed” with the SEC nor shall this information be
incorporated by reference into any future filing under the Securities Act of
1933 or the Securities Exchange Act of 1934, each as amended, except to the
extent that the Company specifically incorporates it by reference into a
filing.
22
The
following table sets forth the annual compensation awarded to or earned by our
President and Chief Executive Officer, our Chief Financial Officer, and our
three other most highly compensated executive officers (such five executive
officers collectively, the “named executive officers”) for the years ended
December 31, 2009, 2008 and 2007:
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
||||||||||||||||||||||||
|
Name
and
Principal
Position
|
Year
|
Salary
|
Bonus
|
Stock
Awards
|
Option
Awards(1)
|
Non-Equity
Incentive
Plan
Compen-
sation
|
Long-
Term
ROIC
Bonus
|
All
Other
Compen-
sation(9)
|
Total
|
||||||||||||||||||||||||
|
Leigh
J. Abrams
|
2009
|
$ | 400,000 | $ | - | $ | - | $ | 117,456 | $ | - | $ | - | $ | 101,507 | $ | 618,963 | ||||||||||||||||
|
President until May
2008
and
|
2008
|
$ | 400,000 | $ | - | $ | - | $ | 89,857 | $ | 28,855 | $ | - | $ | 102,005 | $ | 620,717 | ||||||||||||||||
|
Chief
Executive Officer until
|
2007
|
$ | 400,000 | $ | - | $ | - | $ | 234,437 | $ | 1,079,415 | $ | - | $ | 97,898 | $ | 1,811,750 | ||||||||||||||||
|
December
31, 2008, Chairman
|
|||||||||||||||||||||||||||||||||
|
since
January 1, 2009
|
|||||||||||||||||||||||||||||||||
|
Fredric
M. Zinn
|
2009
|
$ | 450,000 | (2) | $ | - | $ | 250,000 | (5) | $ | 156,648 | $ | 34,680 | $ | 492,800 | (8) | $ | 76,449 | $ | 1,460,577 | |||||||||||||
|
Executive
Vice President and
|
2008
|
$ | 346,154 | $ | - | $ | 100,000 | (6) | $ | 89,857 | $ | - | $ | - | $ | 79,155 | $ | 615,166 | |||||||||||||||
|
Chief
Financial Officer until
|
2007
|
$ | 285,000 | $ | 275,000 | $ | - | $ | 175,828 | $ | - | $ | - | $ | 79,908 | $ | 815,736 | ||||||||||||||||
|
May
28, 2008, President since
|
|||||||||||||||||||||||||||||||||
|
May
28, 2008 and Chief
|
|||||||||||||||||||||||||||||||||
|
Executive
Officer since
|
|||||||||||||||||||||||||||||||||
|
January
1, 2009
|
|||||||||||||||||||||||||||||||||
|
Jason D. Lippert(3)
|
2009
|
$ | 700,000 | $ | - | $ | - | $ | 156,648 | $ | 244,569 | $ | - | $ | 64,054 | $ | 1,165,271 | ||||||||||||||||
|
Chairman,
President and Chief
|
2008
|
$ | 475,000 | $ | 425,000 | $ | - | $ | 134,786 | $ | 151,000 | $ | - | $ | 68,450 | $ | 1,254,236 | ||||||||||||||||
|
Executive
Officer of Lippert
|
2007
|
$ | 400,000 | $ | - | $ | - | $ | 234,437 | $ | 1,829,000 | $ | - | $ | 74,521 | $ | 2,537,458 | ||||||||||||||||
|
Components
and Kinro
|
|||||||||||||||||||||||||||||||||
|
Scott T.
Mereness(3)
|
2009
|
$ | 360,000 | (4) | $ | - | $ | 75,580 | (7) | $ | 117,486 | $ | 131,161 | $ | - | $ | 40,374 | $ | 724,601 | ||||||||||||||
|
Executive
Vice President and
|
2008
|
$ | 292,200 | $ | 125,000 | $ | 125,000 | (6) | $ | 103,336 | $ | 91,000 | $ | - | $ | 44,664 | $ | 781,200 | |||||||||||||||
|
Chief
Operating Officer of
|
2007
|
$ | 249,600 | $ | 743,900 | $ | - | $ | 234,437 | $ | 353,500 | $ | - | $ | 26,648 | $ | 1,608,085 | ||||||||||||||||
|
Lippert
Components and Kinro
|
|||||||||||||||||||||||||||||||||
|
Joseph
S. Giordano III
|
2009
|
$ | 210,000 | $ | 45,000 | $ | 45,000 | (6) | $ | 97,905 | $ | - | $ | - | $ | 82,067 | $ | 479,972 | |||||||||||||||
|
Chief
Financial Officer and
|
2008
|
$ | 194,558 | $ | 65,000 | $ | 25,000 | (6) | $ | 44,929 | $ | - | $ | - | $ | 83,595 | $ | 413,082 | |||||||||||||||
|
Treasurer
since May 28, 2008,
|
|||||||||||||||||||||||||||||||||
|
Corporate
Controller and
|
|||||||||||||||||||||||||||||||||
|
Treasurer
until May 28, 2008
|
|||||||||||||||||||||||||||||||||
|
(1)
|
Amounts
shown do not reflect compensation actually received. Such amounts reflect
the aggregate fair value of stock options granted during the year. See
Note 1 to the Consolidated Financial Statements included in our applicable
Annual Reports on Form 10-K for the assumptions used in determining the
fair value of each option award based on the Black-Scholes option-pricing
model.
|
|
(2)
|
Excludes
$50,000 of salary, paid $12,500 quarterly in DSUs, which are included in
the Stock Awards column. See Grants of Plan-Based Awards
Table.
|
|
(3)
|
Commencing
October 1, 2008, Messrs. Lippert and Mereness assumed management
responsibility for the operations of Kinro,
in addition to Lippert
Components.
|
|
(4)
|
Excludes
$60,000, paid $15,000 quarterly in DSUs, which are included in the Stock
Awards column. See Grants of Plan-Based Awards
Table.
|
|
(5)
|
Includes
$50,000 of salary, paid $12,500 quarterly in DSUs. Also includes incentive
compensation of $200,000, paid $50,000 quarterly in DSUs (the “Incentive
DSUs”), subject to forfeiture based on the Company’s ROIC for the
three-year Measurement Period if pre-established levels are not achieved.
See “Employment and Compensation Agreements” and Grants of Plan-Based
Awards Table.
|
|
(6)
|
Discretionary
bonus paid in DSUs.
|
|
(7)
|
Includes
$60,000 of salary, paid $15,000 quarterly in DSUs. Also includes incentive
compensation of $15,580 paid in DSUs. See “Employment and Compensation
Agreements” and Grants of Plan-Based Awards
Table.
|
|
(8)
|
Upon
expiration of the three-year period January 1, 2009 through December 31,
2011 (the “Measurement Period”), Mr. Zinn will be entitled to receive
1,000 DSUs for each 0.1% that the Company’s average return on invested
capital (“ROIC”) for the Measurement Period is above the average ROIC of
the Company’s Peer Group (as defined), but the total number of DSUs will
not exceed 100,000 units (the “ROIC Bonus”). Amount shown represents the
three-year estimated aggregate grant date fair value, or 80% of the
maximum award of $616,000, which may be paid pursuant to Mr. Zinn’s
three-year ROIC Bonus. No additional ROIC Bonus will be granted to Mr.
Zinn for the Measurement Period. If the Company’s average ROIC for the
Measurement Period is below the ROIC of the Peer Group, Incentive DSUs
(described in Note 5) granted annually in lieu of cash compensation during
the Measurement Period will be forfeited at the same rate of 1,000 DSUs
for each 0.1% that the Company’s ROIC for the Measurement Period is below
the ROIC of the Company’s Peer Group. See “Employment and Compensation
Agreements” and Grants of Plan-Based Awards
Table.
|
23
|
(9)
|
Includes
the following payments the Company made to or on behalf of our named
executive officers:
|
|
Name
|
Year
|
401(k)
Matching
Contribution
|
Supplemental
Restricted
Bonus(A)
|
Health
Insurance
|
Other
Perquisites(B)
|
Total
All
Other Compensation
|
|||||||||||||||
|
Leigh
J. Abrams
|
2009
|
$ | 9,800 | $ | 30,000 | $ | 34,096 | $ | 27,611 | $ | 101,507 | ||||||||||
|
2008
|
$ | 9,200 | $ | 30,000 | $ | 30,707 | $ | 32,098 | $ | 102,005 | |||||||||||
|
2007
|
$ | 9,000 | $ | 30,000 | $ | 27,027 | $ | 31,871 | $ | 97,898 | |||||||||||
|
Fredric
M. Zinn
|
2009
|
$ | 9,800 | $ | 24,600 | $ | - | $ | 42,049 | $ | 76,449 | ||||||||||
|
2008
|
$ | 9,200 | $ | 24,600 | $ | - | $ | 45,355 | $ | 79,155 | |||||||||||
|
2007
|
$ | 9,000 | $ | 24,600 | $ | - | $ | 46,308 | $ | 79,908 | |||||||||||
|
Jason
D. Lippert
|
2009
|
$ | 9,800 | $ | 40,000 | $ | 2,744 | $ | 11,510 | $ | 64,054 | ||||||||||
|
2008
|
$ | 9,200 | $ | 40,000 | $ | 2,590 | $ | 16,660 | $ | 68,450 | |||||||||||
|
2007
|
$ | 9,000 | $ | 40,000 | $ | 4,748 | $ | 20,773 | $ | 74,521 | |||||||||||
|
Scott
T. Mereness
|
2009
|
$ | 9,800 | $ | 25,000 | $ | 2,744 | $ | 2,830 | $ | 40,374 | ||||||||||
|
2008
|
$ | 9,200 | $ | 25,000 | $ | 2,590 | $ | 7,874 | $ | 44,664 | |||||||||||
|
2007
|
$ | 9,000 | $ | - | $ | 4,748 | $ | 12,900 | $ | 26,648 | |||||||||||
|
Joseph
S. Giordano III
|
2009
|
$ | 9,800 | $ | 15,000 | $ | 40,912 | $ | 16,355 | $ | 82,067 | ||||||||||
|
2008
|
$ | 9,200 | $ | 15,000 | $ | 42,121 | $ | 17,274 | $ | 83,595 | |||||||||||
|
(A)
|
Our
named executive officers received a taxable bonus payment which they are
required to invest in tax deferred annuities or cash value life insurance
intended to provide retirement
income.
|
|
(B)
|
Other
perquisites include personal use of a company car or auto allowance,
parking, spousal travel for Company events, and long-term care, life, and
long-term disability insurance.
|
24
GRANTS
OF PLAN-BASED AWARDS TABLE
The
following table summarizes the non-qualified options and DSUs awarded to the
named executive officers for 2009:
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
|||||||||||||||||||||
|
All
Other
Stock
Awards:
|
All
Other
Option
Awards:
|
Grant
Date
Fair
|
|||||||||||||||||||||||||||
|
Number
of
|
Number
of
|
Exercise
or
|
Value
of
|
||||||||||||||||||||||||||
|
Estimated
Future Payouts Under
|
Shares
of
|
Securities
|
Base
Price
|
Stock
and
|
|||||||||||||||||||||||||
|
Grant
|
Equity
Incentive Plan Awards
|
Stock
or
|
Underlying
|
of
Option
|
Option
|
||||||||||||||||||||||||
|
Name
|
Date
|
Threshold
|
Target
|
Maximum
|
Units
|
Options
|
Awards(4)
|
Awards
|
|||||||||||||||||||||
|
Leigh
J. Abrams
|
11/18/09
|
- | - | - | - | 11,400 | $ | 20.99 | $ | 117,456 | |||||||||||||||||||
|
Fredric
M. Zinn
|
11/18/09
|
- | - | - | - | 16,000 | $ | 20.99 | $ | 156,648 | |||||||||||||||||||
|
3/3/09
|
- | (1) | - | (1) | 100,000 | (1) | - | - | - | $ | 492,800 | ||||||||||||||||||
|
3/31/09
|
- | - | - | 7,201 | (2) | - | - | $ | 62,500 | ||||||||||||||||||||
|
6/30/09
|
- | - | - | 5,136 | (2) | - | - | $ | 62,500 | ||||||||||||||||||||
|
9/30/09
|
- | - | - | 2,882 | (2) | - | - | $ | 62,500 | ||||||||||||||||||||
|
12/31/09
|
- | - | - | 3,027 | (2) | - | - | $ | 62,500 | ||||||||||||||||||||
|
Jason
D. Lippert
|
11/18/09
|
- | - | - | - | 16,000 | $ | 20.99 | $ | 156,648 | |||||||||||||||||||
|
Scott
T. Mereness
|
11/18/09
|
- | - | - | - | 12,000 | $ | 20.99 | $ | 117,486 | |||||||||||||||||||
|
3/31/09
|
- | - | - | 1,728 | - | - | $ | 15,000 | |||||||||||||||||||||
|
6/30/09
|
- | - | - | 1,233 | - | - | $ | 15,000 | |||||||||||||||||||||
|
9/30/09
|
- | - | - | 692 | - | - | $ | 15,000 | |||||||||||||||||||||
|
12/31/09
|
- | - | - | 726 | - | - | $ | 15,000 | |||||||||||||||||||||
|
2/16/10
|
- | - | - | 711 | - | - | $ | 15,580 | |||||||||||||||||||||
|
Joseph
S. Giordano III
|
11/18/09
|
- | - | - | - | 10,000 | $ | 20.99 | $ | 97,905 | |||||||||||||||||||
|
2/16/10
|
- | - | - | 2,055 | (3) | - | - | $ | 45,000 | ||||||||||||||||||||
|
(1)
|
Upon
expiration of the three-year period January 1, 2009 through December 31,
2011 (the “Measurement Period”), Mr. Zinn will be entitled to receive
1,000 DSUs for each 0.1% that the Company’s average return on invested
capital (“ROIC”) for the Measurement Period is above the average ROIC of
the Company’s Peer Group (as defined), but the total number of DSUs will
not exceed 100,000 units (the “ROIC Bonus”). Mr. Zinn will receive no ROIC
Bonus if the Company’s average ROIC for the Measurement Period equals the
average ROIC of the Company’s Peer Group. No additional ROIC Bonus will be
granted to Mr. Zinn for the Measurement Period. See “Employment and
Compensation Agreements”.
|
|
(2)
|
Includes
14,595 Incentive DSUs granted annually in lieu of cash compensation to Mr.
Zinn, which are subject to forfeiture. If the Company’s average ROIC for
the Measurement Period is below the ROIC of the Peer Group, Incentive DSUs
granted annually in lieu of cash compensation during the Measurement
Period will be forfeited at the same rate of 1,000 DSUs for each 0.1% that
the Company’s ROIC for the Measurement Period is below the ROIC of the
Company’s Peer Group. See “Employment and Compensation
Agreements”.
|
|
(3)
|
Discretionary
bonus earned in 2009 paid in DSUs in lieu of cash
compensation.
|
|
(4)
|
Options
are priced using the closing price the day before the grant date. See
“Grants of Plan-Based Awards”. The closing price on the grant date was
$21.16.
|
Grants
of Plan-Based Awards
NSOs were
awarded to employees in November 2009. The Company’s practice is to grant
options to employees every year at our regular Board and Committee meetings in
November, at an exercise price equivalent to the closing market price on the day
before the grant. We believe that options granted to our executives and
employees constitute an effective incentive to achieving long-term success of
the Company, and are an important compensation component to our executives and
employees. Our regular November meeting date is scheduled almost a year in
advance. Accordingly, the granting of options, as well as the exercise price of
the options, are determined independent of any general market conditions at that
time or intervening Company events which could affect the market price of our
stock on that date.
25
The
number of NSOs granted to each of our named executive officers for 2009 was
determined by the Compensation Committee after consideration of several factors
and events relative to the Company’s performance, rather than being based on
specific pre-established measures of corporate operating performance that are
utilized to determine incentive compensation awards. The Compensation Committee
considered the success of cost-cutting measures, the success of the management
transition at the Company level and at Kinro, the extent of new products
introduced, the expense related to the options, resulting dilution, the element
of motivation that NSOs provide, and other factors.
Prior to
granting options, the Compensation Committee determined the total number of
shares that would be subject to options and the related Black-Scholes value
which would result in a reasonable expense to the Company relative to our
operating results. The Committee then allocated options for a portion of those
shares to the Company’s Chief Executive Officer, and to the Chief Executive
Officer and the Chief Operating Officer of Lippert Components and Kinro. The
Chief Executive Officer of the Company then allocated the balance of the shares
subject to options to employees at the Company’s corporate headquarters, and to
Lippert Components and Kinro. The Chief Executive Officer of Lippert Components
and Kinro then allocated such options among the other executives and employees
of Lippert Components and Kinro, subject to approval of the Committee. The
Compensation Committee also granted options to Leigh J. Abrams, in his capacity
as Chairman of the Board.
The
number of shares subject to options which were granted to employees in 2009
represented 1.3% of the Company’s outstanding shares on the date the options
were granted. In 2009, the five named executive officers received aggregate NSOs
to purchase 65,400 shares representing 22.5% of the total 290,400 option shares
granted to employees in 2009. The exercise price was $20.99 per share. The
aggregate option expense to the Company applicable to the 2009 grants to the
named executive officers was $646,153, which will be expensed over the five-year
vesting term of the options on a straight-line basis.
To
enhance the retention value of the Company’s executives, the Committee requires
that certain of the Company’s senior executives hold for at least one year stock
received upon exercise of vested stock options, unless the executive already
owns a number of shares at least equivalent to the shares to be sold by the
executive on exercise of options.
To
encourage our executives’ long-term ownership of the Common Stock of the
Company, we award DSUs in lieu of a portion of cash compensation. The number of
stock units is credited at the fair market value of the stock on the date
granted. The DSUs provide for the distribution of shares of our Common Stock at
the end of a deferral period of at least three years, subject to earlier
distribution upon death, disability, or certain changes of control of the
Company. Until shares representing the deferred stock are distributed, the
executive does not have any rights of a stockholder of the Company with respect
to such shares, other than to receive dividends in DSUs if dividends are issued
to stockholders.
Equity
Award and Incentive Plan
On May
16, 2002, stockholders approved the Drew Industries Incorporated 2002 Equity
Award and Incentive Plan (as amended, the “2002 Plan”).
The
following is a brief description of the material features of the 2002 Plan. This
description is qualified in its entirety by reference to the full text of the
Plan and the amendments thereto.
Shares Available and Award
Limitations. Subject to adjustment in the event of stock splits, stock
dividends, and other extraordinary events, the total shares available at March
23, 2010 under the 2002 Plan were 2,961,397 shares (of which 1,845,444 shares
are subject to outstanding stock options and DSUs and 1,115,953 shares are
available for future grant) representing 11.9% of the Company’s shares
outstanding on March 23, 2010, assuming exercise of all stock options and DSUs
outstanding and available for grant. Shares delivered under the 2002 Plan may be
either newly issued or treasury shares.
The 2002
Plan includes a limitation on the amount of Awards that may be granted to any
one Participant in a given year to qualify Awards as “performance-based”
compensation not subject to the limitation on deductibility under Internal
Revenue Code Section 162(m). Under this annual per-person limitation, no
Participant may in any year be granted share-denominated Awards under the 2002
Plan relating to more than his or her “Annual Limit” for each type of Award. The
Annual Limit is 100,000 shares (after giving effect to the September 2005 stock
split) plus the amount of the Participant’s unused Annual Limit relating to the
same type of Award as of the close of the previous year, subject to adjustment
for splits and other extraordinary corporate events. Stock options, stock
appreciation rights (“SARs”), restricted stock, deferred stock and bonus stock,
are separate types of Awards subject to a separate limitation. In the case of
Awards not relating to shares in a way in which the share limitation can apply,
no Participant may be granted Awards authorizing the earning during any year of
an amount that exceeds the Participant’s Annual Limit, which is $1,200,000, plus
the cumulative amount of the Participant’s unused cash Annual Limit as of the
close of the previous year. The Annual Limit for non-stock-based Awards of
$1,200,000 is separate from the Annual Limit of 100,000 shares (after giving
effect to the September 2005 stock split) for each type of stock-based
Award.
The 2002
Plan does not permit any shares authorized under the 2002 Plan to be used for
any Award which could be characterized as a “repricing” of outstanding stock
options.
26
Eligibility. Executive
officers and other employees of the Company and its subsidiaries, and
non-employee directors, consultants and others who provide substantial services
to the Company and its subsidiaries, are eligible to be granted Awards under the
2002 Plan.
Administration. The 2002 Plan
is administered by the Compensation Committee (the “Committee”), except that the
Board of Directors may appoint any other committee to administer the 2002 Plan
and may itself act to administer the Plan. Subject to the terms and conditions
of the 2002 Plan, the Committee is authorized to select Participants, determine
the type and number of Awards to be granted and the number of shares to which
Awards will relate or the amount of a performance Award, specify times at which
Awards will be exercisable or settled, including performance conditions that may
be required as a condition thereof, set other terms and conditions of such
Awards, prescribe forms of Award agreements, interpret and specify rules and
regulations relating to the Plan, and make all other determinations which may be
necessary or advisable for the administration of the 2002 Plan. Nothing in the
2002 Plan precludes the Committee from authorizing payment of other
compensation, including bonuses based upon performance, to officers and
employees, including the named executive officers. The 2002 Plan provides that
Committee members shall not be personally liable, and shall be fully
indemnified, in connection with any action, determination, or interpretation
taken or made in good faith under the 2002 Plan.
Stock Options and SARs. The
Committee is authorized to grant stock options, including both incentive stock
options, which can result in potentially favorable tax treatment to the
Participant, and NSOs, and SARs entitling the Participant to receive the excess
of the fair market value of a share on the date of exercise or other specified
date over the grant price of the SAR. The exercise price of a stock option and
the grant price of an SAR are determined by the Committee, but generally may not
be less than the fair market value of the shares on the date of grant. At the
discretion of the Committee, stock options may be exercised by payment of the
exercise price in cash, shares or other property (including broker-assisted
cashless exercise procedures) or by surrender of other outstanding Awards having
a fair market value equal to the exercise price. Methods of exercise and
settlement and other terms of SARs will be determined by the
Committee.
Restricted and Deferred Stock.
The Committee is authorized to make Awards of restricted stock and
deferred stock. Prior to the end of the restricted period, shares received as
restricted stock may not be sold or disposed of by Participants, and may be
forfeited in the event of termination of employment. The restricted period
generally is established by the Committee. An Award of restricted stock entitles
the Participant to all of the rights of a stockholder of the Company, including
the right to vote the shares and the right to receive any dividends thereon,
unless otherwise determined by the Committee. Except in the event of a change of
control (as defined in the 2002 Plan), restricted stock may not be transferred
prior to the first anniversary of the grant thereof. Deferred stock gives
Participants the right to receive shares at the end of a specified deferral
period, subject to forfeiture of the Award in the event of termination of
employment under certain circumstances prior to the end of a specified period
(which need not be the same as the deferral period). Prior to settlement,
deferred stock Awards carry no voting or other rights associated with stock
ownership, other than to receive dividends in DSUs if dividends are issued to
stockholders.
Bonus Shares, and Awards in lieu of
Cash Obligations. The Committee is authorized to grant shares as a bonus
free of restrictions, or to grant shares or other Awards in lieu of the
Company’s obligations under other plans or compensatory arrangements, subject to
such terms as the Committee may specify. The number of shares granted to an
executive officer or non-employee director in place of salary, fees or other
cash compensation must be reasonable, as determined by the
Committee.
Performance-Based Awards. To
avoid the limitations on deductibility under Internal Revenue Code Section
162(m), the Committee may require satisfaction of pre-established performance
goals, consisting of one or more business criteria and a targeted performance
level with respect to such criteria, as a condition of Awards being granted or
becoming exercisable or settleable under the 2002 Plan, or as a condition to
accelerating the timing of such events. The Committee may specify that any such
criteria will be measured before or after extraordinary or non-recurring items,
before or after service fees, or before or after payments of Awards under the
2002 Plan. See Proposal 2 regarding stockholder reapproval of the performance
criteria set forth in the 2002 Plan.
Other Terms of Awards. Awards
may be settled in cash, shares, other Awards or other property, at the
discretion of the Committee. The Committee may require or permit Participants to
defer the settlement of all or part of an Award in accordance with such terms
and conditions as the Committee may establish, including payment or crediting of
interest on any deferred amounts. The Committee may condition Awards on the
payment of taxes such as by withholding a portion of the shares or other
property to be distributed (or receiving previously acquired shares or other
property surrendered by the Participant) in order to satisfy tax obligations.
Non-cash Awards granted under the 2002 Plan generally may not be pledged or
otherwise encumbered and are not transferable except by will or by the laws of
descent and distribution, or to a designated beneficiary upon the Participant’s
death, except that the Committee may permit transfers in individual cases,
including for estate planning purposes.
Vesting, Forfeitures, and
Acceleration. The Committee may, in its discretion, determine the vesting
schedule of stock options and other Awards, the circumstances that will result
in forfeiture of the Awards, the post-termination exercise periods of stock
options and similar Awards, and the events that will result in acceleration of
the ability to exercise and the lapse of restrictions, or the expiration of any
deferral period, on any Award. In addition, the 2002 Plan provides that, in the
event of a Change in Control of the Company, outstanding Awards will immediately
vest and be fully exercisable, any restrictions, deferral of settlement and
forfeiture conditions of such Awards will lapse, and goals relating to
performance-based Awards will be deemed met or exceeded to the extent specified
in the performance-award documents. A Change in Control means generally (i) any
person or group becomes a beneficial owner of 30% or more of the voting power of
the Company’s voting securities; (ii) a change in the Board’s membership such
that the current members, or those elected or nominated by vote of a majority of
the current members and successors elected or nominated by them, cease to
represent a majority of the Board in any period of less than two years; (iii)
certain mergers or consolidations reducing the percentage of voting power held
by stockholders prior to such transactions to under 51%; (iv) stockholder
approval of a sale or liquidation of all or substantially all of the assets of
the Company; and (v) upon the sale of all or substantially all of the Company’s
assets.
27
Amendment and Termination of the
2002 Plan. The Board may amend, alter, suspend, discontinue, or terminate
the 2002 Plan or the Committee’s authority to grant Awards thereunder without
stockholder approval unless stockholder approval is required by law, regulation,
or stock exchange rule. Under these provisions, stockholder approval will not
necessarily be required for amendments that might increase the cost of the 2002
Plan. However, stockholder approval is required for any amendment which may (a)
increase the maximum number of shares of stock covered by the Plan or change the
class of employees who are Eligible Persons; (b) reduce the exercise price for
any stock options below the fair market value of the Common Stock on the date of
the grant of such stock option; (c) extend beyond 10 years from the date of the
grant the period within which any Award may be exercised; (d) extend the period
beyond the termination date of the Plan during which Awards may be granted; or
(e) increase the Annual Limit. Consistent with the foregoing, administrative
amendments to the 2002 Plan have been adopted without stockholder approval, and
amendments increasing the number of shares subject to issuance under the 2002
Plan were adopted with stockholder approval in 2006, 2008 and 2009.
No Awards
may be made after the tenth anniversary of the effective date of the 2002 Plan.
Unless earlier terminated, the 2002 Plan will terminate at such time that no
shares reserved under the 2002 Plan remain available and the Company has no
further rights or obligations with respect to any outstanding
Award.
28
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR END
The
following table summarizes the number of shares of Common Stock underlying
outstanding option and stock awards held by each named executive officer as of
December 31, 2009:
|
Option
Awards
|
Stock
Awards
|
|||||||||||||||||||||||
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
||||||||||||||||||
|
Name
|
Number
of
Securities
Underlying
Unexercised
Options
Exercisable(1)
|
Number
of
Securities
Underlying
Unexercised
Options
Unexercisable(1)
|
Option
Exercise
Price
|
Option
Expiration
Date
|
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares
Underlying
DSUs
That
Have
Not
Vested
|
Equity
Incentive
Plan
Awards:
Market
Value at
December
31, 2009
of
Unearned
Shares
Underlying
DSUs
That Have
Not
Vested
|
||||||||||||||||||
|
Leigh
J. Abrams
|
20,000 | 5,000 | $ | 28.33 |
11/15/11
|
- | $ | - | ||||||||||||||||
| 8,000 | 12,000 | $ | 32.61 |
11/14/13
|
- | $ | - | |||||||||||||||||
| 4,000 | 16,000 | $ | 11.59 |
11/12/14
|
- | $ | - | |||||||||||||||||
| - | 11,400 | $ | 20.99 |
11/18/15
|
- | $ | - | |||||||||||||||||
|
Fredric
M. Zinn
|
16,000 | 4,000 | $ | 28.33 |
11/15/11
|
- | $ | - | ||||||||||||||||
| 6,000 | 9,000 | $ | 32.61 |
11/14/13
|
- | $ | - | |||||||||||||||||
| 4,000 | 16,000 | $ | 11.59 |
11/12/14
|
- | $ | - | |||||||||||||||||
| - | 16,000 | $ | 20.99 |
11/18/15
|
- | $ | - | |||||||||||||||||
| - | - |
-
|
-
|
80,000 | (2) | $ | 1,652,000 | (2) | ||||||||||||||||
|
Jason
D. Lippert
|
12,000 | - | $ | 16.16 |
11/18/10
|
- | $ | - | ||||||||||||||||
| 20,000 | 5,000 | $ | 28.33 |
11/15/11
|
- | $ | - | |||||||||||||||||
| 8,000 | 12,000 | $ | 32.61 |
11/14/13
|
- | $ | - | |||||||||||||||||
| - | 24,000 | $ | 11.59 |
11/12/14
|
- | $ | - | |||||||||||||||||
| - | 16,000 | $ | 20.99 |
11/18/15
|
- | $ | - | |||||||||||||||||
|
Scott
T. Mereness
|
16,000 | 4,000 | $ | 28.33 |
11/15/11
|
- | $ | - | ||||||||||||||||
| 8,000 | 12,000 | $ | 32.61 |
11/14/13
|
- | $ | - | |||||||||||||||||
| 4,600 | 18,400 | $ | 11.59 |
11/12/14
|
- | $ | - | |||||||||||||||||
| - | 12,000 | $ | 20.99 |
11/18/15
|
- | $ | - | |||||||||||||||||
|
Joseph
S. Giordano III
|
12,000 | 3,000 | $ | 28.33 |
11/15/11
|
- | $ | - | ||||||||||||||||
| 4,800 | 7,200 | $ | 32.61 |
11/14/13
|
- | $ | - | |||||||||||||||||
| 2,000 | 8,000 | $ | 11.59 |
11/12/14
|
- | $ | - | |||||||||||||||||
| - | 10,000 | $ | 20.99 |
11/18/15
|
- | $ | - | |||||||||||||||||
|
(1)
|
Option
awards vest 20% per year on the first through the fifth anniversaries of
the respective grant date, and expire six years after grant, except the
11,400 option award to Mr. Abrams on November 18, 2009, which vests 100%
on the first anniversary of the grant date, and expires six years after
grant.
|
|
(2)
|
Upon
expiration of the three-year period January 1, 2009 through December 31,
2011 (the “Measurement Period”), Mr. Zinn will be entitled to receive
1,000 DSUs for each 0.1% that the Company’s average return on invested
capital (“ROIC”) for the Measurement Period is above the average ROIC of
the Company’s Peer Group (as defined), but the total number of DSUs will
not exceed 100,000 units (the “ROIC Bonus”). Based on past performance,
the amount shown represents 80% of the maximum award which may be paid
pursuant to Mr. Zinn’s three-year ROIC Bonus. No additional ROIC Bonus
will be granted to Mr. Zinn for the Measurement Period. If the Company’s
average ROIC for the Measurement Period is below the ROIC of the Peer
Group, Incentive DSUs granted annually in lieu of cash compensation during
the Measurement Period will be forfeited at the same rate of 1,000 DSUs
for each 0.1% that the Company’s ROIC for the Measurement Period is below
the ROIC of the Company’s Peer Group. Excludes 14,595 Incentive DSUs
subject to forfeiture if the Company’s average ROIC for the three-year
Measurement Period is less than the average ROIC of the Company’s Peer
Group. See “Employment and Compensation
Agreements”.
|
29
The
following table presents the value realized by the named executive officers on
exercise of options in 2009:
|
(a)
|
(b)
|
(c)
|
||||||
|
Name
|
Number
of Shares
Acquired
On
Exercise
|
Value
Realized
on
Exercise
|
||||||
|
Leigh
J. Abrams
|
30,000 |
$
|
202,134
|
|||||
|
Fredric
M. Zinn
|
30,000 |
$
|
217,620 | |||||
|
Jason
D. Lippert
|
24,000 |
$
|
177,134 | |||||
|
Scott
T. Mereness
|
45,000 |
$
|
306,846 | |||||
|
Joseph
S. Giordano III
|
11,500 |
$
|
83,495 | |||||
NON-QUALIFIED
DEFERRED COMPENSATION
The
following table summarizes activity in the non-qualified deferred compensation
plan by those named executive officers who participated:
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
||||||||||||
|
Name
|
Executive
Contributions
in
2009(1)
|
Aggregate
Earnings
in
2009(2)
|
Aggregate
Withdrawals/
Distributions
|
Aggregate
Balance
at
December
31, 2009
|
||||||||||||
|
Fredric
M. Zinn
|
$ | 10,200 | $ | 13,109 | $ | - | $ | 51,223 | (3) | |||||||
|
Jason
D. Lippert
|
$ | 15,099 | $ | 209,224 | $ | - | $ | 947,461 | (4) | |||||||
|
Scott
T. Mereness
|
$ | 7,248 | $ | 3,537 | $ | (212,740 | ) | $ | 10,785 | (5) | ||||||
|
(1)
|
Amounts
in column (b) of this table have been included in columns (c) or (g) of
the Summary Compensation Table.
|
|
(2)
|
Amounts
in column (c) of this table, which represent earnings or losses on the
executives’ contributions, have not been included the Summary Compensation
Table.
|
|
(3)
|
Includes
cumulative contributions of $50,600 that have been included in the Summary
Compensation Table, as well as cumulative earnings of
$623.
|
|
(4)
|
Includes
cumulative contributions of $1,173,868 that have been included in the
Summary Compensation Table, as well as cumulative loss of
$226,407.
|
|
(5)
|
Includes
cumulative contributions of $335,128 that have been included in the
Summary Compensation Table, as well as cumulative loss of $111,603 and
cumulative withdrawals of $212,740.
|
The
Company maintains an Executive Non-Qualified Deferred Compensation Plan. The
Company does not make any contributions to the Plan but is responsible for
certain costs of Plan administration, which are not significant. Pursuant to the
Plan, certain of the named executive officers are eligible to defer all or a
portion of their earned base salary and incentive compensation. The Plan
participant is fully vested in all deferred compensation and earnings credited
to his or her account because the participant has made all the contributions.
Pursuant to the Plan, payments to the participants will be made from the
Company’s general unrestricted assets, and the obligations pursuant to the Plan
are unfunded and unsecured.
The Plan
participant’s account is deemed invested (not actually invested) among various
deemed investment alternatives selected by the participant. The Company has
elected to invest a portion of the compensation deferred by the participant in
life insurance policies for the benefit of the Company. The investments within
these life insurance policies track the deemed investments selected by the
participant in order to generate the funds needed to make payments to the
participants. The deemed investments selected by the participant determine the
amount of earnings and losses that are credited to the participant’s
account.
30
Fredric
M. Zinn, CEO
Pursuant to the Executive Compensation
and Non-Competition Agreement between the Company and Fredric M. Zinn, our
President and Chief Executive Officer, for the three-year period January 1, 2009
through December 31, 2011 (the “Measurement Period”), Mr. Zinn will receive
annual base salary of $500,000 consisting of $450,000 in cash and DSUs
representing shares equivalent in value to $50,000. The DSUs will be issued
quarterly on the last day of each calendar quarter at the rate of $12,500 per
quarter.
In addition, Mr. Zinn will receive
annually DSUs representing shares equivalent in value to $200,000 (the
“Incentive DSUs”), issued at the end of each calendar quarter at the rate of
$50,000 per quarter. These DSUs are subject to forfeiture based on the return on
invested capital performance measure discussed below.
Mr. Zinn will also be entitled to
receive for each year during the Measurement Period performance-based profit
incentive compensation (the “Profit Bonus”) consisting of $4,000 for each $0.01
that the Company’s adjusted earnings per share (as defined, “Adjusted EPS”)
exceeds the Company’s Adjusted EPS for the prior year; plus $4,000 for each
$0.01 that the Company’s Adjusted EPS for each year during the Measurement
Period exceeds $1.45; and $10,000, plus or minus, for each 1% that the change in
the Company’s Adjusted EPS for each year during the Measurement Period is above
or below 2.5 times the percentage increase or decrease in the Index of Number of
RVs and Manufactured Housing industry wholesale shipments (as defined, the
“Industry Index”). However, the amount added or subtracted with respect to the
industry-related performance measure will not exceed 0.6% of Company’s pre-tax
income for the subject year.
The aggregate Profit Bonus for any year
during the Measurement Period may not exceed 5% of the Company’s pre-tax income.
For any year during the Measurement Period, the first $500,000 of Profit Bonus
will be paid in cash, and the Profit Bonus in excess of $500,000 will be paid in
DSUs.
Upon
expiration of the Measurement Period, Mr. Zinn will be entitled to receive 1,000
DSUs for each 0.1% that the Company’s average return on invested capital
(“ROIC”) for the Measurement Period is above the average ROIC of the Company’s
Peer Group (as defined), but the total number of DSUs will not exceed 100,000
units (the “ROIC Bonus”). However, if the Company’s average ROIC for the
Measurement Period is below the ROIC of the Peer Group, Incentive DSUs granted
annually in lieu of cash compensation during the Measurement Period will be
forfeited at the same rate of 1,000 DSUs for each 0.1% that the Company’s ROIC
for the Measurement Period is below the ROIC of the Company’s Peer Group. No
additional ROIC Bonus will be granted to Mr. Zinn for the Measurement
Period.
The performance measures pursuant to
which the total incentive performance bonus is paid will be modified, consistent
with the Company’s past practices, to give effect to any business acquisitions
or dispositions made by the Company. Mr. Zinn’s election to defer receipt of the
shares of stock deliverable pursuant to any DSUs must be for a period of not
less than three years from the date the DSUs are issued.
During
the Measurement Period, Mr. Zinn will be entitled to receive benefits and
perquisites, which we estimate will cost approximately $76,000 per
year.
Jason
D. Lippert, CEO of Subsidiaries
Pursuant
to the Executive Employment and Non-Competition Agreement among Lippert
Components, Kinro and Jason D. Lippert, President and Chief Executive Officer of
Lippert Components and Kinro, Mr. Lippert will receive, for the period January
1, 2009 through December 31, 2011 (the “Term”), annual base salary in the amount
of $700,000.
In
addition, Mr. Lippert is entitled to receive annually performance-based profit
incentive compensation (the “Profit Bonus”) consisting of 3.75% of the combined
Operating Profits (as defined) of Lippert Components, and its subsidiaries and
affiliates (the “LCI Entities”) and Kinro, and its subsidiaries and affiliates
(the “Kinro Entities”) in excess of $35,000,000 and up to $50,000,000; plus
4.25% of the combined Operating Profits in excess of $50,000,000 and up to
$65,000,000; plus 5% of the combined Operating Profits in excess of
$65,000,000.
Mr.
Lippert is also entitled to receive performance-based industry-comparable
incentive compensation (the “Industry Bonus”) determined by adding to, or
subtracting from, the Profit Bonus the amount of $20,000 for each 1% that the
percentage increase or decrease in the combined Operating Profits for any year
during the Term, as compared to the immediately preceding calendar year, exceeds
or is less than 2.5 times the percentage increase or decrease in the Industry
Index during such year, as compared to the immediately preceding calendar year.
However, the Industry Bonus for any year during the Term will not exceed 1.5% of
the combined Operating Profits.
31
For 2009, Mr. Lippert was also entitled
to receive performance-based incentive compensation of $125,000 if the LCI
Entities and the Kinro Entities combined achieved a return on assets (“ROA”) of
20%, which compensation increases at the rate of $30,000 per 1% increase in ROA
over 20%. For 2010 and 2011, respectively, the ROA incentive compensation will
be $155,000 and $185,000, respectively, if the LCI Entities and the Kinro
Entities combined achieve ROA of 21% and 22%, respectively, and the same
incremental increases in ROA incentive compensation will apply for incremental
increases in ROA.
The performance measures pursuant to
which the total performance incentive bonus is paid will be modified, consistent
with the Company’s past practices, to give effect to any business acquisitions
or dispositions made by the LCI Entities and the Kinro Entities.
The total
performance incentive bonus for any year during the Term may not exceed 8% of
combined Operating Profits. For any year during the Term, the first $900,000 of
total performance incentive bonus will be paid in cash, 50% of total performance
incentive bonus in excess of $900,000 will be paid in DSUs, and 50% of such
excess will be paid in cash. Mr. Lippert’s election to defer receipt of the
shares of stock deliverable pursuant to DSUs must be for a period of not less
than three years from the date the DSUs are issued.
During
the Term, Mr. Lippert will be entitled to receive benefits and perquisites,
which we estimate will cost approximately $64,000 per year.
Scott
T. Mereness, COO of Subsidiaries
Pursuant
to the Executive Employment and Non-Competition Agreement among Lippert
Components, Kinro, and Scott T. Mereness, Executive Vice President and Chief
Operating Officer of Lippert Components and Kinro, Mr. Mereness will receive for
the period January 1, 2009 through December 31, 2011 (the “Term”), annual base
salary of $420,000, consisting of $360,000 in cash and DSUs equivalent in value
to $60,000. The DSUs will be issued quarterly on the last day of each calendar
quarter at the rate of $15,000 per quarter.
In addition, Mr. Mereness is entitled to
receive annually performance-based profit incentive compensation (the “Profit
Bonus”) consisting of 2.25% of the combined Operating Profits in excess of
$35,000,000 and up to $50,000,000; plus 2.55% of the combined Operating Profits
in excess of $50,000,000 and up to $65,000,000; plus 3% of the combined
Operating Profits in excess of $65,000,000.
Mr.
Mereness is also entitled to receive performance-based industry-comparable
incentive compensation (the “Industry Bonus”) determined by adding to, or
subtracting from, the Profit Bonus the amount of $12,000 for each 1% that the
percentage increase or decrease in the combined Operating Profits for any year
during the Term, as compared to the immediately preceding calendar year, exceeds
or is less than 2.5 times the percentage increase or decrease in the Industry
Index during such year, as compared to the immediately preceding calendar year.
However, the Industry Bonus for any year during the Term will not exceed 0.9% of
the combined Operating Profits.
For 2009, Mr. Mereness was also entitled
to receive performance-based incentive compensation of $75,000 if the LCI
Entities and the Kinro Entities combined achieved ROA of 20%, which compensation
increases at the rate of $18,000 per 1% increase in ROA over 20%. For 2010 and
2011, respectively, the incentive compensation will be $93,000 and $111,000,
respectively, if the LCI Entities and the Kinro Entities combined achieve ROA of
21% and 22% respectively, and the same incremental increases in ROA incentive
compensation will apply for incremental increases in ROA.
The performance measures pursuant to
which the total performance incentive bonus is paid will be modified, consistent
with the Company’s past practices, to give effect to any business acquisitions
or dispositions made by the LCI Entities and the Kinro Entities.
The total
performance incentive bonus for any year during the Term many not exceed 4.8% of
combined Operating Profits. For any year during the Term, the first $100,000 of
total performance incentive bonus will be paid in cash, 33% of total performance
incentive bonus in excess of $100,000 will be paid in DSUs, and 67% of such
excess will be paid in cash. Mr. Mereness’ election to defer receipt of the
shares of stock deliverable pursuant to the DSUs must be for a period of not
less than three years from the date the DSUs are issued.
During
the Term, Mr. Mereness will be entitled to receive benefits and perquisites,
which we estimate will cost approximately $40,000 per year.
See
“Compensation Discussion and Analysis” and the Summary Compensation Table for
information about payments made in 2009 to Messrs. Zinn, Lippert and Mereness
pursuant to these employment and compensation agreements.
32
Potential
Payments on Termination or Change in Control
Change-in-Control
Agreements
On
September 12, 2003, the Company entered into a “double-trigger”
change-in-control agreement with Fredric M. Zinn, at that time our Executive
Vice President and Chief Financial Officer, who had been an officer of the
Company since 1986. Mr. Zinn has been President since May 2008 and Chief
Executive Officer since January 2009. See Proposal 1. “Election of Directors –
Management and Board Succession”. The agreement, as amended, provides for
severance payable upon a Company-initiated termination within one year
following, or 120 days prior to, a change-in-control, or a termination initiated
by Mr. Zinn with good reason (defined as a reduction in Mr. Zinn’s compensation
or a material change in Mr. Zinn’s authority and duty) within six months
following a change-in-control. Change-in-control includes acquisition of 30% or
more of the Company’s voting securities, or stockholder approval of a merger
resulting in a change in voting control of more than 50% of the voting power of
the Company’s existing securities, or liquidation of the Company. The agreement
provides that Mr. Zinn will receive his then effective salary, plus the average
bonuses and incentive compensation for the prior three years, for a period of
two years if he is involuntarily terminated, or one year if he voluntarily
terminates for good reason, subject to certain adjustments, and certain other
benefits.
Based on
a hypothetical termination date of December 31, 2009, including the price of the
Company’s Common Stock on that date, the change-in-control severance benefits
for Mr. Zinn would have been as follows:
|
Involuntary
Termination
|
Voluntary
Termination
|
|||||||
|
Base
salary
|
$ | 1,000,000 | $ | 500,000 | ||||
|
Bonus
|
$ | 273,120 | $ | 136,560 | ||||
|
Other
benefits
|
$ | 131,317 | $ | 65,658 | ||||
|
Non-qualified
deferred compensation
|
$ | 51,223 | $ | 51,223 | ||||
|
Fair
market value of accelerated stock options
|
$ | 144,960 | $ | 144,960 | ||||
|
Total
|
$ | 1,600,620 | $ | 898,401 | ||||
On July
18, 2006, the Company entered into a “double-trigger” change-in-control
agreement with Joseph S. Giordano, III, at that time our Corporate Controller
and Treasurer. Mr. Giordano has been our Chief Financial Officer and Treasurer
since May 2008. See Proposal 1. “Election of Directors – Management and Board
Succession”. The agreement, as amended, provides for severance payable upon a
Company-initiated termination within one year following, or 120 days prior to, a
change-in-control, or a termination initiated by Mr. Giordano with good reason
(defined as a reduction in Mr. Giordano’s compensation or a material change in
Mr. Giordano’s authority and duty) within six months following a
change-in-control. Change-in-control includes acquisition of 30% or more of the
Company’s voting securities, or stockholder approval of a merger resulting in a
change in voting control of more than 50% of the voting power of the Company’s
existing securities, or liquidation of the Company. The agreement provides that
Mr. Giordano will receive his then effective salary, plus the average bonuses
and incentive compensation for the prior three years, for a period of two years
if he is involuntarily terminated, or one year if he voluntarily terminates for
good reason, subject to certain adjustments, and certain other
benefits.
33
Based on
a hypothetical termination date of December 31, 2009, including the price of the
Company’s Common Stock on that date, the change-in-control severance benefits
for Mr. Giordano would have been as follows:
|
Involuntary
Termination
|
Voluntary
Termination
|
|||||||
|
Base
salary
|
$ | 420,000 | $ | 210,000 | ||||
|
Bonus
|
$ | 173,333 | $ | 86,667 | ||||
|
Other
benefits
|
$ | 142,553 | $ | 71,276 | ||||
|
Fair
market value of accelerated stock options
|
$ | 72,480 | $ | 72,480 | ||||
|
Total
|
$ | 808,366 | $ | 440,423 | ||||
Acceleration
of Stock Options
Pursuant
to the 2002 Plan, in the event of a change-in-control (as defined in the 2002
Plan) all unexercisable stock options, including those held by the named
executive officers, will become fully exercisable and vested and will remain
exercisable and vested for the balance of the term of the stock option
regardless of termination of employment, subject to the terms of the 2002 Plan.
See “Equity Award and Incentive Plan – Vesting, Forfeitures and Acceleration”.
Based on a hypothetical termination date of December 31, 2009 due to a
change-in-control, including the price of the Company’s Common Stock on that
date, the fair market value of accelerated stock options would have been
$144,960 for Leigh J. Abrams, $217,440 for Jason D. Lippert, and $166,704 for
Scott T. Mereness.
Termination
of Employment
|
|
-
|
Fredric
M. Zinn, CEO
|
In
accordance with the Executive Compensation and Non-Competition Agreement with
Fredric M. Zinn, President and Chief Executive Officer, effective January 1,
2009, if on account of physical or mental disability Mr. Zinn does not perform
his duties for a continuous period of six months, the Company may, upon 30 days
notice, terminate Mr. Zinn’s employment. For the six-month period after
termination, Mr. Zinn will continue to receive his base salary, the Profit Bonus
and ROIC Bonus proportionately with respect to the period prior to the date of
termination, and other benefits in accordance with the Agreement. Additionally,
pursuant to the 2002 Plan, all unexercisable stock options will become fully
exercisable and vested and will remain exercisable and vested for a period of
six months from the date of termination. At December 31, 2009, Mr. Zinn would
have received payments of $250,000, benefits in accordance with the Agreement in
the approximate amount of $40,000, the fair market value of accelerated stock
options would have been $144,960, an ROIC bonus of approximately 20,000
DSUs, his non-qualified deferred compensation balance of $51,223, and the
fair market value of his accelerated stock options would have been
$144,960.
In the
event of Mr. Zinn’s death, Mr. Zinn’s heir or designee will be entitled to the
base salary which Mr. Zinn would have received for the period ending six months
from the date of death, and the Profit Bonus and ROIC Bonus proportionately with
respect to the period prior to the date of termination. Additionally, pursuant
to the 2002 Plan, all unexercisable stock options will become fully exercisable
and vested and will remain exercisable and vested for a period of one year from
the date of termination. At December 31, 2009, Mr. Zinn’s heir or designee would
have received payments of $250,000, benefits in accordance with the Agreement in
the approximate amount of $40,000, an ROIC bonus of approximately 20,000 DSUs,
his non-qualified deferred compensation balance of $51,223, and the fair market
value of his accelerated stock options would have been $144,960.
In the event the Company terminates Mr.
Zinn’s employment for any other reason, other than “cause”, or the Company
relocates its corporate office and Mr. Zinn terminates his employment, Mr. Zinn
will receive his base salary for one year from the date of termination, and the
Profit Bonus and ROIC Bonus proportionately with respect to the period prior to
the date of termination. At December 31, 2009, Mr. Zinn would have received
$500,000, an ROIC bonus of approximately 20,000 DSUs, his non-qualified deferred
compensation balance of $51,223, and the fair market value of his accelerated
stock options would have been $144,960.
|
|
-
|
Jason
D. Lippert, CEO of Subsidiaries
|
In
accordance with the Executive Employment and Non-Competition Agreement with
Jason D. Lippert, Chairman, President and Chief Executive Officer of Lippert
Components and Kinro, if on account of physical or mental disability Mr. Lippert
does not perform his duties for a continuous period of six months, Lippert
Components may, upon 30 days notice, terminate the Agreement. For the six-month
period after termination, Mr. Lippert will continue to receive his base salary,
and the total performance bonus proportionately with respect to the period prior
to the date of termination, in accordance with the Agreement. Additionally,
pursuant to the 2002 Plan, all unexercisable stock options will become fully
exercisable and vested and will remain exercisable and vested for a period of
six months from the date of termination. At December 31, 2009, Mr. Lippert would
have received payments of $350,000, his non-qualified deferred compensation
balance of $947,461, and the fair market value of his accelerated stock options
would have been $217,440.
34
In the
event of Mr. Lippert’s death during the term of the Agreement, Mr. Lippert’s
heir or designee will be entitled to the base salary which Mr. Lippert would
have received for the period ending six months from the date of death and the
total performance bonus proportionately with respect to the period prior to the
date of termination. Additionally, pursuant to the 2002 Plan, all unexercisable
stock options will become fully exercisable and vested and will remain
exercisable and vested for a period of one year from the date of termination. At
December 31, 2009, Mr. Lippert’s heir or designee would have received payment of
$350,000, his non-qualified deferred compensation balance of $947,461, and the
fair market value of his accelerated stock options would have been
$217,440.
In the
event the Company terminates Mr. Lippert’s employment for any other reason,
other than “cause”, Mr. Lippert will receive his base salary and other benefits
for the remainder of the Agreement, and the total performance bonus
proportionately with respect to the period prior to the date of termination. At
December 31, 2009, Mr. Lippert would have received payments of $1.4 million and
benefits in the approximate amount of $130,000, his non-qualified deferred
compensation balance of $947,461, and the fair market value of his accelerated
stock options would have been $217,440.
|
|
-
|
Scott
T. Mereness, COO of Subsidiaries
|
In accordance with the Executive
Employment and Non-Competition Agreement with Scott T. Mereness, Chief Operating
Officer of Lippert Components and Kinro, if on account of physical or mental
disability Mr. Mereness does not perform his duties for a continuous period of
six months, Lippert Components may, upon 30 days notice, terminate the
Agreement. For the six-month period after termination, Mr. Mereness will
continue to receive his base salary, and the total performance bonus
proportionately with respect to the period prior to the date of termination, in
accordance with the Agreement. Additionally, pursuant to the 2002 Plan, all
unexercisable stock options will become fully exercisable and vested and will
remain exercisable and vested for a period of six months from the date of
termination. At December 31, 2009, Mr. Mereness would have received payments of
$210,000, his non-qualified deferred compensation balance of $10,785, and the
fair market value of his accelerated stock options would have been
$166,704.
In the event of Mr. Mereness’ death
during the term of the Agreement, Mr. Mereness’ heir or designee will be
entitled to the base salary which Mr. Mereness would have received for the
period ending six months from the date of death and the total performance bonus
proportionately with respect to the period prior to the date of termination.
Additionally, pursuant to the 2002 Plan, all unexercisable stock options will
become fully exercisable and vested and will remain exercisable and vested for a
period of one year from the date of termination. At December 31, 2009, Mr.
Mereness’ heir or designee would have received payment of $210,000, his
non-qualified deferred compensation balance of $10,785, and the fair market
value of his accelerated stock options would have been $166,704.
In the event the Company terminates Mr.
Mereness’ employment for any other reason, other than “cause”, Mr. Mereness will
receive his base salary and other benefits for the remainder of the Agreement,
and the total performance bonus proportionately with respect to the period prior
to the date of termination. At December 31, 2009, Mr. Lippert would have
received payments of $840,000 and benefits in the approximate amount of $80,000,
his non-qualified deferred compensation balance of $10,785, and the fair market
value of his accelerated stock options would have been $166,704.
|
|
-
|
Leigh
J. Abrams, Chairman of the Board
|
In
accordance with the Executive Compensation and Benefits Agreement, effective
January 1, 2009, with Leigh J. Abrams, formerly Chief Executive Officer and now
Chairman of the Board, assuming Mr. Abrams’ death or disability, or termination
of the Agreement, as of December 31, 2009, Mr. Abrams, or his heir or designee,
would continue to receive base salary and benefits until the term of the
Agreement expires, to the extent of $958,957. See “Compensation Discussion and
Analysis – Post-Retirement Benefits”. Additionally, pursuant to the 2002 Plan,
all unexercisable stock options will become fully exercisable and vested and
will remain exercisable and vested for a period of six months from the date of
termination in the case of disability and one year in the case of death. At
December 31, 2009, the fair market value of accelerated stock options would have
been $166,704 for Mr. Abrams.
-
Joseph S. Giordano III, CFO
In
accordance with the Severance Agreement with Joseph S. Giordano III, Chief
Financial Officer, effective January 1, 2009, in the event the Company
terminates Mr. Giordano’s employment without “cause”, Mr. Giordano will receive
an amount equal to the greater of the annual salary paid to Mr. Giordano as of
January 1, 2009 or as of the date of termination of employment, payable for the
twelve-month period commencing the month following the month of termination, and
the same benefits and perquisites provided to Mr. Giordano as of the first day
of the year in which termination occurs, excluding stock options. At December
31, 2009, Mr. Giordano would have received payments of $210,000 and benefits in
the approximate amount of $80,000.
35
In the
event of Mr. Giordano’s death prior to December 31, 2011, Mr. Giordano’s heir or
designee will be entitled to the salary and benefits which Mr. Giordano would
have been entitled to receive for a period of six months from the date of death.
At December 31, 2009, Mr. Giordano’s heir or designee would have received
payments of $105,000 and benefits in the approximate amount of $40,000.
Additionally, pursuant to the 2002 Plan, all unexercisable stock options, will
become fully exercisable and vested and will remain exercisable and vested for a
period of six months from the date of termination in the case of disability and
one year in the case of death. At December 31, 2009, the fair market value of
accelerated stock options would have been $72,480 for Mr. Giordano.
The
following table summarizes compensation paid to non-employee directors during
2009:
|
(a)
|
(b) | (c) | (d) | (e) | ||||||||||||
|
Name
|
Fees
Earned or
Paid
in Cash
|
Option
Awards(2)
|
All
Other
Compensation
|
Total
|
||||||||||||
|
Edward
W. Rose, III
|
$ | 78,775 | (1) | $ | 77,274 | $ | 30,000 | (3) | $ | 186,049 | ||||||
|
James
F. Gero
|
$ | 89,125 | (1) | $ | 77,274 | $ | - | $ | 166,399 | |||||||
|
Fredrick
B. Hegi, Jr.
|
$ | 85,100 | (1) | $ | 77,274 | $ | - | $ | 162,374 | |||||||
|
David
A. Reed
|
$ | 89,500 | $ | 77,274 | $ | - | $ | 166,774 | ||||||||
|
John
B. Lowe, Jr.
|
$ | 76,475 | (1) | $ | 77,274 | $ | - | $ | 153,749 | |||||||
| $ | 418,975 | $ | 386,370 | $ | 30,000 | $ | 835,345 | |||||||||
|
(1)
|
Represents
the value, as of the date earned, of DSUs issued in lieu of cash
compensation in payment of directors’ fees. To encourage our directors’
long-term ownership of the Common Stock of the Company, the 2002 Plan
provides that non-employee directors may elect to accept DSUs in lieu of
cash compensation in payment of directors’ fees. The number of DSUs,
credited at the fair market value of the stock on the date earned, is equivalent to
115% of the earned fee. The DSUs are distributed in the form of shares of
Common Stock of the Company at the end of the deferral period selected by
the director, subject to earlier distribution upon death, disability, or
certain changes of control of the Company. Until shares representing the
deferred stock are distributed, the director does not have any rights of a
stockholder of the Company with respect to such shares, other than to
receive dividends in DSUs if dividends are issued to stockholders. There
were an aggregate of 73,544 DSUs outstanding for directors at December 31,
2009.
|
|
(2)
|
Non-employee
directors are granted options to purchase the Company’s Common Stock each
year at an exercise price equivalent to the closing market price of the
Common Stock on the day before the grant. Amounts shown do not reflect
compensation actually received. Such amounts reflect the aggregate fair
value of stock options granted during the year. See Note 1 to the
Consolidated Financial Statements included in our applicable Annual
Reports on Form 10-K for the assumptions used in determining the fair
value of each option award based on the Black-Scholes option-pricing
model.
|
|
(3)
|
Supplemental
restricted bonus. See “Compensation Discussion and Analysis – Other
Compensation Programs – Supplemental Restricted
Bonus”.
|
Leigh J.
Abrams, Chairman of the Board, and CEO of the Company from 1984 until December
31, 2008, did not receive fees for serving as a director in 2009.
36
Discussion
of Director Compensation
Directors
who are employees of the Company do not receive additional fees or other
compensation for serving as directors. The following table sets forth the rate
of compensation paid to non-employee directors during 2009:
|
Compensation
|
Board
or
Committee
Chairperson(1)
|
Other
Directors(1)
|
||||||
|
Director
Annual Retainer
|
$ | 56,500 | $ | 32,500 | ||||
|
Director
Fee Per Board Meeting
|
$ | 2,500 | $ | 1,500 | ||||
|
Audit
Committee Annual Retainer
|
$ | 15,000 | $ | - | ||||
|
Audit
Committee Fee Per Meeting
|
$ | 3,000 | $ | 2,500 | ||||
|
Compensation
Committee Annual Retainer
|
$ | 5,000 | $ | - | ||||
|
Compensation
Committee Fee Per Meeting
|
$ | 2,000 | $ | 1,500 | ||||
|
Corporate
Governance and Nominating Committee Annual Retainer
|
$ | 5,000 | $ | - | ||||
|
Corporate
Governance and Nominating Committee Fee Per Meeting
|
$ | 2,000 | $ | 1,500 | ||||
|
(1)
|
The
annual retainer and meeting fees for all Directors in 2009 was unchanged
from 2008, and will remain unchanged for
2010.
|
Compensation
Committee Interlocks and Insider Participation
No
executive officer of the Company serves on the Compensation Committee and there
are no “interlocks”, as defined by the SEC.
The
Company currently has approximately 3,000 employees and seeks to employ the most
qualified candidates. Consequently, the Company does not preclude the hiring of
family members of incumbent directors and executive officers. The compensation
of each of the following employees was established in accordance with the
Company’s employment and compensation practices applicable to employees with
equivalent qualifications, experience and responsibilities.
During
2009, the Company employed at Lippert Components Jason D. Lippert, as Chairman,
President and Chief Executive Officer, who received total salary and incentive
compensation of $944,569 (see “Compensation Discussion and Analysis” and Summary
Compensation Table), and Jarod Lippert, as Information Systems Project
Specialist, who received salary and bonus of $80,736. Jason D. Lippert and Jarod
Lippert, brothers, and have been employed by Lippert Components in excess of
sixteen and eight years, respectively.
The
Company’s written Guidelines for Business Conduct, applicable to all directors,
officers and management-level employees, provides that any interests or
activities of a director, officer or applicable employee that could, or could
appear to, create a conflict of interest must be disclosed by a director or
officer of the Company to the Chief Executive Officer of the Company, or by an
officer of any of our subsidiaries to the chief executive officer of the
subsidiary with which the person is employed. If the chief executive officer of
the subsidiary determines that a waiver of the conflict of interest may be
appropriate, a written waiver must be obtained from the Chief Executive Officer
of the Company upon approval of our Audit Committee. If the Chief Executive
Officer of the Company determines that a waiver may be appropriate for a
director or officer of the Company, he must obtain approval of the Audit
Committee. A conflict of interest exists if the director, officer or applicable
employee has any interests or activities outside the Company that he or she
could benefit from to the detriment of the Company, or that could, or could
appear to, influence his or her actions on behalf of the Company.
Section
145 of the Delaware General Corporation Law empowers a domestic corporation to
indemnify any of its officers, directors, employees or agents against expenses,
including reasonable attorney’s fees, judgments, fines and amounts paid in
settlement which were actually and reasonably incurred by such person in
connection with any action, suit or similar proceeding brought against them
because of their status as officers, directors, employees or agents of the
Company if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Company. If the claim was brought against any such person by or in the right of
the Company, the Company may indemnify such person for such expenses if such
person acted in good faith and in a manner reasonably believed by such person to
be in or not opposed to the best interests of the Company, except no indemnity
shall be paid if such person shall be adjudged to be liable for negligence or
misconduct unless a court of competent jurisdiction, upon application,
nevertheless permits such indemnity (to all or part of such expenses) in view of
all the circumstances.
37
The
Company’s Restated Certificate of Incorporation provides that the Company may
indemnify its officers, directors, employees or agents to the full extent
permitted by Section 145 of the Delaware General Corporation Law. Accordingly,
no director of the Company is liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director’s duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit.
The
Company has Indemnification Agreements with each of its directors and executive
officers (and the executive officers of its subsidiaries, Kinro and Lippert
Components). The agreements incorporate into contract the Company’s existing
obligations for indemnification and advancement of indemnifiable expenses which
currently are included in the Company’s Restated Certificate of Incorporation
and Amended By-laws, and as provided by Section 145 of the Delaware General
Corporation Law. Management believes that it is in the best interests of the
Company to make service to the Company more attractive to existing and
prospective directors and executive officers by virtue of the security afforded
by contract.
Proposal
2. REAPPROVAL OF PERFORMANCE CRITERIA UNDER 2002 EQUITY AWARD AND INCENTIVE
PLAN
The
Board of Directors and its Compensation Committee are requesting stockholders to
reapprove the material terms of the performance criteria that apply to incentive
awards under the Drew Industries Incorporated 2002 Equity Award and Incentive
Plan (as amended, the “2002 Plan”). The Company’s stockholders originally
approved the 2002 Plan at the April 2002 Annual Meeting of Stockholders. The
full text of the 2002 Plan is set forth as Appendix A to this Proxy
Statement.
Reapproval
of the performance criteria is required under Section 162(m) of the
Internal Revenue Code of 1986, as amended (the Code) in order for the Company to
preserve its ability to have the benefit of a federal tax deduction for
performance-based awards under the 2002 Plan. Section 162(m) of the Code
limits the deductions a publicly-held company can claim for compensation in
excess of $1 million in a given year paid to the Chief Executive Officer
and the three other most highly compensated executive officers (other than the
Chief Financial Officer) serving on the last day of the fiscal year.
“Performance-based” compensation that meets certain requirements is not counted
against the $1 million maximum deductibility, and therefore remains fully
deductible, by the Company.
In
accordance with Section 162(m), the Company is seeking stockholder reapproval of
the performance criteria that apply to awards under the 2002 Plan in order to
meet a key requirement for certain awards made by the Company to qualify as
“performance-based” under Section 162(m). If stockholders fail to approve
the proposal, the Company will still be able to make awards under the 2002 Plan,
but some awards paid to our senior executives would not be deductible, resulting
in an additional cost to the Company.
You are
NOT being asked to approve any amendment to the 2002 Plan.
Performance
Criteria under the 2002 Plan
The 2002
Plan provides that the Compensation Committee has the authority to select award
recipients, determine the type, size and other terms and conditions of the
award, and make all other decisions and determinations as may be required under
the terms of the 2002 Plan or as the Compensation Committee may deem necessary
or advisable for the administration of the 2002 Plan.
The
Compensation Committee may require satisfaction of pre-established performance
goals, consisting of one or more business criteria and a targeted performance
level with respect to such criteria, as a condition of awards being granted or
becoming exercisable or settleable under the 2002 Plan, or as a condition to
accelerating the timing of such events. If so determined by the Compensation
Committee, to avoid the limitations on deductibility under Code Section 162(m),
the business criteria used by the Committee in establishing performance goals
applicable to performance awards will be selected from among the following: (1)
growth in revenues or assets; (2) earnings from operations, earnings before or
after taxes, earnings before or after interest, depreciation, amortization, or
extraordinary or special items; (3) net income or net income per common share
(basic or diluted); (4) return on assets, return on investment, return on
capital, or return on equity; (5) cash flow, free cash flow, cash flow return on
investment, or net cash provided by operations; (6) interest expense after
taxes; (7) economic profit; (8) operating profit, operating margin or gross
margin; (9) stock price or total stockholder return; and (10) strategic business
criteria, consisting of one or more objectives based on market penetration,
geographic business expansion goals, cost targets, customer satisfaction,
employee satisfaction, management of employment practices and employee
benefits, supervision of litigation and information technology, and
goals relating to acquisitions or divestitures. The Compensation Committee may
specify that any such criteria will be measured before or after extraordinary or
non-recurring items, before or after service fees, or before or after payments
of awards under the 2002 Plan. The Compensation Committee may set the levels of
performance required in connection with performance awards as fixed
amounts, goals relative to performance in prior periods, goals
compared to the performance of one or more comparable companies or an index
covering multiple companies, goals relating to acquisitions, or in any other way
the Compensation Committee may determine.
38
The
affirmative vote of a majority of the shares of Common Stock present or
represented by proxy and voting at the Annual Meeting is required to ratify the
reapproval of performance criteria under the 2002 Plan.
Management
recommends that you vote FOR reapproval of the performance criteria under the
2002 Plan.
It is
proposed that the stockholders ratify the appointment by the Board of Directors
of KPMG LLP as independent auditors for the purpose of auditing and reporting
upon the consolidated financial statements and internal control over financial
reporting of the Company for the year ending December 31, 2010. KPMG LLP is a
registered public accounting firm. It is expected that a representative of that
firm will be present at the Annual Meeting of Stockholders to be held on May 19,
2010 and will be afforded the opportunity to make a statement and respond to
appropriate questions from stockholders present at the meeting.
The
affirmative vote of a majority of the shares of Common Stock present or
represented by proxy and voting at the Annual Meeting is required to ratify the
appointment of KPMG LLP.
Management
recommends that you vote FOR ratification of the appointment of KPMG LLP as
independent auditors for the year ending December 31, 2010.
The
following is a summary of the fees billed to the Company by KPMG LLP for
professional services rendered for the fiscal years ended December 31, 2009 and
2008:
|
2009
|
2008
|
|||||||
|
Audit
Fees:
|
||||||||
|
Consists
of fees billed for professional services rendered for the annual audit of
the Company’s financial statements and for the reviews of the interim
financial statements included in the Company’s Quarterly
Reports
|
$ | 961,000 | $ | 1,160,000 | ||||
|
Audit-Related
Fees:
|
||||||||
|
Consists
primarily of fees billed for assistance with regulatory filings and other
audit related services and filings
|
$ | 28,000 | $ | 28,000 | ||||
|
Tax
Fees:
|
||||||||
|
Consists
of fees billed for tax planning and compliance, assistance with the
preparation of tax returns, tax services rendered in connection with
acquisitions made by the Company and advice on other tax related
matters
|
$ | 14,500 | $ | - | ||||
|
All
Other Fees:
|
||||||||
|
Other
Services
|
$ | - | $ | - | ||||
|
Total All Fees
|
$ | 1,003,500 | $ | 1,188,000 | ||||
As part
of its duties, the Audit Committee is required to pre-approve audit and
non-audit services performed by the independent auditors in order to assure that
the provision of such services does not impair the auditors’ independence. The
Audit Committee does not delegate to management its responsibilities to
pre-approve services performed by the independent auditors.
In making
its recommendation to ratify the appointment of KPMG LLP as the Company’s
independent auditors for the fiscal year ending December 31, 2010, the Audit
Committee has determined that the non-audit services provided by KPMG LLP are
compatible with maintaining the independence of KPMG LLP.
As of the
date of this Proxy Statement, the only business which Management intends to
present or knows that others will present at the meeting is that set forth
herein. If any other matter or matters are properly brought before the meeting,
or any adjournment or postponement thereof, it is the intention of the persons
named in the form of Proxy solicited from holders of the Common Stock to vote
the Proxy on such matters in accordance with their judgment.
39
All
proposals which stockholders of the Company desire to have presented at the
Annual Meeting of Stockholders to be held in May 2011 must be received by the
Company at its principal executive offices on or before December 31,
2010.
|
By
Order of the Board of Directors
|
|
|
LEIGH
J. ABRAMS
|
|
|
Chairman
of the Board of Directors
|
April 6,
2010
40
Appendix A
DREW INDUSTRIES
INCORPORATED
2002 Equity Award and Incentive
Plan
(As Amended and Restated Effective
December 1, 2008)
Appendix A
Table of
Contents
|
Page
|
||
|
1.
|
Purpose
|
1
|
|
2.
|
Definitions
|
1
|
|
3.
|
Administration.
|
3
|
|
4.
|
Stock
Subject to Plan.
|
4
|
|
5.
|
Eligibility;
Per-Person Award Limitations
|
5
|
|
6.
|
Specific
Terms of Awards.
|
6
|
|
7.
|
Performance
Awards, Including Annual Incentive Awards.
|
9
|
|
8.
|
Certain
Provisions Applicable to Awards.
|
12
|
|
9.
|
Change
in Control.
|
12
|
|
10.
|
General
Provisions.
|
14
|
Appendix A
DREW INDUSTRIES INCORPORATED
2002 Equity Award and Incentive
Plan,
As Amended and Restated Effective
December 1, 2008
1. Purpose. The purpose of this 2002 Equity Award
and Incentive Plan (the “Plan”) is to aid Drew Industries Incorporated, a
Delaware corporation (the “Corporation”), in attracting, retaining, motivating
and rewarding employees, non-employee directors, and other persons who provide
substantial services to the Corporation or its subsidiaries or affiliates, to
provide for equitable and competitive compensation opportunities, to recognize
individual contributions and reward achievement of Corporation goals, and
promote the creation of long-term value for stockholders by closely aligning the
interests of Participants with those of stockholders. The Plan authorizes stock-based and
cash-based incentives for Participants.
2. Definitions. In addition to the terms defined in
Section 1 above and elsewhere in the Plan, the following capitalized terms used
in the Plan have the respective meanings set forth in this
Section:
(a) “Annual Incentive Award” means a type of
Performance Award granted to a Participant under Section 7(c) representing a
conditional right to receive cash, Stock or other Awards or payments, as
determined by the Committee, based on performance in a performance period of one
fiscal year or a portion thereof.
(b) “Award” means any Option, SAR,
Restricted Stock, Deferred Stock, Stock granted as a bonus or in lieu of another
award, Performance Award or Annual Incentive Award, together with any related
right or interest, granted to a Participant under the Plan.
(c) “Beneficiary” means the legal
representatives of the Participant’s estate entitled by will or the laws of
descent and distribution to receive the benefits under a Participant’s Award
upon a Participant’s death, provided that, if and to the extent authorized by
the Committee, a Participant may be permitted to designate a Beneficiary, in
which case the “Beneficiary” instead will be the person, persons, trust or
trusts (if any are then surviving) which have been designated by the Participant
in his or her most recent written beneficiary designation filed with the
Committee to receive the benefits specified under the Participant’s Award upon
such Participant’s death. Unless otherwise determined by the Committee, any
designation of a Beneficiary other than a Participant’s spouse shall be subject
to the written consent of such spouse.
(d) “Board” means the Corporation’s Board of
Directors.
(e) “Change in Control” and related terms
have the meanings specified in Section 9.
(f) “Code” means the Internal Revenue Code
of 1986, as amended. References to any provision of the Code or
regulation (including a proposed regulation) thereunder shall include any
successor provisions and regulations.
(g) “Committee” means a committee of two or
more directors designated by the Board to administer the Plan; provided,
however, that, directors appointed or serving as members of a Board committee
designated as the Committee shall not be employees of the Corporation or any
subsidiary or affiliate. In appointing members of the Committee, the
Board will consider whether a member is or will be a Qualified Member, but such
members are not required to be Qualified Members at the time of appointment or
during their term of service on the Committee. The full Board may
perform any function of the Committee hereunder, in which case the term
“Committee” shall refer to the Board.
1
Appendix A
(h) “Covered Employee” means an Eligible
Person who is a Covered Employee as specified in Section
10(j).
(i) “Deferred Stock” means a right, granted
to a Participant under Section 6(f), to receive Stock or other Awards or a
combination thereof at the end of a specified deferral
period.
(j) “Effective Date” means the effective
date specified in Section 10(q).
(k) “Eligible Person” has the meaning
specified in Section 5.
(l) “Exchange Act” means the Securities
Exchange Act of 1934, as amended. References to any provision of the
Exchange Act or rule (including a proposed rule) thereunder shall include any
successor provisions and rules.
(m) “Fair Market Value” of the Stock shall be determined in
good faith by the Committee in accordance with the provisions of Treasury
Department regulations 1.409A-1(b)(5)(iv)(A) and can be based upon the last sale
before or first sale after the date of determination, the closing price on the
trading day before or the trading day after the determination date, the
arithmetic mean of the high and low prices on the trading date of
determination, or any other reasonable method using actual transactions of the
Stock as reported for composite transactions in the New York Stock
Exchange.
(n) “Incentive Stock Option” or “ISO” means
any Option designated as an incentive stock option within the meaning of Code
Section 422 or any successor provision thereto and qualifying
thereunder.
(o) “Option” means a right, granted to a
Participant under Section 6(b), to purchase Stock or other Awards at a specified
price during specified time periods.
(p) “Participant” means a person who has
been granted an Award under the Plan which remains outstanding, including a
person who is no longer an Eligible Person.
(q) “Performance Award” means a right,
granted to a Participant under Sections 6(g) and 7, to receive Awards or
payments based upon performance criteria specified by the
Committee.
(r) “Preexisting Plan” means the Drew
Industries Incorporated Stock Option Plan Amended and Restated June 1,
1999.
2
Appendix A
(s) “Qualified Member” means a member of the
Committee who is a “Non-Employee Director” within the meaning of Rule
16b-3(b)(3) and an “outside director” within the meaning of Regulation 1.162-27
under Code Section 162(m).
(t) “Restricted Stock” means Stock granted
to a Participant under Section 6(e) that is subject to certain restrictions and
to a risk of forfeiture.
(u) “Rule 16b-3” means Rule 16b-3, as from
time to time in effect and applicable to Participants, promulgated by the
Securities and Exchange Commission under Section 16 of the Exchange
Act.
(v) “Stock” means the Corporation’s Common
Stock, par value $.01 per share, and any other equity securities of the
Corporation that may be substituted or resubstituted for Stock pursuant to
Section 10(c).
(w) “Stock Appreciation Rights” or “SAR”
means a right granted to a Participant under Section 6(c).
3. Administration.
(a) Authority of the
Committee. The Plan shall be administered by the
Committee, which shall have full and final authority, in each case subject to
and consistent with the provisions of the Plan, to select Eligible Persons to
become Participants; to grant Awards; to determine the type and number of
Awards, the dates on which Awards may be exercised and on which the risk of
forfeiture or deferral period relating to Awards shall lapse or terminate, the
acceleration of any such dates, the expiration date of any Award, whether, to
what extent, and under what circumstances an Award may be settled, or the
exercise price of an Award may be paid, in cash, Stock, other Awards, or other
property, and other terms and conditions of, and all other matters relating to,
Awards; to prescribe documents evidencing or setting terms of Awards (such Award
documents need not be identical for each Participant), amendments thereto, and
rules and regulations for the administration of the Plan and amendments thereto;
to construe and interpret the Plan and Award documents and correct defects,
supply omissions or reconcile inconsistencies therein; and to make all other
decisions and determinations as the Committee may deem necessary or advisable
for the administration of the Plan. Decisions of the Committee with respect
to the administration and interpretation of the Plan shall be final, conclusive, and
binding upon all persons interested in the Plan, including Participants,
Beneficiaries, transferees under Section 10(b) and other persons claiming rights
from or through a Participant, and stockholders. The foregoing notwithstanding, the Board
shall perform the functions of the Committee for purposes of granting Awards
under the Plan to non-employee directors (authority with respect to other
aspects of non-employee director awards is not exclusive to the Board,
however). The
foregoing notwithstanding, the Committee shall not have authority to accelerate
or otherwise provide for the times at which any Award is paid or delivered if
any Award is subject to Section 409A of the Code in a manner that would result
in the imposition upon any Participant of an additional tax under Section 409A
of the Code, and provided further, in the event that it is reasonably determined
by the Committee that, as a result of Section 409A of the Code, a Participant is
deemed to be a “specified employee” (within the meaning of Section
409A(a)(2)(B)(i) of the Code), payments and/or deliveries in respect of any
Award subject to Section 409A of the Code shall not be made prior to the date
which is six (6) months after the date of such Participant’s separation from
service (other than by death) from the Corporation and all subsidiaries,
determined in accordance with Section 409A of the Code and the regulations
promulgated thereunder. The Committee, to minimize or avoid any
sanction or damages to a Participant or Beneficiary, or to any other person
resulting from a violation of Code Section 409A under the Plan, may undertake
correction of any violation or participate in any available correction program,
as described in Notice 2008-113 or other Treasury or IRS
guidance.
3
Appendix A
(b) Manner of Exercise
of Committee Authority.
At any time that a member of
the Committee is not a Qualified Member, (i)
any action of the Committee relating to an Award intended by the Committee to
qualify as “performance-based compensation” within the meaning of Code Section
162(m) and regulations thereunder may be taken by a subcommittee, designated by
the Committee or the Board, composed solely of two or more Qualified Members,
and (ii) any action relating to an Award granted or to be granted to a
Participant who is then subject to Section 16 of the Exchange Act in respect of
the Corporation may be taken either by such a subcommittee or by the Committee
but with each such member who is not a Qualified Member abstaining or recusing
himself or herself from such action, provided that, upon such abstention or
recusal, the Committee remains composed of two or more Qualified Members. Such
action, authorized by such a subcommittee or by the Committee upon the
abstention or recusal of such non-Qualified Member(s), shall be the action of
the Committee for purposes of the Plan. The express grant of any
specific power to the Committee, and the taking of any action by the Committee,
shall not be construed as limiting any power or authority of the
Committee. The Committee may delegate to officers or managers of the
Corporation or any subsidiary or affiliate, or committees thereof, the
authority, subject to such terms as the Committee shall determine, to perform
such functions, including administrative functions, as the Committee may
determine, to the extent that such delegation will not result in the loss of an
exemption under Rule 16b-3(d) for Awards granted to Participants subject to
Section 16 of the Exchange Act in respect of the Corporation and will not cause
Awards intended to qualify as “performance-based compensation” under Code
Section 162(m) to fail to so qualify.
(c) Limitation of
Liability. The Committee and each member thereof,
and any person acting pursuant to authority delegated by the Committee, shall be
entitled, in good faith, to rely or act upon any report or other information
furnished by any executive officer, other officer or employee of the Corporation
or a subsidiary or affiliate, the Corporation’s independent auditors,
consultants or any other agents assisting in the administration of the
Plan. Members of the Committee, any person acting pursuant to
authority delegated by the Committee, and any officer or employee of the
Corporation or a subsidiary or affiliate acting at the direction or on behalf of
the Committee or a delegee shall not be personally liable for any action or
determination taken or made in good faith with respect to the Plan, and shall,
to the extent permitted by law, be fully indemnified and protected by the
Corporation with respect to any such action or
determination.
4. Stock Subject to
Plan.
(a) Overall Number of
Shares Available for Delivery. Subject to adjustment as provided in
Section 10(c), the total number of shares of Stock reserved and available for
delivery in connection with Awards under the Plan shall be (i) 3,700,000 (after giving effect to the
2-for-1 stock dividend of September 2005), plus (ii) the number of shares that
remain available for issuance under the Preexisting Plan after all awards
thereunder have been settled, plus (iii) the number of shares subject to awards
under the Preexisting Plan that become available in accordance with Section 4(b)
after the Effective Date; provided, however, (A) that the total number of shares
with respect to which ISOs may be granted shall not exceed the number specified
under clause (i) above, and (B) no more than 1,000,000 shares (after giving effect to the 2-for-1
stock dividend of September 2005) may be awarded under this Plan for
awards other than Options and/or SARs. Any shares of Stock delivered under the
Plan shall consist of authorized and unissued shares or treasury
shares.
4
Appendix A
(b) Share Counting
Rules. The Committee may adopt reasonable
counting procedures to ensure appropriate counting, avoid double counting (as,
for example, in the case of tandem or substitute awards) and make adjustments if
the number of shares of Stock actually delivered differs from the number of
shares previously counted in connection with an Award. Shares subject
to an Award or an award under the Preexisting Plan that is canceled, expired,
forfeited, settled in cash or otherwise terminated without a delivery of shares
to the Participant will again be available for Awards, and shares withheld in
payment of the exercise price or taxes relating to an Award or Preexisting Plan
award and shares equal to the number surrendered in payment of any exercise
price or taxes relating to an Award or Preexisting Plan award shall be deemed to
constitute shares not delivered to the Participant and shall be deemed to again
be available for Awards under the Plan. In addition, in the case of any Award
granted in substitution for an award of a company or business acquired by the
Corporation or a subsidiary or affiliate, shares issued or issuable in
connection with such substitute Award shall not be counted against the number of
shares reserved under the Plan, but shall be available under the Plan by virtue
of the Corporation’s assumption of the plan or arrangement of the acquired
company or business. This Section 4(b) shall apply to the number of
shares reserved and available for ISOs only to the extent consistent with
applicable regulations relating to ISOs under the Code.
(c) Repricings. Unless otherwise approved or ratified
by holders of a majority of the Corporation’s outstanding shares of Stock, no
shares authorized under this Plan shall be used for any award that could be
characterized as a “repricing” of outstanding options.
5. Eligibility;
Per-Person Award Limitations. Awards may be granted under the Plan
only to Eligible Persons. For purposes of the Plan, an “Eligible
Person” means an employee of the Corporation or any subsidiary or affiliate,
including any executive officer, a non-employee director of the Corporation, a
consultant or other person who provides substantial services to the Corporation
or a subsidiary or affiliate, and any person who has been offered employment by
the Corporation or a subsidiary or affiliate, provided that such prospective
employee may not receive any payment or exercise any right relating to an Award
until such person has commenced employment with the Corporation or a subsidiary
or affiliate. An employee on leave of absence may be considered as still in the
employ of the Corporation or a subsidiary or affiliate for purposes of
eligibility for participation in the Plan. In each calendar year
during any part of which the Plan is in effect, an Eligible Person may be
granted Awards intended to qualify as “performance-based compensation” under
Code Section 162(m) under each of Section 6(b), 6(c), 6(d), 6(e), 6(f), or 6(g)
relating to up to his or her Annual Limit (such Annual Limit to apply separately
to the type of Award authorized under each specified subsection). A
Participant’s Annual Limit, in any calendar year during any part of which the
Participant is then eligible under the Plan, shall equal 50,000 shares plus the
amount of the Participant’s unused Annual Limit relating to the same type of
Award as of the close of the previous year, subject to adjustment as provided in
Section 10(c). In the case of an Award which is not valued in a way
in which the limitation set forth in the preceding sentence would operate as an
effective limitation satisfying Treasury Regulation 1.162-27(e)(4) (including a
Performance Award under Section 7 not related to an Award specified in Section
6), an Eligible Person may not be granted Awards authorizing the earning during
any calendar year of an amount that exceeds the Participant’s Annual Limit,
which for this purpose shall equal $1,200,000 plus the amount of the
Participant’s unused cash Annual Limit as of the close of the previous year
(this limitation is separate and not affected by the number of Awards granted
during such calendar year subject to the limitation in the preceding sentence).
For this purpose, (i) “earning” means satisfying performance conditions so that
an amount becomes payable, without regard to whether it is to be paid currently
or on a deferred basis or continues to be subject to any service requirement or
other non-performance condition, and (ii) a Participant’s Annual Limit is used
to the extent an amount or number of shares may be potentially earned or paid
under an Award, regardless of whether such amount or shares are in fact earned
or paid.
5
Appendix A
6. Specific Terms of
Awards.
(a) General. Awards may be granted on the terms and
conditions set forth in this Section 6. In addition, the Committee
may impose on any Award or the exercise thereof, at the date of grant or
thereafter (subject to Section 10(e)), such additional terms and conditions, not
inconsistent with the provisions of the Plan, as the Committee shall determine,
including terms requiring forfeiture of Awards in the event of termination of
employment or service by the Participant and terms permitting a Participant to
make elections relating to his or her Award. The Committee shall
retain full power and discretion with respect to any term or condition of an
Award that is not mandatory under the Plan. The Committee shall
require the payment of lawful consideration for an Award to the extent necessary
to satisfy the requirements of the Delaware General Corporation Law, and may
otherwise require payment of consideration for an Award except as limited by the
Plan.
(b) Options. The Committee is authorized to grant
Options to Eligible Persons on the following terms and
conditions:
(i) Exercise
Price. The exercise price per share of Stock
purchasable under an Option (including both ISOs and non-qualified Options)
shall be determined by the Committee, provided that such exercise price shall be
not less than the Fair Market Value of a share of Stock on the date of grant of
such Option.
(ii) Option Term; Time
and Method of Exercise.
The Committee shall determine the term
of each Option, (provided that no term of any ISO or SAR in tandem therewith
will exceed ten years from the grant date), the circumstances under which on
Option may be exercised, the methods by which such exercise price may be paid,
the form of such payment (subject to Section 10(k)), (including through
“cashless exercise” arrangements, to the extent permitted by applicable law),
and the methods by or forms in which Stock will be delivered in satisfaction of
Options to Participants.
6
Appendix A
(iii) ISOs. The terms of any ISO granted under the
Plan shall comply in all respects with the provisions of Code Section
422.
(c) Stock Appreciation
Rights. The Committee is authorized to grant
SARs to Eligible Persons on the following terms and
conditions:
(i) Right to
Payment. An SAR shall confer on the Participant
to whom it is granted a right to receive, upon exercise thereof, the excess of
(A) the Fair Market Value of one share of Stock on the date of exercise (or, in
the case of a “Limited SAR,” the Fair Market Value determined by reference to
the Change in Control Price) over (B) the grant price of the SAR as determined
by the Committee.
(ii) Other
Terms. The Committee shall determine at the
date of grant or thereafter the time or times at which and the circumstances
under which an SAR may be exercised, the method of exercise and settlement, form
of consideration payable in settlement, forms in which Stock will be delivered
to Participants, and whether or not an SAR shall be free-standing or in tandem
or combination with another Award. Limited SARs that may only be
exercised in connection with a Change in Control or other event as specified by
the Committee may be granted on such terms, not inconsistent with this Section
6(c), as the Committee may determine.
(d) Bonus Stock and
Awards in Lieu of Obligations. The Committee is authorized to grant
Stock as a bonus, or to grant Stock or other Awards in lieu of obligations of
the Corporation or a subsidiary or affiliate to pay cash or deliver other
property under the Plan or under other plans or compensatory arrangements,
subject to such terms as shall be determined by the
Committee.
(e) Restricted
Stock. The Committee is authorized to grant
Restricted Stock to Eligible Persons on the following terms and
conditions:
(i) Grant and
Restrictions. Restricted Stock shall be subject to
such restrictions on transferability, risk of forfeiture and any other
restrictions the Committee may impose, which restrictions may lapse separately
or in combination at such times, under such circumstances (including based on
achievement of performance goals and/or future service requirements), in such
installments or otherwise and under such other circumstances as the Committee
may determine at the date of grant or thereafter; provided, however, that, subject to
Section 9, Restricted Stock shall not be transferable prior to the first
anniversary of the grant thereof. Except to the extent
restricted under the terms of the Plan and any Award document relating to the
Restricted Stock, a Participant granted Restricted Stock shall have all of the
rights of a stockholder, including the right to vote the Restricted Stock and
the right to receive dividends thereon (subject to any mandatory reinvestment or
other requirement imposed by the Committee).
(ii) Forfeiture. Except as otherwise determined by the
Committee, upon termination of employment or service during the applicable
restriction period, Restricted Stock that is at that time subject to
restrictions shall be forfeited and reacquired by the Corporation; provided that
the Committee may provide, by rule or regulation or in any Award document, or
may determine in any individual case, that restrictions or forfeiture conditions
relating to Restricted Stock will lapse in whole or in part, including in the
event of terminations resulting from specified causes.
7
Appendix A
(iii) Certificates for
Stock. Restricted Stock granted under the Plan
may be evidenced in such manner as the Committee shall determine. If
certificates representing Restricted Stock are registered in the name of the
Participant, the Committee may require that such certificates bear an
appropriate legend referring to the terms, conditions and restrictions
applicable to such Restricted Stock, that the Corporation retain physical
possession of the certificates, and that the Participant deliver a stock power
to the Corporation, endorsed in blank, relating to the Restricted
Stock.
(iv) Dividends and
Splits. As a condition to the grant of an Award
of Restricted Stock, the Committee may require that any dividends paid on a
share of Restricted Stock shall be either (A) paid with respect to such
Restricted Stock at the dividend payment date in cash, in kind, or in a number
of shares of unrestricted Stock having a Fair Market Value equal to the amount
of such dividends, or (B) automatically reinvested in additional Restricted
Stock or held in kind, which shall be subject to the same terms as applied to
the original Restricted Stock to which it relates, or (C) deferred as to
payment, either as a cash deferral or with the amount or value thereof
automatically deemed reinvested in shares of Deferred Stock, other Awards or
other investment vehicles, subject to such terms as the Committee shall
determine or permit a Participant to elect. Unless otherwise determined by the
Committee, Stock distributed in connection with a Stock split or Stock dividend,
and other property distributed as a dividend, shall be subject to restrictions
and a risk of forfeiture to the same extent as the Restricted Stock with respect
to which such Stock or other property has been distributed.
(f) Deferred
Stock. The Committee is authorized to grant
Deferred Stock to Eligible Persons, which are rights to receive Stock, other
Awards, or a combination thereof at the end of a specified deferral period,
subject to the following terms and conditions:
(i) Award and
Restrictions. Issuance of Stock will
occur upon expiration of the deferral period specified for an Award of Deferred
Stock by the Committee or, if permitted by the Committee, as elected by the
Participant. If
Participant is permitted to elect a deferral period for an Award of Deferred
Stock, the Participant shall submit an irrevocable deferral election (in a form
provided by the Committee) no later than December 31 of the year prior to the
year in which the Award of Deferred Stock is earned. The deferral
election will specify (A) permissible payment events as some or all of the
following affecting the Participant (i) separation from service; (ii) death;
(iii) disability, a specified time or pursuant to a fixed schedule; (iv) Change
in Control or (v) unforeseeable emergency, (B) the date on which payment shall
be made or begin and (C) the form of payment (i.e., in a lump-sum or
installments). All deferrals hereunder shall be accomplished in a
manner consistent with the requirements of Section 409A of the Code and the
regulations promulgated thereunder. In addition, Deferred Stock shall be
subject to such restrictions on transferability, risk of forfeiture and other
restrictions, if any, as the Committee may impose, which restrictions may lapse
at the expiration of the deferral period or at earlier specified times
(including based on achievement of performance goals and/or future service
requirements), separately or in combination, in installments or otherwise, and
under such other circumstances as the Committee may determine at the date of
grant or thereafter. Deferred Stock may be satisfied by delivery of Stock, other
Awards, or a combination thereof (subject to Section 10(k)), as determined by
the Committee at the date of grant or thereafter. The foregoing notwithstanding, in the
event that it is reasonably determined by the Committee that the Participant is
a “specified employee” (within the meaning of Section 409A(a)(2)(B)(i) of the
Code, payments or deliveries of Stock or other Awards in satisfaction of
Deferred Stock subject to Section 409A of the Code shall not be made prior to
the date which is six (6) months after the date of such Participant’s separation
from service (other than by death or disability) from the Corporation and all
subsidiaries, determined in accordance with Section 409A of the Code and the
regulations promulgated thereunder.
8
Appendix A
(ii) Forfeiture. Except as otherwise determined by the
Committee, upon termination of employment or service during the applicable
deferral period or portion thereof to which forfeiture conditions apply (as
provided in the Award document evidencing the Deferred Stock), all Deferred
Stock that is at that time subject to such forfeiture conditions shall be
forfeited; provided that the Committee may provide, by rule or regulation or in
any Award document, or may determine in any individual case, that restrictions
or forfeiture conditions relating to Deferred Stock will lapse in whole or in
part, including in the event of terminations resulting from specified
causes.
(g) Performance Awards.
Performance Awards, denominated in cash
or in Stock or other Awards, may be granted by the Committee in accordance with
Section 7.
7. Performance Awards, Including Annual
Incentive Awards.
(a) Performance Awards
Generally. The Committee is authorized to grant
Performance Awards on the terms and conditions specified in this Section
7. Performance Awards may be denominated as a cash amount, number of
shares of Stock, or specified number of other Awards (or a combination) that may
be earned upon achievement or satisfaction of performance conditions specified
by the Committee. In addition, the Committee may specify that any
other Award shall constitute a Performance Award by conditioning the right of a
Participant to exercise the Award or have it settled, and the timing thereof,
upon achievement or satisfaction of such performance conditions as may be
specified by the Committee. The Committee may use such business
criteria and other measures of performance as it may deem appropriate in
establishing any performance conditions, and may exercise its discretion to
reduce or increase the amounts payable under any Award subject to performance
conditions, except as limited under Sections 7(b) and 7(c) in the case of a
Performance Award intended to qualify as “performance-based compensation” under
Code Section 162(m).
(b) Performance Awards
Granted to Covered Employees. If the Committee determines that a
Performance Award to be granted to an Eligible Person who is designated by the
Committee as likely to be a Covered Employee should qualify as
“performance-based compensation” for purposes of Code Section 162(m), the grant,
exercise and/or settlement of such Performance Award shall be contingent upon
achievement of a pre-established performance goal and other
terms set forth in this Section 7(b).
(i) Performance Goal
Generally. The performance goal for such
Performance Awards shall consist of one or more business criteria and a targeted
level or levels of performance with respect to each of such criteria, as
specified by the Committee consistent with this Section 7(b). The
performance goal shall be objective and shall otherwise meet the requirements of
Code Section 162(m) and regulations thereunder (including Regulation 1.162-27
and successor regulations thereto), including the requirement that the level or
levels of performance targeted by the Committee result in the achievement of
performance goals being “substantially uncertain.” The Committee may
determine that such Performance Awards shall be granted, exercised and/or
settled upon achievement of one or more performance
goals. Performance goals may differ for Performance Awards granted to
any one Participant or to different Participants.
9
Appendix A
(ii) Business
Criteria. One or more of the following business
criteria for the Corporation, on a consolidated basis, and/or for specified
subsidiaries or affiliates or other business units of the Corporation shall be
used by the Committee in establishing performance goals for such Performance
Awards: (1) growth in revenues or assets; (2) earnings from
operations, earnings before or after taxes, earnings before or after interest,
depreciation, amortization, or extraordinary or special items; (3) net income or
net income per common share (basic or diluted); (4) return on assets, return on
investment, return on capital, or return on equity; (5) cash flow, free cash
flow, cash flow return on investment, or net cash provided by operations; (6)
interest expense after taxes; (7) economic profit; (8) operating profit,
operating margin or gross margin; (9) stock price or total stockholder return;
and (10) strategic business criteria, consisting of one or more objectives such
as market penetration, geographic business expansion goals, cost targets, customer or employee
satisfaction, management of employment practices and employee benefits,
supervision of litigation and information technology, and goals relating to
acquisitions or divestitures. The targeted level of performance with respect to
such business criteria may be established at such levels and in such terms as
the Committee may determine, in its discretion, including in absolute terms, as
a goal relative to performance in prior periods, or as a goal compared to the
performance of one or more comparable companies or an index covering multiple
companies.
(iii) Performance Period;
Timing for Establishing Performance Goals. Achievement of performance goals in respect of such
Performance Awards shall be measured over a performance period of at least 12 consecutive months in
which the Participant performs services, as specified by the
Committee. A performance goal shall be established in writing, not later than the earlier of (A) 90 days after the beginning of any
performance period applicable to such Performance Award or (B) the time 25% of such performance
period has elapsed, provided that the outcome must be substantially uncertain at
the time that the Committee establishes the performance goals. Notwithstanding anything
herein to the contrary, a performance period may be for a period of less than 12
consecutive months (a “Short Performance Period”) provided that the payment or
settlement of a Performance Award which relates to a Short Performance Period
shall (i) be made within the 2 ½ months following the end of the taxable year of
the Corporation which contains the last month of the Short Performance Period
and (ii) constitute a “short term deferral” within the meaning of Regulation
1.409A-1(b)(4) under Code Section 409A.
(iv) Settlement of
Performance Awards; Other Terms. Settlement of such
Performance Awards shall be in cash, Stock, other
Awards or other property, in the discretion of the Committee. The
Committee may, in its discretion, increase or reduce the amount of a settlement
otherwise to be made in connection with such Performance Awards, but may not
exercise discretion to increase any such amount payable to a Covered Employee in
respect of a Performance Award subject to this Section 7(b). Any
settlement which changes the form of payment from that originally specified
shall be implemented in a manner such that the Performance Award and other
related Awards do not, solely for that reason, fail to qualify as
“performance-based compensation” for purposes of Code Section
162(m). The Committee shall specify the circumstances in which such
Performance Awards shall be paid or forfeited in the event of termination of
employment by the Participant or other event (including a Change in Control)
prior to the end of a performance period or settlement of such Performance
Awards.
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Appendix A
(c) Annual Incentive
Awards Granted to Designated Covered Employees. The Committee may grant an Annual Incentive Award to
an Eligible Person who is designated by the Committee as likely to be a Covered
Employee. Such Annual Incentive Award will be intended to qualify as
“performance-based compensation” for purposes of Code Section 162(m), and
therefore its grant, exercise and/or settlement shall be contingent upon
achievement of pre-established performance goals and other terms set forth in
this Section 7(c).
(i) Grant of Annual
Incentive Awards. Not later than the earlier of 90 days
after the beginning of any performance period applicable to such Annual
Incentive Award or the time 25% of such performance period has elapsed, the
Committee shall determine the Covered Employees who will potentially receive
Annual Incentive Awards, and the amount(s) potentially payable thereunder, for
that performance period. The amount(s) potentially payable shall be
based upon the achievement of a performance goal or goals based on one or more
of the business criteria set forth in Section 7(b)(ii) in the given performance
period, as specified by the Committee. In all cases, the maximum Annual
Incentive Award of any Participant shall be subject to the limitation set forth
in Section 5.
(ii) Payout of Annual
Incentive Awards.
After the end of each performance
period, the Committee shall determine the amount, if any, of the Annual
Incentive Award for that performance period payable to each
Participant. The Committee may, in its discretion, determine that the
amount payable to any Participant as a final Annual Incentive Award shall be
reduced from the amount of his or her potential Annual Incentive Award,
including a determination to make no final Award whatsoever, but may not
exercise discretion to increase any such amount. The Committee shall
specify the circumstances in which an Annual Incentive Award shall be paid or
forfeited in the event of termination of employment by the Participant or other
event (including a Change in Control) prior to the end of a performance period
or settlement of such Annual Incentive Award.
(d) Written
Determinations. Determinations by the Committee as to
the establishment of performance goals, the amount potentially payable in
respect of Performance Awards and Annual Incentive Awards, the level of actual
achievement of the specified performance goals relating to Performance Awards
and Annual Incentive Awards, and the amount of any final Performance Award and
Annual Incentive Award shall be recorded in writing in the case of Performance
Awards intended to qualify under Section 162(m). Specifically, the
Committee shall certify in writing, in a manner conforming to applicable,
regulations under Section 162(m), prior to settlement of each such Award granted
to a Covered Employee, that the performance objective relating to the
Performance Award and other material terms of the Award upon which settlement of
the Award was conditioned have been satisfied.
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Appendix A
8. Certain Provisions
Applicable to Awards.
(a) Form and Timing of
Payment under Awards; Deferrals. Subject to the terms of the Plan and any applicable Award document,
payments to be made by the Corporation or a subsidiary or affiliate upon the
exercise of an Option or other Award or settlement of an Award may be made in
such forms as the Committee shall determine, and may be made in a single
payment, in installments, or on a deferred basis. The settlement of
any Award may be accelerated, and cash paid in lieu of Stock in connection with
such settlement, in the discretion of the Committee or upon occurrence of one or
more specified events (subject to Section 10(k)). Installment or
deferred payments may be required by the Committee (subject to Section 10(e)) or
permitted at the election of the Participant on terms and conditions established
by the Committee. Payments may include, without limitation,
provisions for the payment or crediting of reasonable interest on installment or
deferred payments.
(b) Exemptions from
Section 16(b) Liability. With respect to a
Participant who is then subject to the reporting requirements of
Section 16(a) of the Exchange Act in respect of the Corporation, transactions
under the Plan are intended to comply with all applicable conditions of Rule
16b-3 or its successors under the Exchange Act. To the extent that
compliance with any Plan provision applicable solely to such Participants is not
required in order to bring a transaction by such Participants into compliance
with Rule 16b-3, it shall be deemed null and void as to such transaction, to the
extent permitted by law and deemed advisable by the Committee. To the
extent any provision of the Plan or action by the Committee involving such
Participants is deemed not to comply with an applicable condition of Rule 16b-3,
it shall be deemed null and void as to such Participants, to the extent
permitted by law and deemed advisable by the Committee.
9. Change in Control.
(a) Effect of “Change in
Control” on Non-Performance Based Awards. In the event of a “Change in Control,”
the following provisions shall apply to non-performance based Awards, including
Awards as to which performance conditions previously have
been satisfied or are deemed satisfied under Section 9(b), unless
otherwise provided by the Committee in the Award document:
(i) All deferral of settlement, forfeiture
conditions and other restrictions applicable to Awards granted under the Plan
shall lapse and such Awards shall be fully payable as of the time of the Change
in Control without regard to deferral and vesting conditions, except to the
extent of any waiver by the Participant or other express election to defer
beyond a Change in Control and subject to applicable restrictions set forth in
Section 10(a);
(ii) Any Award carrying a right to exercise
that was not previously exercisable and vested shall become fully exercisable
and vested as of the time of the Change in Control and shall remain exercisable
and vested for the balance of the stated term of such Award without regard to
any termination of employment or service by the Participant other than a
termination for “cause” (as defined in any employment or severance agreement
between the Corporation or a subsidiary or affiliate and the Participant then in
effect or, if none, as defined by the Committee and in effect at the time of the
Change in Control), subject only to applicable restrictions set forth in Section
10(a); and
12
Appendix A
(iii) The Committee may, in its discretion,
determine to extend to any Participant who holds an Option the right to elect,
during the 60-day period immediately following the Change in Control, in lieu of
acquiring the shares of Stock covered by such Option, to receive in cash the
excess of the Change in Control Price over the exercise price of such Option,
multiplied by the number of shares of Stock covered by such Option, and to
extend to any Participant who holds other types of Awards denominated in shares
the right to elect, during the 60-day period immediately following the Change in
Control, in lieu of receiving the shares of Stock covered by such Award, to
receive in cash the Change in Control Price multiplied by the number of shares
of Stock covered by such Award.
(b) Effect of “Change in
Control” on Performance-Based Awards. In the event of a “Change in Control,” with respect to an
outstanding Award subject to achievement of performance goals and conditions,
such performance goals and conditions will be deemed to be met if and to the
extent so provided by the Committee in the Award document governing such Award
or other agreement with the Participant.
(c) Definition of
“Change in Control.” A “Change in Control” means, a change
(i) in the ownership of the Corporation (which shall occur when a “person” or
“group” [as determined for purposes of Section 13(d)(3) of the Securities
Exchange Act of 1934], except any majority-owned subsidiary of the Corporation
or any employee benefit plan of the Corporation or any trust thereunder,
acquires more than 50% of the voting power or fair market value of the Stock of
the Corporation); (ii) in the effective control of the Corporation (which shall
result from the acquisition, or acquisition during the 12-month period ending on
the date of the latest acquisition, by one or more persons acting as a group of
30% or more of the total voting power of the Stock of the Corporation or
replacement of a majority of the directors of the Corporation during any
12-month period by directors not endorsed by a majority of the board of
directors of the Corporation before appointment or election); or (iii) in the
ownership of a substantial portion of the assets of the Corporation (which shall
result from the acquisition, or acquisition during a 12-month period ending on
the date of the latest acquisition, by one or more persons [other than related
persons described in Treasury Regulation § 1.409A-3(i)(5)(vii)(B)] acting
as a group of all or substantially all of the assets of the Corporation), each
within the meaning of Treasury Regulation
§ 1.409A-3(i)(5).
An event constituting a Change of
Control must be objectively determinable and any certification thereof by the
Committee may not be subject to the discretion of the
Committee.
(d) Definition of
“Change in Control Price.” The “Change in Control Price” means an
amount in cash equal to the higher of (i) the amount of cash and Fair Market
Value of property that is the highest price per share paid (including
extraordinary dividends) in any transaction triggering the Change in Control or
any liquidation of shares following a sale of substantially all the assets of
the Corporation, or (ii) the highest Fair Market Value per share at any time
during the 60-day period preceding and 60-day period following the Change in
Control.
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Appendix A
10. General Provisions.
(a) Compliance with Legal and Other
Requirements. The Corporation may, to the extent deemed necessary or
advisable by the Committee, postpone the issuance or delivery of Stock or
payment of other benefits under any Award until completion of such registration
or qualification of such Stock or other required action under any federal or
state law, rule or regulation, listing or other required action with respect to
any stock exchange or automated quotation system upon which the Stock or other
securities of the Corporation are listed or quoted, or compliance with any other
obligation of the Corporation, as the Committee may consider appropriate, and
may require any Participant to make such representations, furnish such
information and comply with or be subject to such other conditions as it may
consider appropriate in connection with the issuance or delivery of Stock or
payment of other benefits in compliance with applicable laws, rules, and
regulations, listing requirements, or other obligations. The foregoing
notwithstanding, in connection with a Change in Control, the Corporation shall
take or cause to be taken no action, and shall undertake or permit to arise no
legal or contractual obligation, that results or would result in any
postponement of the issuance or delivery of Stock or payment of benefits under
any Award or the imposition of any other conditions on such issuance, delivery
or payment, to the extent that such postponement or other condition would
represent a greater burden on a Participant than existed on the 90th day
preceding the Change in Control.
(b) Limits on
Transferability; Beneficiaries. No Award or other right or interest of a
Participant under the Plan shall be pledged, hypothecated or otherwise
encumbered or subject to any lien, obligation or liability of such Participant
to any party (other than the Corporation or a subsidiary or affiliate thereof),
or assigned or transferred by such Participant otherwise than by will or the
laws of descent and distribution or to a Beneficiary upon the death of a
Participant, and such Awards or rights that may be exercisable shall be
exercised during the lifetime of the Participant only by the Participant or his
or her guardian or legal representative, except that Awards and other rights
(other than ISOs and SARs in tandem therewith) may be transferred to one or more
transferees during the lifetime of the Participant, and may be exercised by such
transferees in accordance with the terms of such Award, but only if and to the
extent such transfers are permitted by the Committee, subject to any terms and
conditions which the Committee may impose thereon (including limitations the
Committee may deem appropriate in order that offers and sales under the Plan
will meet applicable requirements of registration forms under the Securities Act
of 1933 specified by the SEC). A Beneficiary, transferee, or other person
claiming any rights under the Plan from or through any Participant shall be
subject to all terms and conditions of the Plan and any Award document
applicable to such Participant, except as otherwise determined by the Committee,
and to any additional terms and conditions deemed necessary or appropriate by
the Committee.
(c) Adjustments. In the event that any large, special and
non-recurring dividend or other distribution (whether in the form of cash or
property other than Stock), recapitalization, forward or reverse split, Stock
dividend, reorganization, merger, consolidation, spin-off, combination,
repurchase, share exchange, liquidation, dissolution or other similar corporate
transaction or event affects the Stock such that an adjustment is determined by
the Committee to be appropriate under the Plan, then the Committee shall, in
such manner as it may deem equitable, adjust any or all of (i) the number and
kind of shares of Stock which may be delivered in connection with Awards granted
thereafter, (ii) the number and kind of shares of Stock by which annual
per-person Award limitations are measured under Section 5, (iii) the number and
kind of shares of Stock (including without limitation whether such stock is’
restricted) subject to or deliverable in respect of outstanding Awards and (iv)
the exercise price, grant price or purchase price relating to any Award or, if
deemed appropriate, the Committee may make provision for a payment of cash or
property to the holder of an outstanding Option (subject to Section 10(k)). In
addition, the Committee is authorized to make adjustments in the terms,
conditions and criteria included in any Awards in recognition of unusual or
nonrecurring events affecting the Corporation or for any other reason deemed
relevant by the Committee acting in good faith; provided that no such adjustment
shall be authorized or made if and to the extent that the existence of such
authority (i) would cause Options, SARs, or Performance Awards granted under
Section 7 to Participants designated by the Committee as Covered Employees and
intended to qualify as “performance-based compensation” under Code Section
162(m) and regulations thereunder to otherwise fail to qualify as
“performance-based compensation” under Code Section 162(m) and regulations
thereunder, or (ii) would cause the Committee to be deemed to have authority to
change the targets, within the meaning of Treasury Regulation
1.162-27(e)(4)(vi), under the performance goals relating to Options or SARs
granted to Covered Employees and intended to qualify as “performance-based
compensation” under Code Section 162(m) and regulations
thereunder.
14
Appendix A
(d) Tax
Provisions.
(i) Withholding. The Corporation and any subsidiary or
affiliate is authorized to withhold from any Award granted, any payment relating
to an Award under the Plan, including from a distribution of Stock, or any
payroll or other payment to any employee Participant, amounts of withholding and
other taxes due or potentially payable in connection with any transaction
involving an Award, and to take such other action as the Committee may deem
advisable to enable the Corporation and employee Participants to satisfy
obligations for the payment of withholding taxes and other tax obligations
relating to any Award. This authority shall include authority to withhold or
receive Stock or other property and to make cash payments in respect thereof in
satisfaction of an employee Participant’s withholding obligations, either on a
mandatory or elective basis in the discretion of the Committee. Other
provisions of the Plan notwithstanding, only the minimum amount of Stock or cash
deliverable in connection with an Award necessary to satisfy statutory
withholding requirements will be withheld.
(ii) Requirement of
Notification of Code Section 83(b) Election. If any Participant shall
make an election under Section 83(b) of the Code (to include in gross income in
the year of transfer the amounts specified in Code Section 83(b)) or under a
similar provision of the laws of a jurisdiction outside the United States, such
Participant shall notify the Corporation of such election within ten days of
filing notice of the election with the Internal Revenue Service or other
governmental authority, in addition to any filing and notification required
pursuant to regulations issued under Code Section 83(b) or other applicable
provision.
(iii) Requirement of
Notification Upon Disqualifying Disposition Under Code Section
421(b). If any Participant shall make any
disposition of shares of Stock delivered pursuant to the exercise of an
Incentive Stock Option under the circumstances described in Code Section 421(b)
(relating to certain disqualifying dispositions), such Participant shall notify
the Corporation of such disposition within ten days thereof.
15
Appendix A
(e) Changes to the
Plan. The Board may suspend, terminate or
amend the Plan, or the Committee’s authority to grant Awards under the Plan,
without the consent of stockholders or Participants; provided, however, that no
such action, except with the consent of stockholders, may (a) increase the
maximum number of shares of Stock covered by the Plan or change the class of
employees who are Eligible Persons; (b) reduce the exercise price for any stock
options below the fair market value of the Common Stock on the date of the grant
of such option; (c) extend beyond 10 years from the date of the grant the period
within which any Award may be exercised; (d) extend the period during which
Awards may be granted; or (e) increase the Annual Limit; provided, further,
however, that any amendment to the Plan shall be submitted to the Corporation’s
stockholders for approval not later than the earliest annual meeting for which
the record date is after the date of such Board action if such stockholder
approval is required by any federal or state law or regulation or the rules of
any stock exchange or automated quotation system on which the Stock may then be
listed or quoted.
The Board
may amend the Plan at any time to comply with Section 409A of the Code
regulations promulgated thereunder and other Treasury or IRS guidance regarding
or affecting Code Section 409A, provided that such amendment will not result in
taxation to any Participant under Code Section 409A.
(f) Right of
Setoff. The Corporation or any subsidiary or
affiliate may, to the extent permitted by applicable law, deduct from and set
off against any amounts the Corporation or a subsidiary or affiliate may owe to
the Participant from time to time, including amounts payable in connection with
any Award, owed as wages, fringe benefits, or other compensation owed to the
Participant, such amounts as may be owed by the Participant to the Corporation,
although the Participant shall remain liable for any part of the Participant’s
payment obligation not satisfied through such deduction and setoff. By accepting
any Award granted hereunder, the Participant agrees to any deduction or setoff
under this Section 10(f).
(g) Unfunded Status of
Awards; Creation of Trusts.
The Plan is intended to constitute an
“unfunded” plan for incentive and deferred compensation. With respect
to any payments not yet made to a Participant or obligation to deliver Stock
pursuant to an Award, nothing contained in the Plan or any Award shall give any
such Participant any rights that are greater than those of a general creditor of
the Corporation; provided that the Committee may authorize the creation of
trusts and deposit therein cash, Stock, other Awards or other property, or make
other arrangements to meet the Corporation’s obligations under the
Plan. Such trusts or other arrangements shall be consistent with the
“unfunded” status of the Plan unless the Committee otherwise determines with the
consent of each affected Participant.
(h) Nonexclusivity of
the Plan. Neither the adoption of the Plan by the
Board nor its submission to the stockholders of the Corporation for approval
shall be construed as creating any limitations on the power of the Board or a
committee thereof to adopt such other incentive arrangements, apart from the
Plan, as it may deem desirable, including incentive arrangements and awards
which do not qualify under Code Section 162(m), and such other arrangements may
be either applicable generally or only in specific cases.
16
Appendix A
(i) Payments in the
Event of Forfeitures; Fractional Shares. Unless otherwise determined by the Committee, in the event of a
forfeiture of an Award with respect to which a Participant paid cash
consideration, the Participant shall be repaid the amount of such cash
consideration. No fractional shares of Stock shall be issued or
delivered pursuant to the Plan or any Award. The Committee shall
determine whether cash, other Awards or other property shall be issued or paid
in lieu of such fractional shares or whether such fractional shares or any
rights thereto shall be forfeited or otherwise eliminated.
(j) Compliance with Code
Section 162(m).
It is the intent of the Corporation that
Options and SARs granted to Covered Employees and other Awards designated as
Awards to Covered Employees subject to Section 7 shall constitute qualified
“performance-based compensation” within the meaning of Code Section 162(m) and
regulations thereunder, unless otherwise determined by the Committee at the time
of allocation of an Award. Accordingly, the terms of Sections 7(b),
(c), and (d), including the definitions of Covered Employee and other terms used
therein, shall be interpreted in a manner consistent with Code Section 162(m)
and regulations thereunder. The foregoing notwithstanding, because
the Committee cannot determine with certainty whether a given Participant will
be a Covered Employee with respect to a fiscal year that has not yet been
completed, the term Covered Employee as used herein shall mean only a person
designated by the Committee as likely to be a Covered Employee with respect to a
specified fiscal year. If any provision of the Plan or any Award
document relating to a Performance Award that is designated as intended to
comply with Code Section 162(m) does not comply or is inconsistent with the
requirements of Code Section 162(m) or regulations thereunder, such provision
shall be construed or deemed amended to the extent necessary to conform to such
requirements, and no provision shall be deemed to confer upon the Committee or
any other person discretion to increase the amount of compensation otherwise
payable in connection with any such Award upon attainment of the applicable
performance objectives.
(k) Certain Limitations
Relating to Accounting Treatment of Awards. Other provisions of the Plan notwithstanding, the
Committee’s authority under the Plan is limited to the extent necessary to
ensure that any Option or other Award of a type that the Committee has intended
to be subject to fixed accounting with a measurement date at the date of grant
or the date performance conditions are satisfied under APB 25 shall not become
subject to “variable” accounting solely due to the existence of such authority,
unless the Committee specifically determines that the Award shall remain
outstanding despite such “variable” accounting.
(l) Governing
Law. The validity, construction, and effect
of the Plan, any rules and regulations relating to the Plan and any Award
document shall be determined in accordance with the laws of the State of
Delaware, without giving effect to principles of conflicts of laws, and
applicable provisions of federal law.
(m) Awards to
Participants Outside the United States. The Committee may modify the terms of any Award under the Plan made
to or held by a Participant who is then resident or primarily employed outside
of the United States in any manner deemed by the Committee to be necessary or
appropriate in order that such Award shall conform to laws, regulations, and
customs of the country in which the Participant is then resident or primarily
employed, or so that the value and other benefits of the Award to the
Participant, as affected by foreign tax laws and other restrictions applicable
as a result of the Participant’s residence or employment abroad, shall be
comparable to the value of such an Award to a Participant who is resident or
primarily employed in the United States. An Award may be modified under this
Section 10(m) in a manner that is inconsistent with the express terms of the
Plan, so long as such modifications will not contravene any applicable law or
regulation or result in actual liability under Section 16(b) of the Exchange Act
for the Participant whose Award is modified.
17
Appendix A
(n) Limitation on Rights
Conferred under Plan.
Neither the Plan nor any action taken
hereunder shall be construed as (i) giving any Eligible Person or Participant
the right to continue as an Eligible Person or Participant or in the employ or
service of the Corporation or a subsidiary or affiliate, (ii) interfering in any
way with the right of the Corporation or a subsidiary or affiliate to -terminate
any Eligible Person’s or Participant’s employment or service at any time, (iii)
giving an Eligible Person or Participant any claim to be granted any Award under
the Plan or to be treated uniformly with other Participants and employees, or
(iv) conferring on a Participant any of the rights of a stockholder of the
Corporation unless and until the Participant is duly issued or transferred
shares of Stock in accordance with the terms of an Award or an Option is duly
exercised. Except as expressly provided in the Plan and an Award document,
neither the Plan nor any Award document shall confer on any person other than
the Corporation and the Participant any rights or remedies
thereunder.
(o) Severability; Entire
Agreement. If any of the provisions of this Plan
or any Award document is finally held to be invalid, illegal or unenforceable
(whether in whole or in part), such provision shall be deemed modified to the
extent, but only to the extent, of such invalidity, illegality or
unenforceability, and the remaining provisions shall not be affected thereby;
provided, that, if any of such provisions is finally held to be invalid,
illegal, or unenforceable because it exceeds the maximum scope determined to be
acceptable to permit such provision to be enforceable, such provision shall be
deemed to be modified to the minimum extent
necessary to modify such scope in order to make such provision enforceable
hereunder. The Plan and any Award documents contain the entire agreement of the
parties with respect to the subject matter thereof and supersede all prior
agreements, promises, covenants, arrangements, communications, representations
and warranties between them, whether written or oral with respect to the subject
matter thereof.
(p) Awards Under
Preexisting Plan.
Upon approval of the Plan by
stockholders of the Corporation as required under Section 10(q) hereof, no
further awards shall be granted under the Preexisting Plan.
(q) Plan Effective Date
and Termination.
The Plan shall become effective if, and
at such time as, the stockholders of the Corporation have approved it by the
affirmative votes of the holders of a majority of the voting securities of the
Corporation present, or represented, and entitled to vote on the subject matter
at a duly held meeting of stockholders. Unless earlier terminated by
action’ of the Board, the Plan will remain in effect until such time as no Stock
remains available for delivery under the Plan and the Corporation has no further
rights or obligations under the Plan with respect to outstanding Awards under
the Plan.
18
