SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Check the appropriate box:
[ ] Preliminary Proxy Statement
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[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sections 240.14a-11(c) or Section
240.14a-12
Patrick Industries, Inc.
--------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
--------------------------------------------------------------------------------
(Name Of Person(S) Filing Proxy Statement, if other than the Registrant)
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
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was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
PATRICK INDUSTRIES, INC.
1800 SOUTH 14TH STREET
P.O. BOX 638
ELKHART, INDIANA 46515
574-294-7511
------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 14, 2004
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Patrick
Industries, Inc., an Indiana corporation, will be held at the Company's Patrick
Metals Division offices, 5020 Lincolnway East, Mishawaka, Indiana, on Friday,
May 14, 2004 at 10:30 a.m., Mishawaka time, for the following purposes:
1. To elect three directors of the Company to serve until 2007.
2. To approve proposed amendments to the Company's 1987 Stock Option
Program.
3. To consider and transact such other business as may properly come before
the meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on March 16, 2004,
as the record date for the determination of the holders of shares of the
Company's outstanding Common Stock entitled to notice of and to vote at the
Annual Meeting of Shareholders. Each shareholder is entitled to one vote per
share on all matters to be voted on at the meeting.
Whether or not you expect to attend the meeting, you are urged to sign,
date, and return the enclosed proxy in the enclosed envelope.
By Order of the Board of Directors,
ANDY L. NEMETH
SECRETARY
April 9, 2004
PLEASE DATE, SIGN AND MAIL THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED WHICH
REQUIRES NO POSTAGE FOR MAILING IN THE UNITED STATES. A PROMPT RESPONSE IS
HELPFUL, AND YOUR COOPERATION WILL BE APPRECIATED.
PATRICK INDUSTRIES, INC.
1800 SOUTH 14TH STREET
P.O. BOX 638
ELKHART, INDIANA 46515
574-294-7511
---------------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 14, 2004
-------------------------------
This Proxy Statement is being mailed to shareholders of Patrick Industries,
Inc. (the "Company") on or about April 9, 2004, and is furnished in connection
with the Board of Directors' solicitation of proxies for the Annual Meeting of
Shareholders to be held on May 14, 2004 for the purpose of considering and
acting upon the matters specified in the Notice of Annual Meeting of
Shareholders accompanying this Proxy Statement. If the form of proxy which
accompanies this Proxy Statement is executed and returned, it may be revoked by
the person giving it at any time prior to the voting thereof by written notice
to the Secretary, by delivery of a later dated proxy, or by requesting to vote
in person at the meeting. Additional solicitations, in person or by telephone or
otherwise, may be made by certain directors, officers and employees of the
Company without additional compensation. Expenses incurred in the solicitation
of proxies, including postage, printing and handling, and actual expenses
incurred by brokerage houses, custodians, nominees, and fiduciaries in
forwarding documents to beneficial owners, will be paid by the Company.
The Annual Report to shareholders for the year ended December 31, 2003,
accompanies this Proxy Statement. Additional copies of the Annual Report may be
obtained by writing the Secretary of the Company.
VOTING INFORMATION
Each shareholder is entitled to one vote for each share of the Company's
Common Stock held as of the record date. For purposes of the meeting, a quorum
means a majority of the outstanding shares. As of the close of business on March
16, 2004, the record date for shareholders entitled to vote at the annual
meeting, there were outstanding 4,676,549 shares of Common Stock, entitled to
one vote each. In determining whether a quorum exists at the meeting, all shares
represented in person or by proxy will be counted. A shareholder may, with
respect to the election of directors, (i) vote for the election of all named
director nominees, (ii) withhold authority to vote for all named director
nominees, or (iii) vote for the election of all named director nominees other
than any nominee with respect to whom the shareholder withholds authority to
vote by so indicating in the appropriate space on the proxy. With respect to any
other proposals, a shareholder may vote for, against, or abstain. Proxies
properly executed and received by the Company prior to the meeting and not
revoked will be voted as directed therein on all matters presented at the
meeting. In the absence of a specific direction from the shareholder, proxies
will be voted for the election of all named director nominees.
The Directors are elected by a plurality of the votes cast by shares
present in person or by proxy at the Annual Meeting and entitled to vote.
Consequently, withholding authority to vote in the election of Directors will
have no effect on the election of directors. Any other matter which may properly
come before the meeting may be approved by a majority of the votes cast at a
meeting at which a quorum is present. Broker non-votes will have no effect on
any matter at the Annual Meeting.
The Board of Directors knows of no other matter which may come up for
action at the Annual Meeting. However, if any other matter properly comes before
the Annual Meeting, the persons named in the proxy form enclosed will vote in
accordance with their judgment upon such matter.
1
Shareholder proposals for inclusion in proxy materials for the next Annual
Meeting should be addressed to the Company's Secretary, P.O. Box 638, Elkhart,
Indiana 46515, and must be received no later than Friday, December 10, 2004. In
addition, the Company's By-laws require notice of any other business to be
brought before a meeting by a shareholder (but not included in the proxy
statement) to be delivered, in writing, to the Company's Secretary, together
with certain prescribed information, not less than 90 days nor more than 110
days prior to the first anniversary of the preceding year's annual meeting.
Likewise, the Articles of Incorporation and By-laws require that shareholder
nominations to the Board of Directors be delivered to the Secretary, together
with certain prescribed information in accordance with the procedures for
bringing business before an annual meeting which directors are to be elected.
STOCK OWNERSHIP INFORMATION
The following table sets forth, as of the record date, information
concerning the only parties known to the Company having beneficial ownership of
more than 5 percent of its outstanding Common Stock and information with respect
to the stock ownership of all directors and executive officers of the Company as
a group.
NUMBER OF
SHARES
BENEFICIALLY PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OF CLASS
------------------------------------ ----- --------
Mervin D. Lung . . . . . . . . . . . . . . . . . . . . . . . . . 931,721 19.92%
Chairman Emeritus of the Company
P.O. Box 638
Elkhart, Indiana 46515
Citigroup, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . 412,900 8.83%
399 Park Avenue
New York, NY 10043
Dimensional Fund Advisors, Inc.. . . . . . . . . . . . . . . . . 320,942 6.86%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
FMR Corp . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273,280 5.84%
25 Lovat Lane
Boston, Massachusetts 02109
Heartland Advisors, Inc. . . . . . . . . . . . . . . . . . . . . 460,225 9.84%
789 North Water Street
Milwaukee, Wisconsin 53202
Directors and Executive Officers as a group (13 persons) . . . .1,110,013 23.74%(1)
---------
(1) The stock ownership of the executive officers named in the Summary Compensation Table is set forth under the
heading "Election of Directors", except for Paul E. Hassler (1,500 shares), Alan M. Rzepka (250 shares), and Andy
L. Nemeth and Gregory J. Scharnott (0 shares each).
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that certain
of the Company's officers, its directors and 10% shareholders file with the
Securities and Exchange Commission and Nasdaq an initial statement of beneficial
ownership and certain statements of changes in beneficial ownership of Common
Stock of the Company. Based solely on its review of such forms received by the
Company and written representation from the directors and officers that no other
reports were required, the Company is unaware of any instances of noncompliance
or late compliance with such filings during the fiscal year ended December 31,
2003, except for Mervin D. Lung who was late in filing two Form 4s covering two
transactions.
2
ELECTION OF DIRECTORS
The Board of Directors is divided into three classes, with the members of
each class serving staggered three-year terms. Accordingly, at the 2004 Annual
Meeting three directors will be elected to hold office until the 2007 Annual
Meeting or until their successors are duly elected and qualified.
It is intended that the proxies will be voted for the nominees listed
below, unless otherwise indicated on the proxy form. It is expected that these
nominees will serve, but, if for any unforeseen cause any such nominee should
decline or be unable to serve, the proxies will be voted to fill any vacancy so
arising in accordance with the discretionary authority of the persons named in
the proxies.
The following information concerning principal occupations and the number
of shares of Common Stock of the Company owned beneficially as of March 16,
2004, has been furnished by the nominees and directors continuing in office:
COMMON PERCENT
FIRST STOCK OF
YEAR OF THE COMMON
PRINCIPAL OCCUPATION ELECTED COMPANY STOCK
NAME AND AGE AND OTHER DIRECTORSHIPS DIRECTOR OWNED(1) OWNED
------------ ----------------------- -------- -------- -----
Directors to Serve Until the 2007 Annual Meeting:
-------------------------------------------------
Keith V. Kankel, 61 . . . . . Interim President (Chief Executive 1977 19,686 less
Officer) since October, 2003. than 1%
Retired Vice President of Finance of
Patrick Industries, Inc. from 1987
through 2002 and retired Secretary-
Treasurer from 1974 through 2002.
Mervin D. Lung, 81 . . . . . Chairman Emeritus, President since 1961 931,721 19.92%
incorporation in 1961 until 1989,
and father of David D. Lung.
Harold E. Wyland, 67 . . . . Chairman in 2001. 1989 9,000 less
Retired Vice President of Sales, than 1%
of Patrick Industries, Inc. from
1990 through 1998.
Directors to Serve Until the 2005 Annual Meeting:
-------------------------------------------------
Robert C. Timmins, 82 . . . Retired Vice President and Director of 1987 51,300 1.10%
a Musical Instrument Company and
CPA and Partner of McGladrey &
Pullen (certified public accountants)
until 1985.
Terrence D. Brennan, 65 . . Retired President and CEO of NBD Bank, 1999 9,000 less
Elkhart, IN, from 1973 to 1997. than 1%
Larry D. Renbarger, 65. . Retired as CEO of Shelter Components 2002 16,500 less
in 1998. Currently serving on Boards for than 1%
Planet Earth, Inc. (retail science and nature
Stores), Therm-O-Lite, Inc. (manufacturer
of windows), and The Utility Bodywerks
(converter of mid-size trucks).
3
COMMON PERCENT
FIRST STOCK OF
YEAR OF THE COMMON
PRINCIPAL OCCUPATION ELECTED COMPANY STOCK
NAME AND AGE AND OTHER DIRECTORSHIPS DIRECTOR OWNED(1) OWNED
------------ ----------------------- -------- -------- -----
Nominees to Serve Until the 2006 Annual Meeting:
------------------------------------------------
Walter E. Wells, 65 . . . Retired President and CEO of Schult 2001 9,000 less
Homes Corporation and Director of than 1%
Pleasant Street, LLC (home builders).
David D. Lung, 56 . . . . . Former President (Chief Executive 1977 36,056 less
Officer) since 1989. than 1%
Son of Mervin D. Lung.
John H. McDermott, 72 . . . Of counsel to the Chicago, Illinois 1969 26,000 less
law firm of McDermott, Will & Emery, than 1%
which firm has been retained by the
Company since 1968 for certain legal
matters.
- - - - - - -
(1) Each individual has sole voting and dispositive power over the shares indicated.
4
PROPOSED AMENDMENTS TO 1987 STOCK OPTION PROGRAM
The Company's 1987 Stock Option Program (the "Program") was adopted by the
Board of Directors in 1987 and approved by the shareholders in the same year.
The purpose of the Program is to attract and retain highly qualified persons as
officers and key employees of the Company.
In 1994, the Program was amended to (i) extend the term of the Program to
the year 2004, (ii) increase the number of shares available for grants under the
Program to 600,000, (iii) change the class of eligible participants to include
non-employee directors, and (iv) add a per person limitation of 50,000 shares to
the number of shares which may be warded to any participant in any year during
the term of the Program to comply with the requirements of Section 162(m) of the
Internal Revenue Code. In 2001, the Program was amended to increase the number
of shares available for grants under the Program by 200,000 shares.
The Board of Directors has now amended the Program, subject to shareholder
approval, to extend the expiration date of the Program from May 17, 2004 to May
17, 2014 and to change the non-employee director awards from bi-annual awards of
6,000 shares vesting over a two-year period to annual awards of 3,000 shares to
vest over a one-year period.
The proposed amendments will permit the Company to continue to keep pace
with changing trends in management compensation and make the Company competitive
with those companies that offer stock incentives to attract and keep management
employees and non-employee directors.
A brief summary of the Program is provided below, but is qualified in its
entirety by reference to the full text of the Program that was filed
electronically with this Proxy Statement with the Securities and Exchange
Commission. Such text is not included in the printed version of this Proxy
statement. A copy of the Program is available from the Corporation's Secretary
at the address on the cover of this Proxy statement.
ELIGIBILITY FOR PARTICIPATION
Under the Program, the Company may grant stock options that may either be
incentive stock options or non-qualified stock options, related stock
appreciation rights and stock awards. Officers and other key employees of the
company are eligible to participate in the Program. In addition, and in
accordance with the proposed amendment, each non-employee director annually
receives a restricted stock award for 3,000 shares of Common stock upon election
to the Board which will vest after one year of continued service on the Board.
The previous agreement called for each non-employee director to bi-annually
receive a restricted stock award for 6,000 shares of Common Stock upon election
to the Board which vested after two years of continued service on the Board.
FEDERAL TAX TREATMENT
The grant of a stock option is not a taxable event. Upon exercise of a
stock option, the participant will have taxable income equal to the difference
between the fair market value on the date of exercise and the exercise price.
The non-employee directors who receive restricted stock awards will not
realize taxable income at the time of grant, and the Company will not be
entitled to a tax deduction at the time of grant, unless any such person makes
an election to be taxed at the time of grant. When the restrictions lapse, the
non-employee director will recognize taxable income in an amount equal to the
then fair market value of the shares. The Company will be entitled to a
corresponding tax deduction.
OTHER INFORMATION
The closing price of the Common Stock as reported on the NASDAQ/NMS for
March 16, 2004 was $9.55 per share.
The affirmative vote of holders of a majority of the shares represented and
entitled to vote at the meeting is required for approval of the amendments to
the 1987 Stock Option Program. Abstentions will count as a vote against the
proposal, and broker non-votes will have no effect on the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENTS TO THE
1987 STOCK OPTION PROGRAM.
5
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
----------------------
ANNUAL COMPENSATION SECURITIES
-------------------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS(#) COMPENSATION ($)(4)
--------------------------- ---- ---------- --------- ---------- -------------------
Keith V. Kankel 2003 72,369 9,000 (1) - - - 560
Interim President and CEO 2002 146,801 - - - - - - 480
2001 192,638 - - - 15,000 420
David D. Lung 2003 326,580 30,900 (1) - - - 480
Former President and CEO 2002 328,193 - - - - - - 480
2001 312,137 - - - 37,500 420
Alan M. Rzepka 2003 188,472 17,000 (1) - - - 465
Vice President Sales/Marketing 2002 186,550 - - - - - - 440
2001 177,777 - - - 7,500 420
Paul E. Hassler 2003 138,497 33,803 (2) - - - 395
Vice President Operations and 2002 135,333 44,478 (2) - - - 323
Distribution-West 2001 128,206 21,243 (2) 7,500 238
Gregory J. Scharnott 2003 155,040 13,000 (1) - - - 470
Vice President Operations and 2002 131,308 34,053 (3) - - - 268
Distribution-East 2001 99,188 34,556 (3) - - - - - -
Andy L. Nemeth 2003 163,460 13,000 (1) - - - 353
Vice President of Finance 2002 118,163 - - - - - - 236
Secretary-Treasurer 2001 95,975 - - - 1,875 192
- - - - - - - - -
(1) The bonus for the executive officers was a discretionary bonus awarded by the Board of Directors in February
2003. This award was based on management's efforts to contain costs as a result of the December 31, 2002
operating results.
(2) The bonus for Paul E. Hassler is related to compensation as an executive director of Western Operations. Mr.
Hassler was elected Vice President of Operations and Distribution West in December 2003 and subsequently
elected President and Chief Executive Officer of the Company effective April 5, 2004.
(3) The bonus for Gregory J. Scharnott for 2002 and 2001 is related to compensation as an executive director of the
Midwest regional business units. Mr. Scharnott joined the Company in February 2001.
(4) Company contributions to 401(k) Savings Plan.
EMPLOYMENT CONTRACTS
The Company entered into Employment Agreements with David Lung, Alan
Rzepka, and Paul Hassler pursuant to which they agreed to serve as executive
officers of the Company. The initial term of each Employment Agreement was for
three (3) years, subject to extension at the discretion of the Board of
Directors of the Company. The Agreements with David Lung, Alan Rzepka, and Paul
Hassler provide for a minimum annual base salary of $300,000, $165,000, and
$121,940, respectively, and expire on May 15, 2004. Extensions of these
agreements are under consideration by the Board of Directors at this time.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT FY- OPTIONS AT FY-
SHARES ACQUIRED END (#) END ($)*
ON EXERCISE VALUE REALIZED EXERCISABLE / EXERCISABLE /
NAME (#) ($) (1) NONEXERCISABLE NONEXERCISABLE
---- --------------- -------------- -------------- --------------
Keith V. Kankel . . . . . . . 20,625 $9,734 0/0 $0/0
David D. Lung . . . . . . . . - - - - - - 15,337/3,000 $31,636/6,405
Alan M. Rzepka . . . . . . . - - - - - - 16,500/3,000 $33,915/6,405
Paul E. Hassler . . . . . . . - - - - - - 12,000/1,500 $24,308/3,203
Andy L. Nemeth . . . . . . . - - - - - - 3,375/500 $6,878/1,068
Gregory J. Scharnott . . . . - - - - - - 0/0 $0/0
- - - -
* Market value of the underlying stock at exercise date or year-end as the case may be, minus the exercise price of the options.
(1) Represents the difference between the closing price of the Corporation's common stock on the date of exercise and the
exercise price of the option.
6
The following table presents the number of shares and weighted average
exercise price of equity compensation plans that have been approved by the
security holders.
EQUITY COMPENSATION PLAN INFORMATION
--------------------------- ------------------------------- ------------------------------- ----------------------------------------
Plan Category Number of securities to be Weighted-average exercise Number of securities remaining available
issued upon exercise of price of outstanding options, for future issuance under equity
outstanding options, warrants, warrants, and rights compensation plans (excluding securities
and rights reflected in column (a)
--------------------------- ------------------------------- ------------------------------- ----------------------------------------
Equity compensation plans 244,462 $6.24 459,968
approved by security
holders
--------------------------- ------------------------------- ------------------------------- ----------------------------------------
Equity compensation plans 0 N/A 0
not approved by security
holders
--------------------------- ------------------------------- ------------------------------- ----------------------------------------
Total 244,462 $6.24 459,968
--------------------------- ------------------------------- ------------------------------- ----------------------------------------
Certain of the executive officers of the Company have deferred compensation
agreements which provide that the Company will pay each of these employees or
their beneficiaries up to 40% of their base salary for 120 months upon
retirement (if the employee continues in the employment of the Company until the
age of 65) or upon the employee's death or total disability, up to a maximum of
$72,000 per year for Alan M. Rzepka, and 25% of base salary up to a maximum of
$25,000 per year for Paul E. Hassler. David D. Lung former President and Chief
Executive Officer of the Company has a deferred compensation agreement which is
fully vested that provides for payments of $61,500 per year for ten years upon
his reaching age 60. Keith V. Kankel has a deferred compensation agreement which
is fully vested and provides for payments of $72,000 per year for ten years. Mr.
Kankel's payments have been postponed during the term that he has served as
interim President and CEO of the Company and will resume after his employment
with the Company ends. The cost of these agreements is being funded with
insurance contracts purchased by the Company.
7
CORPORATE GOVERNANCE
GENERAL:
The Board believes that good corporate governance is important to ensure
that the Company is managed for the long-term benefit of the shareholders. The
Board annually reviews its corporate governance practices and policies as set
forth in its Corporate Governance Guidelines, Code of Ethics and various
Committee Charters, all of which were updated over the last year in accordance
with the listing standards of the NASDAQ national market and the new rules of
the SEC.
Our Code of Ethics, Audit Committee Charter, Compensation Committee
Charter, and Corporate Governance and Nominations Committee Charter are all
available on our Website at www.patrickind.com, or by writing to:
Patrick Industries, Inc.
Attn: Andy L. Nemeth
Secretary
P.O. Box 638
Elkhart, IN 46515
BOARD OF DIRECTORS, COMMITTEES, AND COMMITTEE REPORTS
BOARD OF DIRECTORS:
The Board of Directors had six regular meetings and two telephonic meetings
in 2003 and all directors attended all eight meetings. Non-employee directors
are paid an annual retainer of $5,000, $1,000 for each board meeting they
attend, and $1,000 for each committee meeting that they attend with a maximum of
$2,000 per combined event. Committee members receive an additional annual
retainer of $5,000, regardless of the number of committees on which they serve.
Employee directors receive no compensation as such. On an annual basis in May,
each non-employee director is automatically granted a restricted stock award for
3,000 shares of the Company's Common Stock which will vest upon such director's
continued service as a member of the Board of Directors for one year or earlier
upon certain events.
The Board and committees regularly meet in executive session without the
presence of any management directors or representatives. Robert C. Timmins,
Chair of the Audit Committee, was designated as the lead independent director
for 2004 and will preside over the executive sessions of the Board.
The Corporation expects all Board members to attend the annual meeting of
shareholders, but from time to time, other commitments may prevent all directors
from attending each meeting. All directors attended the most recent annual
meeting of shareholders, which was held on May 15, 2003.
INDEPENDENT DIRECTORS:
The Board of Directors is comprised of nine (9) members, of which, five (5)
are classified as independent directors and thus comprise a majority of the
Board. The five independent directors are Robert C. Timmins, Terrence D.
Brennan, John H. McDermott, Larry D. Renbarger, and Walter E. Wells. The
independent directors met 6 times in 2003.
CORPORATE GOVERNANCE AND NOMINATIONS COMMITTEE PROCESSES
The Corporate Governance and Nominations Committee will consider board
nominees recommended by shareholders. Those recommendations should be sent to
the Chair of the Corporate Governance and Nominations Committee, care of the
Corporate Secretary of Patrick Industries, Inc., P.O. Box 638, Elkhart, IN
46515. In order for a shareholder to nominate a candidate for director, under
the Company's By-Laws, timely notice of the nomination must be given in writing
to the Secretary of the Company. To be timely, such notice must be received at
the principal executive offices of the Company not less than 90 days, nor more
than 110 days prior to the next annual meeting of shareholders. Notice of
nomination must include the name, address and number of shares owned by the
person submitting the nomination; the name, age, business address, residence
address and principal occupation of the nominee; and the number of shares
beneficially owned by the nominee. It must also include the information that
would be required to be disclosed in the solicitation of proxies for election of
directors under the federal securities laws, as well as whether the individual
can understand basic financial statements and the candidate's other board
memberships (if any). The nominee's consent to be elected and serve must be
submitted. The Corporate Governance and Nominations Committee may require any
nominee to furnish any other information, within reason, that may be needed to
determine the eligibility of the nominee. As provided in its Charter, the
Corporate Governance and Nominations Committee will follow procedures which the
committee deems reasonable and appropriate in the identification of candidates
for election to the board and evaluating the background and qualification of
8
those candidates. Those processes include consideration of nominees suggested by
an outside search firm, by incumbent board members and by shareholders. The
committee will seek candidates having experience and abilities relevant to
serving as a director of the Company, and who represent the best interests of
shareholders as a whole and not any specific group or constituency.
The committee will consider a candidate's qualifications and background,
including, but not limited to responsibility for operating a public company or a
division of a public company, international business experience, a candidate's
technical background or professional qualification and any other public company
boards on which the candidate is a director. The committee will also consider
whether the candidate would be "independent" for purposes of the NASDAQ National
Market and rules and regulations of the Securities Exchange Commission. The
committee may from time to time engage the service of a professional search firm
to identify and evaluate potential nominees.
AUDIT COMMITTEE:
The Board of Directors has an Audit Committee comprised of Terrence D.
Brennan, Walter E. Wells, John H. McDermott, Robert C. Timmins, and Larry D.
Renbarger who are not employees of the Company. The Audit Committee's
responsibilities include recommending to the Board of Directors the independent
accountants to be employed for the purpose of conducting the annual examination
of the Company's financial statements, discussing with the independent
accountants the scope of their examination, reviewing the Company's financial
statements and the independent accountants' report thereon with Company
personnel and the independent accountants, and inviting the recommendations of
the independent accountants regarding internal controls and other matters.
Additionally, the Audit Committee is responsible for approving all non-audit
services provided by the independent accountants and reviews these engagements
on a per occurrence basis.
All of the members of the Audit Committee are independent as defined in the
Nasdaq listing standards and Robert C. Timmins, Larry, D. Renbarger, Terrence D.
Brennan, and Walter E. Wells all meet the qualifications required to be an audit
committee financial expert. Robert Timmins and Larry Renbarger both have public
accounting backgrounds. Terrence Brennan served as the President of NBD Bank in
Elkhart, Indiana and Walter Wells was the President and Chief Executive Officer
of Schult Homes. The Audit Committee met six times in 2003. The Audit Committee
Charter is attached in Exhibit A to this Document.
COMPENSATION COMMITTEE:
The Board of Directors has a Compensation Committee comprised of Terrence
D. Brennan, John H. McDermott, Larry D. Renbarger, Robert C. Timmins, and Walter
E. Wells which met four times in 2003. The primary responsibilities of this
committee include:
o Reviewing and recommending to the independent members of the Board the
overall compensation programs for the Officers of the Company.
o Review and recommend to the Board of Directors, the compensation of
directors.
o Oversight authority for the stock based compensation programs.
For a more detailed list of the roles and responsibilities of the
Compensation Committee, please see the Compensation Committee Charter located on
the Company's website at www.patrickind.com.
CORPORATE GOVERNANCE AND NOMINATIONS COMMITTEE:
The Board of Directors has a Corporate Governance and Nominations Committee
comprised of Terrence D. Brennan, John H. McDermott, Larry D. Renbarger, Robert
C. Timmins, and Walter E. Wells. This Committee met two times in 2003 and their
primary responsibilities are as follows:
o To assist the Board in identifying, screening, and recommending
qualified candidates to serve as directors.
o To recommend nominees to the Board to fill new positions or vacancies
as they occur.
o To recommend to the Board candidates for re-election by shareholders at
the annual meeting.
o To review and monitor corporate governance compliance as well as
recommend appropriate changes.
For a more detailed list of the roles and responsibilities of the Corporate
Governance and Nominations Committee functions, please see the Corporate
Governance and Nominations Committee Charter located on the Company's website at
www.patrickind.com.
9
AUDIT COMMITTEE REPORT
The responsibilities of the Audit Committee, which are set forth in the
Audit Committee Charter adopted by the Board of Directors, include providing
oversight to the Company's financial reporting process through periodic meetings
with the Company's independent auditors, principal accounting officer, and
management to review accounting, auditing, internal controls, and financial
reporting matters. The management of the Company is responsible for the
preparation and integrity of the financial reporting information and related
systems of internal controls. The Audit Committee, in carrying out its role,
relies on the Company's senior management, including senior financial
management, and its independent auditors.
We have reviewed and discussed with senior management the Company's audited
financial statements included in the 2003 Annual Report to Shareholders.
Management has confirmed to us that such financial statements (i) have been
prepared with integrity and objectivity and are the responsibility of management
and (ii) have been prepared in conformity with generally accepted accounting
principles.
We have discussed with McGladrey & Pullen, LLP, our independent auditors,
the matters required to be discussed by SAS 61 (Communications with Audit
Committee). SAS 61 requires our independent auditors to provide us with
additional information regarding the scope and results of their audit of the
Company's financial statements, including with respect to (i) their
responsibility under generally accepted auditing standards, (ii) significant
accounting policies, (iii) management judgements and estimates, (iv) any
significant audit adjustments, (v) any disagreements with management, and (vi)
any difficulties encountered in performing the audit.
We have received from McGladrey & Pullen, LLP a letter providing the
disclosures required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees) with respect to any
relationships between McGladrey & Pullen, LLP and the Company that in their
professional judgment may reasonably be thought to bear on independence.
McGladrey & Pullen, LLP has discussed its independence with us, and has
confirmed in such letter that, in its professional judgment, it is independent
of the Company within the meaning of the federal securities laws.
Based on the review and discussions described above with respect to the
Company's audited financial statements included in the Company's 2003 Annual
Report to Shareholders, we have recommended to the Board of Directors that such
financial statements be included in the Company's Annual Report on Form 10-K for
filing with the Securities and Exchange Commission.
As specified in the Audit Committee Charter, it is not the duty of the
Audit Committee to plan or conduct audits or to determine that the Company's
financial statements are complete and accurate and in accordance with generally
accepted accounting principles. That is the responsibility of management and the
Company's independent auditors. In giving our recommendation to the Board of
Directors, we have relied on (i) management's representation that such financial
statements have been prepared with integrity and objectivity and in conformity
with generally accepted accounting principles, and (ii) the report of the
Company's independent auditors with respect to such financial statements.
Robert C. Timmins
Terrence D. Brennan
John H. McDermott
Walter E. Wells
Larry D. Renbarger
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This report of the Compensation Committee and the following Performance
Graph shall not be deemed incorporated by reference by any general statement
incorporating by reference this Proxy Statement into any filing under the
Securities Act of 1933 or under the Securities Exchange Act of 1934, except to
the extent that the Company specifically incorporates this information by
reference, and shall not otherwise be deemed filed under such Acts.
OVERVIEW
The Committee policy is to design compensation programs for salaries,
incentive bonus programs, other benefits, and long-term incentive programs for
all key executives, including the officers named in the Summary Compensation
Table. The goals and objectives of the Committee are to attract and retain top
quality management employees and ensure that an appropriate relationship exists
between executive pay and the creation of shareholder value. The criteria used
to determine the compensation of the Chief Executive Officer will also be used
10
in determining compensation for the other officers. The Committee will also
receive the recommendation of the Chief Executive Officer regarding the
compensation of the other officers.
Federal tax law imposes a $1 million limit on the tax deduction for certain
executive compensation payments. Because the compensation paid to any executive
office is significantly below the $1 million threshold, the Compensation
Committee has not yet had to address the issues relative thereto.
SALARIES
The executive salaries are reviewed annually. The Committee sets executive
salaries based on competitive market levels, experience, individual and company
performance, levels of responsibility, and pay practices of other companies
relating to executives of similar responsibility. The Committee considered the
compensation levels of executives at comparable companies and fixed the
compensation for the CEO and other executive officers at levels approximating
the midrange of such companies. The Committee includes in its consideration
comparable companies listed in the CRSP Index for lumber and wood products and
other in building products industries. See "Performance Graph."
ANNUAL INCENTIVE
The Company provides an annual bonus plan for executive officers that gives
them the opportunity to earn additional compensation based on the performance of
the Company. The Chief Executive Officer and the other officers share in this
program to achieve certain bonus amounts based on various levels of
profitability of the Company.
Walter E. Wells
John H. McDermott
Terrence D. Brennan
Robert C. Timmins
Larry D. Renbarger
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Neither David D. Lung, former President and Chief Executive Officer of the
Company, nor Keith V. Kankel, Interim President and Chief Executive Officer of
the Company participated in the final decisions with respect to their
compensation. John H. McDermott is of counsel to the Chicago, Illinois law firm
of McDermott, Will & Emery which provides various legal services to the Company.
CERTAIN TRANSACTIONS
The Company leased a distribution warehouse and various facilities for its
manufacturing operations from Mervin D. Lung, the Company's Chairman Emeritus,
until May 2002 when it was purchased from Mervin D. Lung for $2,000,000. The
Company also leases two buildings from Mr. Lung used for distribution and
manufacturing, under an agreement expiring on September 30, 2004, with an option
to renew for five years. The agreement provides for monthly rental of $25,029,
and the payment of property taxes and insurance premiums on the property. The
Company also leases a manufacturing facility from Mr. Lung under an agreement
that expires on August 31, 2005 and the agreement provides for monthly rentals
of $9,146, and the payment of property taxes and insurance premiums on the
property. The Company also leases three manufacturing facilities from Mr. Lung
under agreements that expire on March 31, 2004 and July 31, 2004. The agreements
provide for monthly rentals of $23,410, and the payment for property taxes and
insurance premiums on the property. These agreements provide for an option to
renew on a month to month basis. The Company also leases an aircraft from Mr.
Lung under an agreement that expires on October 31, 2004. The agreement provides
for monthly rentals of $10,000, and the payment of insurance premiums and
maintenance on the aircraft.
Mr. Lung owns a building supply firm which does not serve the Manufactured
Housing and Recreational Vehicle industries. The Company purchases certain
specialty items from and sells products to such firm. During the year ended
December 31, 2003, purchases from such firm totaled $62,837 and sales to such
firm totaled $24,428.
The Company believes that the terms of each of the above transactions are
at least as favorable as those which could have been obtained from unrelated
parties.
11
PERFORMANCE GRAPH*
Set forth below is a line graph comparing the yearly cumulative total
shareholder return on the Company's Common Stock against the cumulative total
return of the indices indicated for the period of five fiscal years commencing
December 31, 1998 and ended December 31, 2003. This graph assumes that $100 was
invested on December 31, 1998 and that all dividends were reinvested. The stock
price performance shown on the graph below is not necessarily indicative of
future price performance.
[GRAPHIC OMITTED]
------------------------------------------------------------------------------------------------------------------------
LEGEND
Symbol CRSP Total Returns Index for: 12/1998 12/1999 12/2000 12/2001 12/2002 12/2003
------ ----------------------------- ------- ------- ------- ------- ------- -------
[omitted] PATRICK INDUSTRIES, INC. 100.0 60.9 38.8 49.0 45.8 58.5
[omitted] Nasdaq Stock Market (US Companies) 100.0 185.4 111.8 88.7 61.3 91.7
[omitted] NASDAQ Stocks (SIC 2400-2499 US Companies) 100.0 95.3 65.3 184.9 163.7 193.3
Lumber and wood products, except furniture
NOTES:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on
the previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a
trading day, the preceding trading day is used.
D. The index level for all series was set to $100.0 on 12/31/1998.
-------------------------------------------------------------------------------------------------------------------------
12
ACCOUNTING INFORMATION
The Audit Committee appointed McGladrey & Pullen, LLP as independent
auditors to audit the financial statements of the Company for 2003.
Representatives of McGladrey & Pullen, LLP are expected to be present at the
annual meeting and will be given the opportunity to make a statement if they
desire to do so and will be available to respond to appropriate questions.
The Audit Committee expects to appoint McGladrey & Pullen, LLP as the
independent auditors for the 2004 fiscal year subject to approval of the audit
scope and fees.
AUDIT FEES
The following table presents fees for professional audit services rendered
by McGladrey & Pullen, LLP for the audit of the Company's annual financial
statements for the years ended December 31, 2003 and 2002, and fees billed for
other services rendered by McGladrey & Pullen, LLP and RSM McGladrey, Inc. (an
affiliate of McGladrey & Pullen, LLP).
2003 2002
---- ----
Audit Fees (1) $130,388 $123,121
Audit-Related Fees (2) 12,785 18,931
Tax Services (3) 46,154 37,080
All Other Fees (4) 17,346 5,440
(1) Audit fees consist of fees for professional services rendered for the
audit of the Company's financial statements and review of financial
statements included in the Company's quarterly reports and services
normally provided by the independent auditor in connection with
statutory and regulatory filings or engagements.
(2) Audit-related fees are fees principally for professional services
rendered for the audit of the Company's employee benefit plans and due
diligence and technical accounting consulting and research.
(3) Tax services fees consist of compliance fees for the preparation of
original and amended tax returns, claims for refunds and tax payment
planning services for tax compliance, tax planning and tax advice. Tax
service fees also include fees relating to other tax advices, tax
consulting and planning other than for tax compliance and preparation.
(4) Other services consisted primarily of consulting services for
compensation strategy and wage comparisons.
The Audit Committee has advised the Company that it has determined that the
non-audit services rendered by the Company's independent auditors during the
Company's most recent fiscal year are compatible with maintaining the
independence of such auditors.
The Audit Committee has adopted a Pre-Approval policy for Audit and
Non-Audit Services pursuant to which it pre-approves all audit and non-audit
services provided by the independent auditors prior to each particular
engagement. The Committee has delegated authority to its Chairman to approve
proposed services other than the annual audit, tax and quarterly review services
and the Chairman must report any approvals to the balance of the Committee at
the next scheduled meeting.
By Order of the Board of Directors
ANDY L. NEMETH
Secretary
April 9, 2004
13
APPENDIX A:
PATRICK INDUSTRIES, INC.
AUDIT COMMITTEE CHARTER
PURPOSE
-------
The Audit Committee is appointed by the Board of Directors for the
primary purposes of:
o Assisting the Board of Directors in fulfilling its oversight
responsibilities as they relate to the Company's accounting
policies and internal controls, financial reporting practices,
audits of the Company's financial statements,and legal and
regulatory compliance, and
o Maintaining, through regularly scheduled meetings, a line of
communication between the Board of Directors and the Company's
financial management, internal auditors, and independent
accountants.
COMPOSITION AND QUALIFICATIONS
------------------------------
The Audit Committee shall be appointed by the Board of Directors and
shall be comprised of three or more Directors (as determined from time to time
by the Board), each of whom shall meet the independence requirements of the
Nasdaq Stock Market, Inc. Each member of the Audit Committee shall have the
ability to understand fundamental financial statements. In addition, at least
one member of the Audit Committee shall have past employment experience in
finance or accounting, professional certification in accounting, or any other
comparable experience or background which results in the individual's financial
sophistication, including being or having been a chief executive officer, chief
financial officer, or other senior officer with financial oversight
responsibilities.
RESPONSIBILITIES
----------------
The Audit Committee will:
(1) Review the annual audited financial statements with management and the
independent accountants. In connection with such review, the Audit
Committee will:
o Discuss with the independent accountants the matters required to be
discussed by Statement on Auditing Standards No. 61 relating to the
conduct of the audit.
o Review changes in accounting or auditing policies, including
resolution of any significant reporting or operational issues
affecting the financial statements.
o Inquire as to the existence and substance of any significant
accounting accruals, reserves or estimates made by management that
had or may have a material impact on the financial statements.
o Review with the independent accountants any problems encountered in
the course of their audit, including any change in the scope of the
planned audit work and any restrictions placed on the scope of such
work, any management letter provided by the independent
accountants, and management's response to such letter.
o Review with the independent accountants and the senior internal
auditing executive the adequacy of the Company's internal controls,
and any significant findings and recommendations.
(2) Review with management and the independent accountants the Company's
quarterly financial statements in advance of quarterly earnings
releases. This Committee may delegate this function to any one of the
Audit Committee Financial experts.
(3) Oversee the external audit coverage. The Company's independent
accountants are ultimately accountable to the Board of Directors and
the Audit Committee, which have the ultimate authority and
responsibility to select, evaluate, and, where appropriate, replace the
A1
independent accountants. In connection with its oversight of the
external audit coverage, the Audit Committee will:
o Have the sole authority for the appointment of the independent
accountants.
o Approve the engagement letter and the fees to be paid to the
independent accountants.
o Obtain confirmation and assurance as to the independent accountants
independence and absence of conflicts of interests, including
ensuring that they submit on a periodic basis (not less than
annually) to the Audit Committee a formal written statement
delineating all relationships between the independent accountants
and the Company. The Audit Committee is responsible for actively
engaging in a dialogue with the independent accountants with
respect to any disclosed relationships or services that may impact
the objectivity and independence of the independent accountants and
for recommending that the Board of Directors take appropriate
action in response to the independent accountants' report to
satisfy itself of their independence.
o Meet with the independent accountants prior to the annual audit to
discuss planning and staffing of the audit.
o Review and evaluate the performance of the independent accountants,
as the basis for a recommendation to the Board of Directors with
respect to reappointment or replacement.
o Ensure audit partner rotation.
(4) Oversee internal audit coverage. In connection with its oversight
responsibilities, the Audit Committee will:
o Review the appointment or replacement of the senior internal
auditing executive.
o Review, in consultation with management, the independent
accountants and the senior internal auditing executive, the plan
and scope of internal audit activities.
o Review internal audit activities, budget, and staffing.
o Review significant reports to management prepared by the internal
auditing department or the Company's independent accountants and
management's responses to such reports.
o Pre-approve all audit and permitted non-audit services.
(5) Meet periodically with management to review and assess the Company's
major financial risk exposures and the manner in which such risks are
being monitored and controlled.
(6) Meet at least annually in separate executive session with each of the
chief financial officer, the senior internal auditing executive, and
the independent accountants.
(7) Review periodically with the Company's General Counsel (i) legal and
regulatory matters which may have a material affect on the financial
statements, and (ii) corporate compliance policies or codes of conduct.
(8) Prepare the report of the Audit Committee required by the rules of the
Securities and Exchange Commission to be included in the proxy
statement for each annual meeting.
(9) Review and reassess annually the adequacy of this Audit Committee
Charter and recommend any proposed changes to the Board of Directors.
(10) The audit committee has the authority to engage independent counsel and
other advisers, as it deems necessary to carry out its duties.
(11) The audit committee will review and approve all related party
transactions
(12) The audit committee will be responsible for establishing procedures
related to (i) the receipt, retention, and treatment of complaints
regarding accounting, internal accounting controls, or auditing matters
and (ii) the confidential, anonymous submission by employees of
A2
concerns regarding questionable accounting or auditing matters. See
Company's Whistleblower Policy and Procedures which are published on
the Company's intranet (internal) website.
(13) The Company will provide for appropriate funding, as determined by the
audit committee, in its capacity as a committee of the board of
directors, for payment of:
a) Compensation to any registered public accounting firm engaged for
the purpose of preparing or issuing an audit report or performing
other audit, review, or attest services for the Company;
b) Compensation to any advisers employed by the audit committee under
paragraph (12) of this section;
c) Ordinary administrative expenses of the audit committee that are
necessary or appropriate in carrying out its duties.
(14) To assist it in the conduct of its responsibilities, the committee, to
the extent it deems necessary or appropriate, may consult with
management, may seek advice and assistance from Patrick employees or
others, and may retain legal counsel, and search firms. The Committee
has the authority to retain and terminate any search firm used to
identify director candidates and has the authority to approve such
firm's fees and other terms of retention.
(15) The Committee shall annually evaluate its own performance.
(16) In accordance with best practices, this charter will be posted on the
Company's website.
This Committee shall report regularly its findings and recommendations
to the Board. The Committee may delegate any of its responsibilities and duties
to one or more members of the Committee, except to the extent that such
delegation would be inconsistent with the requirements of the Securities
Exchange Act of 1934, as amended, or the listing rules of the NASDAQ national
market.
While the Audit Committee has the responsibilities and powers set forth
in this Charter, it is not the duty of the Audit Committee to plan or conduct
audits or to determine that the Company's financial statements are complete and
accurate and are in accordance with generally accepted accounting principles.
This is the responsibility of management and the independent accountants. Nor is
it the duty of the Audit Committee to conduct investigations, to resolve
disagreements, if any, between management and the independent accountants or to
assure compliance with laws and regulations and the Company's corporate
policies.
A3
DETACH CARD
--------------------------------------------------------------------------------
PROXY
PATRICK INDUSTRIES, INC.
1800 SOUTH 14TH STREET, P.O. BOX 638, ELKHART, INDIANA 46515
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Keith V. Kankel and Andy L. Nemeth, and each of
them, as the undersigned's proxies, each with full power of substitution, to
represent and to vote, as designated below, all of the undersigned's Common
Stock in Patrick Industries, Inc. at the annual meeting of shareholders of
Patrick Industries, Inc. to be held on Friday, May 14, 2004, and at any
adjournment thereof, with the same authority as if the undersigned were
personally present.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSALS BELOW:
1. The Board of Directors recommends a vote FOR the listed nominees.
|_| FOR all nominees listed |_| WITHHOLD AUTHORITY
(except as marked to the contrary below). to vote for all nominees
listed below.
Nominees: Keith V. Kankel, Mervin D. Lung, Harold E. Wyland
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME ON THE SPACE PROVIDED BELOW.)
--------------------------------------------------------------------------------
2. Proposed Amendments to 1987 Stock Option Program. THE BOARD RECOMMENDS A VOTE
FOR THE AMENDMENTS.
|_| FOR |_| AGAINST |_| ABSTAIN
In their discretion, the Proxies are authorized to vote upon such other business
as may properly come before the meeting.
(Continued and to be signed on reverse side.)
DETACH CARD
--------------------------------------------------------------------------------
(Continued from the other side)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDERS. IF NO SPECIFIC DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE ELECTION OF DIRECTORS, AND FOR THE PROPOSED AMENDMENTS TO THE
1987 STOCK OPTION PROGRAM.
YOUR SIGNATURE ON THIS PROXY IS YOUR ACKNOWLEDGMENT OF RECEIPT OF THE
NOTICE OF MEETING AND PROXY STATEMENT.
Dated:________________,2004
-----------------------------
Signature
-----------------------------
(Signature if held jointly)
Please sign exactly as name appears hereon.
For joint accounts, all tenants must sign.
Executors, Administrators, Trustees, etc.
should so indicate when signing.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
2
Explanatory Note: the 1987 Stock Option Program
as further proposed to be amended is filed herewith
pursuant to Instruction 3 to Item 10 of Schedule 14A
and is not part of this proxy statement.
PATRICK INDUSTRIES, INC.
Amendment No. 2 to
1987 Stock Option Program,
As Amended and Restated
Section 3(b) is hereby amended, effective upon shareholder approval at
the annual meeting on May 14, 2004, to change the non-employee director awards
from bi-annual awards of 6,000 shares vesting over a two-year period to annual
awards of 3,000 shares vesting over a one-year period.
Section 12 (Term of Program and Amendment, Modification or Cancellation
of Benefits) is hereby amended, effective upon shareholder approval at the
annual meeting on May 14, 2004, to extend the expiration date of the Program
from May 17, 2004 to May 17, 2014.
In all other respects, the Program shall remain in full force and
effect.
PATRICK INDUSTRIES, INC.
Amendment No. 1 to
1987 Stock Option Program,
As Amended and Restated
Section 5 (Shares Reserved Under the Program) is hereby amended to
indicate that, effective upon shareholder approval at the annual meeting on May
15, 2001, 200,000 shares are hereby reserved for issuance under the Program in
addition to the shares previously reserved and currently available.
PATRICK INDUSTRIES, INC.
1987 STOCK OPTION PROGRAM
AS AMENDED AND RESTATED
1. Purpose. The purpose of Patrick Industries, Inc. 1987 Stock
Option Program (the "Program") is to attract and retain outstanding individuals
as officers and key employees of Patrick Industries, Inc. (the "Company") and
its subsidiaries, and to furnish incentives to such persons by providing such
persons opportunities to acquire Common Stock of the Company, or monetary
payments based on the value of such stock, or both, on advantageous terms as
herein provided. The Program will also enable the Company to attract and keep
non-employee directors.
2. Administration. The Program will be administered by a
committee (the "Committee") consisting of not less than three (3) members of the
Board of Directors who shall not be eligible to participate in the Program at
the time of Committee action or at any time within one (1) year prior thereto.
The Committee shall interpret the Program, prescribe, amend and rescind rules
and regulations relating hereto and make all other determinations necessary or
advisable for the administration of the Program. A majority of the members of
the Committee shall constitute a quorum and all determinations of the Committee
shall be made by a majority of its members. Any determination of the Committee
under the Program may be made without notice or meeting of the Committee by a
writing signed by a majority of the Committee members.
3. Participants. (a) Participants in the Program will consist
of such officers or other key employees of the Company and its subsidiaries as
the Committee in its sole discretion may designate from time to time to receive
benefits ("Benefits") under the Program. The Committee's designation of a
participant in any year shall not require the Committee to designate such person
to receive a Benefit in any other year. The Committee shall consider such
factors as it deems pertinent in selecting participants and in determining the
type and amount of their respective Benefits, including without limitation (i)
the financial condition of the Company; (ii) anticipated profits for the current
or future years; (iii) contributions of participants to the profitability and
development of the Company; and (iv) other compensation provided to
participants.
(b) In addition, each non-employee director of the Company
shall automatically be granted restricted stock awards for 6,000 shares of
Common Stock on May 17, 1994 (the date of the Company's Annual Meeting of
Shareholders) and thereafter bi-annually on the date of the Company's Annual
Meeting of Shareholders. These awards will vest after two years of continued
service on the Board or earlier if such director dies, becomes disabled or
retires from the Board at any time at or after age 80, or if there is a "Change
in Control" as hereinafter defined. "Disability" shall have the meaning ascribed
to such term in Section 22(e)(3) of the Internal Revenue Code of 1986, as
amended, or any successor provision. A "Change in Control" shall have the
meaning set forth in Exhibit A attached hereto. As new non-employee directors
are elected to the Board they will also automatically be granted restricted
stock awards for 6,000 shares of Common Stock on the terms set forth above.
4. Types of Benefits. Benefits under the Program may be
granted to participants other than non-employee directors in any one or a
combination of (a) Incentive Stock Options, (b) Non-qualified Stock Options, (c)
Stock Appreciation Rights, and (d) Stock Awards, all as described below in
paragraphs 6-9 hereof.
5. Shares Reserved under the Program. There is hereby reserved
for issuance under the Program Six Hundred Thousand (600,000) shares of Common
Stock. The shares reserved for issuance may be newly issued or treasury shares.
All of such shares may, but need not, be issued pursuant to the exercise of
Incentive Stock Options. The maximum number of shares of Common Stock which
shall be available for the award of Benefits to any participant in any fiscal
year of the Company shall not exceed 50,000 shares.
If there is a lapse, expiration, termination or cancellation
of any Benefit granted hereunder without the issuance of shares or payment of
cash thereunder, or if shares are issued under any Benefit and thereafter are
acquired by the Company pursuant to rights reserved upon the issuance thereof,
the shares subject to or reserved for such Benefit may again be used for new
Benefits under this Program; provided, however, that in no event may the number
of shares of Common Stock issued under this Program exceed the total number of
shares reserved for issuance hereunder.
6. Incentive Stock Options. Incentive Stock Options will
consist of options to purchase Common Stock at purchase prices not less than one
hundred percent (100%) of the fair market value of such stock on the date of
grant. Incentive Stock Options will be exercisable over not more than ten (10)
years after date of grant and shall terminate not later than three (3) months
after termination of employment for any reason other than disability, retirement
or death. In the event of termination of employment by reason of disability or
retirement, the right of the optionee to exercise an Incentive Stock Option
shall terminate not later than twelve (12) months after such termination of
employment. If the optionee should die while employed, within twelve (12) months
after termination of employment by reason of disability or retirement, or within
three (3) months after any other termination of employment, the right of the
optionee or his or her successor in interest to exercise an Incentive Stock
Option shall terminate not later than twelve (12) months after the date of
death. The aggregate fair market value (determined at the time the option is
granted) of shares of Common Stock with respect to which Incentive Stock Options
granted under the Program are exercisable for the first time by a participant
during any calendar year (under all option plans of the Company and its
subsidiary corporations) shall not exceed $100,000.
7. Non-qualified Stock Options. Non-qualified Stock Options
will consist of options to purchase Common Stock at purchase prices not less
than one hundred percent (100%) of the fair market value of such stock on the
date of grant. Non-qualified Stock Options will be exercisable over not more
than twelve (12) years after the date of grant and shall terminate not later
than six (6) months after termination of employment for any reason other than,
disability, retirement or death. In the event of termination of employment by
reason of disability or retirement, the right of the optionee to exercise a
Non-qualified Stock Option shall terminate not later than twelve (12) months
after such termination of employment. If the optionee should die while employed,
within twelve (12) months after termination of employment by reason of
disability or retirement, or within six (6) months after any other termination
of employment, the right of the optionee or his or her successor in interest to
2
exercise a Non-qualified Stock Option shall terminate not later than twelve (12)
months after the date of death.
8. Stock Appreciation Rights. The Committee may, in its
discretion, grant a Stock Appreciation Right to the holder of any stock option
granted hereunder. Such Stock Appreciation Rights shall be subject to such terms
and conditions consistent with the Program as the Committee shall impose from
time to time, including the following:
(a) A Stock Appreciation Right may be granted with respect to
a stock option at the time of its grant or at any time thereafter up to
six (6) months prior to its expiration.
(b) Stock Appreciation Rights will permit the holder to
surrender any related stock option or portion thereof which is then
exercisable and to elect to receive in exchange therefor cash in an
amount equal to:
(i) The excess of the fair market value on the date
of such election of one share of Common Stock over the option
price multiplied by
(ii) The number of shares covered by such option or
portion thereof which is so surrendered.
(c) The Committee shall have the discretion to satisfy a
participant's right to receive the amount of cash determined under
subparagraph (b) hereof, in whole or in part, by the delivery of Common
Stock valued as of the date of the participant's election.
(d) Each Stock Appreciation Right will be exercisable at the
time and to the extent the option to which it relates is exercisable.
(e) In the event of the exercise of a Stock Appreciation
Right, the number of shares reserved for issuance hereunder shall be
reduced by the number of shares covered by the stock option or portion
thereof surrendered.
9. Stock Awards. Stock Awards will consist of Common Stock
transferred to participants without other payment therefor as additional
compensation for services to the Company and its subsidiaries. Stock Awards
shall be subject to such terms and conditions as the Committee determines
appropriate, including, without limitation, restrictions on the sale or other
disposition of such shares and rights of the Company to reacquire such shares
upon termination of the participant's employment within specified periods.
10. Nontransferability. Each Benefit granted under this
Program shall not be transferable other than by will or the laws of descent and
distribution, and shall be exercisable, during the participant's lifetime, only
by the participant or the participant's guardian or legal representative.
Notwithstanding the foregoing, at the discretion of the Committee, an award of a
Benefit may permit the transferability of a Benefit by a participant solely to
members of the participant's immediate family or trusts or family partnerships
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for the benefit of such persons, subject to any restriction included in the
award of the Benefit.
11. Other Provisions. The award of any Benefit under the
Program may also be subject to other provisions (whether or not applicable to
the Benefit awarded to any other participant) as the Committee determines
appropriate, including, without limitation, provisions for the purchase of
Common Stock under stock options in installments, provisions for the payment of
the purchase price of shares under stock options by delivery of other shares of
Common Stock of the Company having a then fair market value equal to the
purchase price of such shares, provisions for the acceleration of exercisability
of Benefits in the event of change of control of the Company, such provisions as
may be appropriate to comply with federal or state securities laws and stock
exchange requirements and understandings or conditions as to the participant's
employment in addition to those specifically provided for under the Program.
12. Term of Program and Amendment, Modification or
Cancellation of Benefits. No Benefit shall be granted after May 17, 2004;
provided, however, that the terms and conditions applicable to any Benefits
granted prior to such date may at any time be amended, modified or cancelled by
mutual agreement between the Committee and the participant or such other persons
as may then have an interest therein, so long as any amendment or modification
does not increase the number of shares of Common Stock issuable under this
Program.
13. Taxes. The Company shall be entitled to withhold the
amount of any tax attributable to any amount payable or shares deliverable under
the Program after giving the person entitled to receive such amount or shares
notice as far in advance as practicable, and the Company may defer making
payment or delivery if any such tax may be pending unless and until indemnified
to its satisfaction. When a person is required to pay to the Company an amount
required to be withheld under applicable tax laws in connection with exercises
of Non-qualified Stock Options or other Benefits under the Plan, the Committee
may, in its discretion and subject to such rules as it may adopt, permit such
person to satisfy the obligation, in whole or in part, by electing to have the
Company withhold shares of Common Stock having a fair market value equal to the
amount required to be withheld. The election must be made on or before the date
that the amount of tax to be withheld is determined.
14. Fair Market Value. The fair market value of the Company's
Common Stock at any time shall be determined in such manner as the Committee may
deem equitable or required by applicable laws or regulations.
15. Adjustment Provisions.
(a) If the Company shall at any time change the number of
issued shares of Common Stock without new consideration to the Company (such as
by stock dividends or stock splits), the total number of shares reserved for
issuance under this Program and the number of shares covered by each outstanding
Benefit shall be adjusted so that the aggregate consideration payable to the
Company and the value of each such Benefit shall not be changed. The Committee
may also provide for the continuation of Benefits or for other equitable
adjustments after changes in the Common Stock resulting from reorganization,
sale, merger, consolidation or similar occurrence.
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(b) Notwithstanding any other provision of this Program, and
without affecting the number of shares otherwise reserved or available
hereunder, the Committee may authorize the issuance or assumption of Benefits in
connection with any merger, consolidation, acquisition of property or stock, or
reorganization upon such terms and conditions as it may deem appropriate.
(c) In the case of any merger, consolidation or combination of
the Company with or into another corporation, other than a merger, consolidation
or combination in which the Company is the continuing corporation and which does
not result in the outstanding Common Stock being converted into or exchanged for
different securities, cash or other property, or any combination thereof (an
"Acquisition"):
(i) any participant to whom a stock option has been
granted under the Program shall have the right (subject to the
provisions of the Program and any limitation applicable to
such option) thereafter and during the term of such option, to
receive upon exercise thereof the Acquisition Consideration
(as defined below) receivable upon such Acquisition by a
holder of the number of shares of Common Stock which might
have been obtained upon exercise of such option or portion
thereof, as the case may be, immediately prior to such
Acquisition;
(ii) any participant to whom a Stock Appreciation
Right has been granted under the Program shall have the right
(subject to the provisions of the Program and any limitation
applicable to such right) thereafter and during the term of
such right to receive upon exercise thereof the difference
between the aggregate Fair Market Value on the applicable date
(as set forth in such right) of the Acquisition Consideration
receivable upon such Acquisition by a holder of the number of
shares of Common Stock which might have been obtained upon
exercise of the option related thereto or any portion thereof,
as the case may be, immediately prior to such Acquisition and
the aggregate option price of such option.
The term "Acquisition Consideration" shall mean the kind and
amount of shares of the surviving or new corporation, cash, securities, evidence
of indebtedness, other property or any combination thereof receivable in respect
of one share of Common Stock of the Company upon consummation of an Acquisition.
16. Amendment and Termination of Program. The Board of
Directors of the Company may amend the Program from time to time or terminate
the Program at any time, but no such action shall reduce the then existing
amount of any participant's Benefit or adversely change the terms and conditions
thereof without the participant's consent. However, except for adjustments
expressly provided for herein, no amendment may (i) materially increase the
Benefits accruing to participants, (ii) materially increase the number of shares
which may be issued, or (iii) materially modify the requirements as to
eligibility for participation in the Program.
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17. Shareholder Approval. The Program as amended was restated
by the Board of Directors of the Company on February 10, 1994. The Program as
amended and restated and any Benefits relating to the amendments granted
thereunder shall be null and void if shareholder approval is not obtained within
twelve (12) months of the restatement of the Program by the Board of Directors.
6
EXHIBIT A
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A "Change in Control" shall be deemed to have occurred on the
first date on which either (i) any "person" (as that term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), other than Mervin D. Lung and his affiliates and associates,
becomes the "beneficial owners" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing at least
25% of the combined voting power of the Company's then outstanding securities,
or (ii) a majority of the individuals comprising the Company's Board of
Directors have not served in that capacity for the entire two-year period
immediately preceding such date, or (iii) a change occurs of a nature that would
be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A, promulgated under the Exchange Act or any successor disclosure
item; provided, however, that if the transaction, transactions or elections
shall have been approved by the affirmative vote of a majority of the Continuing
Directors, a Change in Control shall not be deemed to have occurred to the
extent so provided by the affirmative vote of a majority of those Continuing
Directors.
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