UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
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Check the appropriate box:
|_|[_] Preliminary Proxy Statement |_|[_] Soliciting Material Under Rule
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Commission Only (as permitted
by Rule 14a-6(e)(2))
|X|[X] Definitive Proxy Statement
|_|[_] Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14a-12
EMCOR GROUP, INC.
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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 thanOther Than the Registrant)
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EMCOR
Knowledge in action(TM)KNOWLEDGE IN ACTION(TM)
EMCOR GROUP, INC.
301 Merritt Seven
Corporate Park
Norwalk, Connecticut 06851
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NOTICE OF ANNUAL MEETING
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To the Stockholders of EMCOR Group, Inc.
The Annual Meeting of Stockholders of EMCOR Group, Inc. (the "Company")
will be held in the Central Park Room, The Drake Swissotel, 440 Park Avenue, New
York, New York, on Thursday, June 12, 200310, 2004 at 10:00 A.M. (local time) for the
following purposes:
1. To elect seven Directorsdirectors to serve until the next annual meeting and
until their successors are duly elected and qualified.
2. To approve adoption of the 2003 Non-Employee Directors' Stock Option
Plan.
3. To approve adoption of the 2003 Management Stock Incentive Plan.
4. To approve adoption of the Key Executive Incentive Bonus Plan.
5. To ratify the appointment of Ernst & Young LLP as independent
auditors for 2003.
6.2004.
3. To 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 April 17, 200315,
2004 as the record date for determination of stockholders entitled to receive
notice of, and to vote at, the Annual Meeting and any adjournment thereof.
YOUR ATTENTION IS RESPECTFULLY DIRECTED TO THE ACCOMPANYING PROXY
STATEMENT. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING IN PERSON, PLEASE
COMPLETE AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED, WHICH REQUIRES
NO POSTAGE IF MAILED IN THE UNITED STATES.
By Order of the Board of Directors
Sheldon I. Cammaker
SECRETARY
Norwalk, Connecticut
April 28, 200327, 2004
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EMCOR
Knowledge in action(TM)KNOWLEDGE IN ACTION(TM)
EMCOR GROUP, INC.
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PROXY STATEMENT
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2003-------------------------
2004 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JUNE 12, 2003
----------------------10, 2004
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The enclosed proxy is solicited by the Board of Directors of EMCOR
Group, Inc., a Delaware corporation (the "Company"), for use at the Annual
Meeting of Stockholders (the "Annual Meeting") to be held at 10:00 A.M. (local
time) on Thursday, June 12, 200310, 2004 in the Central Park Room, The Drake Swissotel,
440 Park Avenue, New York, New York and at any adjournment or postponement of
such meeting. The enclosed proxy may be revoked at any time before it is
exercised by delivering a written notice to the Secretary of the Company stating
that the proxy is revoked, by duly executing a duly exercised proxy bearing a later date and
presenting it to the Secretary of the Company, or by attending the Annual
Meeting and voting in person. Unless otherwise specified, the proxies from
holders of the Company's Common Stock, par value $.01 per share ("Common
Stock"), will be voted in favor of each proposal set forth in the Notice of
Annual Meeting.
As of April 17, 2003,15, 2004, the Company had outstanding 14,987,04715,135,157 shares of
Common Stock. Only stockholders of record of Common Stock at the close of
business on April 17, 200315, 2004 (the "Record Date") are entitled to notice of, and to
vote at, the Annual Meeting. Each share of Common Stock entitles the holder to
one vote at the Annual Meeting. The mailing address of the principal executive
office of the Company is 301 Merritt Seven, Corporate Park, Norwalk, Connecticut 06851, and the
approximate date on which this Proxy Statement and the accompanying proxy are
being first sent or given to stockholders is April 28,
2003.27, 2004.
The Common Stock was the only voting security of the Company
outstanding and entitled to vote on the Record Date. The holders of record of a
majority of the outstanding shares of Common Stock entitled to vote will
constitute a quorum for the transaction of business at the Annual Meeting.
Assuming the presence of a quorum at the Annual Meeting, the affirmative vote of
the holders of a plurality of the votes cast by the holders of shares of Common
Stock present in person or represented by proxy and entitled to vote at the
Annual Meeting is necessary for the election of Directors. The affirmative vote
of the holders of a majority of the shares of Common Stock present in person or
represented by proxy and entitled to vote at the Annual Meeting is required for
approval of
adoption of each of the 2003 Non-Employee Directors' Stock Option Plan, the 2003
Management Stock Incentive Plan, and the Key Executive Incentive Bonus Plan. The
affirmative vote of the holders of a majority of the shares of Common Stock
present in person or represented by proxy and entitled to vote at the Annual
Meeting is required for ratification of the appointment of independent auditors to audit the accounts of
the Company and its subsidiaries. With respect to an abstention from voting on
any matter and broker "non-votes", the shares will be considered present and
entitled to vote at the Annual Meeting for purposes of determining a quorum.
Abstentions will have the effect of a vote against each of
the proposalsany proposal brought before
the meeting, but will not have an effect on the election of Directors. A broker
"non-vote" occurs if a broker indicates on the proxy that it does not have
discretionary authority as to certain shares to vote on a particular proposal.
Accordingly, broker "non-votes" will be disregarded and will have no effect on
the outcome of the vote on that proposal.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERSCORPORATE GOVERNANCE
The following table sets forth asCompany has a long history of April 17, 2003 certain information
regarding beneficial ownershipgood corporate governance practices
that has greatly aided its long-term success. The Board of Directors of the
Common Stock by each person or group known
byCompany and management have recognized for many years the need for sound
corporate governance practices in fulfilling their respective duties and
responsibilities to stockholders. During the past year the Company has modified
its corporate governance practices to be a beneficial owner of more than five percentcomply with the new corporate governance
listing standards of the outstanding shares of Common Stock. Except as otherwise noted, to the Company's
knowledge, each person or group listed below has sole voting and investment
power with respect to the shares listed next to its name.
Number of Shares Percent
Name and Address of Beneficial Owner Beneficially Owned Owned
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Neuberger Berman, Inc. ................. 1,156,252(1) 7.7%
605 Third Avenue
New York New York 10158
FMR Corp ............................... 952,766(2) 6.4%
82 Devonshire Street
Boston, Massachusetts 02109
J.P. Morgan Chase & Co. ................ 747,520(3) 5.0%
270 Park Avenue
New York, New York 10017
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(1) As reported in Schedule 13G dated February 12, 2003 filed withStock Exchange and recently adopted rules and
regulations of the Securities and Exchange Commission ("SEC"Commission. In particular, the Board
of Directors has:
o adopted Corporate Governance Guidelines, which provide the
framework for the governance of the Company;
o adopted categorical Standards for Determining Director
Independence, under which six of the seven directors of the
Company are independent; the seventh being Mr. Frank T. MacInnis,
Chairman of the Board, Chief Executive Officer and President of
the Company;
o redesignated the Corporate Governance Committee of the Board of
Directors as the Nominating and Corporate Governance Committee
(the "Corporate Governance Committee") and adopted a new charter
for this Committee setting forth its purpose and responsibilities;
the Corporate Governance Committee has, among other things,
adopted a formal policy for consideration of candidates for Board
membership, including those proposed by Neuberger Berman, Inc.,
Neuberger Berman, LLC, Neuberger Berman Management Inc.stockholders;
o adopted new charters for the Audit Committee and Neuberger
Berman Genesis Fund (collectively, "Neuberger Berman"the Compensation
and Personnel Committee (the "Compensation Committee"), Neuberger Berman
has shared power of the
Board of Directors setting forth the purpose and responsibilities
of each such Committee;
o instituted executive sessions of the Board of Directors, whereby
non-management directors meet without any Company representatives
present at the beginning of each regularly scheduled meeting of
the Board; the chairpersons of the Audit Committee, Compensation
Committee and Corporate Governance Committee rotate presiding over
those sessions;
o amended the Company's Standards of Conduct to vote orrevise it and make
it applicable to directall directors, officers and employees of the
vote of 822,700 shares and
shared power to dispose or to direct the disposition of 1,156,252 shares.
(2) As reported in Amendment 3 to Schedule 13G dated February 14, 2003 filed
with the SEC by FMR Corp. ("FMR"), Fidelity Management & Research Company
a wholly owned subsidiary of FMR, Edward C. Johnson, 3rd, Abigail P.
Johnson, and Fidelity Low Priced Fund (collectively, "Fidelity"), Fidelity
has sole power to direct the vote of 66 shares and sole power to dispose
of or to direct the disposition of 952,766 shares.
(3) As reported in Schedule 13G dated February 10, 2003 filed with the SEC by
J.P. Morgan Chase Co. ("Chase"), on behalf of itself and its wholly owned
subsidiaries J.P. Morgan Chase Bank, Morgan Fleming Asset Management
(USA), and J.P. Morgan Investment Management Inc., Chase and its subsidiaries have sole powerand designate it as the Code of
Business Conduct and Ethics; in addition, the Board of Directors
has adopted a separate Code of Ethics for the Company's chief
executive officer and senior financial officers which imposes
additional ethical obligations upon them; and
o instituted a formal process for stockholders and other interested
persons to votecommunicate with one or directmore members of the voteBoard of
670,320 shares,
sole powerDirectors.
The Audit Committee Charter is attached as Appendix A to disposethis proxy
statement and the categorical Standards for Determining Director Independence
are attached as Appendix B to this proxy statement. Copies of these documents,
as well as the charters of the Compensation Committee and the Corporate
Governance Committee, the Corporate Governance Guidelines, the Code of Business
Conduct and Ethics, Code of Ethics for the Company's chief executive officer and
senior financial officers and other corporate governance materials, may be
obtained at the Company's web-site at www.emcorgroup.com or by writing to the
Company at 301 Merritt Seven, Norwalk, Connecticut 06851, Attention: Corporate
Secretary.
COMMUNICATION WITH DIRECTORS. The Board of Directors has adopted a
process by which stockholders and other interested persons may communicate with
members of the Board of Directors as a group, or with one or more members of the
Board (including non-management directors as a group), by writing to them c/o
EMCOR Group, Inc., 301 Merritt Seven, Norwalk, Connecticut 06851, Attention:
Corporate Secretary. Such communications will be forwarded to the individuals
addressed. In addition, communications may be sent to the non-management
directors as a group by e-mail to nonmanagementdirectors@emcorgroup.com or to
direct the dispositionentire Board of 745,645 shares, and
shared powerDirectors by e-mail to dispose or direct the disposition of 1,875 shares.
PROPOSAL NO. 1 -alldirectors@emcorgroup.com
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ELECTION OF DIRECTORS (PROPOSAL 1)
At the Annual Meeting, seven Directorsdirectors are to be elected by the holders
of Common Stock to serve until the next Annual Meeting of Stockholders and until
their successors have been duly elected and qualified. To be elected as a
Director,director, each nominee must receive the favorable vote of a plurality of the
shares present in person or represented by proxy and entitled to vote at the
Annual Meeting. Certain information concerning the nominees for election at the
Annual Meeting is set forth below. Each nominee is presently a Directordirector of the
Company. While the Board of Directors has no reason to believe that any of those
named as a nominee for election to the Board of Directors will not be available as a
candidate, should such a situation arise, the proxy may be voted for the
election of other nominees in the discretion of the persons acting pursuant to
the proxy.
FRANK T. MACINNIS, Age 56.57. Mr. MacInnis has been Chairman of the Board
and Chief Executive Officer of the Company since April 1994 and wasPresident of the
Company since February 26, 2004. He also served as President of the Company from
April 1994 to April 1997. From April 1990 to April 1994, Mr. MacInnis served aswas
President and Chief Executive Officer, and from August 1990 to April 1994 aswas
Chairman of the Board, of Comstock Group Inc., a nationwide electrical
contracting company. From 1986 to April 1990 Mr. MacInnis wasserved as Senior Vice
President and Chief Financial Officer of Comstock Group Inc. In addition, from
1986 to April 1994, Mr. MacInnis was also President of Spie Group Inc., which
has or had interests in Comstock Group Inc., Spie Construction Inc., a Canadian
pipeline construction company, and Spie Horizontal Drilling Inc., a United
States company engaged in underground drilling for pipelines and communications
cable. Mr. MacInnis is also a director of The Williams Companies, Inc., and ITT
Industries, Inc., and Geneva Steel Holdings Corp.
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STEPHEN W. BERSHAD, Age 61.62. Mr. Bershad has been Chairman of the Board
and Chief Executive Officer for more than the past five years of Axsys
Technologies, Inc., a manufacturer of precision components and systems for high
technology markets. He has been a Directordirector of the Company since December 15,
1994.
DAVID A.B. BROWN, Age 59.60. Mr. Brown has been President of The Windsor
Group, a management consulting firm of which he is a co-founder, for more than
the past five years. He has been a Directordirector of the Company since December 15,
1994. Mr. Brown is also a director of BTU International, Inc.Layne-Christensen Corp., Mission Resources
Inc., Pride International, Inc., and NS Group, Inc. and Technical Communications
Corp.
LARRY J. BUMP, Age 63.64. Mr. Bump, a private investor, has been Chairman
of the Board since 1981 of Willbros Group, Inc., an international engineering
and construction company. From 1977 to 1980, he was President and Chief
Operating Officer of Willbros Group, Inc. and from 1980 until 2002, when he
retired, he was President and Chief Executive Officer of that company. Mr. Bump
was electedhas been a Directordirector of the Company onsince February 27, 2003. He is also director of 3TEC
Energy Corporation.
ALBERT FRIED, JR., Age 73.74. Mr. Fried has been Managing Member of Albert
Fried & Company, LLC, a broker/dealer and member of the New York Stock Exchange,
since 1955. He has been a Directordirector of the Company since December 15, 1994.
RICHARD F. HAMM, JR., Age 43.44. Mr. Hamm has been Deputy General Counsel
and a Vice President of Medtronic, Inc., a medical technology company since
April 2002. From July 2000 to April 2002 he was Vice President, Corporate
Development & Planning of Carlson Companies, Inc. ("Carlson"), a global travel,
hospitality and marketing services company, and was Vice President, Corporate
Strategic Development & Acquisitions of Carlson from January 1999 to June 2000.
From January 1997 to December 1998 he was Senior Vice President, Legal and
Business Development of Tropicana Products, Inc. ("Tropicana"), a manufacturer
of fruit juices, and Vice President and General Counsel of Tropicana from June
1993 to January 1997. Mr. Hamm has been a Directordirector of the Company since June 19,
1998. He is also a director of Axsys Technologies, Inc.
MICHAEL T. YONKER, Age 59.61. For more than nine years prior to his
retirement in June 1998, Mr. Yonker was President and Chief Executive Officer of
Portec, Inc., a diversified industrial products company with operations in the
construction equipment, materials handling and railroad products industries. He
has been a Directordirector of the Company since October 25, 2002. Mr. Yonker is also a
director of Modine Manufacturing Company and Woodward Governor Company.
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INDEPENDENCE OF DIRECTORS
In order to assist the Board in determining the independence of each
director, the Board of Directors has adopted categorical Standards for
Determining Director Independence, a copy of which is attached to this proxy
statement as Appendix B. To be considered independent the Board must
affirmatively determine that the director has no material relationship with the
Company.
The Board of Directors has determined that six of its seven directors,
including all members of the Audit, Compensation and Corporate Governance
Committees are "independent" as defined by the listing standards of the New York
Stock Exchange, and all applicable rules and regulations of the Securities and
Exchange Commission and for purposes of Rule 162(m) of the Internal Revenue Code
of 1986, as amended. These six directors are: Stephen W. Bershad, David A. B.
Brown, Larry J. Bump, Albert Fried, Jr., Richard F. Hamm, Jr. and Michael T.
Yonker. The seventh director, Frank T. MacInnis, is Chairman of the Board, Chief
Executive Officer and President of the Company.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors met nine times during 2003, and Committees of
the Board held 12 meetings during 2003. Each director attended 100% of the
meetings of the Board and Committees on which he served while the director was a
member. As provided in the Company's Corporate Governance Guidelines, each
director is expected to attend all Annual Meetings of Stockholders, and each
director attended the 2003 Annual Meeting of Stockholders.
The Company's Board of Directors has standing Audit, Compensation and
Personnel, and Corporate Governance Committees. The members and the principal responsibilities
of these committees are as follows:
The Audit Committee, comprised of Messrs. Bershad, Brown, Bump and
Hamm, serves
as the focal point for communication between the Board of Directors and the
Company's independent public accountants, chief internal auditor and management,
to the extent that the duties of management relate to financial or accounting
reporting and controls. The Audit Committeeamong other things, is responsible for engaging, subject to ratification
by stockholders, overseeing, and discharging, the independent auditors for the
Company, setting their fees, reviewing the scope and audit procedures of the
independent auditors, approving their audit and permitted non-audit services,
reviewing with management and the independent auditors annual and quarter-annual
financial statements, reviewing quarterlyreceiving periodic reports from the independent auditors
and annual financial results
prior to their release, andmanagement regarding the auditors' independence, meeting with the Company's
internal auditorsmanagement and independent auditors on matters relating to, among other things,
major issues regarding accounting principles and practices and financial
statement presentation, the Company's risk assessment and risk management
policies and major risk exposures, and the adequacy of the Company's internal
audit controls, and accountingreviewing the Company's internal auditing and auditingaccounting
personnel.
The Company'sAudit Committee met four times during 2003. The Board of Directors
has adopted a written charter for the Audit
Committee. Eachdetermined that each of the three members of the Audit Committee, is independent as
independence is defined in Sections 303.01 B(2)(a)Messrs. Bershad,
Brown, Bump, and (3)Hamm, are "audit committee financial experts", within the
meaning of the New York Stock
Exchange's listing standards. During 2002,rules of the Securities and Exchange Commission. Mr. Brown, the
chairperson of the Audit Committee, held six
meetings.serves on the audit committees of more than
three public companies. The Board has determined that this simultaneous service
will not impair Mr. Brown's ability to effectively serve on the Company's Audit
Committee.
The Compensation and Personnel Committee, comprised of Messrs. Bershad, Bump, Fried Hamm
and Yonker, oversees the evaluation of the Company's management and reviews and
advises the Board of Directors with respect to the qualifications of individuals
identified as candidates for positions as the Company's Chief Executive Officer,
Chief Operating Officer, Chief Financial Officer, and General Counsel and for
the position of Chief Executive Officerchief executive officer of each subsidiary of the Company whose
proposed annual compensationbase salary is $400,000 or more. It also reviews and recommendsapproves
corporate goals and objectives relevant to the Board of Directorscompensation for its approval
any employment, severance or similar contract, or modification thereof, for the
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Chairman of the Board and Chief Executive
Officer, evaluates his performance in light of those goals and objectives and,
together with the Company and is charged
with fixing on an annual basisother independent directors, has sole authority to determine
his compensation subject to the approval of the
Board of Directors.level based on this evaluation. The Compensation and Personnel Committee also
is responsible for fixing,reviewing and approving, based on proposals made by the Chief
Executive Officer, compensation for the Chief Operating Officer, Chief Financial Officer, and General Counselother executive officers of the Company
as well as the compensation of other officers and employees of the Company and
each subsidiary whose proposed annual compensationbase salary is $400,000 or more and for
approving, together with the other independent directors, any employment,
severance or similar contracts for suchthe executive officers of the Company and
other officers and
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employees of the Company and each subsidiary whose annual base salary is
$400,000 or modifications thereof.more. The Compensation and Personnel
Committee also recommendsmakes recommendations to the
Board of Directors with respect to incentive compensation and equity-based plans
for its approval any
incentive, benefit, award or bonus plansofficers and programs for suchother employees of the Company, administers the 1994 Management
Stock Option Plan, and the Executive Stock Bonus Plan, the 2003 Management Stock
Incentive Plan, and the Key Executive Incentive Bonus Plan and reviews executive
development plans. During 2002,2003, the Compensation and
Personnel Committee held one meeting.four meetings.
The Corporate Governance Committee, comprised of Messrs. Brown, Fried,
Hamm and Yonker, is responsiblecharged with leading the search for individuals qualified to
the Board of Directors for review and
recommendation of director candidates, recommendations regarding directors'
retirement age and removal, review of all committeesbecome members of the Board of Directors, consistent with criteria approved by
the Board and recommendations regarding their number, functionset forth in the Company's Corporate Governance Guidelines;
recommending to the Board nominees for election to the Board; developing and
membership,overseeing an annual self-evaluation process for the Board and its committees;
making recommendations with respect to corporate governance guidelines,
compensation of and other benefits for non-employee directors and reviewmatters relating to
Board members' retirement and removal, the number, function and membership of
Board committees, and recommendation with respect to
directors'directors and officers'officer liability insurance and indemnificationindemnity
agreements between the Company and its officers and directors. During 2002,2003, the
Corporate Governance Committee held twofour meetings.
RECOMMENDATIONS FOR DIRECTOR CANDIDATES
The Corporate Governance Committee will consider nominees torecommendations for
candidates for Board membership suggested by Committee members, other Board
members and stockholders. A stockholder who wishes the Board of Directors recommended by stockholders. The Corporate Governance
Committee has not adopted formal proceduresto consider his/her recommendations for nominees for the submissionposition of
such recommendations. Suchdirector should submit his/her recommendations should be sentin writing to the Corporate
Governance Committee in care of Corporate Secretary, EMCOR Group, Inc., 301
Merritt Seven, Corporate Park, Norwalk, Connecticut 06851.06851, together with whatever supporting
material the stockholder considers appropriate. The material, at a minimum,
should include such background and biographical material as will enable the
Corporate Governance Committee to make an initial determination as to whether
the prospective nominee satisfies the criteria for directors set out in the
Company's by-laws specify certainCorporate Governance Guidelines. The Corporate Governance Guidelines
are available at the Company's website at www.emcorgroup.com. A stockholder may
also nominate director candidates by complying with the Company's bylaw
provisions discussed below under "Other Matters--Stockholder Proposals."
If the Corporate Governance Committee identifies a need to replace a
current member of the Board of Directors, to fill a vacancy in the Board, or to
expand the size of the Board, the process to be followed by the Committee to
identify and evaluate candidates includes (a) consideration of those individuals
recommended by stockholders as candidates for Board membership and those
individuals recommended in response to requests for recommendations made of
Board members and others, including those suggested by third party executive
search firms retained by the Committee, from time limitations,
notice requirementsto time, (b) meetings from
time to time to evaluate biographical information and background material
relating to candidates, and (c) interviews of selected candidates by members of
the Committee.
As provided in the Company's Corporate Governance Guidelines, in its
assessment of each potential candidate, the Corporate Governance Committee is to
consider the candidate's achievements in his or her personal career, experience,
wisdom, integrity, ability to make independent analytical inquiries, and
understanding of the business environment. The Corporate Governance Committee
will also take into account the willingness of a candidate to devote adequate
time to Board duties. The Corporate Governance Committee may also consider any
other procedures applicablerelevant factors that it may from time to time deem appropriate, including
the current composition of the Board, the balance of management and independent
directors, the need for Audit Committee expertise and the evaluation of all
prospective nominees.
DIRECTOR COMPENSATION
The annual retainer for each director who is not an employee of the
Company or any subsidiary ("non-employee director") for 2003 was $40,000 payable
in options to purchase shares of Common Stock. Accordingly, in January 2003,
each non-employee director then on the Board was granted options to purchase
3,327 shares of Common Stock at $54.73 per share, the fair market value of a
share of Common
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Stock on the grant date. Mr. Bump, who was elected a director in February 2003,
received on the date of his election, in respect of his 2003 retainer, an option
grant to purchase 3,327 shares of Common Stock at $48.15 per share, the fair
market value of a share of Common Stock on the grant date. All "retainer
options" vest during the course of the calendar year in which they are granted
and have a five-year term. In addition, upon his election as a director in
February 2003, Mr. Bump was granted an additional option to purchase 3,000
shares of Common Stock at $48.15 (the fair market value on the grant date)
pursuant to the submissionCompany's 1995 Non-Employee Directors' Non-Qualified Stock
Option Plan and a supplemental option grant outside of nominationssuch plan for 2,000
shares of Common Stock at $48.15 (the fair market value on the grant date),
which grants were comparable to be brought before anthose made to the other directors when they were
re-elected to the Board in June 2002. The options granted to Mr. Bump for 5,000
shares of Common Stock became fully exercisable as of the date of grant and have
a term of ten years. In addition, pursuant to the terms of the Company's 2003
Non-Employee Directors' Non-Qualified Stock Option Plan, each non-employee
director, upon his election in 2003 as a director at the 2003 Annual or Special Meeting of
Stockholders, was granted an option to purchase 5,000 shares of Common Stock at
$52.78 per share, the fair market value of a share of Common Stock on the grant
date; all of these options became fully exercisable as of the Company.
MEETINGS OF THE BOARD
There were ninedate of grant and
have a term of ten years.
Each non-employee director also is entitled to fees payable in cash for
attending meetings of the Board of Directors, during 2002.
AUDIT COMMITTEE REPORTfees for attending meetings of
committees of the Board upon which he serves and fees for acting as Chairman of
a committee of the Board. The followingfee for participating in a Board meeting is
$1,500, other than a telephonic meeting of the reportBoard in which case the fee is
$750; the fee for participating in a meeting of the Compensation Committee and
the Corporate Governance Committee is $1,000, other than a telephonic meeting in
which case the fee is $750; and the annual fee for acting as a Chairman of each
such Committee is $3,000. In addition, the fee each member of the Audit
Committee with respect toreceives for attending Audit Committee meetings is $1,000 except for
meetings of the Company's auditedAudit Committee at which the financial statements for the fiscal year ended December 31,
2002, included in
the Company's Forms 10-K and Forms 10-Q are reviewed in which case the meeting
fee is $1,500 and except for a telephonic meeting in which case the meeting fee
is $750. The annual report on Form 10-Kfee for that year.
The Audit Committee has reviewed and discussed these audited financial
statements with management and the Company's independent auditors, Ernst & Young
LLP.
The Audit Committee has discussed with Ernst & Young LLP the matters
required to be discussed by Statementacting as Chairman of Auditing Standards No. 61 (Codification
of Statements on Auditing Standards, AUss.380).
The Audit Committee has received the written disclosures and letter from
Ernst & Young LLP required by Independence Standards Board Standard No. 1
("Independence Discussions with Audit Committees") as amended and has discussed
with Ernst & Young LLP that firm's independence from the Company.
Based on the review and discussions referred to above in this report, the Audit Committee recommendedis $4,000.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth as of April 15, 2004 certain information
regarding beneficial ownership of the Common Stock by each person or group known
by the Company to be a beneficial owner of more than five percent of the
Company's Boardoutstanding shares of DirectorsCommon Stock.
Amount and Nature Percent
Name and Address of Beneficial Owner of Beneficial Ownership Owned
- --------------------------------------------------------------------------------
The TCW Group, Inc. ...................... 1,970,115(1) 13.0%
86 South Figueroa Street
LOS ANGELES, CALIFORNIA 90017
FMR Corp ................................. 1,927,312(2) 12.7%
82 Devonshire Street
Boston, Massachusetts 02109
Mac-Per-Wolf Company ..................... 1,759,370(3) 11.6%
310 S. Michigan Avenue
Suite 2500
Chicago, Illinois
and
Janus Small Cap Value Fund
100 Fillmore Street
Denver, Colorado 80206
- ----------------------------
(1) Based on a Schedule 13G Information Statement filed by The TCW Group, Inc.
("TCW") on behalf of the TCW Business Unit, which consists of TCW and its
direct and indirect subsidiaries. The Schedule 13G discloses that the audited
financial statements be includedTCW
Business Unit has shared power to vote or direct the vote of 1,803,515 of
such shares and has shared power to dispose or to direct the disposition
of 1,970,115 shares.
(2) Based on a Schedule 13G Information Statement filed by FMR Corp. ("FMR"),
Edward C. Johnson, 3rd ("Mr. Johnson") and Abigail P. Johnson
(collectively, the "Reporting Persons"). The Schedule 13G Information
Statement discloses that the Reporting Persons own beneficially 1,927,312
shares of Common Stock, have sole power to vote or to direct the vote of
47,240 of such shares, sole power to dispose or to direct the disposition
of the 1,927,312 shares, and the interest of Fidelity Low Price Stock Fund
in such shares amounted to 1,499,072 shares. The Schedule 13G also
discloses that Fidelity Management & Research Company ("Fidelity"), a
wholly owned subsidiary of FMR and an investment adviser, is the
Company's Annual Reportbeneficial owner of 1,880,412 of such 1,927,312 shares as a result of
acting as investment adviser to various investment companies, including
Fidelity Low Price Fund, and that Mr. Johnson, Chairman of FMR, and FMR,
through its control of Fidelity and certain investment companies, each has
sole power to dispose of the 1,880,412 shares, that neither FMR nor Mr.
Johnson has sole power to vote or direct the voting of such 1,880,412
shares, that Fidelity Management Trust Company ("FMT"), a subsidiary of
FMR, is the beneficial owner of 22,000 of such 1,927,312 shares of Common
Stock, that Mr. Johnson and FMR, through its control of FMT, each has sole
dispositive power over the 22,000 shares and sole power to vote or to
direct the voting of such 22,000 shares, and that Fidelity International
Limited, which is an affiliate of FMR and Mr. Johnson, and an investment
adviser, has sole power to vote and sole power to dispose of 24,900 of
such 1,927,312 shares.
(3) Based on Form 10-K for
the fiscal year ended December 31, 2002 fora Schedule 13G Information Statement filed by Mac-Per-Wolf
Company ("MPW") and Janus Small Cap Value Fund ("Janus"). The Schedule 13G
discloses that MPW is filing with the Securitieson behalf of its two subsidiaries, PWMCO, LLC
and Exchange Commission.
By: Audit Committee
David A.B. Brown, Chairman
Stephen W. Bershad
Richard F. Hamm, Jr.
-4-Perkins, Wolf, McDonald and Company (collectively, "Perkins Wolf"),
that Perkins Wolf furnishes investment advice to various investment
companies and to individual and institutional clients, including Janus,
that MPW has sole voting power of such 1,759,370 shares and sole
dispositive power of such shares and that Janus has sole voting power of
1,134,100 of such shares and sole dispositive power of 1,134,100 of such
shares.
-7-
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth as of April 17, 200315, 2004 certain information
regarding the beneficial ownership of the Common Stock by each of the Company's
Directors,directors, its Chief Executive Officer, each of the other four most highly
compensated executive officers of the Company, and all its Directorsdirectors and
executive officers as a group, for the fiscal year ended December 31, 2002.2003.
Except as otherwise noted, to the Company's knowledge, each of the persons
listed below has sole voting power and investment power with respect to the
shares listed next to his name.
Amount and Nature of
Name of Beneficial Owner Beneficial Ownership(1) Percent
- ------------------------ ----------------------- -------
Frank T. MacInnis .................................... 650,926(2) 4.2.................................. 694,148(2) 4.4
Stephen W. Bershad ................................... 62,518(3)................................. 64,492(3) *
David A.B. Brown ..................................... 31,090(3)................................... 36,890(3) *
Larry J. Bump ........................................ 6,665(3)...................................... 15,465(3) *
Albert Fried, Jr. .................................... 64,520(3).................................. 53,390(3) *
Richard F. Hamm, Jr. ................................. 41,520(3)............................... 35,890(3) *
Michael T. Yonker .................................... 8,098(3).................................. 16,898(3) *
Jeffrey M. Levy ...................................... 187,819(2) 1.2.................................... 208,712(2) 1.4
Sheldon I. Cammaker .................................. 128,158(2)................................ 142,376(2) *
Leicle E. Chesser .................................... 150,856(2) *.................................. 163,866(2) 1.1
R. Kevin Matz ........................................ 84,489(2)...................................... 96,362(2) *
All directors and executive officers as a group ...... 1,484,001(4) 9.0.... 1,604,107(4) 9.6
- -----------------------------------------------
* Represents less than 1%.
(1) The information contained in the table reflects "beneficial ownership"
as defined in Rule 13d-3 of the Securities Exchange Act of 1934, as
amended. All percentages set forth in this table have been rounded.
(2) Includes in the case of Mr. MacInnis 582,862629,454 shares, in the case of Mr.
Levy 165,477189,984 shares, in the case of Mr. Cammaker 113,912128,249 shares, in the
case of Mr. Chesser 128,912143,249 shares, and in the case of Mr. Matz 73,51984,331
shares, that may be acquired upon the exercise of presently exercisable
options or options exercisable within 60 days of the date hereof and
granted pursuant to the Company's stock option plans and programs. Also
includes in the case of Mr. MacInnis 54,96438,054 shares, in the case of Mr.
Levy 21,24213,148 shares, in the case of Mr. Cammaker 14,24610,120 shares, in the case
of Mr. Chesser 21,94413,915 shares, and in the case of Mr. Matz 10,9709,526 shares, to
be issued in respect of stock units granted under the Company's Executive
Stock Bonus Plan referred todescribed below (the "Stock Bonus Plan"). in the notes to
"Summary Compensation Table" under "Executive Compensation."
(3) Includes in the case of Mr. Bershad 47,51849,492 shares, in the case of Mr.
Brown 30,09035,890 shares, in the case of Mr. Bump 6,66515,465 shares, in the case of
Mr. Fried 44,52038,890 shares, in the case of Mr. Hamm 41,52035,890 shares, and in the
case of Mr. Yonker 8,09816,898 shares, that may be acquired upon exercise of
presently exercisable options or options exercisable within 60 days of the
date hereof and granted pursuant to eachthe Company's stock options plans and
programs for non-employee director.directors.
(4) Includes 1,303,1961,437,351 shares that may be acquired upon the exercise of
presently exercisable options or options exercisable within 60 days of the
date hereof and granted pursuant to the Company's stock options plans and
programs and 130,60591,536 shares to be issued in respect of stock units granted
under the Stock Bonus Plan.
-5--8-
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following Summary Compensation Table sets forth the compensation
awarded to, earned by or paid to, each of the Chief Executive Officer and the
other four most highly compensated executive officers of the Company
(collectively, the "named executive officers") during the fiscal years ended
December 31, 2003, 2002 2001 and 20002001 for services rendered in all capacities to the
Company and its subsidiaries. For information regarding employment agreements of
the named executive officers, see "Employment Contracts and Termination of
Employment and Change of Control Arrangements" below.
SUMMARY COMPENSATION TABLE
================================================================================
Annual Long Term
Compensation Compensation Awards(3)
----------------------------- -----------------------------------------------------------------------------------------------
Number of
Restricted Securities
Other Annual Stock Underlying All Other
Bonus Compensation Award Options/ Compensation
Salary (1) (2) (4) SARs(5) (6)
Name and Principal Position Year ($) ($) ($) ($) (#) ($)
- --------------------------- ---- ------- ------- ---------------------------------- ----- ------ ------ ----------- ---------- ----------- ----------------------
Frank T. MacInnis ............................ 2003 800,000 317,638 23,778 117,638 55,443 30,242
Chairman of the Board and 2002 800,000 992,608 29,624 367,608 56,800 30,242
Chairman of the Board andChief Executive Officer 2001 775,000 992,602 13,586 367,602 75,600 8,700
Chief Executive Officer 2000 750,000 794,162 25,350 294,163 25,000 8,700
Jeffrey M. Levy ................................ 2003 525,000 0 10,634 0 29,108 13,367
President and 2002 525,000 660,893 12,371 82,330 30,000 13,367
President andChief Operating Officer(7) 2001 510,000 731,699 12,073 91,170 48,200 8,700
Chief Operating Officer 2000 485,000 730,911 10,361 0 15,000 8,700
Sheldon I. Cammaker ........................ 2003 410,000 236,043 36,709 29,409 17,049 25,123
Executive Vice President and 2002 410,000 405,963 37,189 50,576 17,500 25,123
Executive Vice PresidentGeneral Counsel and Secretary 2001 400,000 377,636 18,325 47,045 35,900 8,700
General Counsel and Secretary 2000 380,000 331,722 14,858 66,169 10,000 8,700
Leicle E. Chesser ............................ 2003 410,000 245,885 23,129 48,524 17,049 24,459
Executive Vice President and 2002 410,000 473,870 26,324 93,513 17,500 24,459
Executive Vice President andChief Financial Officer 2001 400,000 447,069 15,764 88,250 35,900 8,700
Chief Financial Officer 2000 380,000 333,541 15,374 160,170 10,000 8,700
R. Kevin Matz .................................... 2003 315,000 221,245 30,938 34,784 12,475 11,072
Senior Vice President-- 2002 300,000 341,937 23,982 52,237 12,800 11,072
Vice President and TreasurerShared Services 2001 260,000 314,177 16,980 48,019 24,000 8,700
2000 230,000 231,505 7,916 34,827 5,000 8,700
- ----------------------------------------------------
(1) The amounts reported under "Bonus" include the value of units that
correspond to shares of Common Stock mandatorily deferred and credited to
each named executive officer's account under the Company's Executive Stock
Bonus Plan (the "Stock Bonus Plan"). Pursuant to the Stock Bonus Plan, 25%
of the annual bonus earned by each named executive officer is
automatically credited to him in the form of units that will subsequently
be converted into Common Stock at a 15% discount from the fair market
value of Common Stock as of the date the annual bonus is determined. The
units are to be converted into shares of Common Stock and delivered to the
executive officer on the earliest of (i) the first business day
immediately following the day upon which the Company releases to the
public generally its results in respect of the fourth calendarquarter of the third
year following the year in respect of which the annual
bonus was payable,such units were issued, (ii)
the executive officer's termination of employment for any reason or (iii)
immediately prior to a "change of control" (as defined in the Stock Bonus
Plan). Dividend equivalents are credited in the form of additional units
(at a 15% discount) at the same rate as dividends are paid to all
stockholders. The portion of the amount reported under "Bonus" for 2003,
2002, 2001, and 2000,2001, respectively, associated with mandatory deferrals under
the Stock Bonus Plan for each named executive officer is as follows: Frank
T. MacInnis -MacInnis--$117,638, $367,708 $367,602 and $294,162;$367,602; Jeffrey M. Levy -Levy--$0,
$205,893 $227,949 and $205,911;$227,949; Sheldon I. Cammaker -Cammaker--$73,543, $126,463 $117,636 and
$109,722;$117,636; Leicle E. Chesser -Chesser--$80,885, $155,870 $147,069 and $131,041;$147,069; and R. Kevin
Matz -Matz--$72,245, $108,837 $99,977 and $74,005.$99,977.
(2) The personal benefits provided to the named executive officers did not
exceed the disclosure threshold established by the Securities and Exchange
Commission pursuant to applicable rules. Figures represent amounts
reimbursed for the payment of taxes upon certain fringe benefits.
-6--9-
(3) The column specified by Item 402 (b) of Regulation S-K of the Securities
and Exchange Commission to report Long-Term Incentive Plan Payouts has
been excluded because the Company has no long-term incentive compensation
plan and has not had any such plan during any portion of fiscal years
2003, 2002 2001 and 2000.2001.
(4) The amounts reported under "Restricted Stock Award" for 2003, 2002 2001 and
20002001 represent the value of units that correspond to shares of Common
Stock voluntarily deferred and credited to a named executive officer's
account under the Stock Bonus Plan. Pursuant to the Stock Bonus Plan, each
named executive officer is permitted at his election to cause all or part
of his annual bonus not mandatorily deferred under the Stock Bonus Plan to
be credited to him in the form of units that will subsequently be
converted into Common Stock at a 15% discount from the fair market value
of Common Stock as of the date the annual bonus is determined. Any
voluntary deferral election under the Stock Bonus Plan must be made at
least six months prior to the end of the calendar year in respect of which
the bonus will be payable. These units are to be converted into shares of
Common Stock and delivered to the executive officer on the earliest of (i)
the date elected by the executive officer but in no event earlier than the
first business day immediately following the day upon which the Company
releases to the public generally its results in respect of the fourth
quarter of the third calendar year following the year in respect of which
the annual bonus was payable,such units were issued, (ii) the executive officer's termination of
employment for any reason, or (iii) immediately prior to a "change of
control." Dividend equivalents are credited in the form of additional
units (at a 15% discount) at the same rate as dividends are paid to all
stockholders. The total holdings of shares of restricted stockCommon Stock represented by
the aforementioned stock units, including stock units granted in 20032004 in respect of
2002,2003, and the aggregate market value of such underlying shares as of
December 31, 20022003 ($53.0143.90 per share) for each of the named executive
officers was as follows: Frank T. MacInnis - 27,482MacInnis--38,054 shares, $1,456,825;$1,670,571;
Jeffrey M. Levy - 3,756Levy--13,148 shares, $199,115;$577,197; Sheldon I. Cammaker
- 4,716Cammaker--10,120
shares, $249,974;$444,268; Leicle E. Chesser - 10,232Chesser--13,915 shares, $542,399;$610,869; R. Kevin
Matz - 3,540Matz--9,526 shares, $187,633.$418,191.
(5) The awards set forth in this column are of stock options only. The Company
did not award stock appreciation rights.
(6) The amounts reported in this column include insurance premiums paid by the
Company during 20022003 with respect to term life insurance for the benefit of
each named executive officer, matching contributions made by the Company
under the 401(k) part of the Company's Retirement and Savings Plan, a
defined contribution profit sharing plan, during 20022003 for the account of
each named executive officer, and contributions to be paid during 20032004 in
respect of 20022003 by the Company pursuant to the retirement account part of
the Company's Retirement and Savings Plan for the account of each named
executive officer.
(7) Mr. Levy resigned as President and Chief Operating Officer of the Company
on February 26, 2004.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The following table sets forth certain information concerning certain
grants to the named executive officers of stock options during the last fiscal year.2003. As
indicated under the Summary Compensation Table above, the Company did not grant
stock appreciation rights ("SARs") of any kind.
OPTION GRANTS IN LAST FISCAL YEAR
Grant Date
Individual Grants Value
----------------------------------------------------------- -------------------------------------------------------------------- ----------
Number of % of Total
Securities Options
Underlying Granted to Exercise or Grant Date
Options Employees in Base Price Expiration Present
Granted(1)Granted#(1) Fiscal Year ($/Sh)(2) Date Value($)(3)
---------- ------------ ---------- --------------- --------------------------- ----------
Frank T. MacInnis ............... 56,800 39% $46.35..... 55,443 36% $54.73 January 2, 2012 $1,430,4352013 $1,712,743
Jeffrey M. Levy ................. 30,000 21% $46.35....... 29,108 19% $54.73 January 2, 20122013 $ 755,512899,203
Sheldon I. Cammaker ............. 17,500 12% $46.35... 17,049 11% $54.73 January 2, 20122013 $ 440,715526,677
Leicle E. Chesser ............... 17,500 12% $46.35..... 17,049 11% $54.73 January 2, 20122013 $ 440,715526,677
R. Kevin Matz ................... 12,800 9% $46.35......... 12,475 8% $54.73 January 2, 20122013 $ 322,352385,377
- -----------------------------------------------------
(1) The options referred to in this table have a ten-year term and are
exercisable as follows: one-fourth on the grant date, one-fourth on the
first anniversary of the grant date, one-fourth on the second anniversary
of the grant date and one-fourth on the last business day of the calendar
year immediately preceding the third anniversary of the grant date.
(2) The stock option exercise price for a share of Common Stock is the fair
market value of a share of Common Stock on the date of grant. No SARs,
performance units or other instruments were granted in tandem with the
stock options reported herein.
(3) Present value was calculated using the Black-Scholes option-pricing model
which involves an extrapolation of future price levels based solely on
past performance. The present value as of the date of grant, calculated
using the Black-Scholes method, is based on assumptions about future
interest rates, dividend yield, stock price volatility, and exercise
dates. In calculating the present value as of the date of grant of the
options reported in the table, the Company assumed an interest rate of
3.85%4.07% per annum, an annual dividend yield of zero, volatility of 36.5%38.40%,
and an exercise date at the end of contractual term in 2012.2013. There is no
assurance that these assumptions will prove to be true in the future. The
actual value, if any, that may be realized by each individual will depend
on the future market price of the Common Stock and cannot be forecasted
accurately by application of an option-pricing model.
-7--10-
OPTION EXERCISES AND HOLDINGS
The following table sets forth certain information concerning
unexercised options to purchase Common Stock held at the end of fiscal year 20022003
by the named executive officers. None of the named executive officers other than Mr.
Cammaker, exercised
any options during fiscal year 2002.2003. No named executive officer holds any SARs.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR2003 AND
FISCAL 2003 YEAR-END OPTION VALUEVALUES
Value of Unexercised
Number of Unexercised In-the-Money
Options at Options at
Shares Value FY-End (#) FY-End ($)(1)
Acquired on Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable
- ---- ------------ -------- --------------------- ------------------------- ---------- ------ ------------------ ----------------
Frank T. MacInnis ......... None -- 564,800/42,600 $20,292,108/582,861/69,982 $14,790,070/$283,716--
Jeffrey M. Levy ........... None -- 150,700/22,500 $4,812,192/165,477/36,831 $3,457,690/$149,850--
Sheldon I. Cammaker 15,000 $856,011 105,275/13,125 $3,326,366/....... None -- 113,913/21,536 $2,378,030/$87,413--
Leicle E. Chesser ......... None -- 120,275/13,125 $4,044,566/128,913/21,536 $2,959,580/$87,413--
R. Kevin Matz ............. None -- 67,200/9,600 $1,742,252/73,519/15,756 $1,171,460/$63,936--
- ----------------------------------------
(1) For purposes of this column, value is calculated based on the aggregate
amount of the excess of $53.01$43.90 (the closing price of the Common Stock as
reported on the New York Stock Exchange on December 31, 2002)2003) over the
relevant exercise price for a share of Common Stock with respect to the
options.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
AND CHANGE OF CONTROL ARRANGEMENTS
EMPLOYMENT AGREEMENTS
The Company has an employment agreementsagreement made as of January 1, 2002 with
Frank T. MacInnis providing for his employment as Chief Executive Officer of the
Company through December 31, 2004 and with Jeffrey M. Levy providing for his
employment as President and Chief Operating Officer of the Company through
December 31, 2004. Each suchMr. MacInnis' employment agreement provides
that the term of employment will automatically be extended for successive
one-year periods unless the Company or the officerhe gives written notice not to extend at
least six months prior to the end of the initial term or any extended term of
the employment agreement. However, following the date of a Change of Control (as
defined in their respectivehis employment agreements)agreement), the term of Mr. MacInnis'
and Mr. Levy's respective employment shall
be for a period of three years from such date. Under Mr. MacInnis' employment
agreement, the Company is also to use its best efforts to ensure Mr. MacInnis'his election as
Chairman of the Board of Directors of the Company.
Pursuant to the terms of their respectivehis employment agreements,agreement, Mr. MacInnis is to
receive an annual base salary of $800,000$820,000 for 2003 and Mr. Levy
is to receive an annual base salary of $525,000 for 2003. Generally, their
annual base salaries are to increase on the first day of each succeeding
calendar year during the employment periods by the percentage increase in the
consumer price index for the preceding year for the area in which the principal
office of the Company is located or an amount specified by the Board of
Directors, whichever is greater, although there was no increase in their
respective annual base salaries for 2003. In addition,2004. Mr. MacInnis and Mr. Levy
are eachalso is
entitled to receive an annual bonus, which is to be determined with reference to
a target bonus and based upon factors agreed upon annually by the
respective officerhim and the
Compensation and Personnel Committee of the Board of
Directors (the "Compensation Committee");Committee; provided that Mr. MacInnis' annual target bonus may not
be less than $800,000 and Mr. Levy's annual target bonus
may not be less than $600,000. Pursuant to$800,000. Under the terms of their respectivehis employment agreements,agreement, Mr. MacInnis
and Mr. Levy are to receivealso received an option on the
first business day of each of 2003 andJanuary 2, 2004 to purchase a number of shares of
Common Stock determined by dividing in Mr. MacInnis' case 125% of his base
salary, and in Mr. Levy's case 100% of his base
-8-
salary, for such year by the value of an option to purchase a share of Common
Stock on such date, which value is to be determined with reference to the
Black-Scholes methodology. Accordingly, on January 2, 2003 Mr. MacInnis was
granted an option to purchase 55,44374,129 shares of Common
Stock at $54.73$43.83 per share,
and Mr. Levy was granted an option to purchase 29,108 shares of Common Stock at
$54.73 per share. Each option is to have a ten-year term and an exercise price
equal to the fair market value of a share of Common Stock on
the grant datedate. The option has a ten-year term and is to be exercisable as follows:
one-fourth on or after the grant date, one-fourth on or after the first
anniversary of the grant date, one-fourth on or after the second anniversary of
the grant date and one-fourth on or after the last business day of the calendar
year immediately preceding the third anniversary of the grant date.
Under the terms of theirhis employment agreements, Messrs.agreement, Mr. MacInnis and Levy
eachalso has been
provided with certain benefits customarily accorded to the Company's executive
officers. These benefits include $870 per month for the leasing of an automobile
and the cost of a lease capital reduction payment; maintenance and insurance on
their respective automobiles;his automobile; reimbursement for initiation fees and monthly dues for
membership in a club suitable for entertaining clients of the Company; life
insurance in an amount equal to approximately twice their respective currenthis annual salary
-11-
times the number of full or partial calendar years that remain prior to the
expiration of their respectivehis employment agreements;agreement; all legal expenses incurred by Mr.
MacInnis in connection with their
respectivehis employment agreements;agreement; and the cost of any
increased tax liability to themhim caused by receipt of thesethose fringe benefits.
If, during the term of his employment agreement, Mr. MacInnis'
employment is terminated by the Company other than for Cause (as defined in his
employment agreement) or he terminates his employment for Good Reason (as
defined in his employment agreement), he will be entitled to receive a cash
payment equal to the sum of (i) the greater of (A) his base salary at the
highest annual rate in effect during his term of employment for the period from
the date of termination through December 31, 2004 or (B) two times his base
salary at its then current annual rate and (ii) the greater of (A) his target
bonus for the calendar year in which the termination takes place multiplied by
the number of full or partial calendar years remaining from the date of
termination through December 31, 2004 and (B) two times his target bonus for the
calendar year in which the termination occurs; however, in the event of a
termination following a Change of Control (as defined in his employment
agreement), the factor of two in clauses (i)(B) and (ii)(B) above will be
increased to three. If, during the term of his
employment agreement, Mr. Levy's employment is terminated by the Company other
than for Cause (as defined in his employment agreement) or he terminates his
employment for Good Reason (as defined in his employment agreement), he will be
entitled to a cash payment equal to the sum of (i) two times his base salary at
its then current annual rate and (ii) two times his target bonus for the
calendar year in which the termination occurs; however, in the event of a
termination following a Change of Control (as defined in his employment
agreement) the factor of two in clauses (i) and (ii) above will be increased to
three. In addition, Messrs.Mr. MacInnis and Levy each will be entitled to receive all
unpaid amounts in respect of his bonus for any calendar year endingended before the
date of termination and an amount equal to his target bonus for the calendar
year in which the termination takes place multiplied by a fraction, the
numerator of which is the number of days in suchthe calendar year that he was an employee ofin which the
Companytermination occurs and the denominator of which is 365.
The Company also has employment agreements made as of January 1, 2002
with Sheldon I. Cammaker providing for his employment as Executive Vice
President and General Counsel of the Company through December 31, 2004, with
Leicle E. Chesser providing for his employment as Executive Vice President and
Chief Financial Officer of the Company through December 31, 2004, and with R.
Kevin Matz providing for his employment as Senior Vice President, and TreasurerShared
Services of the Company through December 31, 2004. Each such employment
agreement provides that the term of employment will automatically be extended
for successive one-year periods unless the Company or the officer gives written
notice not to extend at least six months prior to the end of the initial term or
any extended term of the employment agreement. However, following the date of a
Change of Control (as defined in their respective employment agreements), the
terms of their respective employment shall be for a period of three years from
such date.
Pursuant to the terms of their respective employment agreements, Mr.
Cammaker is to receive an annual base salary of $410,000$420,000 for 2003,2004, Mr. Chesser
is to receive an annual base salary of $410,000$420,000 for 2003,2004, and Mr. Matz is to
receive an annual base salary of $300,000$340,000 for 2003. Generally, their annual base
salaries are to increase on the first day of each succeeding calendar year
during the employment periods by the percentage
-9-
increase in the consumer price index for the preceding year for the area in
which the principal office of the Company is located or an amount specified by
the Board of Directors, whichever is greater, although there was no increase in
their respective base salaries for 2003.2004. In addition, each of them is
entitled to receive an annual cash bonus determined by the Compensation
Committee, and under the terms of their respective employment agreements,
Messrs. Cammaker and Chesser and Matz are each to receivereceived an option on the first business day of 2003
andJanuary 2, 2004 to
purchase a number of22,795 shares of Common Stock, determined by dividing
75% of their respective base salaries for such year by the value ofand Mr. Matz received an option to
purchase a share of Common Stock on such date, which value shall be determined
with reference to the Black-Scholes methodology. Accordingly on
January 2, 2003
Messrs. Cammaker and Chesser were each granted an option2004 to purchase 17,04917,970 shares of Common Stock at $54.73 per share and Mr. Matz was granted an option to
purchase 12,475 shares of Common Stock at $54.73 per share.Stock. Each option is to
havehas a
ten-year term and an exercise price equal toof $43.83, the fair market value of a share
of Common Stock on the grant date, and is to be exercisable as follows: one-fourth on
or after the grant date, one-fourth on or after the first anniversary of the
grant date, one-fourth on or after the second anniversary of the grant date and
one-fourth on or after the last business day of the calendar year immediately
preceding the third anniversary of the grant date.
Under the terms of their employment agreements, Messrs. Cammaker,
Chesser and Matz each have been provided with certain benefits customarily
accorded to the Company's executive officers, including in Messrs. Cammaker's
and Chesser's case, $870 per month, and in Mr. Matz' case, $700 per month, for
leasing of an automobile and the cost of a lease capital reduction payment;
maintenance and insurance on their respective automobiles; reimbursement for
initiation fees and monthly dues for membership in a club suitable for
entertaining clients of the Company; life insurance in an amount equal to
approximately twice their respective current
annual salarysalaries times the number of full or
partial calendar years that remain prior to the expiration of their respective
employment agreements; all legal expenses incurred by the executives in
connection with their respective employment agreements; and the cost of any
increased tax liability to them caused by receipt of thesethose fringe benefits.
If Messrs. Cammaker's, Chesser's or Matz' employment is terminated
during the term of his respective employment agreement by the Company other than
for Cause (as defined in his employment agreement), or if he terminates his
employment for Good Reason (as defined in his employment agreement),
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he will be entitled to receive a cash payment generally equal to the sum of (i)
two times his base salary at its then current annual rate and (ii) two times the
highest bonus paid to him during his employment by the Company ("Deemed Bonus").Company. However, in the
event of a termination following a Change of Control (as defined in his
employment agreement), the factor of two in clauses (i) and (ii) above will be
increased to three. In addition, Messrs. Cammaker, Chesser and Matz each will be
entitled to receive all unpaid amounts in respect of his bonus for any calendar
year endingended before the date of termination and an amount equal to the highest
bonus paid to him during his Deemed Bonusemployment by the Company multiplied by a fraction
the numerator of which is the number of days in the calendar year in which the
termination occurs that he was an
employee of the Company and the denominator of which is 365.
Mr. Levy resigned as President and Chief Operating Officer of the
Company on February 26, 2004 and will continue as an employee of the Company
through May 31, 2004. In connection with an agreement between him and the
Company providing for the terms of his separation, Mr. Levy received a payment
of $2,443,706, will be reimbursed for up to $70,000 to cover the costs of
out-placement services, legal fees he incurred in connection with his separation
agreement and certain office and secretarial expenses he may incur through May
31, 2004. In addition, Mr. Levy will continue to be paid through May 31, 2004 a
salary at the monthly rate of $45,154 and will also be paid $150,000 as a bonus
upon termination of his employment.
CONTINUITY AGREEMENTS
Each of Messrs. MacInnis, Levy, Cammaker, Chesser and Matz (each referred to
herein as an "Executive") is a party to a Continuity Agreement with the Company.
The purpose of the Continuity Agreements is to retain the services of these
Executives and to assure their continued productivity without disturbance in
circumstances arising from the possibility or occurrence of a Change of Control
of the Company. For purposes of these agreements a "Change of Control" means, in
general, the occurrence of (i) the acquisition by a person or group of persons
of 25% or more of the voting securities of the Company, (ii) the approval by the
Company's stockholders of a merger, business combination or sale of the
Company's assets, the result of which is that less than 65% of the voting
securities of the resulting corporation is owned by the holders of the Common
Stock prior to such transaction or (iii) the failure of Incumbent Directors (as
defined in the Continuity Agreements) to constitute at least a majority of the
Board of Directors of the Company during any two year period.
Generally, no benefits are provided under the Continuity Agreements for
any type of termination before a Change of Control, for termination after a
Change of Control due to death, disability, any termination for Cause (as that
term is defined in the Continuity Agreements) or for voluntary termination
(other than for Good Reason) (as that term is defined in the Continuity
Agreements).
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Each Continuity Agreement generally provides to the Executive a
severance benefit if the Company terminates the Executive's employment without
Cause or the Executive terminates his employment for Good Reason within two
years following a Change of Control equal to the sum of three times (i) his base
salary at the time of the Change of Control, (ii) the higher of (A) his bonus in
respect of the year prior to the Change of Control and (B) the average of his
bonuses for the three years prior to the Change of Control and (iii) the value
of perquisites provided in respect of the year prior to the Change of Control.
Other severance benefits include outplacement assistance and a continuance of
insurance benefits for three years. The severance benefits under each
Executive's Continuity Agreement are reduced by any severance benefits payable
under such Executive's employment agreement.
If all or any portion of the payments or benefits referred to in the
preceding paragraphs under "Employment Agreements" and "Continuity Agreements"
either alone or together with other payments and benefits which any of Messrs.
MacInnis, Levy, Cammaker, Chesser or Matz receives or is then entitled to receive from
the Company would constitute a "parachute payment" within the meaning of Section
280G of the Internal Revenue Code of 1986, as amended (the "Code"), then such
officer shall be entitled to such additional payments as may be necessary to
ensure that the net after tax benefit of all such payments shall be equal to his
respective net after tax benefit as if no excise tax had been imposed under
Section 4999 of the Code.
DIRECTOR COMPENSATION
The annual retainer for each Director who is not an employee of the
Company or any subsidiary ("non-employee director") for 2002 was $30,000 payable
in cash, although each non-employee director in lieu of all or part of his cash
retainer could elect to receive, under the 1997 Non-Employee Directors'
Non-Qualified Stock Option Plan and the 1997 Stock Plan for Directors, (a)
options to purchase shares of Common Stock and/or (b) deferred stock units in
respect of which shares of Common Stock will be issued following the
non-employee director's termination of services as a Director of the Company.
For 2002 each non-employee director elected to receive his annual retainer in
options, and accordingly, in January 2002 each non-employee director then on the
Board was granted options to purchase 3,100 shares of Common Stock at $46.35 per
share. Mr. Yonker, who was elected a director on October 25, 2002 received, in
respect of his retainer for the balance of 2002, an option grant to purchase
1,433 shares of Common Stock at $51.75 per share. All "retainer options" vest
during the course of the calendar year in which they are granted and have a
five-year term. In addition, pursuant to the terms of the Company's 1995
Non-Employee Directors' Non-Qualified Stock Option Plan, each non-employee
director, upon his election in 2002 as a Director, was granted an option to
purchase 3,000 shares of Common Stock at a exercise price equal to the fair
market value of a share of Common Stock on the grant date, as well as a
supplemental grant outside of such plan of an additional option to purchase
2,000 shares of Common Stock at the same exercise price; all of these options
became fully exercisable as of the date of grant and have a term of ten years.
The per share exercise price for such 5,000 share option grant was $55.49 per
share, except for options granted to Mr. Yonker, the exercise price of which was
$51.75 per share inasmuch as his options were granted on October 25, 2002.
At the July 2002 annual meeting of the Board, the Board determined
effective January 1, 2003 to increase its annual retainer to $40,000 and to
require each non-employee director to accept his annual retainer in stock
options which have a five-year term and an exercise price equal to the fair
market value of a share of Common Stock on the grant date and which vest during
the calendar year in which they are granted. In addition, the Board determined
that the annual option grant to Directors upon their election or re-election as
a Director would be increased from 3,000 shares to 5,000 shares, which will be
effective commencing with the Annual Meeting of Directors in June 2003 if the
2003 Non-Employee Directors' Stock Option Plan is approved by stockholders. See
"Approval of 2003 Non-Employee Directors' Stock Option Plan", below.
Each non-employee director also is entitled to fees payable in cash for
attending meetings of the Board of Directors, fees for attending meetings of
committees of the Board upon which he serves and fees for acting as Chairman of
a committee of the Board. In July 2002, the Board determined to increase those
fees. Consequently, the fee for participating in a Board meeting was increased
from $1,000 to $1,500, other than a telephonic meeting of the Board in which
case the fee was increased from $500 to $750; the fee for participating in a
meeting of the Compensation and Personnel Committee and the Corporate Governance
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Committee was increased from $500 to $1,000; and the fee for acting as a
Chairman of each such Committee was increased from $2,000 to $3,000. In
addition, the fee each member of the Audit Committee receives for attending
Audit Committee meetings was also increased from $500 to $1,000 except for
meetings of the Audit Committee at which the financial statements included in
the Company's Forms 10-K and Forms 10-Q are reviewed in which case the meeting
fee was increased to $1,500. The fee for acting as Chairman of the Audit
Committee was increased from $2,000 to $4,000.
EQUITY COMPENSATION PLANS
The following table summarizes equity compensation plans that were
approved by stockholders and equity compensation plans that were not approved by
stockholders as of December 31, 2002. The table does not include information
about the proposed 2003 Management Stock Incentive Plan and the 2003
Non-Employee Directors' Stock Option Plan which is being submitted for approval
of stockholders at the Annual Meeting.
A B C
-------------------------- -------------------- -------------------------
Number of Securities
Remaining Available for
Number of Securities to be Weighted Average Future Issuance Under
Issued upon Exercise of Exercise Price of Equity Compensation Plans
Outstanding Options, Outstanding Options, (Excluding Securities
Plan Category Warrants and Rights Warrants and Rights Reflected in Column A)
- ----------------------- -------------------------- -------------------- -------------------------
Equity Compensation
Plans Approved by
Stockholders 767,723 $14.71 177,754(2)(3)
Equity Compensation
Plans Not Approved
by Stockholders 888,243(1) $30.39 106,724(4)
---------- ---------
Total 1,655,966 $23.16 284,478
========== =========
- ----------
(1) 51,167 shares relate to options which are held by employees (other than
executive officers) of the Company (the "Employee Options") as of December
31, 2002, 731,800 shares relate to options which held by executive
officers of the Company (the "Executive Options") as of December 31, 2002,
12,000 shares relate to options which are held by Directors of the Company
(the "Director Options") as of December 31, 2002, and 93,276 shares relate
to restricted Common Stock units ("RSUs") outstanding as of December 31,
2002 under the Executive Stock Bonus Plan described in notes (1) and (4)
to the Summary Compensation Table in the section entitled "Executive
Compensation--Summary of Cash and Certain Other Compensation," above.
(2) Includes 128,752 shares as of December 31, 2002 reserved for issuance
under the 1997 Non-Employee Directors' Non-Qualified Stock Option Plan,
but excludes 11,000 shares as of December 31, 2002 reserved for issuance
under the 1995 Non-Employee Directors' Non-Qualified Stock Option Plan,
which plan shall be terminated effective upon approval by stockholders of
the 2003 Non-Employee Directors' Stock Option Plan.
(3) Does not include 147,870 reserved for issuance under the 1997 Stock Plan
for Directors, which plan shall be terminated effective upon approval by
stockholders of the 2003 Non-Employee Directors' Stock Option Plan.
(4) Represents 106,724 shares reserved for issuance pursuant to RSU's not yet
granted under the Executive Stock Bonus Plan referred to in notes 1 and 4
to the "Summary Compensation Table" in the section entitled "Executive
Compensation--Summary of Cash and Certain Other Compensation," above. Does
not include an indeterminable number of options, estimated at
approximately 140,000, to be granted in 2004 to executive officers
pursuant to their respective employment agreements described below under
"Executive Options."
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EQUITY COMPENSATION PLANS NOT APPROVED BY STOCKHOLDERS
EMPLOYEE OPTIONS
The Employee Options vest over three years in equal annual installments,
commencing with the first anniversary of the date of grant of the Employee
Options. The Board of Directors granted such Employee Options to certain key
employees of the Company based upon the performance of such employees. Such
Employee Options have an exercise price per share equal to the fair market value
of a share of Common Stock on their respective grant dates and have a term of
ten years from the grant date.
EXECUTIVE OPTIONS
410,000 of the Executive Options were granted to the five named executive
officers of the Company and to another executive officer, Mark A. Pompa, Vice
President and Controller of the Company, in connection with their respective
prior employment agreements with the Company dated as of January 1, 1998, as
amended (the "Prior Employment Agreements"). Pursuant to the terms of such Prior
Employment Agreements, each such executive officer received a fixed number of
Executive Options on the first business day of 1999, 2000 and 2001 with
respective exercise prices of $16.19, $17.56, and $25.44 per share; in addition,
Mr. MacInnis received an additional grant under his Prior Employment Agreement
of an option to purchase 200,000 shares with an exercise price of $19.75 per
share. Such Executive Options vested on the first anniversary of the grant date,
other than the option granted to Mr. MacInnis for 200,000 shares which vested in
four equal installments based upon the Common Stock reaching target stock prices
of $25, $30, $35, and $40.
An additional 295,400 Executive Options were granted to the executive
officers in connection with their respective current employment agreements with
the Company dated January 1, 2002 (the "Current Employment Agreements"). Of
these options, executive officers were granted (i) an aggregate amount of
171,100 of such Executive Options on December 14, 2001 (exercisable in full upon
grant) with an exercise price of $41.70 per share and (ii) an aggregate amount
of 145,700 of such Executive Options on January 2, 2002 with an exercise price
of $46.35 per share.
Pursuant to the terms of the Current Employment Agreements, on the first
business day of 2004, each such executive officer is to receive an option to
purchase a number of shares of Company Common Stock determined by dividing a set
percentage (ranging from 75% to 125%) of his respective base salary by the value
of an option to purchase a share of Common Stock, which value is determined on
the grant date with reference to the Black-Scholes methodology.
Other than those Executive Options granted on December 14, 2001, referred
to above, the Executive Options granted and to be granted pursuant to the
Current Employment Agreements vest one-fourth on the grant date, one-fourth on
the first anniversary of the grant date, one-fourth on the second anniversary of
the grant date and one-fourth on the last business day of the calendar year
immediately preceding the third anniversary of the grant date. For further
information regarding the Current Employment Agreements of the named executive
officers and the Executive Options issued or to be issued pursuant to their
respective Current Employment Agreements, see "Employment Contracts and
Termination of Employment and Change of Control Arrangements," above.
Each of the Executive Options granted have a term of ten years from their
respective grant dates and an exercise price per share equal to the fair market
value of a share of Common Stock on their respective grant dates. Similarly, the
Executive Options to be granted in 2004 pursuant to the terms of the Current
Employee Agreements will have a ten year term and an exercise price per share
equal to the fair market value of a share of Common Stock on the grant date.
DIRECTOR OPTIONS
During the 2002, each non-employee director of the Company received 2,000
Director Options, which were in addition to the 3,000 options to purchase Common
Stock granted to each non-employee director under the Company's 1995
Non-Employee Directors' Non-Qualified Stock Option Plan, which plan has been
approved by the Company's stockholders. The price at which such Director Options
are exercisable is equal to
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the fair market value per share of Common Stock on the grant date. The exercise
price per share of the Director Options is $55.49 per share, except those
granted to Mr. Yonker which have an exercise price of $51.75 per share. All of
these options vested in full on the grant date and have a term of ten years from
the grant date.
EXECUTIVE STOCK BONUS PLAN
The Executive Stock Bonus Plan was adopted by the Board of Directors in
October 2000. For a description of the Executive Stock Bonus Plan, see notes 1
and 4 to the "Summary Compensation Table" in the section entitled "Executive
Compensation--Summary of Cash and Certain Other Compensation," above.
PROPOSAL NO. 2 - APPROVAL OF 2003 NON-EMPLOYEE DIRECTORS'
STOCK OPTION PLAN
The Board of Directors has adopted, subject to stockholder approval, the
2003 Non-Employee Directors' Stock Option Plan (the "2003 Directors' Plan"). The
2003 Directors' Plan will supplant the 1995 Directors' Non-Qualified Stock
Option (the "1995 Plan") referred to under "Director Compensation" above, which
will terminate as to any ungranted options upon approval by stockholders of the
2003 Directors' Plan. The 1995 Plan provides in effect for the annual grant to
non-employee directors of options to purchase 3,000 shares of Common Stock;
there remains available for grant under the 1995 Plan options for only 8,000
shares of Common Stock. Upon termination of the 1995 Plan, no additional options
may be granted thereunder.
The Company believes that the 2003 Directors' Plan will provide incentives
to non-employee directors to put forth maximum efforts for the success of the
Company's business and strengthen their desire to remain with the Company. It is
also expected that such incentives and the opportunity to acquire a proprietary
interest in the Company will enable the Company to attract other desirable
non-employee directors. The description of the 2003 Directors' Plan set forth
below is a summary, does not purport to be complete and is qualified in its
entirety by reference to the provisions of the 2003 Directors' Plan itself. The
complete text of the 2003 Directors' Plan is attached as Exhibit A to this Proxy
Statement.
DESCRIPTION OF THE 2003 DIRECTORS' PLAN
ADMINISTRATION. The 2003 Directors' Plan is administered by the Board of
Directors of the Company. The Board of Directors is authorized to interpret the
2003 Directors' Plan, to establish, amend and rescind any rules and regulations
relating to the 2003 Directors' Plan, and to make any other determination that
it deems necessary or desirable for the administration of the 2003 Directors'
Plan.
SHARES SUBJECT TO THE PLAN. The total number of shares of Common Stock
which may be issued under the 2003 Directors' Plan is 120,000.
STOCK OPTIONS. In general, the 2003 Directors' Plan provides for an
automatic annual grant of a non-qualified stock option to purchase 5,000 shares
of Common Stock to each Director of the Company who is not also an employee of
the Company or a subsidiary ("non-employee director"). Pursuant to the 2003
Directors' Plan, each person who is elected to serve as a non-employee director
on or after the June 12, 2003 annual meeting of stockholders (including those
persons who are non-employee directors on June 12, 2003) will be granted an
option during each calendar year (beginning with 2003) to purchase 5,000 shares
of Common Stock on the date on which the Board of Directors holds its first
meeting following the annual meeting of stockholders held during such calendar
year. In the event a non-employee director is first elected to the Board of
Directors other than at an annual meeting of stockholders, upon his election the
non-employee director shall be granted an option to purchase 5,000 shares of
Common Stock.
The per share exercise price of an option granted under the 2003
Directors' Plan will be equal to the fair market value of a share of Common
Stock on the date the option is granted. Options granted under the 2003
Directors' Plan will be fully vested and exercisable as of the date of grant;
however, no option shall be exercisable more than ten years after it is granted.
As of April 17, 2003, the closing price on The New York Stock Exchange of a
share of the Common Stock of the Company was $48.43.
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The exercise price of an option may be paid (a) in cash or its equivalent,
(b) in shares of Common Stock having a fair market value equal to the aggregate
exercise price and satisfying such other requirements as may be imposed by the
Board of Directors; provided, that such shares have been held by the
non-employee director for no less than six months, (c) partly in cash and partly
in shares or, (d) if there is a public market for the shares at such time,
through the delivery of irrevocable instructions to a broker to sell shares of
Common Stock obtained upon the exercise of the option and to deliver promptly to
the Company an amount out of the proceeds of the sale equal to the aggregate
exercise price for the shares of Common Stock being purchased.
NO REPRICING. The 2003 Directors' Plan prohibits the repricing of options.
ADJUSTMENTS UPON CERTAIN EVENTS. In the event of any stock dividend or
split, reorganization, recapitalization, merger, share exchange or any other
similar transaction, the Board of Directors, in its sole discretion, may adjust
(i) the number or kind of shares or other securities issued or reserved for
issuance pursuant to the 2003 Directors' Plan or pursuant to outstanding
options, (ii) the exercise price of any option and/or (iii) any other affected
terms of such option.
Upon the occurrence of a change in control of the Company (as defined in
the 2003 Directors' Plan), the 2003 Directors' Plan provides that the Board of
Directors may (A) cause the restrictions to lapse with respect to any options or
(B) cancel options for fair value or (C) provide for the issuance of substitute
options that will substantially preserve the otherwise applicable terms of any
affected option previously granted thereunder as determined by the Board of
Directors in its sole discretion or (D) provide that for a period of at least 30
days prior to the change in control, such options shall be exercisable as to all
shares subject thereto and that upon the occurrence of the change in control,
such options shall terminate.
AMENDMENT AND TERMINATION. The Board of Directors may amend, alter or
discontinue the 2003 Directors' Plan, but no amendment, alteration or
discontinuation shall be made (a) without the approval of the stockholders of
the Company, if such action would increase the maximum number of shares with
respect to which options may be granted thereunder, (b) without the consent of a
non-employee director, if such action would diminish any of the rights of the
non-employee director under any option previously granted to the non-employee
director under the 2003 Directors' Plan or (c) to the provision relating to
repricing of options. No option may be granted under the 2003 Directors' Plan
after ten years from the date of its approval by stockholders.
TAX STATUS OF 2003 DIRECTORS' PLAN AWARDS
INTRODUCTION. The following discussion of the federal income tax status of
options under the 2003 Directors' Plan is based on present federal tax laws and
regulations and does not purport to be a complete description of the federal
income tax laws. Non-employee directors may also be subject to certain state and
local taxes which are not described below.
NON-QUALIFIED OPTIONS. Options granted under the 2003 Directors' Plan will
be non-qualified options and no income is realized by the non-employee director
at the time of grant of the option, and no deduction is available to the Company
at such time. At the time of exercise (other than by delivery of Common Stock to
the Company), ordinary income is realized by the non-employee director in an
amount equal to the excess, if any, of the fair market value of the shares of
Common Stock on the date of exercise over the exercise price, and the Company
receives a tax deduction of the same amount. If an option is exercised by
delivering Common Stock to the Company, a number of shares received by the
non-employee director equal to the number of shares so delivered will be
received free of tax and will have a tax basis and holding period equal to the
shares so delivered. The fair market value of additional shares received by the
non-employee director will be taxable to the non-employee director as ordinary
income (and the Company will receive a corresponding deduction), and the
non-employee director's tax basis in such shares will be their fair market value
on the date of exercise. Upon disposition, any appreciation or depreciation of
the Common Stock after the date of exercise is treated as capital gain or loss.
If the 2003 Directors' Plan is approved by stockholders at the Annual
Meeting, each non-employee director, at the 2003 annual meeting of the Board of
Directors to be held immediately following the Annual Meeting, will be granted
an option to purchase 5,000 shares of Common Stock, aggregating options to
purchase 30,000 shares, at a per share exercise price equal to the fair market
value of a share of Common Stock on the date of grant.
-15-
ADOPTION OF PROPOSAL NO. 2
The Company believes that its best interests will be served by the
approval of Proposal No. 2. The 2003 Directors' Plan will enable the Company to
stimulate the efforts of non-employee directors on behalf of the Company and
strengthen their desire to remain with the Company.
Approval of Proposal No. 2 requires the affirmative vote of a majority of
shares of Common Stock represented at the Annual Meeting and entitled to vote
thereon.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE 2003
DIRECTORS' PLAN.
PROPOSAL NO. 3 - APPROVAL OF
2003 MANAGEMENT STOCK INCENTIVE PLAN
The Board of Directors has adopted, subject to stockholder approval, the
2003 Management Stock Incentive Plan (the "2003 Management Plan").
Stockholder approval of Proposal No. 3 will constitute approval of (i) the
performance criteria upon which performance-based awards may be based under the
2003 Management Plan in those instances in which such awards are intended to be
deductible by the Company under Section 162(m) of the Internal Revenue Code of
1986, as amended or any successor statute thereto (the "Code"), (ii) the annual
per participant limit of 100,000 shares on grants of options and the annual per
participant limit of 100,000 shares on grants of stock appreciation rights,
(iii) the annual per participant limit of 50,000 shares on grants of
performance-based awards that are restricted stock or other stock-based awards,
(iv) the annual per participant limit of $5,000,000 for other performance-based
stock-based awards that are not denominated or payable in shares of Common Stock
and (v) the class of employees eligible to receive awards under the 2003
Management Plan. See "Tax Status of 2003 Management Plan Awards--Section
162(m)."
The Company believes that the 2003 Management Plan will motivate those
employees and prospective employees who are selected to participate in the Plan
("participants") of the Company and its affiliates to exert their best efforts
on behalf of the Company and its affiliates and that the Company will benefit
from the added interest which such employees will have in the welfare of the
Company as a result of their proprietary interest in the Company's success. The
description of the 2003 Management Plan set forth below is a summary, does not
purport to be complete and is qualified in its entirety by reference to the
provisions of the 2003 Management Plan itself. The complete text of the 2003
Management Plan is attached as Exhibit B to this Proxy Statement.
DESCRIPTION OF THE 2003 MANAGEMENT PLAN
ADMINISTRATION. The 2003 Management Plan is administered by the
Compensation and Personnel Committee of the Board of Directors (the
"Compensation Committee"), which may delegate its duties and powers in whole or
in part to any subcommittee consisting solely of at least two individuals who
are intended to qualify as "non-employee directors" within the meaning of Rule
16b-3 under the Securities Exchange Act of 1934, as amended (or any successor
rule thereto) and, to the extent required by Section 162(m) of the Code,
"outside directors" within the meaning thereof. The Compensation Committee is
authorized to interpret the 2003 Management Plan, to establish, amend and
rescind any rules and regulations relating to the 2003 Management Plan, and to
make any other determinations that it deems necessary or desirable for the
administration of the 2003 Management Plan.
SHARES SUBJECT TO THE PLAN. The total number of shares of Common Stock
which may be issued under the 2003 Management Plan is 330,000 of which no more
than 50% may be issued in the form of restricted stock or other stock-based
awards payable in shares of Common Stock. As of April 17, 2003, the closing
price on The New York Stock Exchange of a share of Common Stock was $48.43.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS. The Compensation Committee
may award non-qualified or incentive stock options for federal income tax
purposes. Options granted under the 2003 Management Plan shall be vested and
exercisable at such times and upon such terms and conditions as may be
determined by the Compensation Committee, but in no event shall an option be
exercisable more than ten years after it is granted. The maximum number of
shares of Common Stock covered by options that may be granted during any
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calendar year to any participant shall be 100,000. The Compensation Committee
currently intends to grant options that provide that the unvested portion of an
option will immediately become vested upon the participant's termination of
employment due to death, disability or retirement.
The exercise price per share of Common Stock for any option awarded shall
not be less than 100% of the fair market value of a share of Common Stock on the
date the option is granted. To the extent permitted by the Compensation
Committee, the exercise price of an option may be paid (a) in cash or its
equivalent, (b) in shares of Common Stock having a fair market value equal to
the aggregate exercise price and satisfying such other requirements as may be
imposed by the Compensation Committee; provided, that such shares have been held
by the participant for no less than six months, (c) partly in cash and partly in
shares of Common Stock or, (d) if there is a public market for the shares at
such time, through the delivery of irrevocable instructions to a broker to sell
shares of Common Stock obtained upon the exercise of the option and to deliver
promptly to the Company an amount out of the proceeds of the sale equal to the
aggregate exercise price for the shares of Common Stock being purchased.
The Compensation Committee may grant stock appreciation rights independent
of or in conjunction with an option. The maximum number of shares of Common
Stock covered by a stock appreciation right that may be granted during any
calendar year to any participant shall be 100,000. The exercise price of a stock
appreciation right shall not be less than the fair market value of the Common
Stock on the date the stock appreciation right is granted; provided, however,
that, in the case of a stock appreciation right granted in conjunction with an
option, the exercise price may not be less than the exercise price of the
related option. Each stock appreciation right granted independent of an option
shall entitle a participant upon exercise to an amount equal to (i) the excess
of (A) the fair market value on the exercise date of one share of Common Stock
over (B) the per share exercise price, times (ii) the number of shares of Common
Stock covered by the stock appreciation right. Each stock appreciation right
granted in conjunction with an option shall entitle a participant to surrender
the option and to receive an amount equal to (i) the excess of (A) the fair
market value on the exercise date of one share of Common Stock over (B) the per
share exercise price, times (ii) the number of shares of Common Stock covered by
the option which is surrendered. Payment shall be made in shares of Common Stock
or in cash or partly in Common Stock and partly in cash (with any Common Stock
valued at fair market value), as shall be determined by the Compensation
Committee.
NO REPRICING. The 2003 Management Plan prohibits the repricing of options
or stock appreciation rights.
RESTRICTED STOCK. The Compensation Committee shall determine the number of
shares of restricted stock to grant to a participant, the duration of the period
during which, and the conditions, if any, under which the restricted stock may
be forfeited to the Company and the other terms and conditions of restricted
stock awards.
OTHER STOCK-BASED AWARDS. The Compensation Committee, in its sole
discretion, may grant stock awards, unrestricted stock and other awards that are
valued in whole or in part by reference to, or are otherwise based on the fair
market value of, the Common Stock. Such other stock-based awards may be in such
form, and dependent on such conditions, as the Compensation Committee shall
determine, including, without limitation, the right to receive, or vest with
respect to, one or more shares of Common Stock (or the equivalent cash value of
such shares of Common Stock) upon the completion of a specified period of
service, the occurrence of an event and/or the attainment of performance
objectives.
SECTION 162(m) OF THE CODE. Certain stock awards (including restricted
stock awards) and other stock-based awards granted under the 2003 Management
Plan may be granted in a manner designed to make them deductible by the Company
under Section 162(m) of the Code. Such awards ("Performance-Based Awards") shall
be based upon one or more of the following criteria: (i) consolidated earnings
before or after taxes (including earnings before interest, taxes, depreciation
and amortization); (ii) net income; (iii) operating income; (iv) earnings per
share; (v) book value per share; (vi) return on shareholders' equity; (vii)
expense management; (viii) return on investment; (ix) improvements in capital
structure; (x) profitability of an identifiable business unit or product; (xi)
maintenance or improvement of profit margins; (xii) stock price; (xiii) market
share; (xiv) revenues or sales; (xv) costs; (xvi) cash flow; (xvii) working
capital and (xviii) return on assets. With respect to Performance-Based Awards,
(a) the Compensation Committee shall establish the objective performance goals
applicable to a given period of service no later than 90 days after the
commencement of such period of service
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(but in no event after 25% of such period of service has elapsed) and (b) no
awards shall be granted to any participant for a given period of service until
the Compensation Committee certifies that the objective performance goals (and
any other material terms) applicable to such period have been satisfied. The
maximum amount of Performance-Based Awards that may be granted during a calendar
year to any participant shall be: (x) with respect to stock awards and other
stock-based awards that are denominated or payable in shares, 50,000 shares of
Common Stock and (y) with respect to stock awards and other stock-based awards
that are not denominated or payable in shares, $5,000,000.
ADJUSTMENTS UPON CERTAIN EVENTS. In the event of any stock dividend or
split, reorganization, recapitalization, merger, share exchange or any other
similar transaction, the Compensation Committee, in its sole discretion, may
adjust (i) the number or kind of shares or other securities issued or reserved
for issuance pursuant to the 2003 Management Plan or pursuant to outstanding
awards, (ii) the maximum number of shares for which awards (including limits
established for restricted stock or other stock-based awards) may be granted
during a calendar year to any participant, (iii) the exercise price of any
option or stock appreciation right and/or (iv) any other affected terms of such
awards.
Upon the occurrence of a change in control of the Company (as defined in
the 2003 Management Plan), the 2003 Management Plan provides that the
Compensation Committee may (A) accelerate, vest or cause the restrictions to
lapse with respect to all or any portion of an award or (B) cancel awards for
fair value or (C) provide for the issuance of substitute awards that will
substantially preserve the otherwise applicable terms of any affected awards
previously granted thereunder as determined by the Compensation Committee in its
sole discretion or (D) provide that for a period of at least 30 days prior to
the change in control, such options or stock appreciation rights shall be
exercisable as to all shares subject thereto and that upon the occurrence of the
change in control, such options shall terminate.
AMENDMENT AND TERMINATION. The Board of Directors may amend, alter or
discontinue the 2003 Management Plan, but no amendment, alteration or
discontinuation shall be made (a) without the approval of the stockholders of
the Company, if such action would, increase the total number of shares reserved
for the purposes of the 2003 Management Plan or increase the maximum number of
shares of restricted stock or other stock-based awards that may be awarded
thereunder, or the maximum number of shares for which awards may be granted to
any participant during a calendar year, (b) without the consent of a
participant, if such action would diminish any of the rights of the participant
under any award previously granted to the participant under the 2003 Management
Plan or (c) to the provision relating to repricing of options or stock
appreciation rights. No awards may be made under the 2003 Management Plan after
ten years from the date of its approval by stockholders.
TAX STATUS OF 2003 MANAGEMENT PLAN AWARDS
INTRODUCTION. The following discussion of the federal income tax status of
awards under the 2003 Management Plan is based on present federal tax laws and
regulations and does not purport to be a complete description of the federal
income tax laws. Participants may also be subject to certain state and local
taxes which are not described below.
INCENTIVE STOCK OPTIONS. If the option is an incentive stock option, no
income is realized by the participant upon grant or exercise of the option, and
no deduction is available to the Company at such time except that upon exercise
the excess of the fair market value of the Common Stock over the exercise price
of the option is an item of tax preference potentially subject to the
alternative minimum tax. If the Common Stock purchased upon the exercise of an
incentive stock option is held by a participant for at least two years from the
date of the grant of such option and for at least one year after exercise, upon
disposition of the shares, any resulting gain is taxed at long-term capital
gains rates. If the Common Stock purchased pursuant to the option is disposed of
before the expiration of such periods, any gain on the disposition of the
shares, up to the difference between the fair market value of the Common Stock
at the time of exercise and the exercise price of the option, is taxed at
ordinary rates as compensation paid to the participant, and the Company is
entitled to a deduction for an equivalent amount. Any amount realized by the
participant in excess of the fair market value of the stock at the time of
exercise is taxed at capital gains rates.
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NON-QUALIFIED OPTIONS. If the option is a non-qualified option, no income
is realized by the participant at the time of grant of the option, and no
deduction is available to the Company at such time. At the time of exercise
(other than by delivery of Common Stock to the Company), ordinary income is
realized by the participant in an amount equal to the excess, if any, of the
fair market value of the shares of Common Stock on the date of exercise over the
exercise price, and the Company receives a tax deduction for the same amount. If
an option is exercised by delivering Common Stock to the Company, a number of
shares received by the participant equal to the number of shares so delivered
will be received free of tax and will have a tax basis and holding period equal
to the shares so delivered. The fair market value of additional shares received
by the participant will be taxable to the participant as ordinary income (and
the Company will receive a corresponding deduction), and the participant's tax
basis in such shares will be their fair market value on the date of exercise.
Upon disposition, any appreciation or depreciation of the Common Stock after the
date of exercise is treated as capital gain or loss.
STOCK APPRECIATION RIGHTS. No income is realized by the participant at the
time a stock appreciation right is awarded, and no deduction is available to the
Company at such time. When the right is exercised, ordinary income is realized
by the participant in the amount of the cash or the fair market value of the
Common Stock received by the participant, and the Company shall be entitled to a
deduction of equivalent value.
RESTRICTED STOCK AND OTHER AWARDS. Subject to Section 162(m) of the Code,
discussed below, the Company receives a deduction and the participant recognizes
taxable income equal to the fair market value of the restricted stock at the
time the restrictions on the restricted stock awarded lapse, unless the
participant elects to recognize such income immediately by so electing not later
than 30 days after the date of the grant by the Company to the participant of a
restricted stock award as permitted under Section 83(b) of the Code, in which
case both the Company's deduction and the participant's inclusion in income
occur on the grant date. The value of any part of any other award distributed to
participants shall be taxable as ordinary income to such participants in the
year in which such stock, cash or other consideration is received, and, subject
to Section 162(m) of the Code, the Company will be entitled to a corresponding
tax deduction.
SECTION 162(m). Section 162(m) of the Code generally disallows a tax
deduction to public companies for compensation over $1,000,000 paid to the Chief
Executive Officer and the four other most highly compensated executive officers
in any year. Qualifying performance-based compensation is not subject to such
deduction limit if certain requirements are met. One requirement is stockholder
approval of (i) the performance criteria upon which performance-based awards may
be based, (ii) the annual per-participant limits on grants and (iii) the class
of employees eligible to receive awards. In the case of Performance-Based
Awards, other requirements are that objective performance goals and the amounts
payable upon achievement of the goals be established by a committee of at least
two outside directors and that no discretion be retained to increase the amount
payable under the awards. In the case of options and stock appreciation rights,
other requirements are that the option or stock appreciation right be granted by
a committee of at least two outside directors and that the exercise price of the
option or stock appreciation right be not less than fair market value of the
Common Stock on the date of grant.
ADOPTION OF PROPOSAL NO. 3
The Company believes that its best interests will be served by the
approval of Proposal No. 3. The 2003 Management Plan will enable the Company to
be in a position to continue to grant long-term incentive awards to employees,
including those who through promotions and development of the Company's business
will be entrusted with new and more important responsibilities, while
preserving, where appropriate, the tax deductibility of these awards.
Approval of Proposal No. 3 requires the affirmative vote of a majority of
shares of Common Stock represented at the Annual Meeting and entitled to vote
thereon.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE 2003
MANAGEMENT PLAN.
-19-
PROPOSAL NO. 4 - APPROVAL OF KEY EXECUTIVE INCENTIVE BONUS PLAN
The Board of Directors has adopted, subject to stockholder approval, the
Key Executive Incentive Bonus Plan (the "Bonus Plan"). The purpose of the Bonus
Plan is to establish a program of incentive compensation for certain key
executives of the Company and to ensure that the payment of such bonuses will be
deductible under Section 162(m) of the Internal Revenue Code (the "Code").
Section 162(m) of the Code limits the Company's tax deduction to
$1,000,000 per year per executive for certain compensation paid to each of its
chief executive officer and the other four highest compensated executives of the
Company at the end of the Company's taxable year (each a "Covered Employee"). In
general, the regulations under Section 162(m) exclude from this limitation
compensation that is, among other things, calculated based on "objective"
performance criteria and awarded under a plan that has received stockholder
approval. The Board therefore recommends stockholder approval of the Bonus Plan
so that the Company may, if all other requirements of the regulations are met,
fully deduct certain annual bonus payments to the Covered Employees (described
below as "Bonuses") in compliance with Section 162(m) of the Code.
The Board believes that the Bonus Plan will provide the Company with an
effective vehicle to focus and motivate the annual performance of the selected
key executives of the Company and offer them opportunities to attain competitive
levels of coompensation. The description of the Bonus Plan set forth below is a
summary, does not purport to be complete and is qualified in its entirety by
reference to the provisions of the Bonus Plan itself. The complete text of the
Bonus Plan is attached as Exhibit C to this Proxy Statement.
It is anticipated that Bonuses under the Bonus Plan will not be provided
for prior to 2004. Because amounts payable under the Bonus Plan are based on
satisfaction of performance goals and on bonus targets to be determined for each
applicable performance period, it cannot be determined at this time what
amounts, if any, will be received by any selected key executive with respect to
any year under the Bonus Plan.
DESCRIPTION OF THE BONUS PLAN. The purpose of the Bonus Plan is to
motivate and reward selected Covered Employees by making all or a significant
portion of their annual bonuses directly dependent upon achieving key strategic
objectives. The Bonus Plan will provide the opportunity for those key executives
to earn substantial incentive cash compensation for attaining financial and
operational objectives that are critical to the Company's ongoing growth and
profitability.
The Bonus Plan allows the Compensation and Personnel Committee of the
Board of Directors of the Company (or, in certain situations, its delegate) (the
"Committee") to grant to selected key executives annual awards. As of April 17,
2003, six individuals would have been eligible to participate in the Bonus Plan.
As indicated above, the Bonus Plan has been designed and will be
administered to provide "performance based" incentive compensation, within the
meaning of Section 162(m) of the Code. To that end, a Bonus may be granted in
the discretion of the Compensation Committee to any participant in the Bonus
Plan who the Compensation Committee reasonably believes may be a Covered
Employee. The amount of any Bonus will be based on objective performance goals
established by the Compensation Committee, based on attainment of specific
levels of performance of the Company (or of a subsidiary, division, or
department thereof) with reference to one or more of the following criteria: (i)
consolidated earnings before or after taxes (including earnings before interest,
taxes, depreciation and amortization); (ii) net income; (iii) operating income;
(iv) earnings per share; (v) book value per share; (vi) return on shareholders'
equity; (vii) expense management; (viii) return on investment; (ix) improvements
in capital structure; (x) profitability of an identifiable business unit or
product; (xi) maintenance or improvements of profit margins; (xii) stock price;
(xiii) market share; (xiv) revenues or sales; (xv) costs; (xvi) cash flow;
(xvii) working capital; and (xviii) return on assets. The Committee must certify
as to the attainment of the applicable performance goals prior to payment of any
Bonus, and may reduce the amount of any Bonus. All terms and conditions of
Bonuses, and the Bonus Plan provisions referring thereto, are intended to be
administered and interpreted in accordance with Section 162(m) of the Code, to
ensure the deductibility of the Company of the Bonuses. The performance goals
based on one or more of the foregoing performance factors will be established by
the Compensation Committee no more than 90 days after the commencement of the
period to which the performance goals relate (or, if less, the number of days
which is equal to 25 percent of the relevant performance period).
-20-
The Compensation Committee has the authority to determine in its sole
discretion the applicable performance period relating to any Bonus, subject to
any applicable restrictions imposed by Section 162(m) of the Code.
At the end of the applicable performance period, the Compensation
Committee must certify as to the attainment of the applicable performance goals
prior to payment of any Bonus, and may reduce (but not increase) the amount of
any Bonus. Bonuses will be paid, as soon as practicable after certification of
attainment of performance goals by the Compensation Committee. Payment may be
deferred, in part or whole, on a mandatory basis by the Compensation Committee
or electively by participants with Compensation Committee approval. The maximum
amount of a Bonus under the Bonus Plan that may be granted in any calendar year
to any one participant is $5,000,000. The maximum amount need not be awarded.
The Bonus Plan may be amended or suspended in whole or in part at any time
and from time to time by the Compensation Committee.
ADOPTION OF PROPOSAL NO. 4.
The Company believes that its best interests will be served by the
approval of Proposal No. 4. The Bonus Plan will enable the Company to be in a
position to preserve, where appropriate, the tax deductibility of bonuses of key
executives.
Approval of Proposal No. 4 requires the affirmative vote of a majority of
shares of Common Stock represented at the Annual Meeting and entitled to vote
thereon.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE KEY
EXECUTIVE INCENTIVE BONUS PLAN.
CERTAIN RELATED TRANSACTIONS
In January 2002, the Company retained Albert Fried & Company, LLC ("AFC"),
a broker dealer and member of the New York Stock Exchange, to act as its broker
in connection with sale of common stock of a customer that the Company had
accepted from the customer in satisfaction of the customer's indebtedness. To
effectuate the sale, the Company paid AFC aggregate brokerage commissions of
$79,226. The commission rate that AFC charged the Company was substantially less
than the commission rates for the transactions quoted to the Company by other
major brokerage firms. Mr. Albert Fried, Jr., a Director of the Company, is a
principal owner and the managing member of AFC.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 2002,2003, the Compensation and Personnel Committee of the Board of
Directors of the Company (the "Compensation Committee") was responsible for matters
concerning executive compensation.
Messrs. Bershad, Fried Hamm and Yonker, each of whom is a non-employee
director, served as members of the
Compensation Committee during 2002.all of 2003, and Mr. Yonker was elected to the Board on October 25, 2002 andBump has served onbeen serving as a
member of the Compensation Committee since his electionJune 12, 2003. Mr. Hamm served as a
Director.member of the Compensation Committee from January 1, 2003 to June 12, 2003.
No member of the Compensation Committee was at any time during 20022003 a
present or former officer or present employee of the Company or any of its
subsidiaries or had any relationship requiring disclosure by the Company under
any paragraph of Item 404 of Regulation S-K of the Securities and Exchange
Commission except for Mr. Fried
with respect to the brokerage commissions described above under "Certain Related
Transactions."Commission.
COMPENSATION COMMITTEE REPORT
The Compensation Committee reviews and Personnelapproves corporate goals and
objectives relevant to the compensation of the Company's Chief Executive
Officer, evaluates his performance in light of those goals and objectives, and,
subject to the terms of any incentive compensation plan, together with the other
independent directors, determines his compensation level (including salary,
bonus, stock options and other benefits) based on this evaluation. The
Compensation Committee (the "Compensation Committee")also no less than annually reviews and determines, based
on proposals made by the Company's Chief Executive Officer, the compensation levels
(including salary, bonus, stock options and other benefits) for each of the
Company's Chief Operating Officer, Chief Financial
Officerother executive officers and General Counsel as well as the compensation of other officers and employees of the
Company and each subsidiaryof its subsidiaries whose annual compensationproposed base salary is $400,000 or
more. It also reviews and approvesis responsible for approving, together with the other independent
directors, any employment, severance or similar agreements with such
individuals. The Compensation Committee is charged
with fixing on an annual basis, the compensation of the Chairman of the Board
and the Chief Executive Officer of the Company, subject to the approval of the
Board of Directors, and reviewing and
-21-
recommending to the Board of Directors any employment, severance or similar
agreement for him. The Compensation Committee also administers the Company's 1994
Management Stock Option Plan, and the Executive Stock Bonus Plan, the 2003
Management Stock Incentive Plan, and the Key Executive Incentive Bonus Plan and
is charged with recommendingmaking recommendations to the Board of Directors anywith respect to
incentive benefit,
award or bonuscompensation plans or programs.and equity-based plans for officers and other
employees of the Company and its subsidiaries. The entire Board of Directors determines the
amount, if any, of the Company's matching contributions under the 401(k) part of
its Retirement and Savings Plan. While other compensation decisions generally
are not submitted to the Board, of Directors, the Board of Directorsit has the ultimate power and authority with
respect to compensation matters.
The members of the Compensation Committee reviewed salaries paid to the
Company's executive officers for 2002, recommended to2003, agreed with the Boardexecutive officers that
there would be no salary increases for 2003 and recommended to the Board of
Directors for its approval their bonuses in respect of 2002.2003.
The Compensation Committee seeks to compensate executive officers at
levels competitive with other companies in the same industry that are comparable
in size to the Company and to providemotivate such executive officers by providing
short-term rewards and long-term incentives for superiorbased on individual and corporate
performance. In making compensation decisions, the Compensation Committee
periodically reviews information about the compensation paid or payable to
officers of comparably sized public companies (both in the same and related
businesses), the compensation recommendations of Mr. MacInnis, and reports from
outside consultants. The Compensation Committee does not have target amounts of
stock ownership for its executive officers.
The key components of executive officer compensation are base salary,
bonusesan annual bonus (a portion of which is payable in restricted stock units), and
stock options. The Compensation Committee attempts to combine these components
in such a way as to attract, motivate and retain key executives critical to the
long-term success of the Company. A discussion of the various components of the
executives' compensation for 20022003 follows.
BASE SALARY. Each executive officer received a base salary and has the
potential for annual salary increases largely determined by reference to the
salaries of executive officers holding comparable positions in companies of
comparable size.
-14-
BONUSES. Each executive officer was eligible for an annual bonus based
upon both his individual performance and the Company's performance. BonusesFor 2003,
bonuses were awarded to the executive officers in respect of 2002 which took into account their
performance, the Company's contractual obligations and the Company's
contractual obligations.performance. Under the terms of their respective employment agreements, Messrs.
MacInnis and Levy arewere each entitled to a bonus for 2003 determined with
reference to a target bonus (which may be greater or less than the executive'shis actual bonus)
and based upon factors agreed upon annually by the respective executive officer
and the Compensation Committee. For 2002,2003, Mr. MacInnis' target bonus was
$900,000,$1,000,000, and he received a bonus of $1,250,000,$400,000, of which a portion was paid in
restricted stock units, as described in footnotes 1 and 4 to the "Summary
Compensation Table" in the section entitled "Executive Compensation--SummaryCompensation-Summary of
Cash and Certain Other Compensation," above. Mr. MacInnis' bonus was based upon
several goals, including the Company's net income goal and completion and
efficient integration of significant acquisitions, and upon an evaluation of his
overall management performance, including policy formation and communication of
corporate values. For 2002, Mr. Levy's target bonus was $700,000, and he received a bonus of
$700,000, of which a portion was paid in restricted stock units as described in
footnotes 1 and 4 to the "Summary Compensation Table", above. Mr. Levy's bonus
was based upon the Company's operating income goal. Pursuant to their respectivehis employment agreements,agreement, during the term thereof
Mr. MacInnis' annual target bonus may not be less than $800,000 and$800,000. For 2003, Mr.
Levy's annual target bonus maywas $700,000, and he did not be less
than $600,000.receive any bonus in respect of
that year, inasmuch as the Company failed to achieve its operating income goal
upon which his target bonus was based.
STOCK OPTIONS. The Company's stock options are intended to provide
executive officers with the promise of long-term rewards which appreciate in
value with the positive performance of the Company. As previously reported, in
20022003 each executive officer was granted stock options pursuant to the terms of
his employment agreement.
OTHER COMPENSATION. The executive officers also participate in the
Retirement and Savings Plan as well as the medical, life and disability
insurance plans available to all employees of the Company. In addition, under
the terms of their respective employment agreements each of the executive
officers is to receive life insurance in an amount approximately equal to twice
his current annual salary times the number of full or partial calendar years that remain
prior to the expiration of his respective employment agreement.
-22-
CHIEF EXECUTIVE OFFICER COMPENSATION. The minimum compensation of Mr.
MacInnis is provided for in his employment agreement described above. The basis
for Mr. MacInnis' 2003 bonus is described earlier in this Report. As part of its
evaluation, the Compensation Committee also considered a report by Mr. MacInnis
on his activities and the Company's performance.
SECTION 162(m)162(M). Section 162(m) of the Code provides that the deduction
by a publicly-held corporation for compensation paid in a taxable year to the
Chief Executive Officer and any of the other four most highly compensated
executive officers whose compensation is required to be reported in the "Summary
Compensation Table" is limited to $1,000,000 per officer, subject to certain
exceptions. The Compensation Committee has taken, and intends to continue to
take, such actions as are necessary to reduce, if not eliminate, the Company's
non-deductible compensation expense, while maintaining, to the extent possible,
the flexibility which the Compensation Committee believes to be an important
element of the Company's executive compensation program.
By: Compensation and Personnel Committee
Stephen W. Bershad, Chairperson,
Larry J. Bump
Albert Fried, Jr.
Richard F. Hamm, Jr.
Michael T. Yonker
-15-
PERFORMANCE GRAPH
The following performance graph compares the Company's total
stockholder return on its Common Stock from January 1, 19981999 to December 31, 20022003
as compared to the Russell 2000 Index and the Dow Jones Heavy Construction
Index.
The following performance graph assumes $100 was invested on January 1,
19981999 in Common Stock of the Company and in each of the indices and assumes
reinvestment of all dividends.
COMPARATIVE FIVE YEAR TOTAL RETURNS
[PERFORMANCE CHART OMITTED]
[THIS DATA[DATA BELOW REPRESENTS A PERFORMANCELINE CHART IN THE PRINTED PIECE]
EMCOR Russell 2000 Index Dow Jones Heavy
EMCOR 2000 Index Construction Index
----- ---------- ------------------
1/1/99 100 100 100
104.88 111.29 122.45
93.29 104.99 112.24
75.61 80.11 81.63
78.66 96.66 96.94
83.84 91.35 71.43
109.45 104.58 94.9
92.68 97.02 86.73
89.02 115.63 81.63
94.82 123.5 65.31
113.11 118.49 81.63
126.83 119.44 81.63
124.39 110.77 89.8
148.93 99.57 103.27
176.34 110.71 122.06
155.61 95.06 115.96
221.46 111.91 111.32
282.93 114.03 119.07
286.34 101.01 106.02
242.44 79.72 84.51
258.59 87.76 91.42
-23-106.59 94.5 73.68
139.15 108.19 97.89
117.83 100.37 89.47
12/31/99 113.18 119.62 84.21
120.54 127.76 67.37
143.8 122.58 84.21
161.24 123.56 84.21
12/31/00 158.14 114.59 92.63
189.33 103.01 106.53
224.19 114.53 125.91
197.83 98.34 119.62
12/31/01 281.55 115.77 114.83
359.69 117.96 122.83
364.03 104.49 109.37
308.22 82.47 87.18
12/31/02 328.74 90.79 94.3
306.36 88.46 100.83
305.86 108.15 106.46
215.75 121.4 116.73
12/31/03 272.25 131.98 123.78
AUDIT COMMITTEE REPORT
The following is the report of the Audit Committee with respect to the
Company's audited financial statements for the fiscal year ended December 31,
2003, included in the Company's annual report on Form 10-K for that year.
The Audit Committee has reviewed and discussed these audited financial
statements with management and the Company's independent auditors, Ernst & Young
LLP.
The Audit Committee has discussed with Ernst & Young LLP the matters
required to be discussed by Statement of Auditing Standards No. 61 (Codification
of Statements on Auditing Standards, AUss.380).
The Audit Committee has received the written disclosures and letter
from Ernst & Young LLP required by Independence Standards Board Standard No. 1
("Independence Discussions with Audit Committees") as amended, and has discussed
with Ernst & Young LLP that firm's independence from the Company. The Audit
Committee has also concluded that the provision to the Company by Ernst & Young
LLP of audit and non-audit services, as described under the table of "Fees" in
the Section entitled "Ratification of Appointment of Independent Auditors", is
compatible with the independence of Ernst & Young LLP.
Based on the review and discussions referred to above in this report,
the Audit Committee recommended to the Company's Board of Directors that the
audited financial statements be included in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 2003 for filing with the Securities
and Exchange Commission.
By: Audit Committee
David A. B. Brown, Chairman
Stephen W. Bershad
Larry J. Bump
Richard F. Hamm, Jr.
-16-
PROPOSAL NO. 5 -
RATIFICATION OF APPOINTMENT OF ERNST & YOUNG LLP
AS INDEPENDENT AUDITORS (PROPOSAL 2)
The Audit Committee, which is comprised entirely of the Board of Directorsindependent
directors, has appointed Ernst & Young LLP, certified public accountants, as the
Company's independent auditors for 2003,2004, subject to ratification by stockholders.stockholders
and presents this selection to the stockholders for ratification. If the
stockholders do not approve the selectionappointment of Ernst & Young LLP, the
solicitation of other independent auditors will be considered by the Audit
Committee.
Ernst & Young LLP has acted as the Company's independent auditors since
May 14, 2002. On May 14, 2002 with the approval of the Board of Directors, the
Audit Committee decided to no longer engage Arthur Andersen LLP as the Company's
independent auditors and appointed Ernst & Young LLP as the Company's
independent auditors for 2002.
The reports of Arthur Andersen LLP on the Company's consolidated
financial statements for 2000 and 2001 did not contain an adverse opinion or
disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope or accounting principles.
During 2000 and 2001 and the period January 1, 2002 through May 14,
2002 (the "Interim Period"), there were no disagreements with Arthur Andersen
LLP on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which, if not resolved to the
satisfaction Arthur Andersen LLP, would have caused it to make reference thereto
in connection with its report on the Company's consolidated financial statements
for such years; and there were no reportable events, as such term is used in
Item 304(a)(1)(v) of Regulation S-K ("Regulation S-K") of the Securities and
Exchange Commission.
During 2000 and 2001 and the Interim Period, the Company did not
consult Ernst & Young LLP with respect to the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on the Company's consolidated financial
statements, or any other matters or reportable events set forth in Items
304(a)(2)(i) and (ii)(1)(iv) or (v) of Regulation S-K.
Representatives of Ernst & Young LLP are expected to be present at the
Annual Meeting to respond to appropriate questions and will have an opportunity
to make a statement if they desire to do so.
FEES
The Company was billedaggregate fees for professional services provided during fiscal
year 2002 by Ernst & Young LLP inrendered for the amounts set forth in the following table.
The Audit Committee has considered the services renderedCompany
by Ernst & Young LLP for services other than the audit of the Company's financial statementsyears ended December 31, 2003 and has
determined that the provision of these services is compatible with maintaining
the firm's independence.2002 were as
follows:
Services Provided Fee Amount
--------------------------------------------------------------------- --------------------------------------------------------------------------------
2003 2002
---- ----
Audit Fees(1) ........................................................... $1,850,000 $1,651,485
Audit Related Fees(2) ........................................... $ 86,345105,000 $ 83,345
Tax Fees ..................................Fees(3) ................................ $ 418,000 $ 268,000
All Other Fees(3) .........................Fees(4) .......................... $ 136,000 $ 55,364
Total ............................................................... $2,509,000 $2,061,194
--------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
- ---------------------------------
(1) Fees in connection with the annual audit of the Company's annual financial
statements, for the fiscal year ended December 31, 2002, reviews of the financial statements included in the Company's
quarterly reports on Form 10-Q, duringstatutory audits, and for 2003 includes
$20,000 in connection with the 2002 fiscal year, and statutory audits.issuance of a consent with respect to a
Registration Statement on Form S-8.
(2) Fees rendered for due diligence services and services in support of
employee benefit plan audits.audits and for 2003 includes
$60,000 for consulting services related to the adoption of Section 404 of
the Sarbanes-Oxley Act of 2002 and for 2002 includes $34,965 for due
diligence services.
(3) Fees renderedfor services related to tax compliance, including consulting
services, the preparation of tax returns, tax planning and tax advice.
(4) For 2003 represents fees for Health Insurance Portability and
Accountability Act compliance review and software subscriptions and for
2002 represents fees for valuation services relating to intangible assets.
Other
than as indicated in the notes to this table, the Company did not engage
Ernst & Young LLP for any other services, including financial information
systems design-17-
AUDIT COMMITTEE PRE-APPROVAL PROCEDURES
The 2003 and implementation.
Effective 2003, all2002 audit or permittedand non-audit services performedprovided by Ernst &
Young LLP are requiredwere approved by the Audit Committee. The non-audit services which
were approved by the Audit Committee were also reviewed by the Audit Committee
to ensure compatibility with maintaining the auditors' independence.
The Audit Committee has implemented pre-approval policies and
procedures related to the provision of audit and non-audit services. Under these
procedures, the Audit Committee pre-approves both the type of services to be
provided by Ernst & Young LLP and the estimated fees related to those services.
During the approval process, the Audit Committee considers the impact of the
types of services and the related fees on the independence of the auditors. The
services and fees must be deemed compatible with the maintenance of the
auditors' independence, including compliance with the rules and regulations of
the Securities and Exchange Commission. The Chairperson of the Audit Committee
may pre-approve permissible services that arise between Audit Committee meetings
provided that the decision to pre-approve services is reported at the next
scheduled Audit Committee meeting. However, approximately 14% of the 2003 Tax
Fees referred to in the table above were not pre-approved by the Audit Committee.
However,Committee
prior to the Chairmanrendering of the related services. Such fees represented less than
3% of total Ernst & Young LLP fees billed to the Company for 2003, and approval
of the Audit Committee is authorized to pre-approve the
rendering of such fees and services on behalfwas obtained prior to the
completion of the Audit Committee, provided the matter
is presented to the full Committee at its next scheduled meeting.
-24-
2003 audit.
ADOPTION OF PROPOSAL NO. 52
The Company believes that its best interests will be served by the
approval of Proposal No. 5.2.
Approval of Proposal No. 52 requires the affirmative vote of a majority
of the shares of the Common Stock represented at the Annual Meeting and entitled
to vote thereon.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR 2004.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than 10% of
a registered class of the Company's equity securities, to file initial reports
of ownership and reports of change in ownership of Common Stock and other equity
securities of the Company with the Securities and Exchange Commission and to
furnish copies of such statements to the Company.
To the Company's knowledge and based solely upon a review of such
reports, during the fiscal year 2003 all such reports relating to share
ownership were timely filed.
OTHER MATTERS
RELATED TRANSACTIONS. During 2003, the Company provided facilities
services in the ordinary course of business to an affiliate of FMR Corp. FMR
Corp. beneficially owned more than 5% of the outstanding shares of the Company
Common Stock as of December 31, 2003. STOCKHOLDERS' PROPOSALSSuch services were provided on
substantially the same terms as those provided to unrelated third parties for
comparable services.
STOCKHOLDER PROPOSALS. Stockholders' proposals must be received by the
Company at its headquarters in Norwalk, Connecticut on or before December 29, 200328,
2004 in order to be considered for inclusion in next year's Proxy Statement.
The Company's By-lawsbylaws set forth advance notice provisions and procedures
to be followed by stockholders who wish to bring business before an annual
meeting of stockholders or who wish to nominate candidates for election to the
Board of Directors. A stockholder may propose business to be included in the
agenda of an annual meeting only if written notice of such stockholder's intent
is given to the Secretary of the Company, not earlier than 90 days nor later
than 60 days in advance of the anniversary of the date of the immediately
preceding annual meeting, or if the date of the annual meeting occurs more than
30 days before or 60 days after the anniversary of such immediately preceding
annual meeting, not later than the close of
-18-
business on the later of (a) the sixtieth day prior to such annual meeting and
(b) the tenth day following the date on which a public announcement of the date
of such meeting is first made. Each such notice must set forth certain
background and other information specified in the By-laws,bylaws, including a
description of the proposed business and the reasons for conducting such
business at the annual meeting.
A stockholder may nominate candidates for election to the Board of
Directors at an annual meeting only if written notice of such stockholder's
intent to make such nomination is given to the Secretary of the Company not
earlier than 90 days nor later than 60 days in advance of the anniversary of the
date of the immediately preceding annual meeting, or if the date of the annual
meeting occurs more than 30 days before or 60 days after the anniversary of such
immediately preceding annual meeting not later than the close of business on the
later of (a) the sixtieth day prior to such annual meeting and (b) the tenth day
following the date on which a public announcement of the date of such meeting is
first made. Each such notice must set forth certain background and other
information specified in the By-laws.bylaws.
The time limits described above also apply in determining whether
notice is timely for purposes of Rule 14a-4(c)(1) under the Securities Exchange
Act of 1934 relating to exercise of discretionary voting authority, and are
separate from and in addition to the Securities and Exchange Commission's
requirements that a stockholder must meet to have a proposal included in the
Company's proxy statement.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's Directors and executive officers, and persons who own more than 10% of
a registered class of the Company's equity securities, to file initial reports
of ownership and reports of change in ownership of Common Stock and other equity
securities of the Company with the Securities and Exchange Commission and to
furnish copies of such statements to the Company.
To the Company's knowledge, during the fiscal year 2002 all such reports
relating to share ownership were timely filed, except for the failure to file
timely a Form 4 with respect to two transactions on July 1, 2002 by Mr. Albert
Fried, Jr., a Director of the Company.
OTHER INFORMATION
The cost of soliciting proxies will be borne by the Company. The
Company expects to solicit proxies primarily by mail. Proxies also may be
solicited personally and by telephone by certain officers and regular employees
of the Company. D.F. King & Co., Inc. has been retained for solicitation of all
brokers and nominees for a fee of $7,500, plus customary out-of-pocket expenses.
The Company may reimburse brokers and other nominees for their expenses in
communicating with the persons for whom they hold Common Stock.
-25-
The Board of Directors is aware of no other matters that are to be
presented to the stockholders for formal action at the Annual Meeting. If,
however, any other matters properly come before the meeting or any adjournments
thereof, it is the intention of the persons named in the enclosed proxy to vote
in accordance with their judgment on such matters.
UPON THE WRITTEN REQUEST OF ANY STOCKHOLDER OF RECORD ON APRIL 17, 2003,15,
2004, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED DECEMBER 31, 20022003 (EXCLUDING EXHIBITS) AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION WILL BE SUPPLIED WITHOUT CHARGE. REQUESTS SHOULD BE DIRECTED
TO SHELDON I. CAMMAKER, SECRETARY, EMCOR GROUP, INC., 301 MERRITT SEVEN,
CORPORATE
PARK, NORWALK, CONNECTICUT 06851.
BY ORDER OF THE BOARD OF DIRECTORS
SHELDON I. CAMMAKER
SECRETARY
April 28, 2003
-26-27, 2004
-19-
EXHIBITAppendix A
2003 NON-EMPLOYEE DIRECTORS'
STOCK OPTION PLAN
1. PURPOSE OF THE PLANEMCOR GROUP, INC.
AUDIT COMMITTEE CHARTER
Purpose
The purposeAudit Committee is appointed by the Board of Directors (the "Board") to
assist the Board in its oversight of (1) the integrity of the Plan is to advance the interestsfinancial
statements of the Company, by
encouraging(2) the independent auditor's qualifications and
enablingindependence, (3) the acquisition of a personal proprietary interest in
the Company by Non-Employee Directors of the Company upon whose judgment and
keen interest the Company is largely dependent for the successful conduct of its
business and by providing such Non-Employee Directors with incentives to put
forth maximum efforts for the successperformance of the Company's business. It is
anticipated thatinternal audit function and
independent auditor, and (4) the acquisitioncompliance by the Company with legal and
regulatory requirements.
The Audit Committee shall prepare the report required by the rules of such proprietary interestthe
Securities and Exchange Commission (the "Commission") to be included in the
Company and
such incentives will stimulateCompany's annual proxy statement.
COMMITTEE MEMBERSHIP
The Audit Committee shall by comprised of three or more directors as determined
by the efforts of Non-Employee Directors on behalfBoard. The members of the CompanyAudit Committee shall meet the independence and
strengthen their desire to remain withexperience requirements of the Company. It is
also expected that such incentives and the opportunity to acquire such
proprietary interest will enable the Company to attract desirable Non-Employee
Directors.
2. DEFINITIONS
The following capitalized terms used in the Plan have the respective
meanings set forth in this Section:
(a) "ACT" meansNew York Stock Exchange, Section 10A(m)(3) of the
Securities Exchange Act of 1934 (the "Exchange Act"), and the rules and
regulations of the Commission. At least one member of the Audit Committee shall
be an "audit committee financial expert" as amended,defined by the Commission. Audit
Committee members shall not simultaneously serve on the audit committees of more
than two other public companies unless the Board (i) determines that such
simultaneous service would not impair the ability of such member to effectively
serve on the Committee and (ii) discloses such determination in the Company's
annual proxy statement.
The members of the Audit Committee shall be appointed by the Board at the annual
organizational meeting of the Board to serve until their successors shall be
duly elected and qualified. Audit Committee members may be replaced by the
Board. Unless a Chairperson is appointed by the full Board, the members of the
Audit Committee may designate a Chairperson by majority vote of the full Audit
Committee membership.
MEETINGS
The Audit Committee shall meet at such places and as often as it determines, but
not less frequently than quarterly. The Audit Committee shall periodically meet
separately with management, the internal auditing department and the independent
auditor to discuss any matters that the Audit Committee or any successor thereto.of these groups
believes should be discussed privately. The Audit Committee may request any
officer or employee of the Company or the Company's independent auditor to
attend a meeting of the Audit Committee or to meet with any members of, or
consultants to, the Audit Committee. The presence in person of a majority of the
Audit Committee members shall be necessary to constitute a quorum of the Audit
Committee, provided that participation in a meeting by means of a telephone
conference call or other communication medium allowing all members participating
in the meeting to hear each other at the same time shall constitute presence in
person.
COMMITTEE AUTHORITY AND RESPONSIBILITIES
The Audit Committee shall have the sole authority to appoint or replace the
independent auditor (subject, if applicable, to stockholder ratification). The
Audit Committee shall be directly responsible for the compensation and oversight
of the work of the independent auditor (including resolution of disagreements
between management and the independent auditor regarding financial reporting)
for the purpose of preparing or issuing an audit report or related work. The
independent auditor shall report directly to the Audit Committee.
The Audit Committee shall preapprove all auditing services, internal
control-related services, and permitted non-audit services (including the fees
and terms thereof) to be performed for the Company by its independent auditor,
subject to the de minimis exceptions for non-audit services described in Section
10A(i)(1)(B) of the Exchange Act which are approved by the Audit Committee prior
to completion of the audit. The Audit
-A-1-
Committee may delegate authority to one or more members when appropriate,
including the authority to grant preapprovals of audit and permitted non-audit
services, provided that decisions of such subcommittee to grant preapprovals
shall be presented to the full Audit Committee at its next scheduled meeting.
The Audit Committee shall have authority to retain independent legal, accounting
or other advisors. The Company shall provide for appropriate funding, as
determined by the Audit Committee, for payment of compensation to the
independent auditor for the purpose of rendering or issuing an audit report and
to any advisors employed by the Audit Committee.
The Audit Committee shall make regular reports to the Board, including with
respect to any issues that arise with respect to the quality or integrity of the
Company's financial statements, the Company's compliance with legal or
regulatory requirements, the performance and independence of the Company's
independent auditor, the performance of the internal audit function, and such
other matters as are relevant to the Committee's discharging its
responsibilities.
The Audit Committee, to the extent it deems necessary or appropriate, shall:
FINANCIAL STATEMENT AND DISCLOSURE MATTERS
1. Review and discuss with management and the independent auditor
the annual audited financial statements, including disclosures
made in the Form 10-K Management's Discussion and Analysis
("MDA"). Recommend to the Board whether the audited financial
statements should be included in the Company's Form 10-K.
2. Review and discuss with management and the independent auditor
the Company's quarterly financial statements including
disclosures made in the MDA included in the Form 10-Q. Such
discussion shall include the results of the independent auditor's
review of the quarterly financial statements.
3. Discuss with management and the independent auditor any major
issues regarding accounting principles and financial statement
presentation and judgments made in connection with the
preparation of the Company's financial statements, including any
significant changes in the Company's selection or application of
accounting principles, any major issues as to the adequacy of the
Company's internal controls and special audit steps adopted in
light of material control deficiencies.
4. Review and discuss quarterly reports from the independent auditor
on:
(a) all critical accounting policies and practices to be used;
(b) "ANNUAL MEETING" meansall alternative treatments of financial information within
generally accepted accounting principles that have been
discussed with management, ramifications of the use of
such alternative disclosures and treatments, and the
treatment preferred by the independent auditor; and
(c) other material written communications between the
independent auditor and management, such as any management
letter or schedule of unadjusted differences.
5. Review and discuss with management (including the senior internal
auditor) and the independent auditor the Company's internal
controls report and the independent auditor's attestation of the
report prior to the filing of the Company's Form 10-K.
6. Discuss with management the Company's earnings press releases
(including the use of "pro forma" or "adjusted" non-GAAP
information) and financial information and earnings guidance
provided to analysts and rating agencies. Such discussion may be
done generally (consisting of discussing the types of information
to be disclosed and the types of presentations to be made) and
need not take place in advance of each earnings release or each
instance in which the Company may provide earnings guidance.
-A-2-
7. Review and discuss with management and the independent auditor
the effect of regulatory and accounting initiatives as well as
off-balance sheet structures on the Company's financial
statements.
8. Discuss with management and the independent auditor the Company's
guidelines and policies with respect to risk assessment and risk
management, the Company's major financial risk exposures, and the
steps management has taken to monitor and control such exposures.
9. Discuss with independent auditor the matters required to be
discussed by Statement on Auditing Standards No. 61 relating to
the conduct of the audit, including any difficulties encountered
by it in the course of the audit work, any restrictions on its
scope of activities or access to requested information, and any
significant disagreements between it and management and
management's response. Review with the independent auditor any
accounting adjustments that were noted or proposed by it but were
"passed" (as immaterial or otherwise); any communications between
the audit team and the independent auditor's national office
respecting auditing or accounting issues presented by the
engagement; and any "management" or "internal control letter"
issued, or proposed to be issued, by the independent auditor to
the Company.
10. Review the disclosures made to the Audit Committee by the
Company's Chief Executive Officer and Chief Financial Officer
during their certification process for the Form 10-K and Form
10-Q about any significant deficiencies in the design or
operation of internal controls or material weaknesses therein and
any fraud involving management or other employees who have a
significant role in the Company's internal controls.
OVERSIGHT OF THE COMPANY'S RELATIONSHIP WITH THE INDEPENDENT AUDITOR
11. Review and evaluate the lead partner of the independent auditor
team, taking into account the opinions of management and the
Company's internal auditors.
12. Obtain and review a report by the independent auditor at least
annually describing (a) the independent auditor's internal
quality-control procedures, (b) any material issues raised by the
most recent internal quality-control review, or peer review, of
the independent auditor, or by any inquiry or investigation by
governmental or professional authorities within the preceding
five years respecting one or more independent audits carried out
by the independent auditor, (c) any steps taken to deal with any
such issues, and (d) all relationships between the independent
auditor and the Company.
13. Evaluate the qualifications, performance and independence of the
independent auditor, including whether the provision of permitted
non-audit services is compatible with maintaining the auditor's
independence, and taking into account the opinions of management
and internal auditors. This shall include review of a statement
from the independent auditor consistent with Independence
Standards Board Standard 1.
14. Ensure the rotation of the audit partners as required by law.
Consider whether, in order to assure continuing auditor
independence, it is appropriate to adopt a policy of rotating
independent auditing firms on a regular basis.
15. The Audit Committee shall present its conclusions with respect to
the independent auditor's qualifications, performance and
independence to the Board.
16. Set clear hiring policies for the Company's hiring of employees
or former employees of the independent auditor. At a minimum
these policies should provide that the independent auditor may
not provide audit services to the Company if the chief executive
officer, controller, chief financial officer, chief accounting
officer or any other person serving in an equivalent capacity for
the Company was employed by the independent auditor and
participated in the audit of the Company within one year of the
initiation of the current audit.
17. Meet with the independent auditor prior to the annual audit to
discuss the scope, planning and staffing of the audit.
-A-3-
OVERSIGHT OF THE COMPANY'S INTERNAL AUDIT FUNCTION
18. Review the appointment and replacement of senior internal
auditing personnel.
19. Review the reports to management prepared by the internal
auditing department and management's responses and review
cooperation of the internal auditing department with the
independent auditor.
20. Discuss with the independent auditor and management, separately
and collectively, the internal audit department responsibilities,
budget and staffing.
COMPLIANCE OVERSIGHT RESPONSIBILITIES
21. Obtain from the independent auditor assurance that Section 10A(b)
of the Exchange Act has not been implicated.
22. Obtain reports from management, the internal auditing department
and the independent auditor that the Company and its subsidiaries
are in conformity with applicable legal requirements and the
Company's Code of Business Conduct and Ethics.
23. Advise the Board with respect to the Company's policies and
procedures regarding compliance with applicable laws and
regulations and with the Company's Code of Business Conduct and
Ethics.
24. Establish procedures for the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal
accounting controls or auditing matters, and the confidential,
anonymous submission by employees of concerns regarding
questionable accounting or auditing matters.
25. Discuss with management and the independent auditor any
correspondence with regulators or governmental agencies and any
published reports which raise material issues regarding the
Company's financial statements or accounting policies.
26. Review, at least on an annual meetingbasis with the Company's General
Counsel any legal matter that may have significant impact on the
Company's financial statements, the Company's compliance
policies, and any material reports or inquiries received from
regulators and governmental agencies.
27. The Audit Committee shall review and reassess the adequacy of
stockholdersthis Charter annually and recommend any proposed changes to the
Board for approval. The Audit Committee shall annually review and
evaluate its own performance.
Limitation of Audit Committee's Role
While the Audit Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Company.
(c) "BOARD" meansAudit Committee to plan or conduct audits or
to determine that the company's financial statements and disclosures are
complete and accurate and are in accordance with generally accepted accounting
principles and applicable rules and regulations. These are the responsibilities
of management and the independent auditor.
-A-4-
Appendix B
EMCOR GROUP, INC.
STANDARDS FOR DETERMINING DIRECTOR INDEPENDENCE
It is the policy of the Board of Directors that a substantial majority
of the Company.
(d) "CHANGE IN CONTROL" means the occurrence of any of the following
events:
(i) any person or persons acting in concert (excluding Company
benefit plans) becomes the beneficial owner of securitiesDirectors be independent of the Company having at least 25% of the voting powerand of the Company's then outstanding securities (unless the event causing the 25%
thresholdmanagement. For
a Director to be crosseddeemed "independent," the Board shall affirmatively determine
that the Director has no material relationship with the Company (either directly
or as a partner, stockholder or officer of an entity that has a relationship
with the Company). This determination shall be disclosed in the proxy statement
for each annual meeting of the Company's stockholders. In making this
determination, the Board shall apply the following standards:
o A Director who is an acquisitionemployee, or whose immediate family member is
an executive officer, of voting common
securities directlythe Company shall not be deemed
independent until three years after the end of such employment
relationship.
o A Director who receives, or whose immediate family member
receives, more than $100,000 per year in direct compensation from
the Company, other than upon the conversion
of convertible debt securitiesdirector and committee fees and pension or
other securities and/forms of deferred compensation for prior service (provided
such compensation is not contingent in any way on continued
service), shall not be deemed independent until three years after
he or the
exercise of optionsshe ceases to receive more than $100,000 in such
compensation.
o A Director who is affiliated with or warrants);employed by, or (ii) the stockholderswhose
immediate family member is affiliated with or employed in a
professional capacity by, a present or former internal or external
auditor of the Company shall approve any merger
or other business combinationnot be deemed independent until three
years after the end of the Company, salesaffiliation or leasethe employment or
auditing relationship.
o 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 assetscurrent executive officers serve on that company's
compensation committee shall not be deemed independent until three
years after the end of such service or combinationthe employment
relationship.
o A Director who is a significant equity holder, an executive
officer, general partner, or employee, or whose immediate family
member is a significant equity holder, an executive officer or
general partner, of any entity that makes payments to, or receives
payments from, the foregoing transactions (the
"Transactions")Company for property or services in an amount
which, in any single fiscal year of such entity, exceeds 2% of
such other thanentity's consolidated gross revenues, shall not be
deemed independent until three years after falling below such
threshold.
o A Director who is a Transaction immediately followingsignificant equity holder, an executive
officer, general partner or employee, or whose immediate family
member is a significant equity holder, an executive officer or
general partner, of an entity to which the stockholders ofCompany was indebted at
the Company and any trustee or fiduciary of any
Company employee benefit plan immediately prior to the Transaction
own at least 65% of the voting power, directly or indirectly, of (A)
the surviving corporation in any such merger or other business
combination; (B) the purchaser or lesseeend of the Company's assets; or
(C) bothfiscal year in an aggregate amount in
excess of 2% of the surviving corporation andCompany's total consolidated assets at the purchaser or lessee in
the event of any combination of Transactions; or
(iii) within any 24 month period, the persons who were
directors immediately before the beginningend
of such period (the
"Incumbent Directors")fiscal year, shall cease (for any reason other than death)
to constitute at least a majority of the Board or the board of
directors of a successor to the Company. For this purpose, any
director who was not a director at the beginning of such period
shall be deemed to be an Incumbentindependent until three
years after falling below such threshold.
o A Director if such director was
elected to the Board by, or on the recommendation of or with the
approval of, at least two-thirds of the directors who then qualified
as Incumbent Directors (so long as such director was not nominated
by a person who has expressed an intent to effect a Change in
Control or engage in a proxy or other control contest).
(e) "CODE" means the Internal Revenue Code of 1986, as amended, or any
successor thereto.
(f) "COMPANY" means EMCOR Group, Inc., a Delaware corporation.
(g) "EFFECTIVE DATE" means the date the adoption of the Plan by the
Board is approved by the Company's stockholders.
A-1
(h) "EXERCISE PRICE" means the purchase price per Share under the terms
of an Option as determined pursuant to Section 6(c).
(i) "FAIR MARKET VALUE" means, on a given date, (i) if there should be a
public market for the Shares on such date, the average of the high
and low prices of the Shares on The New York Stock Exchange, or, if
the Shares are not listed or admitted on any national securities
exchange, the arithmetic mean of the per Share closing bid price and
per Share closing asked price on such date as quoted on the National
Association of Securities Dealers Automated Quotation System (or
such market in which such prices are regularly quoted)(the
"NASDAQ"), or, if no sale of Shares shall have been reported on The
New York Stock Exchange or quoted on the NASDAQ on such date, then
the immediately preceding date on which sales of the Shares have
been so reported or quoted shall be used, and (ii) if there should
not be a public market for the Shares on such date, the Fair Market
Value shall be the value established by the Board in good faith.
(j) "NON-EMPLOYEE DIRECTOR" means a director of the Company who is not
an employee of the Company or a Subsidiary.
(k) "OPTION" means a nonqualified stock option granted pursuant to
Section 6.
(l) "PLAN" means the EMCOR Group, Inc. 2003 Non-Employee Directors'
Stock Option Plan, as amended from time to time.
(m) "SECURITIES ACT" means the Securities Act of 1933, as amended from
time to time.
(n) "SHARES" means shares of common stock of the Company, $.01 par value
per share.
(o) "SUBSIDIARY" means a subsidiary corporation, as defined in Section
424(f) of the Code (or any successor section thereto), of the
Company.
3. SHARES SUBJECT TO THE PLAN
The total number of Shares which may be issued under the Plan is 120,000.
The Shares may consist, in whole or in part, of unissued Shares or treasury
Shares. The issuance of Shares or the payment of cash in consideration of the
cancellation or termination of an option shall reduce the total number of Shares
available under the Plan. Shares which are subject to Options which terminate or
lapse without the payment of cash consideration in respect of such Shares may be
granted again under the Plan.
4. ADMINISTRATION
(a) The Plan shall be administered by the Board.
(b) The Board is authorized to interpret the Plan, to establish, amend
and rescind any rules and regulations relating to the Plan, and to
make any other determinations that it deems necessary or desirable
for the administration of the Plan. The Board may correct any defect
or supply any omission or reconcile any inconsistency in the Plan in
the manner and to the extent the Board deems necessary or desirable.
Any decision of the Board in the interpretation and administration
of the Plan, as described herein, shall lie within its sole and
absolute discretion and shall be final, conclusive and binding on
all parties concerned (including, but not limited to, Non-Employee
Directors and their beneficiaries or successors). The Board shall
have the full power and authority to make, and establish the terms
and conditions of, any Option, consistent with the provisions of the
Plan and to waive any such terms and conditions at any time.
5. LIMITATIONS
(a) No Option may be granted under the Plan after the tenth anniversary
of the Effective Date, but Options granted prior to such tenth
anniversary may extend beyond that date.
(b) No Option, once granted hereunder, may be repriced.
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6. TERMS AND CONDITIONS OF OPTIONS
Options granted under the Plan shall be nonqualified stock options for
federal income tax purposes and shall be subject to the foregoing and the
following terms and conditions and to such other terms and conditions, not
inconsistent therewith, as the Board shall determine:
(a) OPTION GRANT. Each person who is a Non-Employee Director on the
Effective Date shall be grantedsignificant equity holder, an Option at the meeting of the
Board immediately following the Effective Date to purchase 5,000
Shares. Thereafter, each person whoexecutive
officer, general partner or employee, or whose immediate family
member is electeda significant equity holder, an executive officer or
re-elected to
serve as a Non-Employee Director at an annual meeting of
stockholders shall be granted an Option to purchase 5,000 Shares on
the date on which the Board holds its first meeting following such
annual meeting of stockholders; PROVIDED, HOWEVER, that if a
Non-Employee Director is elected a director other than at an annual
meeting of stockholders, he shall be granted an Option to purchase
5,000 Shares effective upon his election to the Board.
(b) OPTION CERTIFICATE. An Option Certificate, signed by the Chairman of
the Board or the President or a Vice President of the Company,
attested by the Treasurer or an Assistant Treasurer, or the
Secretary or Assistant Secretary of the Company, shall be issued to
each Non-Employee Director to whom an Option is granted.
(c) EXERCISE PRICE. The Exercise Price per Share shall be 100% of the
Fair Market Value of a Share on the date an Option is granted.
(d) EXERCISABILITY. Options granted under the Plan shall be fully
exercisable as of the date of grant, upon such terms and conditions
as may be determined by the Board, but in no event shall an Option
be exercisable more than ten years after the date it is granted.
(e) EXERCISE OF OPTIONS. Except as otherwise provided in the Plan or in
an Option Certificate, an Option may be exercised for all, or from
time to time any part, of the Shares for which it is then
exercisable. For purposes of this Section 6, the exercise datepartner, of an Option shall be the date a notice of exercise is received by the
Company, together with provision for payment of the full purchase
price in accordance with this Section 6(e). The purchase price for
the Shares as toentity which an Option is exercised shall be paidwas indebted to the Company at the electionend
of such entity's fiscal year in an aggregate amount in excess of
2% of such entity's total consolidated assets at the end of such
fiscal year, shall not be deemed independent until three years
after falling below such threshold.
o A Director who is, or whose immediate family member is, an
executive officer (or who serves in a comparable position) of a
tax-exempt entity that receives significant contributions (i.e.
more than $200,000 or more than 2% of the Board, pursuant to one or moreannual contributions
received by the entity in a single fiscal year of the following methods: (i)tax-exempt
entity, whichever amount is lower) from the Company, any executive
officer
-B-1-
or any immediate family member of an executive officer shall not
be deemed independent until three years after falling below such
threshold, unless such contributions were approved in cash or its equivalent (e.g., by
check); (ii) in Shares having a Fair Market Value equal to the
aggregate Exercise Price for the Shares being purchased and
satisfying such other requirements as may be imposed by the Board;
PROVIDED, that such Shares have been held by the Non-Employee
Director for no less than six months (or such other period as
established from time to timeadvance by
the Board in order to avoid adverse
accounting treatment applying generally accepted accounting
principles); (iii) partly in cash and partly in such Shares or (iv)
if there is a public market for the Shares at such time, through the
delivery of irrevocable instructions to a broker to sell Shares
obtained upon the exercise of the Option and to deliver promptly to
the Company an amount out of the proceeds of such sale equal to the
aggregate Exercise Price for the Shares being purchased. No
Non-Employee Director shall have any rights to dividends or other
rights of a stockholder with respect to Shares subject to an Option
until the Non-Employee Director has given written notice of exercise
of the Option, paid in full for such Shares and, if applicable, has
satisfied any other conditions imposed by the Board pursuant to the
Plan.
Notwithstanding any other provision of the Plan or the Option
Certificate, no Option granted pursuant to the Plan may be exercised
at any time when the Option or the granting or exercise thereof
violates any law or governmental order or regulation.
(f) ATTESTATION. Wherever in this Plan or any agreement evidencing an
Option a Non-Employee Director is permitted to pay the Exercise
Price of an Option or taxes relating to the exercise of an Option by
delivering Shares, the Non-Employee Director may, subject to
procedures satisfactory to the Board, satisfy such delivery
requirement by presenting proof of beneficial ownership of such
Shares, in which case the Company shall treat the Option as
exercised without further payment and shall withhold such number of
Shares from the Shares acquired by the exercise of the Option.
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7. ADJUSTMENTS UPON CERTAIN EVENTS
Notwithstanding any other provisions in the Plan to the contrary, the
following provisions shall apply to all Options granted under the Plan:
(a) GENERALLY. In the event of any change in the outstanding Shares
after the Effective Date by reason of any Share dividend or split,
reorganization, recapitalization, merger, consolidation, spin-off,
combination, combination or transaction or exchange of Shares or
other corporate exchange, or any distribution to stockholders of
Shares other than regular cash dividends or any transaction similar
to the foregoing, the Board in its sole discretion and without
liability to any person may make such substitution or adjustment, if
any, as it deems to be equitable, as to (i) the number or kind of
Shares or other securities issued or reserved for issuance pursuant
to the Plan or pursuant to outstanding Options, (ii) the Exercise
Price and/or (iii) any other affected terms of such Options.
(b) CHANGE IN CONTROL. In the event of a Change in Control after the
Effective Date, the Board may, but shall not be obligated to, (i)
cancel Options for fair value (as determined in the sole discretion
of the Board) which may equal the excess, if any, of value of the
consideration to be paid in the Change in Control transaction to
holders of the same number of Shares subject to such Options (or, if
no consideration is paid in any such transaction, the Fair Market
Value of the Shares subject to such Options) over the aggregate
Exercise Price of such Options or (ii) provide for the issuance of
substitute Options that will substantially preserve the otherwise
applicable terms of any affected Options previously granted
hereunder as determined by the Board in its sole discretion or (iii)
provide that for a period of at least 30 days prior to the Change in
Control, such Options shall be exercisable as to all Shares subject
thereto and that upon the occurrence of the Change in Control, such
Options shall terminate and be of no further force and effect.
8. NO RIGHT OF SERVICE
The granting of an Option under the Plan shall impose no obligation on the
Company to continue the service of any Non-Employee Director or give any
Non-Employee Director the right to serve as a director of the Company.
9. SUCCESSORS AND ASSIGNS
The Plan shall be binding on all successors and assigns of the Company and
a Non-Employee Director, including without limitation, the estate of such
Non-Employee Director and the executor, administrator or trustee of such estate,
or any receiver or trustee in bankruptcy or representative of the creditors of
the Non-Employee Director.
10. TRANSFERABILITY OF OPTIONS
(a) Except as otherwise permitted pursuant to Section 10(b) of this
Plan, an Option is exercisable only by the Non-Employee Director
during the Non-Employee Director's lifetime and may not be assigned,
alienated, pledged, attached, sold or otherwise transferred or
encumbered by the Non-Employee Director otherwise than by will or by
the laws of descent and distribution, and any such purported
assignment, alienation, pledge, attachment, sale, transfer or
encumbrance shall be void and unenforceable against the Company.
(b) Notwithstanding the foregoing provisions of Section 10(a) of this
Plan, an Option may be assigned in whole or in part during the
lifetime of the Non-Employee Director to one or more Family Members
(as defined below) or to a trust established exclusively for one or
more such Family Members. The assigned portion may only be exercised
by the person or persons who acquire a proprietary interest in the
Option pursuant to the assignment. The terms of the portion of the
Option transferred in accordance with this Section 10(b) shall apply
to the Family Members or trustee, as the case may be, and any
reference in the Plan or Option Certificate to a Non-Employee
Director shall be deemed to refer to the Family Members or trustee,
as the case may be, except that (i) Family Members shall not be
entitled to transfer the Option, other than by will or the laws of
descent and distribution and (ii) neither the Board nor the Company
shall be required to provide any notice
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to a Family Member or trustee, whether or not such notice is or
would otherwise have been required to be given to the Non-Employee
Director under the Plan or otherwise.Directors.
For purposes of this
Agreement, "Family Members" shall meanthese Guidelines, the Non-Employee Director'sterm:
o "immediate family" includes a person's spouse, lineal descendants,parents, children,
siblings, nephews, nieces, parentsmothers and grandparents, stepchildrenfathers-in-law, sons and stepparents, includingdaughters-in-law,
brothers and sisters-in-law and anyone (other than domestic
employees) sharing a person's home, but excluding any such
persons by adoptive relationships.
11. ISSUANCE OF SHARES AND COMPLIANCE WITH SECURITIES ACT
The Company may postpone the issuance and delivery of Shares pursuant to
the grant or exercise of any Option until the completion of such registration or
other qualification of such Shares under any state or Federal law, rule or
regulation as the Company shall determine to be necessary or advisable. Any
holder ofperson who
is no longer an Option shall make such representations and furnish such information
as may, in the opinion of counsel for the Company, be appropriate to permit the
Company, in the light of the then existence or non-existence with respect to
such Shares of an effective registration statement under the Securities Act, to
issue the Shares in compliance with the provisions of the Securities Act or any
comparable act. The Company shall have the right, in its sole discretion, to
legend any Shares which may be issued pursuant to the grant or exercise of any
Option, or may issue stop transfer orders in respect thereof.
12. AMENDMENTS OR TERMINATION
The Board may amend, alter or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made, (a) without the approval of the
stockholders of the Company, if such action would (except as is provided in
Section 7 of the Plan), increase the total number of Shares reserved for the
purposes of the Plan, (b) without the consent of a Non-Employee Director, if
such action would diminish any of the rights of the Non-Employee Director under
any Option theretofore granted to such Non-Employee Director under the Plan or
(c) to Section 5(b), relating to repricing of Options; PROVIDED, HOWEVER, that
the Board may amend the Plan in such manner as it deems necessary to permit the
granting of Options meeting the requirements of the Code or other applicable
laws.
13. CHOICE OF LAW
The Plan shall be governed by and construed in accordance with the laws of
the State of Delaware without regard to conflicts of laws.
14. EFFECTIVENESS OF THE PLAN
The Plan shall be effective as of the Effective Date.
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EXHIBIT A
OPTION CERTIFICATE
STOCK OPTION
To Purchase Common Stock of
EMCOR Group, Inc.
Issued Pursuant to the 2003 Non-Employee Directors' Stock Option Plan
of EMCOR Group, Inc.
This certifies that on ______________, 20___, _____________ (the
"Optionee") was granted a stock option ("Option") to purchase _______ shares of
the Common Stock ("Shares"), par value $0.01 per share, of EMCOR Group, Inc.
(the "Company"), a Delaware corporation, at the Exercise Price of $_____ per
Share, upon and subject to the following terms and conditions.
This Option shall expire on _________________, 20___.
This Option and this Option Certificate are issued pursuant to and are
subject to all of the terms and conditions of the EMCOR Group, Inc. 2003
Non-Employee Directors' Stock Option Plan, the terms and conditions of which are
hereby incorporated herein as though set forth at length, and the receipt of a
copy of which the Non-Employee Director hereby acknowledges by the Non-Employee
Director's receipt of this Option Certificate.
Witness the seal of the Company and the signatures of its duly authorized
officers.
Dated: ________________, 20___
EMCOR GROUP, INC.
By: __________________________
ATTEST:
By: ________________________
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EXHIBIT B
2003 MANAGEMENT STOCK INCENTIVE PLAN
1. PURPOSE OF THE PLAN
The purpose of the Plan is to aid the Company and its Affiliates in
recruiting and retaining employees and to motivate such employees to exert their
best efforts on behalf of the Company and its Affiliates by providing incentives
through the granting of Awards. The Company expects that it will benefit from
the added interest which such key employees will have in the welfare of the
Companyimmediate family member as a result of their proprietary interestlegal
separation or divorce, or death or incapacitation.
o "Company" includes any parent or subsidiary in a consolidated
group with the Company's success.
2. DEFINITIONSCompany.
o "significant" equity holder of an entity means a holder of 10% or
more of such entity's equity.
The following capitalized terms used inBoard shall undertake an annual review of the Plan haveindependence of all
non-employee Directors. In advance of the respective
meanings set forth inmeeting at which this Section:
(a) "ACT" meansreview occurs,
each non-employee Director shall be asked to provide the Securities Exchange Act of 1934, as amended, or any
successor thereto.
(b) "AFFILIATE" means any entity that is consolidatedBoard with full
information regarding the Director's business and other relationships with the
Company for financial reporting purposesto enable the Board to evaluate the Director's independence.
Directors have an affirmative obligation to inform the Board of any
material changes in their circumstances or any other entity designatedrelationships that may impact their
designation by the Board in whichas "independent." This obligation includes all business
relationships between, on the Companyone hand, Directors or an Affiliate has a direct or
indirect interestmembers of at least forty percent (40%).
(c) "AWARD" means an Option, Stock Appreciation Right, Share of
Restricted Stock or Other Stock-Based Award granted pursuant totheir immediate
family, and, on the Plan.
(d) "BOARD" means the Board of Directors ofother hand, the Company.
(e) "CHANGE IN CONTROL" means the occurrence of any of the following
events:
(i) any person or persons acting in concert (excluding Company
benefit plans) becomes the beneficial owner of securities of the
Company having at least 25% of the voting power of the Company's
then outstanding securities (unless the event causing the 25%
threshold to be crossed is an acquisition of voting common
securities directly from the Company, other than upon the conversion
of convertible debt securities or other securities and/or the
exercise of options or warrants); or
(ii) the stockholders of the Company shall approve any merger
or other business combination of the Company, sales or lease of the
Company's assets or combination of the foregoing transactions (the
"Transactions") other than a Transaction immediately following which
the stockholders of the Company and any trustee or fiduciary of any
Company employee benefit plan immediately prior to the Transaction
own at least 65% of the voting power, directly or indirectly, of (A)
the surviving corporation in any such merger or other business
combination; (B) the purchaser or lessee of the Company's assets; or
(C) both the surviving corporation and the purchaser or lessee in
the event of any combination of Transactions; or
(iii) within any 24 month period, the persons who were
directors immediately before the beginning of such period (the
"Incumbent Directors") shall cease (for any reason other than death)
to constitute at least a majority of the Board or the board of
directors of a successor to the Company. For this purpose, any
director who was not a director at the beginning of such period
shall be deemed to be an Incumbent Director if such director was
elected to the Board by, or on the recommendation of or with the
approval of, at least two-thirds of the directors who then qualified
as Incumbent Directors (so long as such director was not nominated
by a person who has expressed an intent to effect a Change in
Control or engage in a proxy or other control contest).
(f) "CODE" means the Internal Revenue Code of 1986, as amended, or any
successor thereto.
(g) "COMMITTEE" means the Compensation and Personnel Committee of the
Board.
(h) "COMPANY" means EMCOR Group, Inc., a Delaware corporation.
B-1-B-2-
(i) "EFFECTIVE DATE" means the date the adoption of the Plan by the
Board is approved by the Company's stockholders.
(j) "EXERCISE PRICE" means the purchase price per Share under the terms
of an Option as determined pursuant to Section 6(a).
(k) "FAIR MARKET VALUE" means, on a given date, (i) if there should be a
public market for the Shares on such date, the average of the high
and low prices of the Shares on The New York Stock Exchange, or, if
the Shares are not listed or admitted on any national securities
exchange, the arithmetic mean of the per Share closing bid price and
per Share closing asked price on such date as quoted on the National
Association of Securities Dealers Automated Quotation System (or
such market in which such prices are regularly quoted) (the
"NASDAQ"), or, if no sale of Shares shall have been reported on The
New York Stock Exchange or quoted on the NASDAQ on such date, then
the immediately preceding date on which sales of the Shares have
been so reported or quoted shall be used, and (ii) if there should
not be a public market for the Shares on such date, the Fair Market
Value shall be the value established by the Committee in good faith.
(l) "ISO" means an Option that is also an incentive stock option granted
pursuant to Section 6(e).
(m) "OPTION" means a stock option granted pursuant to Section 6.
(n) "OTHER STOCK-BASED AWARDS" means awards granted pursuant to Section
9.
(o) "PARTICIPANT" means an employee or prospective employee of the
Company or an Affiliate who is selected by the Committee to
participate in the Plan.
(p) "PERFORMANCE-BASED AWARDS" means certain Other Stock-Based Awards
granted pursuant to Section 9(b).
(q) "PLAN" means the 2003 Management Stock Incentive Plan, as amended
from time to time.
(r) "RESTRICTED STOCK" means any Share granted under Section 8.
(s) "SHARES" means shares of common stock of the Company, $.01 par value
per share.
(t) "STOCK APPRECIATION RIGHT" means a stock appreciation right granted
pursuant to Section 7.
(u) "SUBSIDIARY" means a subsidiary corporation, as defined in Section
424(f) of the Code (or any successor section thereto), of the
Company.
3. SHARES SUBJECT TO THE PLAN
The total number of Shares which may be issued under the Plan is 330,000,
of which no more than 50% may be issued in the form of Restricted Stock or Other
Stock-Based Awards payable in Shares. The Shares may consist, in whole or in
part, of unissued Shares or treasury Shares. The issuance of Shares or the
payment of cash upon the exercise of an Award or in consideration of the
cancellation or termination of an Award shall reduce the total number of Shares
available under the Plan as applicable. Shares which are subject to Awards which
terminate or lapse without the payment of cash consideration may be granted
again under the Plan.
4. ADMINISTRATION
(a) The Plan shall be administered by the Committee, which may delegate
its duties and powers in whole or in part to any subcommittee
thereof consisting solely of at least two individuals who are
intended to qualify as "Non-Employee Directors" within the meaning
of Rule 16b-3 under the Act (or any successor rule thereto) and, to
the extent required by Section 162(m) of the Code (or any successor
section thereto), "outside directors" within the meaning thereof.
(b) Awards may, in the discretion of the Committee, be made under the
Plan in assumption of, or in substitution for, outstanding awards
previously granted by the Company or its Affiliates. The number of
Shares underlying such substitute awards shall be counted against
the aggregate number of Shares available for Awards under the Plan.
The Committee is authorized to interpret the Plan, to establish,
amend and rescind any rules and regulations relating to the Plan,
and to make any other
B-2
determinations that it deems necessary or desirable for the
administration of the Plan. The Committee may correct any defect or
supply any omission or reconcile any inconsistency in the Plan in
the manner and to the extent the Committee deems necessary or
desirable. Any decision of the Committee in the interpretation and
administration of the Plan, as described herein, shall lie within
its sole and absolute discretion and shall be final, conclusive and
binding on all parties concerned (including, but not limited to,
Participants and their beneficiaries or successors). The Committee
shall have the full power and authority to make, and establish the
terms and conditions of, any Award to any person eligible to be a
Participant, consistent with the provisions of the Plan and to waive
any such terms and conditions at any time (including, without
limitation, accelerating or waiving any vesting conditions).
(c) The Committee shall require payment of any amount it may determine
to be necessary to withhold for federal, state, local or other taxes
as a result of the exercise, grant or vesting of an Award. Unless
the Committee specifies otherwise, the Participant may elect to pay
a portion or all of such withholding taxes by (a) delivery in Shares
or (b) having Shares withheld by the Company with a Fair Market
Value equal to the minimum statutory withholding rate from any
Shares that would have otherwise been received by the Participant.
5. LIMITATIONS
(a) No Award may be granted under the Plan after the tenth anniversary
of the Effective Date, but Awards granted prior to such tenth
anniversary may extend beyond that date.
(b) No Option or Stock Appreciation Right, once granted hereunder, may
be repriced.
6. TERMS AND CONDITIONS OF OPTIONS
The maximum number of Shares covered by Options that may be awarded during
any calendar year to any Participant shall be 100,000. Options granted under the
Plan shall be, as determined by the Committee, non-qualified or incentive stock
options for federal income tax purposes, as evidenced by the related Award
agreements, and shall be subject to the foregoing and the following terms and
conditions and to such other terms and conditions, not inconsistent therewith,
as the Committee shall determine:
(a) EXERCISE PRICE. The Exercise Price per Share shall be determined by
the Committee, but shall not be less than 100% of the Fair Market
Value of the Shares on the date an Option is granted.
(b) EXERCISABILITY. Options granted under the Plan shall be exercisable
at such time and upon such terms and conditions as may be determined
by the Committee, but in no event shall an Option be exercisable
more than ten years after the date it is granted, except as provided
in Section 15 of the Plan.
(c) EXERCISE OF OPTIONS. Except as otherwise provided in the Plan or in
an Award agreement, an Option may be exercised for all, or from time
to time any part, of the Shares for which it is then exercisable.
For purposes of this Section 6, the exercise date of an Option shall
be the date a notice of exercise is received by the Company,
together with provision for payment of the full purchase price in
accordance with this Section 6(c). The purchase price for the Shares
as to which an Option is exercised shall be paid to the Company, at
the election of the Committee, pursuant to one or more of the
following methods: (i) in cash or its equivalent (e.g., by check);
(ii) in Shares having a Fair Market Value equal to the aggregate
Exercise Price for the Shares being purchased and satisfying such
other requirements as may be imposed by the Committee; PROVIDED,
that such Shares have been held by the Participant for no less than
six months (or such other period as established from time to time by
the Committee in order to avoid adverse accounting treatment
applying generally accepted accounting principles); (iii) partly in
cash and partly in such Shares; or (iv) if there is a public market
for the Shares at such time, through the delivery of irrevocable
instructions to a broker to sell Shares obtained upon the exercise
of the Option and to deliver promptly to the Company an amount out
of the proceeds of such sale equal to the aggregate Exercise Price
for the Shares being purchased. No Participant shall have any rights
to dividends or other rights of
B-3
a stockholder with respect to Shares subject to an Option until the
Participant has given written notice of exercise of the Option, paid
in full for such Shares and, if applicable, has satisfied any other
conditions imposed by the Committee pursuant to the Plan.
(d) DEFERRAL. In the sole discretion of the Committee, in accordance
with procedures established by the Committee, the Participant may be
permitted to defer the issuance of Shares deliverable upon the
exercise of an Option for a specified period or until a specified
date.
(e) ISOS. The Committee may grant Options under the Plan that are
intended to be ISOs. Such ISOs shall comply with the requirements of
Section 422 of the Code (or any successor section thereto). No ISO
may be granted to any Participant who, at the time of such grant,
owns more than ten percent of the total combined voting power of all
classes of stock of the Company or of any Subsidiary, unless (i) the
Exercise Price for such ISO is at least 110% of the Fair Market
Value of a Share on the date the ISO is granted and (ii) the date on
which such ISO terminates is a date not later than the day preceding
the fifth anniversary of the date on which the ISO is granted. Any
Participant who disposes of Shares acquired upon the exercise of an
ISO either (I) within two years after the date of grant of such ISO
or (II) within one year after the transfer of such Shares to the
Participant, shall notify the Company of such disposition and of the
amount realized upon such disposition. All Options granted under the
Plan are intended to be ISOs, unless the applicable Award agreement
expressly states that the Option is intended to be a nonqualified
stock option. If an Option is intended to be an ISO, and if for any
reason such Option (or portion thereof) shall not qualify as an ISO,
then, to the extent of such nonqualification, such Option (or
portion thereof) shall be regarded as a nonqualified stock option
granted under the Plan; PROVIDED that such Option (or portion
thereof) otherwise complies with the Plan's requirements relating to
nonqualified stock options. In no event shall any member of the
Committee, the Company or any of its Affiliates (or their respective
employees, officers or directors) have any liability to any
Participant (or any other Person) due to the failure of an Option to
qualify for any reason as an ISO.
(f) ATTESTATION. Wherever in this Plan or any agreement evidencing an
Award a Participant is permitted to pay the Exercise Price of an
Option or taxes relating to the exercise of an Option by delivering
Shares, the Participant may, subject to procedures satisfactory to
the Committee, satisfy such delivery requirement by presenting proof
of beneficial ownership of such Shares, in which case the Company
shall treat the Option as exercised without further payment and
shall withhold such number of Shares from the Shares acquired by the
exercise of the Option.
7. TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS
(a) GRANTS. The Committee may grant (i) a Stock Appreciation Right
independent of an Option or (ii) a Stock Appreciation Right in
connection with an Option, or a portion thereof. A Stock
Appreciation Right granted pursuant to clause (ii) of the preceding
sentence (A) may be granted at the time the related Option is
granted or at any time prior to the exercise or cancellation of the
related Option, (B) shall cover the same number of Shares covered by
an Option (or such lesser number of Shares as the Committee may
determine) and (C) shall be subject to the same terms and conditions
as such Option except for such additional limitations as are
contemplated by this Section 7 (or such additional limitations as
may be included in an Award agreement). The maximum number of Shares
covered by Stock Appreciation Rights that may be awarded during any
calendar year to any Participant shall be 100,000.
(b) TERMS. The exercise price per Share of a Stock Appreciation Right
shall be an amount determined by the Committee but in no event shall
such amount be less than the Fair Market Value of a Share on the
date the Stock Appreciation Right is granted; PROVIDED, HOWEVER,
that, notwithstanding the foregoing, in the case of a Stock
Appreciation Right granted in conjunction with an Option, or a
portion thereof, the exercise price may not be less than the
Exercise Price of the related Option. Each Stock Appreciation Right
granted independent of an Option shall entitle a Participant upon
exercise to an amount equal to (i) the excess of (A) the Fair Market
Value on the exercise date of
B-4
one Share over (B) the exercise price per Share, times (ii) the
number of Shares covered by the Stock Appreciation Right. Each Stock
Appreciation Right granted in conjunction with an Option, or a
portion thereof, shall entitle a Participant to surrender to the
Company the unexercised Option, or any portion thereof, and to
receive from the Company in exchange therefor an amount equal to (I)
the excess of (x) the Fair Market Value on the exercise date of one
Share over (y) the Exercise Price per Share, times (II) the number
of Shares covered by the Option, or portion thereof, which is
surrendered. Payment shall be made in Shares or in cash, or partly
in Shares and partly in cash (any such Shares valued at such Fair
Market Value), all as shall be determined by the Committee. Stock
Appreciation Rights may be exercised from time to time upon actual
receipt by the Company of written notice of exercise stating the
number of Shares with respect to which the Stock Appreciation Right
is being exercised. The date a notice of exercise is received by the
Company shall be the exercise date. No fractional Shares will be
issued in payment for Stock Appreciation Rights, but instead cash
will be paid for a fraction or, if the Committee should so
determine, the number of Shares will be rounded downward to the next
whole Share.
(c) LIMITATIONS. The Committee may impose, in its discretion, such
conditions upon the exercisability or transferability of Stock
Appreciation Rights as it may deem fit.
8. RESTRICTED STOCK
(a) GRANT. Subject to the provisions of the Plan, the Committee shall
determine the number of Shares of Restricted Stock to be granted to
each Participant, the duration of the period during which, and the
conditions, if any, under which, the Restricted Stock may be
forfeited to the Company, and the other terms and conditions of such
Awards.
(b) TRANSFER RESTRICTIONS. Shares of Restricted Stock may not be sold,
assigned, transferred, pledged or otherwise encumbered, except as
provided in the Plan or the applicable Award agreement. Certificates
issued in respect of Shares of Restricted Stock shall be registered
in the name of the Participant and deposited by such Participant,
together with a stock power endorsed in blank, with the Company.
After the lapse of the restrictions applicable to such Shares of
Restricted Stock, the Company shall deliver such certificates to the
Participant or the Participant's legal representative.
(c) DIVIDENDS. Dividends paid on any Shares of Restricted Stock may be
paid directly to the Participant, withheld by the Company subject to
vesting of the Restricted Shares pursuant to the terms of the
applicable Award agreement, or may be reinvested in additional
Shares of Restricted Stock, as determined by the Committee in its
sole discretion.
(d) PERFORMANCE-BASED GRANTS. Notwithstanding anything to the contrary
herein, certain Shares of Restricted Stock granted under this
Section 8 may, at the discretion of the Committee, be granted in a
manner which is deductible by the Company under Section 162(m) of
the Code (or any successor section thereto). The restrictions
applicable to a such Restricted Stock shall lapse based wholly or
partially on the attainment of written performance goals approved by
the Committee for a performance period established by the Committee
(i) while the outcome for that performance period is substantially
uncertain and (ii) by the earlier of (A) 90 days after the
commencement of the performance period to which the performance goal
relates or (B) the number of days which is equal to 25 percent of
the relevant performance period. The performance goals, which must
be objective, shall be based upon one or more of the criteria set
forth in Section 9(b) below. The Committee shall determine in its
discretion whether, with respect to a performance period, the
applicable performance goals have been met with respect to a given
Participant and, if they have, shall so certify.
9. OTHER STOCK-BASED AWARDS
(a) GENERALLY. The Committee, in its sole discretion, may grant or sell
Awards of Shares and Awards that are valued in whole or in part by
reference to, or are otherwise based on the Fair Market Value of,
Shares ("Other Stock-Based Awards"). Such Other Stock-Based Awards
shall be in such form, and dependent on such conditions, as the
Committee shall determine, including, without limitation, the right
to receive, or vest with respect to, one or more Shares (or the
equivalent cash value of
B-5
such Shares) upon the completion of a specified period of service,
the occurrence of an event and/or the attainment of performance
objectives. Other Stock-Based Awards may be granted alone or in
addition to any other Awards granted under the Plan. Subject to the
provisions of the Plan, the Committee shall determine the number of
Shares to be awarded to a Participant under (or otherwise related
to) such Other Stock-Based Awards; whether such Other Stock-Based
Awards shall be settled in cash, Shares or a combination of cash and
Shares; and all other terms and conditions of such Awards
(including, without limitation, the vesting provisions thereof and
provisions ensuring that all Shares so awarded and issued shall be
fully paid and non-assessable).
(b) PERFORMANCE-BASED AWARDS. Notwithstanding anything to the contrary
herein, certain Other Stock-Based Awards granted under this Section
9 and performance based grants of Shares of Restricted Stock may be
granted in a manner which is deductible by the Company under Section
162(m) of the Code (or any successor section thereto)
("Performance-Based Awards"). A Participant's Performance-Based
Award shall be determined based on the attainment of written
performance goals approved by the Committee for a performance period
established by the Committee (I) while the outcome for that
performance period is substantially uncertain and (II) by the
earlier of (A)90 days after the commencement of the performance
period to which the performance goal relates or (B) the number of
days which is equal to 25 percent of the relevant performance
period. The performance goals, which must be objective, shall be
based upon one or more of the following criteria: (i) consolidated
earnings before or after taxes (including earnings before interest,
taxes, depreciation and amortization); (ii) net income; (iii)
operating income; (iv) earnings per Share; (v) book value per Share;
(vi) return on shareholders' equity; (vii) expense management;
(viii) return on investment; (ix) improvements in capital structure;
(x) profitability of an identifiable business unit or product; (xi)
maintenance or improvement of profit margins; (xii) stock price;
(xiii) market share; (xiv) revenues or sales; (xv) costs; (xvi) cash
flow; (xvii) working capital and (xviii) return on assets. The
foregoing criteria may relate to the Company, one or more of its
Subsidiaries or one or more of its divisions or units, or any
combination of the foregoing, and may be applied on an absolute
basis and/or be relative to one or more peer group companies or
indices, or any combination thereof, all as the Committee shall
determine. In addition, to the degree consistent with Section 162(m)
of the Code (or any successor section thereto), the performance
goals may be calculated without regard to extraordinary items. The
Committee shall determine whether, with respect to a performance
period, the applicable performance goals have been met with respect
to a given Participant and, if they have, shall so certify and
ascertain the amount of the applicable Performance-Based Award. No
Performance-Based Awards will be paid for such performance period
until such certification is made by the Committee. The amount of the
Performance-Based Award actually paid to a given Participant may be
less than the amount determined by the applicable performance goal
formula, at the discretion of the Committee. The amount of the
Performance-Based Award determined by the Committee for a
performance period shall be paid to the Participant at such time as
determined by the Committee in its sole discretion after the end of
such performance period; PROVIDED, HOWEVER, that a Participant may,
if and to the extent permitted by the Committee and consistent with
the provisions of Section 162(m) of the Code, elect to defer payment
of a Performance-Based Award. Notwithstanding the foregoing, the
maximum amount of Performance-Based Awards that may be granted
during a calendar year to any Participant shall be (x) with respect
to Other Stock-Based Awards and Awards of Shares of Restricted
Stock, that are denominated or payable in shares, 50,000 shares and
(y) with respect to Other Stock-Based Awards that are not
denominated or payable in shares, $5,000,000.
10. ADJUSTMENTS UPON CERTAIN EVENTS
Notwithstanding any other provisions in the Plan to the contrary, the
following provisions shall apply to all Awards granted under the Plan:
(a) GENERALLY. In the event of any change in the outstanding Shares
after the Effective Date by reason of any Share dividend or split,
reorganization, recapitalization, merger, consolidation, spin-off,
combination, combination or transaction or exchange of Shares or
other corporate exchange, or
B-6
any distribution to shareholders of Shares other than regular cash
dividends or any transaction similar to the foregoing, the Committee
in its sole discretion and without liability to any person may make
such substitution or adjustment, if any, as it deems to be
equitable, as to (i) the number or kind of Shares or other
securities issued or reserved for issuance pursuant to the Plan or
pursuant to outstanding Awards, (ii) the maximum number of Shares
for which Awards (including limits established for Restricted Stock
or Other Stock-Based Awards) may be granted during a calendar year
to any Participant, (iii) the Exercise Price or exercise price of
any Stock Appreciation Right and/or (iv) any other affected terms of
such Awards.
(b) CHANGE IN CONTROL. In the event of a Change in Control after the
Effective Date, the Committee may, but shall not be obligated to,
(i) accelerate, vest or cause the restrictions to lapse with respect
to, all or any portion of an Award or (ii) cancel Awards for fair
value (as determined in the sole discretion of the Committee) which,
in the case of Options and Stock Appreciation Rights, may equal the
excess, if any, of value of the consideration to be paid in the
Change in Control Transaction to holders of the same number of
Shares subject to such Options or Stock Appreciation Rights (or, if
no consideration is paid in any such Transaction, the Fair Market
Value of the Shares subject to such Options or Stock Appreciation
Rights) over the aggregate exercise price of such Options or Stock
Appreciation Rights or (iii) provide for the issuance of substitute
Awards that will substantially preserve the otherwise applicable
terms of any affected Awards previously granted hereunder as
determined by the Committee in its sole discretion or (iv) provide
that for a period of at least 30 days prior to the Change in
Control, such Options or Stock Appreciation Rights shall be
exercisable as to all Shares subject thereto and that upon the
occurrence of the Change in Control, such Options shall terminate
and be of no further force and effect.
11. NO RIGHT TO EMPLOYMENT OR AWARDS
The granting of an Award under the Plan shall impose no obligation on the
Company or any Affiliate to continue the employment of a Participant and shall
not lessen or affect the Company's or Subsidiary's right to terminate the
employment of such Participant. No Participant or other person shall have any
claim to be granted any Award, and there is no obligation for uniformity of
treatment of Participants, or holders or beneficiaries of Awards. The terms and
conditions of Awards and the Committee's determinations and interpretations with
respect thereto need not be the same with respect to each Participant (whether
or not such Participants are similarly situated).
12. SUCCESSORS AND ASSIGNS
The Plan shall be binding on all successors and assigns of the Company and
a Participant, including without limitation, the estate of such Participant and
the executor, administrator or trustee of such estate, or any receiver or
trustee in bankruptcy or representative of the Participant's creditors.
13. NONTRANSFERABILITY OF AWARDS
Unless otherwise determined by the Committee, an Award shall not be
transferable or assignable by the Participant otherwise than by will or by the
laws of descent and distribution. An Award exercisable after the death of a
Participant may be exercised by the legatees, personal representatives or
distributees of the Participant.
14. AMENDMENTS OR TERMINATION
The Board may amend, alter or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made, (a) without the approval of the
stockholders of the Company, if such action would (except as is provided in
Section 10 of the Plan), increase the total number of Shares reserved for the
purposes of the Plan or increase the maximum number of Shares of Restricted
Stock or Other Stock-Based Awards that may be awarded hereunder, or the maximum
number of Shares for which Awards may be granted to any Participant, (b) without
the consent of a Participant, if such action would diminish any of the rights of
the Participant under any Award theretofore granted to such Participant under
the Plan or (c) to Section 5(b), relating to repricing of Options or Stock
Appreciation Rights; PROVIDED, HOWEVER, that the Committee may amend the Plan in
such manner as it deems necessary to permit the granting of Awards meeting the
requirements of the Code or other applicable laws.
B-7
15. INTERNATIONAL PARTICIPANTS
With respect to Participants who reside or work outside the United States
of America and who are not (and who are not expected to be) "covered employees"
within the meaning of Section 162(m) of the Code, the Committee may, in its sole
discretion, amend the terms of the Plan or Awards with respect to such
Participants in order to conform such terms with the requirements of local law
or to obtain more favorable tax or other treatment for a Participant, the
Company or an Affiliate.
16. CHOICE OF LAW
The Plan shall be governed by and construed in accordance with the laws of
the State of Delaware without regard to conflicts of laws.
17. EFFECTIVENESS OF THE PLAN
The Plan shall be effective as of the Effective Date.
B-8
EXHIBIT C
KEY EXECUTIVE INCENTIVE BONUS PLAN
1. PURPOSE OF THE PLAN
The purpose of the Key Executive Incentive Bonus Plan (the "Plan") is to
advance the interests of EMCOR Group, Inc., a Delaware corporation (the
"Company"), and its stockholders by providing incentives in the form of periodic
bonus awards to certain key executives of the Company who contribute
significantly to the strategic and long-term performance objectives and growth
of the Company.
2. ADMINISTRATION
The Plan shall be administered by the Compensation and Personnel Committee
of the Board of Directors (the "Committee"), as such committee is from time to
time constituted. The Committee may delegate its duties and powers in whole or
in part (i) to any subcommittee thereof consisting solely of at least two
"outside directors," as defined under Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code"), or (ii) to the extent consistent with
Section 162(m) of the Code, to any other individual or individuals.
The Committee has all the powers vested in it by the terms of the Plan set
forth herein, such powers to include the exclusive authority to select the key
executives to be granted bonus awards ("Bonuses") under the Plan, to determine
the size and terms of the Bonus to be made to each individual selected (subject
to the limitation imposed on "Bonuses," as set forth below), to modify the terms
of any Bonus that has been granted (except with respect to any modification
which would increase the amount of compensation payable to a "Covered Employee,"
as such term is defined in Section 162(m) of the Code), to determine the time
when Bonuses will be awarded, to establish performance objectives in respect of
Bonuses and to certify that such performance objectives were attained. The
Committee is authorized to interpret the Plan, to establish, amend and rescind
any rules and regulations relating to the Plan, and to make any other
determinations that it deems necessary or desirable for the administration of
the Plan. The Committee may correct any defect or supply any omission or
reconcile any inconsistency in the Plan in the manner and to the extent the
Committee deems necessary or desirable to carry it into effect. Any decision of
the Committee in the interpretation and administration of the Plan, as described
herein, shall lie within its sole and absolute discretion and shall be final,
conclusive and binding on all parties concerned. No member of the Committee and
no officer of the Company shall be liable for anything done or omitted to be
done by him or her, by any other member of the Committee or by any officer of
the Company in connection with the performance of duties under the Plan, except
for his or her own willful misconduct or as expressly provided by statute.
3. PARTICIPATION
The Committee shall have exclusive power (except as may be delegated as
permitted herein) to select the key executives of the Company who may
participate in the Plan and be granted Bonuses under the Plan ("Participants").
4. BONUSES UNDER THE PLAN
(a) The Committee shall determine the amount of a Bonus to be granted to
each Participant in accordance with subsection (b) below.
(b) (i) The Committee may in its discretion award a Bonus to a
Participant who it reasonably believes may be a Covered Employee for
the taxable year of the Company in which such Bonus would be
deductible, under the terms and conditions of this subsection (b).
Subject to clause (iii) of this subsection (b), the amount of a
Participant's Bonus shall be an amount determinable from written
performance goals approved by the Committee while the outcome is
substantially uncertain and no more than 90 days after the
commencement of the period to which the performance goal relates or,
if less, the number of days which is equal to 25 percent of the
relevant performance period. The maximum amount of any Bonus that
may be granted in any given calendar year shall be $5,000,000.
C-1
(ii) The amount of any Bonus will be based on objective performance
goals established by the Committee using one or more performance
factors. The performance factors for Participants will be based on
attainment of specific levels of performance of the Company (or of a
subsidiary, division, or department thereof) with reference to one
or more of the following criteria: (i) consolidated earnings before
or after taxes (including earnings before interest, taxes,
depreciation and amortization); (ii) net income; (iii) operating
income; (iv) earnings per share; (v) book value per share; (vi)
return on shareholders' equity; (vii) expense management; (viii)
return on investment; (ix) improvements in capital structure; (x)
profitability of an identifiable business unit or product; (xi)
maintenance or improvements of profit margins; (xii) stock price;
(xiii) market share; (xiv) revenues or sales; (xv) costs; (xvi) cash
flow; (xvii) working capital; and (xviii) return on assets.
(iii) The Committee shall determine whether the performance goals
have been met with respect to any affected Participant and, if they
have, so certify and ascertain the amount of the applicable Bonus.
No Bonuses will be paid until such certification is made by the
Committee.
(iv) The provisions of this subsection (b) shall be administered and
interpreted in accordance with Section 162(m) of the Code to ensure
the deductibility by the Company of the payment of Bonuses.
5. DESIGNATION OF BENEFICIARY BY PARTICIPANT
The Committee or its delegate shall create a procedure whereby a
Participant may file, on a form to be provided by the Committee, a written
election designating one or more beneficiaries with respect to the amount, if
any, payable in the event of the Participant's death. The Participant may amend
such beneficiary designation in writing at any time prior to the Participant's
death, without the consent of any previously designated beneficiary. Such
designation or amended designation, as the case may be, shall not be effective
unless and until received by the duly authorized representatives of the
Committee or its delegate prior to the Participant's death. In the absence of
any such designation, the amount payable, if any, shall be delivered to the
legal representative of such Participant's estate.
6. MISCELLANEOUS PROVISIONS
(a) No employee or other person shall have any claim or right to be paid
a Bonus under the Plan. Determinations made by the Committee under
the Plan need not be uniform and may be made selectively among
eligible individuals under the Plan, whether or not such eligible
individuals are similarly situated. Neither the Plan nor any action
taken hereunder shall be construed as giving any employee or other
person any right to continue to be employed by or perform services
for the Company or any affiliate of the Company, and the right to
terminate the employment of or performance of services by any
Participant at any time and for any reason is specifically reserved
to the Company and its affiliates.
(b) Except as may be approved by the Committee, a Participant's rights
and interest under the Plan may not be assigned or transferred,
hypothecated or encumbered in whole or in part either directly or by
operation by law or otherwise (except in the event of a
Participant's death) including, but not by way of limitation,
execution, levy, garnishment, attachment, pledge, bankruptcy or in
any other manner; provided, however, that, subject to applicable
law, any amounts payable to any Participant hereunder are subject to
reduction to satisfy any liabilities owed to the Company or any of
its affiliates by the Participant.
(c) The Committee shall have the authority to determine in its sole
discretion the applicable performance period relating to any Bonus;
provided, however, that any such determination shall be subject to
any applicable restrictions imposed by Section 162(m) of the Code.
(d) The Company shall have the right to deduct from any payment made
under the Plan any federal, state, local or foreign income or other
taxes required by law to be withheld with respect to such payment.
C-2
(e) The Company shall not be required to establish any special or
separate fund or to make any other segregation of assets to assure
the payment of any amounts under the Plan, and rights to the payment
hereunder shall be no greater than the rights of the Company's
unsecured, subordinated creditors. All expenses involved in
administering the Plan shall be borne by the Company.
(f) The validity, construction, interpretation, administration and
effect of the Plan and rights relating to the Plan and to Bonuses
granted under the Plan, shall be governed by the substantive laws,
but not the choice of law rules, of the State of Delaware.
(g) The Plan shall be effective on the date the adoption of the Plan by
the Company's Board of Directors is approved by the Company's
stockholders.
7. PLAN AMENDMENT OR SUSPENSION
The Plan may be amended or suspended in whole or in part at any time and
from time to time by the Committee.
8. PLAN TERMINATION
This Plan shall terminate upon the adoption of a resolution of the
Committee terminating the Plan.
9. ACTIONS AND DECISION REGARDING THE BUSINESS OR OPERATIONS OF THE COMPANY
Notwithstanding anything in the Plan to the contrary, none of the Company,
its officers, directors, employees or agents shall have any liability to any
Participant (or his or her beneficiaries or heirs) under the Plan or otherwise
on account of any action taken, or not taken, in good faith by any of the
foregoing persons with respect to the business or operations of the Company or
any affiliates.
C-3
EMCOR GROUP, INC.
- --------------------------------------------------------------------------------
EMCOR GROUP, INC.
ANNUAL MEETING OF STOCKHOLDERS
JUNE 12, 200310, 2004
The undersigned hereby appoints Frank T. MacInnis, Sheldon I. Cammaker
and Leicle E. Chesser, and each of them, with full power to act without the
other and with full power of substitution, as proxies to represent and to vote,
as directed herein, all shares the undersigned is entitled to vote at the annual
meeting of the stockholders of EMCOR Group, Inc. to be held in the Central Park
Room, The Drake Swissotel, 440 Park Avenue, New York, New York on Thursday, June
12, 200310, 2004 at 10:00 A.M. (local time), and all adjournments thereof, as follows:thereof.
PLEASE MARK, DATE AND SIGN THIS PROXY ON THE REVERSE SIDE AND RETURN IT
PROMPTLY USING THE ENCLOSED POSTAGE PREPAID ENVELOPE.
UNLESS OTHERWISE MARKED, THE PROXIES ARE APPOINTED WITH AUTHORITY TO
VOTE "FOR" ALL NOMINEES FOR ELECTION "FOR" THE 2003 NON-EMPLOYEE DIRECTORS' STOCK
OPTION PLAN, "FOR" THE 2003 MANAGEMENT STOCK INCENTIVE PLAN, "FOR" THE KEY
EXECUTIVE INCENTIVE BONUS PLAN, AND "FOR" THE APPOINTMENT OF ERNST & YoungYOUNG
LLP as independent auditors.AS INDEPENDENT AUDITORS.
(Continued and to be signed on the reverse side.)
EMCOR GROUP, INC.
P.O. BOX 11343
NEW YORK, N.Y. 10203-0343
To change your address, please mark this box. |_|[_]
To include any comments, please mark this box. |_|[_]
DETACH PROXY CARD HERE
- --------------------------------------------------------------------------------
|_| SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY USING |X|
THE ENCLOSED ENVELOPE. VOTES MUST BE INDICATED\/ Detach Proxy Card Here \/
[_] Sign, Date and Return the [X]
Proxy Card Promptly Using
the Enclosed Envelope. Votes must be indicated
(X) IN BLACK OR BLUE INK.
THE BOARD OF DIRECTORS RECOMMENDS A VOTEin Black or Blue Ink.
The Board of Directors recommends a vote "FOR" ALL NOMINEES IN ITEMall nominees in item 1 ANDand
"FOR" ITEMS 2, 3, 4 AND 5.item 2.
1. Election of Directors
FOR all nominees |_| WITHHOLD[_] WITHOLD AUTHORITY to vote |_|[_] *EXCEPTIONS |_|[_]
listed below for all nominees listed below
Nominees: F. MacInnis, S. Bershad, D. Brown, L. Bump, A. Fried, R. Hamm,
M. Yonker (INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
THE "EXCEPTIONS" BOX AND WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.To withhold authority to vote for any individual
nominee, mark the "Exceptions" box and write that nominee's name in the
space provided below.)
*Exceptions _________________________________________________________________________________________________________________________________
FOR AGAINST ABSTAIN
2. Approval of 2003 Non-Employee Directors' |_| |_| |_|
Stock Option Plan.
3. Approval of 2003 Management Stock Incentive Plan. |_| |_| |_|
4. Approval of Key Executive Incentive Bonus Plan. |_| |_| |_|
5. Appointment of Ernst & Young LLP [_] [_] [_]
as |_| |_| |_| Independent Auditors.
___________________________________
S C A N L I N E
___________________________________
In their discretion to vote upon other matters that may
properly come before the meeting. Please sign exactly
as your name appears to the left.
_ When signing as attorney, executor, administrator,
| trustee or guardian, please give your full title.
If shares are held jointly, each holder should sign.
Date Share Owner sign here Co-Owner sign here
______________________________________ _______________________________________
______________________________________ _______________________________________+-------+-----------------------+ +--------------------+
| | | | |
+-------+-----------------------+ +--------------------+
_|