LCI INDUSTRIES
10-Ks and 10-Qs
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SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. [ ])
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the Appropriate Box:
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[ ]
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Preliminary Proxy Statement
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[ ]
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Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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[X]
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Definitive Proxy Statement
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[ ]
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Definitive Additional Materials
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[ ]
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Soliciting Material Under Rule 14a-12
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Drew Industries Incorporated
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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[X]
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No fee required
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[ ]
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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(1)
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Title of each class of securities to which transaction applies:
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(2)
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Aggregate number of securities to which transaction applies:
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(3)
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined):
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(4)
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Proposed maximum aggregate value of transaction:
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(5)
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Total fee paid:
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[ ]
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Fee paid previously with preliminary materials:
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[ ]
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
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(1)
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Amount Previously paid:
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(2)
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Form, Schedule or Registration Statement No.:
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(3)
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Filing Party:
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(4)
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Date Filed
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DREW INDUSTRIES INCORPORATED
200 Mamaroneck Avenue
White Plains, New York 10601
Notice of Annual Meeting of Stockholders
to be held May 23, 2013
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of DREW INDUSTRIES INCORPORATED (the “Company”) will be held at Rosewood Crescent Hotel, 400 Crescent Court, Dallas, Texas 75201 on May 23, 2013 at 9:00 A.M., for the following purposes:
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(1)
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To elect a Board of eight Directors;
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(2)
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An advisory vote to approve the compensation of the Company’s named executive officers as disclosed in this Proxy Statement; and
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(3)
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To ratify the selection of KPMG LLP as independent auditors for the Company for the year ending December 31, 2013.
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Holders of record of the Company’s Common Stock at the close of business on the 27th day of March, 2013 shall be entitled to vote on all matters to be considered at the Meeting or any adjournment or postponement thereof.
A list of all stockholders entitled to vote at the Meeting will be available for inspection for the ten days prior to the Meeting at the office of the Company and will be available for inspection at the time of the Meeting, at the place thereof.
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By Order of the Board of Directors
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LEIGH J. ABRAMS
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Chairman of the Board of Directors
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Dated: April 11, 2013
White Plains, N.Y.
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NOTICE TO HOLDERS OF COMMON STOCK
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IF YOU DO NOT EXPECT TO ATTEND THE MEETING, PLEASE SIGN AND
RETURN THE ENCLOSED PROXY CARD SO THAT YOU WILL BE REPRESENTED.
A POST-PAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
IF YOU ARE VOTING OVER THE INTERNET, PLEASE DO NOT RETURN
THE ENCLOSED PROXY CARD.
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IMPORTANT NOTICE REGARDING THE AVAILABILITY OF
PROXY MATERIALS FOR THE ANNUAL STOCKHOLDER MEETING
TO BE HELD ON MAY 23, 2013.
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THIS PROXY STATEMENT AND OUR 2012 ANNUAL REPORT TO STOCKHOLDERS,
INCLUDING OUR 2012 ANNUAL REPORT ON FORM 10-K, ARE AVAILABLE AT
HTTP://WWW.PROXYVOTE.COM
.
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TABLE OF CONTENTS
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Page
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PROXY STATEMENT
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3
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THE COMPANY
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4
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VOTING SECURITIES
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4
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PROPOSAL 1. ELECTION OF DIRECTORS
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8
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REPORT OF THE AUDIT COMMITTEE
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15
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COMPENSATION DISCUSSION AND ANALYSIS
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16
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COMPENSATION COMMITTEE REPORT
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27
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SUMMARY COMPENSATION TABLE
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28
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GRANTS OF PLAN-BASED AWARDS TABLE
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30
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OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
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37
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OPTION EXERCISES AND STOCK VESTED
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38
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NON-QUALIFIED DEFERRED COMPENSATION
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38
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POTENTIAL PAYMENTS ON TERMINATION OR CHANGE-IN-CONTROL
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39
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DIRECTOR COMPENSATION
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41
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TRANSACTIONS WITH RELATED PERSONS
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42
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PROPOSAL 2. ADVISORY VOTE ON EXECUTIVE COMPENSATION
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43
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PROPOSAL 3. APPOINTMENT OF AUDITORS
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43
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TRANSACTION OF OTHER BUSINESS
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44
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STOCKHOLDER PROPOSALS
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44
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2
DREW INDUSTRIES INCORPORATED
200 Mamaroneck Avenue
White Plains, New York 10601
The accompanying Proxy is solicited by the Board of Directors of Drew Industries Incorporated, a Delaware corporation (the “Company”), for use at the Annual Meeting of Stockholders to be held at Rosewood Crescent Hotel, 400 Crescent Court, Dallas, Texas 75201 on May 23, 2013 at 9:00 A.M., or any adjournment or postponement thereof, at which holders of record of the Company’s Common Stock, par value $0.01 per share (the “Common Stock”), at the close of business on March 27, 2013 (the “Record Date”) shall be entitled to vote on all matters considered at the Meeting.
The cost of solicitation by the Company, including postage, printing and handling, and the expenses incurred by brokerage firms, custodians, nominees and fiduciaries in forwarding proxy material to beneficial owners will be borne by the Company. The solicitation is to be made primarily by mail, but may be supplemented by telephone calls, telegrams and personal solicitation. Management may also use the services of Directors and employees of the Company to solicit Proxies, without additional compensation.
All validly completed and executed Proxies received by the Company (whether by mail or via the Internet) in time for the Annual Meeting will be voted in the manner indicated on the Proxies and, if no contrary instructions are indicated, “FOR” the Directors named in Proposal 1, and “FOR” Proposals 2 and 3. If specific instructions are indicated, the Proxies will be voted in accordance with such instructions. Each Proxy executed and returned by holders of the Common Stock may be revoked at any time thereafter, except as to matters upon which, prior to such revocation, a vote shall have been cast pursuant to the authority conferred by such Proxy. A Proxy may be revoked by giving written notice of revocation to the Secretary of the Company or to any of the other persons named as proxies, or by giving a Proxy with a later date, or by attending the Annual Meeting and voting in person. This Proxy Statement and the form of Proxy solicited from holders of the Common Stock are expected to be sent or given to stockholders on or about April 11, 2013.
If you hold shares of the Company’s Common Stock in your own name and not through your broker or another nominee, you may choose to vote via the Internet. The website for Internet voting is
www.proxyvote.com
. Internet voting is available 24 hours a day until 11:59 P.M., Eastern Time, on May 22, 2013. You will be able to confirm that your instructions have been properly recorded. If your shares are held in “street name” (that is, in the name of a bank, broker or other holder of record), you will receive instructions from the holder of record that you must follow in order for your shares to be voted. Internet voting also will be available to stockholders owning shares held in “street name”. If you vote via the Internet, you do not need to return your proxy card.
The Annual Report to Stockholders of the Company for the year ended December 31, 2012, together with this Proxy Statement, is being mailed to each stockholder of record who requested paper copies of these materials.
THE COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2012 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (INCLUDING THE CONSOLIDATED FINANCIAL STATEMENTS) IS PART OF THE ANNUAL REPORT TO STOCKHOLDERS WHICH ACCOMPANIES THIS PROXY STATEMENT. ADDITIONAL COPIES WILL BE FURNISHED TO ANY STOCKHOLDER WITHOUT CHARGE UPON REQUEST TO THE COMPANY AT 200 MAMARONECK AVENUE, WHITE PLAINS, NEW YORK 10601, TELEPHONE (914) 428-9098, E-MAIL
DREW@DREWINDUSTRIES.COM
. THE ANNUAL REPORT ON FORM 10-K IS ALSO AVAILABLE THROUGH LINKS ON THE COMPANY’S WEBSITE AT
WWW.DREWINDUSTRIES.COM
AND AT
WWW.PROXYVOTE.COM
.
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The Company was incorporated under the laws of Delaware on March 20, 1984. The Company’s principal executive and administrative offices are located at 200 Mamaroneck Avenue, White Plains, New York 10601; telephone number (914) 428-9098; website:
www.drewindustries.com
; e-mail:
drew@drewindustries.com
.
Note that the information located on our website, whether or not referred to in this Proxy Statement, is not incorporated by reference into this Proxy Statement.
Succession and Relocation
On February 12, 2013, the Company announced that Fred Zinn, President and Chief Executive Officer, will retire effective May 10, 2013. Jason D. Lippert, Chairman and Chief Executive Officer of Lippert Components and Kinro, subsidiaries of the Company, has been named to succeed Mr. Zinn as Chief Executive Officer of the Company. This leadership transition is the result of a comprehensive succession process initiated by the Board in 2011.
Mr. Zinn, who will turn 62 in March, has been an executive officer of the Company since 1986, served as President and a Director since 2008, and as CEO since 2009. Mr. Zinn is not standing for re-election as a Director, but he will continue to serve as a consultant to the Company through 2013.
Mr. Lippert, age 40, has served as Chairman and Chief Executive Officer of Lippert Components and Kinro, and as a Director of the Company for the last five years, and will also continue in these positions. Mr. Lippert held various executive positions at Lippert Components and Kinro since 1998.
Scott T. Mereness, age 41, has been appointed President and Chief Operating Officer of the Company effective May 10, 2013. Mr. Mereness will also continue to serve as President of Lippert and Kinro, as he has since 2010. Mr. Mereness held various executive positions at Lippert Components and Kinro since 2001.
Drew also announced that its corporate headquarters will relocate from White Plains, New York to Elkhart County, Indiana, the location of the corporate headquarters of Lippert Components and Kinro, and where more than 80% of all RVs produced in the U.S. are manufactured.
Joseph S. Giordano III, age 44, Chief Financial Officer and Treasurer of the Company since 2008 and Corporate Controller from 2003 to 2008, will relocate to Elkhart County, and will continue to serve as Chief Financial Officer and Treasurer.
Harvey F. Milman, age 71, who has served as General Counsel then Chief Legal Officer of the Company and its predecessor since 1969, will retire effective July 31, 2013. Mr. Milman will continue to serve as a consultant to the Company through 2015. Mr. Milman will be succeeded by Robert A. Kuhns, age 47. For the past thirteen years Mr. Kuhns was a partner in the Corporate Group at the Minneapolis offices of Dorsey & Whitney LLP, a full-service global law firm.
The Company’s Common Stock trades on the New York Stock Exchange (“NYSE”) under the symbol “DW”.
Stockholders of record will be entitled to one vote on each matter for each share of Common Stock held on the Record Date. At the close of business on the Record Date, there were 22,900,102 shares of our Common Stock outstanding and eligible to vote at the Meeting. A majority of the outstanding shares of Common Stock must be present or represented by proxy at the Meeting in order to have a quorum for the transaction of business at the Meeting. Abstentions and broker non-votes will be treated as shares present for the purpose of determining the presence of a quorum. “Broker non-votes” means shares held of record by a broker that are not voted on a matter because the broker has not received voting instructions from the beneficial owner of the shares and lacks the authority to vote the shares in its discretion.
Proposal 1–Election of Directors:
Directors are elected by a plurality of the votes cast at the Meeting on this proposal. This means that the eight nominees who receive the most votes will be elected. Under the NYSE rules, your brokerage firm or other nominee that is a member of the NYSE is not permitted to vote your shares with respect to Proposal 1 without specific instructions from you as to how to vote with respect to the election of each of the eight nominees for director, because the election of directors is not considered a “routine” matter under the NYSE rules. Abstentions, and broker non-votes represented by submitted Proxies, will not be taken into account in determining the outcome of this proposal.
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Proposal 2–Advisory Vote on Executive Compensation:
To be approved, this advisory proposal requires an affirmative vote of a majority of the votes cast. This means that the votes that our stockholders cast “FOR” this proposal must exceed the votes that our stockholders cast “AGAINST” this proposal at the Meeting. Because your vote is advisory, it will not be binding on the Board of Directors or the Company. Proposal 2 is not considered a "routine" matter under the NYSE rules and, therefore, brokerage firms and nominees that are members of the NYSE will not be able to vote the shares of customers from whom they have not received voting instructions with regard to this proposal. Abstentions, and broker non-votes represented by submitted Proxies, will not be taken into account in determining the outcome of this proposal.
Proposal 3–Appointment of Auditors
: To be approved, this proposal requires an affirmative vote of a majority of the votes cast. This means that the votes that our stockholders cast “FOR” this proposal must exceed the votes that our stockholders cast “AGAINST” this proposal at the Meeting. Proposal 3 is considered a "routine" matter under the NYSE rules and, therefore, brokerage firms and nominees that are members of the NYSE have the authority under those rules to vote their customers' shares on Proposal 3 if the customers have not furnished voting instructions within a specified period of time prior to the Meeting. Abstentions will not be taken into account in determining the outcome of this proposal.
In order to minimize the number of broker non-votes, the Company encourages you to provide voting instructions to the organization that holds your shares by carefully following the instructions provided in their notice.
If the persons present or represented by proxy at the Meeting constitute the holders of less than a majority of the outstanding shares of Common Stock as of the Record Date, the Meeting may be adjourned to a subsequent date for the purpose of obtaining a quorum. Votes will be tabulated by the inspector of election appointed for the Meeting, who will separately tabulate affirmative and negative votes, abstentions and, if possible, broker non-votes.
The Board of Directors recommends that you vote FOR each of the nominees for the Board of Directors (Proposal 1), FOR advisory approval of the compensation of the Company’s named executive officers (Proposal 2), and FOR ratification of the appointment of KPMG LLP as the Company’s independent auditor for the fiscal year ending December 31, 2013 (Proposal 3).
Set forth below is information with respect to each person known to the Company on March 27, 2013 to be the beneficial owner of more than five percent of any class of the Company’s voting securities, which consists of Common Stock only (including options and deferred stock units (“DSUs”) which are exercisable within 60 days):
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Name and Address
of Beneficial Owner
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Amount and Nature
of Beneficial Ownership
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Approximate
Percent of Class
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Columbia Wanger Asset Management, LLC
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2,961,600 | (2) | 12.6 | % | ||||
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227 West Monroe Street, Suite 3000
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Chicago, IL 60606
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T. Rowe Price Associates, Inc.
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1,859,720 | (2) | 7.9 | % | ||||
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100 E. Pratt Street
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Baltimore, MD 21202
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Royce & Associates, LLC
(1)
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1,815,476 | (2) | 7.7 | % | ||||
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745 Fifth Avenue
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New York, NY 10151
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BlackRock, Inc.
(1)
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1,620,670 | (2) | 6.9 | % | ||||
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40 East 52nd Street
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New York, NY 10022
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(1)
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The person named has sole voting and investment power with respect to such shares.
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(2)
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As of December 31, 2012.
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To the knowledge of the Company, other than persons acting as nominees or custodians for various stock brokerage firms and banks, which persons do not have beneficial ownership of the Common Stock, no other person owns of record or beneficially more than five percent of the voting securities of the Company.
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Set forth below is information with respect to beneficial ownership at March 27, 2013 of the Common Stock (including options and DSUs which are exercisable within 60 days) by each Director, each of whom (other than Mr. Zinn) is a nominee for election, and by all Directors and Executive Officers of the Company as a group, including the executive officers named in the Summary Compensation Table.
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Name
of Beneficial Owner
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Amount and Nature
of Beneficial Ownership
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Approximate
Percent of Class
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Edward W. Rose, III, Director
(1)
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546,617 | (2) | 2.3 | % | ||||
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Leigh J. Abrams, Director
(1)
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176,378 | (3) | 0.8 | % | ||||
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Fredric M. Zinn, Director and Executive Officer
(1)
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93,892 | (4) | 0.4 | % | ||||
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Jason D. Lippert, Director and Executive Officer
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61,254 | (5) | 0.3 | % | ||||
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Scott T. Mereness, Executive Officer
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74,792 | (6) | 0.3 | % | ||||
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Joseph S. Giordano III, Executive Officer
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13,000 | (7) | 0.1 | % | ||||
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James F. Gero, Director
(1)
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181,586 | (8) | 0.8 | % | ||||
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Frederick B. Hegi, Jr., Director
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160,190 | (9) | 0.7 | % | ||||
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David A. Reed, Director
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46,729 | (10) | 0.2 | % | ||||
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John B. Lowe, Jr., Director
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60,811 | (11) | 0.3 | % | ||||
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Brendan J. Deely, Director
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9,699 | (12) | 0.0 | % | ||||
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All Directors and Executive Officers as a group (13 persons including the above-named. Persons in the group who are not directors, nominees or named executive officers (“NEOs”), and who own individually less than 1%, are not listed)
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1,440,748 | (13) | 6.1 | % | ||||
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(1)
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Pursuant to Rules 13-1(f) (1)-(2) of Regulation 13-D of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), on May 31, 1989, the persons indicated, together with certain other persons, jointly filed a single Schedule 13-D Statement (as amended) with respect to the securities listed in the foregoing table. Such persons made the single, joint filing because they may be deemed to constitute a “group” within the meaning of Section 13(d)(3) of the Exchange Act, although neither the fact of the filing nor anything contained therein shall be deemed to be an admission by such persons that a group exists.
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(2)
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Mr. Rose has sole voting and dispositive power with respect to the shares owned by him. Includes 196,000 shares owned by Cardinal Investment Company, Inc. Profit Sharing Plan, of which Mr. Rose is Trustee. Mr. Rose is the sole stockholder of Cardinal Investment Company, Inc. Excludes 200,000 shares of Common Stock held in trusts for the benefit of members of Mr. Rose’s immediate family. Mr. Rose’s wife has sole voting and investment power with respect to an additional 27,840 shares owned by her of record, which are also excluded. Mr. Rose disclaims any beneficial interest in such shares. In December 2007, December 2008, November 2009 and November 2010, Mr. Rose was granted options to purchase 7,500 shares at $24.59 per share, 12,500 shares at $10.72 per share, 7,500 shares at $17.49 per share, and 11,500 shares at $17.67 per share, respectively. Although no part of such options has been exercised, all shares subject to such options are included in the above table as beneficially owned. Includes restricted stock representing 4,519 shares granted to Mr. Rose in November 2012.
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(3)
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Mr. Abrams has sole voting and dispositive power with respect to such shares. In November 2007, 2008, 2009 and 2010, Mr. Abrams was granted options to purchase 20,000 shares at $29.11 per share, 20,000 shares at $8.09 per share, 11,400 shares at $17.49 per share, and 18,000 shares at $17.67 per share, respectively. Although no part of such options has been exercised, all shares subject to such options which are exercisable within 60 days are included in the above table as beneficially owned. Includes restricted stock representing 4,519 shares granted to Mr. Abrams in November 2012.
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6
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(4)
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Mr. Zinn shares voting and dispositive power with respect to 7,562 of such shares with his wife, and has sole voting and dispositive power with respect to 82,612 of such shares. Includes 3,718 shares owned of record by Mr. Zinn’s son. Mr. Zinn disclaims any beneficial interest in such shares. Includes 27,200 shares subject to stock options granted to Mr. Zinn that will become exercisable within 60 days, and 11,200 DSUs which are issuable within 60 days following implementation of the executive succession plan. Excludes DSUs representing 217,209 shares granted to Mr. Zinn, which are not issuable within 60 days. In November 2008, 2009 and 2010, Mr. Zinn was granted options to purchase 20,000 shares at $8.09 per share (of which 16,000 have been exercised), 16,000 shares at $17.49 per share (of which 9,600 have been exercised), and 28,000 shares at $17.67 per share (of which 11,200 have been exercised), respectively. All shares subject to such options which are exercisable within 60 days are included in the above table as beneficially owned.
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(5)
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Mr. Lippert has sole voting and dispositive power with respect to such shares. Excludes DSUs representing 64,395 shares granted to Mr. Lippert, which are not issuable within 60 days. Excludes 103,002 shares subject to stock awards granted to Mr. Lippert, which are not issuable within 60 days. In November 2008, 2009, 2010 and 2011, Mr. Lippert was granted options to purchase 30,000 shares at $8.09 per share (of which 24,000 have been exercised), 16,000 shares at $17.49 per share (of which 9,600 have been exercised), 28,000 shares at $17.67 per share (of which 11,200 have been exercised), and 28,000 shares at $21.17 per share (of which 8,120 have been exercised), respectively. All shares subject to such options which are exercisable within 60 days are included in the above table as beneficially owned.
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(6)
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Mr. Mereness has sole voting and dispositive power with respect to such shares. Excludes DSUs representing 54,309 shares granted to Mr. Mereness, which are not issuable within 60 days. Excludes 72,101 shares subject to stock awards granted to Mr. Mereness, which are not issuable within 60 days. In November 2007, 2008, 2009, 2010 and 2011, Mr. Mereness was granted options to purchase 20,000 shares at $29.11 per share, 23,000 shares at $8.09 per share (of which 13,800 have been exercised), 12,000 shares at $17.49 per share, 22,000 shares at $17.67 per share, and 22,000 shares at $21.17 per share, respectively. All shares subject to such options which are exercisable within 60 days are included in the above table as beneficially owned.
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(7)
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Mr. Giordano has sole voting and dispositive power with respect to such shares. Excludes DSUs representing 43,465 shares granted to Mr. Giordano, which are not issuable within 60 days. In November 2008, 2009 and 2010, Mr. Giordano was granted options to purchase 10,000 shares at $8.09 per share (of which 8,000 have been exercised), 10,000 shares at $17.49 per share, and 15,000 shares at $17.67 per share, respectively. All shares subject to such options which are exercisable within 60 days are included in the above table as beneficially owned.
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(8)
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Mr. Gero shares voting and dispositive power with respect to such shares with his wife. In December 2007, December 2008, November 2009 and November 2010, Mr. Gero was granted options to purchase 7,500 shares at $24.59 per share, 12,500 shares at $10.72 per share, 7,500 shares at $17.49 per share, and 11,500 shares at $17.67 per share, respectively. Although no part of such options has been exercised, all shares subject to such options are included in the above table as beneficially owned. Includes restricted stock representing 4,519 shares granted to Mr. Gero in November 2012.
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(9)
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Mr. Hegi has sole voting and dispositive power with respect to such shares. Includes 69,000 shares owned of record by Hegi Family Holdings, LP, of which Mr. Hegi has sole voting and dispositive power with respect to such shares. In December 2007, November 2009 and November 2010, Mr. Hegi was granted options to purchase 7,500 shares at $24.59 per share, 7,500 shares at $17.49 per share, and 11,500 shares at $17.67 per share, respectively. Although no part of such options has been exercised, all shares subject to such options are included in the above table as beneficially owned. Includes restricted stock representing 4,519 shares granted to Mr. Hegi in November 2012.
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(10)
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Mr. Reed has sole voting and dispositive power with respect to such shares. In December 2008, November 2009 and November 2010, Mr. Reed was granted options to purchase 12,500 shares at $10.72 per share (of which 3,262 have been exercised), 7,500 shares at $17.49 per share (of which 2,519 have been exercised), and 11,500 shares at $17.67 per share, respectively. All shares subject to such options are included in the above table as beneficially owned. Includes restricted stock representing 4,519 shares granted to Mr. Reed in November 2012.
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(11)
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Mr. Lowe has sole voting and dispositive power with respect to such shares. Excludes DSUs representing 6,533 shares granted to Mr. Lowe, which are not issuable within 60 days. In December 2007, December 2008, November 2009 and November 2010, Mr. Lowe was granted options to purchase 7,500 shares at $24.59 per share, 12,500 shares at $10.72 per share, 7,500 shares at $17.49 per share, and 11,500 shares at $17.67 per share, respectively. Although no part of such options has been exercised, all shares subject to such options are included in the above table as beneficially owned. Includes restricted stock representing 4,519 shares granted to Mr. Lowe in November 2012.
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7
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(12)
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Mr. Deely has sole voting and dispositive power with respect to such shares. Includes restricted stock representing 4,519 shares granted to Mr. Deely in November 2012.
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(13)
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Includes 328,799 shares of Common Stock subject to options which are exercisable within 60 days and 11,913 DSUs, which are issuable within 60 days.
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Section 16(a) of the Exchange Act requires the Company’s executive officers and directors, and persons who beneficially own more than ten percent of the Company’s equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission (“SEC”) and the NYSE. Officers, directors and greater than ten-percent stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file.
Based on its review of the copies of such forms received by it, the Company believes that during 2012 all such filing requirements applicable to its officers and directors (the Company not being aware of any ten-percent stockholders during 2012 other than Royce Associates, LLC and Columbia Wanger Asset Manager, LLC) were complied with, except as follows:
Scott T. Mereness, an executive officer, inadvertently failed to timely file a report with respect to the sale of 2,000 shares in June 2012, and Edward W. Rose III, a Director, inadvertently failed to timely file a report with respect to contributions of an aggregate of 37,015 shares to charitable organizations in September 2012.
The Board of Directors currently consists of nine Directors. It is proposed to elect a Board of eight Directors to serve until the next annual election or until their successors are elected and qualify. Mr. Zinn’s resignation as a director will be effective May 10, 2013.
Unless contrary instructions are indicated, the persons named as proxies in the form of Proxy solicited from holders of the Common Stock will vote for the election of the nominees indicated below. If any such nominees should be unable or unwilling to serve, the persons named as proxies will vote for such other person or persons as may be proposed by the Board of Directors. The Board of Directors has no reason to believe that any of the named nominees will be unable or unwilling to serve.
The following table lists the nominees proposed by the Board of Directors for election by the holders of the Common Stock, all other positions and offices with the Company presently held by them, and their principal occupations, in each case as furnished by them to the Company. Each of the following nominees was elected to his present term of office at the Annual Meeting of Stockholders held on May 24, 2012.
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Name and Age of Nominee
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Position
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Director Since
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Leigh J. Abrams
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Chairman of the Board of Directors
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1984
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Age 70
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James F. Gero
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Lead Director
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1992
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Age 68
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Edward W. Rose, III
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Director
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1984
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| Age 72 | ||||
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Jason D. Lippert
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Chairman and Chief Executive Officer of Lippert Components, Inc.
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2007
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Age 40
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and Kinro, Inc., subsidiaries of the Company, and Director | |||
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Frederick B. Hegi, Jr
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Director
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2002
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| Age 69 | ||||
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David A. Reed
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Director
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2003
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Age 65
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John B. Lowe, Jr
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Director
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2005
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Age 73
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Brendan J. Deely
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Director
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2011
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Age 47
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LEIGH J. ABRAMS, was Chief Executive Officer from March 1984 to December 31, 2008 and President from March 1984 until May 2008. Since April 2001, Mr. Abrams has also been a director of Impac Mortgage Holdings, Inc., a publicly-owned company engaged in origination of mortgages and provides various mortgage service solutions to the mortgage and real estate markets, and Lead Director of Impac Mortgage Holdings, Inc. since June 2004. Mr. Abrams is a Certified Public Accountant.
Mr. Abrams has particular knowledge of our Company and the industries to which we sell our products, extensive experience with corporate management, acquisitions, governance and strategic planning, accounting and financial acumen, investor relations, and public company board experience.
JAMES F. GERO, is a private investor. Since 2004, Mr. Gero has also served as Chairman of the Board of Orthofix International, N.V., a publicly-owned international supplier of orthopedic devices for bone fixation and stimulation, and as a director of Intrusion.com, Inc., a publicly-owned supplier of security software.
Mr. Gero has extensive experience with respect to corporate management and leadership, strategic planning, and compensation matters, and has public company board experience.
EDWARD W. ROSE, III, was Chairman of the Board of Directors from March 1984 to December 31, 2008 and Lead Director from January 2009 to November 2011. For more than the past five years, Mr. Rose has been President and sole stockholder of Cardinal Investment Company, Inc., an investment firm.
Mr. Rose has extensive knowledge and acumen with respect to financial and investment matters, strategic planning, and stock markets, and has public company board experience.
JASON D. LIPPERT, was President of Lippert Components, Inc. from February 2003 to July 2010 and President of Kinro from January 2009 to July 2010, Executive Vice President and Chief Operating Officer of Lippert Components, Inc., from May 2000 until February 2003, and served as Regional Director of Operations of Lippert Components, Inc., from 1998 until 2000. Mr. Lippert has been Chairman of Lippert Components, Inc. since January 2007, and Chairman of Kinro, Inc. since January 2009. Effective May 10, 2013, Mr. Lippert will be Chief Executive Officer of the Company.
Mr. Lippert has particular knowledge of the industries and customers to which we sell our products, as well as extensive experience with strategic planning, acquisitions, marketing, manufacturing, and sale of our products.
FREDERICK B. HEGI, JR., is a founding partner of Wingate Partners, a private equity firm, and the indirect general partner of Wingate Partners II, L.P. Since May 1982, Mr. Hegi has served as President of Valley View Capital Corporation, a private investment firm. Mr. Hegi is a director of Texas Capital Bancshares, Inc., a publicly-owned regional bank. From 1996 until December 2011, Mr. Hegi served as Chairman of the Board of United Stationers, Inc., a publicly-owned wholesale distributor of business products. From 1986 until its sale in 2007, Mr. Hegi was a director of Lone Star Technologies, Inc., a diversified publicly-owned company engaged in the manufacture of tubular products.
Mr. Hegi has particular knowledge of the industries to which we sell our products, and extensive experience with respect to corporate management and leadership, strategic planning, governance matters, and has public company board experience.
DAVID A. REED, is President of Causeway Capital Management LLC, manager of a family investment partnership. Mr. Reed retired as Senior Vice Chair for Ernst & Young LLP in 2000 where he held several senior U.S. and global operating, administrative and marketing roles in his 26-year tenure with the firm. He served on Ernst & Young LLP’s Management Committee and Global Executive Council from 1991-2000. From 2006 until November 2011, Mr. Reed was a director of Penson Worldwide, Inc., a publicly-owned company engaged in providing flexible technology-based processing solutions to the investment industry. From 2005 until its sale in 2007, Mr. Reed was a director of Lone Star Technologies, Inc., a diversified publicly-owned company engaged in the manufacture of tubular products.
Mr. Reed has accounting and financial acumen, with particular knowledge of financial reporting and taxation, has been determined to be an “audit committee financial expert” under the SEC’s rules and regulations, and has public company board experience.
JOHN B. LOWE, JR., has been Chairman of TDIndustries, Inc., a national mechanical/electrical/plumbing construction and facility service company, since 1981. From January 1981 to January 2005, Mr. Lowe also served as Chief Executive Officer of TDIndustries. Mr. Lowe is Chairman of the Board of Zale Corporation, a publicly-owned specialty retailer of fine jewelry, and is a director of KDC Platform, LLC, engaged in real estate development.
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Mr. Lowe has extensive experience with respect to corporate management and leadership, management development, strategic planning, compensation and governance matters, has public and private company board experience, and extensive experience with social responsibility organizations.
BRENDAN J. DEELY, has been President and Chief Executive Officer of L&W Supply Corporation, a subsidiary of USG Corporation, since 2004, and Senior Vice President of USG Corporation since 2008. USG Corporation, a publicly-owned company, is a manufacturer and distributor of high-performance building systems. L&W Supply branches stock and deliver building materials nationwide. For more than five years prior thereto, Mr. Deely held various executive positions with USG Corporation and its subsidiaries. Mr. Deely also serves on the board of directors of the National Safety Council, and serves on the board of directors of Lincoln Park Community Shelter in Chicago, Illinois.
Mr. Deely has extensive experience with corporate management and operations, and extensive experience with social responsibility organizations. Mr. Deely brings to the Board additional geographic and age diversity.
Directors of the Company serve until the Company’s next Annual Meeting of stockholders, and until their successors are elected and qualified. Executive officers serve at the discretion of the Board of Directors. To the knowledge of the Company, no executive officer or Director is related by blood, marriage or adoption to any other.
FREDRIC M. ZINN, age 62, not a nominee for election as a Director, has been a Director and President of the Company since May 2008 and CEO since January 2009. Mr. Zinn was Executive Vice President from February 2001 to May 2008 and Chief Financial Officer from March 1984 to May 2008. Mr. Zinn is a Certified Public Accountant. Mr. Zinn will retire effective May 10, 2013.
JOSEPH S. GIORDANO III, age 44, not a nominee for election as a Director, has been Chief Financial Officer and Treasurer of the Company since May 2008. Mr. Giordano was Corporate Controller and Treasurer from May 2003 to May 2008. From July 1998 to August 2002, Mr. Giordano was a Senior Manager at KPMG LLP, and from August 2002 to April 2003, Mr. Giordano was a Senior Manager at Deloitte & Touche LLP. Mr. Giordano is a Certified Public Accountant.
SCOTT T. MERENESS, age 41, not a nominee for election as a Director, has been President of Lippert Components, Inc. and Kinro, Inc. since July 2010. Mr. Mereness was Executive Vice President and Chief Operating Officer of Lippert Components, Inc. from February 2003 to July 2010, Executive Vice President and Chief Operating Officer of Kinro, Inc. from February 2010 to July 2010, Vice President of Operations of Lippert Components, Inc. from February 2001 to February 2003, and was Vice President of Kinro, Inc. from January 2009 until February 2010. Mr. Mereness was Regional Vice President for Manufactured Housing for Lippert Components, Inc. from 1999 to 2001. Effective May 10, 2013, Mr. Mereness will be President of the Company.
HARVEY F. MILMAN, age 71, not a nominee for election as a Director, has been Vice President-Chief Legal Officer of the Company since March 2005. Prior thereto, Mr. Milman was a partner of the firm of Phillips Nizer LLP, counsel to the Company. Mr. Milman has served as Secretary since May 2007, and as Assistant Secretary for more than five years prior thereto. Mr. Milman will retire as Chief Legal Officer effective July 31, 2013.
ROBERT A. KUHNS, age 47, not a nominee for election as a Director, will serve as the Company’s Chief Legal Officer and Secretary commencing with Mr. Milman’s departure. For the past thirteen years, Mr. Kuhns was a partner in the Corporate Group at the Minneapolis offices of Dorsey & Whitney LLP, a full-service global law firm.
CHRISTOPHER L. SMITH, age 37, not a nominee for election as a Director, has been Corporate Controller of the Company since May 2008, and was Assistant Controller from August 2005 to May 2008. From January 2000 to June 2005, Mr. Smith served as Assistant Controller of Key Components, LLC, a diversified manufacturer, and from August 1997 to January 2000, Mr. Smith was a Senior Associate at Ernst & Young LLP. Mr. Smith is a Certified Public Accountant. In connection with the relocation of the Company’s offices, Mr. Smith’s tenure as Corporate Controller will terminate effective on or about July 31, 2013.
BRIAN M. HALL, age 38, not a nominee for election as a Director, has been a senior manager at Crowe Horwath LLP for the past eight years. Mr. Hall is a Certified Public Accountant and will succeed Mr. Smith as Corporate Controller of the Company effective on or about July 31, 2013.
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The Company has a management succession plan, as required by the NYSE. The plan is designed to ensure an effective transition of management of our operations to qualified executives upon the retirement of senior executives.
In November 2011, James F. Gero, formerly Chairman of the Compensation Committee, was appointed Lead Director, and John B. Lowe, Jr. was appointed Chairman of the Compensation Committee.
See “The Company” for details regarding the most recent succession of Management.
Statement Regarding Corporate Governance
The Company regularly monitors developments in the area of corporate governance, including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform Act of 2010 (the “Dodd-Frank Act”), and rules promulgated by the SEC and the NYSE. The Company complies with all laws and rules applicable to corporate governance, and has continually implemented “best practices” as the Company deems appropriate to protect and enhance stockholders’ interests.
The Company’s Governance Principles, as well as the Charters and Key Practices of the Audit Committee, the Corporate Governance and Nominating Committee, and the Compensation Committee, in addition to the Company’s Guidelines for Business Conduct, Code of Ethics for Senior Financial Officers, and Whistleblower Policy can be accessed on the Company’s website at
www.drewindustries.com
. A copy of any corporate governance document will be furnished, without charge, upon written request to Secretary, Drew Industries Incorporated, 200 Mamaroneck Avenue, White Plains, N.Y. 10601. Information on our website is not incorporated by reference into this Proxy Statement.
Board of Directors
The Board is elected annually by the Company’s stockholders, and each Director is nominated for election every year. The Company does not have cumulative voting. The Board currently consists of two Directors who are employed by the Company, Fredric M. Zinn and Jason D. Lippert; one Director, Leigh J. Abrams, who served as Chief Executive Officer from 1984 to December 2008 and who currently serves as Chairman of the Board; and six independent Directors, none of whom is, or has been, employed by the Company. Mr. Lippert will succeed Mr. Zinn as Chief Executive Officer of the Company effective May 10, 2013. Mr. Zinn is not standing for re-election as a Director. The independent Directors are James F. Gero, Edward W. Rose, III, Frederick B. Hegi, Jr., David A. Reed, John B. Lowe, Jr., and Brendan J. Deely. Neither Messrs. Gero, Rose, Hegi, Reed, Lowe, nor Deely, nor any members of their immediate families, have any transactions or relationships with the Company or its subsidiaries. Accordingly, the Board has determined that each of these six Directors meets the “independence” standards of the NYSE.
In making the determination of independence, the Board applied the following standards, in addition to other relevant facts and circumstances:
• A director who is an employee, or whose immediate family member is an executive of the Company, is not independent until three years after the end of such employment relationship.
• A director who receives, or whose immediate family member receives, more than $120,000 per year in direct compensation from the Company, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service), generally is not independent until three years after he ceases to receive more than $120,000 per year in such compensation.
• A director is not independent if (i) the director or an immediate family member is a current partner of a firm that is the Company’s internal or external auditor, (ii) the director is a current employee of such a firm, (iii) the director has an immediate family member who is a current employee of such a firm and who participates in the firm’s audit, assurance or tax compliance (but not tax planning) practice, or (iv) the director or an immediate family member was within the last three years (but is no longer) a partner or employee of such a firm and personally worked on the Company’s audit within that time.
• A director who is employed, or whose immediate family member is employed, as an executive officer of another company where any of the Company’s present executives serve on that company’s compensation committee is not independent until three years after the end of such service or the employment relationship.
• A director who is an executive officer or an employee, or whose immediate family member is an executive officer, of another company that makes payments to, or receives payments from, the Company for property or services in an amount which, in any single fiscal year, exceeds the greater of $1 million or 2% of such other company’s consolidated gross revenues, in each case is not independent until three years after falling below such threshold.
• A director who is, or whose immediate family member is, an officer, director or trustee of a not-for-profit organization that received contributions from the Company during the organization’s most recent fiscal year equal to or greater than the lesser of $50,000 and 1% of the organization’s total annual donations is not independent.
11
The independent Directors have complete access to, and are encouraged to communicate with, the Company’s Chief Executive Officer and any other executives of the Company. During the year ended December 31, 2012, the Board of Directors held nine meetings. All Directors attended at least 75% of the regularly scheduled and special meetings of the Board and the Board committees on which they served.
Board members are expected to attend the Company’s annual meetings. At the Company’s 2012 Annual Meeting, all members of the Board, each of whom were nominees for re-election, were present.
Leadership Structure
The Company has continuously maintained separate positions for Chairman of the Board and for Chief Executive Officer in order to provide an independent and unbiased level of review and oversight of senior management. Leigh J. Abrams serves as Chairman of the Board, Fredric M. Zinn is Chief Executive Officer, and Jason D. Lippert will become Chief Executive Officer on May 10, 2013.
Lead Director
The Board of Directors has elected an independent Director to serve in a lead capacity (Lead Director) to coordinate the activities of the other independent Directors, and to perform any other duties and responsibilities that the Board of Directors may determine. While the Board will elect a Lead Director annually, it is generally expected that he or she will serve for more than one year. James F. Gero is expected to be elected to continue to serve as Lead Director effective May 23, 2013.
The role of the Lead Director includes:
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•
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presiding at executive sessions, with the authority to call meetings of the independent directors;
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•
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functioning as principal liaison on Board-wide issues between the independent directors and both the Chairman and the CEO;
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•
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assuring that there is sufficient time for discussion of all items on Board meeting agendas;
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•
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recommending to the Chairman the retention of outside advisors and consultants who report directly to the Board of Directors; and
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•
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being available for direct communication from stockholders.
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Executive Sessions
The independent Directors meet regularly in executive sessions without Management. An executive session is held in conjunction with each regularly scheduled Board meeting and is led by the Lead Director. Additional executive sessions may be called by the Lead Director in his discretion or at the request of the Board.
Risk Management Oversight
The Company faces a number of material risks, including financial and operational risks. Accordingly, the Company conducts regular enterprise risk management reviews to identify and assess these risks, and to implement effective plans to manage them. Although the entire Board of Directors is directly involved with risk management oversight, the Audit Committee plays a key role. The Company’s Chief Executive Officer and Chief Financial Officer meet regularly with the Audit Committee to discuss risks facing the Company, the status and effectiveness of plans implemented to manage such risks, and new risks as they arise. The Audit Committee regularly reports to the entire Board to apprise the Directors of Management’s efforts in regard to risk management.
Contacting the Board of Directors
Any stockholder, or other interested party, who wishes to communicate with the Board of Directors, or the Lead Director, or our independent Directors as a group, or any member of the Board, may do so electronically by sending an e-mail to
drew@drewindustries.com
or by writing to any Director c/o Drew Industries Incorporated, 200 Mamaroneck Avenue, White Plains, N.Y. 10601. Communications received electronically or in writing will be distributed to the Chairman, Lead Director or the other members of the Board, as appropriate, depending on the facts and circumstances described in communications received. For example, communications regarding accounting, internal accounting, internal accounting controls and auditing matters generally will be forwarded to the Chairman of the Audit Committee.
12
Board Committees
The Company has three standing committees of the Board of Directors: the Audit Committee, the Corporate Governance and Nominating Committee, and the Compensation Committee. All members of each Committee are independent Directors who meet the independence and experience standards of the NYSE. The Board annually selects the Directors who serve on the Committees. Each Committee functions pursuant to a written Charter and written Key Practices adopted by the Board of Directors.
- Audit Committee
The purpose of the Audit Committee of the Board of Directors is to assist the Board in its oversight of (i) the conduct and integrity of the Company’s financial reporting; (ii) the Company’s compliance with legal and regulatory requirements; (iii) the independence, qualifications and performance of the Company’s independent auditor; (iv) risk management; and (v) the performance of the Company’s systems of internal control over financial reporting and disclosure controls and procedures, and the Company’s internal audit function. The Committee also prepares an annual report for inclusion in the Company’s Proxy Statement. The Committee recommends to the Board of Directors, subject to stockholder ratification, the selection of the Company’s independent auditor.
The Audit Committee currently consists of David A. Reed, James F. Gero, Frederick B. Hegi, Jr., John B. Lowe, Jr., and Brendan J. Deely. Mr. Reed serves as Chairman of the Committee and has been determined by the Board of Directors to be an “audit committee financial expert” as defined by the SEC. This Committee held six meetings during the year ended December 31, 2012.
- Corporate Governance and Nominating Committee
The purpose of the Corporate Governance and Nominating Committee of the Board of Directors is to assist the Board in (i) identifying qualified individuals to become Board members; (ii) determining the composition of the Board of Directors and its Committees; (iii) monitoring a process to assess Board effectiveness; (iv) developing and implementing the Company’s corporate governance principles; (v) evaluating potential candidates for executive positions; (vi) overseeing the development of executive succession plans; and (vii) coordinating with the Compensation Committee with respect to compensation of Directors.
The Corporate Governance and Nominating Committee currently consists of Frederick B. Hegi, Jr., James F. Gero, Edward W. Rose, III, David A. Reed, John B. Lowe, Jr., and Brendan J. Deely. Mr. Hegi serves as Chairman of the Committee. This Committee held nine meetings during the year ended December 31, 2012.
The Corporate Governance and Nominating Committee considers candidates for Board membership suggested by members of the Committee and other Board members, as well as by Management and stockholders. In this connection, the Committee considers the composition of the Board with respect to experience, balance of professional interests, required expertise and other factors. The Committee uses the same criteria for evaluating candidates nominated by stockholders as it does for those proposed by Board members or Management. To be considered for membership on the Board, a candidate must meet the following criteria, which are also set forth in the Company’s Governance Principles: (a) should possess the highest personal and professional ethics, integrity and values, and be committed to representing the long-term interests of the stockholders; (b) should have an inquisitive and objective perspective, practical wisdom and mature judgment; (c) must be willing to devote sufficient time to carry out his or her duties and responsibilities effectively; (d) should be committed to serving on the Board for an extended period of time; (e) should be prepared to resign in the event of any significant change in his or her personal circumstances which may impair his or her ability to effectively serve on the Board; (f) directors who also serve as CEOs or in equivalent positions should not serve on more than two Boards of public companies in addition to the Company’s Board; and (g) directors who are not CEOs or equivalent should not serve on more than four Boards of public companies in addition to the Company’s Board.
The Committee seeks candidates who have demonstrated exceptional ability and judgment and who can be most effective, in conjunction with other directors, to collectively serve the long-term interests of our stockholders. The particular experience, qualifications and skills of each nominee described on pages 9 and 10 of this Proxy Statement reflect that our Board, taken as a whole, provides a broad diversity of knowledge of our Company and industry, expertise in finance and investment, competence in accounting and financial reporting, and leadership in business and with socially-responsible organizations.
The Corporate Governance and Nominating Committee met in November 2012 to recommend to the Board each of the nominees for election as directors as set forth herein. Stockholders may recommend a prospective nominee for consideration by the Corporate Governance and Nominating Committee by sending the candidate’s name and qualifications, in writing, to Secretary, Drew Industries Incorporated, 200 Mamaroneck Avenue, White Plains, N.Y. 10601. Recommendations must be received by February 21, 2014 in order for a candidate to be considered for election at the 2014 Annual Meeting.
13
- Compensation Committee
The purpose of the Compensation Committee of the Board of Directors is: (i) to assist the Board in discharging its responsibilities in respect of compensation of the Company’s executive officers; and (ii) to prepare an annual report on executive compensation and a Compensation Discussion and Analysis for inclusion in the Company’s Proxy Statement.
The Compensation Committee currently consists of John B. Lowe, Jr., James F. Gero, Edward W. Rose, III, Frederick B. Hegi, Jr., David A. Reed, and Brendan J. Deely. Mr. Lowe serves as Chairman of the Committee. This Committee held six meetings during the year ended December 31, 2012.
The Compensation Committee is responsible for reviewing the performance and development of the Company’s Management in achieving corporate goals, and to ensure that the Company’s senior executives are compensated consistent with the long-term objectives of the Company as well as competitive practices. This Committee provides oversight and guidance in the development of compensation and benefit programs for senior executives of the Company, negotiates the compensation terms for the Company’s Chief Executive Officer, administers the Company’s Equity Award and Incentive Plan, approves equity awards, and coordinates with the Corporate Governance and Nominating Committee with respect to compensation of Directors. The Compensation Committee ratified the compensation, consisting of salary, incentive bonus, discretionary bonus, equity awards and benefits paid for 2012 to the “named executive officers”, and to the two executive officers of the Company who are not named executive officers. See “Compensation Discussion and Analysis”.
Compensation-Related Risk
To identify risks that could be created by our compensation policies and practices, the Compensation Committee reviews enterprise risk management assessments, and evaluates our controls to determine if they adequately mitigate against compensation related risks. If appropriate, controls are modified or supplemented. The Compensation Committee assessed our executive compensation programs, and concluded that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company. The Compensation Committee believes that our executive compensation programs, including the design of long-term incentive plans, oversight by the Compensation Committee, and sufficiency of control features, prevent unintentional material risk. In addition, stock ownership guidelines, the long-term nature of equity awards, share retention, and incentive compensation forfeiture, taken together, motivate Management to carefully consider risk in making business decisions and evaluating growth opportunities, and mitigate against excessive risk-taking to achieve short-term results.
Stock Options, Deferred Stock Units and Restricted Stock
It has been, and will continue to be, the Company’s policy to obtain stockholder approval for any equity-based compensation plans for Directors, officers and employees. The Company’s existing equity-based compensation plan was approved by stockholders on May18, 2011.
Employees and Directors Guidelines for Business Conduct
The Company has Guidelines for Business Conduct which all management employees and Directors are required to annually sign and to follow in conducting the Company’s business, and a Code of Ethics for Senior Financial Officers governing the conduct of its Chief Executive Officer, the chief executive officer of its subsidiaries, and the financial officers of the Company and its subsidiaries.
Disclosure Committee
The Company has a Disclosure Committee which holds regular quarterly meetings, comprised of executive, financial, operating and legal management personnel. The function of the Disclosure Committee is to participate in developing and implementing disclosure controls and procedures intended to ensure that information required to be disclosed by the Company in public reports is made available to Management and reported within the specified time periods. The Disclosure Committee helps to identify issues and developments which may arise during the quarter that may require disclosure, and reviews certain public disclosure documents prepared by Management. In addition, each quarter, the Company’s key management personnel are required to certify in writing whether or not any matters arose that should be considered for disclosure.
Whistleblower Policy
The Company has a Whistleblower Policy which establishes policies and procedures for reporting of complaints by Directors, officers, employees, and other stakeholders of the Company, on a confidential and anonymous basis, regarding questionable accounting or auditing matters, internal controls, illegal practices, or violations of adopted policies of the Company.
14
The Audit Committee of the Board of Directors currently consists of David A. Reed, James F. Gero, Frederick B. Hegi, Jr., John B. Lowe, Jr., and Brendan J. Deely (the “Committee”). Mr. Reed serves as Chairman of the Committee and has been determined by the Board of Directors to be an “audit committee financial expert” as defined by the SEC. The Committee is responsible for providing independent, objective oversight of the Company’s accounting functions and internal controls.
Management is responsible for the Company’s internal controls and the financial reporting process. KPMG LLP (“KPMG”), the Company’s independent registered public accounting firm, is responsible for performing an audit of the Company’s consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board, and to issue a report thereon. KPMG is also responsible for issuing a report on the effectiveness of the Company’s internal control over financial reporting. As set forth in its Charter, the Committee acts only in an oversight capacity and relies on the work and assurances of Management and other advisors retained by the Company, and KPMG’s opinion on the Company’s consolidated financial statements.
The Committee has met and held discussions with Management and KPMG. Management represented to the Committee that the Company’s consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America, and the Committee has reviewed and discussed with Management their assessment of the effectiveness of the Company’s internal controls over financial reporting. The Committee reviewed and discussed with KPMG the consolidated financial statements, and KPMG’s evaluation of the Company’s internal controls over financial reporting. The Committee also discussed with KPMG the matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees), as amended.
The Committee has received the written disclosures and the letter from KPMG required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent auditor’s communications with the Committee concerning independence, and has discussed with KPMG their independence.
The Committee considered whether non-audit services provided by KPMG are compatible with maintaining their independence. The Committee concluded that non-audit services provided by KPMG during the year ended December 31, 2012, which consisted of tax planning and compliance, and other accounting and audit-related services, were compatible with KPMG’s independence.
Based on the Committee’s discussion with Management and KPMG and the Committee’s review of the representations of Management and the report of KPMG to the Committee, the Committee recommended that the Board of Directors include the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC.
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AUDIT COMMITTEE
David A. Reed, Chairman
James F. Gero
Frederick B. Hegi, Jr.
John B. Lowe, Jr.
Brendan J. Deely
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The foregoing report of the Audit Committee shall not be deemed to be “soliciting material” or to be “filed” with the SEC nor shall this information be incorporated by reference into any future filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, each as amended, except to the extent that the Company specifically incorporates it by reference into a filing.
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Compensation Summary
Our executive compensation policy is designed to enable the Company to attract, motivate and retain highly-qualified senior executives (the “named executive officers” or “NEOs”) capable of superior performance, by providing a competitive compensation opportunity based significantly on performance. Our intent is to provide fair and equitable compensation in a way that rewards these executives for achieving specified financial goals. Our performance-related awards are structured to link a substantial portion of these executives’ total potential compensation to the Company’s performance on both a long-term and short-term basis, to recognize individual contribution as well as overall business results, and to align executive and stockholder interests. A significant portion of the total compensation paid to our NEOs is in the form of long-term equity.
Our compensation policy has demonstrated over time that sound business decisions by these executives are in the best interests of the Company and our stockholders, as well as the executives. Accordingly, we reward performance in excess of pre-established targets of earnings, return on assets, and earnings growth, and we avoid establishing goals that could divert our executives’ attention from the fundamentals of effective and efficient operations.
At the Annual Meeting of Stockholders held on May 24, 2012, our stockholders approved, in an advisory vote, the compensation paid to our NEOs for 2011. In the advisory vote, 99% of the votes cast voted in favor of the 2011 compensation. In addition, the Proxy Statement for the 2012 Meeting contained a detailed description of the compensation plans adopted by the Company for the three-year period 2012-2014. The compensation paid to our NEOs for 2012 was paid in accordance with such plans.
Business Results
For 2012, our net sales were $901 million, 32% higher than 2011 net sales of $681 million. In 2012, the Company reported net income of $37.3 million, or $1.64 per diluted share, including an after-tax charge of $0.9 million related to executive succession and relocation, compared to $30.1 million, or $1.34 per diluted share, for 2011. The increase in net sales in 2012 was due primarily to the increase in industry-wide production of RVs, as well as our introduction of new products, gains in market share, and recent acquisitions. Primarily as a result of costs incurred to support our 32% sales growth, and inefficiencies resulting from hiring and training more than 1,000 new employees, net income, while up 24% from 2011, did not increase proportionately with sales. These inefficiencies are expected to diminish during 2013, in particular in the second half of 2013. Our results of operations are discussed in detail in the accompanying Annual Report.
Impact of Business Results on Compensation
As intended by our pay-for-performance compensation policy, the increase in our 2012 operating profit, net income and return on assets, resulted in a 24% increase in annual NEO performance-based incentive compensation of $2.1 million compared to $1.7 million for 2011.
The following charts illustrate the allocation among the components of 2012 and 2011 total compensation paid to our NEOs, and the portion paid in equity, as set forth in the Summary Compensation Tables.
16
Governance Practices Related to Compensation
In accordance with our governance practices, we have established stock ownership requirements for our NEOs, and we also prohibit them from pledging or selling short any shares of the Company’s Common Stock owned by them. See “Stock Ownership Requirements”.
We do not provide or reimburse our executives for personal use of an airplane, or for financial planning, tax preparation, or home security.
In furtherance of our commitment to pay a significant portion of our equity awards for performance, and for transparency in executive compensation, we have implemented the following:
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*
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At least 50% of the equity awards (in terms of the number of shares) to be granted to the Company’s NEOs will be performance-based, which are earned based on the achievement of pre-established performance targets;
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*
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The performance incentives for such equity awards in 2012 were, and for 2013 will be, based on (i) earnings, (ii) earnings growth, (iii) return on net assets or return on invested capital, depending on the executive’s responsibilities, and (iv) obtaining and utilizing Federal, state and local tax credits and incentives; and
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*
|
The performance metrics for equity awards for subsequent years will be disclosed in the proxy statement for each annual meeting of stockholders during the measurement period in accordance with applicable SEC regulations.
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The Dodd-Frank Act requires companies to adopt a policy that will recapture excess incentive compensation that was paid to certain executives if based on erroneous financial statements (“clawback”). The Act mandates the SEC to issue rules implementing the clawback requirements. The Company intends to adopt a formal clawback policy when the SEC promulgates the final rules. We believe it is prudent and efficient to ensure that we adopt a policy in proper form that is fully compliant with the law and rules, rather than implementing a policy that may require amendment when the final rules are promulgated. However, all awards of incentive compensation are granted subject to the terms of Company’s Equity Award and Incentive Plan, as Amended and Restated. This Plan provides that the Compensation Committee may cancel outstanding awards and require the participant to repay to the Company all or a portion of the gain realized on the exercise of equity awards and the value of other awards in the event of a restatement of the Company’s financial statements.
17
Incentive Compensation Criteria and Practices
The following table outlines our principal incentive compensation criteria and practices which were in effect for 2012, and the reasons for our compensation decisions:
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Our performance criteria
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Reasons for this compensation decision
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Annual
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||
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Return on assets in excess of a pre-established threshold applicable to each year in a multi-year contract period.
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Motivates optimizing asset utilization and annual earnings; and promotes investments in opportunities likely to yield high returns.
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Current-year earnings compared to prior-year earnings.
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Rewards increases in earnings, which benefits the Company and its stockholders. Also impacts thresholds for future earnings targets which motivates executives to invest in opportunities for long-term growth.
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Earnings in excess of a pre-established threshold applicable to each year in a multi-year contract period.
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Provides goal for exceeding a fixed level of earnings.
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Performance compared to performance of the two industries to which we sell our products.
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Rewards superior performance in achieving profitability in excess of expectation based on business conditions in the industries we serve.
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Long-term
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||
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Long-term return on invested capital in excess of a pre-established threshold, payable in long-term deferred stock units (“DSUs”).
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Incentive for effective execution of long-term strategic plans, and long-term management of assets.
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Growth in earnings per share, or operating profit for a multi-year period in excess of a pre-established threshold, payable in equity.
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Incentive for effective execution of long-term strategic plans, and aligns executives’ and stockholders’ long-term interests.
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Our payment practices
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Reason for this payment practice
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Portion of executives’ annual incentive compensation in excess of pre-established amounts payable in DSUs.
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Increases equity ownership to align executive and stockholder long-term interests.
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Portion of CEO’s annual compensation payable in DSUs which are subject to forfeiture to the extent that pre-established objectives for return on invested capital are not achieved.
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CEO is penalized for failing to reach a pre-established goal.
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Annual awards of DSUs that vest over five years or are performance-based.
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Ensures that executives have a continuing personal interest in the long-term success of the Company, and creates a culture of ownership.
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What We Did Not Reward
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•
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We did not reward sales growth because we believe that growth in sales alone, without consideration of the impact of growth on both short-term and long-term earnings, could be achieved in a manner that does not benefit our business and operations.
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•
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We did not grant bonuses for increases in the price of our stock because we believe that stock price is frequently the result of market factors beyond executives’ control.
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•
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We excluded the pre-existing earnings of acquired companies at the date of acquisition from the calculation of the annual incentive awards paid to our CEO and CFO by increasing the threshold levels of base earnings which are not subject to incentive awards.
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18
Principal Elements of Compensation of Named Executive Officers
The principal components of our executive compensation program are base salary, annual and long-term performance-based incentive compensation, annual equity-based awards consisting of DSUs, and other personal benefits. While the components of compensation are considered separately in this discussion, we take into account the full compensation package provided to each of the NEOs.
Base Salaries
Based on a review of the salaries paid to executives with similar responsibilities at comparable companies and on their business experience, the Compensation Committee established levels of base salary for our executives as a fixed component of a market-competitive total compensation opportunity. The level of base salary is a function of the executive’s experience, skills, responsibilities and leadership role within the Company.
Annual Incentive Compensation
Consistent with our emphasis on pay-for-performance compensation programs, in 2011 our Board of Directors adopted, and our stockholders approved, the Drew Industries Incorporated Equity Award and Incentive Plan, as Amended and Restated (as amended, the “Plan”). The Plan authorizes performance-based awards in cash or equity, based on the pre-established performance criteria, and we pay a portion of the performance-based awards in excess of a pre-established amount in DSUs.
Long-term Incentive Compensation
To motivate effective strategic planning, a substantial portion of our executives’ compensation consists of long-term performance-based awards granted in equity to align the interests of our executives and stockholders over a multi-year period.
Annual Equity-Based Awards
To encourage our executives’ long-term ownership of our Common Stock, in accordance with the Plan the Company grants annual awards of DSUs. The DSUs provide for vesting and distribution of shares of our Common Stock, at least 50% based on achieving pre-established performance goals, and the balance at the end of specified periods, subject to earlier distribution upon death, disability, change-in-control of the Company leading to the termination of employment, or involuntary termination of employment without cause. Until shares represented by the DSUs are distributed, the executive does not have any rights of a stockholder of the Company with respect to such shares, other than to receive additional DSUs equivalent in value to any dividends issued to stockholders.
We do not consider as a limiting factor the level of equity ownership of our NEOs or the unvested portion of their prior awards in granting DSUs. On the contrary, we believe that the greater the extent of their equity interest in the Company, the more closely aligned their personal interests become with the interests of our stockholders.
Other Compensation Programs
In order to be competitive with market employment and compensation practices, we maintain the following benefit programs:
- 401(k) Plan
We do not maintain any defined benefit retirement plans or other pension or profit-sharing plans. To provide retirement benefits for executives, the Company maintains a discretionary 401(k) plan, covering all eligible employees, pursuant to which the Company matched a portion of contributions up to the 2012 statutory maximum of $10,000 per employee. The aggregate amount of the Company’s contributions with respect to the NEOs was $40,000 for 2012. Although our 401(k) plan permits profit-sharing contributions, the Company has not made any such contributions to the plan.
- Deferred Compensation Plan
To provide a means for deferral of taxation on compensation, the Company maintains an Executive Non-Qualified Deferred Compensation Plan (“Deferral Plan”) for certain executives, including the NEOs. The Company does not make any contributions to the Deferral Plan but is responsible for certain costs of Deferral Plan administration, which are not significant. Pursuant to the Deferral Plan, the NEOs are eligible to defer all or a portion of their earned base salary and incentive compensation. Each participant is fully vested in all deferred compensation and earnings on investments credited to his or her account because the Deferral Plan participant has made all the contributions. Pursuant to the Deferral Plan, payments to the participants will be made from our general unrestricted assets, and the obligations pursuant to the Deferral Plan are unfunded and unsecured.
19
Perquisites and All Other Benefits
As a competitive employee benefit, we provide employee health insurance in which certain of the NEOs participate, the aggregate cost of which for the NEOs was $30,000 for 2012. We also provided other employee benefits in which the NEOs participate, including life and disability insurance, and either an automobile together with related expenses or an automobile allowance. The aggregate amount of other perquisites for all the NEOs for 2012 was $74,100, and for any individual recipient these perquisites did not exceed $25,200.
Change-in-Control; Severance
The Company has change-in-control agreements and severance agreements with its senior executives. These agreements provide for severance benefits in the event of a change-in-control of the Company leading to a qualifying termination of employment or termination of employment for other than “cause”, as defined.
The Company believes that the agreements serve as appropriate retention tools for these executives by providing security in the event of an unplanned termination of employment in connection with a change-in-control of the Company, or termination for other than cause. Furthermore, from time to time, we examine various strategic alternatives, and the provisions of the agreements are important to retain these key people whose continued employment might be at risk for reasons other than cause. The specific terms of the change-in-control and severance agreements are summarized in “Potential Payments on Termination or Change-in-Control”.
Stock Ownership Requirements
To further align the personal interests of senior executives with the interests of our stockholders, we have established guidelines for ownership of the Company’s Common Stock by the NEOs as a multiple of the executive’s cash salary as of December 31, 2012 as set forth in the following table:
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Named Executive Office
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Multiple of Salary
|
Cash Equivalent
|
||||||
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Fredric M. Zinn,
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3.50 | $ | 2,065,000 | |||||
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President and CEO
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Jason D. Lippert,
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2.50 | $ | 2,000,000 | |||||
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Chairman and CEO of Lippert
Components and Kinro
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Scott T. Mereness,
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2.00 | $ | 1,100,000 | |||||
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President of Lippert Components
and Kinro
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||||||||
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Joseph S. Giordano III,
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1.25 | $ | 375,000 | |||||
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Chief Financial Officer
and Treasurer
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||||||||
At December 31, 2012, all the NEOs were in compliance with the guidelines.
Tax Deductibility of Compensation
Section 162(m) of the Internal Revenue Code (the “Code”) disallows a Federal income tax deduction to publicly-held companies for certain compensation paid to their CEO and the three other most highly compensated NEOs employed at the end of the year (other than the CFO), to the extent that compensation exceeds $1 million per covered officer in any fiscal year. This limitation applies only to compensation which is not considered performance-based under the Section 162(m) rules. The Plan is structured so that performance-based incentive compensation, whether paid in cash or DSUs, or the exercise of options granted under the Plan, will qualify as performance-based compensation which will not be subject to the $1 million limitation, resulting in favorable tax treatment to the Company.
2012 Executive Performance and Compensation
We entered into compensation arrangements with our NEOs for the period January 1, 2012 through December 31, 2014. These arrangements continue our policy of pay-for-performance, and implement compensation practices designed to align executive and stockholder interests.
20
In developing the applicable compensation metrics, the Compensation Committee designed compensation programs for the NEOs which motivate them to achieve specified annual and long-term financial goals, emphasizing earnings, earnings growth, and the returns achieved on invested capital or net assets. In “Compensation Discussion and Analysis - Compensation Summary,” on page 16 of this Proxy Statement, we describe the performance criteria that were applied to determine the compensation of the NEOs, and the reasons for utilizing those criteria.
Fredric M. Zinn, President and CEO
On February 8, 2012, the Company and Mr. Zinn entered into an Executive Compensation and Non-Competition Agreement providing compensation and benefits in consideration for Mr. Zinn’s services as President and Chief Executive Officer of the Company. For the period 2012-2014 (the “Measurement Period”), Mr. Zinn, an employee at-will, would receive the following annual and long-term compensation for the term of the Agreement:
(A) Annual base salary consisting of $590,000;
(B) DSUs representing shares equivalent in value to $150,000 annually (the “Incentive DSUs”); provided, however, that if the average annual return on invested capital (as defined, “ROIC”) for any year during the Measurement Period is less than 18%, Incentive DSUs issued for that year would be forfeited at the rate of 250 DSUs for each 0.1% that the Company’s ROIC for that year is below 18%. For 2012, no such DSUs were forfeited;
(C) Annual performance-based incentive compensation consisting of the following:
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|
(i)
|
$4,000 for each $0.01 that the Company’s adjusted earnings per diluted share (as defined) (“Adjusted EPS”) for each year during the Measurement Period exceed the Company’s Adjusted EPS for the prior year;
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(ii)
|
$4,000 for each $0.01 that the Company’s Adjusted EPS for each year during the Measurement Period exceeds $1.53;
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(iii)
|
$10,000, plus or minus, for each 1% that the increase or decrease in the Company’s Adjusted EPS for each year during the Measurement Period is above or below 1.75 times the Index of Number of Industry Units Sold (as defined); provided, however, that the amount added or subtracted would not exceed 0.6% of the Company’s pre-tax income for the subject year;
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|
|
(iv)
|
For any year during the Measurement Period, the first $590,000 of the aggregate annual performance-based incentive compensation will be paid in cash; 50% of such compensation in excess of $590,000 (the “Excess Amount”) will be paid in DSUs, and 50% of the Excess Amount will be paid in cash. Election by Mr. Zinn to defer receipt of the shares of stock deliverable pursuant to the DSUs must be for a period of not less than three years.
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Based on these pre-established performance targets, for 2012 Mr. Zinn received annual performance-based incentive compensation of $138,813.
(D) Long-term performance-based incentive compensation. Upon expiration of the three-year Measurement Period, Mr. Zinn would be entitled to receive 750 DSUs for each 0.1% that the Company’s ROIC for the Measurement Period exceeds 18%; provided, however, that the total number of DSUs could not exceed 50,000. Election by Mr. Zinn to defer receipt of the shares of stock deliverable pursuant to the DSUs must be for a period of not less than one year;
(E) During the Measurement Period, Mr. Zinn would be entitled to receive certain benefits and perquisites, including 401(K) matching contribution, life insurance, disability insurance, and an automobile, the aggregate cost of which for the Measurement Period is estimated to be approximately $35,000 annually;
(F) Annual DSUs or other equity awards as the Compensation Committee determines. For 2012, Mr. Zinn received 11,200 performance-based DSUs. Such DSUs would vest at the rate of 2% for each $0.01 increase in Adjusted EPS for any year during the five years following the year in which such DSUs were granted (the “Vesting Period”) over Adjusted EPS for the year in which such DSUs are granted, provided that (i) no DSUs would vest for any year for which Adjusted EPS is less than the highest Adjusted EPS for any prior year in the Vesting Period, and (ii) DSUs would vest only to the extent that Adjusted EPS for any year in the Vesting Period exceeds the highest Adjusted EPS for any prior year in the Vesting Period.
21
As part of the executive succession and relocation of our corporate offices to Indiana, Mr. Zinn’s employment will terminate on May 10, 2013. As a result, in accordance with Mr. Zinn’s Compensation Agreement, Mr. Zinn will receive the annual and long-term incentive compensation awards proportionately with respect to the period prior to the date of termination, salary and benefits for two years following termination of employment, and all equity awards, other than long-term incentive compensation awards, will vest on termination of employment.
Jason D. Lippert, Chairman and CEO of Lippert Components and Kinro
On April 9, 2012, the Company and Jason D. Lippert entered into an Executive Employment and Non-Competition Agreement providing compensation and benefits in consideration for Mr. Lippert’s services as Chairman and Chief Executive Officer of Lippert Components and Kinro. In accordance with the executive succession plan, Mr. Lippert was appointed Chief Executive Officer of the Company effective May 10, 2013. Mr. Lippert’s compensation arrangement with the Company remains substantially unchanged.
Mr. Lippert receives the following compensation for the period January 1, 2012 through December 31, 2014 (the “Term”):
(A) Annual base salary consisting of $800,000;
(B) Annual performance-based incentive compensation (the “Annual RONA Bonus”) consisting of the following:
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|
(i)
|
3% of the Operating Profits (as defined) in excess of 18% of Net Assets (as defined) and up to 21% of Net Assets;
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(ii)
|
4% of the Operating Profits in excess of 21% of Net Assets and up to 24% of Net Assets`;
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(iii)
|
5% of the Operating Profits in excess of 24% of Net Assets;
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(iv)
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For any year during the Term, the first $800,000 of the Annual RONA Bonus will be paid in cash; 50% of Annual RONA Bonus in excess of $800,000 (the “Excess Bonus”) will be paid in DSUs, and 50% of the Excess Bonus will be paid in cash. Election by Mr. Lippert to defer receipt of the shares of stock deliverable pursuant to the DSUs must be for a period of not less than three years.
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Based on these pre-established performance targets, for 2012 Mr. Lippert received annual performance-based incentive compensation of $926,096.
(C) Each year Mr. Lippert is granted long-term performance-based incentive compensation pursuant to which he can earn up to 50,000 shares of Common Stock (the “LTI Shares”) for the subsequent three-year Applicable Measurement Period (as defined) as follows:
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|
(i)
|
If Adjusted EPS for the second year of the Applicable Measurement Period exceeds the Benchmark EPS (as defined) by more than 12.5%, then Mr. Lippert is entitled to receive up to 17,000 LTI Shares, in proportion to the percentage increase in such Adjusted EPS over 12.5% up to a percentage increase of 25%;
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|
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(ii)
|
If Adjusted EPS for the third year of the Applicable Measurement Period exceeds the Benchmark EPS by more than 20%, then Mr. Lippert is entitled to receive LTI Shares in proportion to the percentage increase in such Adjusted EPS over 20% up to a percentage increase of 40%, less the number of LTI Shares received with respect to the second year of the Applicable Measurement Period;
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(iii)
|
Any LTI Shares received by Mr. Lippert with respect to the second year of the Applicable Measurement Period cannot be disposed of until the expiration of one year from the date of issue; and all or any LTI Shares received by Mr. Lippert with respect to the third year of the Applicable Measurement Period can be disposed of at any time after issue, provided that Mr. Lippert is in compliance with the Company’s stock ownership requirements following such disposition.
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22
(D) Each year that the Agreement remains in effect, the Compensation Committee will grant to Mr. Lippert 11,200 DSUs. One-half of such DSUs will vest at the rate of 20% each year commencing one year from the date of grant. One-half of such DSUs will vest commencing the January 1 immediately following the date of grant at the rate of 2% for each $0.01 increase in Adjusted EPS for any year during the five years following the year in which such DSUs were granted (the “Vesting Period”) over Adjusted EPS for the year in which such DSUs were granted, provided that (i) no DSUs will vest for any year for which Adjusted EPS is less than the highest Adjusted EPS for any prior year in the Vesting Period, and (ii) DSUs will vest only to the extent that Adjusted EPS for any year in the Vesting Period exceeds the highest Adjusted EPS for any prior year in the Vesting Period;
(E) During the Term, Mr. Lippert is entitled to receive certain benefits and perquisites, including 401(k) matching contribution, disability insurance, and an automobile, the aggregate cost of which for the Term is estimated to be approximately $32,000 annually.
As additional incentive to realize the potential provided by the significant investments in the 2011 acquisitions, new product lines, and expansion into adjacent markets, at the time the Agreement was entered into Mr. Lippert was awarded performance-based DSUs representing 25,000 shares. These DSUs will begin to vest when the annual combined profits of Lippert Components and Kinro (as defined) exceed $67 million and will vest proportionately until annual combined profits reach $87 million, at which point all such DSUs will have vested. The DSUs must be held for at least one year after vesting. In 2012, 3,254 of such DSUs vested.
Scott T. Mereness, President of Lippert Components and Kinro
On April 9, 2012, the Company and Scott T. Mereness entered into an Executive Employment and Non-Competition Agreement providing compensation and benefits in consideration for Mr. Mereness’ services as President of Lippert Components and Kinro. In accordance with the executive succession plan, Mr. Mereness was appointed President and Chief Operating Officer of the Company effective May 10, 2013. Mr. Mereness’ compensation arrangement with the Company remains substantially unchanged.
Mr. Mereness receives the following compensation for the period January 1, 2012 through December 31, 2014 (the “Term”):
(A) Annual base salary consisting of $550,000;
(B) Annual performance-based incentive compensation (the “Annual RONA Bonus”) consisting of the following:
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|
(i)
|
2% of the Operating Profits in excess of 18% of Net Assets and up to 21% of Net Assets;
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|
|
(ii)
|
3% of the Operating Profits in excess of 21% of Net Assets and up to 24% of Net Assets;
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|
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(iii)
|
4% of the Operating Profits in excess of 24% of Net Assets;
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|
|
(iv)
|
For any year during the Term, the first $550,000 of the Annual RONA Bonus will be paid in cash; 50% of Annual RONA Bonus in excess of $550,000 (the “Excess Bonus”) will be paid in DSUs, and 50% of the Excess Bonus will be paid in cash. Election by Mr. Mereness to defer receipt of the shares of stock deliverable pursuant to the DSUs must be for a period of not less than three years.
|
Based on these pre-established performance targets, for 2012 Mr. Mereness received annual performance-based incentive compensation of $694,574.
(C) Each year Mr. Mereness is granted long-term performance-based incentive compensation pursuant to which he can earn up to 35,000 shares of Common Stock (the “LTI Shares”) for the subsequent three-year Applicable Measurement Period as follows:
|
|
(i)
|
If Adjusted EPS for the second year of the Applicable Measurement Period exceeds the Benchmark EPS by more than 12.5%, then Mr. Mereness will be entitled to receive up to 12,000 LTI Shares, in proportion to the percentage increase in such Adjusted EPS over 12.5% up to a percentage increase of 25%;
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23
|
|
(ii)
|
If Adjusted EPS for the third year of the Applicable Measurement Period exceeds the Benchmark EPS by more than 20%, then Mr. Mereness will be entitled to receive LTI Shares in proportion to the percentage increase in such Adjusted EPS over 20% up to a percentage increase of 40%, less the number of LTI Shares received with respect to the second year of the Applicable Measurement Period;
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(iii)
|
Any LTI Shares received by Mr. Mereness with respect to the second year of the Applicable Measurement Period cannot be disposed of until the expiration of one year from the date of issue; and all or any LTI Shares received by Mr. Mereness with respect to the third year of the Applicable Measurement Period can be disposed of at any time after issue, provided that Mr. Mereness is in compliance with the Company’s stock ownership requirements following such disposition.
|
(D) Each year that the Agreement remains in effect, the Compensation Committee will grant to Mr. Mereness 8,800 DSUs. One-half of such DSUs will vest at the rate of 20% each year commencing one year from the date of grant. One-half of such DSUs will vest at the rate of 2% for each $0.01 increase in Adjusted EPS for any year during the five years following the year in which such DSUs were granted (the “Vesting Period”) over Adjusted EPS for the year in which such DSUs are granted, provided that (i) no DSUs will vest for any year for which Adjusted EPS is less than the highest Adjusted EPS for any prior year in the Vesting Period, and (ii) DSUs will vest only to the extent that Adjusted EPS for any year in the Vesting Period exceeds the highest Adjusted EPS for any prior year in the Vesting Period;
(E) During the Term, Mr. Mereness will be entitled to receive certain benefits and perquisites, including 401(k) matching contribution, disability insurance, and an automobile, the aggregate cost of which for the Term is estimated to be approximately $24,000 annually.
As additional incentive to realize the potential provided by the significant investments in the 2011 acquisitions, new product lines, and expansion into adjacent markets, at the time the Agreement was entered into Mr. Mereness was awarded performance-based DSUs representing 15,000 shares. These DSUs will begin to vest when the annual combined profits of Lippert Components and Kinro exceed $67 million and will vest proportionately until annual combined profits reach $87 million, at which point all such DSUs will have vested. The DSUs must be held for at least one year after vesting. In 2012, 1,952 of such DSUs vested.
Joseph S. Giordano III, CFO and Treasurer
On February 10, 2012, the Company and Joseph S. Giordano III entered into an Executive Compensation and Non-Competition Agreement (the “Initial Agreement”) providing compensation and benefits in consideration for Mr. Giordano’s services as Chief Financial Officer and Treasurer of the Company. The term of the Initial Agreement was for the period 2012-2014 (the “Measurement Period”). In April, 2013, in connection with the executive succession and the assumption by Mr. Giordano of additional functions and responsibilities, the Initial Agreement was amended for 2013-2014. Mr. Giordano, an employee at-will, received the following compensation for 2012:
(A) Annual base salary consisting of $300,000;
(B) Annual performance-based incentive compensation consisting of the following:
|
|
(i)
|
$2,000 for each $0.01 that the Company’s Adjusted EPS exceeded $1.39, the Company’s Adjusted EPS for 2011;
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|
|
(ii)
|
$2,000 for each $0.01 that the Company’s Adjusted EPS exceeded $1.53;
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|
|
(iii)
|
$5,000, plus or minus, for each 1% that the increase or decrease in the Company’s Adjusted EPS was above or below 1.75 times the Index of Number of Industry Units Sold; provided, however, that the amount added or subtracted will not exceed 0.3% of the Company’s pre-tax income for the year;
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|
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(iv)
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1% of the entitlement, special refund, reduction to, or credit against, any income or property tax otherwise due to Federal, state or local taxing authorities (each or, collectively, “Savings”) obtained as a result of initiatives taken by or under the direction of Mr. Giordano and granted by the taxing authority during 2012, which Savings are reasonably likely to be realized by the Company within five (5) years of the date granted;
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24
|
|
(v)
|
5% of any Savings granted since January 1, 2009 which was utilized by the Company during 2012;
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|
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(vi)
|
For 2012, the first $250,000 of the aggregate annual performance-based incentive compensation was to be paid in cash; 50% of such compensation in excess of $250,000 (the “Excess Amount”) was to be paid DSUs and 50% of the Excess Amount was to be paid in cash. Election by Mr. Giordano to defer receipt of the shares of stock deliverable pursuant to the DSUs must be for a period of not less than three years.
|
Based on these pre-established performance targets, for 2012 Mr. Giordano received annual performance-based incentive compensation of $156,723.
(C) Long-term performance-based incentive compensation. Upon expiration of the three-year Measurement Period, Mr. Giordano will be entitled to receive 300 DSUs for each 0.1% that the Company’s ROIC for the Measurement Period exceeds 18%; provided, however, that the total number of DSUs will not exceed 15,000. Election by Mr. Giordano to defer receipt of the shares of stock deliverable pursuant to the DSUs must be for a period of not less than one year;
(D) During the Measurement Period, Mr. Giordano is entitled to receive certain benefits and perquisites, including 401(K) matching contribution, health insurance, disability insurance, and an automobile, the aggregate cost of which for the Measurement Period is estimated to be approximately $53,000 annually;
(E) Annual DSUs or other equity awards as the Compensation Committee determines. For 2012, Mr. Giordano received 7,200 DSUs. One-half of such DSUs will vest at the rate of 20% each year commencing one year from the date of grant. One-half of such DSUS will vest at the rate of 2% for each $0.01 increase in Adjusted EPS for any year during the five years following the year in which such DSUs were granted (the “Vesting Period”) over Adjusted EPS for the year in which such DSUs are granted, provided that (i) no DSUs will vest for any year for which Adjusted EPS is less than the highest Adjusted EPS for any prior year in the Vesting Period, and (ii) DSUs will vest only to the extent that Adjusted EPS for any year in the Vesting Period exceeds the highest Adjusted EPS for any prior year in the Vesting Period.
For 2013 and 2014, Mr. Giordano will receive the following:
|
|
(A)
|
Annual base salary at the rate of $300,000 to May 10, 2013, and at the rate of $360,000 for the balance of the Measurement Period;
|
|
|
(B)
|
Annual performance-based incentive compensation (the “Annual RONA Bonus”) consisting of the following:
|
|
|
(i)
|
0.80% of the Operating Profits in excess of 18% of Net Assets and up to 21% of Net Assets;
|
|
|
(ii)
|
0.85% of the Operating Profits in excess of 21% of Net Assets and up to 24% of Net Assets;
|
|
|
(iii)
|
0.90% of the Operating Profits in excess of 24% of Net Assets.
|
In addition, Mr. Giordano will receive the following:
|
|
(iv)
|
1% of the entitlement, special refund, reduction to, or credit against, any income or property tax otherwise due to Federal, state or local taxing authorities (each or, collectively, “Savings”) obtained as a result of initiatives taken by or under the direction of Mr. Giordano and granted during 2013 by the taxing authority, which Savings are reasonably likely to be realized by the Company within five (5) years of the date granted;
|
|
|
(v)
|
5% of any Savings granted since January 1, 2009 which is utilized by the Company during 2013;
|
25
|
|
(vii)
|
The first $300,000 of the aggregate amount payable pursuant to clauses (i) through (v) will be paid in cash; 50% of such amount in excess of $300,000 (the “Excess Bonus”) will be paid in DSUs, and 50% of the Excess Bonus will be paid in cash. Election by Mr. Giordano to defer receipt of the shares of stock deliverable pursuant to the DSUs must be for a period of not less than three years;
|
|
|
(C)
|
Mr. Giordano’s long-term incentive award remains unchanged;
|
|
|
(D)
|
Mr. Giordano’s benefits and perquisites remain unchanged;
|
(E) Each year that the Agreement remains in effect, the Compensation Committee will grant to Mr. Giordano 7,200 DSUs. One-half of such DSUs will vest at the rate of 20% each year commencing one year from the date of grant. One-half of such DSUS will vest commencing January 1 immediately following the date of grant at the rate of 2% for each $0.01 increase in Adjusted EPS for any year during the five years following the year in which such DSUs were granted (the “Vesting Period”) over Adjusted EPS for the year in which such DSUs are granted, provided that (i) no DSUs will vest for any year for which Adjusted EPS is less than the highest Adjusted EPS for any prior year in the Vesting Period, and (ii) DSUs will vest only to the extent that Adjusted EPS for any year in the Vesting Period exceeds the highest Adjusted EPS for any prior year in the Vesting Period.
In connection with the executive succession, to provide an inducement for Mr. Giordano to relocate to Indiana and waive his contractual right to severance pay as a result of the relocation, the Company sought to provide a relocation package for Mr. Giordano generally consistent with levels at other companies with which we compete for executive talent. To determine the nature and extent of a competitive relocation package, the Company relied on data collected and analyzed by Pay Governance, LLC, the Company’s independent compensation consultant (the “Compensation Consultant”). The Compensation Consultant provided practices regarding relocation benefits based on third-party surveys of a broad range of companies. Based on the information furnished by the Compensation Consultant, we provided Mr. Giordano a relocation package consisting of a relocation bonus of $120,000 plus reimbursement of all expenses incurred in selling his current home, finding a new home, and moving. If Mr. Giordano terminates his employment before June 30, 2014, and provided that he has given the Company notice of termination at least 120 days prior to the termination date, Mr. Giordano will be provided reimbursement of all expenses incurred in selling his then current home, finding a new home, and moving.
Compensation Process
The Compensation Committee is responsible for reviewing the performance of our executive officers in achieving our long-term business objectives, and ensuring that such executives are compensated consistent with the objectives, as well as competitive practices. The Committee provides oversight and guidance in the development of compensation and benefit programs for our senior executives, and confirms that compensation paid to those NEOs who have employment agreements is in compliance with the agreements.
The Company’s independent Compensation Consultant assisted the Compensation Committee in developing the compensation programs for Messrs. Zinn, Lippert, Mereness and Giordano for the period 2012-2014, and the revised program for Mr. Giordano for 2013-2014. See “2012 Executive Performance and Compensation”.
The Compensation Consultant provides no services or advice to any executive or employee of the Company, and provided no other services to the Company for 2012.
The Compensation Committee periodically reviews our compensation policy utilizing both internal and external sources of information and analysis relating to financial results of operations, individual performance, long-term return to stockholders, compensation related risk assessment, and compensation afforded by other employers to comparable-level executives. If appropriate, changes are recommended. Our pay-for-performance incentive compensation programs have over many years effectively linked executive compensation to our long-term and short-term performance.
Total Compensation Report
Compensation “tally sheets” for each of the NEOs were reviewed by the Compensation Committee. The tally sheets reflected dollar amounts of all components of the NEOs’ 2012 compensation, including base salary, annual and long-term performance-based incentive awards, annual equity-based awards, personal benefits, perquisites and, where applicable, potential change-in-control severance payments. Based on the Compensation Committee’s review of the tally sheets, the Compensation Committee determined that the amounts of compensation paid to our NEOs for 2012 were reasonable, and were appropriate based on our financial results of operations and the individual performance of each of the executives. The Compensation Committee intends to review compensation tally sheets on an annual basis.
26
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with Management and based on such discussion, the Compensation Committee recommended that the Board of Directors include the Compensation Discussion and Analysis in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC.
|
COMPENSATION COMMITTEE
|
|
|
John B. Lowe, Jr., Chairman
|
|
|
Edward W. Rose, III
James F. Gero
|
|
|
Frederick B. Hegi, Jr.
|
|
|
David A. Reed
|
|
|
Brendan J. Deely
|
The foregoing Compensation Committee Report shall not be deemed to be “soliciting material” or to be “filed” with the SEC nor shall this information be incorporated by reference into any future filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, each as amended, except to the extent that the Company specifically incorporates it by reference into a filing.
27
The following table sets forth the annual compensation awarded to or earned by our President and Chief Executive Officer, our Chief Financial Officer, and our two other most highly compensated executive officers (such four executive officers collectively, the “named executive officers”) for the years ended December 31, 2012, 2011 and 2010:
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
||||||||||||||||||||||||
|
Name and
Principal Position
|
Year
|
Salary
|
Bonus
|
Stock
Awards
|
Option
Awards
(1)
|
Non-Equity
Incentive
Plan
Compen-
sation
|
Long-Term
Incentive
Compen-
sation
|
All Other
Compen-
sation
(6)
|
Total
|
||||||||||||||||||||||||
|
Fredric M. Zinn
(2)
|
2012
|
$ | 590,000 | $ | - | $ | 491,600 | $ | - | $ | 138,813 | $ | 1,349,000 | $ | 35,232 | $ | 2,604,645 | ||||||||||||||||
|
President and Chief
|
2011
|
$ | 500,000 | $ | - | $ | 524,380 | $ | - | $ | - | $ | - | $ | 75,000 | $ | 1,099,380 | ||||||||||||||||
|
Executive Officer
|
2010
|
$ | 500,000 | $ | - | $ | 354,847 | $ | 331,113 | $ | 482,660 | $ | - | $ | 75,820 | $ | 1,744,440 | ||||||||||||||||
|
Joseph S. Giordano III
(3)
|
2012
|
$ | 300,000 | $ | - | $ | 219,600 | $ | - | $ | 156,723 | $ | 398,100 | $ | 52,663 | $ | 1,127,086 | ||||||||||||||||
|
Chief Financial Officer and
|
2011
|
$ | 250,000 | $ | 55,000 | $ | 232,384 | $ | - | $ | 53,609 | $ | - | $ | 69,667 | $ | 660,660 | ||||||||||||||||
|
Treasurer
|
2010
|
$ | 230,000 | $ | 65,000 | $ | 60,000 | $ | 180,490 | $ | - | $ | - | $ | 82,767 | $ | 618,257 | ||||||||||||||||
|
Jason D. Lippert
(4)
|
2012
|
$ | 800,000 | $ | - | $ | 1,076,648 | $ | - | $ | 863,048 | $ | 1,344,000 | $ | 32,391 | $ | 4,116,087 | ||||||||||||||||
|
Chairman and Chief
|
2011
|
$ | 700,000 | $ | - | $ | - | $ | 204,932 | $ | 882,337 | $ | - | $ | 73,883 | $ | 1,861,152 | ||||||||||||||||
|
Executive Officer of Lippert
|
2010
|
$ | 700,000 | $ | - | $ | 529,887 | $ | 337,977 | $ | 1,429,887 | $ | - | $ | 71,640 | $ | 3,069,391 | ||||||||||||||||
|
Components and Kinro
|
|||||||||||||||||||||||||||||||||
|
Scott T. Mereness
(5)
|
2012
|
$ | 550,000 | $ | - | $ | 743,887 | $ | - | $ | 622,287 | $ | 940,800 | $ | 23,857 | $ | 2,880,831 | ||||||||||||||||
|
President of Lippert
|
2011
|
$ | 420,000 | $ | - | $ | 141,703 | $ | 161,018 | $ | 387,700 | $ | - | $ | 54,281 | $ | 1,164,702 | ||||||||||||||||
|
Components and Kinro
|
2010
|
$ | 420,000 | $ | - | $ | 355,035 | $ | 270,087 | $ | 820,829 | $ | - | $ | 48,166 | $ | 1,914,117 | ||||||||||||||||
|
(1)
|
Amounts shown do not reflect compensation actually received. Amounts shown include:
|
|
|
a.
|
The aggregate fair value of stock options granted during the year.
|
|
|
b.
|
The aggregate fair value of the modification to the stock option exercise price on December 28, 2010, the date on which the Compensation Committee of the Board of Directors reduced by $1.50 the exercise price of all stock options outstanding on that date. The modification was made as a result of the special cash dividend of $1.50 per share of Common Stock paid on December 28, 2010 to record holders of the Company’s Common Stock on December 20, 2010.
|
See Note 13 of Notes to Consolidated Financial Statements included in our 2012 Annual Report on Form 10-K for the assumptions used in determining the fair value based on the Black-Scholes option-pricing model.
|
(2)
|
Salary – includes $50,000 of salary, paid $12,500 quarterly in DSUs for each of 2010 and 2011. See Grants of Plan-Based Awards Table.
|
Stock Awards – excludes $50,000 of salary, paid $12,500 quarterly in DSUs for 2010 and 2011. Includes performance-based incentive compensation of $200,000 paid in DSUs for each of 2010 and 2011, subject to forfeiture. Based on the Company’s performance, no such DSUs were forfeited. Includes performance-based incentive compensation of $150,000 paid in DSUs for 2012, subject to forfeiture if the average annual return on invested capital (as defined) for 2012 was less than 18%. Based on the Company’s performance, no such DSUs were forfeited. In addition, 2010 includes performance-based incentive compensation of $154,847 paid in DSUs in lieu of cash compensation, and 2011 and 2012 includes 14,000 and 11,200 performance-based DSUs awarded having a value of $324,380 and $341,600, respectively, on the date of grant. See Grants of Plan-Based Awards Table.
Long-Term Incentive Compensation – upon expiration of the three-year period January 1, 2012 through December 31, 2014 (the “Measurement Period”), Mr. Zinn would be entitled to receive 750 DSUs for each 0.1% that the Company’s average return on invested capital (“ROIC”) for the Measurement Period exceeds 18%; provided, however, that the total number of DSUs could not exceed 50,000 for the three-year Measurement Period. Amount shown represents the three-year aggregate date grant fair value. See Grants of Plan-Based Awards Table. In connection with the executive succession plan, Mr. Zinn will retire effective May 10, 2013, and as a result will receive only a proportionate amount of this award.
|
(3)
|
Stock Awards – includes discretionary bonus paid in DSUs in lieu of cash compensation for 2010. The 2011 amount is comprised of 7,500 DSUs, 50% of which are performance-based, having a value of $173,775 on the date of grant, and performance-based incentive compensation of $58,609 paid in DSUs. The 2012 amount is comprised of 7,200 DSUs, 50% of which are performance-based, having a value of $219,600 on the date of grant. See Grants of Plan-Based Awards Table.
|
28
Long-Term Incentive Compensation – upon expiration of the three-year period January 1, 2012 through December 31, 2014 (the “Measurement Period”), Mr. Giordano is entitled to receive 225 DSUs for each 0.1% that the Company’s average return on invested capital (“ROIC”) for the Measurement Period exceeds 18%; provided, however, that the total number of DSUs cannot exceed 15,000 for the three-year Measurement Period. Amount shown represents the three-year aggregate grant date fair value. See Grants of Plan-Based Awards Table.
|
(4)
|
Stock Awards – represents performance-based incentive compensation paid in DSUs for 2010. The 2012 amount is comprised of 11,200 DSUs, 50% of which are performance-based, having a value of $341,600 on the date of grant, and performance-based incentive compensation of $63,048 paid in DSUs. In addition, in 2012, at the time Mr. Lippert entered into his current employment agreement, Mr. Lippert was awarded performance-based DSUs representing 25,000 shares having a value of $672,000 on the date of grant. These DSUs will begin to vest when the annual combined profits of Lippert Components and Kinro (as defined) exceed $67 million and will vest proportionately until annual combined profits reach $87 million, at which point all such DSUs will have vested. See Grants of Plan-Based Awards Table.
|
Long-Term Incentive Compensation – each year Mr. Lippert is granted long-term performance-based incentive compensation pursuant to which he can earn up to 50,000 shares of Common Stock (the “LTI Shares”) for the subsequent three-year period (as defined) (the “Applicable Measurement Period”). If Adjusted EPS (as defined) for the third year of the Applicable Measurement Period exceeds the Benchmark EPS (as defined) by more than 20%, then Mr. Lippert is entitled to receive LTI Shares in proportion to the percentage increase in such Adjusted EPS over 20% up to a percentage increase of 40%. Amount shown represents the three-year aggregate grant date fair value. See Grants of Plan-Based Awards Table.
|
(5)
|
Salary – includes $60,000, paid $15,000 quarterly in DSUs for each of 2010 and 2011. See Grants of Plan-Based Awards Table.
|
Stock Awards – excludes $60,000 of salary, paid $15,000 quarterly in DSUs for each of 2010 and 2011. The 2012 amount is comprised of 8,800 DSUs, 50% of which are performance-based, having a value of $268,400 on the date of grant, and performance-based incentive compensation of $72,287 paid in DSUs. In addition, in 2012, at the time Mr. Mereness entered into his current employment agreement, Mr. Mereness was awarded performance-based DSUs representing 15,000 shares having a value of $403,200 on the date of grant. These DSUs will begin to vest when the annual combined profits of Lippert Components and Kinro (as defined) exceed $67 million and will vest proportionately until annual combined profits reach $87 million, at which point all such DSUs will have vested. See Grants of Plan-Based Awards Table.
Long-Term Incentive Compensation – each year Mr. Mereness is granted long-term performance-based incentive compensation pursuant to which he can earn up to 35,000 shares of Common Stock (the “LTI Shares”) for the subsequent three-year period (as defined) (the “Applicable Measurement Period”). If Adjusted EPS (as defined) for the third year of the Applicable Measurement Period exceeds the Benchmark EPS (as defined) by more than 20%, then Mr. Mereness is entitled to receive LTI Shares in proportion to the percentage increase in such Adjusted EPS over 20% up to a percentage increase of 40%. Amount shown represents the three-year aggregate grant date fair value. See Grants of Plan-Based Awards Table.
|
(6)
|
Includes the following payments the Company made to or on behalf of our NEOs:
|
|
Name
|
Year
|
401(k)
Matching
Contribution
|
Supplemental
Restricted
Bonus
(A)
|
Health
Insurance
|
Other
Perquisites
(B)
|
Total All
Other
Compensation
|
|||||||||||||||
|
Fredric M. Zinn
|
2012
|
$
|
10,000
|
$
|
-
|
$
|
-
|
$
|
25,232
|
$
|
35,232
|
||||||||||
|
2011
|
$
|
9,800
|
$
|
24,600
|
$
|
-
|
$
|
40,600
|
$
|
75,000
|
|||||||||||
|
2010
|
$
|
9,800
|
$
|
24,600
|
$
|
-
|
$
|
41,420
|
$
|
75,820
|
|||||||||||
|
Joseph S. Giordano III
|
2012
|
$
|
10,000
|
$
|
-
|
$
|
27,087
|
$
|
15,576
|
$
|
52,663
|
||||||||||
|
2011
|
$
|
9,800
|
$
|
15,000
|
$
|
29,331
|
$
|
15,536
|
$
|
69,667
|
|||||||||||
|
2010
|
$
|
9,800
|
$
|
15,000
|
$
|
42,254
|
$
|
15,713
|
$
|
82,767
|
|||||||||||
|
Jason D. Lippert
|
2012
|
$
|
10,000
|
$
|
-
|
$
|
1,473
|
$
|
20,918
|
$
|
32,391
|
||||||||||
|
2011
|
$
|
9,800
|
$
|
40,000
|
$
|
2,238
|
$
|
21,845
|
$
|
73,883
|
|||||||||||
|
2010
|
$
|
9,800
|
$
|
40,000
|
$
|
1,452
|
$
|
20,388
|
$
|
71,640
|
|||||||||||
|
Scott T. Mereness
|
2012
|
$
|
10,000
|
$
|
-
|
$
|
1,473
|
$
|
12,384
|
$
|
23,857
|
||||||||||
|
2011
|
$
|
9,800
|
$
|
25,000
|
$
|
2,042
|
$
|
17,439
|
$
|
54,281
|
|||||||||||
|
2010
|
$
|
9,800
|
$
|
25,000
|
$
|
1,452
|
$
|
11,914
|
$
|
48,166
|
|||||||||||
29
|
|
(A)
|
In 2010 and 2011, our NEOs received a taxable bonus payment which they were required to invest in tax deferred annuities or cash value life insurance intended to provide retirement income.
|
|
|
(B)
|
Other perquisites included personal use of a company car or auto allowance, spousal travel for Company events, and long-term care, life, and long-term disability insurance.
|
The following table summarizes the DSUs and stock awards granted to the NEOs in 2012:
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
||||||||||||||||
|
Estimated Future Payouts Under
Equity Incentive Plan Awards
|
All Other
Stock
Awards:
Number of
Shares of
|
Grant Date
Fair Value of
Stock and
|
||||||||||||||||||||
|
Name
|
Grant
Date
|
Threshold
|
Target
|
Maximum
|
Stock or
Units
|
Option
Awards
|
||||||||||||||||
|
Fredric M. Zinn
|
2/20/13
|
- | - | - | 4,185 | (1) | $ | 150,000 | ||||||||||||||
|
12/20/12
|
- | - | - | 12,891 | (3) | $ | 429,495 | |||||||||||||||
|
11/20/12
|
(4) | (4) | 11,200 | (4) | - | $ | 341,600 | |||||||||||||||
|
2/8/12
|
(4) | (4) | 50,000 | (4) | - | $ | 1,349,000 | |||||||||||||||
|
Joseph S. Giordano III
|
12/20/12
|
- | - | - | 2,462 | (3) | $ | 82,008 | ||||||||||||||
|
11/20/12
|
(4) | (4) | 3,600 | (4) | 3,600 | (6) | $ | 219,600 | ||||||||||||||
|
2/10/12
|
(4) | (4) | 15,000 | (4) | - | $ | 398,100 | |||||||||||||||
|
Jason D. Lippert
|
2/20/13
|
- | - | - | 1,759 | (2) | $ | 63,048 | ||||||||||||||
|
12/20/12
|
- | - | - | 3,547 | (3) | $ | 218,178 | |||||||||||||||
|
11/20/12
|
(4) | (4) | 5,600 | (4) | 5,600 | (6) | $ | 341,600 | ||||||||||||||
|
4/9/12
|
(4) | (4) | 25,000 | (4) | - | $ | 672,000 | |||||||||||||||
|
4/9/12
|
(5) | (5) | 50,000 | (5) | - | $ | 1,344,000 | |||||||||||||||
|
Scott T. Mereness
|
2/20/13
|
- | - | - | 3,017 | (2) | $ | 72,287 | ||||||||||||||
|
12/20/12
|
- | - | - | 3,097 | (3) | $ | 173,172 | |||||||||||||||
|
11/20/12
|
(4) | (4) | 4,400 | (4) | 4,400 | (6) | $ | 268,400 | ||||||||||||||
|
4/9/12
|
(4) | (4) | 15,000 | (4) | - | $ | 403,200 | |||||||||||||||
|
4/9/12
|
(5) | (5) | 35,000 | (5) | - | $ | 940,800 | |||||||||||||||
|
(1)
|
Performance-based incentive compensation of $150,000 paid in DSUs, subject to forfeiture if the average annual return on invested capital (as defined) for 2012 was less than 18%. Based on the Company’s performance, no such DSUs were forfeited.
|
|
(2)
|
Performance-based incentive compensation earned in 2012, paid in DSUs in lieu of cash compensation.
|
|
(3)
|
On December 20, 2012, a special cash dividend of $2.00 per share of the Company’s Common Stock was paid to stockholders of record on December 10, 2012. In connection with the special cash dividend, holders of DSUs were credited with DSUs equal in value to $2.00 per DSU then held, as provided in the DSU award agreements.
|
|
(4)
|
DSUs that vest based on achievement of specified performance conditions. See “Compensation Discussion and Analysis - 2012 Executive Performance and Compensation”.
|
|
(5)
|
Stock awards that vest upon achievement of specified performance conditions. See “Compensation Discussion and Analysis - 2012 Executive Performance and Compensation”.
|
|
(6)
|
DSU awards that vest 20% per year on the first through the fifth anniversaries of the respective grant date.
|
Grants of Plan-Based Awards
In addition to equity awards granted as part of salary and performance-based incentive compensation, DSUs were awarded to employees in November 2012 (collectively, the “November 2012 DSUs”). The Company’s practice is to grant equity awards to employees every year at our regular Board and Committee meetings in November. We believe that the November 2012 DSUs granted to our executives and employees constitute an effective incentive to achieving long-term success of the Company, and are an important compensation component to our executives and employees. The number of DSUs is determined based upon the fair market value of the stock on the date granted. DSUs provide for the distribution of shares of our Common Stock, subject to earlier distribution upon death, disability, certain instances of termination of employment without cause, or certain changes-in-control of the Company. Our regular November meeting date is scheduled almost a year in advance. Accordingly, the granting of the November 2012 DSUs, as well as the applicable stock price, were determined independent of any general market conditions at that time or intervening Company events which could have affected the market price of our stock on that date.
30
The number of the November 2012 DSUs granted to each of our NEOs for 2012 was a function of both (i) specific pre-established measures of corporate operating performance utilized to determine incentive awards pursuant to compensation arrangements, and (ii) consideration by the Compensation Committee of factors and events relative to the Company’s performance, the expense related to the November 2012 DSUs, resulting dilution, the element of motivation that equity awards provide, and other factors.
Prior to granting the November 2012 DSUs, the Compensation Committee determined the total number of shares that would be subject to the awards and the related value which would result in a reasonable expense to the Company relative to our operating results. The Committee then allocated the November 2012 DSUs for a portion of those shares to the Company’s NEOs. Mr. Zinn then allocated the balance of the shares subject to the November 2012 DSUs to employees at the Company’s corporate headquarters, and to Lippert Components and Kinro. Mr. Lippert then allocated the November 2012 DSUs among the other executives and employees of Lippert Components and Kinro, subject to approval of the Committee.
The 177,925 shares subject to the November 2012 DSUs which were granted to employees in 2012 represented 0.8% of the Company’s outstanding shares on the grant date. In November 2012, the four NEOs received aggregate awards for 38,400 shares representing 22% of the total shares granted to all employees in 2012. The aggregate expense to the Company applicable to the November 2012 DSUs to the NEOs is $1,171,200, which will be expensed over the vesting term of the November 2012 DSUs. At least 50% of the November 2012 DSUs granted to each of the NEOs was performance-based.
To enhance the retention value of the Company’s executives, the Committee requires that NEOs hold for at least one year stock received upon exercise of vested stock options, unless the NEO already owns a number of shares at least equivalent to the shares to be sold by the NEO on exercise of options.
Equity Award and Incentive Plan
On May 18, 2011, stockholders approved the Drew Industries Incorporated Equity Award and Incentive Plan, as Amended and Restated (as amended, the “Plan”).
Summary of the Plan
The following description of the material features of the Plan is qualified in its entirety by reference to the full text of the Plan.
Shares Available
. Subject to adjustment in the event of stock splits, stock dividends, and other extraordinary events, the maximum number of shares available under the Plan is 1,530,000, reduced by shares subject to awards granted under the Plan, and granted under the previous 2002 Equity Award and Incentive Plan (the “Previous Plan”) after December 31, 2010, by (i) 1.60 shares for each share subject to awards other than stock options and stock appreciation rights “(SARs)” and (ii) one share for each share subject to awards of stock options and SARs. Shares subject to awards under the Plan, and after December 31, 2010 under the Previous Plan, that are cancelled, expired, forfeited, settled in cash, or otherwise terminated without delivery of shares to a participant, and shares tendered or withheld for tax withholding for awards other than stock options and SARs, will be added back to the shares available under the Plan as 1.60 shares for each share that is cancelled, expires, forfeited, settled in cash, otherwise terminated, or tendered or withheld.
The following shares will not be added to the shares available under the Plan: (i) shares subject to awards under the Plan, and shares subject to awards after December 31, 2010 under the Previous Plan, that are tendered or withheld by us in payment of the exercise price of stock options and SARs, (ii) shares subject to awards under the Plan, and shares subject to awards after December 31, 2010 under the Previous Plan, that are tendered or withheld by us for tax withholding with respect to stock options and SARs, (iii) shares subject to SARs under the Plan, and shares subject to awards after December 31, 2010 under the Previous Plan, that are not issued in connection with the stock settlement of SARs, and (iv) shares reacquired by us after December 31, 2010 using cash proceeds from the exercise of stock options.
Shares subject to awards granted in substitution for awards of a company or business acquired by the Company or a subsidiary or affiliate will not count against the number of shares available under the Plan. In addition, shares remaining available under a plan approved by stockholders of a company acquired by the Company or a subsidiary or affiliate (adjusted to reflect the exchange or valuation ratio in the acquisition or combination) may be used for awards to employees of the acquired company under the Plan and will not reduce the shares available under the Plan. Shares delivered under the Plan may be either newly issued or treasury shares.
31
Limitation on Awards.
The Plan includes limitations on awards to any one participant in order to qualify awards as performance-based compensation that is not subject to the limitation on deductibility under Code Section 162(m). Under this per-person limitation, no Participant may (i) be granted more than 1,000,000 shares subject to stock options or SARs in any 12-month period, (ii) earn for each 12 months in the vesting or performance period more than 500,000 shares for awards other than stock options and SARs that are intended to satisfy the performance-based compensation exception and are denominated in shares, and (iii) earn for each 12 months in the vesting or performance period more than $5,000,000 for awards other than stock options and SARs that are intended to satisfy the performance-based compensation exception and are denominated in cash. The share limitations are subject to adjustment for splits and other extraordinary corporate events.
The Plan is not subject to the provisions of the Employee Retirement Income Security Act of 1974.
Eligibility
. Executive officers and other employees of the Company and its subsidiaries and affiliates, and independent Directors, consultants and others who provide substantial services to the Company and its subsidiaries and affiliates, are eligible to be granted awards under the Plan. In addition, any person who has been offered employment by the Company or a subsidiary or affiliate may be granted awards, but such prospective employee may not receive any payment or exercise any right relating to the award until he or she has commenced employment.
Administration
. The Plan is administered by the Compensation Committee, except that the Board of Directors (“Board”) may appoint any other committee to administer the Plan and may itself act to administer the Plan. The Board must perform the functions of the Committee for purposes of granting awards to independent Directors. (References to the “Committee” in this discussion mean the Committee or the full Board exercising authority with respect to a given award.) Subject to the terms and conditions of the Plan, the Committee is authorized to select participants, determine the type and number of awards to be granted and the number of shares to which awards will relate or the amount of a performance award, specify times at which awards will be exercisable or settled, including performance conditions that may be required as a condition thereof, set other terms and conditions of such awards, prescribe forms of award agreements, interpret and specify rules and regulations relating to the Plan, and make all other determinations which may be necessary or advisable for the administration of the Plan.
The Committee may delegate to officers or managers of the Company or a subsidiary or affiliates (or committees thereof) the authority to take action on behalf of the Committee pursuant to the Plan, to the extent that the delegation will not result in loss of the exemptions under Section 16 of the Exchange Act and Code Section 162(m). Nothing in the Plan precludes the Committee from authorizing payment of other compensation, including bonuses based upon performance, to officers and employees, including the executive officers. The Plan provides that Committee members shall not be personally liable, and shall be fully indemnified, in connection with any action, determination, or interpretation taken or made in good faith under the Plan.
Stock Options and SARs
. The Committee is authorized to grant stock options, including both incentive stock options, which can result in potentially favorable tax treatment to the participant, and non-qualified stock options (“Non-Qualified Stock Option”), and SARs entitling the participant to receive the excess of the fair market value of a share on the date of exercise or other specified date over the grant price of the SAR. The exercise price of a stock option and the grant price of an SAR are determined by the Committee, but may not be less than the fair market value of the shares on the date of grant. The maximum term of each stock option or SAR, the times at which each option or SAR will be exercisable, and provisions requiring forfeiture of unexercised options or SARs at or following termination of employment or upon the occurrence of other events, are fixed by the Committee, subject to a restriction that no stock option or SAR may have a term exceeding ten years. At the discretion of the Committee, stock options may be exercised by payment of the exercise price in cash, shares or broker-assisted cashless exercise procedures. Methods of exercise and settlement and other terms of SARs will be determined by the Committee.
No Repricing.
The Plan prohibits the repricing of stock options and SARs (other than to reflect stock splits, stock dividends, large, special and non-recurring dividends or other distributions, and other extraordinary events, or in connection with a change-in-control of the Company) unless stockholder approval is obtained. For purposes of the Plan, a "repricing" means a reduction in the exercise price of a stock option or the grant price of a SAR, the cancellation of a stock option or SAR in exchange for cash or another award, or any other action with respect to a stock option or SAR that could be characterized as a repricing under NYSE rules.
Restricted Stock and Deferred Stock Units
. The Committee is authorized to make awards of restricted stock and deferred stock units. Prior to the end of the restricted period, shares received as restricted stock may not be sold or disposed of by participants, and may be forfeited in the event of termination of employment or failure to achieve performance goals. The restricted period is established by the Committee but may not be less than one year. An award of restricted stock entitles the Participant to all of the rights of a stockholder of the Company, including the right to vote the shares and the right to receive any dividends thereon (except if the award vests based on the achievement of performance goals; see “Dividends and Dividend Equivalents” below), unless otherwise determined by the Committee.
32
Deferred stock units give participants the right to receive shares at the end of a specified deferral period, subject to forfeiture of the award in the event of termination of employment under certain circumstances prior to the end of a specified period (which need not be the same as the deferral period). Awards of deferred stock units shall be made in a manner consistent with Code Section 409A. An award of deferred stock units will specify (1) permissible payment events, i.e., separation from service, death, disability, a specified time or pursuant to a fixed schedule; a change-in-control of the Company or an unforeseeable emergency, (2) the date on which payment shall be made or begin and (3) the form of payment (i.e. in a lump-sum or installments). If the Committee determines that the participant is a “specified employee” (within the meaning of Code Section 409A(a)(2)(B)(i)(D)), payments or deliveries of shares or other consideration in satisfaction of an award of deferred stock units may not be made until six months after the participant’s separation from service from the Company and all subsidiaries.
Bonus Shares, and Awards in Lieu of Cash Obligations
. The Committee is authorized to grant shares as a bonus free of restrictions, or to grant shares or other awards in lieu of the Company’s obligations under other plans or compensatory arrangements, subject to such terms as the Committee may specify.
Performance-Based Awards
. The Committee may grant performance awards denominated as a cash amount, a number of shares or other awards that may be earned based on achievement of performance goals consisting of one or more business criteria and a targeted performance level with respect to such criteria. The Committee may also require satisfaction of performance goals as a condition of other awards being granted or becoming exercisable or settleable under the Plan. If so determined by the Committee, to satisfy the limitations on deductibility under Code Section 162(m), the business criteria used by the Committee in establishing performance goals applicable to performance awards to named executives will be selected from among the following: (1) revenues; (2) operating profit, earnings from operations, earnings before or after taxes, earnings before or after interest, depreciation, amortization, non-cash stock-based compensation or extraordinary or special items; (3) net income or net income per common share (basic or diluted); (4) return on assets, return on net assets, return on investment, return on capital, return on invested capital, or return on equity; (5) cash flow, free cash flow, cash flow per share, cash flow return on investment, or net cash provided by operations; (6) interest expense after taxes; (7) economic profit or economic value added models or equivalent metrics; (8) operating margin or gross margin; (9) stock price, comparisons with various stock market indices, or total stockholder return; (10) financial ratios, including those measuring liquidity, activity, profitability or leverage; (11) financing and other capital raising transactions; (12) working capital levels (or components thereof); and (13) strategic business criteria, consisting of one or more objectives such as market penetration, market share, geographic business expansion goals, cost targets, expense targets, customer satisfaction, employee satisfaction, management of employment practices and employee benefits, supervision of litigation and information technology, in-licensing and out-licensing of intellectual properties, and goals relating to acquisitions, strategic partnerships, or divestitures.
The Committee may specify that any such criteria will be measured before or after extraordinary or nonrecurring items, before or after service fees, or before or after payments of awards under the Plan. The Committee may set the levels of performance required in connection with performance awards as fixed amounts, goals relative to performance in prior periods, goals compared to the performance of one or more comparable companies or an index covering multiple companies, or compared to industry statistics.
Other Terms of Awards
. Awards may be settled in cash, shares, other awards or other property, in the discretion of the Committee. The Committee may require or permit participants to defer the settlement of all or part of an award in accordance with such terms and conditions as the Committee may establish, including payment or crediting of interest on any deferred amounts. The Committee is authorized to place cash, shares or other property in trusts or make other arrangements to provide for payment of the Company’s obligations under the Plan. The Committee may condition awards on the payment of taxes such as in cash or by withholding a portion of the shares or other property to be distributed or by receiving previously acquired shares or other property surrendered by the participant in order to satisfy tax obligations.
Dividends; Dividend Equivalents
. Dividends on restricted stock that vests based on the achievement of performance goals must either not be paid, or be accumulated subject to the same restrictions and forfeiture risk as the restricted stock to which they relate and be paid when the restrictions and forfeitures lapse. Awards of deferred stock units may provide for dividend equivalents with respect to dividends on the shares subject to the award (either payable on a current basis, deferred, or credited as additional deferred stock units), provided that dividend equivalents on awards that vest based on the achievement of performance goals must either not be paid, or be accumulated subject to the same restrictions and forfeiture risk as the deferred stock units to which they relate and be paid when the restrictions and forfeitures lapse.
Vesting, Forfeitures, and Acceleration
. The Committee may, in its discretion determine the vesting schedule of options and other awards, the circumstances that will result in forfeiture of the Awards, the post-termination exercise periods of stock options and SARs, and the events that will result in acceleration of the ability to exercise and the lapse of restrictions, or the expiration of any deferral period, on any award. In addition, the Plan provides that, in the event of a change-in-control, outstanding non-performance based awards that are assumed or substituted for by the successor company (or continued by the Company if it is the ultimate parent corporation) will immediately vest and be fully exercisable, any restrictions, deferral of settlement and forfeiture conditions of such awards will lapse if the participant’s employment terminates within 24 months following the change-in-control (or such other period set forth in the award agreement), unless otherwise provided by the Committee. If outstanding non-performance based awards are not assumed, substituted for or continued, on the change-in-control date the awards will immediately vest and be fully exercisable, any restrictions, deferral of settlement and forfeiture conditions of such awards will lapse. In the event of a change-in-control, to the extent specified in the award agreement, either (i) the goals under outstanding performance-based awards will be deemed to be met (in full or pro rata), or (ii) the awards will be converted into restricted stock or deferred stock units, based on achievement of the goals through the change-in-control date or based on target performance (full or pro rata) and vest based on continued service with the Company and as provided in the prior two sentences.
33
The Committee may in the event of a change-in-control (i) permit participants to elect to receive a cash payment in lieu of the shares subject to the award equal to (x) for stock options and SARs, the difference between the Change-in-Control Price and the exercise or grant price of the award, and (y) for other share awards the Change-in-Control Price, multiplied by the shares subject to the award; and (ii) cancel stock options and SARs in exchange for a payment in cash, stock or other property equal to the difference between the Change-in-Control Price and the exercise or grant price of the award multiplied by the shares subject to the award, including mandatory cancellation without payment if the exercise or grant price is less than the Change-in-Control Price (unless otherwise provided in the award agreement).
A change-in-control means (except as otherwise provided in an award agreement) (i) a change in ownership of the Company where any person or group acquires more than 50% of the voting power or fair market value of the Company’s securities; (ii) a change in the effective control of the Company which results from the acquisition by one or more persons acting as a group of 30% or more of the total voting power of the Company’s voting securities or replacement of a majority of the Board’s membership during any 12-month period by directors not endorsed by a majority of the Board before appointment or election; or (iii) a change in the ownership of a substantial portion of the assets of the Company which results from the acquisition by one or more persons acting as a group of all or substantially all of the Company’s assets.
Nontransferability of Awards
. Awards under the Plan generally may not be pledged or otherwise encumbered and are not transferable except by will or the laws of descent and distribution, or to a designated beneficiary on the participant's death. The Committee may provide that a participant may transfer an award to certain family members, family trusts, or other family-owned entities, or for charitable donations under such terms and conditions determined by the Committee.
Clawback.
The Committee may cancel outstanding awards and require the participant to repay to the Company all or a portion of the gain realized on the exercise of stock options or SARs and the value of other awards in the event of a restatement of the Company’s financial statements, or if the participant provides services to a business that competes with the Company’s business, discloses confidential information, engages in activity resulting in termination of service for cause or engages in other conduct that is determined to be injurious, detrimental or prejudicial to the Company.
Amendment and Termination of the Plan
. The Board may amend, alter, suspend, discontinue, or terminate the Plan or the Committee’s authority to grant awards thereunder without stockholder approval unless stockholder approval is required by law, regulation, or stock exchange rule. Under these provisions, stockholder approval will not necessarily be required for amendments that might increase the cost of the Plan. Stockholder approval is required for any amendment which may (a) increase the maximum number of shares of stock covered by the Plan or change the class of employees who are eligible to receive awards under the Plan; (b) reduce the exercise price or grant price for stock options or SARs below the fair market value of the shares on the date of the grant of such stock options or SARs, or cancel any stock options or SARs in exchange for cash or another award; (c) extend beyond 10 years from the date of the grant the period within which any award may be exercised; (d) extend the period beyond the termination date of the Plan during which awards may be granted; or (e) increase the limits on awards to a participant that are intended to qualify as performance-based compensation under Code section 162(m).
It should be noted that the Board may at any time and from time to time, without approval of stockholders, unless required by applicable law, rule or regulation, amend the Plan including but not limited to, any amendments necessary to comply with Section 409A of the Code and any regulations or other guidance thereunder. Except as set forth in any award agreement or as necessary to comply with applicable law or avoid adverse tax consequences to some or all award recipients, no amendment of the Plan may materially and adversely affect any outstanding award under the Plan without the award recipient’s consent.
No awards may be made after the tenth anniversary of the effective date of the Plan, which was May 18, 2011. Unless earlier terminated, the Plan will terminate at such time that no shares reserved under the Plan remain available and the Company has no further rights or obligations with respect to any outstanding award.
Federal Income Tax Implications of the Plan
The following is a brief description of the federal income tax consequences generally arising with respect to awards that may be granted under the Plan.
34
In general, an employee to whom a Non-Qualified Stock Option is granted will recognize no income at the time of the grant of such option. Upon exercise of a Non-Qualified Stock Option, an employee will recognize ordinary income in an amount equal to the amount by which the fair market value of the shares on the date of exercise exceeds the exercise price of the Option. (Special rules may apply in the case of an employee who is subject to Section 16(b) of the Exchange Act.) The tax basis of such shares to such employee will be equal to the Option Price paid plus the amount includable in the employee‘s gross income, and the employee’s holding period for tax treatment for such shares will commence on the day on which the employee recognizes taxable income in respect of such shares. Subject to applicable provisions of the Code, and regulations thereunder, including those under Section 162(m) of the Code, the Company will generally be entitled to federal income tax deduction in respect of Non-Qualified Stock Options in an amount equal to ordinary income recognized by the employee. Any compensation includable in the gross income of an employee in respect of a Non-Qualified Stock Option will be subject to appropriate withholding of federal income and employment taxes.
In general, an employee to whom DSUs are granted will recognize no income at the time of the grant of such DSUs. Upon conversion of DSUs to Common Stock, an employee will recognize ordinary income in an amount equal to the fair market value of the shares on the date of conversion. (Special rules may apply in the case of an employee who is subject to Section 16(b) of the Exchange Act.) The tax basis of such shares to such employee will be equal to the fair market value of the shares on the date of conversion and the employee’s holding period for tax treatment for such shares will commence on the day on which the employee recognizes taxable income in respect of such shares. Subject to applicable provisions of the Code, and regulations thereunder, including those under Section 162(m) of the Code, the Company will generally be entitled to federal income tax deduction in respect of DSUs in an amount equal to ordinary income recognized by the employee. Any compensation includable in the gross income of an employee in respect of DSUs will be subject to appropriate withholding of federal income and employment taxes.
Under certain circumstances, the accelerated vesting or the cashout of Non-Qualified Stock Options or DSUs in connection with a change-in-control of the Company might be deemed an “excess parachute payment” for purposes of the golden parachute tax provisions of Section 280G of the Code. To the extent it is so considered, the employee may be subject to a 20% excise tax and the Company may be denied a tax deduction.
Section 162(m) of the Code limits the Company’s tax deduction to $1 million per year for compensation paid in a given year to the Chief Executive Officer and the three highest compensated executive officers other than the Chief Executive Officer at the end of the Company’s fiscal year (other than the Chief Financial Officer). According to the Code and corresponding regulations, compensation that is based on attainment of pre-established, objective performance goals and complies with certain other requirements will be excluded from the $1 million dollar deduction limitation. The Company’s policy is to structure compensation awards for covered executives that will be fully deductible where doing so will further the purposes of the Company’s executive compensation programs. However, the Committee also considers it important to retain flexibility to design compensation programs that recognize a full range of performance criteria important to the Company’s success, even where compensation payable under such programs may not be fully deductible. In 2012, all cash compensation paid to our NEOs was deductible.
As a condition to the grant, the Compensation Committee may require each employee to whom Non-Qualified Stock Options or DSUs have been granted to agree to pay to the Company, or make arrangements satisfactory to the Company, regarding the payment of Federal, state or local taxes of any kind required to be withheld. The Company also has the right, to the extent permitted or required by law, to deduct from any payment of any kind otherwise due the employee, Federal, state or local taxes of any kind required by law to be withheld.
The discussion set forth above does not purport to be a complete analysis of all potential tax consequences relevant to recipients of Non-Qualified Stock Options, DSUs or the Company or to describe tax consequences based on particular circumstances, and does not address the tax consequences of awards other than Non-Qualified Stock Options or DSUs, or state or local tax consequences. It is based on current federal income tax law and other authorities, which are subject to change at any time.
35
Equity Compensation Plan Information
The following table sets forth aggregated information about the Company’s compensation plan (the Plan) under which equity securities of the Company are authorized for issuance as of December 31, 2012:
|
Plan category
|
Number of securities
to be issued upon
exercise of outstanding
options, warrants
and rights
(a)
|
Weighted average
exercise price of outstanding options, warrants and rights
(b)
|
Number of securities
remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
(c)
|
|||||||||
|
Equity compensation plans approved by security holders
|
2,024,675 | $ | 13.00 | 688,712 | ||||||||
|
Equity compensation plans not approved by security holders
|
N/A | N/A | N/A | |||||||||
|
Total
|
2,024,675 | $ | 13.00 | 688,712 | ||||||||
As of December 31, 2012, there were 2,024,675 shares reserved for issuance under the Plan, including (i) 1,320,819 outstanding stock options (with a weighted average exercise price of $19.92 and a weighted average remaining term of 3.0 years), (ii) 613,754 shares to be issued pursuant to DSUs, (iii) 90,102 shares to be issued pursuant to long-term incentive compensation, and (iv) 688,712 shares remained available for future issuance.
36
The following table summarizes the number of shares of Common Stock underlying outstanding option, DSU and stock awards held by each NEO as of December 31, 2012:
|
Option Awards
|
Stock Awards
|
||||||||||||||||||||||||||||||||||
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
||||||||||||||||||||||||||
|
Name
|
Number of Securities Underlying Unexercised Options Exercisable
|
Number of Securities Underlying Unexercised Options Unexercisable
(1)
|
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options
|
Option Exercise Price
|
Option Expiration Date
|
Number of Shares or Units of Stock That Have Not Vested
(1)
|
Market Value of Shares or Units That Have Not Vested
|
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested
|
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
|
||||||||||||||||||||||||||
|
Fredric M. Zinn
|
15,000 | - | - | $ | 29.11 |
11/14/13
|
- | $ | - | - | $ | - | |||||||||||||||||||||||
| - | 4,000 | - | $ | 8.09 |
11/12/14
|
- | $ | - | - | $ | - | ||||||||||||||||||||||||
| 5,600 | 6,400 | - | $ | 17.49 |
11/18/15
|
- | $ | - | - | $ | - | ||||||||||||||||||||||||
| 11,200 | 16,800 | - | $ | 17.67 |
11/29/16
|
- | $ | - | - | $ | - | ||||||||||||||||||||||||
| - | - | - | - | - | - | $ | - | 7,421 | (2) | $ | 239,327 | (2) | |||||||||||||||||||||||
| - | - | - | - | - | - | $ | - | 53,001 | (2) | $ | 1,709,289 | (2) | |||||||||||||||||||||||
| - | - | - | - | - | - | $ | - | 11,872 | (2) | $ | 382,881 | (2) | |||||||||||||||||||||||
|
Joseph S. Giordano III
|
12,000 | - | - | $ | 29.11 |
11/14/13
|
- | $ | - | - | $ | - | |||||||||||||||||||||||
| - | 2,000 | - | $ | 8.09 |
11/12/14
|
- | $ | - | - | $ | - | ||||||||||||||||||||||||
| 6,000 | 4,000 | - | $ | 17.49 |
11/18/15
|
- | $ | - | - | $ | - | ||||||||||||||||||||||||
| 6,000 | 9,000 | - | $ | 17.67 |
11/29/16
|
- | $ | - | - | $ | - | ||||||||||||||||||||||||
| - | - | - | $ | - | - | 3,180 | (1) | $ | 102,557 | 2,465 | (2) | $ | 79,496 | (2) | |||||||||||||||||||||
| - | - | - | $ | - | - | - | $ | - | 15,900 | (2) | $ | 512,787 | (2) | ||||||||||||||||||||||
| - | - | - | $ | - | - | 3,816 | (1) | $ | 123,069 | 3,816 | (2) | $ | 123,069 | (2) | |||||||||||||||||||||
|
Jason D. Lippert
|
20,000 | - | - | $ | 29.11 |
11/14/13
|
- | $ | - | - | $ | - | |||||||||||||||||||||||
| - | 6,000 | - | $ | 8.09 |
11/12/14
|
- | $ | - | - | $ | - | ||||||||||||||||||||||||
| - | 6,400 | - | $ | 17.49 |
11/18/15
|
- | $ | - | - | $ | - | ||||||||||||||||||||||||
| - | 16,800 | - | $ | 17.67 |
11/29/16
|
- | $ | - | - | $ | - | ||||||||||||||||||||||||
| - | 11,200 | - | $ | 21.17 |
11/15/17
|
- | $ | - | - | $ | - | ||||||||||||||||||||||||
| 5,320 | - | 8,680 | (3) | $ | 21.17 |
11/15/17
|
- | $ | - | - | $ | - | |||||||||||||||||||||||
| - | - | - | - | - | - | $ | - | 23,247 | (2) | $ | 749,702 | (2) | |||||||||||||||||||||||
| - | - | - | - | - | - | $ | - | 53,001 | (4) | $ | 1,709,289 | (4) | |||||||||||||||||||||||
| - | - | - | - | - | 5,936 | (1) | $ | 191,440 | 5,936 | (2) | $ | 191,440 | (2) | ||||||||||||||||||||||
|
Scott T. Mereness
|
20,000 | - | - | $ | 29.11 |
11/14/13
|
- | $ | - | - | $ | - | |||||||||||||||||||||||
| 4,600 | 4,600 | - | $ | 8.09 |
11/12/14
|
- | $ | - | - | $ | - | ||||||||||||||||||||||||
| 7,200 | 4,800 | - | $ | 17.49 |
11/18/15
|
- | $ | - | - | $ | - | ||||||||||||||||||||||||
| 8,800 | 13,200 | - | $ | 17.67 |
11/29/16
|
- | $ | - | - | $ | - | ||||||||||||||||||||||||
| 2,200 | 8,800 | - | $ | 21.17 |
11/15/17
|
- | $ | - | - | $ | - | ||||||||||||||||||||||||
| 4,180 | - | 6,820 | (3) | $ | 21.17 |
11/15/17
|
- | $ | - | - | $ | - | |||||||||||||||||||||||
| - | - | - | - | - | - | $ | - | 13,948 | (2) | $ | 449,821 | (2) | |||||||||||||||||||||||
| - | - | - | - | - | - | $ | - | 37,101 | (4) | $ | 1,196,502 | (4) | |||||||||||||||||||||||
| - | - | - | - | - | 4,664 | (1) | $ | 150,417 | 4,664 | (2) | $ | 150,417 | (2) | ||||||||||||||||||||||
|
(1)
|
Option and DSU awards that vest 20% per year on the first through the fifth anniversaries of the respective grant date, and options expire six years after grant.
|
|
(2)
|
DSUs that vest based on achievement of specified performance conditions. See “Compensation Discussion and Analysis - 2012 Executive Performance and Compensation”.
|
|
(3)
|
Options that vest based on achievement of specified performance conditions. See “Compensation Discussion and Analysis - 2012 Executive Performance and Compensation”.
|
|
(4)
|
Stock awards that vest based on achievement of specified performance conditions. See “Compensation Discussion and Analysis - 2012 Executive Performance and Compensation”.
|
37
The following table presents the value realized by the NEOs on exercise of options and vesting of DSUs in 2012:
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
||||||||||||
|
Name
|
Number of Shares Acquired On Exercise
|
Value
Realized on
Exercise
|
Number of Shares Acquired On Vesting
|
Value Realized
on Vesting
|
||||||||||||
|
Fredric M. Zinn
|
20,000 | $ | 388,100 | 11,605 | (1) | $ | 382,528 | |||||||||
|
Joseph S. Giordano III
|
8,000 | $ | 183,280 | 2,305 | (1) | $ | 72,389 | |||||||||
|
Jason D. Lippert
|
30,600 | $ | 377,906 | 3,255 | (1) | $ | 104,942 | |||||||||
|
Scott T. Mereness
|
7,300 | $ | 135,000 | 1,953 | (1) | $ | 62,966 | |||||||||
|
(1)
|
Includes time-based DSUs and performance-based DSUs that vested based upon the achievement of specified performance criteria in 2012. Such DSUs must be held for at least one year after vesting.
|
To enhance the retention value of the Company’s executives, the Committee requires that NEOs hold for at least one year stock received upon exercise of vested stock options, unless the NEO already owns a number of shares at least equivalent to the shares to be sold by the NEO on exercise of options.
The Company maintains an Executive Non-Qualified Deferred Compensation Plan (the “Deferral Plan”). The Company does not make any contributions to the Deferral Plan, but is responsible for certain costs of administration, which are not significant. Pursuant to the Deferral Plan, certain of the NEOs are eligible to defer all or a portion of their earned base salary and incentive compensation. The Deferral Plan participant is fully vested in all deferred compensation and earnings credited to the participant’s account because the participant has made all the contributions. Pursuant to the Deferral Plan, payments to the participants will be made from the Company’s general unrestricted assets, and the obligations pursuant to the Deferral Plan are unfunded and unsecured.
The Deferral Plan participant’s account is deemed invested (not actually invested) among various deemed investment alternatives selected by the participant. The Company has elected to invest a portion of the compensation deferred by the participant in life insurance policies for the benefit of the Company. The investments within these life insurance policies track the deemed investments selected by the participant in order to generate the funds needed to make payments to the participants. The deemed investments selected by the participant determine the amount of earnings and losses that are credited to the participant’s account.
The following table summarizes activity in the Deferral Plan by those NEOs who participated:
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
||||||||||||
|
Name
|
Executive
Contributions in
2012
(1)
|
Aggregate
Earnings in
2012
(2)
|
Aggregate
Withdrawals/
Distributions
|
Aggregate
Balance at
December 31, 2012
|
||||||||||||
|
Fredric M. Zinn
|
$ | - | $ | 15,574 | $ | - | $ | 124,266 | (3) | |||||||
|
Jason D. Lippert
|
$ | 352,935 | $ | 201,270 | $ | - | $ | 2,103,758 | (4) | |||||||
|
Scott T. Mereness
|
$ | 38,770 | $ | 4,190 | $ | - | $ | 65,520 | (5) | |||||||
|
(1)
|
Amounts in column (b) of this table have been included in columns (g) of the Summary Compensation Table.
|
38
|
(2)
|
Amounts represent earnings or losses on the executives’ contributions, and have not been included the Summary Compensation Table.
|
|
(3)
|
Includes cumulative contributions by the participant of $106,400, as well as cumulative earnings of $17,866.
|
|
(4)
|
Includes cumulative contributions by the participant of $2,123,214, as well as cumulative losses of $19,456.
|
|
(5)
|
Includes cumulative contributions by the participant of $384,391, as well as cumulative losses of $106,131, and cumulative withdrawals of $212,740.
|
Acceleration of Equity Awards
Pursuant to the Plan, in the event of a change-in-control (as defined in the Plan), death or disability, all unexercisable equity awards, including those held by the NEOs, will become fully exercisable and vested, except to the extent granted pursuant to long-term incentive plans which would vest pro-rata. See “Summary of the Plan – Vesting, Forfeitures and Acceleration”.
Termination of Employment
|
|
-
|
Fredric M. Zinn, President and CEO of the Company
|
|
|
-
|
Joseph S. Giordano III, CFO and Treasurer
|
|
|
-
|
Jason D. Lippert, Chairman and CEO of Lippert Components and Kinro
|
|
|
-
|
Scott T. Mereness, President of Lippert Components and Kinro
|
In connection with the 2012 employment and compensation arrangements, the Company entered into separate “double-trigger” Change-in-Control Agreements (the “Agreements”) with each of Messrs. Zinn, Giordano, Lippert and Mereness (individually, the “Executive”). The Agreements, as amended, provide for severance payable upon a Company-initiated termination or a voluntary termination, within one year following, or 120 days prior to, a change-in-control, or a termination initiated by the Executive with good reason (defined as a reduction in the Executive’s compensation or a material change in the Executive’s authority and duty) within six months following a change-in-control. Change-in-control includes acquisition of 30% or more of the Company’s voting securities, or a merger resulting in a change in voting control of more than 50% of the voting power of the Company’s existing securities, or liquidation of the Company. The Agreements provide that the Executive will receive his then effective salary, plus the average bonuses and long-term incentive compensation paid for the prior three years, for a period of two years if he is involuntarily terminated or voluntarily terminates for good reason, or one year if he voluntarily terminates without good reason, subject to certain adjustments, and certain other benefits. During the period for which the Executive would receive such severance payments, the payments will be reduced by any compensation and benefits received by the Executive from other employment or consulting activities for or on behalf of the person or entity, or their affiliates, who consummated the change in control.
In accordance with the employment and compensation arrangements with the Executives effective January 1, 2012:
|
|
(i)
|
If on account of physical or mental disability the Executive does not perform his duties for a continuous period of six months, the Company may, upon 30 days notice, terminate the Executive’s employment. For one year after termination, the Executive will receive the difference between the sum of his base salary over the amount of disability payments received, and other benefits in accordance with the Agreement. The Executive will also receive annual and long-term incentive compensation, proportionately with respect to the period prior to the date of termination.
|
|
|
(ii)
|
In the event of the Executive’s death, the Executive’s heir or designee will be entitled to the base salary and benefits which the Executive would have received for the period ending one year from the date of death, and annual and long-term incentive compensation, proportionately with respect to the period prior to the date of death.
|
|
|
(iii)
|
In the event the Company terminates Mr. Zinn’s employment for other than “cause”, or the Company relocates its corporate office and Mr. Zinn terminates his employment, he will receive his base salary and benefits for two years from the date of termination, all unvested stock-based awards shall become fully vested, except for long-term performance-based awards, and he will receive annual and long-term incentive compensation, proportionately with respect to the period prior to the date of termination. In connection with the executive succession and transition described in “The Company”, commencing May 10, 2013, Mr. Zinn will receive these payments.
|
|
|
(iv)
|
In accordance with the employment and compensation arrangements with Messrs. Lippert and Mereness, in the event the Company terminates their employment at any time during the last two years of the three-year term for other than “cause”, they will receive their base salary and benefits for two years from the date of termination, all unvested stock-based awards shall become fully vested, except for long-term performance-based awards, and they will receive annual and long-term incentive compensation proportionately with respect to the period prior to the date of termination.
|
39
|
|
(v)
|
In the event the Company terminates Mr. Giordano’s employment for other than “cause”, or the Company relocates its corporate office and Mr. Giordano terminates his employment, Mr. Giordano will receive his base salary and the benefits for one year from the date of termination, all unvested stock-based awards will become fully vested, except long-term performance-based awards, and he will receive annual and long-term incentive compensation, proportionately with respect to the period prior to the date of termination.
|
In connection with the executive succession, to provide an inducement for Mr. Giordano to relocate to Indiana and waive his contractual right to severance pay as a result of the relocation, if Mr. Giordano terminates his employment before June 30, 2014, and provided that he has given the Company notice of termination at least 120 days prior to the termination date, Mr. Giordano will receive his base salary for a period of one year from the termination date, less an amount equal to the Relocation Bonus, and all unvested stock-based awards, except for long-term performance-based awards, outstanding on June 30, 2013 will become fully vested.
Based on the employment and compensation arrangements in effect as of December 31, 2012 and assuming a hypothetical termination date of December 31, 2012, including the price of the Company’s Common Stock on that date, the benefits on termination or change-in-control for our NEOs would have been as follows:
|
Name / Benefit
|
Change-in-Control Involuntary Termination
|
Change-in-Control Voluntary
Termination
|
Involuntary Termination Due
to Disability
(2)
|
Involuntary Termination Due
to Death
|
Involuntary Termination
Without Cause
(3)
|
|||||||||||||||
|
Fredric M. Zinn
|
||||||||||||||||||||
|
Base salary
|
$ | 1,180,000 | $ | 590,000 | $ | 590,000 | $ | 590,000 | $ | 1,180,000 | ||||||||||
|
Annual bonus
|
884,214 | 442,107 | - | - | - | |||||||||||||||
|
Long-term incentive bonus
|
1,289,140 | 644,570 | - | - | - | |||||||||||||||
|
Other benefits
|
50,464 | 25,232 | 32,820 | 24,175 | 70,464 | |||||||||||||||
|
Acceleration of unvested equity
|
1,058,256 | 1,058,256 | 1,058,256 | 1,058,256 | 1,058,256 | |||||||||||||||
|
Total Benefits
(1)
|
$ | 4,462,074 | $ | 2,760,165 | $ | 1,681,076 | $ | 1,672,431 | $ | 2,308,720 | ||||||||||
|
Joseph S. Giordano III
|
||||||||||||||||||||
|
Base salary
|
$ | 600,000 | $ | 300,000 | $ | 300,000 | $ | 300,000 | $ | 300,000 | ||||||||||
|
Annual bonus
|
299,294 | 149,647 | - | - | - | |||||||||||||||
|
Long-term incentive bonus
|
59,676 | 29,838 | - | - | - | |||||||||||||||
|
Other benefits
|
85,326 | 42,663 | 51,338 | 51,338 | 52,663 | |||||||||||||||
|
Acceleration of unvested equity
|
666,771 | 666,771 | 666,771 | 666,771 | 666,771 | |||||||||||||||
|
Total Benefits
|
$ | 1,711,067 | $ | 1,188,919 | $ | 1,018,109 | $ | 1,018,109 | $ | 1,019,434 | ||||||||||
|
Jason D. Lippert
|
||||||||||||||||||||
|
Base salary
|
$ | 1,600,000 | $ | 800,000 | $ | 800,000 | $ | 800,000 | $ | 2,400,000 | ||||||||||
|
Annual bonus
|
2,512,138 | 1,256,069 | - | - | - | |||||||||||||||
|
Long-term incentive bonus
|
379,842 | 189,921 | - | - | - | |||||||||||||||
|
Other benefits
|
21,024 | 10,512 | 19,676 | 19,676 | 61,536 | |||||||||||||||
|
Acceleration of unvested equity
|
1,837,222 | 1,837,222 | 1,837,222 | 1,837,222 | 1,837,222 | |||||||||||||||
|
Total Benefits
(1)
|
$ | 6,350,226 | $ | 4,093,724 | $ | 2,656,898 | $ | 2,656,898 | $ | 4,298,758 | ||||||||||
|
Scott T. Mereness
|
||||||||||||||||||||
|
Base salary
|
$ | 1,100,000 | $ | 550,000 | $ | 550,000 | $ | 550,000 | $ | 1,650,000 | ||||||||||
|
Annual bonus
|
1,599,894 | 799,947 | - | - | - | |||||||||||||||
|
Long-term incentive bonus
|
265,890 | 132,945 | - | - | - | |||||||||||||||
|
Other benefits
|
21,644 | 10,822 | 19,986 | 19,986 | 62,466 | |||||||||||||||
|
Acceleration of unvested equity
|
1,298,179 | 1,298,179 | 1,298,179 | 1,298,179 | 1,298,179 | |||||||||||||||
|
Total Benefits
(1)
|
$ | 4,285,607 | $ | 2,791,893 | $ | 1,868,165 | $ | 1,868,165 | $ | 3,010,645 | ||||||||||
|
|
(1)
|
Deferred compensation balances are not included above as the Deferral Plan participant is fully vested in all deferred compensation and earnings credited to the participant’s account because the participant has made all the contributions.
|
|
|
(2)
|
Amounts payable by the Company will be reduced by the disability payments received by the Executive.
|
|
|
(3)
|
In connection with the executive succession and transition described in “The Company”, commencing May 10, 2013, Mr. Zinn will receive involuntary termination payments in accordance with his employment and compensation arrangement.
|
40
DIRECTOR COMPENSATION
The following table summarizes compensation paid to non-employee Directors during 2012:
|
(a)
|
(b) | (c) |
(d)
|
|||||||||
| Name | Fees Earned or Paid in Cash | Stock Awards (2) |
Total
|
|||||||||
|
Leigh J. Abrams
|
$ | 125,500 | $ | 130,022 | $ | 255,522 | ||||||
|
Edward W. Rose, III
|
$ | 77,050 | (1) | $ | 130,022 | $ | 207,072 | |||||
|
James F. Gero
|
$ | 135,125 | (1) | $ | 130,022 | $ | 265,147 | |||||
|
Fredrick B. Hegi, Jr.
|
$ | 118,450 | (1) | $ | 130,022 | $ | 248,472 | |||||
|
David A. Reed
|
$ | 101,500 | $ | 130,022 | $ | 231,522 | ||||||
|
John B. Lowe, Jr.
|
$ | 116,725 | (1) | $ | 130,022 | $ | 246,747 | |||||
|
Brendan J. Deely
|
$ | 83,500 | $ | 130,022 | $ | 213,522 | ||||||
| $ | 757,850 | $ | 910,154 | $ | 1,668,004 | |||||||
|
(1)
|
Represents the value, as of the date earned, of DSUs issued in lieu of cash compensation in payment of Directors’ fees. To encourage our Directors’ long-term ownership of the Common Stock of the Company, the Plan provides that non-employee Directors may elect to accept DSUs in lieu of cash compensation in payment of Directors’ fees. The number of DSUs, credited at the fair market value of the stock on the date earned, is equivalent to 115% of the earned fee. The DSUs are distributed in the form of shares of Common Stock of the Company at the end of the deferral period selected by the Director, subject to earlier distribution upon death, disability, or certain changes-in-control of the Company. Until shares representing the DSUs are distributed, the Director does not have any rights of a stockholder of the Company with respect to such shares, other than to receive dividend equivalents in DSUs if dividends are issued to stockholders.
|
|
(2)
|
In November 2012, each non-employee Director was granted 4,263 restricted shares of the Company’s Common Stock. The fair value was $30.50 per share, the closing price on the day before the grant. The closing price on the grant date was $30.88. Shares of restricted stock are not transferable until the first anniversary of the grant date. Shares of restricted stock entitle the holder to all rights of a stockholder, including the right to vote and to receive any dividends. In November 2011, each independent Director was granted 5,180 restricted shares of the Company’s Common Stock, having a value of $120,021.
|
Discussion of Director Compensation
Directors who are employees of the Company do not receive additional fees or other compensation for serving as Directors. The following table sets forth the annual retainers and meeting fees for the independent Directors during 2012:
|
Chairman of
the Board
|
Lead Director or Committee Chairman | Other Directors | ||||||||||
|
Annual Retainer
(1)
:
|
||||||||||||
|
Board of Directors
|
$ | 115,000 | $ | 57,500 | $ | 32,500 | ||||||
|
Audit Committee
|
$ | - | $ | 15,000 | $ | - | ||||||
|
Compensation Committee
|
$ | - | $ | 15,000 | $ | - | ||||||
|
Corporate Governance and Nominating Committee
|
$ | - | $ | 15,000 | $ | - | ||||||
|
Meeting Fees
(2)
:
|
||||||||||||
|
Board of Directors
|
$ | 1,750 | $ | 2,500 | $ | 1,500 | ||||||
|
Audit Committee
|
$ | - | $ | 3,000 | $ | 2,500 | ||||||
|
Compensation Committee
|
$ | - | $ | 2,000 | $ | 1,500 | ||||||
|
Corporate Governance and Nominating Committee
|
$ | - | $ | 2,000 | $ | 1,500 | ||||||
|
|
(1)
|
Certain annual retainers were increased in 2012 from 2011. Annual retainers in 2013 will remain the same as 2012.
|
|
|
(2)
|
The meeting fees for all Directors in 2012 were unchanged from 2011. Meeting fees in 2013 will remain the same as 2012.
|
41
Compensation Committee Interlocks and Insider Participation
No executive officer of the Company serves on the Compensation Committee and there are no “interlocks”, as defined by the SEC.
The Company currently has over 5,000 employees and seeks to employ the most qualified candidates. Consequently, the Company does not preclude the hiring of family members of incumbent Directors and executive officers. The compensation of each of the following employees was established in accordance with the Company’s employment and compensation practices applicable to employees with equivalent qualifications, experience and responsibilities.
During 2012, the Company employed at Lippert Components Jason D. Lippert, as Chairman and Chief Executive Officer, who received total salary and incentive compensation of $4,116,087 (see “Compensation Discussion and Analysis” and “Summary Compensation Table”), and Jarod Lippert, Director of Marketing and Media, who received salary and bonus of $151,750. Jason D. Lippert and Jarod Lippert, brothers, have been employed by Lippert Components in excess of nineteen and eleven years, respectively.
The Company’s written Guidelines for Business Conduct, applicable to all Directors, officers and management-level employees, provides that any interests or activities of a Director, officer or applicable employee that could, or could appear to, create a conflict of interest must be disclosed by a Director or officer of the Company to the Chief Executive Officer of the Company, or by an officer or management-level employee of any of our subsidiaries to the chief executive officer of the subsidiary with which the person is employed. If the chief executive officer of the subsidiary determines that a waiver of the conflict of interest may be appropriate, a written waiver must be obtained from the Chief Executive Officer of the Company upon approval of our Audit Committee. If the Chief Executive Officer of the Company determines that a waiver may be appropriate for a Director or officer of the Company, he must obtain approval of the Audit Committee. A conflict of interest exists if the Director, officer or applicable employee has any interests or activities outside the Company that he or she could benefit from to the detriment of the Company, or that could, or could appear to, influence his or her actions on behalf of the Company.
In accordance with Section 102(b)(7) of the Delaware General Corporate Law, the Company’s restated Certificate of Incorporation provides that no Director of the Company is liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a Director, except for liability (i) for any breach of the Director’s duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the Director derived an improper personal benefit.
Additionally, Section 145 of the Delaware General Corporation Law empowers a domestic corporation to indemnify any of its officers, directors, employees or agents against expenses, including reasonable attorney’s fees, judgments, fines and amounts paid in settlement which were actually and reasonably incurred by such person in connection with any action, suit or similar proceeding brought against them because of their status as officers, directors, employees or agents of the Company if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Company. If the claim was brought against any such person by or in the right of the Company, the Company may indemnify such person for such expenses if such person acted in good faith and in a manner reasonably believed by such person to be in or not opposed to the best interests of the Company, except no indemnity shall be paid if such person shall be adjudged to be liable for negligence or misconduct unless a court of competent jurisdiction, upon application, nevertheless permits such indemnity (to all or part of such expenses) in view of all the circumstances.
The Company’s Restated Certificate of Incorporation provides that the Company may indemnify its officers, Directors, employees or agents to the full extent permitted by Section 145 of the Delaware General Corporation Law. Accordingly, the Company has Indemnification Agreements with each of its Directors and executive officers (and the executive officers of its subsidiaries, Lippert Components and Kinro). The agreements incorporate into contract the Company’s existing obligations for indemnification and advancement of indemnifiable expenses which currently are included in the Company’s Restated Certificate of Incorporation and Amended By-laws, and as provided by Section 145 of the Delaware General Corporation Law. Management believes that it is in the best interests of the Company to make service to the Company more attractive to existing and prospective Directors and executive officers by virtue of the security afforded by contract.
42
Proposal 2. ADVISORY VOTE ON EXECUTIVE COMPENSATION
The recently enacted Dodd-Frank Act requires that the Company seek a non-binding advisory vote from its stockholders to approve the compensation of our NEOs as disclosed in this Proxy Statement in accordance with SEC rules.
Our executive compensation policy is designed to enable the Company to attract, motivate and retain highly-qualified senior executives by providing a competitive compensation opportunity based significantly on performance. Our intent is to provide fair and equitable compensation in a way that rewards executives for achieving specified financial goals. Our performance-related awards are structured to link a substantial portion of our executives’ total potential compensation to the Company’s performance on both a long-term and short-term basis, to recognize individual contribution, as well as overall business results, and to align executive and stockholder interests. Accordingly, we rewarded performance in excess of pre-established targets of earnings, return on assets, and profit growth in excess of a multiple of industry growth, and we avoided establishing goals that could divert our executives’ attention from the fundamentals of effective and efficient operations. A significant portion of the total compensation paid to our NEOs is in the form of long-term equity.
At the Annual Meeting of Stockholders held on May 24, 2012, our stockholders approved, in an advisory vote, the compensation paid to our NEOs for 2011. In the advisory vote, 99% of the votes cast voted in favor of the 2011 compensation. In addition, the Proxy Statement for the 2012 Annual Meeting contained a detailed description of the compensation plans adopted by the Company for the three-year period 2012-2014. The compensation paid to our NEOs for 2012 was paid in accordance with such plans.
We are requesting stockholder advisory approval of the compensation paid to our NEOs as disclosed in this Proxy Statement, including the disclosures under “Compensation Discussion and Analysis,” the compensation tables, and the related information and discussion. The vote is intended to address the overall compensation paid to our NEOs and the policies and practices described in this Proxy Statement.
The vote is advisory and therefore not binding on the Company or the Compensation Committee or the Board of Directors. However, we value the opinions of our stockholders, and we will carefully consider the outcome of the advisory vote on executive compensation when making future compensation decisions.
For the reasons stated, the Board of Directors recommends a vote FOR the following non-binding resolution:
“RESOLVED, that the compensation paid to the Company’s NEOs, as disclosed in this Proxy Statement pursuant to the compensation disclosure rules of the SEC, including the Compensation Discussion and Analysis, compensation tables, and related information and discussion, is hereby APPROVED.”
The affirmative vote of a majority of the votes cast at the Annual Meeting is required for advisory approval of the foregoing non-binding resolution. See “Voting Securities”.
In light of the voting results with respect to the frequency of stockholder votes on executive compensation, the Company will hold an annual advisory vote on compensation of NEOs until the next stockholder advisory vote on frequency of stockholder votes on compensation of executives.
It is proposed that the stockholders ratify the appointment by the Board of Directors of KPMG LLP as independent auditors for the purpose of auditing and reporting on the consolidated financial statements and internal control over financial reporting of the Company for the year ending December 31, 2013. KPMG LLP is an independent registered public accounting firm. It is expected that a representative of that firm will be present at the Annual Meeting of Stockholders to be held on May 23, 2013 and will be afforded the opportunity to make a statement and respond to appropriate questions from stockholders present at the Meeting.
The affirmative vote of a majority of the votes cast at the Annual Meeting is required to ratify the appointment of KPMG LLP. See “Voting Securities”.
The Board of Directors recommends that you vote FOR ratification of the appointment of KPMG LLP as independent auditors for the year ending December 31, 2013.
43
The following is a summary of the fees billed to the Company by KPMG LLP for professional services rendered for the fiscal years ended December 31, 2012 and 2011:
|
2012
|
2011
|
|||||||
|
Audit Fees:
|
||||||||
|
Consists of fees billed for professional services rendered for the annual audit of the Company’s financial statements and for the reviews of the interim financial statements included in the Company’s Quarterly Reports
|
$ | 907,000 | $ | 928,000 | ||||
|
Audit-Related Fees:
|
||||||||
|
Consists primarily of fees billed for assistance with regulatory filings and other audit related services and filings
|
$ | 18,500 | $ | 18,000 | ||||
|
Tax Fees:
|
||||||||
|
Consists of fees billed for tax planning and compliance, assistance with the preparation of tax returns, tax services rendered in connection with acquisitions made by the Company and advice on other tax related matters
|
$ | 17,000 | $ | 55,135 | ||||
|
All Other Fees:
|
||||||||
|
Other Services
|
$ | - | $ | - | ||||
|
Total All Fees
|
$ | 942,500 | $ | 1,001,135 | ||||
As part of its duties, the Audit Committee is required to pre-approve audit and non-audit services performed by the independent auditors in order to assure that the provision of such services does not impair the auditors’ independence. The Audit Committee does not delegate to Management its responsibilities to pre-approve services performed by the independent auditors.
In making its recommendation to ratify the appointment of KPMG LLP as the Company’s independent auditors for the year ending December 31, 2013, the Audit Committee has determined that the non-audit services provided by KPMG LLP are compatible with maintaining the independence of KPMG LLP.
As of the date of this Proxy Statement, the only business which Management intends to present or knows that others will present at the Meeting is that set forth herein. If any other matter or matters are properly brought before the Meeting, or any adjournment or postponement thereof, it is the intention of the persons named in the form of Proxy solicited from holders of the Common Stock to vote the Proxy on such matters in accordance with their judgment, subject to NYSE rules.
In order for a stockholder proposal to be considered for inclusion in the Company’s proxy statement for the Annual Meeting to be held in May 2014, the Company must receive the written proposal at its principal executive offices on or before December 12, 2013. The proposal must comply with SEC regulations regarding the inclusion of shareholder proposals in company-sponsored proxy materials. Additionally, all proposals which stockholders of the Company desire to have presented at the Annual Meeting of Stockholders to be held in May 2014 must be received by the Company at its principal executive offices on or before February 25, 2014.
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By Order of the Board of Directors
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LEIGH J. ABRAMS
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Chairman of the Board of Directors
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April 11, 2013
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