<PAGE> 1
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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[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
[X] Definitive Proxy Statement Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
LENNOX INTERNATIONAL INC.
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(3) 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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[ ] Fee paid previously with preliminary materials.
[ ] 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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<PAGE> 2
[LENNOX LOGO]
2140 LAKE PARK BLVD.
RICHARDSON, TEXAS 75080
March 27, 2000
Dear Stockholders:
It is my pleasure to invite you to the 2000 Annual Meeting of Stockholders of
Lennox International Inc. The meeting will be held at 10:00 a.m., local time, on
Friday, April 28, 2000, at the University of Texas at Dallas Conference Center,
Rutford Avenue and Drive A, Richardson, Texas 75083.
The accompanying Notice of Annual Meeting of Stockholders and Proxy Statement
describe the items of business which will be discussed and voted upon during the
meeting. It is important that you vote your shares whether or not you plan to
attend the meeting. To be sure your vote is counted, we urge you to carefully
review the Proxy Statement and to vote your choices. PLEASE SIGN, DATE AND
RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING ENVELOPE OR CALL THE
TOLL-FREE NUMBER AS SOON AS POSSIBLE. If you attend the meeting and wish to vote
in person, the ballot you submit at the meeting will supersede your proxy.
I look forward to seeing you at the meeting. On behalf of the management and
directors of Lennox International Inc., I want to thank you for your continued
support and confidence in 2000.
Sincerely,
/s/ JOHN W. NORRIS JR.
John W. Norris, Jr.
Chairman of the Board and Chief Executive Officer
<PAGE> 3
[LENNOX LOGO]
2140 LAKE PARK BLVD.
RICHARDSON, TEXAS 75080
MARCH 27, 2000
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 28, 2000
To Our Stockholders:
The Annual Meeting of Stockholders of Lennox International Inc. will be
held on April 28, 2000 at 10:00 a.m., local time, at the University of Texas at
Dallas Conference Center, Rutford Avenue and Drive A, Richardson, Texas 75083
to:
- Elect five directors for a three-year term; and
- Transact any other business that may properly come before the meeting.
The Board of Directors has determined that owners of record of Lennox
common stock at the close of business on March 1, 2000 are entitled to notice of
and to vote at the Annual Meeting.
By Order of the Board of Directors,
/s/ CARL E. EDWARDS, JR.
Carl E. Edwards, Jr.
Executive Vice President,
General Counsel and Secretary
YOUR VOTE IS IMPORTANT
TO BE SURE YOUR SHARES ARE REPRESENTED AT THE MEETING, PLEASE (1) CALL THE
TOLL-FREE NUMBER (800) 840-1208 AND FOLLOW THE PROMPTS, OR (2) COMPLETE, DATE,
SIGN AND RETURN YOUR PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE AS SOON AS
POSSIBLE. YOU MAY VOTE IN PERSON AT THE MEETING EVEN IF YOU SEND IN YOUR PROXY
CARD OR VOTE BY TELEPHONE.
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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Voting Procedures........................................... 1
Proposal 1: Election of Directors........................... 1
Board Organization.......................................... 6
Directors Compensation...................................... 7
Compensation Committee Report on Executive Compensation..... 8
Executive Compensation...................................... 12
Certain Relationships and Related Party Transactions........ 18
Ownership of Lennox Common Stock............................ 19
Comparison of Total Stockholder Return...................... 21
Additional Information...................................... 21
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<PAGE> 5
PROXY STATEMENT
VOTING PROCEDURES
This proxy statement and the accompanying proxy card are being mailed to
Lennox International Inc. stockholders beginning on or about March 28, 2000 in
connection with solicitation of proxies by the Lennox Board of Directors for the
Annual Meeting of Stockholders to be held on April 28, 2000 at 10:00 a.m., local
time, at the University of Texas at Dallas Conference Center, Rutford Avenue and
Drive A, Richardson, Texas 75083, and any adjournments thereof.
If you sign and return the accompanying proxy, or you vote by telephone,
and your proxy is not withdrawn or revoked, your shares will be voted in
accordance with your voting instructions. If you sign and return your proxy but
do not give voting instructions, your shares will be voted for each proposal as
recommended by the Board of Directors.
PROPOSAL 1: ELECTION OF DIRECTORS
The Board of Directors of Lennox currently consists of 12 people, and there
are currently two vacancies on Lennox' Board of Directors. In accordance with
the Bylaws, directors are divided into three classes, as nearly equal in number
as possible, each class to serve a three-year term. At the meeting, five
directors will be elected to hold office for a three-year term expiring at the
2003 Annual Meeting of Stockholders. Other directors will continue in office, in
accordance with their previous election, until the expiration of their classes
at the 2001 or 2002 Annual Meeting of Stockholders.
Brief biographies for each nominee for director for the three-year term
expiring at the 2003 Annual Meeting of Stockholders and for each current
director in the classes continuing in office are shown below.
If you do not wish your shares to be voted for any particular nominee, you
may so indicate on the proxy card. If any of these nominees for director becomes
unavailable, the persons named in the accompanying proxy may vote for any
alternate designated by the present Board or the number of directors may be
reduced.
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NOMINEES FOR ELECTION AT THIS MEETING FOR A TERM EXPIRING IN 2003:
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[Linda G. Alvarado] LINDA G. ALVARADO, 48, has served as a director of Lennox
since 1987. She is President and Chief Executive Officer
of Alvarado Construction, Inc. a general contracting firm
specializing in commercial, government and industrial
construction and environmental remediation projects. She
currently serves on the Board of Directors of US West,
Inc., a telecommunications company, Englehard Corporation,
a commercial catalyst and pigments company, Pitney Bowes
Inc., an office equipment and services company, and Pepsi
Bottling Group, a soft drink company, and is co-owner of
the Colorado Rockies Baseball Club.
[Richard W. Booth] RICHARD W. BOOTH, 68, has served as a director of Lennox
since 1966. Mr. Booth retired from Lennox in 1992 as
Executive Vice President, Administration and Secretary, a
position he had held since 1983. Mr. Booth held a variety
of key positions after joining Lennox in 1954. He serves
on the Board of Directors of Employers Mutual Casualty
Company, a casualty insurance company, and is a member of
the Board of Trustees of Grinnell College.
[David V. Brown] DAVID V. BROWN, 52, has served as a director of Lennox
since 1989. Dr. Brown owns Plantation Farm Camp, a working
500-acre ranch with livestock that provides learning in a
farm setting for children. He is currently serving on the
Strategic Planning Board of the Western Association of
Independent Camps, an educational organization for
training camp directors.
</TABLE>
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[John E. Major] JOHN E. MAJOR, 54, has served as a director of Lennox
since 1993. Mr. Major is the Chief Executive Officer of
the Wireless Internet Solutions Group, a consulting and
investment strategy business focused on the convergence of
the telecom and internet industries. Previously, he was
the Chairman, Chief Executive Officer and President of
Wireless Knowledge, a QUALCOMM Incorporated and Microsoft
joint venture which operates a network operation center,
from November 1998 to November 1999. Prior to that, he was
Executive Vice President of QUALCOMM and President of its
Wireless Infrastructure Division, and was responsible for
managing and guiding the market potential for CDMA
infrastructure products. Prior to joining QUALCOMM in
1997, Mr. Major served most recently as Senior Vice
President and Staff Chief Technical Officer at Motorola,
Inc., a manufacturer of telecommunications equipment, and
Senior Vice President and General Manager for Motorola's
Worldwide Systems Group of the Land Mobile Products
Sector. Mr. Major currently serves on the Board of
Directors of Littlefuse, Inc., a manufacturer of fuses,
and Verilink Corporation, a manufacturer of network access
devices.
[William G. Roth] WILLIAM G. ROTH, 61, served as Chairman of the Board of
Directors of Dravo Corporation, a natural resources
company that is the largest producer of lime in the United
States, from 1989 to 1994. Mr. Roth also served as Chief
Executive Officer of Dravo Corporation from 1987 to 1989.
From 1985 to 1987, Mr. Roth served as President, Chief
Operating Officer and a director of American Standard,
Inc., a worldwide manufacturer of air conditioning,
plumbing and transportation system products. From 1978 to
1985, Mr. Roth served as Chairman and Chief Executive
Officer of The Trane Company, an international
manufacturer and marketer of HVAC systems. Mr. Roth
currently serves as a director of Amcast Industrial
Corporation, a manufacturer of technology-intensive metal
products. He previously served as a director of Service
Experts, Inc., which was acquired by Lennox in January
2000. Pursuant to the acquisition agreement between Lennox
and Service Experts, Lennox was required to nominate one
individual proposed by Service Experts and acceptable to
Lennox who was a member of the Board of Directors of
Service Experts for election to a three-year term on the
Board of Directors of Lennox at the 2000 Annual Meeting of
Stockholders.
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ABOVE NOMINEES.
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<PAGE> 8
DIRECTORS WHOSE TERMS CONTINUE UNTIL 2001:
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[Janet K. Cooper] JANET K. COOPER, 46, has served as a director of Lennox
since 1999. Ms. Cooper has been the Vice
President--Finance & Controller of US West, Inc., a
regional Bell operating company, since February 1999.
Previously, she was Vice President and Treasurer of US
West. From 1978 to 1998, Ms. Cooper served in various
capacities with The Quaker Oats Company, including its
Vice President, Treasurer & Tax from 1992 to 1998. Ms.
Cooper serves on the Board of Directors of The TORO
Company, a manufacturer of equipment for lawn and turf
care maintenance.
[Terry D. Stinson] TERRY D. STINSON, 58, has served as a director of Lennox
since 1998. Mr. Stinson has been the Chairman and Chief
Executive Officer of Bell Helicopter Textron Inc., the
aircraft segment of Textron Inc., a multi-industry
corporation, since 1998 and was its President from 1996 to
1998. From 1991 to 1996, Mr. Stinson served as Group Vice
President and Segment President of Textron Aerospace
Systems and Components for Textron Inc. Prior to that
position, he had been the President of Hamilton Standard
Division of United Technologies Corporation, a defense
supply company, since 1986.
[Richard L. Thompson] RICHARD L. THOMPSON, 60, has served as a director of
Lennox since 1993. In 1995, Mr. Thompson was named to his
present position of Group President and member of the
Executive Office of Caterpillar Inc., a manufacturer of
construction and mining equipment. He joined Caterpillar
in 1983 as Vice President, Customer Services. In 1990, he
was appointed President of Solar Turbines Inc., a wholly
owned subsidiary of Caterpillar and manufacturer of gas
turbines. From 1990 to 1995, he held the role of Vice
President of Caterpillar, with responsibility for its
worldwide engine business. Previously, he had held the
positions of Vice President of Marketing and Vice
President and General Manager, Components Operations with
RTE Corporation, a manufacturer of electrical distribution
products. Mr. Thompson is a director of Gardner Denver,
Inc., a manufacturer of air compressors, blowers and
petroleum pumps.
</TABLE>
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<PAGE> 9
DIRECTORS WHOSE TERMS CONTINUE UNTIL 2002:
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[David H. Anderson] DAVID H. ANDERSON, 58, has served as a director of
Lennox since 1973. Mr. Anderson currently serves as
the Co-Executive Director of the Santa Barbara
Museum of Natural History. He formerly had a private
law practice specializing in land use and
environmental law. Mr. Anderson also serves as legal
counsel for a local land conservation organization
in Santa Barbara County. He currently serves on the
Boards of the California Nature Conservancy and the
Santa Barbara Foundation.
[Thomas W. Booth] THOMAS W. BOOTH, 42, has served as a director of
Lennox since 1999. Mr. Booth is the Vice President,
Advanced Heat Transfer and from 1997 to December
1999 was Director, Business Development of Heatcraft
Inc. Mr. Booth joined Lennox in 1984 and has served
in various capacities including the District Manager
for the Baltimore/Virginia sales branch of Lennox
Industries from 1994 to 1997.
[James J. Byrne] JAMES J. BYRNE, 64, has served as a director of
Lennox since 1990. He has been Chairman of the Board
and Chief Executive Officer of OpenConnect Systems
Incorporated, a developer of computer software
products, since May 1999. In addition, he serves as
Chairman of Byrne Technology Partners, Ltd., a
management services company for technology
companies, a position he has held since January
1996. Prior to his current role, he held a number of
positions in the technology industry including
President of Harris Adacom Corporation, a network
products and services company, Senior Vice President
of United Technologies Corporation's Semiconductor
Operation and President of North American group of
Mohawk Data Sciences, a manufacturer of distributed
computer products. Mr. Byrne began his career with
General Electric Company.
</TABLE>
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<TABLE>
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[Donald E. Miller] DONALD E. MILLER, 69, has served as a director of
Lennox since 1987. Mr. Miller spent his 35 year
career with The Gates Corporation, an industrial and
automotive rubber products manufacturer. He retired
as Vice Chairman of that company in 1996. From 1987
until 1994 he held the position of President and
Chief Operating Officer of The Gates Corporation.
Mr. Miller serves on the Board of Directors of
Sentry Insurance Corporation, a mutual insurance
company, OEA, Inc., a company engaged in specialized
automotive and aerospace technologies, Chateau
Communities Inc., a real estate investment trust,
and Coorstek Inc., a manufacturer of components and
integrated systems made of ceramics.
[John W. Norris Jr.] JOHN W. NORRIS, JR., 64, was elected Chairman of the
Board of Directors and Chief Executive Officer of
Lennox in 1991. He has served as a director of
Lennox since 1966. After joining Lennox in 1960, Mr.
Norris held a variety of key positions including
Vice President of Marketing, President of Lennox
Industries (Canada) Ltd., a subsidiary of Lennox,
and Corporate Senior Vice President. He became
President of Lennox in 1977 and was appointed
President and Chief Executive Officer of Lennox in
1980. Mr. Norris is on the Board of Directors of the
Air-Conditioning & Refrigeration Institute of which
he was Chairman in 1986. He is also an active board
member of the Gas Appliance Manufacturers
Association, where he was Chairman from 1980 to
1981. He also serves as a director of AmerUs Life
Holdings, Inc., a life insurance and annuity
company, and Metroplex Regional Advisory Board of
Chase Bank of Texas, NA.
</TABLE>
John W. Norris, Jr., Richard W. Booth, David H. Anderson and David V. Brown
are all grandchildren of D.W. Norris, the founder of Lennox, and Thomas W. Booth
is a great grandchild of D.W. Norris. John W. Norris, Jr., David V. Brown,
Richard W. Booth and David H. Anderson are first cousins. Richard W. Booth is
the father of Thomas W. Booth.
BOARD ORGANIZATION
BOARD COMMITTEES
The Lennox Board of Directors has established an Audit Committee,
Acquisition Committee, Board Operations Committee, Human Resource Committee,
Compensation Committee and a Pension and Risk Management Committee. The Board of
Directors held seven meetings in 1999. All directors attended at least 75% of
board and committee meetings they were scheduled to attend.
The Audit Committee is responsible for meeting with management and Lennox'
independent accountants to determine the adequacy of internal controls and other
financial reporting matters. It met three times in 1999. The following directors
currently serve on the Audit Committee: John E. Major (chair), Linda G.
Alvarado, Janet K. Cooper, Donald E. Miller and Terry D. Stinson.
The Acquisition Committee is responsible for evaluating potential
acquisitions and making recommendations on proposed acquisitions. It met four
times in 1999. The following directors currently serve on the Acquisition
Committee: Donald E. Miller (chair), David H. Anderson, Janet K. Cooper, Terry
D. Stinson and Richard L. Thompson.
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The Board Operations Committee is responsible for making recommendations on
the election of directors and officers, the number of directors, and other
matters pertaining to the operations of Lennox Board of Directors. It met four
times in 1999. The following directors currently serve on the Board Operations
Committee: Richard W. Booth (chair), David V. Brown, James J. Byrne, Janet K.
Cooper and Terry D. Stinson. This Committee considers suggestions from
stockholders and other sources regarding possible candidates for director. Such
suggestions, together with appropriate biographical information, should be
submitted to the Secretary of Lennox.
The Human Resource Committee is responsible for succession planning,
management development programs and other human resource matters. It met two
times in 1999. The following directors currently serve on the Human Resource
Committee: James J. Byrne (chair), Linda G. Alvarado, David V. Brown, John E.
Major and Richard L. Thompson.
The Compensation Committee is responsible for evaluating the performance of
Lennox' Chief Executive Officer, making recommendations with respect to the
salary of Lennox' Chief Executive Officer, approving the compensation of
executive staff members, approving the compensation for non-employee directors
and committee members, approving incentive stock options for senior management,
approving all employee benefit plan designs and other matters relating to the
compensation of Lennox' directors, officers and employees. It met three times in
1999. The following directors currently serve on the Compensation Committee:
Richard L. Thompson (chair), Linda G. Alvarado, James J. Byrne and John E.
Major.
The Pension and Risk Management Committee is responsible for overseeing the
administration of Lennox' pension and profit sharing plans, overseeing matters
relating to Lennox' insurance coverage, reviewing matters of legal liability and
environmental issues, and other matters relating to risk management. It met two
times in 1999. The following directors currently serve on the Pension and Risk
Management Committee: David H. Anderson (chair), Richard W. Booth, Thomas W.
Booth and Donald E. Miller.
DIRECTORS COMPENSATION
Directors who are employees of Lennox do not receive additional
compensation for positions on the Board of Directors. There are two current
employee board members: Messrs. John W. Norris, Jr., Chairman of the Board and
Chief Executive Officer, and Thomas W. Booth, Vice President, Advanced Heat
Transfer, Heatcraft Inc. The 1999 compensation package for all other directors
included an annual retainer of $21,000 in cash and $5,000 in common stock for
Board of Directors and committee service, an annual retainer of $4,000 in cash
for serving as a committee chair and a fee of $1,000, or $500 in the event of a
telephonic meeting, in cash for attending each meeting day of the Board of
Directors or any committee of the board. Board members may elect to receive the
cash portion of their annual retainer in cash or shares of common stock.
Directors may defer 25% or more of their annual cash retainer in an interest
bearing account. All directors receive reimbursement for reasonable
out-of-pocket expenses incurred in connection with attendance at meetings of the
Board of Directors or a committee of the board.
In addition, each non-employee director may periodically, under the 1998
Incentive Plan of Lennox International Inc. (the "Plan"), administered by the
Board of Directors, receive options to purchase shares of common stock at an
exercise price equal to the fair market value of such shares at the date of
grant. In 1999, each non-employee director was awarded 13,157 options to
purchase stock. Under the Plan, options are non-qualified, and no such options
awarded in any given year shall provide for the purchase of more than 16,500
shares of common stock. All options awarded to directors have a term of 10 years
and vest and become exercisable in increments of one-third on each of the three
succeeding anniversaries after the date of grant. If a director resigns,
unvested options are forfeited unless a majority of the remaining board members
decides otherwise.
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COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION PHILOSOPHY AND POLICY
Executive compensation is administered by the Compensation Committee of the
Lennox Board of Directors (the "Committee"), which is composed of the four
outside board members listed below. This report defines the philosophy and
describes the decisions made by the Committee during 1999 with respect to the
executive officers. It is the Committee's goal to establish executive
compensation programs which deliver total pay linked to overall business results
and, therefore, attract, motivate and retain highly skilled executives whose
performance and contributions result in increased stockholder value. To that
end, Lennox maintains a pay-for-performance compensation philosophy to pay
market-competitive base salaries, while also delivering variable pay which is
directly linked to the achievement of company performance measurements and to
the performance and contribution of the individual. In addition to the base
salary program, Lennox' variable pay programs include both short- and long-term
incentive compensation vehicles.
In order to evaluate the competitiveness of the executive total
compensation program, the Committee has periodically engaged nationally
recognized human resources consulting firms to conduct market analyses of the
company's executive pay programs and practices. The Committee emphasizes
delivering market-competitive and flexible total compensation to support the
company's business objectives. Lennox' executive pay is compared to a group of
companies similar to Lennox, although not necessarily the same companies
included in the peer group in the performance graph in this proxy statement.
BASE SALARY
Executive Officers
Lennox' executive base salary program is designed to be competitive with
the marketplace. For 1999, the Committee approved the implementation of an
executive broad band salary range to provide flexibility to reward executive
development, support succession planning and aid in executive recruiting.
Market-competitive values from the consultant's market analysis were assigned to
each specific position within the broad band. The analysis showed that overall
base salaries for executive officers, including Mr. Norris, were somewhat below
market averages. For 1999, the Committee reviewed the base salary of each
executive officer in relationship to the consultant's market data for the
specific position, assessed the individual's performance relative to previously
established objectives and also made subjective determinations regarding the
individual's contributions before adjusting base salaries. After these
adjustments, executive salaries were competitive in the market and commensurate
with the experience and performance contributions of the executive officers.
Chief Executive Officer
In determining Mr. Norris' 1999 base salary, the Committee reviewed the
results of the consultant's market analysis for the CEO position. For 1999, Mr.
Norris' base salary was $743,076, an amount reflecting market value from the
consultant's analysis. Mr. Norris' salary was moved to the market value over a
two-year time period, as determined by the Committee in the prior year.
Positioning Mr. Norris' 1999 base salary at the market value reflects the
Committee's support of Lennox' philosophy of paying its executives a market-
competitive base salary and the Committee's assessment of Mr. Norris'
performance during the prior year. Some of the significant achievements
considered included:
- Realigning the organization structure and executive accountabilities to
support domestic and global growth strategies by creating business units
to focus on specific market segments and product offerings.
- Expansion of the North American market presence through acquisitions in
two significant areas:
- Expanded product offerings to include hearth products through the
acquisition of three companies which made Lennox one of the largest
manufacturers of hearth products in the United States and Canada, and
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<PAGE> 13
- Established retail sales and service centers in Canada through the
acquisition of heating, ventilating and air conditioning ("HVAC")
dealers, thus taking advantage of the revenues and margins available
at the retail level while strengthening and protecting the Lennox
brand equity.
- Continued execution of Lennox' global growth strategy through investments
in manufacturing facilities and significant acquisitions in the European,
Latin American and Asia Pacific markets.
SHORT-TERM INCENTIVE COMPENSATION
Executive Officers
Based on the consultant's market analysis, the Committee increased the
performance (pay at risk) portion of the compensation program. In doing so, the
Committee made more compensation dependent on the achievement of company
financial objectives for those individuals who most directly influence
performance results and supported the following strategic objectives:
- maintain competitive total executive compensation;
- align executive reward programs with the success of the company;
- attract top executive talent to support organizational growth and
expansion;
- ensure equity among internal position values; and
- implement "best practices" in the area of executive compensation.
In 1999, executive officers and the Chief Executive Officer participated in
two annual variable pay programs:
- The major business units within Lennox each have a broad-based variable
pay program in which the respective chief operating officer managing the
business unit participates. Each unit chief operating officer, in
conjunction with the Chief Executive Officer, determines the financial
measurement and standards for that business unit's program, as well as a
measurement to reflect personal performance levels of the participants.
In 1999, for target company and individual performance levels, the
programs generated cash payouts to business unit chief operating officers
and employees ranging from 1.8% to 3.75% of annualized base earnings.
- Each year, the Chief Executive Officer recommends and the Committee
approves the performance measurements and targets for the short-term
incentive programs. The 1999 short-term incentive programs for executive
officers consisted of three Lennox performance measurements: sales
growth, profitability and working capital. Target incentive payments for
the named executive officers ranged from 55% to 75% of their base salary.
Executive officers who were also chief operating officers of a business
unit have 75% of the target payment based on their business unit results
and 25% based on aggregate Lennox results. One-half of the target payment
could be made upon achievement of the minimum performance measurement and
up to one and one-half of the target payment could be made upon
achievement of the maximum performance measurement. Additionally, the
working capital performance measurement functioned as a multiplier of 50%
to 150% of the incentive payment determined based on the other
measurements. If the profitability minimum was not met, there would not
be any incentive payment, regardless if other measurements of the program
were achieved.
Chief Executive Officer
Mr. Norris also participated in the two annual pay programs listed above.
Prior to the beginning of 1999 the Committee and the Human Resource Committee of
the Board of Directors, along with Mr. Norris, determined his performance goals
and their expectations for 1999. The Committee's assessment of Mr. Norris' 1999
performance results included the following:
- Lennox continued the execution of its international growth strategy.
- Major progress was made domestically in penetrating North American
markets.
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- Supporting Lennox' domestic growth strategy, several successful U.S.
acquisitions occurred, the largest of which was the expansion into the
retail industry through the acquisition of HVAC dealers.
- Mr. Norris and his team have worked and are continuing to work diligently
to demonstrate improved results to Lennox' stockholders and to the
investment community to reverse the disappointing market valuation
evidenced by the steady decline of the stock price since the Lennox
initial public offering.
Based on the evaluation of the Committee, Mr. Norris was awarded an annual
incentive of $745,288. The Committee believes Mr. Norris' short-term incentive
program is well-designed to reward him competitively for the leadership role he
plays in the achievement of Lennox' financial goals and organizational
objectives.
LONG-TERM INCENTIVE COMPENSATION
Lennox' executive long-term incentive compensation program is comprised of
two vehicles: stock options and performance share awards. Their purpose is to
foster and enhance the long-term profitability of the company for the benefit of
its stockholders by offering the incentive of long-term rewards to those
executives who have proprietary interest in the growth and performance of the
company and who have the principal responsibility for long-term profitability of
Lennox.
Executive Officers
Stock Options -- Based on market-competitive practices outlined in the
consultant's market study, and using the Black-Scholes model to determine a
market-competitive award value, the Committee reviews and determines annually
Lennox' stock option award levels for executive officers. The 1999 award was in
the form of non-qualified stock options, exercisable at the fair market value on
the grant date and vesting ratably over three years. Options expire ten years
from the date of grant.
Performance Share Awards -- Based on market-competitive practices outlined
in the market study, the Committee reviews and determines annually Lennox'
Performance Share Program ("PSP") award levels for executive officers. The
performance period for the PSP consists of three consecutive fiscal years
commencing each January 1. Minimum, target and maximum performance standard
levels, ranging from 50% to 200% of target are established, the achievement of
which earns a lesser or greater multiplier of a contingent award granted at the
beginning of the three-year period. The 1999-2001 financial measurement is
return on average equity expressed as a three-year average over the performance
period. Contingent awards are expressed in shares of the company's common stock.
At the end of the performance period the earned share awards are calculated by
applying the performance standards for such period to the contingent share
award. Current stock holdings of the executives were not considered when
determining the size of the 1999 contingent awards.
The 1999-2001 PSP earned awards will be in the form of restricted stock
with the following provisions:
- Contingent shares awarded at the beginning of the three-year performance
period will vest after 10 years; i.e., even if the threshold performance
targets are not met, participants will receive the contingent award at 10
years after the grant date, providing they are still employed with the
company.
- If, at the end of the three-year performance period, actual performance
is above threshold but below target, participants will receive only that
portion of the contingent shares relative to the actual performance
results at the end of the performance period. Those shares are
fully-vested at the time of payout.
- The remainder of the contingent shares to target will be vested and paid
out after an additional seven years (10 years from date of grant).
- If targets are exceeded at the end of the three-year performance period,
full payouts will occur and there will be no remaining shares to be
vested at a later time.
10
<PAGE> 15
Chief Executive Officer
Stock Options -- Based on market-competitive practices outlined in the
consultant's market study, and using the Black-Scholes model to determine a
market-competitive award value for the Chief Executive Officer, the Committee
reviews and determines annually Mr. Norris' stock option award. Mr. Norris
received an award of 260,839 stock options in 1999, in the form of non-qualified
stock options, exercisable at the fair market value on the grant date and
vesting ratably over three years. Options expire ten years from the date of
grant.
Performance Share Awards -- The Committee awarded Mr. Norris a performance
share award under Lennox' 1999-2001 PSP as outlined above. The contingent award
level of 84,262 shares was based on market-competitive practices as depicted in
the consultant's market study. Mr. Norris' earned award in the 1999-2001 program
will occur at the end of the three-year performance period and will be
determined by attainment of the program's financial goals and company
performance under Mr. Norris' leadership.
POLICY FOR COMPLIANCE WITH SECTION 162(m)
Section 162(m) of the Internal Revenue Code, as amended, limits a company's
ability to deduct compensation paid in excess of $1 million to the Chief
Executive Officer and the next four highest paid executives, unless the
compensation meets certain stockholder approved performance requirements. It is
the company's intent to make awards that qualify as deductible compensation
under section 162(m) of such Code whenever possible. However, where granting
awards is consistent with the strategic business goals of the company, the
Committee reserves the right to make awards that are non-deductible.
The following individuals who served on the Compensation Committee of the
Board of Directors during 1999 submit this report on Lennox' executive
compensation programs:
<TABLE>
<S> <C>
Richard L. Thompson, Chair Linda G. Alvarado
James J. Byrne John E. Major
</TABLE>
11
<PAGE> 16
EXECUTIVE COMPENSATION
The following table sets forth information on compensation earned in 1999
and 1998 by Lennox' Chief Executive Officer and its four other most highly
compensated executive officers, such individuals sometimes being referred to as
the "named executive officers".
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------------------
AWARDS
-------------------------
SECURITIES PAYOUTS
ANNUAL COMPENSATION RESTRICTED UNDERLYING ----------
--------------------- STOCK OPTIONS/SARS LTIP ALL OTHER
YEAR SALARY BONUS(1) AWARDS(2) GRANTED PAYOUTS(3) COMPENSATION(4)
---- -------- ---------- ---------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
John W. Norris, Jr.
Chairman of the Board 1999 $743,076 $ 745,288 945,335 260,839 $ 0 $304,382
and Chief Executive Officer 1998 648,660 1,130,003 1,960,304 148,500 2,043,909 146,600
Robert E. Schjerven
President and Chief 1999 352,200 310,344 362,800 100,104 0 113,215
Operating
Officer, Lennox Industries 1998 335,400 323,562 739,038 49,500 750,994 86,656
Inc.
H.E. French
President and Chief 1999 328,008 245,596 191,520 52,846 0 106,987
Operating
Officer, Armstrong Air 1998 309,852 328,902 502,320 36,300 595,940 80,389
Conditioning Inc.
Clyde W. Wyant
Executive Vice President, 1999 305,880 269,539 191,520 52,846 0 106,354
Chief Financial Officer 1998 291,300 348,639 516,672 36,300 718,883 67,645
Harry J. Ashenhurst
Executive Vice President, 1999 285,924 254,150 191,520 52,846 0 96,961
Human Resources and 1998 243,480 291,406 491,646 36,300 509,779 54,367
Administration
</TABLE>
- ---------------
(1) Includes annual incentive payments for the respective year from two annual
variable pay plans.
(2) Represents performance share awards of the following number of shares of
restricted Lennox common stock granted pursuant to the Plan multiplied by
the stock price on the grant date. In December 1999 at a stock price of
$11.219 per share, Mr. Norris received 84,262 shares; Mr. Schjerven received
32,338 shares; Messrs. French, Wyant and Ashenhurst each received 17,071
shares. For the 1999 grant, all shares granted will vest in December 2002
providing performance targets are met. In December 1998 at a stock price of
$19.03 per share, Mr. Norris received 103,026 shares; Mr. Schjerven received
38,841 shares; Mr. French received 26,400 shares; Mr. Wyant received 27,159
shares; and Mr. Ashenhurst received 25,839 shares. For the 1998 grant,
27,423 shares vested in December 1999, 75,900 shares will vest in December
2000, and the remainder will vest in December 2001, in each case providing
performance targets are met. Shares which do not vest in any performance
period due to failure to achieve performance targets will vest in 10 years
from the date of grant. Information about performance share awards made
under the Plan in December 1999 which do not vest unless certain performance
goals are met is set forth in the table titled "Long-Term Incentive
Plans -- Awards in Last Fiscal Year" below.
(3) 1998 numbers represent awards of shares of Lennox common stock in connection
with the termination of three performance share plans. Due to termination
and full payout of plans in 1998 and the subsequent adoption of the Plan, no
award payments were made in 1999.
(4) Composed of contributions by Lennox to its profit sharing retirement plan
and profit sharing restoration plan and the dollar value of term life
insurance premiums paid by Lennox. Contributions to the plans were as
follows: In 1999: Mr. Norris -- $297,400; Mr. Schjerven -- $107,586; Mr.
French -- $101,610; Mr. Wyant -- $101,158; and Mr. Ashenhurst -- $88,823. In
1998: Mr. Norris -- $139,730; Mr. Schjerven -- $81,369; Mr.
French -- $73,833; Mr. Wyant -- $62,619; Mr. Ashenhurst -- $46,908.
12
<PAGE> 17
The following table provides information concerning stock options granted
to the named executive officers in 1999.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS/SARS
UNDERLYING GRANTED TO GRANT DATE
OPTIONS/SARS EMPLOYEES IN EXERCISE OR PRESENT
NAME GRANTED FISCAL YEAR BASE PRICE EXPIRATION DATE VALUE(1)
---- ------------ ------------------ ----------- ---------------- ----------
<S> <C> <C> <C> <C> <C>
John W. Norris, Jr. ..... 260,839 14.4155 $11.219 December 8, 2009 $1,061,203
Robert E. Schjerven...... 100,104 5.5323 11.219 December 8, 2009 407,267
H. E. French............. 52,846 2.9206 11.219 December 8, 2009 215,000
Clyde W. Wyant........... 52,846 2.9206 11.219 December 8, 2009 215,000
Harry J. Ashenhurst...... 52,846 2.9206 11.219 December 8, 2009 215,000
</TABLE>
- ---------------
(1) The grant date present values shown in the table were determined using the
Black-Scholes option valuation model using the following assumptions: stock
price volatility of 35.4% which represents an average volatility among
general industry companies; expected option life of 10.0 years; dividend
yield of $0.342; risk free interest rate of 5.79%; modified derived value:
$4.0684 which includes the following additional assumptions: discounts for
the probability of termination for death, disability, retirement and
voluntary/involuntary terminations.
The following table provides for each of the named executive officers the
options exercised during 1999 and the number of options and the value of
unexercised options held by the named executive officers as of December 31,
1999.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES DECEMBER 31, 1999 DECEMBER 31, 1999(1)
ACQUIRED VALUE --------------------------- ----------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
John W. Norris, Jr. ........ 44,550 $556,389 254,100 359,839 $ 70,567 0
Robert E. Schjerven......... 0 0 16,500 133,104 0 0
H.E. French................. 0 0 12,100 77,046 0 0
Clyde W. Wyant.............. 0 0 138,820 77,046 111,687 0
Harry J. Ashenhurst......... 0 0 71,500 77,046 0 0
</TABLE>
- ---------------
(1) Calculated on the basis of the fair market value of the underlying
securities as of December 31, 1999, $9.063 per share, minus the exercise
price of "in-the-money" options.
13
<PAGE> 18
The following table provides information concerning performance share
awards made in 1999 to the named executive officers under the Plan. The named
executive officers are awarded a number of shares of Lennox common stock subject
to achievement of performance targets based on the average return on equity for
a three-year period. Information about the portion of the award that becomes
vested regardless of whether the performance goals are met is presented under
the Restricted Stock Awards column in the "Summary Compensation Table" above.
Presented below is the maximum number of shares of Lennox common stock that may
be payable to each of the named executive officers that is subject to
achievement of the performance goals. The actual number of shares awarded
depends on the level of achievement of the performance objectives.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF SHARES, UNITS PERFORMANCE OR OTHER PERIOD
NAME OR OTHER RIGHTS UNTIL MATURATION OR PAYOUT
- ---- ----------------------- ---------------------------
<S> <C> <C>
John W. Norris, Jr. ............. 168,524 3 years
Robert E. Schjerven.............. 64,676 3 years
H. E. French..................... 34,142 3 years
Clyde W. Wyant................... 34,142 3 years
Harry J. Ashenhurst.............. 34,142 3 years
</TABLE>
RETIREMENT PLANS
The named executive officers participate in four Lennox-sponsored
retirement plans. The plans are as follows: the pension plan for salaried
employees, the profit sharing retirement plan, the supplemental retirement plan,
and the profit sharing restoration plan. The supplemental retirement plan and
the profit sharing restoration plan are non-qualified plans. Lennox pays the
full cost of all these plans.
The pension plan for salaried employees is a floor offset plan. A target
benefit is calculated using credited service and final average pay during the
five highest consecutive years. The benefit is currently based on 1.00% of final
average pay, plus .60% of final average pay above Social Security covered
compensation, times the number of years of credited service, not to exceed 30
years. Employees vest after five years of service and may commence unreduced
benefits at age 65. If specified age and service requirements are met, benefits
may commence earlier on an actuarially reduced basis. At time of retirement, a
participant may choose one of five optional forms of payment. The supplemental
retirement plan permits income above Internal Revenue Service limitations to be
considered in determining final average pay, doubles the rate of benefit
accrual, limits credited service to 15 years and permits early retirement on
somewhat more favorable terms than the pension plan.
The profit sharing retirement plan is a defined contribution plan. Profit
sharing contributions, as determined by Lennox Board of Directors, are credited
annually to participants' accounts based on pay. Participants are fully vested
after 6 years. The assets of the plan are employer directed. Distributions may
occur at separation of employment and can be paid directly to the participant.
The restoration plan permits accruals that otherwise could not occur because of
Internal Revenue Service limitations on compensation.
The estimates of annual retirement benefits shown in the following table
are the targets established by the supplemental retirement plan.
<TABLE>
<CAPTION>
YEARS OF SERVICE
---------------------------------------------------------------
FINAL AVERAGE EARNINGS(1) 5 10 15 20 25 30
- ------------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$250,000............... $ 35,644 $ 71,288 $106,932 $106,932 $106,932 $106,932
425,000................ 63,644 127,288 190,932 190,932 190,932 190,932
600,000................ 91,644 183,288 274,932 274,932 274,932 274,932
775,000................ 119,644 239,288 358,932 358,932 358,932 358,932
950,000................ 147,644 295,288 442,932 442,932 442,932 442,932
1,125,000.............. 175,644 351,288 526,932 526,932 526,932 526,932
</TABLE>
14
<PAGE> 19
- ---------------
(1) Final Average Earnings are the average of the five highest consecutive years
of includible earnings. Compensation for these purposes includes salary and
bonuses, and excludes extraordinary compensation such as benefits from the
Plan or its predecessor plans. Bonus numbers used in these calculations, as
per plan requirements, are the bonuses actually paid in those years. In the
Summary Compensation Table, the 1999 bonus reported is the bonus earned in
1999, but not paid until 2000.
As of December 31, 1999, the final average pay and the eligible years of
credited service for each of the named executive officers was as follows: Mr.
Norris, $1,079,877 -- 39.25 years; Mr. Schjerven, $497,661 -- 13.80 years; Mr.
Wyant, $463,477 -- 9.30 years; Mr. French, $428,766 -- 10.80 years; and Mr.
Ashenhurst, $326,515 -- 11.00 years.
EMPLOYMENT AGREEMENTS
Lennox has entered into employment agreements with the named executive
officers which are identical except for the name of the named executive officer
who is a party to the agreement and the date of the agreement. These employment
agreements establish the basis of compensation and assignments, and contain
post-employment covenants covering confidential information, the diverting of
employees, vendors and contractors and the solicitation of customers. These
agreements also establish binding arbitration as the mechanism for resolving
disputes and provide benefits and income in the event employment terminates
under specified circumstances. On January 1 of each year, the agreements
automatically renew for an additional year, unless either party notifies the
other, in writing, at least 30 days prior to such date, of a decision not to
renew the agreement.
If Lennox terminates the employee prior to the expiration of the term of
the agreement or if Lennox does not renew the agreement for any reason other
than for cause, the employee will be entitled to receive monthly payments of the
greater of the employee's base salary for the remainder of the agreement's term
or three months of the employee's base salary in addition to any other
compensation or benefits applicable to an employee at the employee's level.
If Lennox terminates the employee other than for cause, including Lennox'
non-renewal of the agreement, and the employee agrees to execute a written
general release of any and all possible claims against Lennox existing at the
time of termination, Lennox will provide the employee with an enhanced severance
package. That package includes payment of the employee's base monthly salary for
a period of twenty-four months following the date of termination, a lump sum
payment of $12,000 in lieu of perquisites lost, and forgiveness of COBRA
premiums due for group health insurance coverage for up to eighteen months while
the employee remains unemployed. If the employee remains unemployed at the end
of eighteen months, the equivalent of the COBRA premium will be paid to the
employee on a month to month basis for up to six additional months while the
employee remains unemployed. Outplacement services are provided or, at the
employee's election, a lump-sum payment of 10% of the employee's annual base
salary will be made to the employee in lieu of those services. Additionally, the
employee's beneficiary will receive a lump-sum death benefit equivalent to six
months of the employee's base salary should the employee die while entitled to
enhanced severance payments.
CHANGE OF CONTROL EMPLOYMENT AGREEMENTS
Lennox has entered into change of control employment agreements with the
named executive officers which are identical except for the name of the named
executive officer who is a party to the agreement and the date of the agreement.
The change of control agreements provide for certain benefits under specified
circumstances if the officer's employment is terminated following a change of
control transaction involving Lennox. The change of control agreements are
intended to provide protections to the officers that are not afforded by their
existing employment agreements, but not to duplicate benefits provided by the
existing employment agreements. The term of the change of control agreements is
generally two years from the date of a potential change of control, as discussed
below, or a change of control. If the officer remains employed at the conclusion
of such term, the officer's existing employment agreement will continue to
apply. The employment
15
<PAGE> 20
rights of the named executive officers under the change of control agreements
would be triggered by either a change of control or a potential change of
control. Following a potential change of control, the term of the change of
control agreement may terminate but the change of control agreement will remain
in force and a new term of the agreement will apply to any future change of
control or potential change of control, if either (a) the Board of Directors
determines that a change of control is not likely or (b) the named executive
officer, upon proper notice to Lennox, elects to terminate his term of the
change of control agreement as of any anniversary of the potential change of
control.
A "change of control" generally includes the occurrence of any of the
following:
(a) any person, other than specified exempt persons, including Lennox
and its subsidiaries and employee benefit plans, becoming a beneficial
owner of 35% or more of the shares of Lennox voting securities;
(b) a change in the identity of a majority of the Board of Directors,
unless approved by a majority of the incumbent members of the Board of
Directors;
(c) approval by the stockholders of a reorganization, merger or
consolidation in which:
(1) existing stockholders would own 65% or less of the voting
securities of the surviving entity;
(2) a person, other than specified exempt persons, would own 35% or
more of the voting securities of the surviving entity; or
(3) less than a majority of the board of the surviving entity would
consist of the then incumbent members of Lennox Board of Directors; or
(d) approval by the stockholders of a liquidation or dissolution of
Lennox, unless such liquidation or dissolution involves a sale to a company
of which following such transaction:
(1) more than 65% of the voting securities of such company would be
owned by existing stockholders;
(2) no person, other than specified exempt persons, would own 35%
or more of the voting securities of such company; and
(3) at least a majority of the Board of Directors of such company
would consist of the then incumbent members of the Board of Directors.
A "potential change in control" generally includes any of the following:
- commencement of a tender or exchange offer for voting stock that, if
consummated, would result in a change of control;
- Lennox entering into an agreement which, if consummated, would constitute
a change of control;
- commencement of a contested election contest subject to proxy rules; or
- occurrence of any other event that the Board of Directors determines
could result in a change of control.
During the term of the change of control agreement, an officer's position,
authority, duties and responsibilities may not be diminished, and all forms of
compensation, including salary, bonus, regular salaried employee plan benefits,
stock options, restricted stock and other awards, must continue on a basis no
less favorable than at the beginning of the term of the change of control
agreement and, in the case of specified benefits, must continue on a basis no
less favorable in the aggregate than the most favorable application of such
benefits to any of Lennox' employees.
16
<PAGE> 21
If an officer terminates employment during the term of the change of
control agreement for good reason and Lennox fails to honor the terms of the
change of control agreement, Lennox will pay the officer:
- his then unpaid current salary and a pro rata portion of the highest
bonus earned during the three preceding years, as well as previously
deferred compensation and accrued vacation time;
- a lump-sum benefit equal to the sum of three times the officer's annual
base salary and three times the annual bonus he would have earned in the
year of termination;
- for purposes of Lennox' supplemental retirement plan and Lennox' profit
sharing restoration plan, three additional years added to both his
service and age criteria; and
- continued coverage under Lennox' employee welfare benefits plans for up
to four and one-half years.
In addition, all options, restricted stock and other compensatory awards
held by the officer will immediately vest and become exercisable, and the term
of these awards will be extended for up to one year following termination of
employment. The officer may also elect to cash out equity-based compensatory
awards at the highest price per share paid by specified persons during the term
of the change of control agreement or the six-month period prior to the
beginning of the term of the change of control agreement.
In the event of any contest concerning a change of control agreement in
which the officer is successful, in whole or in part, on the merits: Lennox has
no right of offset; the officer is not required to mitigate damages; and Lennox
agrees to pay any legal fees incurred by the officer in connection with such
contest.
Lennox also agrees to pay all amounts owing to the officer during any
period of dispute, subject only to the officer's agreement to repay any amounts
to which he is determined not to be entitled. The change of control agreements
provide for a tax gross-up in the event that specified excise taxes are
applicable to payments made by us under a change of control agreement or
otherwise. The change of control agreements require the officer to maintain the
confidentiality of Lennox' information, and, for a period of 24 months following
his termination of employment, to avoid any attempts to induce Lennox' employees
to terminate their employment with Lennox.
INDEMNIFICATION AGREEMENTS
Lennox has entered into indemnification agreements with its directors and a
number of its executive officers. Each of the indemnification agreements is
identical except for the name of the director or executive officer who is a
party to the agreement and the date of the agreement. Under the terms of the
indemnification agreements, Lennox has generally agreed to indemnify, and
advance expenses to, each indemnitee to the fullest extent permitted by
applicable law on the date of the agreements and to such greater extent as
applicable law may at a future time permit. In addition, the indemnification
agreements contain specific provisions pursuant to which Lennox has agreed to
indemnify each indemnitee:
- if such person is, by reason of his or her status as a director, nominee
for director, officer, agent or fiduciary of Lennox or of any other
corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise with which such person was serving at Lennox' request,
any such status being referred to as a "corporate status," made or
threatened to be made a party to any threatened, pending or completed
action, suit, arbitration, alternative dispute resolution mechanism,
investigation or other proceeding, other than a proceeding by or in the
right of Lennox;
- if such person is, by reason of his or her corporate status, made or
threatened to be made a party to any proceeding brought by or in the
right of Lennox to procure a judgment in its favor, except that no
indemnification shall be made in respect of any claim, issue or matter in
such proceeding as to which such indemnitee shall have been adjudged to
be liable to Lennox if applicable law prohibits such indemnification,
unless and only to the extent that a court shall otherwise determine;
- against expenses actually and reasonably incurred by such person or on
his or her behalf in connection with any proceeding to which such
indemnitee was or is a party by reason of his or her corporate status and
in which such indemnitee is successful, on the merits or otherwise;
17
<PAGE> 22
- against expenses actually and reasonably incurred by such person or on
his or her behalf in connection with a proceeding to the extent that such
indemnitee is, by reason of his or her corporate status, a witness or
otherwise participates in any proceeding at a time when such person is
not a party in the proceeding; and
- against expenses actually and reasonably incurred by such person in
certain judicial adjudications of or awards in arbitration to enforce his
or her rights under the indemnification agreements.
In addition, under the terms of the indemnification agreements, Lennox has
agreed to pay all reasonable expenses incurred by or on behalf of an indemnitee
in connection with any proceeding, whether brought by or in the right of Lennox
or otherwise, in advance of any determination with respect to entitlement to
indemnification and within 15 days after the receipt by Lennox of a written
request from such indemnitee for such payment. In the indemnification
agreements, each indemnitee has agreed that he or she will reimburse and repay
Lennox for any expenses so advanced to the extent that it shall ultimately be
determined that he or she is not entitled to be indemnified by Lennox against
such expenses.
The indemnification agreements also include provisions that specify the
procedures and presumptions which are to be employed to determine whether an
indemnitee is entitled to indemnification. In some cases, the nature of the
procedures specified in the indemnification agreements varies depending on
whether Lennox has undergone a change in control.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
John W. Norris, Jr., Lennox' Chairman and Chief Executive Officer, and
David H. Anderson, Richard W. Booth, Thomas W. Booth and David V. Brown, each
one of Lennox' directors, as well as some of Lennox' stockholders, are,
individually or through trust arrangements, members of AOC Land Investment, LLC.
AOC Land Investment, LLC owns 70% of AOC Development II, LLC. Lennox is leasing
part of an office building owned by AOC Development II, LLC for use as the
Lennox corporate headquarters. The lease has a term of 25 years and the lease
payments for 1999 totaled approximately $1.1 million. Lennox believes that the
terms of its lease with AOC Development II, LLC are at least as favorable as
could be obtained from unaffiliated third parties.
From time to time Lennox has entered into stock disposition agreements
which allowed its executives, directors and stockholders to borrow money and use
its capital stock held by them as collateral. The stock disposition agreements
provide that in the event of a default on the underlying loan, Lennox will do
one of several things, including registering the capital stock under the
Securities Act of 1933, finding a buyer to purchase the stock or purchasing the
stock itself. There were never any defaults under these agreements. As of March
1, 2000, there were stock disposition agreements in existence covering 1,809,120
shares of Lennox common stock. Lennox will not enter into these type of
agreements in the future.
These transactions were not the result of arms-length negotiations.
Accordingly, certain of the terms of these transactions may be more or less
favorable to Lennox than might have been obtained from unaffiliated third
parties. Lennox does not intend to enter into any future transactions in which
its directors, executive officers or principal stockholders and their affiliates
have a material interest unless such transactions are approved by a majority of
the disinterested members of its Board of Directors and are on terms that are no
less favorable to it than those that it could obtain from unaffiliated third
parties.
18
<PAGE> 23
OWNERSHIP OF LENNOX COMMON STOCK
The following table contains information regarding the beneficial ownership
of Lennox common stock as of March 1, 2000 by the following individuals:
- each person known by Lennox to own more than 5% of the outstanding shares
of Lennox common stock;
- each of Lennox' directors;
- each named executive officer of Lennox; and
- all executive officers and directors of Lennox as a group.
All persons listed have an address in care of Lennox' principal executive
offices which are located at 2140 Lake Park Boulevard, Richardson, Texas 75080.
The information contained in this table reflects "beneficial ownership" as
defined in Rule 13d-3 of the Securities Exchange Act of 1934. In computing the
number of shares beneficially owned by a person and the percentage ownership of
that person, shares of Lennox common stock subject to options held by that
person that were exercisable on March 1, 2000 or would be exercisable within 60
days following March 1, 2000 are considered outstanding. However, such shares
are not considered outstanding for the purpose of computing the percentage
ownership of any other person. To Lennox' knowledge and unless otherwise
indicated, each stockholder has sole voting and investment power over the shares
listed as beneficially owned by such stockholder, subject to community property
laws where applicable. Percentage of ownership is based on 57,210,741 shares of
common stock outstanding as of March 1, 2000.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
-------------------------
BENEFICIAL OWNER NUMBER PERCENTAGE
---------------- ----------- -----------
<S> <C> <C>
John W. Norris, Jr.(1)(2)................................... 3,946,605 6.9%
H. E. French(2)............................................. 104,599 *
Robert E. Schjerven(2)...................................... 233,059 *
Clyde W. Wyant(2)........................................... 238,942 *
Harry J. Ashenhurst(2)...................................... 168,898 *
Linda G. Alvarado(2)........................................ 126,446 *
David H. Anderson(2)(3)..................................... 4,268,620 7.4
Richard W. Booth(2)(4)...................................... 2,918,843 5.1
Thomas W. Booth(2)(5)....................................... 2,948,379 5.2
David V. Brown(2)(6)........................................ 1,331,365 2.3
James J. Byrne(2)........................................... 153,318 *
Janet K. Cooper............................................. 2,394 *
John E. Major(2)............................................ 136,276 *
Donald E. Miller(2)......................................... 124,720 *
William D. Roth(2).......................................... 27,091 *
Terry D. Stinson............................................ 6,691 *
Richard L. Thompson(2)...................................... 149,396 *
All executive officers and directors as a group (22
persons)(2)............................................... 17,308,473 29.4
Steven R. Booth(7).......................................... 2,921,872 5.1
Phillip L. Zink(8).......................................... 4,310,460 7.5
</TABLE>
- ---------------
* Less than 1%
(1) Includes 321,750 shares held by the Robert W. Norris Trust A, 321,750 shares
held by the John W. Norris, Jr. Trust A, and 663,135 shares held by the
Megan E. Norris Trust A, of which Mr. Norris is a co-trustee.
(2) Includes the following shares subject to options: Mr. Norris -- 254,100; Mr.
French -- 12,100; Mr. Schjerven -- 16,500; Mr. Wyant -- 138,820; Mr.
Ashenhurst -- 71,500; Ms. Alvarado -- 120,450;
19
<PAGE> 24
Mr. Anderson -- 120,450; Mr. R. Booth -- 120,450; Mr. T. Booth -- 3,575; Mr.
Brown -- 120,450; Mr. Byrne -- 120,450; Mr. Major -- 120,450; Mr.
Miller -- 120,450; Mr. Roth -- 11,938; Mr. Thompson -- 120,450; and all
executive officers and directors as a group -- 1,624,942.
(3) Includes:
(a) 41,910 shares held by the Leo E. Anderson Trust; 3,751,508 shares held
by the David H. Anderson Trust, and 66,825 shares held by the Betty
Oakes Trust, of which Mr. Anderson is the trustee;
(b) 199,881 shares held by the Kristin H. Anderson Trust, of which Mr.
Anderson is a co-trustee; and
(c) 87,780 shares held by Mr. Anderson's minor child.
(4) Includes 2,036,364 shares held by trusts for the benefit of Anne Zink, and
53,333 shares held by The Richard W. and Anne C. Booth Charitable Remainder
Unitrust, of which Mr. R. Booth is a co-trustee.
(5) Includes:
(a) 2,029,731 shares held by trusts for the benefit of Mr. R. Booth, 40,062
shares held by the Thomas W. Booth Trust, and 160,000 shares held by
The Booth Family Charitable Lead Annuity Trust, of which Mr. Booth is a
co-trustee; and
(b) 72,909 shares held by Mr. T. Booth's minor children.
(6) Includes 315,117 shares held by Mr. Brown's minor children.
(7) Includes:
(a) 2,029,731 shares held by trusts for the benefit of Mr. R. Booth, 40,062
shares held by the Steven R. Booth Trust, and 160,000 shares held by
The Booth Family Charitable Lead Annuity Trust, of which Mr. S. Booth
is a co-trustee; and
(b) 79,730 shares held by Mr. S. Booth's minor children.
(8) Includes:
(a) 2,029,731 shares held by trusts for the benefit of Mr. R. Booth, and
2,036,364 shares held by trusts for the benefit of Anne Zink, of which
Mr. Zink is a co-trustee; and
(b) 94,578 shares held by the Zink Family Grandchildren's Education Trust
of which Mr. Zink is the trustee.
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<PAGE> 25
COMPARISON OF TOTAL STOCKHOLDER RETURN
The following graph compares the cumulative total returns of Lennox, the
Standard & Poor's Small-Cap 600 Index and a peer group of U.S. industrial
manufacturing and service companies in the heating, ventilation, air
conditioning and refrigeration businesses from July 29, 1999, the date of the
Lennox initial public offering, through December 31, 1999. The chart assumes
that $100 was invested on July 29, 1999, with dividends reinvested. Peer group
returns are weighted by market capitalization. The peer group includes AAON,
Inc., American Standard Companies Inc., Comfort Systems USA, Inc., Hussmann
International, Inc., Maytag Corporation, Modine Corporation, Watsco, Inc.,
Whirlpool Corporation, and York International Corporation.
[PERF. GRAPH]
<TABLE>
<CAPTION>
LENNOX
INTERNATIONAL INC S & P 500 PEER GROUP
----------------- --------- ----------
<S> <C> <C> <C>
July 1999 100.00 100.00 100.00
1999 49.73 107.71 79.32
</TABLE>
ADDITIONAL INFORMATION
QUORUM REQUIRED
A quorum of Lennox stockholders is necessary to have a valid meeting of
stockholders. A majority of the shares of Lennox common stock issued and
outstanding and entitled to vote on the record date must be represented in
person or by proxy at the annual meeting in order for a quorum to be
established. Abstentions and broker "non-votes" count as present for
establishing a quorum. Shares held by Lennox in its treasury or by any
majority-owned subsidiary or Lennox do not count toward a quorum. A broker
non-vote occurs on an item when a broker is not permitted to vote on that item
without instruction from the beneficial owner of the shares and no instruction
is given. We expect, in the event that a quorum is not present at the annual
meeting, the meeting will be adjourned or postponed to solicit additional
proxies.
VOTE REQUIRED
Only stockholders of record at the close of business on March 1, 2000 are
entitled to notice of and to vote at the meeting. There were 57,210,741 shares
of common stock of Lennox outstanding at the close of business on that date, all
of which will be entitled to vote. Holders of the shares of common stock are
entitled to one vote per share held of record in their names on the record date
on all matters. Stockholders do not have cumulative voting rights. The election
of each director requires a plurality of the votes cast. Votes withheld will be
deemed not to have been cast.
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<PAGE> 26
SHARES HELD IN STREET NAME
Under the applicable rules of the New York Stock Exchange, brokers who hold
shares in street names for customers who are the beneficial owners of those
shares are prohibited from giving a proxy to vote those customers' shares with
respect to the proposals to be voted on at the annual meeting in the absence of
specific instructions from the customer. Lennox stockholders whose shares are
held in "street name" (i.e., in the name of a broker, bank or other record
holder) must either direct the record holder of their shares as to how to vote
their shares or obtain a proxy from the record holder to vote at the annual
meeting.
TELEPHONE AND INTERNET VOTING
Shares Directly Registered in the Name of the Stockholder. Stockholders
with shares registered directly with ChaseMellon Shareholder Services may vote
by telephone by calling ChaseMellon at (800) 840-1208.
Shares Registered in the Name of a Brokerage Firm or Bank. A number of
brokerage firms and banks offer telephone and Internet voting options. These
programs differ from the program provided by ChaseMellon for shares registered
in the name of the stockholder. Check the information forwarded by your bank,
broker or other holder of record to see which options are available to you.
REVOKING PROXIES
Lennox stockholders of record may revoke their proxies at any time prior to
the time their proxies are voted at the annual meeting. Proxies may be revoked
by written notice, including by telegram or telecopy, to the Secretary of
Lennox, by a later-dated proxy signed and returned by mail or by attending
Lennox' annual meeting and voting in person. Attendance at the annual meeting
will not in and of itself constitute a revocation of a proxy. Any written notice
of a revocation of a proxy must be sent so as to be delivered before the taking
of the vote at the annual meeting to:
Lennox International Inc.
2140 Lake Park Blvd.
Richardson, TX 75080
Telecopy: (972) 497-6660
Attention: Carl E. Edwards, Jr.
OTHER BUSINESS; ADJOURNMENTS
We are not aware of any other business to be acted upon at the annual
meeting. If, however, other matters are properly brought before the meeting, or
any adjourned meeting, your proxies will have discretion to act on those matters
or to adjourn the meeting, according to their best judgment. Adjournment of the
annual meeting may be made for the purpose of, among other things, soliciting
additional proxies. Any adjournment may be made at any time by stockholders
representing a majority of the votes present in person or by proxy at the
applicable special meeting, whether or not a quorum exists, without further
notice other than by an announcement made at the meeting.
PROXY SOLICITATION
The cost of solicitation of proxies will be paid by Lennox. In addition to
solicitation by mail, the directors, officers and employees of Lennox may also
solicit proxies from stockholders by telephone, telecopy, telegram, electronic
mail or in person. We will also make arrangements with brokerage houses and
other custodians, nominees and fiduciaries to send the proxy materials to
beneficial owners. Upon request, we will reimburse those brokerage houses and
custodians for their reasonable expenses in so doing.
STOCKHOLDER PROPOSALS
If you wish to submit a proposal for possible inclusion in our 2001 proxy
material, we must receive your notice, in accordance with rules of the
Securities and Exchange Commission, on or before November 28,
22
<PAGE> 27
2000. If you wish to submit a proposal at the 2001 Annual Meeting (but not seek
inclusion of the proposal in our proxy material), we must receive your notice,
in accordance with the Lennox bylaws, not less than 60 nor more than 90 days in
advance of such meeting.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 of the Securities Exchange Act of 1934 requires Lennox'
directors and executive officers and any person owning more than 10% of Lennox
common stock to file reports of ownership and changes in ownership of Lennox
common stock. Based solely upon a review of the reports and related information
furnished to Lennox, Lennox believes that all required reports were filed on
time during 1999.
INDEPENDENT AUDITORS
At their regularly scheduled meetings on April 14, 2000, the Audit
Committee and the Board of Directors will consider approval of Arthur Andersen
LLP as independent auditors for Lennox for fiscal year 2000. Representatives of
Arthur Andersen are expected to be present, and to be available to respond to
appropriate questions, at the annual meeting. They will have the opportunity to
make a statement if they desire to do so; they have indicated that, as of this
date, they do not.
By Order of the Board of Directors
/s/ CARL E. EDWARDS
Carl E. Edwards, Jr.
Executive Vice President,
General Counsel and Secretary
Richardson, Texas
March 27, 2000
23
<PAGE> 28
LENNOX INTERNATIONAL INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD APRIL 28, 2000
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The signatory of this Proxy, by executing on the reverse side of this Proxy,
hereby appoints and constitutes John W. Norris, Jr. and Clyde W. Wyant, and
each of them, with full power of substitution, with the powers the signatory of
this Proxy would possess if personally present, to vote all shares of Lennox
Common Stock entitled to be voted by the signatory at the Annual Meeting of
Stockholders to be held at 10:00 a.m., local time, on April 28, 2000, or at any
reconvened meeting after any adjournment or postponement thereof, on the matter
set forth on the reverse side in accordance with any directions given by the
signatory and, in their discretion, on all other matters that may properly come
before the Annual Meeting or any reconvened meeting after any adjournment or
postponement thereof.
IMPORTANT - PLEASE SIGN AND DATE ON THE REVERSE SIDE AND RETURN PROMPTLY.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED ON THE
REVERSE SIDE. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED "FOR" ALL
NOMINEES LISTED IN PROPOSAL 1.
- --------------------------------------------------------------------------------
o FOLD AND DETACH HERE o
<PAGE> 29
<TABLE>
<S> <C>
LENNOX INTERNATIONAL INC. Please mark
ANNUAL MEETING OF STOCKHOLDERS your votes as [X]
indicated in
this example
THIS PROXY WILL BE VOTED AS DIRECTED BELOW, OR IF NO DIRECTION IS INDICATED,
WILL BE VOTED "FOR" ALL NOMINEES LISTED IN PROPOSAL 1.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL NOMINEES LISTED IN PROPOSAL 1.
1. Election of the following nominees as directors for a term expiring in 2003.
01. Linda G. Alvarado, 02. Richard W. Booth, 03. David V. Brown, 04. John E. Major, 05. William G. Roth
INSTRUCTIONS: To withhold authority to vote for any individual nominee mark the "Exceptions"
box and write that nominee's name in the space provided below.
-----------------------------------------------------------------------------
EXCEPTIONS
FOR WITHHOLD EXCEPTIONS
all nominees AUTHORITY
listed to the left to vote for all nominees
listed to the left
[ ] [ ] [ ]
I (WE) PLAN TO ATTEND THE
ANNUAL MEETING OF STOCK- [ ]
HOLDERS ON APRIL 28, 2000
2. At the discretion of such Proxies on any other matter that may properly come before the meeting
or any adjournment thereof.
Please sign exactly as your name appears hereon.
Executors, administrators, guardians, and others sign-
ing in a fiduciary capacity should indicate such capacity
when signing. If shares are held jointly, each holder
should sign. If a corporation, please sign in full corpo-
rate name by duly authorized officer. If a partnership,
please sign in partnership name by authorized person.
Date
-----------------------------------------------------
----------------------------------------------------------
Signature(s)
----------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
o FOLD AND DETACH HERE o
VOTE BY TELEPHONE
QUICK * * * EASY * * * IMMEDIATE
YOUR VOTE IS IMPORTANT! - YOU CAN VOTE IN ONE OF TWO WAYS:
1. TO VOTE BY PHONE: Call toll-free 1-800-840-1208 on a touch tone telephone 24 HOURS A DAY-7 DAYS A WEEK
There is NO CHARGE to you for this call. - Have your proxy card in hand.
You will be asked to enter a Control Number, which is located in the box in the lower right hand corner of this form
OPTION 1: To vote as the Board of Directors recommends on proposal 1, press 1
WHEN ASKED, PLEASE CONFIRM BY PRESSING 1.
OPTION 2: If you choose to vote on Proposal 1 separately, press 0. You will hear these instructions:
Proposal 1 - To vote FOR ALL nominees, press 1; to WITHHOLD FOR ALL nominees, press 9
To WITHHOLD FOR AN INDIVIDUAL nominee, Press 0 and listen to the instructions
WHEN ASKED, PLEASE CONFIRM BY PRESSING 1.
OR
2. TO VOTE BY PROXY: Mark, sign and date your proxy card and return promptly in the enclosed envelope.
NOTE: If you vote by telephone, THERE IS NO NEED TO MAIL BACK your Proxy Card.
THANK YOU FOR VOTING.
</TABLE>
