<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCHEDULE 14A
(RULE 14a)
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:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
MONARCH MACHINE
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
XXXXXXXXXXXXXXXX
(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: ............
(2) Aggregate number of securities to which transaction applies: ...............
(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): ...............................
(4) Proposed maximum aggregate value of transaction: ...........................
(5) Total fee paid: ............................................................
[ ] 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.
(1) Amount Previously Paid: ....................................................
(2) Form, Schedule or Registration Statement No.: ..............................
(3) Filing Party: ..............................................................
(4) Date Filed: ................................................................
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- --------------------------------------------------------------------------------
<PAGE> 2
[Monarch Logo]
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
<TABLE>
<S> <C>
Date: Wednesday, May 5, 1999
Time: 2:00 p.m., E.D.S.T.
Place: Kettering Tower, 12th Floor
Second and Main Streets
Dayton, Ohio 45423
</TABLE>
At the Annual Meeting, shareholders of The Monarch Machine Tool Company will:
- - ELECT THREE DIRECTORS FOR A THREE-YEAR TERM;
- - VOTE ON APPROVING THE COMPANY'S 1999 LONG-TERM INCENTIVE STOCK PLAN; AND
- - TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY
ADJOURNMENT THEREOF.
Shareholders of record at the close of business on March 17, 1999 may vote at
the meeting.
Your vote is important. Please fill out the enclosed proxy card and return it in
the reply envelope.
By Order of the Board of Directors,
Richard E. Clemens
President and
Chief Executive Officer
March 31, 1999
<PAGE> 3
PROXY STATEMENT FOR 1999 ANNUAL MEETING OF SHAREHOLDERS
THE MONARCH MACHINE TOOL COMPANY March 31, 1999
2600 KETTERING TOWER
DAYTON, OHIO 45423
SOLICITATION AND VOTING OF PROXIES
The Board of Directors of The Monarch Machine Tool Company is sending you this
Proxy Statement to solicit your proxy. If you give the Board your proxy, the
proxy agents of the Board will vote your shares at the Annual Meeting of
Shareholders on May 5, 1999 and any adjournment of the meeting. The proxy agents
will vote your shares as you specify on the proxy card. If you do not specify
how your shares should be voted, the proxy agents will vote your shares in
accordance with the Board's recommendations.
You may revoke your proxy at any time before the proxy agents use it to vote on
a matter. You may revoke your proxy in any one of three ways:
- You may send in another proxy card with a later date.
- You may notify the Company in writing before the Annual Meeting that
you have revoked your proxy.
- You may vote in person at the Annual Meeting.
The Company first mailed this Proxy Statement to shareholders on March 31, 1999.
VOTING SECURITIES AND RECORD DATE
You are entitled to notice of the Annual Meeting and to vote at the meeting if
you owned common shares or preferred shares of record at the close of business
on March 17, 1999. For each share owned of record, you are entitled to one vote.
On March 17, 1999, the Company had 3,779,393 common shares and 14,642 Series A
Preferred Shares outstanding, which are the only outstanding voting securities.
QUORUM REQUIREMENT AND VOTING
A quorum of shareholders is necessary to hold a valid meeting. The holders of
voting shares present, in person or by proxy, at the Annual Meeting constitute a
quorum for the election of directors. The presence, in person or by proxy, of
the holders of a majority of the outstanding shares is necessary for any other
purpose. Abstentions and broker non-votes are counted as present for
establishing a quorum. A broker non-vote occurs when a broker votes on some
matters on the proxy card but not on others because he does not have the
authority to do so.
In counting votes on a particular item, the Company will treat abstentions as
votes cast on the particular matter. The Company will not, however, treat broker
non-votes as either votes cast or shares present for matters related to the
particular item. Thus, abstentions and broker non-votes have the effect of a
negative vote on any proposal where the vote required to pass the proposal is a
percentage of the outstanding shares, but only abstentions have the effect of a
negative vote when the vote required to pass a proposal is a percentage of the
share present at the meeting.
If a shareholder notifies the Company in writing 48 hours or more before the
meeting that the shareholder desires that directors be elected by cumulative
voting, then shareholders will have cumulative voting rights in the election of
directors. Cumulative voting allows each shareholder to multiply the number of
shares owned by the number of directors to be elected and to cast the total for
one nominee or distribute the votes among the nominees as the shareholder
desires. Nominees who receive the greatest number of votes will be elected.
<PAGE> 4
ELECTION OF DIRECTORS
The Company's Board of Directors is divided into three classes, with three
directors in each class. One class of directors is elected for a term of three
years at each Annual Meeting of Shareholders.
At the 1999 Annual Meeting, shareholders will elect three directors who will
hold office until the Annual Meeting of Shareholders in 2002. The Board has
nominated John A. Bertrand, William R. Graber and Waldemar M. Goulet for
election as directors. All nominees are presently directors. There is currently
a vacancy in the class of directors whose term of office expires in 2000, which
the Board may fill.
If a nominee becomes unable to stand for reelection, the Board's proxy agents
will vote the proxies for a substitute nominee of the Board. If shareholders
vote cumulatively in the election of directors, then the Board's proxy agents
will vote the shares represented by the proxies cumulatively for the election of
as many of the Board's nominees as possible and in such order as the proxy
agents determine.
NOMINEES FOR TERM OF OFFICE EXPIRING IN 2002
JOHN A. BERTRAND DIRECTOR SINCE 1993
Mr. Bertrand, 60, has been President for more than five years of A.O. Smith
Electrical Products Company, a subsidiary of A.O. Smith Corporation which
manufactures electric motors.
WALDEMAR M. GOULET DIRECTOR SINCE 1991
Mr. Goulet, 63, has been a Professor of Finance at Wright State University,
Dayton, Ohio for more than five years and was formerly Dean of the College of
Business and Administration at Wright State University.
WILLIAM R. GRABER DIRECTOR SINCE 1998
Mr. Graber, 55, has been Vice President and Chief Financial Officer of The Mead
Corporation (paper and forest products) since November 1993.
2
<PAGE> 5
DIRECTORS CONTINUING IN OFFICE UNTIL 2001
RICHARD E. CLEMENS DIRECTOR SINCE 1997
Mr. Clemens, 49, has been President and Chief Executive Officer of the Company
since March 10, 1997. From July 1995 to February 1997, he was Vice President and
General Manager of Frick Company, a subsidiary of York International, engaged in
the manufacture of compressors, heat exchangers, and process refrigeration
equipment. He served as President and Chief Executive Officer of Clark Material
Handling Company, a manufacturer of lift trucks, from March 1994 to July 1995.
From July 1985 until 1994, he held various management positions with BMY Combat
Systems, a division of Harsco Corporation, having served as President of the
division from 1992 to 1994.
GERALD L. CONNELLY DIRECTOR SINCE 1997
Mr. Connelly, 57, has been President and Chief Executive Officer of Robbins &
Myers, Inc. (fluids management equipment for the process industries) since
January 1, 1999. From April 1997 to January 1999, he was its Executive Vice
President and Chief Operating Officer and from June 1994 to April 1997, he was a
Vice President of Robbins & Myers, Inc. and President of its Process Industries
Group. He is also a director of Robbins & Myers, Inc.
JOSEPH M. RIGOT DIRECTOR SINCE 1994
Mr. Rigot, 55, has been partner-in-charge of the Thompson Hine & Flory LLP,
Dayton, Ohio office (attorneys) since 1993 and has been engaged in the practice
of corporate and securities law since 1973. Thompson Hine & Flory LLP provides
legal services to the Company.
DIRECTORS CONTINUING IN OFFICE UNTIL 2000
WILLIAM A. ENOUEN DIRECTOR SINCE 1990
William A. Enouen, 70, retired on December 1, 1993 as Senior Vice President and
Chief Financial Officer of The Mead Corporation. Mr. Enouen is a director of
Morris Bean & Co.
DAVID E. LUNDEEN DIRECTOR SINCE 1970
Mr. Lundeen, 70, served as Acting President and Chief Executive Officer of the
Company from May 1996 to March 1997. In November 1994, he retired as Vice
President of the Company and General Manager of its Machine Tool Division.
3
<PAGE> 6
DIRECTORS' MEETINGS AND COMMITTEES
The Board of Directors met five times in 1998. The Board of Directors has four
committees: the Audit Committee (Messrs. Goulet-Chairman, Bertrand, Enouen,
Connelly, Graber and Hopkins), which met twice in 1998; the Compensation
Committee (Messrs. Enouen-Chairman, Bertrand, Connelly and Lundeen), which met
twice in 1998; the Nominating Committee (Messrs. Bertrand-Chairman, Enouen and
Rigot), which met once in 1998; and the Executive Committee (Messrs.
Enouen-Chairman, Bertrand, Clemens and Rigot), which did not meet in 1998. Each
director attended in 1998 more than 80% of the total number of Board meetings
and meetings of Board Committees on which he served.
The Audit Committee meets with Company personnel and with representatives of
PricewaterhouseCoopers LLP, the Company's independent auditors, to review
internal auditing procedures, the annual audit of the Company's financial
statements, and other matters related to the Company's financial reporting. The
Committee reports its findings and recommendations to the Board of Directors.
The Compensation Committee develops and administers the Company's executive
compensation policies and programs and sets the compensation of executive
officers. The Committee also advises the Board of Directors on the creation,
administration or modification of employee compensation policies and procedures.
The Nominating Committee recommends to the Board candidates for membership on
the Board. The Nominating Committee will consider candidates recommended by
shareholders for nomination. A shareholder desiring to recommend a candidate
should send the name, address, and a brief resume of the candidate to the
Secretary of the Company.
The Executive Committee exercises all of the authority of the Board between
meetings of the Board except as to matters that may not be delegated to a
committee under Ohio law.
DIRECTOR COMPENSATION
Directors who are not employees of the Company received the following
compensation in 1998:
<TABLE>
<S> <C>
Annual Stipend: $10,000
Attendance Fees: $800 per Board meeting
$600 per Committee meeting, except
Committee Chairmen receive $800
</TABLE>
If the Company's 1999 Long-Term Incentive Stock Plan is approved at the Annual
Meeting, directors who are not employed by the Company will be compensated as
follows:
<TABLE>
<S> <C>
Annual Stipend: $12,000 (50% paid in restricted
Company stock which vests after one
year)
Attendance Fees: $1,000 per Board meeting
$600 per Committee meeting, except
Committee Chairmen receive $800
</TABLE>
4
<PAGE> 7
<TABLE>
<S> <C>
Stock Options: 1,000 share option granted to each
director following each Annual
Meeting of Shareholders; option price
equal to fair market value on date of
grant.
</TABLE>
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is information as of March 17, 1999 concerning common shares of
the Company beneficially owned by each director, each executive officer named in
the Summary Compensation Table, and directors and executive officers as a group.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
NUMBER OF SHARES PERCENT OF
BENEFICIALLY OWNED VOTING
INDIVIDUAL OR GROUP AS OF 3/17/99(1) SHARES
- ----------------------------------------------------------------------------------------
<S> <C> <C>
John A. Bertrand 1,000 (2)
Richard E. Clemens 40,926 1.1%
Gerald L. Connelly 2,000 (2)
William A. Enouen 1,000 (2)
Waldemar M. Goulet 1,000 (2)
William R. Graber 1,000 (2)
Kenneth H. Hopkins 1,000 (2)
David E. Lundeen 12,600 (2)
Joseph M. Rigot 5,000 (2)
Karl A. Frydryk 7,432 (2)
Frederick G. Sharp 7,952 (2)
Patrick M. Flaherty 26,436 (2)
Directors and Executive Officers as a
Group (18 persons) 123,632 3.2%
- ----------------------------------------------------------------------------------------
</TABLE>
(1) Unless otherwise indicated, total voting power and total investment power
are exercised by each individual and/or a member of his household. Shares
which a person may acquire within 60 days of March 17, 1999 are treated as
"beneficially owned" and the number of such shares included in the table for
each person and the group were: Mr. Clemens -- 13,438; Mr. Frydryk -- 4,313;
Mr. Flaherty -- 3,125; Mr. Sharp -- 5,469; and directors and executive
officers as a group -- 37,610.
(2) Less than 1%.
5
<PAGE> 8
PRINCIPAL SHAREHOLDERS
The only persons known by the Board of Directors of the Company to be beneficial
owners of more than 5% of the outstanding voting shares of the Company as of
March 17, 1999 are listed in the following table:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
NUMBER OF COMMON
SHARES BENEFICIALLY PERCENT OF
NAME AND ADDRESS OWNED AS OF 3/17/99 VOTING SHARES
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Dimensional Fund Advisors Inc.(1) 255,261 6.7%
1299 Ocean Avenue
Santa Monica, CA 90401
- ---------------------------------------------------------------------------------------
Franklin Advisory Services, Inc.(2) 351,000 9.3%
One Parke Plaza
Sixteenth Floor
Fort Lee, NJ 07024
- ---------------------------------------------------------------------------------------
Greenway Group(3) 327,600 8.6%
277 Park Avenue, 27th Floor
New York, NY 10017
- ---------------------------------------------------------------------------------------
</TABLE>
(1) Dimensional Fund Advisors Inc. is a registered investment advisor.
(2) Franklin Advisory Services, Inc., an investment advisor, has sole voting
power and sole dispositive power with respect to the listed shares.
(3) A Schedule 13D was filed with the Securities and Exchange Commission on
September 16, 1996 by the following persons or entities in which it was
affirmed they were filing as members of a group (where shares are held
directly by a member of the Group, it is so indicated in parenthesis):
Greenway Partners, L.P. (100,500 shares), Greentree Partners, L.P. (42,100
shares), Greenhouse Partners, L.P., Greenhut, L.L.C., Greenbelt Corp.
(150,000 shares), Greensea Offshore, L.P. (35,000 shares), Greenhut
Overseas, L.L.C., Alfred D. Kingsley, and Gary K. Duberstein (the "Greenway
Group"). Messrs. Kingsley and Duberstein have shared voting and shared
dispositive power by virtue of various offices they hold with respect to all
of the 327,600 shares owned by the Greenway Group.
6
<PAGE> 9
COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Board's Compensation Committee is responsible for assuring that the
Company's compensation policies and programs effectively promote Company
objectives. The Committee sets the compensation of executive officers. It also
administers and makes all awards under the Company's stock-based compensation
plans. The Committee members are four directors who are not employed by the
Company.
BACKGROUND
The Company employed Richard E. Clemens as President and Chief Executive Officer
in March 1997. It first employed six of its seven other current executive
officers in 1998. The Board challenged the new executive team to stop the
Company's losses, to sell or redeploy assets as necessary to maximize financial
resources, and to articulate and execute a business strategy that offers
significant potential for enhancement of shareholder value.
To further these objectives, the Committee, in conjunction with Mr. Clemens and
Aon Consulting, the Company's compensation consultants, developed a new
executive compensation program. The Committee implemented elements of the new
program in 1998. The Company has proposed that shareholders adopt the 1999
Long-Term Incentive Stock Plan (the "1999 Plan"), which is discussed at page 13.
With the adoption of the 1999 Plan, the Committee will implement fully the new
executive compensation program in 1999.
OBJECTIVES AND POLICIES
The Committee seeks to:
- create a performance-oriented environment, with emphasis on
achievement of the annual business plan;
- stress the importance of implementing a long-term, business strategy
that offers meaningful opportunities to enhance shareholder value;
- tie compensation to both Company and individual performance; and
- provide significant rewards to executives for substantial improvement
in total shareholder return.
To achieve these objectives, the Company pays two types of compensation:
- Annual compensation -- includes base salary and a bonus if certain
financial targets are achieved; and
- Long-term compensation -- includes restricted shares which vest over
three years and annual stock option grants which are only valuable if
the Company's stock price increases.
ANNUAL COMPENSATION
Base Salary. The Company pays executives a salary each year which it believes is
competitive with salaries paid by other industrial companies similar to the
Company based on survey data of independent compensation consultants. Because
the Company's current executive team was
7
<PAGE> 10
recently hired, their 1998 salaries were fixed at the time of their employment,
and no adjustments in their salaries were made in 1998. The Committee will
review salary survey data in the future and may annually adjust individual
salaries to reflect any changes in the Company's salary structure, attainment of
individual objectives during the preceding year, and overall Company
performance.
Annual Bonus Opportunity. Executives can earn cash and restricted share bonuses
each year. For fiscal 1998, the available bonuses ranged from 20% to 50% of base
salaries. Those executives with higher rated positions were eligible for the
larger bonus percentage, effectively making more of their total compensation
dependent on performance. Fiscal 1998 bonuses were calculated as follows:
- Cash bonus. Cash bonuses are only paid if earnings before taxes for a
particular business unit (all units combined in the case of corporate
executives) were greater than 80% of the 1998 annual plan. Total cash
bonuses for 1998 paid to the Chief Executive Officer and the other
Named Executive Officers in the Summary Compensation Table were
$180,413.
- Stock bonus. The number of restricted shares awarded as stock bonuses
was based on two measures: 60% of the share award was based on the
Company's pre-tax earnings per share and 40% of the award was based on
total shareholder return for 1998. A total of 6,837 Company shares was
awarded for 1998 to the Chief Executive Officer and the other Named
Executive Officers. The awarded shares vest in equal proportions over
a three-year period.
As noted above, for 1999, the Committee intends to fully implement the new
executive compensation program. For 1999, the financial performance measures
will include earnings before interest and taxes, revenue growth, cash flow, and
total shareholder return over a three-year period compared to the Company's peer
group companies listed at page 13.
LONG-TERM COMPENSATION INCENTIVES
The Company's executives make strategic business decisions daily which are
ultimately successful only if they increase shareholder value. The Committee
believes a significant portion of executive compensation should be tied to
increases in shareholder value and paid in Company stock. To accomplish this,
the Committee uses stock options and restricted shares as long-term incentives.
In 1999, the Committee will fully implement the Company's stock-based, long-term
compensation program. For 1998, the Company's long-term, stock-based,
compensation program consisted of the grant of stock options and the award of
restricted shares described above.
Stock Options. The Committee annually grants stock options to executives. The
option price is the fair market value of a Company share on the date of grant.
Options generally become exercisable after one year and expire ten years after
grant. The Committee determines the number of shares, if any, to be granted to
each executive based on:
- executive's ability to impact the Company's long-term financial
results;
- executive's recent performance; and
- importance of executive to achieving the Company's long-term goals.
8
<PAGE> 11
In 1998, the Committee granted options to purchase a total of 23,345 Company
shares to the Chief Executive Officer and the other Named Executives at an
option price of $7.69 per share.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
In determining Mr. Clemens' total compensation, the Committee considered:
- the Company's financial results;
- his personal leadership in attracting key executives to the Company
and in initiating operations improvement programs across the Company's
business units;
- his success in redeploying Company assets through sales and closures
of underperforming units, the acquisition of GFG Corporation, and the
implementation of new product alliances; and
- his development of an ongoing business strategy that offers
significant potential for enhancement of shareholder value.
At the time Mr. Clemens was employed in March 1997, his annual salary was set at
$215,000, he was granted options to purchase 75,000 shares at $8.438 per share,
and he was awarded 17,000 restricted shares which vested over two years.
Mr. Clemens' annual salary was not adjusted in 1998, but effective March 1,
1999, will be $230,000. His cash bonus available for 1998, based on the Company
achieving a certain level of earnings before taxes, was targeted at 50% of his
salary. His actual cash bonus was $89,074. Mr. Clemens' restricted share award
of 3,488 shares was based on the factors described above at "Annual Bonus
Opportunity -- Stock Bonus."
In 1998, the Company granted Mr. Clemens options to purchase 13,438 shares at an
option price of $7.69 per share.
From the time Mr. Clemens was employed through December 31, 1998, the Company
has granted him options to purchase 88,438 shares and awarded him 27,488
restricted shares. The Committee believes that Mr. Clemens' compensation package
is performance-based and substantially and effectively linked to shareholder
return.
CONCLUSION
The Committee believes the Company made important progress in 1998 in
implementing compensation policies and programs which effectively relate the
level of executive compensation to Company performance and appreciation in the
Company stock price. With the hiring of the new executive team, the adoption of
the 1999 Plan, and the full implementation of the Company's new executive
compensation program in 1999, the Committee believes the Company has assembled a
strong management team which will be appropriately motivated to improve
significantly the Company's return to its shareholders.
THE COMPENSATION COMMITTEE
William A. Enouen, Chairman
John A. Bertrand
Gerald L. Connelly
David E. Lundeen
9
<PAGE> 12
EXECUTIVE COMPENSATION
The following sections show compensation information for services in 1998 of the
Chief Executive Officer, the only three other executive officers of the Company
at December 31, 1998 whose salary and bonus for 1998 exceeded $100,000, and two
former executive officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------ ------------------------
NUMBER OF
SHARES
NAME AND RESTRICTED UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OTHER STOCK(4) OPTIONS COMPENSATION(5)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard E. Clemens, 1998 $215,000 $ 89,074 $4,597(3) $ 23,108 13,438 $1,870
President and Chief 1997 179,170 100,000 50,000(3) 197,250 75,000 -0-
Executive Officer
Karl A. Frydryk, 1998 $124,129 $ 28,370 -0- $ 7,413 4,313 $ 362
Vice President and Chief
Financial Officer(1)
Frederick G. Sharp, 1998 $109,771 $ 44,844 $52,684(3) $ 9,401 5,469 $ 334
President -- Stamco
Division(1)
Patrick M. Flaherty, 1998 $ 87,500 $ 18,125 $58,448(3) $ 5,373 3,125 $ 434
Vice President - Operations
Improvement(1)
Robert J. Kindt, 1998 $125,000 -0- -0- -0- -0- $1,799
Former Vice President, 1997 149,583 -0- -0- -0- -0- 449
European Operations(2) 1996 144,583 -0- -0- -0- -0- 434
Robert A. Skodzinsky, 1998 $130,000 -0- -0- -0- 5,688 $2,313
Former President, 1997 129,375 -0- -0- -0- -0- 950
Machine Tool Division(2) 1996 124,375 -0- -0- -0- -0- 950
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Mr. Clemens was first employed by the Company on March 10, 1997, Mr. Frydryk
on January 5, 1998, Mr. Sharp on February 23, 1998, and Mr. Flaherty on
February 16, 1998.
(2) Mr. Kindt ceased to be employed by the Company on April 30, 1998 and Mr.
Skodzinsky on September 4, 1998.
(3) Relocation allowances and related payments.
(4) For 1998 services, a total of 9,966 restricted shares were awarded in
February 1999 to the persons named in the Summary Compensation Table, which
shares vest in equal installments over three years. Dividends are paid on
restricted shares. As of December 31, 1998, the number and aggregate value
of restricted shares held by the Named Executive Officers were: Mr.
Clemens -- 17,207 shares ($116,147); Mr. Frydryk -- 3,275 shares ($22,106);
Mr. Sharp -- 4,153 shares ($28,032); and Mr. Flaherty -- 2,374 shares
($16,025).
(5) This column includes term life insurance premiums paid by the Company and
also Company contributions under its 401(k) plan for the following persons:
Mr. Clemens -- $1,000; Mr. Kindt -- $384; and Mr. Skodzinsky -- $1,000.
10
<PAGE> 13
1998 STOCK OPTION GRANTS
The following table presents information concerning stock options granted in
fiscal 1998 to the persons named in the Summary Compensation Table. The table
also shows the hypothetical gains that would exist for the options at the end of
their ten-year terms, assuming compound rates of stock appreciation of 5% and
10%. The actual future value of the options will depend on the market value of
the Company's common shares.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS(1)
------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES
SHARES OPTIONS OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ------------------------------
NAME GRANTED FISCAL 1998 PRICE DATE 5% 10%
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Richard E. Clemens 13,438 19.5% $ 7.69 2/9/08 $ 64,989 $ 164,695
Karl A. Frydryk 4,313 6.3% $ 7.69 2/9/08 $ 20,859 $ 52,860
Frederick G. Sharp 5,469 7.9% $ 7.69 2/23/08 $ 26,449 $ 67,027
Patrick M. Flaherty 3,125 4.5% $ 7.69 2/16/08 $ 15,113 $ 38,300
Robert J. Kindt -0- -0- -0- -- -0- -0-
Robert A. Skodzinsky 5,688 8.24% $ 7.69 2/9/08 $ 27,508 $ 69,711
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Under the Company's 1994 Stock Option Plan, shares subject to an option may
be purchased one year after the date of grant, and the options have a
10-year term.
(2) The dollar amounts under these columns are the result of calculations at the
5% and 10% rates, assuming annual compounding, prescribed by rules of the
Securities and Exchange Commission and are not intended to forecast possible
appreciation, if any, of the Company's share price.
OPTION EXERCISES IN 1998 AND YEAR-END OPTION VALUES
The following table presents information concerning all exercises of options to
purchase Company shares during fiscal 1998 by the persons named in the Summary
Compensation Table and the value of all unexercised options at December 31,
1998.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT 12/31/98 OPTIONS AT 12/31/98 (1)
SHARES ACQUIRED VALUE --------------------------- ------------------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Richard E. Clemens -0- -0- -0- 88,438 -0- -0-
Karl A. Frydryk -0- -0- -0- 4,313 -0- -0-
Frederick G. Sharp -0- -0- -0- 5,469 -0- -0-
Patrick M. Flaherty -0- -0- -0- 3,125 -0- -0-
Robert J. Kindt -0- -0- 3,500 -0- -0- -0-
Robert A. Skodzinsky -0- -0- 2,000 5,688 -0- -0-
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) At December 31, 1998, the option exercise price of all outstanding options
was higher than the market value of a share at such date.
11
<PAGE> 14
PENSION PLAN
Until January 1, 1999, executive officers and other salaried employees accrued
retirement benefits under the Company's noncontributory, defined benefit pension
plan (the "Former Pension Plan"). On such date, benefit accruals under the
Former Pension Plan ceased, and the Company adopted new retirement plans for
salaried employees.
The following table shows the estimated retirement benefits payable at normal
retirement (age 65) under the Former Pension Plan. Retirement benefits are based
upon years of benefit service (not in excess of 35) multiplied by 1.25% of final
average annual base compensation. Final average annual base compensation means
base compensation during the five consecutive years of employment in the ten
consecutive years of employment preceding retirement (or cessation of benefit
accruals under the plan in the case of participants employed by the Company on
December 31, 1998) that yield the highest average. Compensation for purposes of
calculating retirement benefits includes only salary. The amounts shown in the
table below have been prepared on the straight life equivalent basis. These
amounts are not reduced to take into account Social Security benefits paid to
the employee. The credited years of service for the persons named in the Summary
Compensation Table is: Mr. Clemens -- 7.0, Mr. Frydryk -- 1.0 Mr. Sharp -- .8,
Mr. Flaherty -- .9, Mr. Kindt -- 8.1 and Mr. Skodzinsky -- 5.1. Mr. Clemens'
years of service include five years of credited service he was granted in
connection with his initial employment by the Company in March 1997.
<TABLE>
<CAPTION>
----------------------------------------------------
ESTIMATED ANNUAL RETIREMENT BENEFITS
FINAL AVERAGE FOR SPECIFIED YEARS OF SERVICE
ANNUAL BASE ------------------------------------
COMPENSATION 10 YEARS 15 YEARS 20 YEARS
----------------------------------------------------
<S> <C> <C> <C>
$125,000 $15,625 $23,438 $31,250
150,000 18,750 28,125 37,500
175,000 20,000 30,000 40,000
200,000 20,000 30,000 40,000
225,000 20,000 30,000 40,000
----------------------------------------------------
</TABLE>
OTHER
On November 3, 1998, the Company entered into agreements with each of Messrs.
Clemens, Frydryk, and Sharp. The agreements provide that if the executive is
terminated within two years after a change of control of the Company as defined
in the agreement for a reason other than cause or disability or if the executive
quits for good reason (e.g. a reduction in compensation or demotion), then the
executive is paid a severance payment within 15 days after termination. The
severance payment is equal to twice the executive's annual salary and bonus,
except, in the case of Mr. Sharp, it is equal to one year's salary and bonus.
12
<PAGE> 15
COMMON STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total return to shareholders on the
Company's common shares for the last five calendar years with the cumulative
total return on the S&P 500 Index of companies, The Russell 2000 Index of
companies, and a peer group of 13 industrial technology companies (the "Peer
Group") for the same periods. The Peer Group includes Allied Products Corp.,
Bridgeport Machines Inc., Brown & Sharpe Manufacturing Co., DeVlieg-Bullard
Inc., DT Industries Inc., Flow International Corp., Gleason Corp., Hardinge,
Inc., Hurco Companies Inc., Met-Coil Systems Corp., The Monarch Machine Tool
Company, Newcor Inc., and Unova Inc. The graph depicts the value on December 31,
1998, of a $100 investment made on December 31, 1993, in Company shares, with
all dividends reinvested, and the corresponding index.
The graph has in prior years included the S&P 500 Index, but not the Russell
2000 Index of companies. Given the Company's current market capitalization, the
Company believes the Russell 2000 Index of companies is a better benchmark for
the Company than the S&P 500 Index.
<TABLE>
<CAPTION>
MONARCH MACHINE PEER GROUP S&P 500 RUSSELL 2000 INDEX
--------------- ---------- ------- ------------------
<S> <C> <C> <C> <C>
12/31/93 100.00 100.00 100.00 100.00
12/31/94 92.00 95.00 101.00 98.00
12/31/95 117.00 148.00 139.00 126.00
12/31/96 79.00 177.00 171.00 147.00
12/31/97 77.00 206.00 229.00 180.00
12/31/98 68.00 158.00 294.00 179.00
</TABLE>
PROPOSAL TO ADOPT 1999 LONG-TERM INCENTIVE STOCK PLAN
At the meeting, shareholders will vote on approval of the Company's 1999
Long-Term Incentive Stock Plan (the "Plan"). The Plan was approved by the Board
of Directors on February 12,
13
<PAGE> 16
1999, subject to shareholder approval. THE BOARD OF DIRECTORS RECOMMENDS THAT
YOU VOTE FOR APPROVAL OF THE PLAN. Approval of the Plan requires the affirmative
vote of a majority of the shares represented at the meeting, in person or by
proxy, and entitled to vote on the proposal.
The Compensation Committee will administer the Plan. The Plan provides for the
grant of options and other long-term incentive stock awards with respect to a
maximum of 175,000 common shares of the Company. The Board believes adoption of
the new Plan provides the Committee the flexibility necessary to design and
implement performance-based compensation utilizing stock incentives. Less than
12,000 shares are currently available for awards under the Company's existing
1984 Restricted Stock Bonus Plan and 1994 Stock Option Plan.
A description of the essential features of the Plan appears below. The Company
will provide you a copy of the full text of the Plan upon request directed to
the Company, either by telephoning 937-910-9300, or by writing to The Monarch
Machine Tool Company, 2600 Kettering Tower, Dayton, Ohio 45423, Attention:
Secretary.
GENERAL INFORMATION
The Plan authorizes the Committee to grant incentive awards in the form of stock
options, performance shares, and restricted shares to officers, other key
employees, and directors of the Company and its subsidiaries ("Incentive
Awards"). The Committee developed the Plan, in conjunction with its compensation
consultants, as the Company's primary vehicle for long-term, performance-based
compensation utilizing stock incentives.
No more than 175,000 shares may be issued under the Plan. The shares that may be
issued may be authorized but unissued shares or treasury shares. If there is a
stock split, stock dividend or other relevant change affecting the Company's
shares, the Committee will make appropriate adjustments in the maximum number of
shares issuable under the Plan and subject to outstanding Incentive Awards.
The Plan also contains annual limits on Incentive Awards to individual
participants. In any calendar year, no participant may be granted stock options
for more than 50,000 shares, Restricted Share Awards with a value of more than
$400,000 at the time of award, or Performance Shares with a value of more than
$400,000 at the time of award.
FORM OF INCENTIVE AWARDS
Stock Options. The Committee may grant options qualifying as incentive stock
options under the Internal Revenue Code of 1986 and nonqualified stock options.
The term of an option may not exceed ten years from the date of grant. The
option price per share may not be less than the fair market value of a Company
share on the date of grant.
The option price is payable either in cash, by delivery to the Company of shares
of the Company already owned by the optionee, or by any combination of such
methods of payment. Under the Plan, an optionee may use shares received upon the
exercise of a portion of an option to pay the exercise price for additional
portions of the option. The Plan also permits the use of shares issuable upon
exercise of an option to pay applicable withholding taxes due upon the exercise
of a nonqualified stock option. The Committee may, however, adopt guidelines
14
<PAGE> 17
limiting or restricting the use of shares as a method of payment of the option
price and withholding taxes.
The Committee may provide that an option is exercisable at any time during its
term, or only with respect to a stated number of shares over staggered periods.
An option may only be exercised while the optionee is employed by the Company,
or a subsidiary of the Company, or within 30 days after cessation of the
optionee's employment if the reason for cessation of employment is other than
disability, retirement, or death. In the case of disability, normal retirement,
or death, an option may be exercised to the extent it was exercisable on the
date the optionee ceased to be employed by the Company for the lesser of three
years after termination of employment or the remaining term of the option. In
the event of a change of control of the Company (as defined in the Plan), any
option which is not then exercisable, automatically becomes exercisable.
Performance Awards. The Committee may grant performance awards under which
payment is made, in the Committee's discretion, in shares, in cash, or a
combination of shares and cash if the performance of the Company or any
subsidiary or division of the Company selected by the Committee meets certain
goals established by the Committee during an award period. The Committee
determines the goals, the length of an award period, the maximum payment value
of an award, and the minimum performance required before a payment is made.
Except for performance awards intended as "performance-based compensation" under
Section 162(m) of the Internal Revenue Code (the "Code"), the Committee may
revise the goals and the computation of payment at any time to account for
unforeseen events which occur during an award period and which have a
substantial effect on the performance of the Company, subsidiary or division. In
order to receive payment, a grantee must remain in the employ of the Company
until the completion of the award period, except that the Committee may provide
complete or partial exceptions to that requirement as it deems equitable.
Restricted Share Awards. The Committee may also issue or transfer shares under a
restricted share award. The grant of the award sets forth a restricted period
during which the grantee must remain in the employ of the Company. If the
grantee's employment terminates during the period, the grant terminates and the
grantee must return the shares to the Company. However, the Committee may
provide complete or partial exceptions to this requirement as it deems
equitable. The grantee may not dispose of the shares prior to the expiration of
the restricted period. During this period, the grantee is entitled to vote the
shares and receives dividends.
Reload Options. Options granted under the Plan may contain a "reload" feature.
An option with a reload feature may provide that, whenever the optionee
exercises the option, the optionee will automatically be granted a new option,
called a Reload Option, for a number of shares equal to the number of shares
delivered by the optionee to pay the option exercise price of the original
option and to pay any federal tax withholding payments associated with exercise
of the original option. The option exercise price for the Reload Option will be
the fair market value of a Company share on the date of exercise of the original
option and have the same expiration date as the original option. The Reload
Option, under rules adopted by the Committee, will terminate if the optionee
disposes of any shares acquired upon exercise of the original option within two
years of the date of exercise of the original option.
15
<PAGE> 18
PERFORMANCE-BASED COMPENSATION
Section 162(m) of the Code limits the amount of the deduction that the Company
may take on its federal income tax return for compensation paid to any of the
Named Executive Officers in the Summary Compensation Table (the Code refers to
these officers as "covered employees"). The limit is $1 million per covered
employee per year, with certain exceptions. This deductibility cap does not
apply to "performance-based compensation," if approved by shareholders. Options
granted under the Plan will qualify as performance-based compensation and other
Incentive Awards may also qualify if the Committee so designates the other
Incentive Awards as performance-based compensation and administers the Plan with
respect to these designated awards in compliance with Section 162(m) of the
Code.
The Plan contains a number of measurement criteria that the Committee may use to
determine whether and to what extent any covered employee has earned a
Performance Share or Restricted Share Award. The measurement criteria that the
Committee may use to establish specific levels of performance goals include any
one or a combination of the following: level of sales, earnings per share,
income before income taxes and cumulative effect of accounting changes, income
before cumulative effect of accounting changes, net income, return on assets,
return on equity, return on capital employed, total stockholder return, market
valuation, cash flow and completion of acquisitions. The foregoing criteria have
any reasonable definitions that the Committee may specify, which may include or
exclude any or all of the following items, as the Committee may specify:
extraordinary, unusual or non-recurring items; effects of accounting changes;
effects of currency fluctuations; effects of financing activities (e.g., effect
on earnings per share of issuing convertible debt securities); expenses for
restructuring or productivity initiatives; non-operating items; acquisition
expenses; and effects of divestitures. Any such performance criterion or
combination of such criteria may apply to a participant's award opportunity in
its entirety or to any designated portion of the award opportunity, as the
Committee may specify.
The Committee may set performance goals based on the achievement of specified
levels of corporate-wide performance or performance of a Company subsidiary or
business unit in which the participant works. The Committee may make downward
adjustments in the amounts payable under an award, but it may not increase the
award amounts or waive the achievement of a performance goal.
FEDERAL INCOME TAX CONSEQUENCES
Stock Options. The grant of an incentive stock option or a nonqualified stock
option does not result in income for the grantee or in a deduction for the
Company.
The exercise of a nonqualified stock option results in ordinary income for the
optionee and a deduction for the Company measured by the difference between the
option price and the fair market value of the shares received at the time of
exercise. Income tax withholding by the Company is required.
The exercise of an incentive stock option does not result in income for the
grantee if the grantee (i) does not dispose of the shares within two years after
the date of grant or one year after the transfer of shares upon exercise (the
"holding periods") and (ii) is an employee of the Company or a subsidiary of the
Company from the date of grant until three months before the
16
<PAGE> 19
exercise. If these requirements are met, the basis of the shares upon later
disposition is the option price. Any gain upon disposition is taxed to the
employee as long-term capital gain. The excess of the market value on the
exercise date over the option price of an incentive stock option is an item of
tax preference, potentially subject to the alternative minimum tax.
If the grantee disposes of the shares acquired upon exercise of an incentive
stock option prior to the expiration of the holding periods, the grantee
recognizes ordinary income and the Company is entitled to a deduction equal to
the lesser of the fair market value of the shares on the exercise date minus the
option price or the amount realized on disposition minus the option price. Any
gain in excess of the ordinary income portion is taxable as long-term or
short-term capital gain.
Restricted Share Awards. The grant of a restricted share award or the issuance
of performance shares as restricted shares does not result in income for the
grantee or in a deduction for the Company for federal income tax purposes,
assuming the shares transferred are subject to restrictions resulting in a
"substantial risk of forfeiture" as intended by the Company. Dividends paid to
grantee while the shares remained subject to restriction are treated as
compensation for federal income tax purposes. At the time the restrictions
lapse, the grantee receives ordinary income, and the Company is entitled to a
deduction measured by the fair market value of the shares at the time of lapse.
Income tax withholding by the Company is required.
ADMINISTRATION
The Compensation Committee, which is comprised of three or more directors, of
the Board administers the Plan. Committee members must be non-employee directors
and outside directors for applicable regulatory requirements. This means, among
other things, that they cannot be current or former Company officers.
Subject to the provisions of the Plan, the Committee has the authority to select
the persons to whom it will grant awards, to determine the types of awards and
the number of shares covered, and to set the terms and conditions of the awards.
The Committee also has authority to interpret the Plan, to establish, amend and
rescind rules applicable to the Plan and awards under the Plan, to approve the
terms and provisions of any agreements relating to Plan awards and to make all
determinations relating to awards under the Plan.
The Board may terminate or amend the Plan as it deems advisable. Unless
shareholders approve, however, no amendment may increase the maximum number of
shares subject to the Plan, permit the granting of options at a price less than
the fair market value of a share on the date of grant, or materially modify the
requirements as to eligibility for participation in the Plan. No action taken by
the Board or the Committee may impair the existing rights of a participant
without the participant's consent.
ELIGIBILITY AND PARTICIPATION; RECENT SHARE PRICE
All employees of the Company and its subsidiaries are eligible for awards under
the Plan. The Company estimates that approximately 32 persons meet the
Committee's current criteria for the grant of Incentive Awards under the Plan.
17
<PAGE> 20
Non-employee directors of the Company are also eligible for awards under the
Plan. If the Plan is approved by you, the Company intends to modify its
compensation program for non-employee directors as specifically described under
"Director Compensation," at page 4, above.
On March 17, 1999 (the record date for the Annual Meeting), the last sale price
for the Company's common shares as reported on the New York Stock Exchange was
$6.8125 per share.
TERM OF PLAN; OUTSTANDING INCENTIVE AWARDS
The Board adopted the Plan on February 12, 1999, subject to shareholder
approval. If the Plan is not approved by you, the Plan terminates. If approved
by shareholders, the Plan will expire on February 11, 2004.
On February 12, 1999, the Committee granted, contingent upon your approval of
the Plan at the Annual Meeting, stock options at an option exercise price per
share of $6.56 to current executive officers. The options may be exercised one
year after grant and have a term of ten years. The following table shows the
number of shares subject to options granted on February 12, 1999 to the Named
Executive Officers and Executive Officers as a group:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
NUMBER OF SHARES
SUBJECT TO OPTIONS
NAME GRANTED ON 2/12/99
- ------------------------------------------------------------------------------------
<S> <C>
Richard E. Clemens 18,000
Karl F. Frydryk 8,000
Frederick G. Sharp 8,000
Patrick M. Flaherty 4,000
All executive officers as a group 61,000
- ------------------------------------------------------------------------------------
</TABLE>
APPOINTMENT OF INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP has been appointed as the Company's independent
auditors for the year ending December 31, 1999, pursuant to the recommendation
of the Company's Audit Committee. PricewaterhouseCoopers LLP (or one of its
predecessor firms) has served as the Company's independent auditors for more
than 50 years.
A representative of PricewaterhouseCoopers LLP is expected to be present at the
Annual Meeting with the opportunity to make a statement if he or she desires to
do so and to respond to appropriate questions from shareholders.
OTHER MATTERS
As of March 21, 1999, the Board of Directors did not know of any matters to be
presented at the meeting other than those mentioned above. However, if other
matters should properly come
18
<PAGE> 21
before the meeting, or any adjournment thereof, it is intended that the Board's
proxy agents will vote the proxies in their discretion.
The Company will bear the cost of soliciting proxies. In addition to the use of
the mails, certain officers, directors, and regular employees of the Company may
solicit proxies by telephone or personal interview. The Company will request
brokerage houses, banks and other persons to forward proxy material to the
beneficial owners of shares held of record by such persons.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires directors and
executive officers of the Company and owners of more than 10% of the Company's
common shares to file an initial ownership report with the Securities and
Exchange Commission and a monthly or annual report listing any subsequent change
in their ownership of common shares. The Company believes, based on information
provided to the Company by the persons required to file such reports, that all
filing requirements applicable to such persons during the period from January 1,
1998 through December 31, 1998, were met.
SHAREHOLDER PROPOSALS
If you intend to submit a proposal for inclusion in the Company's proxy
statement and form of proxy for the 2000 Annual Meeting of Shareholders, the
Company must receive the proposal at 2600 Kettering Tower, Dayton, Ohio 45423,
Attention: Secretary, on or before December 2, 1999. The 2000 Annual Meeting of
Shareholders is presently scheduled to be held on May 3, 2000.
If any shareholder who intends to propose any other matter to be acted on at the
2000 Annual Meeting of Shareholders does not inform the Company of such matter
by February 15, 2000, the persons named as proxies for the 2000 Annual Meeting
of Shareholders will be permitted to exercise discretionary authority to vote on
such matter even if the matter is not discussed in the proxy statement for such
meeting.
By Order of the Board of
Directors,
Richard E. Clemens
President and
Chief Executive Officer
March 31, 1999
19
<PAGE> 22
As Filed with the Securities and Exchange
Commission on March 31, 1999
THE MONARCH MACHINE TOOL COMPANY
--------------------------------
1999 LONG-TERM INCENTIVE STOCK PLAN
-----------------------------------
<PAGE> 23
1999 LONG-TERM INCENTIVE STOCK PLAN
SECTION 1. PURPOSE
The purpose of this 1999 Long-Term Incentive Stock Plan (the
"Plan") is to promote the long-term success of The Monarch Machine Tool Company
(the "Company") by providing financial incentives to key employees, officers and
directors of the Company and its subsidiaries who are in positions to make
significant contributions toward such success. The Plan is designed to attract
individuals of outstanding ability to employment with the Company and its
subsidiaries and to encourage key employees to acquire a proprietary interest in
the Company through stock ownership, to continue employment with the Company and
its subsidiaries, and to render superior performance during such employment. To
accomplish the purposes of the Plan, the Board of Directors of the Company
establishes the Plan and authorizes the Committee referred to in Section 4 to
administer the Plan in such manner and on such conditions as it deems
appropriate, subject to the provisions of the Plan.
Section 2. Definitions
(a) "Board" means the Board of Directors of the Company.
(b) "Change of Control" shall mean and be deemed to have
occurred if (i) any "person," as such term is defined in Section 13(d) of the
Securities Exchange Act of 1934 (the "Act"), other than the Company or an entity
then controlled by the Company is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 20% or more of the
combined voting power of the Company's then outstanding securities except,
however, in determining whether the 20% threshold has been attained by a
particular person, any voting securities of the Company which such person
acquires directly from the Company (other than pursuant to a stock dividend or
split) shall not be taken into consideration in calculating such person's
percentage of ownership of the voting power of the Company; (ii) any "person"
(as such term is defined at Section 13(d) of the Act) other than the Company or
an entity then controlled by the Company is or becomes the beneficial owner,
directly or indirectly, of securities of the Company representing 35% or more of
the combined voting power of the Company's then outstanding securities,
including securities such person may have acquired directly from the Company;
(iii) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board cease for any reason to constitute
at least a majority thereof unless the election, or the nomination for election
by the Company's shareholders, of each new Director was approved by a vote of at
least two-thirds of the Directors then still in office who were Directors at the
beginning of the period; (iv) the Company merges or consolidates with another
corporation and an entity controlled by the Company immediately prior to the
merger or consolidation is not the surviving entity or if the Company is the
surviving entity, holders of 80% or more of the voting power of the Company
immediately prior to the merger or consolidation do not own, immediately after
the merger or consolidation, 65% or more of the voting power of the surviving
entity; or (v) a sale, lease, exchange, or other disposition of all or
substantially all of the assets of the Company takes place.
<PAGE> 24
(c) "Code" means the Internal Revenue Code of 1986, as
amended.
(d) "Committee" means the committee referred to in Section 4.
(e) "Company" means The Monarch Machine Tool Company, an Ohio
corporation, and when used with reference to employment of a Participant,
Company includes any Subsidiary of the Company.
(f) "Director" means a member of the Board of Directors of the
Company.
(g) "Employee" means any key employee of the Company or any of
its Subsidiaries.
(h) "Fair Market Value" means the average of the high and low
prices of a Share on the date when the value of a Share is to be determined, as
reported on the New York Stock Exchange-Composite Transactions Tape; or, if no
sale of Shares is reported on such date, then the next preceding date on which a
sale occurred; or if the Shares are no longer listed on such exchange, the
determination of such value shall be made by the Committee in accordance with
applicable provisions of the Code and related regulations promulgated under the
Code.
(i) "Gross Misconduct" shall mean (a) the willful and
continued failure by participant to substantially perform his duties with the
Company or a Subsidiary of the Company (other than any such failure resulting
from his physical or mental illness or other physical or mental incapacity),
after a demand for substantial performance is delivered to participant by the
Company which specifically identifies the manner in which the Company believes
that participant has not substantially performed his duties, or (b) the willful
engaging by participant in gross misconduct which is materially and demonstrably
injurious to the Company or a Subsidiary of the Company resulting or intended to
result, directly or indirectly, in substantial personal gain or substantial
personal enrichment at the expense of the Company or a Subsidiary of the
Company.
(j) "Incentive Award" means an Option, Restricted Share Award
or Performance Award granted under the Plan.
(k) "Incentive Stock Option" means an Option that is an
Incentive Stock Option, as defined in Section 422 of the Code.
(l) "Nonqualified Stock Option" means an Option that is not an
Incentive Stock Option.
(m) "Option" means a right to purchase Shares at a specified
price; "Optionee" means the holder of an Option.
<PAGE> 25
(n) "Participant" means an Employee selected to receive an
Incentive Award or Director, whether or not employed by the Company, selected to
receive an Incentive Award.
(o) "Performance Award" means a right to receive Restricted
Shares, Shares, cash, or a combination thereof, contingent upon the attainment
of performance objectives determined in the discretion of the Committee as more
fully set forth at Section 8 hereof.
(p) "Reload Option" shall have the meaning ascribed to it at
Section 6(f).
(q) "Restricted Share Award" means a right to receive Shares
that is nontransferable and subject to substantial risk of forfeiture until
specific conditions are met; "Restricted Shares" means Shares which are the
subject of a Restricted Share Award; and "Restricted Period" shall have the
meaning ascribed to it at Section 7(a).
(r) "Shares" means the Common Shares of the Company.
(s) "Subsidiary" means any company more than 50% of the voting
stock of which is owned or controlled, directly or indirectly, by the Company.
(t) "Voting Shares" means any securities of the Company which
vote generally in the election of directors of the Company.
SECTION 3. SHARES SUBJECT TO THE PLAN
(a) MAXIMUM NUMBER-AGGREGATE. The maximum number of Shares
that may be subject to Incentive Awards granted pursuant to the Plan shall be
One Hundred Seventy-five Thousand (175,000), subject to adjustment in accordance
with Section 3(c). The Shares which may be issued pursuant to Incentive Awards
may be authorized and unissued Shares or Shares held in the Company's treasury.
In the event of a lapse, expiration, termination, or cancellation of any
Incentive Award granted under the Plan without the issuance of Shares or the
payment of cash, or if Shares are issued under a Restricted Share Award and are
reacquired by the Company as a result of rights reserved upon the issuance
thereof, the Shares subject to or reserved for such Incentive Award shall no
longer be charged against the 175,000 Share maximum and may again be used for
new Incentive Awards.
(b) MAXIMUM NUMBER-PER EMPLOYEE. The maximum Incentive Awards
that may be granted to each Employee in each fiscal year of the Company
commencing on or after January 1, 1999, is as follows:
(i) With respect to Options, no more than 50,000 may
be granted;
(ii) With respect to Restricted Shares (not issued in
connection with Performance Awards), no more than $400,000 of
such Shares may be granted; and
-3-
<PAGE> 26
(iii) With respect to Performance Awards, no more
than $400,000 of Performance Shares may be granted (based on
the Fair Market Value of Shares on the date the award is
granted, not the date the award is earned or paid).
(c) RECAPITALIZATION ADJUSTMENT. In the event of any change
affecting the Shares by reason of any share dividend or split, recapitalization,
merger, consolidation, spin-off, combination or exchange of Shares or other
corporate change, or any distribution to a holder of Shares other than ordinary
cash dividends, the Committee shall make such adjustment, if any, as it may deem
appropriate to avoid dilution in the number and kind of shares authorized for
issuance under the Plan, in the number and kind of shares covered by Incentive
Awards and, in the case of Options, in the option price.
SECTION 4. ADMINISTRATION
(a) COMMITTEE. The Plan shall be administered by a Committee
of the Board, comprised of three or more directors, who shall from time to time
be appointed by, and serve at the pleasure of, the Board. Each director serving
on the Committee shall be a "non-employee director" within the meaning of Rule
16b-3 promulgated under the Securities Exchange Act of 1934 and an "outside
director" within the meaning of Code Section 162(m).
(b) AUTHORITY. The Committee shall have and exercise all the
power and authority granted to it under the Plan. Subject to the provisions of
the Plan, the Committee shall have authority in its sole discretion from time to
time (i) to designate the persons to whom Incentive Awards are granted; (ii) to
prescribe such limitations, restrictions and conditions upon any such awards as
the Committee shall deem appropriate, including establishing and administering
Performance Goals, as defined in Section 8(a), and certifying whether the
Performance Goals have been attained; (iii) to interpret the Plan and to adopt,
amend and rescind rules and regulations relating to the Plan; and (iv) to make
all other determinations and take all other actions necessary or advisable for
the implementation and administration of the Plan.
(c) COMMITTEE ACTIONS. A majority of the Committee shall
constitute a quorum, and the acts of a majority of the members present at a
meeting at which a quorum is present, or acts reduced to or approved in writing
by all members of the Committee, shall be acts of the Committee. All such
actions shall be final, conclusive, and binding. No member of the Committee
shall be liable for any action taken or decision made in good faith relating to
the Plan or any Incentive Award thereunder.
(d) INTERPRETATION AND CONSTRUCTION. Any provision of this
Plan to the contrary notwithstanding, (i) certain designated Incentive Awards
under this Plan are intended to qualify as performance-based compensation within
the meaning of Code Section 162(m)(4)(C) and (ii) any provision of the Plan that
would prevent a designated Incentive Award from so qualifying shall be
administered, interpreted and construed to carry out such intention and any
provision that cannot be so administered, interpreted and construed shall to
that extent be disregarded.
<PAGE> 27
SECTION 5. ELIGIBILITY AND INCENTIVE AWARDS
(a) ELIGIBLE PERSONS. The Committee may grant Incentive Awards
to key employees, officers, and Directors.
(b) INCENTIVE AWARDS. Incentive Awards may be granted in any
one or more combinations of (i) Incentive Stock Options, (ii) Nonqualified Stock
Options, (iii) Restricted Share Awards and (iv) Performance Awards. All
Incentive Awards shall be subject to such other terms and conditions as may be
established by the Committee. Determinations by the Committee under the Plan,
including without limitation, designation of Participants, the form, amount and
timing of Incentive Awards, the terms and provisions of Incentive Awards, and
the written agreements evidencing Incentive Awards, need not be uniform and may
be made selectively among Employees who receive, or are eligible to receive,
Incentive Awards hereunder, whether or not such Employees are similarly
situated.
(c) EMPLOYMENT. The Plan and the Incentive Awards granted
hereunder shall not confer upon any Employee the right to continued employment
with the Company or affect in any way the right of the Company to terminate the
employment of an Employee at any time and for any reason.
SECTION 6. OPTIONS
The Committee may grant Incentive Stock Options and
Nonqualified Stock Options and such Options shall be subject to the following
terms and conditions and such other terms and conditions as the Committee may
prescribe:
(a) OPTION PRICE. The option price per Share with respect to
each Option shall be determined by the Committee but shall not be less than the
Fair Market Value of a Share on the date the Option is granted.
(b) PERIOD OF OPTION. The period of each Option shall be fixed
by the Committee but in no case may an option be exercised more than ten years
after the date of its grant.
(c) EXERCISE OF OPTION. Subject to the provisions of Section
6(d) relating to continuous employment, an Option may be exercised with respect
to all Shares covered thereby or may be exercised with respect to a specified
number of Shares over a specified period or periods as determined by the
Committee. Any Shares not purchased during a specified period may be purchased
thereafter at any time prior to the expiration of the Option unless the
Committee determines otherwise. The Committee may at any time remove or alter
any restriction on exercise of an Option which was imposed by the Committee.
(d) TERMINATION OF EMPLOYMENT. No Option granted to an
Employee may be exercised under the Plan unless the Optionee has been
continuously employed by the Company
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<PAGE> 28
from the date of grant of the Option to the date of exercise except that an
Option may, subject to the ten year limitation at Section 6(b), be exercised (i)
within 30 days after the Optionee ceases to be employed by the Company if the
cause of cessation of employment was other than retirement, disability, death or
termination of employment by the Company for Gross Misconduct; (ii) within one
year of cessation of employment in the case of early retirement except that the
Committee may, in its discretion, in the case of early retirement, extend the
period of exercise to a date not more than three years after cessation of
employment; and (iii) within three years of cessation of employment in the case
of normal retirement, death or disability. After termination of employment
Options may be exercised only to the extent they could have been exercised on
the date of the Optionee's termination of employment. Whether authorized leave
of absence or absence for military or governmental service shall constitute a
termination of employment shall be determined by the Committee.
(e) LIMITS ON INCENTIVE STOCK OPTIONS. Except as may be
permitted by the Code, the Fair Market Value of Shares (determined at the time
of grant of Options) as to which Incentive Stock Options held by an Optionee
first become exercisable in any calendar year shall not exceed $100,000, or such
other maximum amount permitted by the Code. In addition, no Incentive Stock
Option shall be granted to an Employee who possesses, directly or indirectly
(within the meaning of Code Section 424(d)), at the time of grant more than 10%
of the combined voting power of all classes of stock of the Company unless the
option price is at least 110% of the Fair Market Value of the Shares subject to
the Option on the date such Option is granted and such Incentive Stock Option is
not exercisable after the expiration of five years from the date of grant.
(f) RELOAD OPTION FEATURE. Any Option granted under the Plan
may contain a feature providing for, upon the exercise thereof, the grant of a
Reload Option subject to and in accordance with the provisions of this Section
(6)(f). Whenever the holder of any Option containing a reload feature (the
"Original Option") outstanding under this Plan exercises such Original Option,
the holder of such Original Option (except as provided in Section 6(f)(4) below)
shall be granted on the date of such exercise (the "Reload Date") a new option
(the "Reload Option") for a number of Shares equal to number of Shares used by
the Optionee as full or partial payment of the option price for such Original
Option and used for purposes of tax withholding in accordance with Section 11(b)
hereof. The following additional terms and provisions shall apply to Reload
Options granted under the Plan:
(i) OPTION PRICE. The option price per Share covered
by a Reload Option shall be an amount equal to the Fair Market
Value per Share as of the Reload Date.
(ii) EXPIRATION DATE. The option exercise period
shall expire on, and the Reload Option shall no longer be
exercisable after, the date the Original Option would have
expired if it had not been exercised.
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<PAGE> 29
(iii) VESTING PERIOD. Reload Options granted under
this Section 6(f) shall vest and become exercisable with
respect to all Shares covered thereby on the third anniversary
of the Reload Date or such earlier date as the Committee shall
specify.
(iv) ACTIVE EMPLOYEE. No Reload Option shall be
granted to any person who is not employed by the Company at
the time of exercise of an Original Option.
(g) NOTICE OF EXERCISE AND PAYMENT. An Option granted under
the Plan may be exercised by the Optionee giving written notice of exercise to
the Committee. The Option price for the Shares purchased shall be paid in full
at the time such notice is given. An Option shall be deemed exercised on the
date the Committee receives written notice of exercise, together with full
payment for the Shares purchased. The Option price shall be paid to the Company
either in cash, by delivery to the Company of Shares already-owned by the
Optionee or any combination of cash and such Shares. The Committee may, however,
at any time and in its discretion, adopt guidelines limiting or restricting the
use of already-owned Shares to pay all or any portion of the Option price. In
the event already-owned Shares are used to pay all or a portion of the Option
price, the amount credited to payment of the Option price shall be the Fair
Market Value of the already-owned Shares on the date the Option is exercised.
(h) FRACTIONAL SHARES. No fractional shares shall be issued
pursuant to the exercise of an Option, nor shall any cash payment be made in
lieu of fractional shares.
SECTION 7. RESTRICTED SHARE AWARDS
The Committee may issue Shares to an Employee or Director
which Shares shall be subject to the following terms and conditions and such
other terms and conditions as the Committee may prescribe in connection with the
grant of a Restricted Share Award:
(a) GENERAL. With respect to each grant of Restricted Shares,
the Committee, in its sole discretion, shall determine the period during which
the restrictions set forth at Subsection 7(b) shall apply to the Restricted
Shares (the "Restricted Period").
(b) RESTRICTIONS. At the time of grant of Restricted Shares to
an Employee or Director, a certificate representing the number of Shares granted
shall be registered in his name but shall be held by the Company for the account
of the Employee or Director. The Employee or Director shall have the entire
beneficial ownership interest in, and all rights and privileges of a shareholder
as to, such Restricted Shares, including the right to receive dividends and the
right to vote such Restricted Shares, subject to the following restrictions: (i)
subject to Section 7(c), the Employee shall not be entitled to delivery of the
Share certificate until the expiration of the Restricted Period; (ii) none of
the Restricted Shares may be sold, transferred, assigned, pledged, or otherwise
encumbered or disposed of during the Restricted Period; and (iii) all of the
Restricted Shares shall be forfeited and all rights of the Employee or Director
to such Restricted
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<PAGE> 30
Shares shall terminate without further obligation on the part of the Company
unless the Employee remains in the continuous employment of the Company (or, in
case of a Director, the Director continues as a Director) for the entire
Restricted Period in relation to which such Restricted Shares were granted,
except as provided by Section 7(c). Any Shares received with respect to
Restricted Shares as a result of a recapitalization adjustment pursuant to
Section 3(b) shall be subject to the same restrictions as such Restricted
Shares.
(c)(1) TERMINATION OF EMPLOYMENT.
(i) RETIREMENT. If an Employee ceases to be employed
by the Company prior to the end of a Restricted Period by
reason of normal retirement under a retirement plan of the
Company or the Employee otherwise retires with the consent of
the Company, the number of Restricted Shares granted to such
Employee for such Restricted Period shall be reduced in
proportion to the Restricted Period (determined on a quarterly
basis) remaining after the Employee ceases to be an Employee
and all restrictions on such reduced number of Shares shall
lapse. A certificate for such Shares shall be delivered to the
Employee in accordance with the provisions of Section 7(d)
hereof. The Committee may, if it deems appropriate, direct
that the Employee receive a greater number of Shares free of
all restrictions but not exceeding the number of Restricted
Shares then subject to the restrictions of Section 7(b).
(ii) DEATH. If an Employee ceases to be employed by
the Company prior to the end of a Restricted Period by reason
of death, the Restricted Shares granted to such Employee shall
immediately vest in his beneficiary or estate and all
restrictions applicable to such Shares shall lapse. A
certificate for such Shares shall be delivered to the
Employee's beneficiary or estate in accordance with the
provisions of Subsection 7(d).
(iii) ALL OTHER TERMINATIONS. If an Employee ceases
to be an Employee prior to the end of a Restricted Period for
any reason other than retirement or death, the Employee shall
immediately forfeit all Restricted Shares then subject to the
restrictions of Section 7(b) in accordance with the provisions
thereof, except that the Committee may, if it finds that the
circumstances in the particular case so warrant, allow an
Employee whose employment has so terminated to retain any or
all of the Restricted Shares then subject to the restrictions
of Section 7(b) and all restrictions applicable to such
retained shares shall lapse. A certificate for such retained
shares shall be delivered to the Employee in accordance with
the provisions of Section 7(d).
(c)(2) DIRECTOR CEASES TO HOLD OFFICE.
(i) DEATH. If Director ceases to be a Director prior
to the end of a Restricted Period by reason of death, the
Restricted Shares granted to such
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<PAGE> 31
Director shall immediately vest in his beneficiary or estate
and all restrictions applicable to such Shares shall lapse. A
certificate for such Shares shall be delivered to Director's
beneficiary or estate in accordance with the provisions of
Subsection 7(d).
(ii) ALL OTHER TERMINATIONS. If a Director ceases to
be a Director prior to the end of a Restricted Period for any
reason other than death, the Director shall immediately
forfeit all Restricted Shares then subject to the restrictions
of Section 7(b) in accordance with the provisions thereof,
except that the Committee may, if it finds that the
circumstances in the particular case so warrant, allow the
Director whose term of office has so terminated to retain any
or all of the Restricted Shares then subject to the
restrictions of Section 7(b) and all restrictions applicable
to such retained shares shall lapse. A certificate for such
retained shares shall be delivered to the Director in
accordance with the provisions of Section 7(d).
(d) PAYMENT OF RESTRICTED SHARES. At the end of the Restricted
Period or at such earlier time as provided for in Subsection 7(c), all
restrictions applicable to the Restricted Shares shall lapse and a Share
certificate for a number of Shares equal to the number of Restricted Shares,
free of all restrictions, shall be delivered to the Participant or his
beneficiary or estate, as the case may be. The Company shall not be required to
deliver any fractional Share but will pay, in lieu thereof, the Fair Market
Value (measured as of the date the restrictions lapse) of such fractional Share
to the Participant or his beneficiary or estate, as the case may be.
SECTION 8. PERFORMANCE AWARDS
The Committee may grant to Employees Performance Awards which
shall be subject to the following terms and conditions and such other terms and
conditions as the Committee may prescribe in connection with the grant of a
Performance Award:
(a) AWARD PERIOD AND PERFORMANCE GOALS. The Committee shall
determine and include in a Performance Award the period of time during which a
Performance Award may be earned ("Award Period"). The Committee shall also
establish performance objectives ("Performance Goals") to be met by the Company,
Subsidiary or division during the Award Period as a condition to payment of the
Performance Award. The Performance Goals may include minimum and optimum
objectives or a single set of objectives.
With respect to Performance Awards that are intended to
qualify as "performance based" within the meaning of Code Section 162(m)(4)(C),
the Committee shall (i) select the Employees for such Incentive Awards, (ii)
establish in writing the applicable performance goals no later than 90 days
after the commencement of the period of service to which the performance goals
relates (or such earlier or later date as may be the applicable deadline for
compensation payable hereunder to qualify as "performance based" within the
meaning of Code Section 162(m)(4)(C)), and (iii) designate the Performance
Awards that are to qualify as "performance based" within the meaning of Code
Section 162(m)(4)(C).
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<PAGE> 32
The Committee shall establish in writing the Performance Goals
for each Award Period which shall be based on any of the following performance
criteria, either alone or in any combination, on either a consolidated or
business unit or divisional level, and which shall include or exclude
discontinued operations and acquisition expenses, as the Committee may
determine: level of sales, earnings per share, income before income taxes and
cumulative effect of accounting changes, income before cumulative effect of
accounting changes, net income, return on assets, return on equity, return on
capital employed, total stockholder return, market valuation, cash flow and
completion of acquisitions. The foregoing criteria shall have any reasonable
definitions that the Committee may specify, which may include or exclude any or
all of the following items, as the Committee may specify: extraordinary, unusual
or non-recurring items; effects of accounting changes; effects of currency
fluctuations; effects of financing activities (e.g., effect on earnings per
share of issuing convertible debt securities); expenses for restructuring or
productivity initiatives; non-operating items; acquisition expenses; and effects
of divestitures. Any such performance criterion or combination of such criteria
may apply to the Participant's award opportunity in its entirety or to any
designated portion or portions of the award opportunity, as the Committee may
specify.
(b) NO DISCRETION. With respect to Performance Awards that are
intended to qualify as "performance based" within the meaning of Code Section
162(m)(4)(C), the Committee has no discretion to increase the amount of the
award due upon attainment of the applicable performance goals. No provision of
this Plan shall preclude the Committee from exercising negative discretion with
respect to any award hereinafter (i.e., to reduce or eliminate the award
payable) within the meaning of Treasury Regulation Section
1.162-27(e)(2)(iii)(A).
(c) PERFORMANCE AWARD EARNED. The Performance Awards shall be
expressed in terms of Shares and referred to as "Performance Shares"or
"Performance Units" as the Committee shall specify. With respect to each
Performance Award, the Committee shall fix the number of allocable Performance
Shares. The level of Performance Goals attained will determine the percentage of
Performance Shares earned for an Award Period. After completion of the Award
Period, the Committee shall certify in writing the extent to which the
Performance Goals and other material terms applicable to such award are
attained. Unless and until the Committee so certifies, the Performance Award
shall not be paid.
(d) PERFORMANCE AWARD PAYMENT. The Committee, in its
discretion, may elect to make payment of the Performance Awards in Restricted
Shares, Shares, cash or any combination of the foregoing. If the Performance
Award is paid in Shares or Restricted Shares, the Company shall issue one Share
or Restricted Share for each Performance Share earned. If the Performance Award
is paid in cash, the cash payable shall be equal to the Fair Market Value of the
Performance Shares earned as of the last day of the Award Period.
(e) REQUIREMENT OF EMPLOYMENT. A grantee of a Performance
Award must remain in the employment of the Company until the completion of the
Award Period in order to be entitled to payment under the Performance Award;
provided that the Committee may, in its sole discretion, provide for a partial
or full payment of the Performance Award that would have
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<PAGE> 33
been payable if the grantee had continued employment for the entire Award
Period, which shall be paid at the same time as would have been paid if no
termination of employment occurred, but only if and to the extent the exercise
of such discretion does not prevent any designated Incentive Award from
qualifying as "performance based" within the meaning of Code Section
162(m)(4)(C).
(f) DIVIDENDS. The Committee may, in its discretion, at the
time of the granting of a Performance Award, provide that any dividends declared
on Shares during the Award Period, and which would have been paid with respect
to Performance Shares had they been owned by a grantee, be (i) paid to the
grantee, or (ii) accumulated for the benefit of the grantee and used to increase
the number of Performance Shares of the grantee.
(g) DELAYED PAYMENT. To the extent that the Committee, in its
sole discretion, determines that the payment of any Performance Award is not
deductible by the Company based on Code Section 162(m), the Company shall delay
the payment of such Performance Award. The unpaid portion of a Performance Award
that is subject to this Section 8(g) shall be paid (in whole or in part), at the
discretion of the Committee, when such payment is deductible in accordance with
Code Section 162(m).
The delayed payment of a Performance Award payable in Shares
or Restricted Shares shall be equal to the number of Performance Shares earned
but unpaid. The delayed payment of a Performance Award payable in cash shall be
equal to the Fair Market Value of the earned but unpaid Performance Shares as of
the appropriate payment date selected by the Committee.
SECTION 9. NON-ASSIGNABILITY OF INCENTIVE AWARDS
(a) Except as provided in Section 9(b) with respect to Options
granted hereunder as Nonqualified Stock Options, no Incentive Award granted
under the Plan shall be assigned, transferred, pledged, or otherwise encumbered
by an Employee, otherwise than by will, by designation of a beneficiary after
death on a form approved by the Committee, or by the laws of descent and
distribution, or be made subject to execution, attachment or similar process.
Except as provided in Section 9(b) with respect to Nonqualified Stock Options,
each Incentive Award shall be exercisable during the Employee's lifetime only by
the Employee or, if permissible under applicable law, by the Employee's guardian
or legal representative.
(b) Neither any Option granted hereunder as a Nonqualified
Stock Option nor any right thereunder may be assigned or transferred by the
optionee except by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order (as defined in the Code or the Employee
Retirement Income Security Act of 1974), provided, however, the Committee may by
written action permit any holder of a Nonqualified Stock Option, either before
or after the time of grant, to transfer a Nonqualified Stock Option during his
lifetime to one or more members of his family, to one or more trusts for the
benefit of one or more members of his family, or to a partnership or
partnerships of members of his family, provided that no
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<PAGE> 34
consideration is paid for the transfer and that such transfer would not result
in the loss of any exemption under Rule 16b-3 for any option granted under any
plan of the Company. The transferee of a Nonqualified Stock Option shall be
subject to all restrictions, terms and conditions applicable to the Nonqualified
Stock Option prior to its transfer. The Committee may impose on any transferable
Nonqualified Stock Option and on the Shares to be issued upon the exercise of a
Nonqualified Stock Option such limitations and conditions as the Committee deems
appropriate.
SECTION 10. CHANGE OF CONTROL
(a) GENERAL. In order to maintain all of the Employee's rights
in the event of a Change of Control of the Company, the Committee, in its sole
discretion, may, as to any Incentive Award, either at the time that an Incentive
Award is made or any time thereafter, take any one or more of the following
actions:
(i) provide for the acceleration of any time periods
relating to the exercise or realization of any such award, so
that such award may be exercised or realized in full on or
before a date fixed by the Committee,
(ii) provide for the purchase of any such award by
the Company, upon an Employee's request, for an amount of cash
equal to the amount that could have been attained upon the
exercise of such award or realization of such Employee's
rights had such award been currently exercisable or payable,
(iii) make such adjustment to any such award then
outstanding as the Committee deems appropriate to reflect a
Change of Control, or
(iv) cause any such award then outstanding to be
assumed, or new rights substituted therefor, by the acquiring
or surviving corporation, if any, in connection with a Change
of Control.
(b) OPTIONS. All outstanding Options which are not yet
exercisable shall become immediately exercisable in full in the event of a
Change of Control of the Company.
SECTION 11. TAXES
(a) WITHHOLDING FOR TAXES. The Company shall be entitled, if
necessary or desirable, to withhold the amount of any tax attributable to any
amounts payable under any Incentive Award and the Company may defer making
payment of any Incentive Award if any such tax, charge, or assessment may be
pending until indemnified to its satisfaction.
(b) USE OF SHARES FOR TAX WITHHOLDING PAYMENTS. With the
approval of the Committee, Shares may be used in lieu of cash to pay all or any
part of the mandatory federal, state or local withholding tax payments to be
made by the Employee in connection with an Incentive Award, as follows:
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<PAGE> 35
(i) NONQUALIFIED STOCK OPTIONS. (a) The holder of a
Nonqualified Stock Option may elect to have the Company
retain from the Shares to be issued upon exercise of such
an option Shares having a Fair Market Value equal to the
withholding tax to be paid; or (b) the holder of a
Nonqualified Stock Option may deliver to the Company
already-owned Shares having a Fair Market Value equal to
the withholding tax to be paid and in such case, the
election to use already-owned Shares for such purpose and
the exercise of the Nonqualified Stock Option may occur at
any time.
(ii) RESTRICTED SHARE AWARDS. If withholding taxes
are to be paid at the time Restricted Shares are issued in the
name of an Employee or at the expiration of the Restricted
Period, then the Employee may elect to have the Company retain
from the Shares to be issued Shares having a Fair Market Value
equal to the withholding tax to be paid or pay such taxes by
delivering to the Company already-owned Shares having a Fair
Market Value equal to the amount of the withholding tax being
paid by the use of already-owned Shares.
(iii) PERFORMANCE SHARES. If withholding taxes are
required to be paid at the time Shares are delivered to an
Employee as a Performance Award, then the Employee may elect
to have the Company retain from the Shares to be issued Shares
having a Fair Market Value equal to the withholding tax to be
paid or pay such taxes by delivering to the Company
already-owned Shares having a Fair Market Value equal to the
amount of the withholding tax being paid by the use of
already-owned Shares.
SECTION 12. COMPLIANCE WITH LAWS AND EXCHANGE REQUIREMENTS
No Option shall be granted and no Shares shall be issued in
connection with any Incentive Award unless the grant of the Option and the
issuance and delivery of Shares or cash pursuant to the Incentive Award shall
comply with all relevant provisions of state and federal law, including, without
limitation, the Securities Act of 1933, the Securities Exchange Act of 1934, the
rules and regulations promulgated thereunder, and the requirements of any market
system or stock exchange upon which the Shares may then be listed.
SECTION 13. AMENDMENT AND TERMINATION OF PLAN
(a) AMENDMENT. The Board may amend, modify, or suspend the
Plan at any time for the purpose of meeting or addressing any changes in the
legal requirements or for any other purpose permitted by law. Subject to changes
in law or legal requirements that would permit otherwise, the Board may not
amend the Plan without shareholder approval so as to:
(i) increase the maximum number of Shares that may be
issued under the Plan except in accordance with Section 3(c);
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<PAGE> 36
(ii) permit the granting of Options with exercise
prices lower than those specified in Section 6;
(iii) materially modify the requirements as to
eligibility of key employees, officers, or directors of the
Company for participation in the Plan; or
(iv) prevent future grant of Incentive Awards to
qualify as "performance based" within the meaning of Code
Section 162(m)(4)(C).
(b) TERMINATION. The Board may at any time terminate the Plan.
(c) EFFECT OF AMENDMENT OR TERMINATION. Any amendment or the
termination of the Plan shall not adversely affect any Incentive Award
previously granted nor disqualify an Incentive Award from being treated as
"performance based" within the meaning of Code Section 162(m)(4)(C). Incentive
Awards outstanding at the time that the Plan is amended or terminated shall
remain in full force and effect as if the Plan had not been amended or
terminated.
SECTION 14. NOTICES
Each notice relating to the Plan shall be in writing and
delivered in person or by certified or registered mail to the proper address.
Each notice to the Committee shall be addressed as follows: The Monarch Machine
Tool Company, 2600 Kettering Tower, Dayton, Ohio 45423, Attention: Compensation
Committee. Each notice to a Participant shall be addressed to the Participant at
the address of the Participant maintained by the Company on its books and
records. Anyone to whom a notice may be given under this Plan may designate a
new address by written notice to the other party to that effect.
SECTION 15. BENEFITS OF PLAN
This Plan shall inure to the benefit of and be binding upon
each successor of the Company. All rights and obligations imposed upon a
Participant and all rights granted to the Company under this Plan shall be
binding upon the Participant's heirs, legal representatives and successors.
SECTION 16. PRONOUNS AND PLURALS
All pronouns shall be deemed to refer to the masculine,
feminine, singular or plural, as the identity of the person or persons may
require.
SECTION 17. SHAREHOLDER APPROVAL AND TERM OF PLAN
(a) The Plan shall become effective upon its adoption by the
Board. No payment of cash or Shares in connection with an Incentive Award shall
be made, and no Option shall be exercised, prior to the approval of the Plan by
the affirmative vote of the holders of a
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<PAGE> 37
majority of the outstanding Shares present, in person or by proxy, and entitled
to vote at an annual meeting of the shareholders of the Company. Unless the Plan
shall be so approved by the shareholders of the Company at the next annual
meeting after its adoption by the Board, the Plan shall terminate and all
Incentive Awards granted under the Plan shall be canceled.
(b) Unless sooner terminated under Section 13, the Plan shall
be in effect from the date of its adoption by the Board and automatically
terminate on the fifth anniversary of its adoption by the shareholders of the
Company.
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<PAGE> 38
THE MONARCH MACHINE TOOL COMPANY
PROXY
ANNUAL MEETING OF SHAREHOLDERS
Karl A. Frydryk and Leo E. Dugdale III, and each of them, are hereby
authorized to represent me at the Annual Meeting of Shareholders of the Company
to be held on May 5, 1999, and at any adjournment, and at the meeting to vote
all of my shares as follows:
1. Election of Directors
[ ] FOR all nominees of the Board of Directors, namely John A. Bertrand,
William R. Graber and Waldemar M. Gouler (except as marked to the contrary
below), including authority to cumulate votes selectively among such
nominees.
[ ] WITHHOLD AUTHORITY to vote for all nominees listed below.
(INSTRUCTIONS To withhold authority to vote for any individual nominee,
write that nominee's name on the line provided below)
- ------------------------------------------------------------------------------
2. Adoption of the Company's 1999 Long-Term Incentive Stock Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Upon any other business that may properly come before the meeting.
(Continued and to be signed, on the reverse side)
<PAGE> 39
The Monarch Machine Tool Company
c/o Corporate Trust Services
Mail Drop 10AT66-4129
38 Fountain Square Plaza
Cincinnati, OH 45263
fold and detach here
..............................................................................
(Continued from the reverse side)
THE MONARCH MACHINE TOOL COMPANY
P R O X Y
A vote FOR Proposals 1 and 2 is recommended by the Board of Directors. When
properly executed, this proxy will be voted in the manner directed by the
undersigned shareholder. If no direction is specified, the proxy will be voted
FOR Proposals 1 and 2.
This Proxy is solicited on behalf
of the Board of Directors
Dated ______________________, 1999
__________________________________
__________________________________
Please sign your name as imprinted
hereon, and, in the case of multiple
or joint ownership, all should sign.
