<PAGE>
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:
/ / 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 Section240.14a-11(c) or
Section240.14a-12
LAWSON PRODUCTS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/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.:
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(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
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<PAGE>
[LOGO]
LAWSON PRODUCTS, INC.
1666 East Touhy Avenue
Des Plaines, Illinois 60018
- --------------------------
NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS
May 11, 1999
- ------------------------
TO THE STOCKHOLDERS:
You are cordially invited to attend the annual meeting of stockholders of Lawson
Products, Inc. (the "Company" or "Lawson"), which will be held at the offices of
the Company, 1666 East Touhy Avenue, Des Plaines, Illinois, on Tuesday, May 11,
1999, at 10:00 A.M. (Local Time) for the following purposes:
(1) To elect three directors to serve three years;
(2) To consider and vote upon a proposal to amend the Company's Incentive Stock
Plan (the "Plan") to (i) include the outside directors of the Company as
participants and (ii) limit the number of shares of the Company's Common
Stock with respect to which options or stock appreciation rights may be
granted during any calendar year to any one participant under the Plan to
60,000 shares;
(3) To consider and vote upon two stockholder proposals if presented by their
proponents;
(4) To transact such other business as may properly come before the meeting or
any adjournment thereof.
The Board of Directors has fixed the close of business on March 31, 1999, as the
record date for the determination of stockholders entitled to notice of and to
vote at the meeting. Accompanying this notice is a form of proxy, a Proxy
Statement and a copy of the Company's 1998 Annual Report.
EVEN IF YOU EXPECT TO ATTEND THE MEETING IN PERSON, PLEASE SIGN AND RETURN THE
ENCLOSED PROXY IN THE ENVELOPE PROVIDED SO THAT YOUR SHARES MAY BE VOTED AT THE
MEETING. IF YOU EXECUTE A PROXY, YOU STILL MAY ATTEND THE MEETING AND VOTE IN
PERSON.
By Order of the Board of Directors
Robert J. Washlow
SECRETARY
Des Plaines, Illinois
April 12, 1999
<PAGE>
[LOGO]
LAWSON PRODUCTS, INC.
1666 East Touhy Avenue
Des Plaines, Illinois 60018
- --------------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
May 11, 1999
- ------------------------
This Proxy Statement is being sent to stockholders on or about April 12, 1999,
in connection with the solicitation of the accompanying proxy by the Board of
Directors of the Company. Only stockholders of record at the close of business
on March 31, 1999, are entitled to notice of and to vote at the meeting. The
Company has retained Morrow & Co., Inc., a firm specializing in the solicitation
of proxies, to assist in the solicitation at a fee estimated to be $5,000 plus
expenses. Officers of the Company may make additional solicitations in person or
by telephone. Expenses incurred in the solicitation of proxies will be borne by
the Company. If the accompanying form of proxy is executed and returned in time,
the shares represented thereby will be voted, but the proxy may be revoked at
any time prior to its exercise by execution of a later dated proxy or by voting
in person at the annual meeting.
As of March 31, 1999, the Company had outstanding 10,623,822 shares of the
Company's Common Stock (the "Common Stock") and such shares are the only shares
entitled to vote at the annual meeting. Each holder of Common Stock is entitled
to one vote per share on all matters to come before the meeting. For purposes of
the meeting, a quorum means a majority of the outstanding shares. In determining
whether a quorum exists, all shares represented in person or by proxy will be
counted.
It is intended that the named proxies will vote in favor of the election as
directors of the nominees listed below, except as otherwise indicated on the
proxy form. If any nominee should become unavailable for election as a director
(which is not contemplated), the proxies will have discretionary authority to
vote for a substitute. In the absence of a specific direction from the
stockholders, proxies will be voted for the election of all named director
nominees, for the proposal to amend the Company's Incentive Stock Plan and
against the two stockholder proposals. Proxies relating to "street name" shares
that are voted by brokers on some but not all of the matters will be treated as
shares present for purposes of determining the presence of a quorum on all
matters, but will have no effect on any proposal at this annual meeting for
which a vote is not indicated on the proxies.
ELECTION OF DIRECTORS
Stockholders are entitled to cumulative voting in the election of directors.
Under cumulative voting, each stockholder is entitled to that number of votes
equal to the number of directors to be elected, multiplied by the number of
shares he owns, and he may cast his votes for one nominee or distribute them in
any manner he chooses among any number of nominees. Unless otherwise indicated
on the proxy card, votes may, in the discretion of the proxies, be equally or
unequally
<PAGE>
allocated among the nominees named below. Directors will be elected by a
plurality of the votes cast at the meeting by the holders of shares represented
in person or by proxy. Thus, assuming a quorum is present, the three persons
receiving the greatest number of votes will be elected as directors and votes
that are withheld will have no effect.
The By-Laws of the Company provide that the Board of Directors shall consist of
such number of members, between five and nine, as the Board of Directors
determines from time to time. The size of the Board is currently set at nine
members. The Board is divided into three classes, with one class being elected
each year for a three-year term. At the meeting, three directors are to be
elected to serve until 2002.
The following information has been furnished by the respective nominees and
continuing directors:
<TABLE>
<CAPTION>
YEAR FIRST
ELECTED
NAME AGE PRINCIPAL OCCUPATION DIRECTOR
- --------------------------------------- --- ------------------------------------------------------- -----------
<S> <C> <C> <C>
NOMINEES TO BE ELECTED TO SERVE UNTIL 2002
Ronald B. Port, M.D.................... 58 Physician 1984
Robert G. Rettig....................... 69 Consultant 1989
Peter G. Smith......................... 60 Retired President and Chief Operating Officer of the 1985
Company
DIRECTORS WHOSE TERMS EXPIRE IN 2001
Bernard Kalish......................... 61 Chairman of the Board and Chief Executive Officer of 1983
the Company
Sidney L. Port......................... 88 Chairman of the Executive Committee of the Company 1953
Robert J. Washlow...................... 54 Executive Vice President -- Corporate Affairs since 1997
1998, and since January 1, 1999, Office of the
President. Secretary of the Company
DIRECTORS WHOSE TERMS EXPIRE IN 2000
James T. Brophy........................ 71 Private Investor 1971
Mitchell H. Saranow.................... 53 Chairman of the Saranow Group since August 1996. Prior 1998
thereto, Mr. Saranow was Chairman of Fluid
Management, L.P. for more than five years
Jerome Shaffer......................... 71 Vice President and Treasurer of the Company 1989
</TABLE>
- ------------------------
- - The Executive Committee, the members of which are Sidney L. Port, Bernard
Kalish and Robert J. Washlow, has all of the authority of the Board of
Directors between Board meetings, except to declare a dividend, authorize the
issuance of stock, amend the By-Laws or take action relating to certain
corporate changes.
- - The Audit Committee, the members of which are James T. Brophy, Robert G.
Rettig, and Ronald B. Port, M.D., reviews the scope and results of the audit
by the Company's independent auditors and reviews the Company's procedures
for monitoring internal accounting controls.
- - The Compensation Committee, the members of which are James T. Brophy, Robert
G. Rettig and Ronald B. Port, M.D., makes all determinations with respect to
the compensation of the Chairman of the Board and establishes general
compensation policies with respect to all other executive officers of the
Company.
2
<PAGE>
- - The Nominating Committee, the members of which are James T. Brophy, Robert G.
Rettig and Ronald B. Port, M.D., reviews and recommends potential directors
to the Board of Directors. The Nominating Committee will consider director
nominees recommended by stockholders if such recommendations are submitted in
writing to the Secretary of the Company.
- - The Incentive Stock Committee, the members of which are Sidney L. Port, James
T. Brophy and Ronald B. Port, M.D., administers the Company's Incentive Stock
Plan.
- - Because of his substantial stockholdings, Sidney L. Port may be deemed to be
a control person of the Company. See "Securities Beneficially Owned by
Principal Stockholders and Management."
- - Ronald B. Port, M.D. is the son of Sidney L. Port.
- - Robert J. Washlow is the son-in-law of Sidney L. Port. Mr. Washlow was a
partner at the law firm of Vedder, Price, Kaufman & Kammholz until December
31, 1998, which firm provides legal services to the Company.
- - Each nominee and continuing director has held the indicated position, or an
executive position with the same employer, for at least the past five years,
unless otherwise indicated above. Mr. Washlow was a partner with the law firm
of Vedder, Price, Kaufman & Kammholz for more than five years prior to the
date Mr. Washlow became a member of the Office of the President and the
Executive Vice President -- Corporate Affairs. Mr. Washlow has been Secretary
of the Company for more than five years.
- - Mr. Saranow is a director and member of the Compensation and Audit Committees
of Metzler Group, Inc.
- - Mr. Brophy is a director of United Fire & Casualty Company.
- - Mr. Rettig is a director of Scotsman Industries, Inc. and Trilogy Gaming
Corporation.
In 1998, the Board of Directors held four meetings, the Compensation Committee
held one meeting, the Audit Committee held one meeting and the Nominating
Committee held two meetings. During 1998, each director attended at least 75% of
the meetings of the Board and of the respective committees on which he served.
The Executive Committee did not meet, as matters typically dealt with by this
Committee were considered by the full Board of Directors. Directors who are not
employees of the Company receive directors' fees of $12,000 annually. In 1998,
each outside director was paid an additional $10,000. Neither Mr. Saranow nor
Mr. Washlow received any compensation from the Company as a director in 1998.
3
<PAGE>
SECURITIES BENEFICIALLY OWNED BY PRINCIPAL
STOCKHOLDERS AND MANAGEMENT
Set forth below, as of March 1, 1999 (unless otherwise indicated), are the
beneficial holdings of: each person known by the Company to own beneficially
more than 5% of the outstanding shares of Common Stock of the Company, each
director, the executive officers listed on the Summary Compensation Table below,
and all executive officers and directors as a group.
<TABLE>
<CAPTION>
SOLE SHARED PERCENT OF
VOTING OR VOTING OR CLASS AT
DISPOSITIVE DISPOSITIVE MARCH 1,
NAME POWER(1)(2) POWER 1999
- ---------------------------------------------------------------------------- ----------- ----------- -------------
<S> <C> <C> <C>
Sidney L. Port(3) .......................................................... 3,379,482 -0- 31.6%
1666 East Touhy Avenue
Des Plaines, Illinois 60018
Bettie B. Port Trust(4) .................................................... 1,421,802 -0- 13.3%
1666 East Touhy Avenue
Des Plaines, Illinois 60018
Dimensional Fund Advisors I ................................................ 656,950 -0- 6.1%
1299 Ocean Floor
11th Floor
Santa Monica, CA 90401
James T. Brophy............................................................. 1,150 -0- *
Roger Cannon................................................................ 5,834 *
Bernard Kalish.............................................................. 19,100 -0- *
Ronald B. Port, M.D......................................................... 16,615 -0- *
Robert G. Rettig............................................................ 500 -0- *
Mitchell H. Saranow(5)...................................................... 8,000 -0- *
Jerome Shaffer.............................................................. 23,033 2,530 *
Peter G. Smith.............................................................. 14,200 10,511 *
Robert J. Washlow........................................................... 26,890 -0- *
All executive officers and directors as a group (14 persons)................ 4,935,399 13,041 46.1%
</TABLE>
- ------------------------
* Less than 1%.
(1) Does not include certain shares held by wives and minor children in the case
of Mr. Brophy (725 shares), Mr. Kalish (12,323 shares), Dr. Port (16,615
shares), Mr. Shaffer (2,450 shares), Mr. Smith (1,700 shares) and Mr.
Washlow (23,100) and all executive officers and directors as a group (56,913
shares).
(2) Stockholdings shown include shares issuable upon the exercise of stock
options exercisable within 60 days by Mr. Cannon (3,750 shares), Mr. Kalish
(17,500 shares), Mr. Shaffer (8,000 shares), Mr. Smith (12,500 shares) and
all executive officers and directors as a group (53,500 shares).
(3) Includes 1,000,000 shares held by a family limited partnership.
(4) Sidney L. Port has the sole power to vote the stock of the Bettie B. Port
Trust.
(5) All 8,000 shares are owned by Saranow Investments, L.L.C.
4
<PAGE>
REMUNERATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The table below sets forth certain information concerning the annual and
long-term compensation for services in all capacities to the Company for the
fiscal years ended December 31, 1998, 1997 and 1996, of those persons who were,
at December 31, 1998 (i) the chief executive officer, and (ii) the other four
most highly compensated executive officers of the Company (the "Named
Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
---------------------- UNDERLYING COMPENSATION(2)
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(1) ($)
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Bernard Kalish 1998 $ 377,266 $ -0- -0- $ 15,200
CHAIRMAN OF THE BOARD AND 1997 362,068 48,180 -0- 15,200
CHIEF EXECUTIVE OFFICER 1996 343,747 -0- 15,000 13,500
- -------------------------------------------------------------------------------------------------------------------
Sidney L. Port 1998 329,156 -0- -0- 15,200
CHAIRMAN OF THE EXECUTIVE 1997 316,101 -0- -0- 15,200
COMMITTEE 1996 301,952 -0- -0- 13,500
- -------------------------------------------------------------------------------------------------------------------
Peter G. Smith(3) 1998 317,449 -0- -0- 15,200
PRESIDENT AND CHIEF 1997 304,882 9,430 -0- 15,200
OPERATING OFFICER 1996 290,109 -0- 10,000 13,500
- -------------------------------------------------------------------------------------------------------------------
Jerome Shaffer 1998 219,362 -0- -0- 15,200
VICE PRESIDENT AND 1997 210,278 5,938 -0- 15,200
TREASURER 1996 205,967 -0- 6,000 13,500
- -------------------------------------------------------------------------------------------------------------------
Roger Cannon 1998 214,525 -0- -0- 15,200
EXECUTIVE VICE-PRESIDENT -- 1997 203,373 17,317 -0- 15,200
SALES -- MARKETING 1996 180,260 -0- 2,500 13,500
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company has not issued stock appreciation rights or restricted stock
awards to the Named Officers and does not have any "long-term incentive
plans" as that term is defined in the applicable rules. The Company issued
options at fair market value to the named officers as shown.
(2) These amounts represent the Company's contribution as accrued to the
Company's Profit Sharing Plan.
(3) Mr. Smith retired as President and Chief Operating Officer effective
December 31, 1998.
OPTIONS GRANTED DURING 1998
There were no stock options granted to the Named Officers during fiscal 1998.
5
<PAGE>
AGGREGATE OF OPTIONS EXERCISED IN 1998
AND OPTION VALUES AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998(1)
---------------------- -------------------------
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE VALUE REALIZED UNEXERCISABLE UNEXERCISABLE
- -------------------------------- ----------------- --------------- ---------------------- -------------------------
<S> <C> <C> <C> <C>
Bernard Kalish.................. -- -- 17,500/7,500 $ 0/0
Sidney L. Port.................. -- -- -- --
Peter G. Smith.................. -- -- 12,500/5,000 0/0
Jerome Shaffer.................. -- -- 8,000/3,000 0/0
Roger Cannon.................... -- -- 3,750/1,250 0/0
</TABLE>
- ------------------------
(1) Based on the closing price of the Company's Common Stock as reported on the
NASDAQ National Market System on December 31, 1998.
EMPLOYMENT CONTRACTS
Mr. Kalish is employed under a contract expiring in 2001 pursuant to which he
will receive a minimum salary of $372,930 for 1999. The contract is
automatically renewable for one year terms unless a one year notice is given.
The contract provides for salary increases from time to time and for salary
continuation during incapacity and for two years after death.
Under the terms of a salary continuation agreement, in the event of Mr. Port's
death while employed by the Company, the Company will continue his salary for
two years thereafter.
Mr. Smith retired as President and Chief Operating Officer of the Company on
December 31, 1998. He will receive an annual salary of $307,109 through June 30,
2003, as provided in the Agreement of Early Retirement between Mr. Smith and the
Company, which supersedes Mr. Smith's Employment Agreement. Mr. Smith has agreed
to not compete with the Company for a period of two years following the later of
June 30, 2003, and the date on which Mr. Smith is no longer a member of the
Board of Directors.
Mr. Shaffer is employed under a contract expiring in 1999 pursuant to which he
will receive a minimum salary of $223,519 for 1999. The contract is
automatically renewable for one year terms unless a one year notice is given.
The contract provides for salary increases from time to time and salary
continuation during incapacity and for one year after death.
Mr. Cannon is employed under a contract pursuant to which he will receive a
minimum salary of $230,000 for 1999. Upon the expiration of two years prior
written notice, the contract is cancelable by either party. The contract
provides for salary increases from time to time and salary continuation during
incapacity and for one year after death.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Report of the Compensation Committee of the Board of Directors and the Stock
Price Performance Graph shall not be deemed incorporated by reference by any
general statement incorporating by reference this proxy statement into any
filing under the Securities Act of 1933 or under the Securities Exchange Act of
1934, except to the extent that the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.
6
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
AS TO COMPENSATION MATTERS
OVERVIEW
The objectives of the Compensation Committee in establishing executive
compensation are to provide compensation that will both attract and retain
superior talent and align the interests of the Company's executive officers with
the financial success of the Company. The criteria used to determine the
compensation of the Chief Executive Officer are also used in determining
compensation for the other executive officers.
Federal tax law imposes a $1 million limit on the tax deduction for certain
executive compensation payments. Because the compensation paid to any executive
officer is significantly below the $1 million threshold, the Compensation
Committee has not yet had to address the issues relative thereto.
EXECUTIVE OFFICER COMPENSATION PROGRAM
The Company's executive officer compensation program is comprised of base
salary, short-term incentive compensation, long-term incentive compensation (in
the form of stock options) and various benefits, including medical and profit
sharing plans, generally available to employees of the Company.
BASE SALARY. Base salary for the executive officers was set pursuant to
employment agreements described elsewhere in this proxy statement. In setting
these compensation levels, the Compensation Committee considered a variety of
factors, including competitive market levels, levels of responsibility as well
as the unique abilities and individual experience and performance of each
officer. In addition, certain of the employment agreements provide for
discretionary increases in base salary. Generally, these salary increases are
determined annually and correspond to increases in the consumer price index.
INCENTIVE COMPENSATION PROGRAM. In 1995, the Board of Directors adopted the
Lawson Products, Inc. Annual Incentive Compensation Program (the "Program").
Under the Program the Compensation Committee establishes annual corporate, team
and individual target performance levels for each of the participating employees
(which includes each of the Named Officers). Each participant is then granted an
annual incentive award based upon the base salary at the beginning of the year
for that participant and the degree to which the participant's predetermined
targets were achieved during the year.
STOCK OPTION PROGRAM. The Company's long-term incentive based compensation
program is achieved principally through the Lawson Products, Inc. Incentive
Stock Plan under which stock options (both nonqualified and incentive), stock
appreciation rights and stock awards may be issued to officers and key
employees. The objectives of the Plan are to align executive and stockholder
long-term interests by creating a link between executive compensation and
stockholder return and to enable executives and other key employees to develop
and maintain a long-term stock ownership position in the Company. Under the
Company's plan, the Incentive Stock Committee determines the identity of
recipients and the amount of benefits to be received by each recipient.
Generally, options are granted at an exercise price equal to the fair market
value of the Company's Common Stock on the date of grant and have ten year
terms.
OTHER BENEFITS. The Company maintains an Executive Deferral Plan and also
provides a variety of other benefits including a Profit Sharing Plan, which are
generally available to Company employees.
James T. Brophy
Robert G. Rettig
Ronald B. Port, M.D.
7
<PAGE>
STOCK PRICE PERFORMANCE CHART
Set forth below is a line graph comparing the yearly percentage change in the
cumulative total stockholder return on the Company's Common Stock against the
cumulative total return of the Dow Jones Equity Market Index, the Dow Jones
Industrial Diversified Index, the S&P Small Capitalization Index and a peer
group (the "Peer Group") of the Company for the five prior fiscal years. The
peer group consists of Barnes Group Inc., Strategic Distribution, Inc.,
SunSource Inc., Premier Farnell PLC, Vallen Corporation and NCH Corporation. The
Company has decided to use different indexes than last year since the Company
believes that the S&P Small Capitalization Index, of which the Company is a
member, and the Peer Group, which represents similar businesses in the same
industry as that of the Company, are more appropriate measures of the Company's
performance. These two indexes will replace the Dow Jones Equity Market Index
and the Dow Jones Industrial Diversified Index starting in next year's proxy
statement.
EDGAR REPRESENTATION OF DATA POINTS USE IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DOW JONES DOW JONES
LAWSON INDUSTRIAL EQUITY MARKET S&P SMALL
PRODUCTS, INC. DIVERSIFIED INDEX CAP PEERS
--------------- ----------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
12/31/93....................................... $ 100.00 $ 100.00 $ 100.00 $ 100.00 $ 100.00
12/30/94....................................... 91.38 100.73 91.72 95.23 114.73
12/29/95....................................... 88.69 138.69 120.11 123.75 123.73
12/31/96....................................... 82.97 170.63 155.40 150.13 140.99
12/31/97....................................... 113.41 228.57 203.69 188.55 110.32
12/31/98....................................... 89.55 294.05 234.33 161.27 72.49
</TABLE>
Assumes that the value of the investment in Lawson's Common Stock and each index
was $100 on December 31, 1993 and that all dividends were reinvested.
8
<PAGE>
APPROVAL OF AMENDMENTS TO THE COMPANY'S INCENTIVE STOCK PLAN
The Board of Directors recommends approval of a proposed amendment to the Lawson
Products, Inc. Incentive Stock Plan, as amended, (the "Plan") to (i) include
non-employee directors ("Outside Directors") as participants under the Plan,
subject to certain conditions and limitations and (ii) limit the number of
shares of the Company's Common Stock with respect to which options or stock
appreciation rights may be granted during any calendar year to any one
participant under the Plan to 60,000 shares. The Board of Directors believes
that amending the Plan to include Outside Directors will enable the Company to
continue to attract and retain highly qualified persons as Outside Directors of
the Company and better align the interests of Outside Directors with the
interests of the stockholders.
The proposed amendment to limit the number of shares of the Company's Common
Stock with respect to which options or stock appreciation rights may be granted
is a further limitation on the current terms of the Plan, and does not add to
benefits or compensation presently available for award under the Plan. Approval
of the amendment will permit the Company, assuming certain other conditions are
satisfied, to avoid the limitation in Section 162(m) of the Internal Revenue
Code ("Code") on the deductibility of compensation relating to stock options and
stock appreciation rights granted under the Plan. Section 162(m) generally
limits the deduction that may be claimed for compensation paid to the Chief
Executive Officer and the four other highest paid executive officers at the end
of a given fiscal year to $1,000,000 per person, subject to certain exceptions.
The rule applies to all types of compensation, including amounts realized on
exercise of stock options and stock appreciation rights, unless the awards and
plan under which they are made qualify as "performance based" under the terms of
the Code and related regulations. The Company believes that the proposed
amendment to limit the number of shares of the Company's Common Stock with
respect to which options or stock appreciation rights may be granted will enable
the Company to avoid the Section 162(m) limitation if certain other conditions
are satisfied.
SUMMARY OF THE PLAN
The Plan was adopted by the Board of Directors in 1977 and approved by the
stockholders in the same year. In 1987, the Plan was amended and restated by the
Board of Directors to (a) increase the number of shares of Common Stock reserved
under the Plan, (b) extend the term during which benefits may be granted until
December 16, 1996, and (c) amend certain other provisions of the Plan. The Plan,
as amended, was approved by the stockholders that same year. In 1997, the
duration of the Plan was extended until December 16, 2006.
The purpose of the Plan is to attract and retain highly qualified persons as
officers and key employees (and directors if the proposed amendments are
approved by the stockholders) of the Company through long-term incentives. The
Plan authorizes nonqualified and incentive stock options, granted at not less
than fair market value, stock appreciation rights and stock awards. All benefits
terminate not more than twelve years after grant. As of March 28, 1999, 647,777
shares of Common Stock were reserved for benefits under the Plan, 270,890 of
which were subject to stock options held by 140 employees. If there is a lapse,
expiration or termination of any option or right prior to the issuance of shares
or the payment of the equivalent thereunder, or if shares are issued and
thereafter are reacquired by the Company pursuant to rights reserved upon
issuance thereof, those shares may again be used for new awards under the Plan.
No other types of benefits are outstanding under the Plan. Approximately 140
employees (including 13 officers) are participants in the Plan. The Plan is
administered by the members of the Incentive Stock Committee, each of whom will
be eligible to receive benefits under the Plan if the amendments to the Plan are
approved, other than Sidney Port who beneficially owns more than 10 percent of
the outstanding Common Stock of the Company.
9
<PAGE>
FEDERAL INCOME TAXES
Under current law, the following are U.S. federal income tax consequences
generally arising with respect to awards under the Plan.
A participant who is granted an incentive stock option does not recognize any
taxable income at the time of the grant or at the time of exercise. Similarly,
the Company is not entitled to any deduction at the time of grant or the time of
exercise. If the participant makes no disposition of the shares acquired
pursuant to an incentive stock option before the later of two years from the
date of grant and one year from the date of exercise, any gain or loss realized
on a subsequent disposition of the shares will be treated as a long-term capital
gain or loss. Under such circumstances, the Company will not be entitled to any
deduction for federal income tax purposes.
A participant who is granted a nonqualified stock option will not have taxable
income at the time of grant but will have taxable income at the time of exercise
equal to the difference between the exercise price of the shares and the market
value of the shares on the date of exercise. The Company is entitled to a tax
deduction for the same amount.
The grant of a Stock Appreciation Right ("SAR") will produce no U.S. federal tax
consequences for the participant or the Company. The exercise of an SAR results
in taxable income to the participant equal to the difference between the
exercise price of the shares and the market price of the shares on the date of
exercise and a corresponding tax deduction for the corporation.
A participant who has been granted an award of restricted shares of Common Stock
will generally not realize taxable income at the time of grant, and the Company
will not be entitled to a tax deduction at the time of grant. When the
restrictions lapse, the participant will recognize taxable income in an amount
equal to the excess of the fair market value of the shares at such time over the
amount, if any, paid for the shares. The Company will be entitled to a
corresponding tax deduction.
GENERAL
The Plan provides for appropriate adjustments in the event of stock splits and
similar transactions. Benefits are generally not transferable except to a
participant's immediate family and at death. No benefit may be granted under the
Plan after December 16, 2006. Except for the $100,000 annual limitation for
incentive stock options, the ineligibility of employees or directors
beneficially owning more than 10% of the outstanding shares of Common Stock of
the Company and the condition that participants, in the sole discretion of the
Incentive Stock Committee, contribute to the success and future growth and
profitability of the Company, the Plan does not limit the benefits issuable to
any employee or the number of participants who may participate, and additional
benefits may be granted to previous recipients of benefits to provide new
incentives and reflect increased responsibilities. The Plan also provides,
subject to stockholder approval, that the number of shares with respect to which
options or stock appreciation rights may be granted during any calendar year to
any one participant under the Plan is 60,000 shares. As of March 30, 1999, the
closing price per share of the Company's Common Stock was $21.00.
Approval of the amendments to the Plan requires the affirmative vote of the
holders of a majority of the shares of the Company's Common Stock present or
represented at the annual meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE PROPOSED
AMENDMENTS TO THE COMPANY'S INCENTIVE STOCK PLAN.
10
<PAGE>
STOCKHOLDER PROPOSAL REGARDING THE SALE OR
MERGER OF THE COMPANY
The Company has been advised that Charles Miller, 23 Park Circle, Great Neck,
New York 11024, who holds 200 shares of Lawson Common Stock, intends to submit
the following proposal at the Annual Meeting:
"MAXIMIZE VALUE RESOLUTION
"Resolved that the shareholders of Lawson Products, Inc. Corporation urge the
Lawson Products, Inc. Board of Directors to arrange for the prompt sale of
Lawson Products, Inc. to the highest bidder.
The purpose of the Maximize Value Resolution is to give all Lawson Products,
Inc. shareholders the opportunity to send a message to the Lawson Products, Inc.
Board that they support the prompt sale of Lawson Products, Inc. to the highest
bidder. A strong and/or majority vote by the shareholders would indicate to the
board the displeasure felt by the shareholders of the shareholder returns over
many years and the drastic action that should be taken. Even if it is approved
by the majority of the Lawson Products, Inc. shares represented and entitled to
vote at the annual meeting, the Maximize Value Resolution will not be binding on
the Lawson Products, Inc. Board. The proponent however believes that if this
resolution receives substantial support from the shareholders, the board may
choose to carry out the request set forth in the resolution:
The prompt auction of Lawson Products, Inc. should be accomplished by any
appropriate process the board chooses to adopt including a sale to the highest
bidder whether in cash, stock, or a combination of both. It is expected that the
board will uphold its fiduciary duties to the utmost during the process.
The proponent further believes that if the resolution is adopted, the management
and the board will interpret such adoption as a message from the company's
stockholders that it is no longer acceptable for the board to continue with its
current management plan and strategies."
I URGE YOUR SUPPORT, VOTE FOR THIS RESOLUTION"
THE BOARD OF DIRECTORS OF THE COMPANY OPPOSES AND UNANIMOUSLY RECOMMENDS A VOTE
"AGAINST" THIS PROPOSAL FOR THE FOLLOWING REASONS:
Essentially identical proposals were submitted to the Company for the 1997 and
1998 annual meetings.
The Board believes, like the overwhelming majority of the stockholders who voted
against the proposal in 1997 and 1998, that efforts seeking to force a sale of
the Company are not in the best interests of the Company or its stockholders and
that such efforts could seriously prejudice stockholders' financial interests.
The Board is continuing to seek to maximize stockholder value through ongoing
initiatives designed to increase growth, improve efficiencies, expand and better
penetrate markets and to explore potential acquisitions and alliances
complimentary to the Company's business.
The Board believes that its and management's focus on the Company's newly
instituted internal and external organizational modifications and efforts to
improve operating efficiencies will result in increased growth and increased
profitability, thereby enhancing stockholder value. The Board believes that the
proposal could seriously prejudice and jeopardize the financial interests of
stockholders. Although the proposal only requests and does not obligate the
Board to take certain action, the Board believes that an announcement that such
proposal has been adopted could severely damage the Company's relationships with
its customers, independent sales agents and employees. Such results could have
an adverse impact on the Company's ability to complete its ongoing
organizational modifications, proceed with its cost controls and efforts toward
increased
11
<PAGE>
growth, and to effectively compete in the short and long term, leading to a
potential decline in revenues, profits and, in turn, stockholder value.
The Board notes that according to information supplied to the Company by Mr.
Miller, as of September 4, 1998, the date Mr. Miller submitted his proposal, Mr.
Miller held 200 shares of Lawson Common Stock with a market value of $4,400. As
of March 1, 1999, the Board, in the aggregate, held approximately 46% of the
outstanding Lawson Common Stock, with a market value of approximately $102
million.
FOR THE REASONS STATED ABOVE, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE "AGAINST" THIS PROPOSAL.
The affirmative vote of the holders of a majority of the shares represented and
entitled to vote at the annual meeting is required for approval of the
stockholder proposal. Abstentions will count as a vote against the proposal, but
broker non-votes will have no effect.
STOCKHOLDER PROPOSAL REGARDING THE ELIMINATION OF
A CLASSIFIED BOARD OF DIRECTORS
The Company has been advised that William Steiner, 4 Radcliffe Drive, Great
Neck, New York 11024, who holds 1,550 shares of Lawson Common Stock, intends to
submit the following proposal at the Annual Meeting:
"ELIMINATE CLASSIFIED BOARD OF DIRECTORS RESOLUTION
"RESOLVED, that the stockholders of the Company request that the Board of
Directors take the necessary steps, in accordance with state law, to declassify
the Board of Directors so that all directors are elected annually, such
declassification to be effected in a manner that does not affect the unexpired
terms of directors previously elected."
SUPPORTING STATEMENT
The election of directors is the primary avenue for stockholders to influence
corporate governance policies and to hold management accountable for it's (sic)
implementation of those policies. I believe that the classification of the Board
of Directors, which results in only a portion of the Board being elected
annually, is not in the best interests of the Company and it's (sic)
stockholders.
I believe that the Company's classified Board of Directors maintains the
incumbency of the current Board and therefore of current management, which in
turn limits management's accountability to stockholders.
The elimination of the Company's classified Board would require each new
director to stand for election annually and allow stockholders an opportunity to
register their views on the performance of the Board collectively and each
director individually. I believe this is one of the best methods available to
stockholders to insure that the Company will be managed in a manner that is in
the best interests of the stockholders.
I believe that concerns expressed by companies with classified boards that the
annual election of all directors could leave companies without experienced
directors in the event that all incumbents are voted out by stockholders, are
unfounded. In my view, in the unlikely event that stockholders vote to replace
all directors, this decision would express stockholder dissatisfaction with the
incumbent directors and reflect the need for change.
I URGE YOUR SUPPORT, VOTE FOR THIS RESOLUTION"
12
<PAGE>
THE BOARD OF DIRECTORS OF THE COMPANY OPPOSES AND UNANIMOUSLY RECOMMENDS A VOTE
"AGAINST" THIS PROPOSAL FOR THE FOLLOWING REASONS:
In 1982, the Board of Directors recommended that the Company elect directors to
serve staggered terms so that no more than one-third of the directors are
elected each year. The stockholders adopted that recommendation at the 1983
annual meeting of stockholders by an overwhelming majority vote and Article
Ninth of the Certificate of Incorporation and Section 3.2 of the By-Laws of the
Company were adopted.
Under Delaware law, the action recommended in the proposal can be taken only if
the Board recommends an amendment to the Company's Certificate of Incorporation
and directs that the amendment be submitted to a vote of stockholders. In
accordance with the Company's By-Laws, an affirmative vote of 75% of the
outstanding shares of Common Stock entitled to vote would be required at a
future meeting of the Company's stockholders in order to amend the provision for
the staggered election of directors. The Board of Directors has not recommended
and does not recommend such an amendment and deems the proposal to be
detrimental to the interests of the Company's stockholders.
The classification of directors has the effect of making it more difficult to
change the composition of the Board at other than a moderate pace and requires
that at least two-thirds of the directors serving will have had prior experience
on the Board. Preventing precipitous changes in control strengthens the Board's
ability, in the exercise of its fiduciary duties, to maximize the value of the
stockholders' investment in the Company and serves to provide informed oversight
of corporate policies, orderly development of business strategies and
operations, and long-term strategic planning. It also serves as an obstacle to
sudden and disruptive attempts to obtain control of the Company.
A person seeking to acquire immediate control of the Company will be required to
initiate such action through arms-length negotiations with members of the Board
who are in the best position to negotiate a transaction to maximize stockholder
value and yield the highest price for the Company's stockholders. By virtue of
staggered terms, at least two meetings of stockholders would be required to
change control of the Board unless the existing Board consented to such change
of control. The consent of the Board to a change of control, in turn, could be a
condition to obtaining a higher price for the stockholders. Thus, having a
staggered Board enhances the ability to negotiate favorable terms for all
stockholders and does not necessarily discourage takeover offers.
The staggered Board notwithstanding, the stockholders retain their ability to
replace incumbent directors or to propose alternative nominees for the class of
directors to be elected at an annual meeting and thereby stockholders can
properly and effectively express their views and influence Company policies.
Those directors who remain in office will be influenced by any such stockholder
action. The Board does not believe that directors elected for staggered terms
are any less accountable to stockholders than if they would be elected annually.
The same standards of performance apply regardless of the term of service.
The Board continues to believe as it did in 1982, that maintaining staggered
terms for directors is in the best interests of the Company and its
stockholders. Maintaining staggered terms represents a reasonable and
appropriate means of protecting against potentially abusive and coercive tactics
associated with unsolicited efforts to obtain control of the Company and to
provide informed oversight in the development of policies, business strategies
and operations.
The Board notes that according to information supplied to the Company by Mr.
Steiner, he held 1,550 shares of Common Stock as of September 15, 1998, with a
market value of $34,197. As of March 1, 1999, the Board, in the aggregate, held
approximately 46% of the outstanding Lawson Common Stock, worth approximately
$102 million.
FOR THE REASONS STATED ABOVE, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE "AGAINST" THIS PROPOSAL.
13
<PAGE>
The affirmative vote of the holders of a majority of the shares represented and
entitled to vote at the annual meeting is required for approval of the
stockholder proposal. Abstentions will count as a vote against the proposal, but
broker non-votes will have no effect.
INDEPENDENT AUDITORS
The Board of Directors has reappointed Ernst & Young LLP as independent auditors
to audit the financial statements of the Company for 1999. Representatives of
Ernst & Young LLP are expected to be present at the annual meeting and will be
given the opportunity to make a statement if they desire to do so and will be
available to respond to appropriate questions.
PROPOSALS OF SECURITY HOLDERS
A stockholder proposal to be presented at the annual meeting to be held in 2000
must be received at the Company's executive offices, 1666 East Touhy Avenue, Des
Plaines, Illinois 60018, by no later than December 11, 1999, for evaluation as
to inclusion in the Proxy Statement in connection with such meeting.
OTHER MATTERS
The Board of Directors knows of no other proposals which may be presented for
action at the meeting. However, in accordance with the By-laws of the Company,
if any other proposal properly comes before the meeting, the persons named in
the proxy form enclosed will vote in accordance with their judgment upon such
matter. In order for a proposal to properly come before a meeting, the proposal
must be received by the Company not less than 90 days nor more than 110 days
prior to the first anniversary of the prior year's meeting unless the date of
the annual meeting is advanced by more than 30 days or delayed by more than 60
days from such anniversary date, in which case notice of such proposal must be
received by the Company no later than 10 days following the date on which public
announcement of the date of such meeting is first made.
Stockholders are urged to execute and return promptly the enclosed form of proxy
in the envelope provided.
By Order of the Board of Directors
Robert J. Washlow
SECRETARY
April 12, 1999
14
<PAGE>
- -------------------------------------------------------------------------------
P LAWSON PRODUCTS, INC.
R THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING ON MAY 11, 1999.
O
The undersigned hereby makes, constitutes and appoints Sidney L. Port,
X Bernard Kalish and Robert J. Washlow and each of them, proxies for the
undersigned, with full power of substitution, to vote on behalf of the
Y undersigned at the Annual Meeting of Stockholders of Lawson Products,
Inc., to be held at the offices of the Company, 1666 East Touhy Avenue,
Des Plaines, Illinois, on May 11, 1999, at 10:00 A.M. (Local Time), or
any adjournment thereof.
The withholding of authority to vote for any nominee will allow the
proxies to distribute, in their discretion, the withheld votes equally
or unequally to or among the remaining nominees. The nomination of any
additional person or persons by any stockholder will allow the proxies
to distribute, in their discretion, votes in respect of all proxies they
hold equally or unequally to or among the Board of Directors' nominees.
(Continued and to be signed on other side)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
-triangle- FOLD AND DETACH HERE -triangle-
<PAGE>
- -------------------------------------------------------------------------------
(Continued from other side)
/X/ Please mark your | 5302
votes as in this |______
example.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2, AND AGAINST
PROPOSALS 3 AND 4.
<TABLE>
<S> <C> <C> <C>
FOR WITHHOLD AUTHORITY
all the nominees to vote for all the
listed above nominees listed above:
1. ELECTION OF (Instruction: To withhold autho-
DIRECTORS rity to vote for any individual
Nominees: / / / / nominee, mark the "FOR" box
Ronald B. Port, M.D., and write the name of each
Robert G. Rettig, and such nominee in the space pro-
Peter G. Smith vided below.)
- -------------------------------------------------------------------------------
</TABLE>
FOR AGAINST ABSTAIN
2. Proposal to amend the Company's / / / / / /
Incentive Stock Plan.
3. Stockholder proposal concerning the / / / / / /
sale or merger of the Company.
4. Stockholder proposal concerning / / / / / /
elimination of a classified Board of
Directors.
5. In their discretion on any other matter that may properly come before the
meeting or any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
"FOR" THE ELECTION AS DIRECTORS OF THE NOMINEES LISTED ABOVE, "FOR" THE
PROPOSAL TO AMEND THE COMPANY'S INCENTIVE STOCK PLAN AND "AGAINST" EACH OF THE
STOCKHOLDER PROPOSALS.
The undersigned hereby revokes any proxy heretofore given and confirms all that
said proxies, or any of them, or any substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
NOTE: PLEASE DATE AND SIGN AS NAME APPEARS HEREON. IF SHARES ARE HELD JOINTLY
OR BY TWO OR MORE PERSONS, EACH STOCKHOLDER NAMED SHOULD SIGN. ATTORNEYS,
EXECUTORS, ADMINISTRATORS, TRUSTEES, GUARDIANS AND OTHERS SIGNING IN A
REPRESENTATIVE CAPACITY SHOULD INDICATE THE CAPACITY IN WHICH THEY SIGN.
IF THE SIGNER IS A CORPORATION, PLEASE SIGN FULL CORPORATE NAME BY DULY
AUTHORIZED OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY
AUTHORIZED PERSON.
SIGNATURE(S):______________________________DATE:____________________,1999
(Owner's Signature--Sign exactly as name appears hereon.)
- -------------------------------------------------------------------------------
<PAGE>
Exhibit - 99
APPENDIX A
EXPLANATORY NOTE: LAWSON PRODUCTS, INC. INCENTIVE STOCK PLAN, AS AMENDED, IS
FILED HEREWITH PURSUANT TO ITEM 10 OF SCHEDULE 14A AND IS NOT PART OF THE
PROXY STATEMENT.
LAWSON PRODUCTS, INC.
INCENTIVE STOCK PLAN, AS AMENDED
1. PURPOSE. The Lawson Products, Inc. Incentive Stock Plan (the "Plan") is
intended to provide incentives which will attract and retain highly competent
persons as officers, key employees and directors of Lawson Products, Inc.
(the "Company") and its subsidiaries, by providing them opportunities to
acquire Common Stock of the Company ("Common Stock") or monetary or stock
payments based on the increased value of such shares pursuant to the benefits
described herein.
2. ADMINISTRATION. The Plan will be administered by the Incentive Stock
Committee (the "Committee") of the Board of Directors of the Company,
consisting of not less than two non-employee directors within the meaning of
Securities and Exchange Commission Regulation Section 240.16b-3, as the Board
may designate from time to time.
3. PARTICIPANTS. Participants will consist of such key employees (including
officers) and directors of the Company or its subsidiaries as the Committee
in its sole discretion determines to be mainly responsible for the success
and future growth and profitability of the Company and whom the Committee may
designate from time to time to receive Benefits (as hereinafter defined)
under the Plan; provided, however, that any person who owns beneficially more
than 10 percent of the outstanding Common Stock of the Company shall not be
eligible to be a participant in the Plan. Designation of a participant in
any year shall not require the Committee to designate such person to receive
a Benefit in any other year or, once designated, to receive the same type or
amount of Benefit as granted to the participant in any other year, or as
granted to any other participant in any year. The Committee shall consider
such factors as it deems pertinent in selecting participants and in determining
the type and amount of their respective Benefits. Any determination by the
Committee of the type, amount and terms of a participant's Benefits shall in
all cases be subject to the ratification by the Board of Directors.
4. TYPES OF BENEFITS. Benefits under the Plan ("Benefits") may be granted
in any one or a combination of (a) Stock Options; (b) Stock Appreciation
Rights; and (c) Stock Awards, all as described below.
A-1
<PAGE>
5. SHARES RESERVED UNDER THE PLAN. There is hereby reserved for issuance
under the Plan an aggregate of 647,777* shares of Common Stock, which may be
authorized but unissued or treasury shares. Any shares subject to Stock
Options or Stock Appreciation Rights, or issued under such options or rights
or as Stock Awards may thereafter be subject to new options, rights, or
awards under this Plan if there is a lapse, expiration or termination of any
such options, rights or awards prior to issuance of the shares or if shares
are issued under such options or rights or as such awards, and thereafter are
reacquired by Company without consideration pursuant to rights reserved by
the Company upon issuance thereof. The maximum number of shares of Common
Stock with respect to which options or Stock Appreciation Rights may be
granted during any calendar year to any one participant under this Plan shall
not exceed sixty thousand (60,000) shares, subject to adjustment as provided
in Section 10.
6. STOCK OPTIONS. Stock Options will consist of options to purchase shares
of Common Stock at purchase prices not less than 100% of the Fair Market
Value of the Common Stock on the date the option is granted. Stock Options
may be "incentive stock options" under Section 422 of the Internal Revenue
Code ("Incentive Stock Options") or Stock Options which do not constitute
Incentive Stock Options ("Nonqualified Stock Options"). No option will be
exercisable later than twelve years after the date it is granted. Incentive
Stock Options may be granted only to participants who are employees of the
Company or one of its subsidiaries (within the meaning of Section 424(f) of
the Internal Revenue Code) at the date of grant. The aggregate Fair Market
Value (determined as of the time the option is granted) of the Common Stock
with respect to which Incentive Stock Options are exercisable for the first
time by a participant during any calendar year shall not exceed $100,000.
Options shall terminate at such earlier times and upon such conditions or
circumstances as the Committee shall in its sole discretion set forth in such
option at the date of grant, including but not limited to limitations on
exercisability following termination of the participant's employment or
directorship. Options may provide that they may be exercised by payment of
the purchase price in cash and/or by surrendering or delivering to the
Company shares of Common Stock of the Company equal in value (based upon
their Fair Market Value on the date of surrender or delivery) to such
purchase price, or the portion thereof so paid; provided, however, that such
payment does not result in a charge to earnings for financial accounting
purposes as determined by the Committee. All of the shares of Common Stock
reserved for issuance hereunder may, but need not, be issued pursuant to the
exercise of Incentive Stock Options. Options designated as Incentive Stock
Options that fail to meet the requirements of Section 422 of the Internal
Revenue Code shall be redesignated as nonqualified options for Federal income
tax purposes automatically without further action by the Committee on the
date of such failure to continue to meet the requirements of Section 422 of
the Code.
7. STOCK APPRECIATION RIGHTS. The Committee may, in its discretion, grant a
Stock Appreciation
- ---------------
* at March 1, 1999.
A-2
<PAGE>
Right to the holder of any Stock Option granted hereunder. Stock Appreciation
Rights may also be granted independently of and without relation to options.
Each Stock Appreciation Right shall be subject to such terms and conditions
consistent with the Plan as the Committee shall impose from time to time,
including the following:
(a) A Stock Appreciation Right relating to a Nonqualified Stock Option
may be made part of such option at the time of its grant or at any time
thereafter up to six months prior to its expiration, and a Stock
Appreciation Right relating to an Incentive Stock Option granted
hereunder may be made part of such option only at the time of its grant;
(b) Each Stock Appreciation Right will entitle the holder to receive (in
the case of a right issued in relation to a Stock Option), in lieu of
exercising the option to which it relates, an amount (in cash or in
Common Stock, or a combination thereof, all in the sole discretion of
the Committee) up to 100% (or such lesser percentage as determined by
the Committee) of the excess of
(i) the Fair Market Value per share of the Company's Common Stock
on the date of exercise of such right, multiplied by the number of
shares with respect to which the right is being exercised, over
(ii) the aggregate option price for such number of shares.
In the case of a right issued independently of any Stock Option, the
holder will be entitled to receive the appreciation in the Fair Market
Value of the shares subject thereto up to the date the right is
exercised, which appreciation shall be measured from not less than 100%
of the Fair Market Value of the Common Stock on the date the right is
granted.
(c) Each Stock Appreciation Right will be exercisable at the time and to
the extent set forth therein, but no Stock Appreciation Right may be
exercisable earlier than six months after the date it was granted or
later than the earlier of (i) the end of the term of the related option,
if any, or (ii) twelve years after it was granted. Payment of such
appreciation shall be made in cash or Common Stock, or a combination
thereof, as set forth in the award, but no Stock Appreciation Right
shall entitle the holder to receive, upon exercise thereof, more than
the number of shares of Common Stock (or cash of equal value) with
respect to which the right is exercised.
(d) Upon exercise of a Stock Appreciation Right, the option (or portion
thereof), if any, with respect to which such right is exercised shall be
surrendered and shall not thereafter be exercisable.
(e) Upon exercise of a Stock Appreciation Right, the number of shares
issuable under the Plan (and the related option, if any) shall be
reduced by the number of shares with respect to which such right is
exercised.
A-3
<PAGE>
8. FAIR MARKET VALUE. For purposes of this Plan and any options awarded
hereunder, the Fair Market Value of Common Stock shall be the mean between
the highest and lowest sale prices for the Company's Common Stock as reported
on the Nasdaq National Market (or such other consolidated transaction
reporting system on which such shares of Common Stock is primarily traded) on
the date of calculation (or on the next preceding trading date if shares of
Common Stock were not traded on the date of calculation); provided, however,
that if the Company's Common Stock is not at any time readily tradeable on a
national securities exchange or other market system, Fair Market Value shall
mean the amount determined in good faith by the Board as the fair market
value of the Common Stock of the Company.
9. STOCK AWARDS. Stock Awards will consist of Common Stock transferred to
participants at such prices less than Fair Market Value (or without other
payment therefor) as additional compensation for services to the Company and
its subsidiaries. Stock Awards shall be subject to such terms and conditions
as the Committee determines appropriate, including, without limitation,
restrictions on the sale or other disposition of such shares and rights of
the Company to reacquire such shares upon termination of the participant's
employment or directorship within specified periods.
10. ADJUSTMENTS PROVISIONS.
(a) If the Company shall at anytime change the number of issued shares
of Common Stock without new consideration to the Company (by stock
dividends, stock splits, or similar transactions), the total number of
shares reserved for issuance under this Plan and the number of shares
covered by each outstanding Benefit shall be adjusted so that the
aggregate consideration payable to the Company, if any, and the value of
each such Benefit shall not be changed.
(b) Notwithstanding any other provision of this Plan, and without
affecting the number of shares reserved or available hereunder, the
Board of Directors may authorize the issuance or assumption of Benefits
in connection with any merger, consolidation, acquisition of property or
stock, or reorganization in which the Company is a continuing
corporation upon such terms and conditions as it may deem appropriate.
(c) In the case of any merger, consolidation or combination of the
Company with or into another corporation, other than a merger,
consolidation or combination in which the Company is the continuing
corporation and which does not result in the outstanding Common Stock
being converted into or exchanged for different securities, cash or
other property, or any combination thereof (an "acquisition"):
(i) any participant to whom a Stock Option has been granted under
the Plan shall have the right (subject to the provisions of the
Plan and any limitation applicable to such option) thereafter and
during the term of such option, to receive upon
A-4
<PAGE>
exercise thereof the acquisition consideration receivable upon such
acquisition by a holder of the number of shares of Common Stock
which might have been obtained upon exercise of such option or
portion thereof, as the case may be, immediately prior to such
acquisition;
(ii) any participant to whom a Stock Appreciation Right has been
granted under the Plan shall have the right (subject to the
provisions of the Plan and any limitation applicable to such right)
thereafter and during the term of such right to receive upon
exercise thereof the difference between the aggregate Fair Market
Value on the applicable date (as set forth in such right) of the
acquisition consideration receivable upon such acquisition by a
holder of the number of shares of Common Stock which are covered by
such right and the aggregate reference price of such right.
11. NONTRANSFERABILITY. (a) Each Benefit granted under the Plan shall not
be transferable by the participant otherwise than by will or the laws of
descent and distribution, and shall be exercisable, during his lifetime, only
by him. In the event of the death of a participant during employment or
while acting as a director, each Benefit theretofore granted to him shall be
exercisable only within one year after his death (but not beyond the stated
duration of the Benefit) and then only:
(i) By the executor or administrator of the estate of the deceased
participant or the person or persons to whom the deceased participant's
rights under the Benefit shall pass by will or the laws of descent and
distribution; and
(ii) To the extent that the deceased participant was entitled to do so
at the date of his death.
(b) Notwithstanding Section 11(a), in the discretion of the Committee,
Benefits granted hereunder may be transferred to members of the participant's
immediate family (which for purposes of this Plan shall be limited to the
participant's children, grandchildren and spouse), or to one or more trusts
for the benefit of such family members, or to partnerships or limited
liability companies in which such family members and/or trusts are the only
partners or members, but only if the Benefit expressly so provides.
12. OTHER PROVISIONS. The award of any Benefit under the Plan may also be
subject to such other provisions (whether or not applicable to the Benefit
awarded to any other participant) as the Committee determines appropriate,
including without limitation, provisions for the installment purchase of
Common Stock under Stock Options, provisions to assist the participant in
financing the acquisition of Common Stock, the prior ownership or the
purchase of Common Stock, restrictions on resale or other disposition,
provisions to comply with federal and state securities laws, or
understandings or conditions as to the participant's employment or
continuation as a director in addition to those specifically provided for
under the Plan.
A-5
<PAGE>
13. RULES. The Committee may establish such rules and regulations as it
considers desirable for the administration of the Plan.
14. MANNER OF ACTION BY COMMITTEE. A majority of the members of the Committee
qualified to act on a question may act by meeting or by writing signed
without meeting and may execute, or delegate to one of its members authority
to execute, any instrument or document required. The Committee may delegate
the performance of ministerial functions in connection with the Plan to such
person or persons as the Committee may select. The costs of administration
of the Plan will be paid by the Company.
15. TAXES. The Company shall be entitled if necessary or desirable to pay or
withhold the amount of any tax attributable to any amounts payable under the
Plan after giving the person entitled to receive such amount notice as far in
advance as practicable, and the Company may defer making payment as to any
Benefit if any such tax, charge or assessment may be pending until
indemnified to its satisfaction. When a participant is required to pay to
the Company an amount required to be withheld under applicable tax laws in
connection with exercises of options or other Benefits, the Committee may, in
its discretion and subject to such rules as it may adopt, permit the
participant to satisfy the obligation, in whole or in part, by electing to
have the Company withhold shares of Common Stock having a Fair Market Value
equal to the amount required to be withheld. The election must be made on or
before the date that the amount of tax to be withheld is determined.
16. TENURE. A participant's rights, if any, to continue to serve the Company
and its subsidiaries as an officer, employee, director or otherwise, shall
not be enlarged or otherwise affected by his designation as a participant
under the Plan.
17. DURATION, AMENDMENT AND TERMINATION. No Benefit shall be granted more
than ten years after December 16, 1996; provided, however, that the terms and
conditions applicable to any Benefit granted within such period may
thereafter be amended or modified by mutual agreement between the Company and
the participant or such other persons as may then have an interest therein.
Also, by mutual agreement between the Company and a participant hereunder, or
under any other present or future plan of the Company, Stock Options or other
Benefits may be granted to such participant in substitution and exchange for,
and in cancellation of, any Benefits previously granted such participant
under this Plan, or any benefit previously or hereafter granted to him under
any other present or future plan of the Company. The Board of Directors may
amend the Plan from time to time or terminate the Plan at any time. However,
no action authorized by this paragraph shall reduce the amount of any
existing Benefit or change the terms and conditions thereof without the
participant's consent. No amendment of the Plan shall, without approval of
the stockholders of the Company, (i) increase the total number of shares
which may be issued under the Plan or increase the amount or type of Benefits
that may be granted under the Plan; (ii) change the minimum purchase price,
if any, of Common Stock which
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may be made subject to Benefits under the Plan; or (iii) modify the requirements
as to eligibility for Benefits under the Plan.
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