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 Section 240.14a-11(c) or Section 240.14a-12
MORGAN PRODUCTS LTD.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than 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)(4) 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:
<PAGE>
[logo]
Morgan Products Ltd.
469 MCLAWS CIRCLE
WILLIAMSBURG, VIRGINIA 23185
(757) 564-1700
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 14, 1997
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Morgan
Products Ltd. (the "Company") will be held at 10:00 A.M. Eastern time at the
Marriott Hotel, 50 Kingsmill Road, Williamsburg, Virginia 23185 on Wednesday,
May 14, 1997, for the following purposes:
1. To elect seven (7) directors to serve until the next Annual Meeting
of Stockholders and until their successors are elected and
qualified.
2. To consider and act upon a proposal to ratify the selection of
Price Waterhouse LLP as independent accountants for the fiscal year
ending December 31, 1997.
3. To consider and act upon a proposal by the Board of Directors to
adopt the Morgan Products Ltd. 1997 Incentive Compensation Plan.
4. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on March 20, 1997,
as the record date for the determination of stockholders entitled to notice of
and to vote at the Annual Meeting or any adjournment or postponement thereof. A
list of those stockholders will be available for inspection at the Annual
Meeting upon request of any stockholder.
You are cordially invited to attend the Annual Meeting. Your vote is
important. If you do not expect to attend the Annual Meeting, or if you do plan
to attend but wish to vote by proxy, please date, sign and mail promptly the
enclosed proxy, for which a return envelope is provided. If you do attend, you
may revoke your proxy and vote your shares in person if you wish to do so.
By Order of the Board of Directors,
Douglas H. MacMillan
Secretary
Dated: March 28, 1997
Williamsburg, Virginia
<PAGE>
MORGAN PRODUCTS LTD.
PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 14, 1997
The enclosed proxy is solicited by and on behalf of the Board of Directors
of Morgan Products Ltd. (the "Company") to be voted at the Annual Meeting of
Stockholders (the "Meeting") to be held at the Marriott Hotel, 50 Kingsmill
Road, Williamsburg, Virginia, on Wednesday, May 14, 1997, at 10:00 A.M. Eastern
time, or at any adjournment or postponement thereof. The Company's address is
469 McLaws Circle, Williamsburg, Virginia 23185, and its telephone number is
(757) 564-1700. This Proxy Statement and the enclosed proxy will first be mailed
to stockholders on or about March 31, 1997.
Only holders of record of the Company's common stock, par value $.10 per
share (the "Common Stock"), as of the close of business on March 20, 1997 (the
"Record Date") will be entitled to notice of and to vote at the Meeting. As of
the Record Date, there were 10,152,594 shares of Common Stock issued and
outstanding, each of which is entitled to one vote. As of the Record Date, 2,386
shares of Common Stock were outstanding and held by the Company as treasury
shares. There is no other class of voting securities issued and outstanding. The
presence in person or by proxy of holders of a majority of the outstanding
Common Stock will be necessary to constitute a quorum for the transaction of
business at the Meeting.
Assuming a quorum is present, a plurality of the votes of the shares of
Common Stock present or represented by proxy at the Meeting is required for the
election of any nominee or other person as a director and the affirmative vote
of a majority of the shares of Common Stock present or represented by proxy at
the Meeting and entitled to vote is required for the ratification of the
selection of Price Waterhouse LLP as the Company's independent accountants for
the fiscal year ending December 31, 1997.
All shares represented by properly executed proxies will be voted in
accordance with the instructions indicated thereon unless such proxies
previously have been revoked. If any such proxies do not contain voting
instructions, the shares represented by such proxies will be voted (1) FOR the
election of the nominees listed thereon, (2) FOR the ratification of the
selection of Price Waterhouse LLP as the Company's independent accountants for
the fiscal year ending December 31, 1997, and (3) FOR the ratification of the
adoption of the Morgan Products Ltd. 1997 Incentive Compensation Plan. An
automated system administered by the Company's transfer agent tabulates the
votes. Where the approval of a majority of the shares represented at the meeting
is required for the approval of a proposal, abstentions are the equivalent of
votes against such proposal and broker non-votes have no effect. The Board of
Directors does not know of any business to be brought before the Meeting other
than as indicated in the Notice of Annual Meeting. If any other matters properly
come before the Meeting, shares represented by all properly executed proxies
will be voted in accordance with the judgment of the persons acting thereunder.
Any stockholder who executes and delivers a proxy may revoke it at any time
prior to its exercise upon the: (a) receipt by the Secretary of the Company of
written notice of such revocation; (b) receipt by the Secretary of the Company
of a duly executed proxy bearing a later date; or (c) appearance of the
stockholder at the Meeting and a request for the return of the proxy.
1
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 4, 1997, the number of shares
of Common Stock owned beneficially, to the knowledge of the Company, by each
beneficial owner of more than 5% of the Common Stock, by each director, by each
named executive officer, and by all executive officers and directors of the
Company as a group. Unless otherwise indicated in a footnote, each person listed
in the table possesses sole voting and investment power with respect to the
shares indicated.
<TABLE>
<CAPTION>
Name and Address of Number of Percentage of
Beneficial Owner Shares Common Stock
- - -------------------------------------- --------- -------------
<S> <C>
Heartland Advisors, Inc.
790 North Milwaukee Street
Milwaukee, WI 53202 1,374,700(1) 13.5
Fiduciary Trust Company International
Two World Trade Center
New York, NY 10048 1,007,800(2) 9.9
The Parnassus Fund
One Market
Stuart Tower, Suite 1600
San Francisco, CA 94105 1,000,000(3) 9.9
Frank J. Hawley, Jr.
One Canterbury Green
Stamford, CT 06901 125,122 1.2
Larry R. Robinette
469 McLaws Circle
Williamsburg, VA 23185 219,167(4) 2.1
John S. Crowley
275 Guinea Road
Stamford, CT 06903 4,000(5) *
Howard G. Haas
Suite 1275
208 S. LaSalle Street
Chicago, IL 60604 7,900(6) *
William R. Holland
301 S. College Street
2300 One First Union Center
Charlotte, NC 28202 4,500(7) *
Patrick J. McDonough, Jr.
P.O. Box 508
153 Bowles Road
Agawam, MA 01001 1,000(8) *
Edward T. Tokar
P.O. Box 1219R
101 Columbia Road
Morristown, NJ 07962-1219 3,000(9) *
Peter Balint
469 McLaws Circle
Williamsburg, Virginia 23185 33,333(10) *
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Name and Address of Number of Percentage of
Beneficial Owner Shares Common Stock
- - -------------------------------------- --------- -------------
<S> <C>
David A. Braun
Morgan Distribution
303 Mulberry Drive
Mechanicsburg, PA 17055 13,333(11) *
Dennis C. Hood
469 McLaws Circle
Williamsburg, Virginia 23185 71,300(12) *
Douglas H. MacMillan
469 McLaws Circle
Williamsburg, Virginia 23185 80,333(13) *
All Directors and Executive Officers
as a group (13 persons) 616,891(14) 5.8
</TABLE>
- - ---------------
* Number equals less than one percent (1%) of outstanding shares of Common
Stock.
(1) Based on information filed with the Securities and Exchange Commission,
Heartland Advisors, Inc. has sole voting and dispositive power with respect
to these shares.
(2) Based on information filed with the Securities and Exchange Commission,
Fiduciary Trust Company has sole voting and dispositive power with respect
to 841,800 shares and shared voting and sole dispositive power over an
additional 166,000 owned by affiliates of Fiduciary Trust Company
International.
(3) Based on information filed with the Securities and Exchange Commission, The
Parnassus Fund has sole voting power with respect to these shares.
(4) This amount consists of 219,167 shares of Common Stock as to which Mr.
Robinette has options to purchase which were granted pursuant to the Morgan
Products Ltd. Incentive Stock Option Plan (the "Stock Option Plan") and
which are currently exercisable or exercisable within 60 days.
(5) This amount consists of 4,000 shares of Common Stock as to which Mr.
Crowley has options to purchase which were granted pursuant to the Morgan
Products Ltd. 1992 Non-employee Director Stock Option Plan (the "Director
Plan") and which are currently exercisable or exercisable within 60 days.
(6) This amount includes 4,000 shares of Common Stock as to which Mr. Haas has
options to purchase which were granted pursuant to the Director Plan and
which are currently exercisable or exercisable within 60 days, as well as
3,900 shares owned individually.
(7) This amount includes 4,000 shares of Common Stock as to which Mr. Holland
has options to purchase which were granted pursuant to the Director Plan
and which are currently exercisable or exercisable within 60 days, as well
as 500 shares owned individually.
(8) This amount represents 1,000 shares of Common Stock as to which Mr.
McDonough has options to purchase which were granted pursuant to the
Director Plan and which are currently exercisable or exercisable within 60
days.
(9) This amount represents 1,000 shares of Common Stock as to which Mr. Tokar
has options to purchase which were granted pursuant to the Director Plan
and which are currently exercisable or exercisable within 60 days, as well
as 2,000 shares owned individually.
(10) This amount includes 33,333 shares of Common Stock as to which Mr. Balint
has options to purchase which were granted pursuant to the Stock Option
Plan and which are currently exercisable or exercisable within 60 days.
(11) This amount includes 13,333 shares of Common Stock as to which Mr. Braun
has options to purchase which were granted pursuant to the Stock Option
Plan and which are currently exercisable or exercisable within 60 days.
3
<PAGE>
(12) This amount includes 68,000 shares of Common Stock as to which Mr. Hood has
options to purchase which were granted pursuant to the Stock Option Plan
and which are currently exercisable or exercisable within 60 days, as well
as 3,300 shares owned individually.
(13) This amount includes 73,333 shares of Common Stock as to which Mr.
MacMillan has options to purchase which were granted pursuant to the Stock
Option Plan and which are currently exercisable or exercisable within 60
days, as well as 7,000 shares owned individually.
(14) This amount represents the aggregate amount of 616,891 shares of Common
Stock as to which all executive officers and directors as a group have
options to purchase and which are currently exercisable or exercisable
within 60 days, as well as shares owned or beneficially owned individually.
4
<PAGE>
1. ELECTION OF DIRECTORS
The Board of Directors has nominated seven (7) persons for election as
directors of the Company to serve until the next Annual Meeting of Stockholders
and until their successors are elected and qualified. It is intended that,
unless contrary instructions are received, the accompanying form of proxy will
be voted for the following persons, all of whom are presently directors of the
Company and have agreed to serve if elected. If, prior to the Meeting, any
nominee becomes unable to serve, the shares represented by all properly executed
proxies will be voted for such additional person as may be recommended by the
Board of Directors.
The following table sets forth information about the nominees for election.
<TABLE>
<CAPTION>
Position with the
Name Age Company Principal Occupation Director Since
- - --------------------------- --- ----------------------- --------------------------------------- ---------------
<S> <C>
Frank J. Hawley, Jr........ 69 Chairman of the Board; Managing partner of Bedford Partners, December 1983
Director which is the general partner of
Saugatuck Capital Company Limited
Partnership II ("Saugatuck II") a
venture capital partnership; managing
partner of Greyrock Partners Limited
Partnership, which is the general
partner of Saugatuck Capital Company
Limited Partnership III ("Saugatuck
III"), a venture capital partnership,
President and principal stockholder of
Saugatuck Associates, Inc. and
Saugatuck Associates II, Inc., each a
risk capital management firm which
provides investment advice and
assistance to Saugatuck II and
Saugatuck III. During the period from
1982 to 1996, he was managing partner
of the general partner of Saugatuck
Capital Company Limited Partnership
("Saugatuck"), a venture capital
partnership, which was terminated in
1996.
John S. Crowley............ 73 Director Private investor since 1993; managing November 1986
director of Saugatuck Associates from
1985 to 1993; from 1983 to 1987 he was
the organizer and general partner of
Round Hill Associates, a private
investment fund engaged in management
buyouts, and President of Round Hill
Associates Management Company. Mr.
Crowley is also a director of General
Housewares Corp., a manufacturing
company.
Howard G. Haas............. 72 Director Chairman of Howard G. Haas & September 1987
Associates, a consulting firm, since
1986; from 1967 to 1986 Mr. Haas was
the President and Chief Executive
Officer of Sealy Incorporated; Mr. Haas
is also a member of the faculty of the
Graduate School of Business at the
University of Chicago.
William R. Holland......... 58 Director Chairman of the Board and Chief July 1991
Executive Officer of United Dominion
Industries, a diversified manufacturing
company since 1987; prior to 1987 he
served in various senior executive
positions with such company. Mr.
Holland is also a director of each of
United Dominion Industries and Lauce,
Inc.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Position with the
Name Age Company Principal Occupation Director Since
- - --------------------------- --- ----------------------- --------------------------------------- ---------------
<S> <C>
Larry R. Robinette......... 53 President and Chief President & Chief Executive Officer of November 1994
Executive Officer; the Company since September 1994. From
Director 1993 to 1994, he was the President and
CEO of Anchor Hocking Packaging of
Cincinnati, Ohio, a subsidiary of
CarnaudMetalbox. From 1980 to 1993, he
held a series of executive assignments
at Newell Company, including operations
vice presidencies in the EZ Painter
Division, Newell Window Furnishings and
the Mirro Foley Division and the
presidency of Anchor Industrial Glass.
Prior to 1980, he was employed at
General Motors.
Edward T. Tokar............ 49 Director From 1985 to present, Vice President- November 1994
Investments, AlliedSignal Inc.,
responsible for the overall investment
management of employee benefit asset
funds worldwide. Employed at
AlliedSignal since 1977 in various
management positions. He is a director
of Noel Group, Inc., a trustee of the
Morgan Grenfell Investment Funds, an
advisor to various investment
partnerships, and a trustee of the
College of William and Mary.
Patrick J. McDonough, 65 Director From June 1994 to February 1997, November 1994
Jr....................... Chairman and CEO of Olympic
Manufacturing Group, Inc., a commercial
roofing and fastner company located in
Massachusetts. He spent 22 years with
the Black & Decker Manufacturing
Company; his last two assignments were
as President of the U.S. company and
Chief Administrative Officer in the
Office of the CEO. After leaving Black
& Decker in January 1993, he formed
McDonough & Associates, a management
consulting firm that specializes in
corporate strategic planning and
re-engineering.
</TABLE>
The Company accepted the resignations of Mr. Alton F. Doody, Jr. and Mr.
Byron H. Tony Stebbins as directors as of December 17 and December 5, 1996,
respectively. The Company believes that such directors resigned because the
Company engaged in certain transactions which may have conflicted with the
interests of another company with which Messrs. Doody and Stebbins are
affiliated.
During the year ended December 31, 1996, the Board of Directors held seven
meetings (exclusive of consents executed in lieu of meetings). Mr. Holland was
able to attend only four of the seven meetings of the Board of Directors. All
other incumbent directors attended more than 75% of the meetings of the Board of
Directors and the committees of which they were members. The standing committees
of the Board of Directors are the Audit Committee and the Compensation
Committee. The Board of Directors, as a whole, functions as a nominating
committee.
The Audit Committee consists of Messrs. Crowley, Haas, Holland, and Tokar.
The Audit Committee's functions include the recommendation of a firm to be
employed by the Company as its independent accountants, consultation with the
accountants with respect to the plan of audit, review with such accountants of
their report of audit, consultation with such accountants regarding the adequacy
of internal controls, the direct monitoring of the Company's accounting
practices and system of internal controls, and other related functions. The
Audit Committee held two meetings during 1996.
The Compensation Committee consists of Messrs. Hawley and Holland. The
Compensation Committee held no meetings in 1996 and conducted all business by
written consents.
6
<PAGE>
All directors receive reimbursement for all expenses incurred in connection
with attendance at board meetings and all directors, other than Messrs. Hawley
and Robinette, receive a fee of $1,500 per meeting of the board, $1,500 per
committee meeting and a retainer of $3,000 per quarter.
In addition, each individual serving on the Board of Directors who is not
an employee of the Company or a beneficial owner (within the meaning of Rule
13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) of more than 20% of the issued and outstanding Common Stock (a
"Non-employee Director") is automatically granted an option to purchase 1,000
shares of Common Stock upon such person's election and each re-election to the
Board of Directors. During 1996, five incumbent Non-employee Directors (Messrs.
Crowley, Haas, Holland, Tokar, and McDonough) each received a grant of options
for the purchase of 1,000 shares of Common Stock pursuant to the Morgan Products
Ltd. 1992 Non-employee Director Stock Option Plan (the "Director Plan").
Each grant under the Director Plan permits the holder to purchase from the
Company 1,000 shares of Common Stock at the fair market value of such shares on
the date the option was granted. Such options vest beginning one year from the
date of grant in equal amounts over the next three years. In the event that a
person granted options under the Director Plan ceases to be a director for any
reason other than death or disability or in connection with a Change of Control
(as defined in the Director Plan), each option not vested as of the effective
date of termination as a director shall, to the extent not so vested, be
forfeited and revert back to the Company.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT YOU VOTE "FOR" THE
ELECTION OF ALL NOMINEES FOR DIRECTOR.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Messrs. Hawley and Holland. Mr.
Hawley is an officer of the Company and may be considered an employee of the
Company.
The Company paid Saugatuck Associates, an affiliate of Saugatuck, of which
Mr. Hawley is the sole stockholder and an executive officer, an annual fee of
$125,000 under a consulting and management assistance agreement dated as of
January 13, 1984, pursuant to which Saugatuck Associates provided strategic
planning, management and financial services to the Company. The initial term of
such agreement was for a period of five years ending January 13, 1989. Since
January 13, 1994, the term of such agreement has been automatically renewed for
additional one-year terms. The agreement was terminated November 30, 1996.
Effective as of December 1, 1996, Mr. Hawley has been entitled to receive a
chairman's fee of $100,000 per annum.
COMPENSATION COMMITTEE REPORT
Function and Overall Policy
The Compensation Committee of the Board of Directors (the "Committee")
oversees the general compensation policies of the Company, establishes
compensation plans and specific compensation levels for executive officers, and
administers the Executive Performance Incentive Plan (the "Bonus Plan"). The
Committee is also responsible for administering the Morgan Products Ltd.
Incentive Stock Option Plan (the "Stock Option Plan"), and other compensation
programs of the Company.
The Committee is comprised entirely of board members. No member of the
Committee is eligible to receive awards under any plan administered by the
Committee.
The Committee's primary objective in establishing compensation
opportunities for the Company's key executive officers is to support the
Company's goal of maximizing the value of stockholder interests in the Company.
To achieve this objective, the Committee believes it is critical to:
* Hire, develop, reward, and retain the most competent executives
possible, and to provide compensation opportunities for executives which
are competitive in the marketplace;
7
<PAGE>
* Encourage decision-making that enhances stockholder value by providing
short-term and long-term incentives that are tied directly to the
Company's stock price;
* Pay executives based on competitive levels of incentive compensation but
only after stockholders have been rewarded; and
* Promote a close identity of interest between management and stockholders
by tying executive pay to increases in stockholder value.
The Committee targets total pay opportunities at median pay levels of a
group of comparable companies. These companies (the "Comparator Companies") are
selected based upon their size, industry, and their inclusion in publicly and
privately available survey sources. This group is comprised of companies beyond
those comprising the peer group in the Performance Graph. The Committee does not
believe that the companies which are used for purposes of evaluating financial
performance are necessarily the same companies against which the Company
competes for executive talent.
The Committee makes all decisions pertaining to the Company's executive
compensation programs which promote the objectives detailed above. The Committee
believes that the Company's current compensation programs and those that the
shareholders are being asked to approve through this proxy statement support the
Company's business mission, and that such programs are linked to the enhancement
of stockholder value.
Components of Compensation
Base Salary
The Committee annually reviews each executive officer's base salary. Base
salaries are determined according to the following factors: requirements under
existing employment contracts, comparable levels of pay among executives in
similar positions at the Comparator Companies, levels of responsibilities, prior
experience and breadth of knowledge, and internal pay equity. The Committee does
not ascribe any specific weightings to any of the factors described above.
However, base salaries are targeted at the median levels for the Comparator
Companies, taking into consideration individual job performance.
Mr. Robinette's base salary was increased in 1996 to $400,000, which the
Committee believes is approximately equal to median market levels. The Committee
believes that the Chief Executive Officer's compensation should be heavily
influenced by the Company's performance. In determining Mr. Robinette's base
salary, the Committee considered Mr. Robinette's previous experience, his
long-term role in the future success of the Company, and the base salaries of
CEOs at the Comparator Companies.
Annual Incentives
The Committee believes that the annual incentives of executive officers
should be directly tied to improving stockholder value. Consistent with this
philosophy, the Bonus Plan focuses on increasing stockholder value by
establishing targets that are tied directly to the Company's or business unit's
attainment of a pre-specified earnings goal.
Under the Bonus Plan, which is targeted to median market levels, executive
officers can earn a bonus equal to 50% of their base salary upon attainment of
the targeted goal. The maximum incentive to any executive under the Bonus Plan
is equal to 70% of base salary in any one calendar year, and no payment is made
if an achievement level of 80% of the targeted goal is not met.
For 1996, the Committee also established a special turnaround bonus program
which provided for higher bonus opportunities in certain situations. This
program resulted in bonuses being awarded to executive officers on the Company's
performance related to continuing operations, adjusting for a specific, one-time
restructuring charge associated with the consolidation of the Company's two
manufacturing plants. (See Note 2 to Consolidated Financial Statements in the
1996 Annual Report). The Compensation Committee believes that this adjustment
was necessary in view of the markedly improved performance of continuing
operations, and since the manufacturing consolidation, which resulted in a
special charge, was in the long-term financial interests of the Company and its
shareholders.
8
<PAGE>
Long-Term Incentives
The Committee believes that long-term incentive awards should be payable
only after financial rewards have been delivered to stockholders. Long-term
incentives are awarded under the Stock Option Plan. Since there is no defined
benefit retirement plan for officers, stock option grants and other long-term
incentives are also designed to serve as a vehicle for providing executives with
post-retirement income. Stock options focus executives on the creation of
stockholder value over the long-term and encourage equity ownership in the
Company. Stock options are used as the primary long-term incentive vehicle.
The sizes of stock option grants are based on competitive practice, and are
targeted to be at the median of option values granted by the Comparator
Companies. The sizes of the awards can be adjusted based on individual factors
and historical award data. In addition, the Committee considers the size of
option grants made in prior years. The Committee's objective is to deliver
competitive award opportunities based on the estimated value of the award
granted.
Policy With Respect to $1 Million Deduction Limit
Section 162(m) of the Internal Revenue Code generally limits the annual
corporate deduction for compensation paid to "covered employees" to $1 million,
unless certain requirements are met. The Committee has carefully considered the
impact of this tax code provision. For 1996, the Committee has determined that
the Company is not affected by Section 162(m) because compensation to a single
individual does not exceed $1 million.
The Committee continues to review Company compensation policies with
respect to 1997 and subsequent years to determine whether it is appropriate to
conform some or all components of executive pay to the requirements of Section
162(m) in order to ensure full tax deductibility. The proposed Morgan Products
Ltd. 1997 Incentive Compensation Plan submitted for shareholder approval in this
proxy statement complies with requirements of the "performance-based" exception
under the $1 million cap, and thereby makes it possible for the Company to make
awards of fully deductible long-term incentives.
Summary
The Committee believes that the compensation policies summarized above
provide motivation for executives to enhance the value of the Company for the
stockholders' benefit. We will continue to monitor the effectiveness of the
Company's compensation programs to meet the Company's needs.
Mr. Frank J. Hawley, Jr., Chairman
Mr. William R. Holland
9
<PAGE>
EXECUTIVE COMPENSATION
The following table (Summary Compensation Table) sets forth information
with respect to all cash and non-cash compensation for services rendered to the
Company in all capacities for fiscal years 1996, 1995, and 1994, of those
persons who were, at December 31, 1996 (i) the Chief Executive Officer and (ii)
the other most highly compensated executive officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
Annual Compensation (1) -----------------------------------
------------------------------------ Awards
Other Annual Restricted of All Other
Compensation Stock Stock Long-Term Compensation
Name & Principal Position Year Salary Bonus (2) Awards Options Payouts (3)
- - -------------------------------- -------- -------- ------------ ---------- ------- --------- ------------
<S> <C>
Larry R. Robinette 1996 $365,580 $239,724 $ 15,192(7) $ 0 25,000 $ 0 $ 16,451
President, Chief 1995 $350,000 $ 0 $432,423(8) $ 0 20,000 $ 0 $ 11,593
Executive
Officer, and Director 1994 $113,077 $186,440 $ 1,792 $ 700,000(17) 250,000 $ 0 $ 3,393
Douglas H. MacMillan 1996 $197,522 $133,168 $ 10,820(9) $ 0 12,500 $ 0 $ 9,075
Vice President, Chief 1995 $197,522 $ 0 $199,567(10) $ 0 10,000 $ 0 $ 7,670
Financial Officer, and 1994 $189,042 $ 62,311(4) $ 6,008 $ 0 70,000(18) $ 0 $ 5,671
Secretary
Dennis C. Hood 1996 $150,020 $101,075 $ 16,692(11) $ 0 12,500 $ 0 $ 7,767
Senior Vice President -- 1995 $150,020 $ 19,500(5) $112,075(12) $ 0 10,000 $ 0 $ 5,828
Human Resources and 1994 $124,632 $ 47,325(4) $ 6,093 $ 0 55,000(18) $ 0 $ 3,739
Administration
Peter Balint 1996 $200,018 $ 50,000 $ 10,871(13) $ 0 0 $ 0 $ 4,292
Executive Vice 1995 $126,935 $ 40,000(6) $ 82,947(14) $ 0 50,000 $ 0 $ 3,231
President --
Market Development &
National Accounts
Dave Braun 1996 $170,382 $266,292 $ 2,914(15) $ 0 25,000 $ 0 $ 9,073
Vice President and 1995 $ 60,585 $ 30,000 $ 90,517(16) $ 0 40,000 $ 0 $ 1,558
President -- Morgan
Distribution
</TABLE>
- - ---------------
(1) This includes amounts earned in the respective fiscal year, whether or not
deferred.
(2) This represents payments by the Company for moving expenses, excess group
life insurance, leased automobiles, tax preparation fees, personal
financial planning fees, and tax gross-up on amounts included in taxable
compensation (other than salary and bonuses) to the extent required to be
reported.
(3) This amount represents contributions by the Company under Section 401(k) of
the Code pursuant to the Profit Sharing Savings and Retirement Plan, as
well as excess 401(k) amounts the Company contributed to the Deferred
Compensation Plan.
(4) Pursuant to binding elections previously made, a portion of each named
executive officers' bonus has been deferred for the purchase of Convertible
Appreciation Rights (CARs), which can accrue value in connection with
improvements in stockholder value. The CARs plan was terminated in 1996 and
participants' contributions were repaid to them. This payout included no
interest or other additional value.
(5) This represents a discretionary bonus paid to Mr. Hood due to the
achievement of specific objectives established for his functional area.
(6) This represents a bonus paid to Mr. Balint pursuant to his employment
agreement.
(7) Other Annual Compensation includes $15,180 of tax gross-up.
(8) Other Annual Compensation includes $338,719 of moving expenses paid on Mr.
Robinette's behalf and $74,746 of tax gross-up.
(9) Other Annual Compensation includes $10,814 of tax gross-up.
(10) Other Annual Compensation includes $139,807 of moving expenses paid on Mr.
MacMillan's behalf and $43,456 of tax gross-up.
10
<PAGE>
(11) Other Annual Compensation includes $16,687 of tax gross-up.
(12) Other Annual Compensation includes $69,516 of moving expenses paid on Mr.
Hood's behalf and $26,730 of tax gross-up.
(13) Other Annual Compensation includes $10,868 of tax gross-up.
(14) Other Annual Compensation includes $50,178 of moving expenses paid on Mr.
Balint's behalf and $29,009 of tax gross-up.
(15) Other Annual Compensation includes $2,913 of tax gross-up.
(16) Other Annual Compensation includes $78,428 of moving expenses paid on Mr.
Braun's behalf and $12,089 of tax gross-up.
(17) Pursuant to Mr. Robinette's employment agreement, the Company granted
140,000 restricted shares of Common Stock with a then fair market value of
$5.00 per share to a trust for the benefit of Mr. Robinette. The value of
these shares at December 31, 1996 was $1,032,500. The Company has never
paid dividends on its Common Stock, but, if paid, Mr. Robinette's shares
would be entitled to receive such dividends.
(18) This includes repriced options. On August 31, 1994, the Board of Directors
approved the repricing to fair market value of officer options with grant
dates of August 9, 1991 and May 20, 1992.
OPTION/SAR GRANTS IN 1996
<TABLE>
<CAPTION>
% of Total
Number of Options/SARs
Shares Granted to Alternative to 5% and
Underlying Employees in Exercise 10% Appreciation:
Options/SARs Fiscal Price Grant Date Present
Name Granted Year(1) $/Share(2) Expiration Date Value $(3)
- - ------------------------------ ------------ ------------ ---------- --------------- ---------------------
<S> <C>
Larry R. Robinette............ 25,000 8.7% $6.375 August 5, 2006 $ 106,500
Douglas H. MacMillan.......... 12,500 4.3% 6.375 August 5, 2006 53,250
Dennis C. Hood................ 12,500 4.3% 6.375 August 5, 2006 53,250
David A. Braun................ 25,000 8.7% 6.375 August 5, 2006 106,500
</TABLE>
- - ---------------
(1) Based on 287,500 total options granted to employees in 1996.
(2) All exercise prices are equal to fair market value on the date of grant.
(3) The estimated grant date present values reflected in the above table are
determined using the Black-Scholes model. The material assumptions and
adjustments incorporated in the Black-Scholes model in estimating the values
of the options reflected in the above table include:
o Exercise prices on the options are equal to the fair market value
of the underlying stock on the dates of the grant.
o The option term of ten years.
o Interest rates that represent the interest rate on a U.S. Treasury
security on the dates of grant with maturity dates corresponding to those
of the option terms.
o Volatilities calculated using daily stock prices for the one-year period
prior to the grant dates.
o Dividends at the rate of $0.00 per share representing the annualized
dividends paid with respect to a share of Common Stock at the dates of
grant. The Company does not pay a dividend with respect to Common Stock.
o Reductions to reflect the probability of forfeiture due to termination
prior to vesting and the probability of a shortened option term due to
termination of employment prior to the option expiration date.
11
<PAGE>
Employment Agreements
On September 6, 1994, the Company and Mr. Robinette entered into an
employment agreement. Pursuant to the agreement, Mr. Robinette will be employed
as President and Chief Executive Officer of the Company through December 31,
1997. Mr. Robinette received an annual base salary of $365,580 in 1996 and he
will receive an annual base salary of $400,000 in 1997. Mr. Robinette is
furnished with the use of a Company automobile, participation in group health,
term life insurance and other employee benefit plans available to other
executive personnel. He is eligible for four weeks paid vacation in each
calendar year. He is also eligible to participate in the Bonus Plan. In
addition, Mr. Robinette received a signing bonus of $150,000, of which $50,000
was paid in 1994 and $100,000 was paid on January 13, 1995. As part of this
agreement, Mr. Robinette was awarded an option to purchase 250,000 shares of
Common Stock at an exercise price of $5 per share. These options vest over a
three-year period, with 25% vesting immediately upon employment and 25%, 35% and
15% vesting on each of August 19, 1995, 1996, and 1997 respectively. In
addition, a trust for Mr. Robinette's benefit was granted 140,000 restricted
shares of stock at the then fair market value of $5 per share. These shares vest
33% per year for three years beginning on August 19, 1995. Under the trust
agreement, the restricted shares will vest automatically upon termination as a
result of death or disability, termination as a result of any reason other than
cause (as defined therein), or termination as a result of the acquisition by a
third party of all of the assets or outstanding voting stock of the Company.
After the expiration of the initial term of Mr. Robinette's employment on
December 31, 1997, the term of his employment will automatically renew for
successive one year terms, unless either party delivers written notice of its
desire not to renew 180 days prior to the end of such term. The agreement
provides that if the Company elects not to renew the term of Mr. Robinette's
agreement at the end of the initial term or any renewal term, Mr. Robinette will
continue to receive salary for a period of one year.
On May 1, 1995, the Company and Mr. Balint entered into an employment
agreement. Pursuant to the agreement, Mr. Balint receives an annual base salary
of $200,000. Mr. Balint is furnished with the use of a Company automobile and
participation in group health, term life insurance and other employee benefit
plans available to other executive personnel. He is eligible for four weeks paid
vacation in each calendar year. He is also eligible to participate in the Bonus
Plan. In addition, Mr. Balint received a signing bonus of $40,000 in 1995.
Pursuant to the agreement, Mr. Balint was awarded an option to purchase 50,000
shares of Common Stock under the Stock Option Plan at an exercise price of $5.75
which was equal to the fair market value on the date of grant. These options
vest 33 1/3% per year for three years beginning on May 17, 1995. If Mr. Balint's
employment by the Company is terminated prior to May 1, 1997, he will be
eligible for severance pay equal to his base salary for twelve months. This
severance arrangement is not applicable if Mr. Balint is terminated for cause,
or because of death, disability, voluntary retirement or resignation.
Severance Plans
The Company has provided a Special Severance/Retention Plan for Messrs.
Robinette, MacMillan, and Hood. This plan provides for severance benefits in the
event a participant is involuntarily terminated for any reason other than cause,
or where a participant voluntarily terminates for certain prescribed reasons
outlined in the plan. If terminated, the participant will receive severance pay
equal to two times the sum of the participant's base salary and the average
bonus award earned in the three fiscal years prior to the date of the
termination. Participants terminated are also eligible to continue the full
fringe benefit program for a twenty-four month period. If Mr. Robinette receives
benefits under this Plan, he will not be eligible for severance pay under his
employment agreement.
In addition, the Company has adopted a special policy providing for
severance payments in the event of an acquisition. Under this policy, which is
applicable to Messrs. Robinette, MacMillan, and Hood, an acquisition is defined
as a change of management or control where (a) at least 35% of the Common Stock
is redeemed by the Company, purchased by any person or exchanged for shares in
any other corporation; (b) at least 51% of the Company's assets are acquired by
any person; (c) during any period of two consecutive years, individuals who at
the beginning of such period constitute the board (and any new director whose
election by the Company's stockholders was approved by a vote of at least
two-thirds of the directors then still in office who were either directors at
the beginning of the period or were similarly elected) cease, for any reason, to
constitute a majority thereof; or (d) the Company is merged or consolidated with
or into another corporation. Should the employment of any of
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<PAGE>
these executives be terminated within thirty months following an acquisition,
the executive will be paid a severance benefit equal to two and one-half times
the sum of his annual base salary then in effect and average bonus earned over
the previous three fiscal years prior to termination. In addition, the
terminated executive would receive a full year's bonus at the targeted level, as
determined under the Bonus Plan. Further, such terminated executive would
receive any unused or accrued vacation pay, and would be eligible to receive
those fringe benefits he had been receiving prior to his termination for a
period of thirty months. In order to avoid the imposition of excise taxes,
participants' benefits are capped at the "golden parachute" excise tax limit set
forth in Section 280G of the Internal Revenue Code (unless removing the cap
results in a greater after-tax benefit to the participant.)
In exchange for this severance benefit, the covered executive, for a period
of twenty-four calendar months after termination shall not, directly or
indirectly: (i) use, attempt to use, disclose or otherwise make known to any
person or entity knowledge or information of which the executive became aware
during his employment including lists of customers or suppliers, trade secrets
or similar information and information of a confidential nature including,
without limitation, information relating to the business, properties, accounting
or similar functions of the Company, (ii) engage or become interested in any
business conducted by the Company, and (iii) employ, retain or arrange to
participate in the employment of any person who is an employee or consultant of
the Company or its affiliates.
OPTION EXERCISES IN 1996 AND YEAR-END OPTION VALUE
The following table sets forth certain information as to the individuals
listed in the Summary Compensation Table with regard to stock options exercised
during the fiscal year and year-end option value as of December 31, 1996.
<TABLE>
<CAPTION>
Total Number of Shares
Underlying Unexercised Value of Unexercised in the
Number of Options Held At Fiscal Money Options Held at Fiscal
Shares Year-End Year-End(1)
Acquired on Value ---------------------------- ----------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- - ----------------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C>
Larry R. Robinette................. 0 $0 219,167 75,833 $ 515,521 $ 135,729
Douglas H. MacMillan............... 0 $0 73,333 19,167 $ 137,916 $ 23,334
Dennis C. Hood..................... 0 $0 68,000 22,500 $ 108,500 $ 28,750
Peter Balint....................... 0 $0 33,333 16,667 $ 54,166 $ 27,084
David A. Braun..................... 0 $0 13,333 51,667 $ 21,666 $ 68,334
</TABLE>
- - ---------------
(1) Total value of vested options based on the Common Stock's closing price on
the New York Stock Exchange of $7.375 as of December 31, 1996.
13
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The Stock Price Performance Graph below compares the cumulative total
stockholder return on the Company's Common Stock against the cumulative total
return of the S&P Composite -- 500 Stock Index and a Peer Group Index. The Peer
Group consists of Masco Corporation; Ply-Gem Industries, Inc.; T.J.
International, Inc.; and Nortek, Inc. Management believes that the Peer Group
sells to similar customers and that their financial performance is similarly
influenced by the residential construction and repair and remodeling markets.
Comparison of Five-Year Cumulative Total Return*
Morgan Products Ltd., S&P 500, and Peer Group
[GRAPH]
Morgan
Date Products S&P 500 Peer Group
- - ---- -------- ------ ----------
December 1991 $100.00 $100.00 $100.00
December 1992 $101.75 $107.61 $128.92
December 1993 $124.56 $118.41 $171.05
December 1994 $ 78.95 $120.01 $112.37
December 1995 $ 82.46 $164.95 $150.28
December 1996 $103.51 $202.73 $177.69
*Total return assumes reinvestment of dividends on a quarterly basis.
Peer Group Companies
Masco Corporation
Nortek, Inc.
Ply-Gem Industries, Inc.
T.J. International, Inc.
*Total return assumes reinvestment of dividends on a quarterly basis.
14
<PAGE>
CERTAIN TRANSACTIONS
See "Compensation Committee Interlocks and Insider Participation" for a
discussion of Certain Transactions.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors, executive officers and persons holding more than 10% of
a registered class of the Company's equity securities to file with the
Securities and Exchange Commission and the New York Stock Exchange initial
reports of ownership, reports of changes in ownership and annual reports of
ownership of Common Stock and other equity securities of the Company. Such
directors, officers, and 10% stockholders are also required to furnish the
Company with copies of all such filed reports.
Based solely upon a review of the copies of such reports furnished to the
Company, or representations that no reports were required, the Company believes
that all of its directors, executive officers and 10% shareholders complied with
all filing requirements under Section 16(a) in 1996.
2. INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected Price Waterhouse LLP, independent
accountants, to examine the financial statements of the Company for the fiscal
year ending December 31, 1997. In accordance with a resolution of the Board of
Directors, this selection is being presented to the stockholders for
ratification at the Meeting.
A representative of Price Waterhouse LLP will attend the Meeting and will
be available to respond to appropriate questions; however, no statement shall be
made by such representative on behalf of the Company.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT YOU VOTE "FOR"
RATIFICATION OF THE SELECTION OF PRICE WATERHOUSE LLP AS THE INDEPENDENT
ACCOUNTANTS OF THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 1997.
3. APPROVAL OF MORGAN PRODUCTS LTD. 1997 INCENTIVE COMPENSATION PLAN
The success of the Company depends, in large measure, on its ability to
recruit and retain key employees with outstanding ability and experience. The
Board of Directors also believes there is a need to align stockholder and
employee interests by encouraging employee stock ownership and to motivate
employees with compensation conditioned upon achievement of the Company's
financial goals.
In order to accomplish these objectives the Board of Directors has adopted,
subject to approval by the stockholders, the Morgan Products Ltd. 1997 Incentive
Compensation Plan (the "Incentive Plan").
The Company currently offers long term stock-based incentive compensation
to employees and directors under the Stock Option Plan and the Director Plan.
However, the shares of Common Stock available for issuance under the Stock
Option Plan and the Director Plan will be largely exhausted by the end of 1997.
The Incentive Plan will make available additional shares which may be subjected
to option grants to both employees and directors and will also provide the
Company with enhanced flexibility in granting performance-based incentive
compensation consistent with current regulatory requirements.
The affirmative vote of a majority of the shares of Common Stock present in
person or by proxy and entitled to vote at the Annual Meeting is required for
adoption of the Incentive Plan.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT YOU VOTE "FOR"
RATIFICATION OF THE ADOPTION OF THE INCENTIVE PLAN.
15
<PAGE>
Summary Description of the Incentive Plan
The following summary of the terms of the Incentive Plan is qualified in
its entirety by reference to the text of the plan, which is attached as Appendix
A to this Proxy Statement. If adopted by the stockholders, the Incentive Plan
will be effective as of January 1, 1997.
Administration. The Incentive Plan will be administered by the Compensation
Committee of the Board of Directors (the "Committee").
Eligibility. Officers and key employees of the Company and its subsidiaries
are eligible to participate in the Incentive Plan. Non-employee directors of the
Company are also eligible to participate in the Incentive Plan.
More than 200 employees of the Company and its subsidiaries and the
Company's five non-employee directors are presently eligible to participate;
however, because the Incentive Plan provides for broad discretion in selecting
participants and in making awards, the total number of persons who will
participate and the respective benefits to be accorded to them cannot be
determined at this time.
Stock Available for Issuance Through the Incentive Plan. The Incentive Plan
provides for a number of forms of stock-based compensation, as further described
below. Up to 250,000 shares of the Company's Common Stock, par value $.10 per
share, are authorized for issuance through the Incentive Plan, no more than
100,000 of which may be granted in the form of restricted stock. Provisions in
the Incentive Plan permit the reuse or reissuance by the plan of shares of
Common Stock underlying canceled, expired, or forfeited awards of stock-based
compensation, as well as shares tendered in payment of a stock option exercise
price or withheld by the Company to pay taxes on an award, subject to
restrictions imposed under the Securities and Exchange Commission's ("SEC")
short-swing trading rules. On March 3, 1997, the closing price for a share of
the Company's Common Stock, as reported on the New York Stock Exchange composite
tape, was $7.62.
Stock-based compensation will typically be issued in consideration for the
performance of services to the Company. At the time of exercise, the full
exercise price for a stock option must be paid in cash or, if the Committee so
provides, in shares of Common Stock.
Description of Awards Under the Plan. The Committee may award to eligible
employees and non-employee directors incentive and nonqualified stock options,
stock appreciation rights, restricted stock, performance units/performance
shares, and other cash-based awards. As separately described under "Performance
Measures", the Committee may also grant awards subject to satisfaction of
specific performance goals. Awards under the Incentive Plan will be used for
annual incentives and long-term incentives. The forms of awards are described in
greater detail below.
Stock Options. The Committee will have discretion to award incentive stock
options ("ISOs"), which are intended to comply with Section 422 of the Internal
Revenue Code, or nonqualified stock options ("NQSOs"), which are not intended to
comply with Section 422 of the Internal Revenue Code. Non-employee directors are
ineligible to receive ISOs under the Internal Revenue Code. Each option issued
under the Incentive Plan must be exercised within a period of ten years from the
date of grant, and the exercise price of an option may not be less than the fair
market value of the underlying shares of Common Stock on the date of grant. If
an award of stock options is intended to qualify as performance-based
compensation under Internal Revenue Code Section 162(m), the maximum number of
shares which may be granted in the form of stock options in any fiscal year to
any one participant is one hundred thousand (100,000). Subject to the specific
terms of the Incentive Plan, the Committee will have discretion to set such
additional limitations on option grants as it deems appropriate.
Options granted to employees under the Incentive Plan will expire at such
times as the Committee determines at the time of the grant; provided, however,
that no option will be exercisable later than ten years from the date of grant.
Each option award agreement will set forth the extent to which the participant
will have the right to exercise the option following termination of the
participant's employment with the Company. The termination provisions will be
determined within the discretion of the Committee, may not be uniform among all
participants and may reflect distinctions based on the reasons for termination
of employment.
Upon the exercise of an option granted under the Incentive Plan, the option
price is payable in full to the Company, either: (a) in cash or its equivalent,
or (b) if permitted in the award agreement, by tendering shares
16
<PAGE>
having a fair market value at the time of exercise equal to the total option
price (provided such shares have been held for at least six months prior to
their tender), or (c) if permitted in the award agreement, a combination of (a)
and (b).
With respect to options which qualify as ISOs, an Incentive Plan
participant will not recognize income for federal income tax purposes at the
time options are granted or exercised. If the participant disposes of shares
acquired by exercise of an ISO either before the expiration of two years from
the date the options are granted or within one year after the issuance of shares
upon exercise of the ISO (the "holding periods"), the participant will recognize
in the year of disposition: (a) ordinary income, to the extent that the lesser
of either (1) the fair market value of the shares on the date of option
exercise, or (2) the amount realized on disposition, exceeds the option price;
and (b) capital gain, to the extent the amount realized on disposition exceeds
the fair market value of the shares on the date of option exercise. If the
shares are sold after expiration of the holding periods, the participant
generally will recognize capital gain or loss equal to the difference between
the amount realized on disposition and the option price.
With respect to NQSOs, the participant will recognize no income upon grant
of the option, and, upon exercise, will recognize ordinary income to the extent
of the excess of the fair market value of the shares on the date of option
exercise over the amount paid by the participant for the shares. Upon a
subsequent disposition of the shares received under the option, the participant
generally will recognize capital gain or loss to the extent of the difference
between the fair market value of the shares at the time of exercise and the
amount realized on the disposition.
In general, the Company will receive an income tax deduction at the same
time and in the same amount which is taxable to the employee as compensation,
except as provided below under Section 162(m). To the extent a participant
realizes capital gains, as described above, the Company will not be entitled to
any deduction for federal income tax purposes.
Stock Appreciation Rights. The Committee may also award stock appreciation
rights ("SARs") under the Incentive Plan upon such terms and conditions as it
shall establish. The grant price of a freestanding SAR shall equal the fair
market value of a share of Common Stock while the grant price of a tandem SAR
issued in connection with a stock option shall equal the option price of the
related option. If an award of SARs is intended to qualify as performance-based
compensation under Internal Revenue Code Section 162(m), the maximum number of
shares which may be granted in the form of SARs in any one fiscal year to any
one participant is one hundred thousand (100,000).
Restricted Stock. The Committee will also be authorized to award shares of
restricted Common Stock ("Restricted Stock") under the Incentive Plan upon such
terms and conditions as it shall establish. In general, Restricted Stock may not
be transferred until the end of a period of restriction established by the Board
or until the satisfaction of certain conditions and may be subject to certain
other restrictions. If an award of Restricted Stock is intended to qualify as
performance-based compensation under Internal Revenue Code Section 162(m), the
maximum number of shares which may be granted in the form of Restricted Stock in
any one fiscal year to any one participant is fifty thousand (50,000). The award
agreement will specify the period(s) of restriction, the number of shares of
Restricted Stock granted, restrictions based upon achievement of specific
performance objectives and/or restrictions under applicable federal or state
securities laws. Although recipients will have the right to vote these shares
from the date of grant, they will not have the right to sell or otherwise
transfer the shares during the applicable period of restriction or until earlier
satisfaction of other conditions imposed by the Committee in its sole
discretion. Participants shall receive dividends on their shares of Restricted
Stock and the Committee, in its discretion, will determine how dividends on
restricted shares are to be paid.
Each award agreement for Restricted Stock will set forth the extent to
which the participant will have the right to retain unvested restricted stock
following termination of the participant's employment with the Company. These
provisions will be determined in the sole discretion of the Committee, need not
be uniform among all shares of Restricted Stock issued pursuant to the Incentive
Plan and may reflect distinctions based on reasons for termination of
employment. Except in the case of terminations connected with a change in
control and terminations by reason of death or disability, the vesting of
Restricted Stock which qualifies for performance-based
17
<PAGE>
compensation under Section 162(m) and which are held by "covered employees"
under Section 162(m) shall occur at the time it otherwise would have, but for
the employment termination.
Performance Units/Shares and Cash-Based Awards. The Committee will also
have the discretion to award to participants certain rights related to
performance goals set by the Committee. These rights, which are defined as
performance units, performance shares, and cash-based awards under the Incentive
Plan may be awarded upon such terms and conditions as the Committee shall
establish. If a cash-based award or an award of performance units or performance
shares is intended to qualify as performance-based compensation under Internal
Revenue Code Section 162(m), the maximum aggregate payout with respect to such
awards which may be granted under any one fiscal year to any one participant
shall be the value of seventy-five thousand (75,000) shares of Common Stock.
Performance units will have an initial value as determined by the Committee
while the Performance share will have an initial value equal to one share of
Common Stock. The payout on the number and value of the performance units,
performance shares, and cash-based awards will be a function of the extent to
which corresponding performance goals are met.
Performance Measures. The Committee may grant awards under the Incentive
Plan to eligible employees subject to the attainment of certain specified
performance measures. The number of performance-based awards granted to an
officer or key employee in any year is determined by the Committee in its sole
discretion.
The value of each performance-based award shall be determined solely upon
the achievement of certain pre-established objective performance goals during
each performance period (the "Performance Period"). The duration of a
Performance Period is set by the Committee. A new Performance Period may begin
every year, or at more frequent or less frequent intervals, as determined by the
Committee.
The Committee shall establish, in writing, the objective performance goals
applicable to the valuation of performance-based awards granted in each
Performance Period, the performance measures which shall be used to determine
the achievement of those performance goals, and any formulas or methods to be
used to determine the value of the performance-based awards.
The value of performance-based awards may be based on absolute measures or
on a comparison of the Company's financial measures during a Performance Period
to the financial measures of a group of competitors. The performance measures
are earnings per share, net income (before or after taxes), return measures
(including, but not limited to, return on assets, equity, or sales), cash flow
return on investments which equals net cash flows divided by owner's equity,
earnings before or after taxes, measures of gross sales, gross revenues, or
growth in sales or revenues, and share price (including, but not limited to,
growth measures and total shareholder return).
Following the end of a Performance Period, the Committee shall determine
the value of the performance-based awards granted for the period based on the
attainment of the pre-established objective performance goals. The Committee
shall also have discretion to reduce (but not to increase) the value of a
performance-based award.
The Committee will certify, in writing, that the award is based on the
degree of attainment of the pre-established objective performance goals. As soon
as practicable thereafter, payment of the awards to employees, if any, shall be
made in the form of shares of Common Stock.
Adjustment and Amendments. The Incentive Plan provides for appropriate
adjustments in the number of shares of Common Stock subject to awards and
available for future awards in the event of changes in outstanding Common Stock
by reason of a merger, stock split, or certain other events. In case of a
pending change of control of the Company, outstanding options granted under the
Incentive Plan will become immediately exercisable and will remain exercisable
throughout their entire term and restriction periods and restrictions imposed on
shares of Restricted Stock shall immediately lapse.
The Incentive Plan may be modified or amended by the Board of Directors at
any time and for any purpose which the Board of Directors deems appropriate.
However, no such amendment shall adversely affect any outstanding awards without
the affected holder's consent. Stockholder approval of an amendment will be
sought if necessary under Internal Revenue Service or SEC regulations, the rules
of the New York Stock Exchange or any applicable law.
18
<PAGE>
Nontransferability. No derivative security (including, without limitation,
options) granted pursuant to, and no right to payment under, the Incentive Plan
shall be assignable or transferable by a plan participant except by will or by
the laws of descent and distribution, and any option or similar right shall be
exercisable during a participant's lifetime only by the participant or by the
participant's guardian or legal representative. These limitations may be waived
by the Committee, subject to restrictions imposed under the SEC's short-swing
trading rules and federal tax requirements relating to ISOs.
Duration of the Plan. The Incentive Plan will remain in effect until all
options and rights granted thereunder have been satisfied or terminated pursuant
to the terms of the plan, and all Performance Periods for performance-based
awards granted thereunder have been completed. However, in no event will an
awards be granted under the Incentive Plan on or after January 1, 2007.
Section 162(m). Under Section 162(m) of the Internal Revenue Code,
compensation paid by the Company in excess of $1 million for any taxable year to
"Covered Employees" generally is deductible by the Company or its affiliates for
federal income tax purposes if it is based on the performance of the Company, is
paid pursuant to a plan approved by stockholders of the Company, and meets
certain other requirements. Generally, "Covered Employee" under Section 162(m)
means the chief executive officer and the four other highest paid executive
officers of the Company on the last day of the taxable year.
It is presently anticipated that the Committee will at all times consist of
"outside directors" as required for purposes of Section 162(m), and that the
Committee will take the effect of Section 162(m) into consideration in
structuring Incentive Plan awards.
New Plan Benefits
The benefits that will be received under the Incentive Plan by particular
individuals or groups are not determinable at this time. The benefits that were
received for the 1996 fiscal year by the Named Executive Officers pursuant to
the Stock Option Plan (which the Incentive Plan is intended to replace) are
summarized in tables on pages 11-13.
ANNUAL REPORT AND FINANCIAL INFORMATION
A copy of the Company's Annual Report to Stockholders and Annual Report on
Form 10-K for the year ended December 31, 1996, as filed with the Securities and
Exchange Commission, will be furnished without charge (except for exhibits) by
first class mail within one business day of the receipt of the request to
stockholders upon written request sent to Investor Relations, Morgan Products
Ltd., 469 McLaws Circle, Williamsburg, Virginia 23185, (757) 564-1700.
OTHER MATTERS
The Company will bear the cost of solicitation of proxies. In addition,
officers, directors, and other employees of the Company may, without additional
remuneration, solicit proxies from stockholders in person and by mail, telegram,
telephone or facsimile. Brokerage houses, nominees, fiduciaries, and other
custodians will be requested to forward soliciting material to the beneficial
owners of shares of Common Stock and will be reimbursed for their expenses by
the Company.
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STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Any stockholder who intends to present a proposal at the Company's 1998
Annual Meeting of Stockholders is advised that in order for such proposal to be
included in the Board of Directors' proxy material for such meeting, the
proposal must be directed to the Secretary of the Company at its principal
executive offices such that it is received not later than November 28, 1997, and
the proposal must meet certain eligibility requirements of the Securities and
Exchange Commission.
By Order of the Board of Directors
DOUGLAS H. MACMILLAN
Secretary
Williamsburg, Virginia
March 28, 1997
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Appendix A
Incentive Compensation Plan
Morgan Products Ltd.
March 1997
<PAGE>
Contents
<TABLE>
<CAPTION>
Page
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<S> <C>
Article 1. Establishment, Objectives, and Duration........................................................ 1
Article 2. Definitions.................................................................................... 1
Article 3. Administration................................................................................. 3
Article 4. Shares Subject to the Plan and Maximum Awards.................................................. 4
Article 5. Eligibility and Participation.................................................................. 4
Article 6. Stock Options.................................................................................. 5
Article 7. Stock Appreciation Rights...................................................................... 6
Article 8. Restricted Stock............................................................................... 7
Article 9. Performance Units, Performance Shares, and Cash-Based Awards................................... 8
Article 10. Performance Measures........................................................................... 9
Article 11. Beneficiary Designation........................................................................ 10
Article 12. Deferrals...................................................................................... 10
Article 13. Rights of Employees/Directors.................................................................. 10
Article 14. Change in Control.............................................................................. 10
Article 15. Amendment, Modification, and Termination....................................................... 11
Article 16. Withholding.................................................................................... 11
Article 17. Indemnification................................................................................ 12
Article 18. Successors..................................................................................... 12
Article 19. Legal Construction............................................................................. 12
</TABLE>
<PAGE>
Morgan Products Ltd. 1997 Incentive Compensation Plan
Article 1.
Establishment, Objectives, and Duration
1.1. Establishment of the Plan. Morgan Products Ltd., a Delaware
corporation (hereinafter referred to as the "Company"), hereby establishes an
incentive compensation plan to be known as the "Morgan Products Ltd. 1997
Incentive Compensation Plan" (hereinafter referred to as the "Plan"), as set
forth in this document. The Plan permits the grant of Nonqualified Stock
Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock,
Performance Shares, Performance Units, and Cash-Based Awards.
Subject to approval by the Company's stockholders, the Plan shall become
effective as of January 1, 1997 (the "Effective Date") and shall remain in
effect as provided in Section 1.3 hereof.
1.2. Objectives of the Plan. The objectives of the Plan are to optimize the
profitability and growth of the Company through annual and long-term incentives
which are consistent with the Company's goals and which link the personal
interests of Participants to those of the Company's stockholders; to provide
Participants with an incentive for excellence in individual performance; and to
promote teamwork among Participants.
The Plan is further intended to provide flexibility to the Company in its
ability to motivate, attract, and retain the services of Participants who make
significant contributions to the Company's success and to allow Participants to
share in the success of the Company.
1.3. Duration of the Plan. The Plan shall commence on the Effective Date,
as described in Section 1.1 hereof, and shall remain in effect, subject to the
right of the Board of Directors to amend or terminate the Plan at any time
pursuant to Article 15 hereof, until all Shares subject to it shall have been
purchased or acquired according to the Plan's provisions. However, in no event
may an Award be granted under the Plan on or after January 1, 2007.
Article 2.
Definitions
Whenever used in the Plan, the following terms shall have the meanings set
forth below, and when the meaning is intended, the initial letter of the word
shall be capitalized:
2.1. "Affiliate" shall have the meaning ascribed to such term in Rule 12b-2
of the General Rules and Regulations of the Exchange Act.
2.2. "Award" means, individually or collectively, a grant under this Plan
of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation
Rights, Restricted Stock, Performance Shares, Performance Units, or Cash-Based
Awards.
2.3. "Award Agreement" means an agreement entered into by the Company and
each Participant setting forth the terms and provisions applicable to Awards
granted under this Plan.
2.4. "Board" or "Board of Directors" means the Board of Directors of the
Company.
2.5. "Cash-Based Award" means an Award granted to a Participant, as
described in Article 9 herein.
2.6. "Change in Control" shall mean the occurrence of any one or more of
the following:
(a) Any transaction or series of transactions which, within a twelve (12)
month period, constitute a change of management or control, which
shall be deemed to have occurred whenever;
(i) At least thirty-five percent (35%) of the then outstanding shares
of Common Stock of the Company are [for cash, property
(including, without limitation, stock in any corporation), or
indebtedness, or any combination thereof] redeemed by the Company
or purchased by any person(s), firm(s) or
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entity(ies), or exchanged for shares in any other corporation
whether or not affiliated with the Company, or any combination of
such redemption, purchase or exchange, or
(ii) At least fifty-one percent (51%) of the Company's assets are
acquired by any person(s), firm(s) or entity(ies) whether or not
affiliated with the Company for cash, property (including without
limitation, stock in any corporation) or indebtedness or any
combination thereof, or
(iii) During any period of two (2) consecutive years (not including any
period prior to the execution of this Plan), individuals who at
the beginning of such period constitute the Board (and any new
Director, whose election by the Company's stockholders was
approved by a vote of at least two-thirds (2/3) of the Directors
then still in office who either were Directors at the beginning
of the period or whose election or nomination for election was so
approved), cease for any reason to constitute a majority thereof,
or
(iv) The Company is merged or consolidated with another corporation
regardless of whether the Company is the survivor.
(b) Any substantial equivalent of any such redemption, purchase, exchange,
transaction or series of transactions, acquisition, merger or
consolidation, which the Board of Directors reasonably determines
constitutes such a change of management or control.
For purposes of the foregoing definition the term "control" shall have the
meaning ascribed thereto under the Securities Exchange Act of 1934, as amended,
and the regulations thereunder.
2.7. "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
2.8. "Committee" means any committee appointed by the Board to administer
Awards to Employees, as specified in Article 3 herein. Any such committee shall
be comprised entirely of Directors.
2.9. "Company" means Morgan Products Ltd., a Delaware corporation,
including any and all Subsidiaries and Affiliates, and any successor thereto as
provided in Article 18 herein.
2.10. "Covered Employee" means a Participant who, as of the date of vesting
and/or payout of an Award, as applicable, is one of the group of "covered
employees," as defined in the regulations promulgated under Code Section 162(m),
or any successor statute.
2.11. "Director" means any individual who is a member of the Board of
Directors of the Company or any Subsidiary or Affiliate; provided, however, that
any Director who is employed by the Company or any Subsidiary or Affiliate shall
be considered an Employee under the Plan.
2.12. "Disability" shall have the meaning ascribed to such term in the
Participant's governing long-term disability plan, or if no such plan exists, at
the discretion of the Board.
2.13. "Effective Date" shall have the meaning ascribed to such term in
Section 1.1 hereof.
2.14. "Employee" means any employee of the Company or its Subsidiaries or
Affiliates. Directors who are employed by the Company shall be considered
Employees under this Plan.
2.15. "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor act thereto.
2.16. "Fair Market Value" shall be determined on the basis of the opening
sale price on the principal securities exchange on which the Shares are traded
or, if there is no such sale on the relevant date, then on the last previous day
on which a sale was reported.
2.17. "Freestanding SAR" means an SAR that is granted independently of any
Options, as described in Article 7 herein.
2.18. "Incentive Stock Option" or "ISO" means an option to purchase Shares
granted under Article 6 herein and which is designated as an Incentive Stock
Option and which is intended to meet the requirements of Code Section 422.
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2.19. "Insider" shall mean an individual who is, on the relevant date, an
officer, director or ten percent (10%) beneficial owner of any class of the
Company's equity securities that is registered pursuant to Section 12 of the
Exchange Act, all as defined under Section 16 of the Exchange Act.
2.20. "Nonqualified Stock Option" or "NQSO" means an option to purchase
Shares granted under Article 6 herein and which is not intended to meet the
requirements of Code Section 422.
2.21. "Option" means an Incentive Stock Option or a Nonqualified Stock
Option, as described in Article 6 herein.
2.22. "Option Price" means the price at which a Share may be purchased by a
Participant pursuant to an Option.
2.23. "Participant" means an Employee or Director who has been selected to
receive an Award or who has outstanding an Award granted under the Plan.
2.24. "Performance-Based Exception" means the performance-based exception
from the tax deductibility limitations of Code Section 162(m).
2.25. "Performance Share" means an Award granted to a Participant, as
described in Article 9 herein.
2.26. "Performance Unit" means an Award granted to a Participant, as
described in Article 9 herein.
2.27. "Period of Restriction" means the period during which the transfer of
Shares of Restricted Stock is limited in some way (based on the passage of time,
the achievement of performance goals, or upon the occurrence of other events as
determined by the Board, at its discretion), and the Shares are subject to a
substantial risk of forfeiture, as provided in Article 8 herein.
2.28. "Restricted Stock" means an Award granted to a Participant pursuant
to Article 8 herein.
2.29. "Retirement" shall have the meaning ascribed to such term in the
Company's tax-qualified retirement plan.
2.30. "Shares" means the shares of Common Stock of the Company.
2.31. "Stock Appreciation Right" or "SAR" means an Award, granted alone or
in connection with a related Option, designated as an SAR, pursuant to the terms
of Article 7 herein.
2.32. "Subsidiary" means any corporation, partnership, joint venture, or
other entity in which the Company has a majority voting interest.
2.33. "Tandem SAR" means an SAR that is granted in connection with a
related Option pursuant to Article 7 herein, the exercise of which shall require
forfeiture of the right to purchase a Share under the related Option (and when a
Share is purchased under the Option, the Tandem SAR shall similarly be
canceled).
Article 3.
Administration
3.1. General. The Plan shall be administered by the Board, or (subject to
the following) by any Committee appointed by the Board. The members of the
Committee shall be appointed from time to time by, and shall serve at the
discretion of, the Board of Directors. The Board may delegate to the Committee
any or all of the administration of the Plan; provided, however, that the
administration of the Plan with respect to Awards granted to Directors may not
be so delegated. To the extent that the Board has delegated to the Committee any
authority and responsibility under the Plan, all applicable references to the
Board in the Plan shall be to the Committee. The Committee shall have the
authority to delegate administrative duties to officers or Directors of the
Company.
3.2. Authority of the Board. Except as limited by law or by the Certificate
of Incorporation or Bylaws of the Company, and subject to the provisions herein,
the Board shall have full power to select Employees and Directors who shall
participate in the Plan; determine the sizes and types of Awards; determine the
terms and conditions of Awards in a manner consistent with the Plan; construe
and interpret the Plan and any agreement or
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instrument entered into under the Plan; establish, amend, or waive rules and
regulations for the Plan's administration; and (subject to the provisions of
Article 15 herein) amend the terms and conditions of any outstanding Award as
provided in the Plan. Further, the Board shall make all other determinations
which may be necessary or advisable for the administration of the Plan. As
permitted by law (and subject to Section 3.1 herein), the Board may delegate its
authority as identified herein.
3.3. Decisions Binding. All determinations and decisions made by the Board
pursuant to the provisions of the Plan and all related orders and resolutions of
the Board shall be final, conclusive and binding on all persons, including the
Company, its stockholders, Directors, Employees, Participants, and their estates
and beneficiaries.
Article 4.
Shares Subject to the Plan and Maximum Awards
4.1. Number of Shares Available for Grants. Subject to adjustment as
provided in Section 4.2 herein, the number of Shares hereby reserved for
issuance to Participants under the Plan shall be two hundred fifty thousand
(250,000), no more than one hundred thousand (100,000) of which may be granted
in the form of Restricted Stock. The Board shall determine the appropriate
methodology for calculating the number of shares issued pursuant to the Plan.
Unless and until the Board determines that an Award to a Covered Employee shall
not be designed to comply with the Performance-Based Exception, the following
rules shall apply to grants of such Awards under the Plan:
(a) Stock Options: The maximum aggregate number of Shares that may be
granted in the form of Stock Options, pursuant to any Award granted in
any one fiscal year to any one single Participant shall be one hundred
thousand (100,000).
(b) SARs: The maximum aggregate number of Shares that may be granted in
the form of Stock Appreciation Rights, pursuant to any Award granted
in any one fiscal year to any one single Participant shall be one
hundred thousand (100,000).
(c) Restricted Stock: The maximum aggregate grant with respect to Awards
of Restricted Stock granted in any one fiscal year to any one
Participant shall be fifty thousand (50,000) Shares.
(d) Performance Shares/Performance Units and Cash-Based Awards: The maximum
aggregate payout (determined as of the end of the applicable
performance period) with respect to Cash-Based Awards or Awards of
Performance Shares or Performance Units granted in any one fiscal year
to any one Participant shall be equal to the value of seventy-five
thousand (75,000) Shares.
4.2. Adjustments in Authorized Shares. In the event of any change in
corporate capitalization, such as a stock split, or a corporate transaction,
such as any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company, any reorganization (whether or
not such reorganization comes within the definition of such term in Code Section
368) or any partial or complete liquidation of the Company, such adjustment
shall be made in the number and class of Shares which may be delivered under
Section 4.1, in the number and class of and/or price of Shares subject to
outstanding Awards granted under the Plan, and in the Award limits set forth in
subsections 4.1(a) and 4.1(b), as may be determined to be appropriate and
equitable by the Board, in its sole discretion, to prevent dilution or
enlargement of rights; provided, however, that the number of Shares subject to
any Award shall always be a whole number.
Article 5.
Eligibility and Participation
5.1. Eligibility. Persons eligible to participate in this Plan include all
Employees and Directors.
5.2. Actual Participation. Subject to the provisions of the Plan, the Board
may, from time to time, select from all eligible Employees and Directors, those
to whom Awards shall be granted and shall determine the nature and amount of
each Award.
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Article 6.
Stock Options
6.1. Grant of Options. Subject to the terms and provisions of the Plan,
Options may be granted to Participants in such number, and upon such terms, and
at any time and from time to time as shall be determined by the Board.
6.2. Award Agreement. Each Option grant shall be evidenced by an Award
Agreement that shall specify the Option Price, the duration of the Option, the
number of Shares to which the Option pertains, and such other provisions as the
Board shall determine. The Award Agreement also shall specify whether the Option
is intended to be an ISO within the meaning of Code Section 422, or an NQSO
whose grant is intended not to fall under the provisions of Code Section 422.
6.3. Option Price. The Option Price for each grant of an Option under this
Plan shall be at least equal to one hundred percent (100%) of the Fair Market
Value of a Share on the date the Option is granted.
6.4. Duration of Options. Each Option granted to a Participant shall expire
at such time as the Board shall determine at the time of grant; provided,
however, that no Option shall be exercisable later than the tenth (10th)
anniversary date of its grant.
6.5. Exercise of Options. Options granted under this Article 6 shall be
exercisable at such times and be subject to such restrictions and conditions as
the Board shall in each instance approve, which need not be the same for each
grant or for each Participant.
6.6. Payment. Options granted under this Article 6 shall be exercised by
the delivery of a written notice of exercise to the Company, setting forth the
number of Shares with respect to which the Option is to be exercised,
accompanied by full payment for the Shares.
The Option Price upon exercise of any Option shall be payable to the
Company in full either: (a) in cash or its equivalent, or (b) by tendering
previously acquired Shares having an aggregate Fair Market Value at the time of
exercise equal to the total Option Price (provided that the Shares which are
tendered must have been held by the Participant for at least six (6) months
prior to their tender to satisfy the Option Price), or (c) by a combination of
(a) and (b).
The Board also may allow cashless exercise as permitted under Federal
Reserve Board's Regulation T, subject to applicable securities law restrictions,
or by any other means which the Board determines to be consistent with the
Plan's purpose and applicable law.
Subject to any governing rules or regulations, as soon as practicable after
receipt of a written notification of exercise and full payment, the Company
shall deliver to the Participant, in the Participant's name, Share certificates
in an appropriate amount based upon the number of Shares purchased under the
Option(s).
6.7. Restrictions on Share Transferability. The Board may impose such
restrictions on any Shares acquired pursuant to the exercise of an Option
granted under this Article 6 as it may deem advisable, including, without
limitation, restrictions under applicable federal securities laws, under the
requirements of any stock exchange or market upon which such Shares are then
listed and/or traded, and under any blue sky or state securities laws applicable
to such Shares.
6.8. Termination of Employment/Directorship. Each Participant's Option
Award Agreement shall set forth the extent to which the Participant shall have
the right to exercise the Option following termination of the Participant's
employment or directorship with the Company. Such provisions shall be determined
in the sole discretion of the Board, shall be included in the Award Agreement
entered into with each Participant, need not be uniform among all Options issued
pursuant to this Article 6, and may reflect distinctions based on the reasons
for termination.
6.9. Nontransferability of Options.
(a) Incentive Stock Options. No ISO granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and
distribution.
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Further, all ISOs granted to a Participant under the Plan shall be
exercisable during his or her lifetime only by such Participant.
(b) Nonqualified Stock Options. Except as otherwise provided in a
Participant's Award Agreement, no NQSO granted under this Article 6 may
be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and
distribution. Further, except as otherwise provided in a Participant's
Award Agreement, all NQSOs granted to a Participant under this Article
6 shall be exercisable during his or her lifetime only by such
Participant.
Article 7.
Stock Appreciation Rights
7.1. Grant of SARs. Subject to the terms and conditions of the Plan, SARs
may be granted to Participants at any time and from time to time as shall be
determined by the Board. The Board may grant Freestanding SARs, Tandem SARs, or
any combination of these forms of SAR.
The Board shall have complete discretion in determining the number of SARs
granted to each Participant (subject to Article 4 herein) and, consistent with
the provisions of the Plan, in determining the terms and conditions pertaining
to such SARs.
The grant price of a Freestanding SAR shall equal the Fair Market Value of
a Share on the date of grant of the SAR. The grant price of Tandem SARs shall
equal the Option Price of the related Option.
7.2. Exercise of Tandem SARs. Tandem SARs may be exercised for all or part
of the Shares subject to the related Option upon the surrender of the right to
exercise the equivalent portion of the related Option. A Tandem SAR may be
exercised only with respect to the Shares for which its related Option is then
exercisable.
Notwithstanding any other provision of this Plan to the contrary, with
respect to a Tandem SAR granted in connection with an ISO: (i) the Tandem SAR
will expire no later than the expiration of the underlying ISO; (ii) the value
of the payout with respect to the Tandem SAR may be for no more than one hundred
percent (100%) of the difference between the Option Price of the underlying ISO
and the Fair Market Value of the Shares subject to the underlying ISO at the
time the Tandem SAR is exercised; and (iii) the Tandem SAR may be exercised only
when the Fair Market Value of the Shares subject to the ISO exceeds the Option
Price of the ISO.
7.3. Exercise of Freestanding SARs. Freestanding SARs may be exercised upon
whatever terms and conditions the Board, in its sole discretion, imposes upon
them.
7.4. SAR Agreement. Each SAR grant shall be evidenced by an Award Agreement
that shall specify the grant price, the term of the SAR, and such other
provisions as the Board shall determine.
7.5. Term of SARs. The term of an SAR granted under the Plan shall be
determined by the Board, in its sole discretion; provided, however, that such
term shall not exceed ten (10) years.
7.6. Payment of SAR Amount. Upon exercise of an SAR, a Participant shall be
entitled to receive payment from the Company in an amount determined by
multiplying:
(a) The difference between the Fair Market Value of a Share on the date of
exercise over the grant price; by
(b) The number of Shares with respect to which the SAR is exercised.
At the discretion of the Board, the payment upon SAR exercise may be in
cash, in Shares of equivalent value, or in some combination thereof. The Board's
determination regarding the form of SAR payout shall be set forth in the Award
Agreement pertaining to the grant of the SAR.
7.7. Termination of Employment/Directorship. Each SAR Award Agreement shall
set forth the extent to which the Participant shall have the right to exercise
the SAR following termination of the Participant's employment or directorship
with the Company and/or its subsidiaries. Such provisions shall be determined in
the sole discretion of the Board, shall be included in the Award Agreement
entered into with Participants, need not be
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uniform among all SARs issued pursuant to the Plan, and may reflect distinctions
based on the reasons for termination.
7.8. Nontransferability of SARs. Except as otherwise provided in a
Participant's Award Agreement, no SAR granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution. Further, except as
otherwise provided in a Participant's Award Agreement, all SARs granted to a
Participant under the Plan shall be exercisable during his or her lifetime only
by such Participant.
Article 8.
Restricted Stock
8.1. Grant of Restricted Stock. Subject to the terms and provisions of the
Plan, the Board, at any time and from time to time, may grant Shares of
Restricted Stock to Participants in such amounts as the Board shall determine.
8.2. Restricted Stock Agreement. Each Restricted Stock grant shall be
evidenced by a Restricted Stock Award Agreement that shall specify the Period(s)
of Restriction, the number of Shares of Restricted Stock granted, and such other
provisions as the Board shall determine.
8.3. Transferability. Except as provided in this Article 8, the Shares of
Restricted Stock granted herein may not be sold, transferred, pledged, assigned,
or otherwise alienated or hypothecated until the end of the applicable Period of
Restriction established by the Board and specified in the Restricted Stock Award
Agreement, or upon earlier satisfaction of any other conditions, as specified by
the Board in its sole discretion and set forth in the Restricted Stock Award
Agreement. All rights with respect to the Restricted Stock granted to a
Participant under the Plan shall be available during his or her lifetime only to
such Participant.
8.4. Other Restrictions. Subject to Article 11 herein, the Board shall
impose such other conditions and/or restrictions on any Shares of Restricted
Stock granted pursuant to the Plan as it may deem advisable including, without
limitation, a requirement that Participants pay a stipulated purchase price for
each Share of Restricted Stock, restrictions based upon the achievement of
specific performance goals (Company-wide, divisional, and/or individual),
time-based restrictions on vesting following the attainment of the performance
goals, and/or restrictions under applicable federal or state securities laws.
The Company may retain the certificates representing Shares of Restricted
Stock in the Company's possession until such time as all conditions and/or
restrictions applicable to such Shares have been satisfied.
Except as otherwise provided in this Article 8, Shares of Restricted Stock
covered by each Restricted Stock grant made under the Plan shall become freely
transferable by the Participant after the last day of the applicable Period of
Restriction.
8.5. Voting Rights. Participants holding Shares of Restricted Stock granted
hereunder may be granted the right to exercise full voting rights with respect
to those Shares during the Period of Restriction.
8.6. Dividends and Other Distributions. During the Period of Restriction,
Participants holding Shares of Restricted Stock granted hereunder may be
credited with regular cash dividends paid with respect to the underlying Shares
while they are so held. The Board may apply any restrictions to the dividends
that the Board deems appropriate. Without limiting the generality of the
preceding sentence, if the grant or vesting of Restricted Shares granted to a
Covered Employee is designed to comply with the requirements of the
Performance-Based Exception, the Board may apply any restrictions it deems
appropriate to the payment of dividends declared with respect to such Restricted
Shares, such that the dividends and/or the Restricted Shares maintain
eligibility for the Performance-Based Exception.
8.7. Termination of Employment/Directorship. Each Restricted Stock Award
Agreement shall set forth the extent to which the Participant shall have the
right to receive unvested Restricted Shares following termination of the
Participant's employment or directorship with the Company. Such provisions shall
be determined in the sole discretion of the Board, shall be included in the
Award Agreement entered into with each Participant,
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need not be uniform among all Shares of Restricted Stock issued pursuant to the
Plan, and may reflect distinctions based on the reasons for termination;
provided, however that, except in the cases of terminations connected with a
Change in Control and terminations by reason of death or Disability, the vesting
of Shares of Restricted Stock which qualify for the Performance-Based Exception
and which are held by Covered Employees shall occur at the time they otherwise
would have, but for the termination.
Article 9.
Performance Units, Performance Shares, and Cash-Based Awards
9.1. Grant of Performance Units/Shares. Subject to the terms of the Plan,
Performance Units, Performance Shares, and/or Cash-Based Awards may be granted
to Participants in such amounts and upon such terms, and at any time and from
time to time, as shall be determined by the Board.
9.2. Value of Performance Units/Shares and Cash-Based Awards. Each
Performance Unit shall have an initial value that is established by the Board at
the time of grant. Each Performance Share shall have an initial value equal to
the Fair Market Value of a Share on the date of grant. Each Cash-Based Award
shall have a value as may be determined by the Board. The Board shall set
performance goals in its discretion which, depending on the extent to which they
are met, will determine the number and/or value of Performance Units/Shares and
Cash-Based Award that will be paid out to the Participant. For purposes of this
Article 9, the time period during which the performance goals must be met shall
be called a "Performance Period."
9.3. Earning of Performance Units/Shares and Cash-Based Awards. Subject to
the terms of this Plan, after the applicable Performance Period has ended, the
holder of Performance Units/Shares and Cash-Based Awards shall be entitled to
receive payout on the number and value of Performance Units/Shares and of Cash-
Based Awards earned by the Participant over the Performance Period, to be
determined as a function of the extent to which the corresponding performance
goals have been achieved.
9.4. Form and Timing of Payment of Performance Units/Shares and Cash-Based
Awards. Payment of earned Performance Units/Shares and Cash-Based Awards shall
be made in a single lump sum following the close of the applicable Performance
Period. Subject to the terms of this Plan, the Board, in its sole discretion,
may pay earned Performance Units/Shares and Cash-Based Awards in the form of
cash or in Shares (or in a combination thereof) which have an aggregate Fair
Market Value equal to the value of the earned Performance Units/Shares at the
close of the applicable Performance Period. Such Shares may be granted subject
to any restrictions deemed appropriate by the Board. The determination of the
Board with respect to the form of payout of such Awards shall be set forth in
the Award Agreement pertaining to the grant of the Award.
At the discretion of the Board, Participants may be entitled to receive any
dividends declared with respect to Shares which have been earned in connection
with grants of Performance Units and/or Performance Shares which have been
earned, but not yet distributed to Participants (such dividends shall be subject
to the same accrual, forfeiture, and payout restrictions as apply to dividends
earned with respect to Shares of Restricted Stock, as set forth in Section 8.6
herein). In addition, Participants may, at the discretion of the Board, be
entitled to exercise their voting rights with respect to such Shares.
9.5. Termination of Employment/Directorship Due to Death, Disability, or
Retirement. Unless determined otherwise by the Board and set forth in the
Participant's Award Agreement, in the event the employment or directorship of a
Participant is terminated by reason of death, Disability, or Retirement during a
Performance Period, the Participant shall receive a payout of the Performance
Units/Shares or Cash-Based Awards which is prorated, as specified by the Board
in its discretion.
Payment of earned Performance Units/Shares or Cash-Based Awards shall be
made at a time specified by the Board in its sole discretion and set forth in
the Participant's Award Agreement. Notwithstanding the foregoing, with respect
to Covered Employees who retire during a Performance Period, payments shall be
made at the same time as payments are made to Participants who did not terminate
employment during the applicable Performance Period.
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9.6. Termination of Employment/Directorship for Other Reasons. In the event
that a Participant's employment or directorship terminates for any reason other
than those reasons set forth in Section 9.5 herein, all Performance Units/Shares
shall be forfeited by the Participant to the Company unless determined otherwise
by the Board, as set forth in the Participant's Award Agreement.
9.7. Nontransferability. Except as otherwise provided in a Participant's
Award Agreement, Performance Units/Shares and Cash-Based Awards may not be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution. Further, except as
otherwise provided in a Participant's Award Agreement, a Participant's rights
under the Plan shall be exercisable during the Participant's lifetime only by
the Participant or the Participant's legal representative.
Article 10.
Performance Measures
Unless and until the Committee proposes for shareholder vote, and
shareholders approve a change in the general performance measures set forth in
this Article 10, the attainment of which may determine the degree of payout
and/or vesting with respect to Awards to Covered Employees which are designed to
qualify for the Performance-Based Exception, the performance measure(s) to be
used for purposes of such grants shall be chosen from among
(a) Earnings per share;
(b) Net income (before or after taxes);
(c) Return measures (including, but not limited to, return on assets,
equity, or sales);
(d) Cash flow return on investments which equals net cash flows divided by
owners equity;
(e) Earnings before or after taxes;
(f) Measures of gross sales, gross revenues, or growth in sales or
revenues;
(g) Share price (including, but no limited to, growth measures and total
shareholder return); and
(h) Performance versus comparator groups.
The Board shall have the discretion to adjust the determinations of the
degree of attainment of the pre-established performance goals; provided,
however, that Awards which are designed to qualify for the Performance-Based
Exception, and which are held by Covered Employee, may not be adjusted upward
(the Board shall retain the discretion to adjust such Awards downward).
In the event that applicable tax and/or securities laws change to permit
Board discretion to alter the governing performance measures without obtaining
shareholder approval of such changes, the Board shall have sole discretion to
make such changes without obtaining shareholder approval. In addition, in the
event that the Board determines that it is advisable to grant Awards which shall
not qualify for the Performance-Based Exception, the Board may make such grants
without satisfying the requirements of Code Section 162(m).
Article 11.
Beneficiary Designation
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively) to
whom any benefit under the Plan is to be paid in case of his or her death before
he or she receives any or all of such benefit. Each such designation shall
revoke all prior designations by the same Participant, shall be in a form
prescribed by the Company, and will be effective only when filed by the
Participant in writing with the Company during the Participant's lifetime. In
the absence of any such designation, benefits remaining unpaid at the
Participant's death shall be paid to the Participant's estate.
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Article 12.
Deferrals
The Board may permit or require a Participant to defer such Participant's
receipt of the payment of cash or the delivery of Shares that would otherwise be
due to such Participant by virtue of the exercise of an Option or SAR, the lapse
or waiver of restrictions with respect to Restricted Stock, or the satisfaction
of any requirements or goals with respect to Performance Units/Shares. If any
such deferral election is required or permitted, the Board shall, in its sole
discretion, establish rules and procedures for such payment deferrals.
Article 13.
Rights of Employees/Directors
13.1. Employment. Nothing in the Plan shall interfere with or limit in any
way the right of the Company to terminate any Participant's employment at any
time, nor confer upon any Participant any right to continue in the employ of the
Company.
13.2. Participation. No Employee or Director shall have the right to be
selected to receive an Award under this Plan, or, having been so selected, to be
selected to receive a future Award.
Article 14.
Change in Control
14.1. Treatment of Outstanding Awards. Upon the occurrence of a Change in
Control, unless otherwise specifically prohibited under applicable laws, or by
the rules and regulations of any governing governmental agencies or national
securities exchanges:
(a) Any and all Options and SARs granted hereunder shall become
immediately exercisable, and shall remain exercisable throughout their
entire term;
(b) Any restriction periods and restrictions imposed on Restricted Shares
which are not performance-based shall lapse;
(c) The target payout opportunities attainable under all outstanding
Awards of performance-based Restricted Stock, Performance Units,
Performance Shares, and Cash-Based Awards shall be deemed to have been
fully earned for the entire Performance Period(s) as of the effective
date of the Change in Control. The vesting of all Awards denominated
in Shares shall be accelerated as of the effective date of the Change
in Control, and there shall be paid out to Participants within thirty
(30) days following the effective date of the Change in Control a pro
rata number of shares based upon an assumed achievement of all
relevant targeted performance goals and upon the length of time within
the Performance Period which has elapsed prior to the Change in
Control. Awards denominated in cash shall be paid pro rata to
participants in cash within thirty (30) days following the effective
date of the Change in Control, with the proration determined as a
function of the length of time within the Performance Period which has
elapsed prior to the Change in Control, and based on an assumed
achievement of all relevant targeted performance goals.
14.2. Termination, Amendment, and Modifications of Change-in-Control
Provisions. Notwithstanding any other provision of this Plan (but subject to the
limitations of Section 15.3 hereof) or any Award Agreement provision, the
provisions of this Article 14 may not be terminated, amended, or modified on or
after the date of a Change in Control to affect adversely any Award theretofore
granted under the Plan without the prior written consent of the Participant with
respect to said Participant's outstanding Awards; provided, however, the Board
may terminate, amend, or modify this Article 14 at any time and from time to
time prior to the date of a Change in Control.
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<PAGE>
14.3. Pooling of Interests Accounting. Notwithstanding any other provision
of the Plan to the contrary, in the event that the consummation of a Change in
Control is contingent on using pooling of interests accounting methodology, the
Board may take any action necessary to preserve the use of pooling of interests
accounting.
Article 15.
Amendment, Modification, and Termination
15.1. Amendment, Modification, and Termination. Subject to the terms of the
Plan, the Board may at any time and from time to time, alter, amend, suspend or
terminate the Plan in whole or in part.
15.2. Adjustment of Awards Upon the Occurrence of Certain Unusual or
Nonrecurring Events. The Board may make adjustments in the terms and conditions
of, and the criteria included in, Awards in recognition of unusual or
nonrecurring events (including, without limitation, the events described in
Section 4.3 hereof) affecting the Company or the financial statements of the
Company or of changes in applicable laws, regulations, or accounting principles,
whenever the Board determines that such adjustments are appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan; provided that, unless the Board determines
otherwise at the time such adjustment is considered, no such adjustment shall be
authorized to the extent that such authority would be inconsistent with the
Plan's meeting the requirements of Section 162(m) of the Code, as from time to
time amended.
15.3. Awards Previously Granted. Notwithstanding any other provision of the
Plan to the contrary (but subject to Section 14.3 hereof), no termination,
amendment, or modification of the Plan shall adversely affect in any material
way any Award previously granted under the Plan, without the written consent of
the Participant holding such Award.
15.4. Compliance with Code Section 162(m). At all times when Code Section
162(m) is applicable, all Awards granted under this Plan shall comply with the
requirements of Code Section 162(m); provided, however, that in the event the
Board determines that such compliance is not desired with respect to any Award
or Awards available for grant under the Plan, then compliance with Code Section
162(m) will not be required. In addition, in the event that changes are made to
Code Section 162(m) to permit greater flexibility with respect to any Award or
Awards available under the Plan, the Board may, subject to this Article 15, make
any adjustments it deems appropriate.
Article 16.
Withholding
16.1. Tax Withholding. The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy Federal, state, and local taxes, domestic or foreign,
required by law or regulation to be withheld with respect to any taxable event
arising as a result of this Plan.
16.2. Share Withholding. With respect to withholding required upon the
exercise of Options or SARs, upon the lapse of restrictions on Restricted Stock,
or upon any other taxable event arising as a result of Awards granted hereunder,
Participants may elect, subject to the approval of the Board, to satisfy the
withholding requirement, in whole or in part, by having the Company withhold
Shares having a Fair Market Value on the date the tax is to be determined equal
to the minimum statutory total tax which could be imposed on the transaction.
All such elections shall be irrevocable, made in writing, signed by the
Participant, and shall be subject to any restrictions or limitations that the
Board, in its sole discretion, deems appropriate.
Article 17.
Indemnification
Each person who is or shall have been a member of the Committee, or of the
Board, shall be indemnified and held harmless by the Company against and from
any loss, cost, liability, or expense that may be imposed
A-11
<PAGE>
upon or reasonably incurred by him or her in connection with or resulting from
any claim, action, suit, or proceeding to which he or she may be a party or in
which he or she may be involved by reason of any action taken or failure to act
under the Plan and against and from any and all amounts paid by him or her in
settlement thereof, with the Company's approval, or paid by him or her in
satisfaction of any judgement in any such action, suit, or proceeding against
him or her, provided he or she shall give the Company an opportunity, at its own
expense, to handle and defend the same before he or she undertakes to handle and
defend it on his or her own behalf. The foregoing right of indemnification shall
not be exclusive of any other rights of indemnification to which such persons
may be entitled under the Company's Articles of Incorporation of Bylaws, as a
matter of law, or otherwise, or any power that the Company may have to indemnify
them or hold them harmless.
Article 18.
Successors
All obligations of the Company under the Plan with respect to Awards
granted hereunder shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise, of all or substantially all of the business
and/or assets of the Company.
Article 19.
Legal Construction
19.1. Gender and Number. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
19.2. Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
19.3. Requirements of Law. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
19.4. Securities Law Compliance. With respect to Insiders, transactions
under this Plan are intended to comply with all applicable conditions or Rule
16b-3 or its successors under the 1934 Act. To the extent any provision of the
plan or action by the Board fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the Board.
19.5. Governing Law. To the extent not preempted by federal law, the Plan,
and all agreements hereunder, shall be construed in accordance with and governed
by the laws of the state of Delaware.
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COMMON STOCK COMMON STOCK
PROXY PROXY
MORGAN PRODUCTS LTD.
This Proxy is Solicited on Behalf of the Board of Directors
for the Annual Meeting to be Held May 14, 1997
The undersigned hereby appoints Larry R. Robinette and Douglas H.
MacMillian,individually, as Proxies, each with the power to appoint his
substitute, and hereby authorizes them to represent and to vote, as designated
below, all the shares of common stock of Morgan Products, Ltd., held of record
by the undersigned on March 20, 1997, at the annual meeting of stockholders to
be held on May 14, 1997, or any adjournment or postponement thereof. The
proxies are authorized to vote in their discretion upon such other business as
may properly come before the meeting or any adjournment or postponement thereof.
PLEASE MARK, SIGN, DATE AND MAIL THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side.)
- - --------------------------------------------------------------------------------
3383--Morgan Products Ltd.
<PAGE>
MORGAN PRODUCTS LTD.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
1. Election of Directors-
Nominees: F.J. Hawley, Jr., LR. Robinette,
J.S. Crowley, H.G. Haas, W.R. Holland, E.T. Toker
and P.J. McDonough, Jr.
2. Ratification of appointment of Price Waterhouse, LLP
as independent Public Accountants.
For Withhold For All
All All Except those whose name(s) appear below.
[ ] [ ] [ ]
-------------------------------------------------------
For Against Abstain
[ ] [ ] [ ]
For Against Abstain
3. Ratification of proposal to adopt the incentive [ ] [ ] [ ]
Compensation Plan.
This proxy when properly executed will be voted in the manner directed herein by
the undersigned stockholder. If no direction is made, the proxy will be voted
"FOR all nominees" in Proposal 1, "FOR" Proposal 2, and "FOR" Proposal 3. The
Board of Directors recommends a vote "FOR all nominees" in Proposal 1, "FOR"
Proposal 2, and "FOR" Proposal 3.
Dated:
---------------------, 1997
Signature(s)
--------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Please sign exactly as name appears hereon. Joint owners should each sign, where
applicable, indicating official position or representative capacity.
- - --------------------------------------------------------------------------------
3383-Morgan Products Ltd.
