SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE
ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant /__/
Check the appropriate box:
/_/ Preliminary Proxy Statement /_/ Confidential, for
/X/ Definitive Proxy Statement use of the
/_/ Definitive Additional Materials Commission Only (as
/_/ Soliciting Material Pursuant to permit-ted by Rule
Rule 14a-113(c) or Rule 14a-12 14a-6(e)(2))
ARVIN INDUSTRIES, INC.
(Name of Registrant as Specified in its Charter)
______________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
Payment of filing fee (check the appropriate box):
/X/ No fee required.
/_/ Fee computed on table below per Exchange Act Rules 14a-6(i)(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> 2
ARVIN INDUSTRIES, INC.
NOTICE
OF
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 16, 1998
To the Shareholders of
ARVIN INDUSTRIES, INC.
The Annual Meeting of Shareholders of Arvin Industries, Inc., an
Indiana corporation, will be held at the Holiday Inn Conference
Center, 2480 Jonathan Moore Pike (Highway 46 West), Columbus, Indiana
on Thursday, April 16, 1998, at 10:30 a.m., for the following
purposes:
(1) To elect four directors for a term of three years;
(2) To adopt the 1998 Stock Benefit Plan;
(3) To ratify the Board of Directors' appointment of Price Waterhouse
as Arvin's independent certified public accountants for the
current year; and
(4) To transact such other business as may properly come before the
Annual Meeting and any adjournment thereof.
Shareholders of record at the close of business on February 23, 1998
are entitled to notice of and to vote at the Annual Meeting.
Arvin's Annual Report for fiscal year 1997 is enclosed.
IMPORTANT! TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE MEETING,
PLEASE SIGN, DATE AND RETURN PROMPTLY THE ENCLOSED PROXY CARD IN THE
ENVELOPE PROVIDED.
NO POSTAGE IS REQUIRED IF THE PROXY IS MAILED IN THE UNITED STATES.
IF YOU ATTEND THE ANNUAL MEETING, YOU MAY VOTE YOUR SHARES IN PERSON
EVEN IF YOU HAVE PREVIOUSLY SUBMITTED A PROXY.
RONALD R. SNYDER
SECRETARY
Columbus, Indiana
March 13, 1998
<PAGE> 3
ARVIN INDUSTRIES, INC.
ONE NOBLITT PLAZA, BOX 3000, COLUMBUS, INDIANA 47202-3000
----------------------------------------------------------
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 16, 1998
This proxy statement and the enclosed proxy are being furnished
in connection with the solicitation of proxies by the Board of
Directors of Arvin Industries, Inc. ("Arvin") from holders of Arvin's
common shares, par value $2.50 per share ("Common Shares"), for use at
the Annual Meeting of Shareholders to be held April 16, 1998, and at
any adjournment or postponement thereof, for the purposes set forth in
the accompanying Notice (the "Annual Meeting"). Arvin will bear all
costs relating to the solicitation of proxies from its shareholders.
In addition to soliciting proxies by mail, Arvin's officers and
employees, without receiving additional compensation therefor, may
solicit proxies by telephone, by facsimile or in person. Arrangements
also will be made with brokerage firms and other custodians, nominees
and fiduciaries to forward solicitation materials to the beneficial
owners of Common Shares held of record by such persons, and Arvin will
reimburse such brokerage firms, custodians, nominees and fiduciaries
for reasonable out-of-pocket expenses incurred by them in that
connection. In addition, Arvin has retained Hill and Knowlton, Inc.
to assist in soliciting proxies from shareholders, including brokers'
accounts, at a fee of $6,250 plus reasonable out-of-pocket expenses.
This proxy statement is first being sent to shareholders on or
about March 13, 1998.
VOTING AT THE MEETING
The record date for the determination of shareholders entitled to
vote at the Annual Meeting was the close of business on February 23,
1998, at which time Arvin had issued and outstanding 24,583,796 Common
Shares. Each shareholder will be entitled to one vote for each Common
Share held with respect to all matters which may be properly submitted
to a vote of shareholders at the Annual Meeting.
All proxies that are properly signed and received by Arvin prior
to the Annual Meeting will be voted in accordance with the
instructions on such proxies unless they have been revoked. If no
instruction is indicated, the shares will be voted FOR the election of
the four nominees for director listed in this proxy statement, FOR
adoption of the 1998 Stock Benefit Plan, FOR ratification of the
appointment of independent public accountants, and in the discretion
of the persons named in the proxy on such other matters as may
properly come before the Annual Meeting. Any shareholder who has
given a proxy may revoke such proxy at any time before it is voted at
the Annual Meeting by delivering to the Secretary of Arvin written
notice of revocation or a duly executed proxy bearing a later date or
by attending the meeting and voting in person.
<PAGE> 4
A quorum of shareholders is necessary to take action at the
Annual Meeting. A majority of the outstanding Common Shares,
represented in person or by proxy, will constitute a quorum of
shareholders at the Annual Meeting. The inspectors of election
appointed for the Annual Meeting will determine whether a quorum is
present. Under certain circumstances, a broker or other nominee may
have discretionary authority to vote certain Common Shares if
instructions have not been received from the beneficial owner or other
person entitled to vote. The inspectors of election will treat
abstentions and broker non-votes (which occur when a broker or other
nominee holding shares for a beneficial owner does not vote on a
particular proposal, because such broker or other nominee does not
have discretionary voting power with respect to that item and has not
received instructions from the beneficial owner) as present and
entitled to vote for purposes of determining the presence of a quorum
for the transaction of business at the Annual Meeting.
A plurality of the Common Shares voted in person or by proxy is
required to elect a director. The 1998 Stock Benefit Plan and
ratification of the appointment of the independent public accountants
will be approved if the votes cast favoring each such action exceed
the votes cast opposing each such action. Votes cast by proxy or in
person at the meeting will be tabulated by the inspectors of election
appointed for the Annual Meeting. For purposes of determining
approval of the 1998 Stock Benefit Plan and ratification of the
appointment of the accountants, abstentions will not be considered.
Broker non-votes, because they are not considered votes cast, are not
counted in the vote totals.
PROPOSAL 1 - ELECTION OF DIRECTORS
Arvin's Restated Articles of Incorporation, as amended, provide
that its By-Laws may divide the Board of Directors into classes, with
the terms of office of directors in each class being more than one
year. The By-Laws provide that the Board of Directors shall be
divided into three classes, each class being as nearly equal in number
as possible, and that at each Annual Meeting of Shareholders the
successors to the directors whose terms expire that year shall be
elected for a term of three years.
At the Annual Meeting, four incumbent directors will be nominated
for a three-year term. James K. Baker, Vice Chairman of the Board
and Arvin's longest serving CEO, whose term expires at the Annual
Meeting, has announced that he will not seek re-election to the Board
of Directors. The Board expresses its appreciation and gratitude for
Mr. Baker's 43 years of dedication to Arvin. Unless otherwise
directed, proxies will be voted for the election of the four nominees
listed below who have been designated by the Board of Directors. If,
on account of death or other unforeseen contingencies, any of these
persons is unavailable for election, the proxies will be voted for a
substitute nominee designated by the Board of Directors.
<PAGE> 5
The following sets forth certain information with respect to the
nominees and continuing directors of Arvin:
<TABLE>
<CAPTION>
Number of
Common Shares
Beneficially
Owned as of
January 1, 1998(1)
NOMINEES FOR THREE-YEAR TERMS: ------------------
<S> <C>
[Photo of Joseph P. Allen]
JOSEPH P. ALLEN, CHAIRMAN, VERIDIAN (SUCCESSOR TO CALSPAN SRL
CORPORATION) . . . . . . . . . . . . . . . . . . . . . . . . . 3,790
Dr. Allen, 60, is a graduate of DePauw University with a Bachelor of
Arts degree and attended Christian Albrechts Universitaet in Kiel,
Germany as a Fulbright Scholar. He also earned Master of Science and
Doctor of Philosophy degrees from Yale University. Dr. Allen was an
astronaut with NASA from 1967 to 1985, when he became Executive Vice
President of Space Industries, Inc., predecessor to Calspan SRL
Corporation, a designer of space facilities. Dr. Allen was elected
President of Space Industries, Inc. in 1988 and Chief Executive Officer
in 1991. Dr. Allen was first elected to Arvin's Board of Directors in
1985. He is also a director of Veridian.
[Photo of Steven C. Beering]
STEVEN C. BEERING, PRESIDENT OF PURDUE UNIVERSITY . . . . . . . . . . . 1,600(2)
Dr. Beering, 65, holds Bachelor of Science and Doctor of Medicine
degrees from the University of Pittsburgh. He was named President of
Purdue University and the Purdue University Foundations in 1983. He is
also a director of Eli Lilly and Company, NIPSCO Industries, Inc. and
American United Life Insurance Co. He was first elected to Arvin's
Board of Directors in 1983.
[Photo of Joseph P. Flannery]
JOSEPH P. FLANNERY, CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF
UNIROYAL HOLDING, INC. . . . . . . . . . . . . . . . . . . . . 1,500
Mr. Flannery, 65, holds a Bachelor of Science degree from the University
of Lowell and a Masters of Business Administration degree from Harvard
University. He joined Uniroyal, Inc. in 1959 and, after holding a
number of positions with Uniroyal, Inc. and its Uniroyal Chemical
Division, was elected a director and President and Chief Operating
Officer of Uniroyal, Inc. in 1977 and its Chief Executive Officer in
1980. Since 1987 Mr. Flannery has been Chairman of the Board, President
and Chief Executive Officer of Uniroyal Holding, Inc. He was first
elected an Arvin director in 1991. Mr. Flannery also serves on the
boards of directors of APS Holding Corporation, Ingersoll-Rand Company,
Kmart Corp., Newmont Mining Corporation, Newmont Gold Company and The
Scotts Company.
[Photo of V. William Hunt]
V. WILLIAM HUNT, PRESIDENT AND CHIEF OPERATING OFFICER OF ARVIN . . . . 123,440(3)(4)(5)
Mr. Hunt, 53, holds Bachelor of Arts and Doctor of Jurisprudence degrees
from Indiana University. Mr. Hunt joined Arvin in 1976 and was elected
Vice President-Administration in 1980, Secretary in 1982, Executive Vice
President in 1990, and President & COO in 1996. Effective May 1, 1998,
he will become Chief Executive Officer of Arvin. Mr. Hunt is also
Chairman of the Motor Equipment Manufacturers' Association Presidents'
Council. Mr. Hunt was first elected to the Board of Directors in 1983.
<PAGE> 6
Number of
Common Shares
Beneficially
Owned as of
January 1, 1998(1)
CONTINUING DIRECTORS: ------------------
[Photo of William D. George]
WILLIAM D. GEORGE, RETIRED PRESIDENT AND CHIEF EXECUTIVE OFFICER OF S.C.
JOHNSON & SON INC. . . . . . . . . . . . . . . . . . . . . . . 3,000
Mr. George, 65, received a Bachelor of Arts degree from DePauw
University and a Masters of Business Administration degree from Harvard
University. In 1981, he joined S.C Johnson Wax, a manufacturer of
chemical specialty products headquartered in Racine, Wisconsin, and,
after holding a number of positions, became Executive Vice President and
Chief Operating Officer, Worldwide Consumer Products in 1988. He was
elected President in 1990, Chief Executive Officer and a member of the
Board in 1993 and he retired in 1996. Mr. George was first elected to
the Arvin Board of Directors in 1994, and his current term expires in
1999. He also serves on the board of directors of Ralcorp Holdings and
is a member of the Board of Trustees of Carthage College.
[Photo of Ivan W. Gorr]
IVAN W. GORR, FORMER CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
OF COOPER TIRE & RUBBER COMPANY . . . . . . . . . . . . . . . 1,500
Mr. Gorr, 68, is a graduate of the University of Toledo and is a
certified public accountant. Mr. Gorr began his career with Cooper Tire
in 1972 as Corporate Controller and, after having served as Executive
Vice President, Treasurer and Chief Financial Officer, was elected
President and Chief Operating Officer in 1982 and Chairman and Chief
Executive Officer in 1989 serving in those capacities until 1994.
Cooper Tire, located in Findlay, Ohio, specializes in the manufacture
and marketing of rubber products for consumers and industrial users.
Mr. Gorr was elected a director of Arvin in 1994, and his current term
expires in 2000. He also serves as a director of Amcast Industrial
Corporation, Fifth Third Bancorp, OHM Corporation and Borg-Warner
Automotive, Inc.
<PAGE> 7
Number of
Common Shares
Beneficially
Owned as of
January 1, 1998(1)
CONTINUING DIRECTORS: ------------------
[Photo of Richard W. Hanselman]
RICHARD W. HANSELMAN, FORMER CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF
GENESCO, INC. . . . . . . . . . . . . . . . . . . . . . . . . 1,200
Mr. Hanselman, 70, is a graduate of Dartmouth College. He joined
Genesco in 1980 and was named Chief Executive Officer in 1981, serving
in that capacity and as its Chairman until 1986. Genesco is a
diversified manufacturer of footwear and apparel located in Nashville,
Tennessee. Mr. Hanselman was first elected to Arvin's Board of
Directors in 1983, and his current term expires in 2000. He is also a
director of Becton, Dickinson & Co., BEC Group, Inc., Bradford Funds,
Inc., Foundation Health Corporation, Gryphon Holdings, Inc. and IMCO
Recycling Inc.
[Photo of Don J. Kacek]
DON. J. KACEK, CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF
ADVANCED AUTOMATION TECHNOLOGIES, INC. . . . . . . . . . . . . 1,000(2)
Mr. Kacek, 61, holds a Bachelor of Science degree from Illinois
Institute of Technology. He became President and Chief Executive
Officer of Ransburg Corporation in 1977 and was elected Chairman of its
Board of Directors in 1978, in which capacities he served until 1988.
In 1989, Mr. Kacek became a director of Advanced Automation
Technologies, Inc. and since 1990 has been its Chairman, President and
Chief Executive Officer. Advanced Automation Technologies is a
manufacturer of factory automation equipment located in Indianapolis,
Indiana. He was first elected to Arvin's Board of Directors in 1982,
and his current term expires in 2000.
[Photo of Frederick R. Meyer]
FREDERICK R. MEYER, CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF
ALADDIN INDUSTRIES, INC. . . . . . . . . . . . . . . . . . . . 13,100
Mr. Meyer, 70, was graduated from Purdue University and holds a Master
of Business Administration degree from Harvard University. In 1985, Mr.
Meyer became Chairman of the Board of Aladdin Industries, Inc., a
diversified company principally engaged in the manufacture of children's
lunch kits, thermosware, insulated food delivery systems and related
products located in Nashville, Tennessee. Mr. Meyer served as President
and Chief Executive Officer of Aladdin Industries, Inc. from 1987
through September 1994 and was re-elected to that position in October
1995. Mr. Meyer was first elected to Arvin's Board of Directors in
1980, and his current term expires in 1999. He also serves as a
director of Tyler Corporation, Southwest Securities Group, Inc. and Palm
Harbor Homes, Inc.
<PAGE> 8
Number of
Common Shares
Beneficially
Owned as of
January 1, 1998(1)
CONTINUING DIRECTORS: ------------------
[Photo of Byron O. Pond]
BYRON O. POND, CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF ARVIN . . . . . 355,993(3)(4)
Mr. Pond, 61, is a graduate of Wayne State University with a Bachelor of
Science degree in Business Administration. Mr. Pond became an Executive
Vice President and director of Arvin in 1990, President in 1991, Chief
Executive Officer in 1993, and was elected Chairman of the Board of
Directors in 1996. His current term expires in 1999. Effective May 1,
1998, Mr. Pond will step down from the position of Chief Executive
Officer.
[Photo of Richard A. Smith]
RICHARD A. SMITH, VICE PRESIDENT-FINANCE AND CHIEF FINANCIAL OFFICER
OF ARVIN . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,083(2)(3)(4)
Mr. Smith, 52, was graduated from the University of Illinois at Chicago,
was awarded a Master of Business Administration by Northwestern
University and earned a Doctor of Jurisprudence degree from St. Louis
University. Mr. Smith has been Vice President-Finance and a member of
Arvin's Board of Directors since 1990, and his current term expires in
2000.
[Photo of Arthur R. Velasquez]
ARTHUR R. VELASQUEZ, CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF
AZTECA FOODS, INC. . . . . . . . . . . . . . . . . . . . . . . 1,575(6)
Mr. Velasquez, 59, is a graduate of the University of Notre Dame with a
Bachelor of Science degree in Electrical Engineering and holds a Masters
of Business Administration from the University of Chicago. He was a
founder of Azteca Corn Products Corporation in 1970, now Azteca Foods,
Inc. Azteca is a manufacturer of Mexican foods located in Chicago,
Illinois. Mr. Velasquez was first elected an Arvin director in 1994,
and his current term expires in 1999. He also serves on the boards of
directors of Peoples Energy Corporation, LaSalle National Bank, Chicago
Metro Board of Junior Achievement, the Maryville City of Youth, and
serves on the Board of Trustees of the University of Notre Dame.
</TABLE>
---------------------------------------------------------------------
(1) Except as otherwise noted, each person exercises sole voting and
investment power over the Common Shares beneficially owned by
him. Other than Mr. Pond and Mr. Hunt, who beneficially own
approximately 1.45% and 3.08%, respectively, of the outstanding
Common Shares, no nominee or director is individually the bene-
ficial owner of more than 1.0% of Arvin's outstanding Common
Shares.
(2) Shared voting and investment power, as follows: Dr. Beering -
1,600 shares, Mr. Kacek - 1,000 shares and Mr. Smith - 20,600
shares.
<PAGE> 9
(3) Includes Common Shares subject to options which may be exercised
within 60 days after January 1, 1998, as follows: Mr. Hunt -
95,956 shares, Mr. Pond - 270,824 shares and Mr. Smith - 49,750
shares.
(4) Includes Common Shares held in such participant's accounts under
certain Arvin employee benefit plans, as follows: Arvin Savings
Plan: Mr. Hunt - 7,552 shares, Mr. Pond - 1,641 shares and Mr.
Smith - 2,502 shares; Arvin Equity Account Plan: Mr. Hunt -
1,449 shares; and Arvin Deferred Compensation Plan: Mr. Hunt -
1,083 shares, Mr. Pond - 510 shares and Mr. Smith - 1,231
shares. Common Shares held in these Plans are voted at
the direction of the participant.
(5) Does not include 634,436 Common Shares as to which Mr. Hunt can
direct the voting at any and all annual or special meetings of
Arvin pursuant to the shareholders' agreement described under
the heading "Certain Beneficial Owners." Mr. Hunt disclaims
beneficial ownership of such Common Shares.
(6) Held in an individual retirement account self-directed by Mr.
Velasquez.
COMPENSATION OF DIRECTORS
During 1997, Mr. Baker and non-employee members of the Board of
Directors were compensated for their service as directors as follows:
an annual fee of $26,000; a fee of $1,500 for membership on any
regular committee of the Board; and attendance fees of $1,500 and
$1,000, respectively, for each Board and committee meeting.
Dr. Allen serves as Chairman of Veridian, the successor to
Calspan SRL Corporation ("Calspan"), of which Dr. Allen was President
and Chief Executive Officer. On September 29, 1995, Arvin sold its
interest in Space Industries International, Inc. ("SIII") to a new
company, Calspan, formed by management of SIII. In conjunction with
the sale, Arvin guaranteed approximately $22.9 million of the debt of
Calspan. The guarantee terminated during 1997 and no amount was
outstanding at December 28, 1997.
MEETINGS OF DIRECTORS AND COMMITTEES
The Board of Directors met four times in 1997.
There are three standing committees of the Board of Directors.
The Audit Committee, the current members of which are Messrs. Gorr
(Chairman), Velasquez and Allen, has the responsibility to assess and
oversee the adequacy of internal controls and the integrity of Arvin's
financial statements. Its functions include: recommending outside
auditors; assessing the plan and scope of the audit; reviewing the
results of the annual audit and financial statements before release
(including disclosure requirements); evaluating auditors' fees;
overseeing the effectiveness of the internal audit function; directing
and supervising any investigation into matters within the scope of the
foregoing duties (including compliance with the Foreign Corrupt
Practices Act); and performing such other related functions as the
Board of Directors may, from time to time, delegate to the Audit
Committee. The Audit Committee met three times in 1997.
The Human Resources Committee (formerly the Compensation
Committee), which met three times during 1997, is currently comprised
of Messrs. Beering (Chairman), Flannery and George. The Human
<PAGE> 10
Resources Committee is responsible for establishing and administering
the compensation policies of Arvin. SEE "Report of the Human
Resources Committee on Executive Compensation."
The Committee on Directors makes recommendations to the Board of
Directors as to nominees for election as directors. This committee
will consider nominees recommended by Arvin shareholders; any such
recommendations may be submitted in writing to the Chairman of the
Committee on Directors, in care of Arvin's executive offices in
Columbus, Indiana. The current members of the Committee on Directors,
which met four times in 1997, are Messrs. Hanselman (Chairman), Meyer
and Kacek.
EXECUTIVE COMPENSATION
SUMMARY
The following table summarizes the annual and long-term
compensation for services to Arvin and its subsidiaries for fiscal
years 1997, 1996, and 1995 awarded or paid to or earned by the chief
executive officer of Arvin and each of the four other most highly
compensated executive officers of Arvin and its subsidiaries (the
"Named Officers") during 1997.
<PAGE> 11
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
AWARDS PAYOUTS
RESTRICTED SECURITIES ALL OTHER
OTHER ANNUAL STOCK UNDERLYING LTIP COM-
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARD(S) OPTIONS PAYOUTS PENSATION
POSITION YEAR ($) ($) ($) (1) ($) (#) ($)(2) ($) (3)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Byron O. Pond 1997 $608,174 $1,110,568(4) $13,514 $350,350(5) 32,609 $ 0 $ 23,719
Chief Executive Officer 1996 500,000 216,125(4) 14,972 966,124(5) 32,609 0 5,850
and Chairman of the Board 1995 500,000 216,650 10,656 0 30,000 0 5,850
V. William Hunt 1997 440,577 703,362(6) 7,179 394,913(7) 26,000 0 35,274
President and Chief 1996 371,115 625,988(6) 5,050 162,094(7) 25,000 0 5,293
Operating Officer 1995 301,500 130,640 5,181 0 18,000 0 5,850
David S. Hoyte(8) 1997 300,009 275,020 6,135 119,992(9) 14,000 0 11,700
Vice President Chief 1996 69,231 0 679 90,000(9) 7,500 0 900
Operation 1995 0 0 0 0 0 0 0
Improvement Officer
Richard A. Smith 1997 272,132 340,166 5,143 0 14,000 0 22,926
Vice President-Finance & 1996 252,581 315,726 5,148 0 14,000 0 5,850
Chief Financial Officer 1995 242,846 105,225 5,512 0 14,200 0 5,850
E. Leon Viars 1997 289,616 362,019 4,553 0 14,000 44,726 25,303
Executive Vice President 1996 228,062 285,077 4,550 0 12,000 72,252 5,850
1995 212,485 92,070 3,323 0 6,600 64,063 5,850
</TABLE>
_____________________
(1) The compensation reported is the amount reimbursed or paid by
Arvin for certain taxes.
(2) Amounts for Mr. Viars represent payouts for awards for the 1986
through 1990 performance periods under the Maremont Corporation
Senior Management Deferred Compensation Plan, which was
terminated on January 1, 1991.
(3) The compensation reported represents Arvin qualified and non-
qualified matching contributions to the Arvin Savings Plan and
the Arvin Deferred Compensation Plan.
(4) For fiscal year 1997, includes a cash bonus of $760,218 plus the
value (as of February 12, 1998) of 9,100 performance shares
distributed to Mr. Pond. For fiscal year 1996, represents the
value (as of February 13, 1997) of 9,100 performance shares
distributed to Mr. Pond.
<PAGE> 12
(5) For fiscal year 1997, represents the value of 9,100 performance
shares distributed to Mr. Pond as restricted Common Shares. For
fiscal year 1996, includes 30,303 Common Shares restricted for a
five-year period that Mr. Pond elected to receive in lieu of his
1996 cash bonus of $625,000. 1996 also includes the value of
9,100 performance shares distributed to Mr. Pond as restricted
Common Shares. Dividends will be paid on all Common Shares
distributed to Mr. Pond during the restricted period. The value
of Mr. Pond's restricted share holdings was $1,414,927 as of the
Arvin 1997 fiscal year-end.
(6) For fiscal year 1997, includes a cash bonus of $440,599 plus the
value of (as of February 12, 1998) of 6,825 performance shares
distributed to Mr. Hunt. For fiscal year 1996, includes a cash
bonus of $463,894 and the value (as of February 13, 1997) of
6,825 performance shares distributed to Mr. Hunt.
(7) For fiscal year 1997, includes 3,967 Common Shares restricted for
a five year period that Mr. Hunt elected to receive in lieu of
$110,144 of his 1997 cash bonus. 1997 also includes the value of
6,825 performance shares distributed to Mr. Hunt as restricted
Common Shares. For fiscal year 1996, includes the value of
6,825 performance shares distributed to Mr. Hunt as restricted
Common Shares. Dividends will be paid on all Common Shares
distributed to Mr. Hunt during the restricted period. The value
of Mr. Hunt's restricted share holdings was $335,344 as of the
Arvin 1997 fiscal year-end.
(8) Mr. Hoyte became an officer of Arvin during 1996.
(9) For fiscal years 1997 and 1996, represents the value of 3,602 and
3,636 Common Shares, respectively. The value of Mr. Hoyte's
restricted share holdings was $116,125 as of the Arvin 1997
fiscal year-end.
OPTIONS GRANTED IN 1997
The following table sets forth certain information as to options
to purchase Common Shares of Arvin granted to each of the Named
Officers under the 1988 Stock Benefit Plan during the fiscal year
ended December 28, 1997 and the potential realizable value, assuming
certain annual rates of appreciation.
<PAGE> 13
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE
INDIVIDUAL GRANTS AT ASSUMED ANNUAL RATES
PERCENT OF OF STOCK PRICE
NUMBER OF TOTAL APPRECIATION
SECURITIES OPTIONS FOR OPTION TERM(3)
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES PRICE
GRANTED IN FISCAL ($ PER EXPIRATION
NAME (#)(1) YEAR SHARE)(2) DATE 5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C>
Byron O. Pond 32,609 7.1% $30.9375 07/15/2007 $ 634,561 $ 1,608,092
V. William Hunt 26,000 5.7% 30.9375 07/15/2007 505,952 1,282,174
David S. Hoyte 14,000 3.1% 30.9375 07/15/2007 272,436 690,401
Richard A. Smith 14,000 3.1% 30.9375 07/15/2007 272,436 690,401
E. Leon Viars 14,000 3.1% 30.9375 07/15/2007 272,436 690,401
All Officers as 198,609 43.5% 30.9375 07/15/2007 3,864,869 9,794,279
a Group (21
people)
All Optionees 456,859 100.0% 30.9375 07/15/2007 8,890,333 22,529,716
</TABLE>
_____________________
(1) All options granted to the Named Officers were granted on July
15, 1997 and will first become exercisable July 15, 1998.
Vesting may be accelerated as a result of certain changes in
control of Arvin.
(2) All options were granted at market value (the average of the high
and low prices of the Arvin Common Shares) on the date of grant.
(3) The potential realizable value illustrates the value that might
be recognized upon the exercise of the options immediately prior
to the expiration of their term, assuming the specified
compounded rates of stock price appreciation over the ten-year
term of the option. Potential realizable value is presented net
of the option exercise price, but before taxes associated with
the exercise. Actual gains, if any, on stock option exercises
and Common Share holdings are dependent on the future performance
of the Common Shares and overall market conditions as well as the
option holders' continued employment through the ten-year term of
the option. There can be no assurance that the amounts reflected
in this table will be achieved.
OPTION EXERCISES IN 1997
The table below sets forth certain information concerning the
exercise of options to purchase Common Shares under the 1988 Stock
<PAGE> 14
Benefit Plan and the 1978 Stock Option Plan during fiscal year 1997 by
each of the Named Officers and the value of unexercised options held
by each of the Named Officers as of December 26, 1997.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS AT MONEY OPTIONS AT FISCAL
SHARES FISCAL YEAR-END (#) YEAR-END ($)(2)
ACQUIRED ON VALUE
EXERCISE REALIZED
NAME (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Byron O. Pond 11,000 $182,188 257,609 82,609 $1,537,573 $32,609
V. William Hunt 10,294 159,670 87,956 26,000 790,618 26,000
David S. Hoyte 4,030 57,784 3,470 14,000 24,724 14,000
Richard A. Smith 15,200 191,450 49,750 14,000 428,281 14,000
E. Leon Viars 0 0 65,200 14,000 689,200 14,000
</TABLE>
_______________________
(1) Represents the difference between the closing price of the Arvin
Common Shares on the New York Stock Exchange on the business day
preceding the date of exercise and the option exercise price.
(2) Represents the difference between $31.9375, the closing price of
the Arvin Common Shares on the New York Stock Exchange on
December 26, 1997, and the option exercise price.
EMPLOYMENT AGREEMENT WITH BYRON O. POND
An employment agreement between Arvin and Mr. Pond, effective
June 17, 1993, provides, among other things, for his full time
employment until June 16, 1996, with automatic one-year extensions
commencing June 17, 1994, and continuing each June 17 thereafter,
unless terminated by Arvin or Mr. Pond, at an annual salary of not
less than $500,000. The agreement also provides that it will be
binding upon a successor corporation in the event that Arvin is merged
into any other corporation or that any other corporation acquires
substantially all of the assets of Arvin. In the event Mr. Pond's
change of control agreement (discussed below) is triggered, it will
supersede his employment agreement.
CHANGE OF CONTROL AGREEMENTS
<PAGE> 15
Arvin has entered into Change of Control Employment Agreements
(the "Agreements") with certain Company officers, including each
member of the Arvin Policy Committee and the Named Officers, which
provide severance payments and benefits in the event of the
termination of employment of the officer under certain circumstances
within the three year period following a change in control. Under the
Agreements, each officer would be entitled to severance payments and
benefits in the event that his or her employment is terminated during
the three year period following a change in control without "cause" by
Arvin, or for "good reason" by the officer, each as is defined in the
Agreement. In such case, the officer would be entitled to a severance
payment equal to three times his current annual salary and his highest
bonus during the preceding three years. During such three-year
period, the officer would be entitled to participate in all incentive,
retirement and welfare plans of Arvin. Additional benefits would
include the right to receive a pension supplement, fringe benefits and
paid vacation. In the event that any payments made in connection with
the change-in-control would be subject to the excise tax imposed under
Section 4999 of the Internal Revenue Code as a result of the aggregate
compensation payments and benefits made to the individual, under the
Agreement or otherwise, in connection with a change-in-control, Arvin
is obligated to make whole the individual with respect to such excise
tax. Each officer would also be entitled to receive the foregoing
severance payments and benefits of the Agreement if employment is
terminated for any reason by the officer during a limited period of
time following a change of control.
RETIREMENT PLAN
The table below shows the estimated annual benefits payable upon
retirement to persons, including the Named Officers, covered under
Arvin's Retirement Plan for Exempt Salaried Employees (the "Retirement
Plan") and Arvin's Supplemental Retirement Plan (the "Supplemental
Retirement Plan") (based on the benefit formulas in effect and
calculated on a straight life annuity basis, as described below), in
the specified compensation and years of service classifications. The
amounts reflected in the table are not subject to any deduction for
Social Security benefits or other offset amounts except for the Arvin
Equity Account described below.
<PAGE> 16
<TABLE>
<CAPTION>
Annual Compensation ANNUAL LIFE INCOME WITH YEARS OF SERVICE AT
(Average of 5 Highest AGE 65 (SINGLE LIFE ANNUITY)
Consecutive Years -------------------------------------------------------------------------------
in Last 10)
---------------------
15 20 25 30 35 40
------ ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 250,000 $53,358 $ 71,144 $ 88,930 $ 106,715 $ 124,501 $ 142,287
$ 450,000 97,608 130,144 162,680 195,215 227,751 260,287
$ 650,000 141,858 189,144 236,430 283,715 331,001 378,287
$ 850,000 186,108 248,144 310,180 372,215 434,251 496,287
$1,050,000 230,358 307,144 383,930 460,715 537,501 614,287
$1,250,000 274,608 366,144 457,680 549,215 640,761 732,287
$1,450,000 318,858 425,144 531,430 637,715 744,001 850,287
$1,650,000 363,108 484,144 605,180 726,215 847,251 968,287
$1,850,000 407,358 543,144 678,930 814,715 950,501 1,086,287
$2,050,000 451,608 602,144 752,680 903,215 1,053,751 1,204,287
$2,250,000 495,858 661,144 826,430 991,715 1,157,001 1,322,287
$2,450,000 540,108 720,144 900,180 1,080,215 1,260,251 1,440,287
$2,550,000 562,233 749,644 937,055 1,124,465 1,311,876 1,499,287
</TABLE>
The Retirement Plan is a defined benefit plan, based on total
years of service, which provides a life annuity determined by the
average of the five highest consecutive years' earnings in the last
ten years of service. On January 1, 1998, a new unified benefit
formula was adopted for determining benefits under the Retirement
Plan. The benefit is calculated by (i) multiplying 1.1% of the
average annual compensation times years of credited service and
adding(ii) an amount determined by multiplying 0.375% of the average
annual compensation that exceeds the social security wage base (for
1997, $65,400) times years of credited service. Employees may qualify
for full benefits at age sixty-two, subject to certain exceptions
under the Employee Retirement Income Security Act of 1974, though
provisions are made within the Plan for early retirement at reduced
benefits and for disability retirement. The compensation covered by
the Plan includes salaries, bonuses and compensation deferred at the
option of the employees resulting from contributions to the Arvin
Savings Plan and the Arvin Deferred Compensation Plan. For the
calendar year ended December 31, 1997, credited years of service for
the Named Officers are as follows: Mr. Pond - 29 years; Mr. Hunt - 21
years; Mr. Hoyte - 1 year; Mr. Smith - 8 years and Mr. Viars - 28
years.
<PAGE> 17
In 1983, the master trust governing the Retirement Plan was
amended to allow investment of Plan funds in Common Shares. As of
September 1, 1985, the Retirement Plan was further amended to transfer
to the Arvin Equity Account of the Arvin Savings Plan assets and
liabilities for the accrued benefits of active Retirement Plan
participants, and a provision was added which credits the benefit
payable under the Arvin Equity Account against the benefit payable
under the Retirement Plan. The 1985 amendment also added provisions
prohibiting termination of the Retirement Plan and recovery of any
excess assets ("overfunding") in the Plan unless approved by a
majority of the "Continuing Directors" (as defined in the Retirement
Plan) and providing that, in the event of a change of control of Arvin
without Continuing Director approval, the percentage for each year of
credited service used in the Retirement Plan's benefit formula would
be increased as necessary so that all Plan assets would be needed to
provide benefits to participants and any overfunding would be
eliminated.
Annual benefits payable upon retirement under the Retirement Plan
are subject to limitation imposed by law in prescribed circumstances.
To the extent that an individual employee's retirement benefit would
exceed such limit, the pension benefit payable upon retirement set
forth in the above table will be paid pursuant to the Supplemental
Retirement Plan.
In addition to benefits under the Retirement Plan, upon
retirement at age 65, Mr. Pond will be entitled to receive $30,000 per
year under a Maremont insurance-funded retirement program for a period
of ten (10) years. In the event of Mr. Pond's death prior to
retirement or during the ten (10) years following retirement, such
annual benefits will be paid to his beneficiary.
REPORT OF THE HUMAN RESOURCES COMMITTEE ON EXECUTIVE COMPENSATION
The Human Resources Committee of the Board of Directors (the
"Committee") establishes the general compensation policies of Arvin,
makes recommendations to the Board of Directors with respect to the
specific compensation levels for the Chairman and the President,
reviews and approves the annual cash bonus incentive plan for
executives, including the Named Officers, who are members of the Arvin
Policy Committee, administers the 1988 Stock Benefit Plan, reviews the
remuneration of other officers and considers and recommends the
adoption of compensation plans for officers and directors.
Arvin's compensation philosophy is to provide a total
compensation program which will attract and retain qualified
executives and motivate superior performance. The Committee and
management of Arvin are committed to the principle that pay should be
commensurate with performance and attainment of predetermined
financial and strategic objectives. As a consequence, pay is more
heavily influenced by company performance.
The compensation program consists of three components: base
salary, annual cash incentive opportunities and long-term stock-based
incentive opportunities. The compensation philosophy for base salary
<PAGE> 18
is to set executive base salaries approximately at industry norms,
with the proportion of total cash compensation that can be earned
based on variable incentive compensation above industry norms.
Industry norms used in establishing base salaries for the CEO and each
of the Named Officers in 1997 were determined by gathering competitive
compensation information from the companies comprising the Dow Jones
Auto Parts and Equipment Index as well as from other manufacturing
companies selected on the basis of similar sales volume, level of
employment and international scope.
The Arvin philosophy for variable cash bonus incentive
compensation is to provide rewards when financial objectives are
achieved. In 1997, these objectives, designed to increase shareholder
value, were earnings per share, return on net producing assets and
debt-to-capital ratio. The relative weights assigned to these
objectives were as follows: earnings per share was weighted by a
factor of one, return on net producing assets was weighted by a factor
of 0.8 and debt-to-capital ratio was weighted by a factor of 0.7.
Maximum bonuses that could be earned with respect to each of these
objectives are set as a percentage of the executive's base salary.
The maximum aggregate bonus that could be earned if all of the
objectives were attained was 125% of the executive's base salary.
Minimum achievement levels against each of the financial objectives
were required before the portion of the bonus relating to that
objective could be earned. The CEO and each of the Named Officers
participated in the 1997 cash bonus incentive plan.
In 1996, the CEO, certain Named Officers and certain other
officers of Arvin were authorized by the Committee to elect to receive
a portion of their 1997 cash bonus incentive compensation, if any, in
the form of restricted Common Shares of Arvin. The number of
restricted Common Shares so awarded was determined by dividing a
designated portion of the recipient's bonus by the closing price of
Arvin Common Shares on the New York Stock Exchange on the final
trading day of calendar 1997. A condition of each such award provides
that the recipient elect to hold his restricted Common Shares for a
period of three years, or five years, in which instance he is entitled
to receive an increase of 10%, or 20%, respectively, in the number of
restricted Common Shares so awarded. The Committee believes that the
availability of this discretionary alternative to cash bonuses further
encourages employee investment in the long-term future of Arvin.
Long-term incentives are currently provided through the grant of
stock options to the Named Officers and the CEO and the award of
performance shares to the CEO and COO. Stock options and performance
shares are an important component of the Committee's long-term
performance-based compensation philosophy. The number of options
granted is determined subjectively by considering the executive's
ability to influence Arvin's long-term growth and profitability.
Options are granted at the current market price and are exercisable
commencing one year after the date of grant. Since the value of an
option is directly related to Arvin's stock price, it provides an
incentive to create value for shareholders. The Committee also
believes that direct ownership of Arvin shares will serve to further
align executives' interest with that of all shareholders.
<PAGE> 19
Accordingly, all members of senior management, including the CEO and
Named Officers, are subject to guidelines which call for ownership of
Arvin shares equal to 1.5 to 3.0 times base salary. These individuals
are expected to meet these guidelines progressively over the five year
period ending in 2000. Performance shares are awarded to the CEO and
COO to provide an incentive to enhance Arvin's earnings growth. In
1997, performance share awards could be earned upon attainment of
performance goals, which were based upon the percentages by which
Arvin's 1997 earnings from continuing operations exceeded Arvin's 1996
earnings from continuing operations. If earned, performance shares
are paid in a combination of Arvin Common Shares and cash. Fifty
percent of the Arvin Common Shares earned must be held for a period of
three years. In 1997, the maximum number of performance shares that
the CEO could earn was 18,200, 14,000 of which were payable in Arvin
Common Shares and 4,200 of which were payable in cash.
Mr. Pond's employment agreement (see "Executive Compensation-
Employment Agreement") did not impact the determination of his
compensation for 1997 except insofar as it addresses minimum annual
base salary. Mr. Pond's cash incentive bonus was determined in
accordance with the 1997 cash bonus incentive plan. In 1997, the
objectives relating to earnings per share, return on net producing
assets and debt-to-capital ratio were fully achieved. As a result,
the cash bonus paid to Mr. Pond, as CEO for 1997, was $760,218. Mr.
Pond was granted performance shares which could be earned based upon
attainment of 1997 earnings performance goals. The earnings goals
were fully achieved in 1997, resulting in Mr. Pond earning the maximum
number of performance shares. The stock options granted to Mr. Pond
during 1997 are consistent with the design and philosophy of the
overall program and are shown above in the Summary Compensation Table.
The Committee believes this compensation philosophy and practice
encourages outstanding individuals to achieve levels of performance
that otherwise would not have been reached and to maintain their
employment and personal commitment to Arvin. Arvin shareholders and
customers are also beneficiaries.
Section 162(m) of the Internal Revenue Code provides that
compensation in excess of $1.0 million paid to the chief executive
officer and the four most highly compensated executive officers of a
public company will generally be non-deductible for federal income tax
purposes, subject to certain exceptions. This limitation had
application to the Company for the first time in 1997. As set forth
in more detail under the heading "Proposal 2 - Approval of the Arvin
1998 Stock Benefit Plan," the Committee intends to structure
compensation arrangements in a manner that will avoid the deduction
limitations imposed by Section 162(m) in appropriate circumstances.
However, the Committee believes that it is important and necessary
that the Committee retain the right and flexibility to provide and
revise compensation arrangements, such as base salary and cash bonus
incentive opportunities, that may not qualify under Section 162(m) if,
in the Committee's view, such arrangements are in the best interests
of the Company and its shareholders.
<PAGE> 20
This report is submitted on behalf of the Committee:
Steven C. Beering, Chairman
Joseph P. Flannery
William D. George, Jr.
COMMON SHARE PRICE PERFORMANCE GRAPH
The graph below compares cumulative total return of the Arvin
Common Shares with the S&P 500 Index and the Dow Jones Auto Parts and
Equipment Index during the years 1993 through 1997, assuming the
investment of $100 on December 31, 1992 and the reinvestment of
dividends.
<TABLE>
<CAPTION>
Cumulative Total Return
12/92 12/93 12/94 12/95 12/96 12/97
----- ----- ----- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Arvin Industries, Inc. 100 107 80 59 91 126
S & P 500 100 110 112 153 189 252
Dow Jones Auto Parts
& Equipment 100 124 106 131 148 190
</TABLE>
CERTAIN BENEFICIAL OWNERS
Arvin does not know of any person or group who is the beneficial
owner of more than 5% of the Common Shares.
As of January 1, 1998, Mr. Viars beneficially owned 73,608 Arvin
Common Shares, which includes 65,200 Common Shares subject to options
which may be exercised within 60 days after January 1, 1998, 1,621
Common Shares in the Arvin Savings Plan and 687 Common Shares in the
Arvin Deferred Compensation Plan.
Also, as of January 1, 1998, Mr. Hoyte beneficially owned 11,814
Common Shares, which includes 3,470 Common Shares subject to options
which may be exercised within 60 days thereafter, 169 Common Shares in
the Arvin Savings Plan and 509 Common Shares in the Arvin Deferred
Compensation Plan.
Further, as of January 1, 1998, all directors and executive
officers as a group (19 persons) beneficially owned 997,531 Arvin
Common Shares, or 4.06% of the outstanding Common Shares (excluding
Common Shares referred to in the following paragraph). In addition,
on that date, the number of Arvin Common Shares held in the Arvin
pension plans, the Arvin savings plans, the Arvin Equity Account, the
Arvin Deferred Compensation Plan and the Arvin Employee Stock Benefit
<PAGE> 21
Trust were, respectively, 974,664; 870,972; 416,754; 5,199 and
1,098,954.
Additionally, pursuant to a Shareholders' Agreement, Mr. Hunt has
the right to direct the manner in which the Arvin Common Shares owned
by certain other shareholders (currently 634,436 shares, 2.58% of the
outstanding Common Shares) are voted at any or all annual or special
meetings of Arvin. The agreement also provides that such shares shall
not be tendered in response to any offer that would result in the
offeror owning more than 5% of the Common Shares of Arvin unless the
Board of Directors of Arvin recommends that shareholders accept the
offer.
COMPLIANCE WITH FORMS 3, 4 AND 5 REPORTING REQUIREMENTS
Based solely upon its review of reports on Forms 3, 4 or 5 and
any amendments thereto furnished to Arvin pursuant to Section 16 of
the Securities Exchange Act of 1934, as amended, and written
representations from the executive officers and directors that no
other reports were required, Arvin believes that all of such Forms
were filed on a timely basis by reporting persons during 1997.
PROPOSAL 2 - APPROVAL OF THE ARVIN 1998
STOCK BENEFIT PLAN
At its February 1998 meeting, the Board of Directors adopted,
subject to shareholder approval, the Arvin Industries, Inc. 1998 Stock
Benefit Plan (the "Plan"). If adopted by the shareholders, this Plan
will replace, for directors and officers of Arvin, the Arvin 1988
Stock Benefit Plan (the "1988 Plan") which terminates this year in
accordance with its terms. The Board of Directors adopted a similar
plan for employees of Arvin who are not officers which is not required
to be adopted by the shareholders.
The Plan is intended to recognize the contributions made to Arvin
by officers of Arvin, to provide such persons with additional
incentive to devote themselves to the future success of Arvin, and to
improve the ability of Arvin to attract, retain and motivate
individuals upon whom Arvin's future growth and financial success
depend, by providing them with share-related awards. Similarly, the
Plan is intended as an additional incentive to directors who are not
employees of Arvin to serve on the Board of Directors and to devote
themselves to the future success of Arvin. In addition, the Board of
Directors has adopted minimum Common Share ownership guidelines
applicable to each of the directors and officers eligible to
participate in the Plan. Share awards under the Plan are a mechanism
which will assist the participants in satisfying the Common Share
ownership guidelines. Accordingly, the Board recommends the Plan. A
brief summary of the Plan follows.
NUMBER OF COMMON SHARES. The number of Common Shares for which
Options may be granted under the Plan shall initially be 1,200,000
(4.9% of the shares of Common Stock outstanding on February 23, 1998).
The number of shares of Common Stock is subject to adjustment upon the
<PAGE> 22
occurrence of a stock dividend, stock split, recapitalization or
certain other capital adjustments. The maximum number of Common
Shares with respect to which Options may be granted to any one person
under the Plan during any calendar year may not exceed 200,000 shares.
The maximum number of Common Shares with respect to which Restricted
Share Awards, Performance Shares and Performance Units may be granted
to any one person under the Plan during any calendar year may not
exceed 25,000 shares. On March 2, 1998, the last reported sales price
for the Common Shares on the New York Stock Exchange was $39.5625 per
share.
ADMINISTRATION. The Human Resources Committee (the "Committee")
will administer the Plan.
ELIGIBILITY. All directors and officers of Arvin are eligible to
receive Awards under the Plan. However, those directors of Arvin who
are not employees of Arvin (the "Nonemployee Directors") may receive
Options only pursuant to special provisions of the Plan relating to
such directors, as described below. On February 23, 1998, 21 officers
and 9 Nonemployee Directors were eligible to participate in the Plan.
AWARDS UNDER THE PLAN. Awards to be granted to participants in
the Plan are not determinable at this time since they are
discretionary (other than the automatic grants to Nonemployee
Directors). Reference is made to the table entitled "Option Grants in
Last Fiscal Year," which sets forth the options granted under the 1988
Plan to the Named Officers and to all officers as a group. Reference
is made to the "Report of the Human Resources Committee on Executive
Compensation" which discusses the performance shares awarded to the
CEO and COO in 1997.
Awards under the Plan may take the following forms:
STOCK OPTIONS - Options to purchase Common Shares under the Plan
may be either Incentive Stock Options ("ISOs"), within the meaning of
Section 422(b) of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code") or Nonstatutory Stock Options ("NSOs"). At
the time of grant, the Committee determines which form of option is
being granted and the terms relating to its exercise. No option under
the Plan may be exercisable more than ten years after the date of
grant. Any option granted under the Plan must have an exercise price
of at least 100% of the fair market value of a Common Share on the
date of grant. Under the Plan, an optionee may pay the purchase price
of Common Shares upon exercise of an option in cash, by delivering
already owned Common Shares, by delivering his or her promissory note,
by agreeing to surrender Options then exercisable by him or by
directing Arvin to withhold Common Shares otherwise issuable upon
exercise of such Option. The specific form of payment is either
established by the agreement governing the option or, if not so
established, by the Committee in its discretion.
Any option granted under the Plan will become fully exercisable
upon a change of control of Arvin (as defined in the Plan) or on the
date the rights issued pursuant to Arvin's shareholder rights plan
become exercisable for Series C Preferred Shares (the "Distribution
<PAGE> 23
Date"). If an option is exercised within ten days after the
Distribution Date, its exercise will be effective as of the day before
the Distribution Date, unless the optionee specifies a later effective
date.
ISOs are options that meet requirements imposed by the Internal
Revenue Code. Under the Internal Revenue Code, the aggregate fair
market value (determined at the time of grant) of the Common Shares
with respect to which ISOs are exercisable for the first time by an
optionee during any calendar year (under all plans of Arvin and its
subsidiaries) may not exceed $100,000.
STOCK APPRECIATION RIGHTS - Stock Appreciation Rights ("SARs")
give recipients the opportunity to share in the appreciation of Common
Shares. SARs may be granted "in tandem" with an option (in which case
the exercise of all or part of the SAR will cause the expiration of a
corresponding portion of the option and vice versa) or not in tandem
with an option. Tandem SARs give recipients the opportunity to share
in all or a portion (as specified by the Committee at the time of
grant) of the increase in the value of Common Shares between the date
of grant and the date of exercise. Non-tandem SARs give the
recipients the opportunity to share in all, some portion or some
multiple of such appreciation. Upon exercise of an SAR, the recipient
receives Common Shares with a fair market value equal to the amount of
appreciation in the value of the Common Shares covered by the SAR.
Arvin may elect to deliver cash in lieu of some or all of these Common
Shares. An SAR may be designated as a "limited right," which means
that following a change in control of Arvin (as defined in the Plan)
or in connection with Arvin's dissolution or liquidation, the SAR will
be settled only in cash. Whether or not an SAR is designated as a
limited right, it will become exercisable upon a change of control or
on the Distribution Date and, if exercised within ten days after the
Distribution Date, will be subject to the retroactive exercise
provisions described above in connection with stock options.
RESTRICTED SHARES - Common Shares may be granted to participants
or sold to participants for any amount determined by the Committee
(which may be less than fair market value but may not be less than par
value). Such shares must be forfeited by the recipient (in the case
of shares that have been granted) or subject to Arvin's option to
require the recipient to resell the shares to Arvin at his or her cost
(in the case of shares that have been sold) if his or her employment
with Arvin and its subsidiaries terminates prior to a date specified
by the Committee at the time of grant or sale, which must be at least
one year after grant or sale. These restrictions do not apply if
employment terminates after attainment of retirement age under the
retirement plan in which the participant participates, because of
disability or death or following a change of control of Arvin except
where the termination is for cause. Restricted Common Shares are not
transferable by the recipient while the foregoing restrictions are in
force, although the recipient is entitled to exchange the Common
Shares in connection with corporate transactions affecting Arvin as
long as the consideration received in the transactions is subject to
restrictions identical to those covering the surrendered Common
Shares. Any Series C Preferred Shares issued pursuant to rights
<PAGE> 24
relating to Restricted Shares will be subject to the same restrictions
as the related Restricted Shares.
PERFORMANCE SHARES - Each Performance Share corresponds to one
Common Share. If performance targets established by the Committee are
met, Performance Shares are credited to an account maintained for the
recipient. That account also is credited with amounts equal to the
dividends payable on the number of Common Shares corresponding to the
number of Performance Shares in the account. The account becomes
distributable on a date determined by the Committee. If the
recipient's employment terminates prior to that date, his or her
account must be forfeited unless employment terminates because of one
of the reasons specified above under "Restricted Shares."
Distributions are made either in stock, cash or a combination of stock
and cash as elected by the Committee, provided that if, following a
change of control of Arvin, a recipient's employment terminates for
any reason other than retirement, death, disability or for cause,
distribution to such recipient will be made in cash.
PERFORMANCE UNITS - Performance Units are subject to the same
rules as Performance Shares, except that each Performance Unit
represents the Fair Market Value of a Common Share (instead of a
Common Share). After a Performance Unit has been credited to an
account, it may be credited with earnings at a rate specified by the
Committee.
RESTRICTION ON TRANSFERABILITY. No award granted under the Plan
may be transferred, except by will or the laws of descent and
distribution.
PROVISIONS RELATING TO NONEMPLOYEE DIRECTORS. Each Nonemployee
Director shall be granted automatically an Option to purchase 1,000
Common Shares on the day following each annual meeting of the Board
held on or after each Annual Meeting of Shareholders at the fair
market value of a Common Share on the date of grant. Accordingly, if
the Plan is adopted by the shareholders, each Nonemployee Director
shall be granted automatically an Option on April 17, 1998.
MISCELLANEOUS - Awards may be made under the Plan until April 16,
2008. Awards outstanding at that date will continue in effect in
accordance with the terms of the Plan. The Board of Directors may
terminate, suspend or modify the Plan, without the authorization of
the shareholders, to the extent allowed by law. No termination,
suspension or modification of the Plan may adversely affect any rights
of a holder of an award granted under the Plan before the date of
such termination, suspension or modification.
TAX ASPECTS OF OPTIONS GRANTED UNDER THE PLAN - The following
discussion is intended to summarize briefly the general principles of
Federal income tax law applicable to each option granted under the
Plan.
A recipient of an ISO will not recognize taxable income upon
either the grant or exercise of the ISO. The option holder will
recognize long-term capital gain or loss on a disposition of the
<PAGE> 25
Common Shares acquired upon exercise of an ISO, provided the option
holder does not dispose of those Common Shares within two years from
the date the ISO was granted or within one year after the Common
Shares were transferred to such option holder (a "disqualifying
disposition"). Currently, for regular Federal income tax purposes,
long-term capital gain is taxed at a maximum rate of 20% for
individuals if the individual's holding period is more than 18 months,
and a maximum rate of 28% if the holding period is more than one year,
but not more than 18 months, while ordinary income may be subject to a
maximum rate of 39.6%. If the option holder satisfies both of the
foregoing holding periods, then Arvin will not be allowed a deduction
by reason of the grant or exercise of an ISO.
As a general rule, if the option holder disposes of the Common
Shares in a disqualifying disposition, the gain recognized will be
taxed as ordinary income to the extent of the difference between
(a) the lesser of the fair market value of the Common Shares on the
date of exercise or the amount received for the Common Shares in the
disqualifying disposition, and (b) the adjusted basis of the Common
Shares, and Arvin will be entitled to a deduction in that amount. The
gain (if any) in excess of the amount recognized as ordinary income on
a disqualifying disposition will be long-term or short-term capital
gain, depending on the length of time the option holder held the
Common Shares prior to the disposition.
The amount by which the fair market value of a Common Share at
the time of exercise exceeds the exercise price will be included in
the computation of such option holder's "alternative minimum taxable
income" in the year the option holder exercises the ISO. Currently,
the maximum alternative minimum tax rate is 28%. If an option holder
pays alternative minimum tax with respect to the exercise of an ISO,
the amount of such tax paid will be allowed as a credit against
regular tax liability in subsequent years. The option holder's basis
in the Common Shares for purposes of the alternative minimum tax will
be adjusted when income is included in alternative minimum taxable
income.
A recipient of a nonqualified stock option will not recognize
taxable income at the time of grant, and Arvin will not be allowed a
deduction by a reason of the grant. Such an option holder will
recognize ordinary income in the taxable year in which the option
holder exercises the nonqualified stock option, in an amount equal to
the excess of the fair market value of the Common Shares received upon
exercise at the time of exercise of such an option over the exercise
price of the option, and Arvin may be allowed a deduction in that
amount, subject to the limitations on deductibility of compensation in
excess of one million dollars under Section 162(m) of the Internal
Revenue Code. The Board of Directors believes that it is in the best
interests of Arvin to ensure, and the Plan is intended to obtain, to
the extent possible, the full deductibility of compensation
attributable to Options granted under the Plan. Upon disposition of
the Common Shares subject to the option, an option holder will
recognize long-term or short-term capital gain or loss, depending upon
the length of time the Common Shares were held prior to disposition,
equal to the difference between the amount realized on disposition and
<PAGE> 26
the option holder's adjusted basis of the Common Shares subject to the
option (which adjusted basis ordinarily is the fair market value of
the Common Shares subject to the option on the date the option was
exercised.)
TAX ASPECTS OF PERFORMANCE SHARES GRANTED UNDER THE PLAN - At the
date of granting of performance shares, the recipient will not be
deemed to receive income, and Arvin will not be entitled to a
deduction. Upon exercise, the holder of a performance share will
realize ordinary income equal to the amount of cash or the market
value of the shares received on exercise. Arvin may be entitled to a
deduction with respect to the ordinary income realized by the
exercising holder, subject to the limitations of Section 162(m) of the
Internal Revenue Code. The Board of Directors recognizes that
compensation attributable to performance shares granted under the Plan
may not be deductible, and the Plan is not intended to ensure the full
deductibility of such compensation.
THE BOARD OF DIRECTORS BELIEVES THAT THE ARVIN INDUSTRIES, INC.
1998 STOCK BENEFIT PLAN IS IN THE BEST INTERESTS OF ARVIN AND ITS
SHAREHOLDERS AND RECOMMENDS THAT SHAREHOLDERS VOTE FOR ADOPTION OF THE
PLAN.
PROPOSAL 3 - RATIFICATION OF APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTANTS
Based upon the recommendation of the Audit Committee, at its
February 1998 meeting, the Board of Directors approved the engagement
of the accounting firm of Price Waterhouse as Arvin's independent
certified public accountants for the fiscal year beginning December
29, 1997.
Representatives from Price Waterhouse will be present at the
Annual Meeting and will be afforded the opportunity to make a
statement if they so desire and to respond to appropriate shareholder
questions.
Although not required to do so, the Board of Directors is
submitting its appointment of auditors for shareholder ratification.
In the event the appointment of Price Waterhouse is not ratified by
the shareholders, it will be reconsidered by the Board of Directors.
The Board recommends that its appointment of Price Waterhouse be
ratified by the shareholders.
SHAREHOLDER NOMINATIONS AND PROPOSALS
Pursuant to the rules under the Securities Exchange Act of 1934,
as amended, proposals of shareholders intended to be presented at the
1999 Annual Meeting must be received at Arvin's executive offices no
later than November 14, 1998 to be considered for inclusion in next
year's proxy materials.
Further, Arvin's By-Laws set forth certain additional procedures
regarding shareholder nominations of persons for election to the Board
of Directors and shareholder proposals of business to be considered at
<PAGE> 27
meetings of the shareholders. Pursuant to these provisions, written
notice of any shareholder nominations or proposals relating to the
1999 Annual Meeting of Shareholders must be received by the Secretary
of Arvin at its executive offices in Columbus, Indiana no earlier than
January 18, 1999 and no later than February 15, 1999.
BUSINESS TO BE TRANSACTED
At the date of this proxy statement, the Board of Directors does
not know of any business to be brought before the Annual Meeting other
than the matters described herein. In the event that any other
matters properly shall come before the meeting, it is the intention of
the persons named in the accompanying proxy to vote in accordance with
their judgment on such matters.
By the order of the Board of Directors.
Ronald R. Snyder
Secretary of
ARVIN INDUSTRIES, INC.
Columbus, Indiana
March 13, 1998
<PAGE> 28
FORM OF PROXY CARD FOR HOLDERS OF COMMON SHARES OF ARVIN
<PAGE> 29
APPENDIX I
COMMON STOCK PROXY
ARVIN INDUSTRIES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING TO BE HELD APRIL 16, 1998
The undersigned hereby appoints Byron O. Pond and Ronald R. Snyder, or
either of them, the true and lawful proxies of the undersigned, with
full power of substitution, for and on behalf of the undersigned to
vote the shares of ARVIN INDUSTRIES, INC. registered in the name of
the undersigned, or with respect to which the undersigned may be
entitled to vote, at the Annual Meeting of Shareholders to be held at
Holiday Inn Conference Center, 2480 Jonathan Moore Pike (Highway 46
West), Columbus, Indiana, on April 16, 1998, at 10:30 A.M., and at any
adjournment thereof, upon the matters set forth on the reverse side
hereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1, 2 & 3.
PLEASE MARK, SIGN, DATE AND MAIL THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
(Continued and TO BE SIGNED on reverse side.)
<PAGE> 30
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY
THIS PROXY, AS PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS GIVEN
THIS PROXY WILL BE VOTED "FOR" PROPOSALS 1, 2 & 3.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1. ELECTION OF DIRECTORS FOR For Withhold For All
TERMS OF 3 YEARS -- All All Except Nominee(s) Written
NOMINEES: Joseph P. Below,
Allen, Steven C. Beering, /__/ /__/
Joseph P. Flannery & V. /__/ ________________________________
William Hunt.
2. Adoption of 1998 Stock For Against Abstain 3. Ratification of appoint- For Against Abstain
Benefit Plan. ment of Price Waterhouse
/__/ /__/ /__/ as Independent auditors. /__/ /__/ /__/
4. In their discretion on
such other business as
may properly come before
the meeting.
Dated:_______________________________, 1998
Signature(s) ______________________________
___________________________________________
The shareholder's signature above should
correspond with the name of the shareholder
as it appears here. A proxy executed by a
corporation should be signed in its name by
a duly authorized officer. If the proxy is
to be signed by an attorney, executor,
administrator, trustee, guardian or in any
other representative capacity, the title of
the person signing should be given in full.
When shares are held by joint tenants, both
should sign.
-----------------------------------------------------------------------------------------------------------------------
/\ FOLD AND DETACH HERE /\
YOUR VOTE IS IMPORTANT!
PLEASE MARK, SIGN, DATE AND MAIL THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
</TABLE>
<PAGE> 31
APPENDIX II
ARVIN INDUSTRIES, INC.
1998 STOCK BENEFIT PLAN
1. PURPOSE OF THE PLAN
This Plan is intended to benefit the Corporation and its
subsidiaries by providing compensation arrangements that may be used
to attract, retain and reward Officers and Nonemployee Directors of
training, experience and ability, to attract new Officers and
Nonemployee Directors whose services are considered valuable, and to
provide such persons with a proprietary interest in and a greater
concern for the welfare of the Corporation and its subsidiaries.
2. DEFINITIONS
Whenever used herein, the following words and phrases shall (for
purposes of this Plan and this Plan only) have the meanings stated
unless a different meaning is plainly required by the context:
(a) "Award" means a grant, pursuant to the Plan, of Options,
SARs, Performance Shares, Performance Units, Restricted
Shares, or any combination thereof.
(b) "Board" means the board of directors of the Corporation.
(c) "Cause" means (A) the willful and continued failure by a
Participant to substantially perform his duties with the
Corporation or its subsidiaries (other than any such failure
resulting from his Disability) after a written demand for
substantial performance is delivered to him by the
Corporation that specifically identifies the manner in which
the Participant has not substantially performed his duties,
or (B) the willful engaging by the Participant in gross
misconduct materially and demonstrably injurious to the
Corporation or its subsidiaries. No act, or failure to act,
on the Participant's part shall be considered "willful"
unless done, or omitted to be done, by him not in good faith
and without reasonable belief that his action or omission
was in the best interest of the Corporation and its
subsidiaries.
(d) "Change of Control," for purposes of the Plan, means:
(i) the acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (A) the then
outstanding Common Shares of the Corporation (the
"Outstanding Corporation Common Shares") or (B) the
combined voting power of the then outstanding voting
securities of the Corporation entitled to vote
<PAGE> 32
generally in the election of directors (the
"Outstanding Corporation Voting Securities"); provided,
however, that for purposes of this subsection (i), the
following acquisitions shall not constitute a Change of
Control: (w) any acquisition directly from the
Corporation, (x) any acquisition by the Corporation,
(y) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the
Corporation or any corporation controlled by the
Corporation or (z) any acquisition by any corporation
pursuant to a transaction which complies with clauses
(A), (B) and (C) of subsection (iii) of this definition
of Change of Control; or
(ii) individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided,
however, that any individual becoming a director
subsequent to the date hereof whose election, or
nomination for election by the Corporation's
shareholders, was approved by a vote of at least a
majority of the directors comprising the Incumbent
Board as of the date hereof shall be considered as
though such individual were a member of the Incumbent
Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as
a result of an actual or threatened election contest
with respect to the election or removal of directors or
other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the
Board; or
(iii) consummation of a reorganization, merger or
consolidation or sale or other disposition of all or
substantially all of the assets of the Corporation (a
"Business Combination"), in each case, unless,
following such Business Combination, (A) all or
substantially all of the individuals and entities who
were the beneficial owners, respectively, of the
Outstanding Corporation Common Shares and Outstanding
Corporation Voting Securities immediately prior to such
Business Combination beneficially own, directly or
indirectly, more than 50% of, respectively, the then
outstanding Common Shares and the combined voting power
of the then outstanding voting securities entitled to
vote generally in the election of directors, as the
case may be, of the corporation resulting from such
Business Combination (including, without limitation, a
corporation which as a result of such transaction owns
the Corporation or all or substantially all of the
Corporation's assets either directly or through one or
more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to
such Business Combination of the Outstanding
Corporation Common Shares and Outstanding Corporation
<PAGE> 33
Voting Securities, as the case may be, (B) no person
(excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related
trust) of the Corporation or such corporation resulting
from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively,
the then outstanding Common Shares of the corporation
resulting from such Business Combination or the
combined voting power of the then outstanding voting
securities of such corporation except to the extent
that such ownership existed prior to the Business
Combination and (C) at least a majority of the members
of the board of directors of the corporation resulting
from such Business Combination were members of the
Incumbent Board at the time of the execution of the
initial agreement, or of the action of the Board,
providing for such Business Combination; or
(iv) approval by the shareholders of the Corporation of a
complete liquidation or dissolution of the Corporation.
(e) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(f) "Committee" means the Human Resources Committee of the Board
or any other committee designated by the Board.
(g) "Common Shares" means the Corporation's common shares, par
value $2.50 per share, together with one Right for each
Common Share to purchase one one-hundredth of a share of the
Corporation's Series C Junior Participating Preferred
Shares, without par value, issuable prior to the
Distribution Date pursuant to the Rights Agreement.
(h) "Corporation" means Arvin Industries, Inc., an Indiana
corporation.
(i) "Disability" means a physical or mental condition that
renders a Participant unable to perform his usual duties or
any comparable duties for the Corporation or its
subsidiaries if, in the opinion of a physician selected by
the Corporation, such condition will continue indefinitely
or for a substantial period of time.
(j) "Distribution Date," for purposes of the Plan, shall have
the meaning given in the Rights Agreement.
(k) "Fair Market Value" means (i) if the Common Shares are
listed on the New York Stock Exchange, the closing price of
the Common Shares on the consolidated tape of the New York
Stock Exchange on the relevant date or the most recent date
on which Common Shares traded on such Exchange; and (ii) if
the Common Shares are not listed on such Exchange, such
value as the Committee, in good faith, shall determine.
Notwithstanding any provision of the Plan to the contrary,
<PAGE> 34
no determination made with respect to the Fair Market Value
of Common Shares subject to an ISO shall be inconsistent
with Section 422A of the Code or regulations thereunder.
(l) "ISO" means an incentive stock option, within the meaning of
Section 422A of the Code, granted under the Plan pursuant to
Sections 5 and 6.
(m) "Limited Right" means a limited stock appreciation right
granted under the Plan pursuant to Section 7.
(n) "Nonemployee Directors" means any member of the Board who is
not employed by the Corporation or any one of its
subsidiaries.
(o) "Non-tandem SAR" means an SAR not granted in connection with
an Option.
(p) "Officer" means any officer of the Corporation elected by
the Board who is employed on a full-time salaried basis.
(q) "Option" means an option, including an ISO, granted under
the Plan pursuant to Section 5.
(r) "Option Agreement" means a written agreement specifying the
type of Option granted, the price at which the Option shall
be exercisable, the duration of the Option, the number of
Common Shares to which the Option pertains and such other
provisions as the Committee shall determine.
(s) "Participant" means any Officer who has been selected by the
Committee to receive an Award.
(t) "Performance Share" means a performance share granted under
the Plan pursuant to Section 9.
(u) "Performance Unit" means a performance unit granted under
the Plan pursuant to Section 9.
(v) "Plan" means the Arvin Industries, Inc. 1998 Stock Benefit
Plan.
(w) "Restricted Share" means a restricted share granted under
the Plan pursuant to Section 8.
(x) "Restricted Share Agreement" means a written agreement
governing the issuance of a Restricted Share or Shares.
(y) "Retirement Age" means the age at which employment is
terminated or benefits are paid as a result of the
attainment of the normal or early retirement age as defined
in the retirement plan sponsored by the Corporation or one
of its subsidiaries in which the Participant is actively
participating.
<PAGE> 35
(z) "Rights Agreement" means the Rights Agreement dated as of
May 29, 1986, between the Corporation and Harris Trust and
Savings Bank, as amended by Amendments No. 1, 2 and 3
thereto, dated February 23, 1989, November 10, 1994 and
May 10, 1996, respectively, as such agreement may be further
amended from time to time.
(aa) "SAR" means a stock appreciation right granted under the
Plan pursuant to Section 7.
(bb) "SAR Agreement" means a written agreement evidencing the
terms and conditions applicable to an SAR.
(cc) "Tandem SAR" means an SAR granted in connection with an
Option.
3. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Committee, which shall
consist of two or more directors who shall be appointed by the Board,
all of whom shall not be (or formerly have been) employees of the
Corporation. The Committee shall, within the limits and pursuant to
the terms of the Plan, determine the individuals to whom Awards are to
be granted under the Plan, the number of shares to be subject to each
Award, the exercise price with respect to each Option, the base price
with respect to each SAR, the restrictions to be imposed on Restricted
Shares, the performance goals which must be met in order to earn each
Performance Share and each Performance Unit, and all other terms and
conditions of such Awards and the shares to be issued pursuant to the
Plan. The Committee is also authorized to interpret any provision of
the Plan, to adopt, amend and rescind rules, regulations, terms and
agreements relating to the Plan, Awards granted thereunder and the
shares to be issued pursuant thereto, and to make all other
determinations and take all other action that it deems necessary to
advisable for the administration of the Plan. The Committee is also
authorized to provide and accept any notices provided for hereunder.
Action with respect to the Plan may be taken by a majority of the
members of the Committee then in office either at a meeting called by
any member of the Committee or by unanimous written consent.
4. SHARES SUBJECT TO THE PLAN
(a) COMMON SHARES AVAILABLE FOR DELIVERY. Subject to the
Section 11 and the following provisions of this Section 4, the maximum
number of Common Shares that may be subject to Awards (excluding
Awards which are Tandem SARs) shall be equal to the sum of
(i) 1,200,000 Common Shares; (ii) any Common Shares available for
future awards under the 1988 Stock Benefit Plan (the "1988 Plan") as
of the Effective Date (as determined pursuant to Section 19); and
(iii) any Common Shares that are represented by awards granted under
the 1998 Plan which are forfeited, expire or are cancelled without
delivery of Common Shares or which result in the forfeiture of Common
Shares back to the Corporation.
<PAGE> 36
In the event that, prior to the expiration date of the Plan, any
Option granted under the Plan expires unexercised or is terminated,
surrendered or cancelled (other than in connection with the exercise
of an SAR) without being exercised, in whole or in part, for any
reason, any Non-tandem SAR granted under the Plan expires unexercised
or is terminated, surrendered or cancelled without being exercised, in
whole or in part, for any reason, any Restricted Shares granted under
the Plan are forfeited or reacquired by the Corporation in connection
with the restrictions imposed upon such Common Shares pursuant to the
Plan, or any Performance Share or Performance Unit distributable as
Common Shares is unearned, terminated, surrendered, cancelled or
forfeited, then the number of Common Shares theretofore subject to
such Option, SAR, Performance Share, or Performance Unit or
constituting such Restricted Shares, or the unexercised, terminated,
surrendered, forfeited, cancelled or reacquired portion thereof, shall
be added to the remaining number of Common Shares that may be made
subject to Awards under the Plan. If either the purchase price of
Common Shares upon exercise of any Option or the tax withholding
requirement is satisfied by tendering or withholding Common Shares or
by tendering exercisable Options, only the number of Common Shares
issued net of the Common Shares tendered or withheld shall be deemed
delivered for purposes of determining the number of Common Shares
available for Awards under the Plan.
(b) OTHER PLAN LIMITS. Subject to Section 11, the following
additional maximums are imposed under the Plan:
(i) The maximum number of Common Shares that may be issued
as ISOs shall be 1,200,000 Common Shares.
(ii) The maximum number of Common Shares that may be covered
by Awards granted to any one Participant pursuant to
Section 5 (Options) shall be 200,000 Common Shares
during any calendar year.
(iii) The maximum number of Common Shares that may be
covered by Awards granted to any one Participant
pursuant to Section 8 (Restricted Share Awards)
and Section 9 (Performance Shares and Performance
Units) shall be 25,000 Common Shares during any
calendar year.
5. OPTIONS
(a) Options may be granted to Participants at any time and from
time to time as shall be determined by the Committee. The
Committee shall have complete discretion in determining the
number of Common Shares subject to Options granted to each
Participant. The Committee may grant any type of Option to
purchase Common Shares that is permitted by law at the time
of the grant, including ISOs. Unless otherwise expressly
provided at the time of grant, Options granted under the
Plan will be nonqualified stock options.
<PAGE> 37
(b) Each Nonemployee Director shall be granted automatically an
Option (that is not an ISO) to purchase 1,000 Common Shares,
on the day following each annual meeting of the Board held
on or after each Annual Meeting of Shareholders. The per
share exercise price of each option to be paid by each
Nonemployee Director shall be 100% of the Fair Market Value
of the Common Shares on the date an Option is granted.
(c) Each Option shall be evidenced by an Option Agreement.
(d) Except as provided in Sections 6 and 11 below, the number of
Common Shares subject to Options to be granted to each
Participant and the price per share to be paid by each
Participant upon exercise shall be determined by the
Committee at the time the Options are granted, provided that
such exercise price shall not be less than 100% of the Fair
Market Value of the Common Shares on the date an Option is
granted or the par value of the Common Shares, whichever is
greater.
(e) Except as provided in Section 6 and subject to earlier
termination as provided in subsections (f) and (g) hereof,
an Option granted under the Plan shall expire on the date
determined by the Committee at the time the Option is
granted, provided that such date shall not be more than ten
years from the date the Option is granted. The Committee
shall specify in the Option Agreement, at the time each
Option is granted, the time or times at which, and in what
proportions, the Option may be exercised prior to its
expiration or earlier termination. The Committee, in its
discretion, shall have the power to accelerate the
exercisability of any or all Options, or any part thereof,
granted under the Plan.
(f) Except as otherwise provided in this subsection (f), no
Option may be exercised by a Participant at any time unless
the Participant is then a salaried full-time employee of the
Corporation or one of its subsidiaries. The Options of any
Participant whose full-time salaried employment with the
Corporation and its subsidiaries is terminated by the
Corporation without Cause (except in connection with a
Disability) shall expire on the earlier of (i) three months
after such termination, or (ii) the date that such Options
expire in accordance with their terms. During such period,
the Options may be exercised by such Participant with
respect to the same number of shares and in the same manner
and to the same extent as if the Participant had continued
as a full-time salaried employee of the Corporation or one
of its subsidiaries during such period. In the event that a
Participant voluntarily terminates employment with the
Corporation and its subsidiaries (except in connection with
a Disability or after attainment of Retirement Age) or is
discharged by the Corporation or one of its subsidiaries for
Cause, any Option or Options held by the Participant under
the Plan and not previously exercised shall expire
<PAGE> 38
immediately upon such termination or discharge and may not
be exercised thereafter. The Options of any Participant
whose full-time salaried employment with the Corporation and
its subsidiaries is terminated in connection with attainment
of Retirement Age shall expire upon the earlier of five
years after such termination or the date such Options expire
in accordance with their terms. During such period, the
Options may be exercised by the Participant with respect to
the same number of shares and in the same manner and to the
same extent as if the Participant had continued as a full-
time salaried employee of the Corporation or one of its
subsidiaries during such period. The Options of any
Participant whose full-time salaried employment with the
Corporation and its subsidiaries is terminated by Disability
or death shall expire upon the earlier of one year after
such Disability or death, or the date such Options expire in
accordance with their terms. During such period the Options
may be exercised by the Participant, or in the event of his
death by a legatee or legatees of the Options under the
Participant's will or by his executors, personal
representatives or distributees, with respect to the number
of shares that the Participant could have purchased on the
date of his Disability or death, as the case may be.
(g) Except as otherwise provided in this subsection (g), no
Option may be exercised by a Nonemployee Director at any
time unless the Nonemployee Director is then a member of the
Board. The Options held by any Nonemployee Director under
the Plan and not previously exercised whose membership on
the Board is terminated for any reason other than death
shall expire immediately upon such termination and may not
be exercised thereafter. The Options of any Nonemployee
Director whose membership on the Board is terminated by
death shall expire upon the earlier of one year after such
death or the date such Options expire in accordance with
their terms. In the event of death, the Options may be
exercised by a legatee or legatees of the Options under the
Nonemployee Director's will or by his executors, personal
representatives or distributees.
(h) Options granted under the Plan shall be exercisable at such
times and be subject to such restrictions and conditions as
the Committee shall in each instance approve at the time the
Options are granted, which restrictions and conditions need
not be the same for all Participants; provided, however,
that ISOs shall comply with the applicable provisions of the
Code pertaining thereto. The Committee may specify a
minimum number of full shares that must be purchased by a
Participant or Nonemployee Director upon any exercise of an
Option granted to him under the Plan. Notwithstanding any
other restriction on exercisability approved by the
Committee, an Option granted under the Plan shall be fully
exercisable upon a Change of Control of the Corporation or
as of the Distribution Date.
<PAGE> 39
(i) The purchase price of Common Shares upon exercise of any
Option shall be paid in full either (i) in cash or (ii) in
Common Shares valued at their Fair Market Value on the day
before the date of exercise, (iii) by delivery of a
promissory note of the Participant, (iv) in cash by a
broker-dealer to whom the holder of the Option has submitted
an exercise notice consisting of a fully endorsed Option,
(v) by agreeing to surrender Options then exercisable by him
valued at the excess of the aggregate Fair Market Value of
the Common Shares subject to such Options on the date of
exercise over the aggregate option price of such Common
Shares, (vi) by directing the Corporation to withhold such
number of Common Shares otherwise issuable upon exercise of
such Option having an aggregate Fair Market Value on the
date of exercise equal to the exercise price of the Option,
or (vii) by any combination of (i), (ii), (iii), (iv), (v)
and (vi), if approved by the Committee in its discretion or
in the manner provided in the Option Agreement. Subject to
Section 15, the Corporation shall issue, in the name of the
Participant, certificates representing the total number of
Common Shares purchased pursuant to the exercise of any
Option in a timely manner after such exercise.
(j) At the time of grant of an Option, the Committee may impose
such restrictions on disposition of Common Shares acquired
upon the exercise of such Option as it deems appropriate,
which restrictions may, without limitation, include a right
in the Corporation to repurchase upon the occurrence of a
specified event or events, all or any of such shares at the
price not less than the exercise price paid by the
Participant or Nonemployee Director for those shares.
(k) Any Option granted under the Plan may be exercised by the
Participant or Nonemployee Director, by a legatee or
legatees of such Option under the Participant's or
Nonemployee Director's will, or by his executors, personal
representatives or distributees, by delivering to the
Corporation at its principal executive office (attention of
its Secretary) written notice of the number of Common Shares
with respect to which the Option is being exercised
accompanied either by payment or instructions regarding
payment in accordance with subsection (i) above. The date
of exercise shall be the date the notice is received by the
Corporation, unless a later date is specified in such
notice. Notwithstanding the foregoing, if an exercise
notice is received by the Corporation within ten days
following the Distribution Date, such exercise shall be
effective as of the day immediately preceding the
Distribution Date unless a later date is specified in the
notice.
(l) As of the effective date of a merger, consolidation or share
exchange involving the Corporation as a result of which
Common Shares are converted into the right to receive
another security and/or any other consideration, each Option
<PAGE> 40
shall automatically become an option to acquire the
securities and/or other consideration that a holder of the
number of Common Shares then subject to the Option would
have become entitled to receive as a result of such merger,
consolidation or share exchange. Such converted option
shall be governed by the terms and conditions applicable to
the Option.
(m) The Committee may prescribe such other terms and conditions
of the Options granted under the Plan that are neither
inconsistent with nor prohibited by the Plan.
6. SPECIAL RULES RELATING TO ISOS
Notwithstanding anything in Section 5 to the contrary, ISOs shall
be in such form and upon such terms and conditions as the Committee
shall from time to time determine, subject to the following to the
extent necessary to comply with Section 422A of the Code:
(a) An ISO must be granted within ten years from the date the
Plan is adopted or the date the Plan is approved by the
shareholders of the Corporation, whichever is earlier;
(b) The aggregate Fair Market Value (determined at the time the
ISOs are granted) of the Common Shares with respect to which
ISOs are exercisable for the first time by a Participant
during any calendar year (under all plans of the Corporation
and its subsidiaries) shall not exceed $100,000; and
(c) Notwithstanding any other provision herein contained, no
Participant may receive an ISO under the Plan if such
Participant, at the time the ISO is granted, owns shares
possessing more than ten percent of the total combined
voting power of all classes of shares of the Corporation or
of its parent or subsidiary corporation (within the
contemplation of Section 425(d) of the Code); provided,
however, that such Participant shall be eligible to receive
a grant of an ISO if, at the time such ISO is granted, the
exercise price is at least 110% of the Fair Market Value of
Common Shares, and such ISO is not exercisable after the
expiration of five years from the date such ISO is granted.
7. SHARE APPRECIATION RIGHTS
(a) SARs may be granted to Participants at any time and from
time to time as shall be determined by the Committee. The
Committee may specify that an SAR granted under the Plan
shall be a Tandem SAR or a Non-tandem SAR. An SAR granted
to a Participant at the same time and covering the same
number of Common Shares as an Option shall be a Tandem SAR
unless the Committee specifies to the contrary. At the time
of grant of a Non-tandem SAR, the Committee shall specify
the base price of Common Shares to be used in connection
with the calculation described in subsection (c) below and
the number of Common Shares subject to the SAR. The base
<PAGE> 41
price of a Non-tandem SAR shall not be less than 100% of the
Fair Market Value of one Common Share on the date of grant.
No Tandem SAR may be granted to a Participant in connection
with an ISO in a manner that will disqualify the ISO under
Section 422A of the Code unless the Participant consents
thereto.
(b) Each SAR shall be evidenced by an SAR Agreement.
(c) An SAR shall entitle the Participant to receive from the
Corporation the number of Common Shares having an aggregate
Fair Market Value equal to:
(i) In the case of a Tandem SAR, all, or if specified by
the Committee at the time of grant, some portion, of
the excess of the Fair Market Value of one Common Share
as of the date on which the SAR is exercised over the
Option price per share specified in such Option,
multiplied by the number of shares then subject to the
Option, or the portion thereof as to which the SAR is
being exercised; or
(ii) In the case of a Non-tandem SAR, all, or if specified
by the Committee at the time of grant, some portion or
multiple, of the excess of the Fair Market Value of one
Common Share as of the date on which the SAR is
exercised over the base price specified in such SAR,
multiplied by the number of Common Shares then subject
to the SAR, or the portion thereof as to which it is
being exercised.
Cash shall be delivered in lieu of any fractional shares.
The Corporation shall be entitled to elect to settle any
part or all of its obligation arising out of the exercise of
an SAR by the payment of cash in lieu of all or part of the
Common Shares it would otherwise be obligated to deliver in
an amount equal to the Fair Market Value of such shares.
(d) A Tandem SAR shall be exercisable at the time and to the
extent, but only at such time and to such extent, that the
Option to which it relates is exercisable. Upon the
exercise of a Tandem SAR, the unexercised Option or portion
thereof, to which the exercised portion of the Tandem SAR is
related shall expire. The exercise of any Option shall
cause the expiration of the Tandem SAR related to such
Options, or portion thereof, that is exercised.
(e) (i) Non-tandem SARs granted under the Plan shall be
exercisable at such times and be subject to such
restrictions and conditions as the Committee shall in
each instance approve at the time the Non-tandem SARs
are granted, which restrictions and conditions need not
be the same for all Participants. The Committee may
specify a minimum number of full shares with respect to
which any exercise of a Non-tandem SAR must be made.
<PAGE> 42
Notwithstanding any other restriction on exercisability
approved by the Committee, a Non-tandem SAR granted
under the Plan shall be fully exercisable upon a Change
of Control of the Corporation or as of the Distribution
Date.
(ii) Subject to earlier termination as provided in the last
sentence of this paragraph (ii), a Non-tandem SAR
granted under the Plan shall expire on the date
determined by the Committee, provided that such date
shall not be more than ten years from the date the SAR
is granted. The Committee shall specify at the time
each Non-tandem SAR is granted, the time or times at
which, and in what proportions, the Non-tandem SAR may
be exercised prior to its expiration or earlier
termination. The Committee, in its discretion, shall
have the power to accelerate the exercisability of any
or all Non-tandem SARs, or any part thereof, granted
under the Plan. Notwithstanding the foregoing, any
Non-tandem SAR granted to a Participant under the Plan
shall expire following a termination of his full-time
salaried employment with the Corporation and its
subsidiaries in the same manner as an Option held by
such Participant would expire pursuant to the
provisions of subsection 5(e).
(f) Any SAR granted under the Plan may be exercised by the
Participant, by a legatee or legatees of such SAR under the
Participant's last will, or by his executors, personal
representatives or distributees, by delivering to the
Corporation at its principal executive office (attention of
its Secretary) written notice of the number of Common Shares
with respect to which the SAR is being exercised accompanied
by any related SAR Agreement and, in the case of a Tandem
SAR, by the related Option Agreement. The date of exercise
shall be the date the notice is received by the Corporation,
unless a later date is specified in such notice.
Notwithstanding the foregoing, if an exercise notice is
received by the Corporation within ten days following the
Distribution Date, such exercise shall be effective as of
the day immediately preceding the Distribution Date unless a
later date is specified in the notice.
(g) Subject to Section 15, the Corporation shall, in a timely
manner, (i) issue, in the name of the Participant,
certificates representing the total number of Common Shares
to which the Participant is entitled pursuant to subsection
(c) hereof, and (ii) if the Corporation elects to settle all
or part of its obligations arising out of the exercise of
the SAR in cash, deliver to the Participant an amount in
cash equal to the Fair Market Value of the Common Shares it
would otherwise be obligated to deliver.
(h) On or after the effective date of a merger, consolidation or
share exchange involving the Corporation as a result of
<PAGE> 43
which Common Shares are converted into the right to receive
another security and/or any other consideration, each SAR
shall, upon exercise in accordance with its terms, entitle
the Participant to receive from the Corporation an amount of
such security and/or other consideration (in the proportions
received by the holders of Common Shares in the merger,
consolidation or share exchange) having an aggregate Fair
Market Value equal to:
(i) In the case of a Tandem SAR, all, or if specified by
the Committee at the time of grant pursuant to
paragraph (c)(i) of this Section, some portion, of the
excess of the Fair Market Value (as of the date of
exercise) of the security and/or other consideration
(on a per share basis) received by the holders of
Common Shares in the merger, consolidation or share
exchange over the option price per share specified in
the related option multiplied by the number of shares
then subject to the option, or portion thereof as to
which the SAR is being exercised; or
(ii) In the case of a Non-tandem SAR, all, or if specified
by the Committee at the time of grant pursuant to
paragraph (c)(ii) of this Section, some portion or
multiple, of the excess of the Fair Market Value as of
the date of exercise of the security and/or other
consideration (on a per share basis) received by the
holders of Common Shares in the merger, consolidation
or share exchange, over the base price specified in
such SAR multiplied by the number of shares then
subject to the SAR, or portion thereof, as to which it
is being exercised.
Cash shall be delivered in lieu of fractional securities and
may be delivered if elected by the Corporation.
(i) The Committee may specify that an SAR granted under the Plan
shall be a Limited Right. Limited Rights shall, in addition
to or in lieu of the provisions regarding exercisability
described in subsection (c) above (as specified by the
Committee), be subject to one or both of the following (as
specified by the Committee):
(i) Limited Rights shall be exercisable within thirty days
after a Change of Control, and upon exercise shall
entitle the holder to receive from the Corporation a
cash payment equal to the number of Common Shares
subject to the related Option (in the case of a Tandem
SAR) or subject to the SAR (in the case of a Non-tandem
SAR) times the greater of (A) the excess of the Fair
Market Value of one Common Share as of the date on
which the Limited Right is exercised, over the Option
price per share (in the case of a Tandem SAR) or the
base price per share (in the case of a Non-tandem SAR),
or (B) the excess of the value (as determined by the
<PAGE> 44
Committee as in existence immediately prior to the
Change of Control) of the highest per share
consideration received by shareholders of the
Corporation in connection with the Change of Control
over such per share price.
(ii) In the event of a dissolution or liquidation of the
Corporation, Limited Rights shall be exercisable for
the thirty days prior to the effective date of such
dissolution or liquidation, and, in the absence of
exercise during such period, shall be automatically
exercised on the last business day immediately prior to
such effective date, unless both the Committee and the
Participant agree in writing that the Limited Right
shall not be exercised at that time. Upon exercise of
a Limited Right pursuant to this paragraph (ii), the
holder shall be entitled to receive from the
Corporation a cash payment equal to the number of
Common Shares subject to the related Option (in the
case of a Tandem SAR) or subject to the SAR (in the
case of a Non-tandem SAR), multiplied by the greater of
(A) the excess of the Fair Market Value of one Common
Share as of the date on which the Limited Right is
exercised, over the Option price per share (in the case
of a Tandem SAR) or the base price per share (in the
case of a Non-tandem SAR), or (B) the excess of the
value (as determined by the Committee as in existence
immediately prior to the dissolution or liquidation) of
the per share consideration received by shareholders of
the Corporation in connection with the dissolution or
liquidation over such per share price.
On or after the effective date of a merger, consolidation,
or share exchange involving the Corporation which does not
constitute a Change of Control, but which results in the
holders of Common Shares receiving another security and/or
other consideration, the cash payments contemplated by this
subsection shall be computed with reference to such security
and/or other consideration in a manner consistent with
subsection (h) above. Except as provided in subsection (c)
of this Section and in this subsection (i), a Limited Right
shall be subject to the same terms and conditions as other
SARs.
(j) The Committee may prescribe such other terms and conditions
of all SARs granted under the Plan that are neither
inconsistent with nor prohibited by the Plan.
8. RESTRICTED SHARE AWARDS
The Committee may from time to time grant, or sell for such
amount of cash, Common Shares or such other consideration as the
Committee deems satisfactory (which amount may be less than Fair
Market Value), Restricted Shares under the Plan to such Participants
<PAGE> 45
and upon such terms and conditions as the Committee may determine at
the time of grant or sale, subject to the following:
(a) Restricted Shares issued under the Plan shall be governed by
a Restricted Share Agreement in such form as the Committee
shall from time to time determine.
(b) Subject to Section 15 hereof, the Corporation shall issue,
in the name of the Participant, certificates representing
the total number of Restricted Shares granted or sold to the
Participant, in a timely manner after such grant or sale.
(c) Subject to the provisions of subsection (d) hereof and the
restrictions set forth in the related Restricted Share
Agreement, the Participant acquiring Restricted Shares shall
thereupon be a shareholder with respect to all of the shares
represented by such certificate or certificates and shall
have the right of a shareholder with respect to such shares,
including the right to vote such shares and to receive
dividends and other distributions paid with respect to such
shares.
(d) Any Restricted Share granted to a Participant pursuant to
the Plan shall be forfeited and any Restricted Share sold to
a Participant pursuant to the Plan shall, at the
Corporation's option, be resold to the Corporation for an
amount equal to the value of the consideration paid therefor
and, upon such forfeiture or resale, such share shall revert
to the Corporation if the Participant's employment with the
Corporation and its subsidiaries terminates prior to a date
specified by the Committee at the time of grant or sale,
which date shall not be earlier than the first anniversary
of such grant or sale, unless such employment terminates (A)
after the Participant's attainment of Retirement Age, (B)
because of the Participant's Disability, (C) because of the
Participant's death, or (D) following a Change of Control
for any reason other than Cause. As of such specified date,
or, if earlier, the Participant's date of termination of
employment described in (A) through (D) of the preceding
sentence, the restrictions of this subsection (d) shall
lapse. The Corporation may exercise its right to require a
resale of a Restricted Share pursuant to this subsection by
notice to the Participant at any time within the thirty-day
period following his termination of employment with the
Corporation and its subsidiaries. A Participant who has
received such notice shall promptly surrender his Restricted
Shares and the Corporation shall make payment therefor
within ten days after such surrender. The Committee, in its
discretion, shall have the power to accelerate the date on
which the restrictions of this subsection (d) shall lapse
with respect to any or all Restricted Shares granted or sold
under the Plan that have been outstanding for at least one
year.
<PAGE> 46
(e) Except as set forth in subsection (f), Restricted Shares
issued pursuant to the Plan shall not be sold, assigned,
pledged or otherwise transferred, voluntarily or
involuntarily, by the holder thereof until the date the
restrictions of subsection (d) lapse. Each certificate
evidencing Restricted Shares issued under the Plan shall
bear a legend indicating that transferability of such shares
is restricted by and subject to the terms and conditions
imposed under the Plan.
(f) Notwithstanding anything contained herein to the contrary:
(i) Restricted Shares may be tendered in response to a
tender offer for or a request or invitation to tenders
of (both within the meaning of Section 14 of the
Securities Exchange Act of 1934, as in effect on
February 1, 1998) greater than 50% of the outstanding
Common Shares of the Corporation; provided the security
and/or other consideration received in exchange
therefor shall thereafter be subject to the
restrictions and conditions applicable to such
Restricted Shares until they lapse pursuant to the Plan
or the related Restricted Share Agreement and that the
tendering Participant agrees to any reasonable
provisions requested by the Corporation to assure that
any consideration received as a result of such tender
is subject to such restrictions and conditions and that
the consideration cannot be transferred in violation of
any such restrictions and conditions;
(ii) Restricted Shares may be surrendered in a merger,
consolidation or share exchange involving the
Corporation provided that the security and/or other
consideration received in exchange therefor shall
thereafter be subject to the restrictions and
conditions applicable to such Restricted Shares until
they lapse pursuant to the Plan or the related
Restricted Share Agreement and that the surrendering
Participant agrees to any reasonable provisions
requested by the Corporation to assure that any
consideration received as a result of such surrender is
subject to such restrictions and conditions and that
the consideration cannot be transferred in violation of
any such restrictions and conditions.
(g) The Committee may prescribe such other terms and conditions
of the Restricted Shares issued under the Plan that are
neither inconsistent with nor prohibited by the Plan
including, without limitation, terms providing for a lapse
of the restrictions of subsection (d) in installments.
(h) From and after the Distribution Date, each Rights
Certificate issued pursuant to the Rights Agreement for each
Restricted Share and all Series C Junior Participating
Preferred Shares issued upon exercise of the Rights
<PAGE> 47
evidenced by such Rights Certificate shall be subject to
such restrictions and conditions applicable to such
Restricted Share until they lapse pursuant to the Plan or
the related Restricted Share Agreement; provided, however,
that the Participant holding such Rights Certificate shall
be entitled to surrender the Rights Certificate pursuant to
the terms of the Rights Agreement in exchange for the Series
C Junior Participating Preferred Shares issuable in respect
thereof.
9. PERFORMANCE SHARES AND PERFORMANCE UNITS
The Committee may from time to time grant Performance Shares or
Performance Units to such Participants and upon such terms and
conditions as the Committee shall determine, subject to the following:
(a) Each Performance Share shall represent one Common Share and
shall be earned upon the attainment of performance goals
established by the Committee at the time of grant. Each
Performance Unit shall represent the Fair Market Value of a
Common Share as of the date of such award and shall be
earned upon the attainment of performance goals established
by the Committee at the time of grant. The time period
during which the performance goals must be met shall be
determined by the Committee and shall be called a
"performance period." The Committee may provide that a
Participant will earn a specified portion of the Performance
Shares or Performance Units for a performance period in the
event that performance goals for such performance period are
partially attained.
(b) As of the last day of a performance period, Performance
Shares and Performance Units earned by a Participant for
such period shall be credited to an account (the "Account")
established and maintained for such Participant, and any
unearned Performance Shares or Performance Units shall be
forfeited. When the Corporation pays a cash dividend on
Common Shares, each Participant's Account shall also be
credited with the amount of any cash dividends that would
have been paid on the number of Common Shares equal to the
number of Performance Shares then credited to such Account.
The Committee may provide that Performance Units credited to
an Account shall be credited with earnings at a rate
determined by the Committee. The Account of any
Participant, which shall be the record of Performance Shares
earned by him under the Plan, dividends paid thereon,
Performance Units earned by him under the Plan and earnings
credited thereon, is solely for accounting purposes and
shall not require a segregation of any Corporation assets.
(c) The Committee may provide at the time of grant that any
earned Performance Share in Account of a Participant, the
amount of cash dividends credited with respect thereto, any
Performance Units in an Account of a Participant, and
earnings credited with respect thereto (as well as
<PAGE> 48
Performance Shares or Performance Shares or Performance
Units for performance periods then in progress) shall be
forfeited if the Participant's employment with the
Corporation and its subsidiaries terminates prior to a date
specified by the Committee at the time of grant, unless such
employment terminates (i) because of death, (ii) because of
Disability, (iii) after attainment of Retirement Age, or
(iv) following a Change of Control for any reason other than
Cause. The Committee may provide that, with respect to a
termination described in (i) through (iv) of the prior
sentence, a participant shall earn all or a portion of the
Performance Shares or Performance Units granted to him for
the performance period then in progress.
(d) As of the earlier of (i) the date specified by the Committee
as referred to in subsection (c) above, or (ii) the date of
a termination of employment described in paragraphs (c)(i)
through (iv) above, a Participant, with respect to
Performance Shares, shall be entitled to receive from the
Corporation either a number of Common Shares equal to the
number of Performance Shares in his Account, or cash in an
amount equal to the number of Performance Shares in his
Account times the Fair Market Value of one Common Share on
such date, and with respect to Performance Units, shall be
entitled to receive from the Corporation either cash in an
amount equal to the number of Performance Units in his
Account, multiplied by the Fair Market Value of one Common
Share on such date, the number of Common Shares equal to the
number of Performance Units, multiplied by the Fair Market
Value of one Common Share on such Date, or a combination of
such Common Shares and cash, the product of which is divided
by the Fair Market Value of one Common Share on such date.
In connection with a distribution pursuant to the preceding
sentence, a Participant shall also be entitled to a cash
payment equal to the dividends in his Account relating to
the distributed Performance Shares and the earnings in his
Account relating to the distributed Performance Units.
Payment to a Participant of the amount set forth above shall
be made or commence within 90 days after the earlier of (i)
such specified date, or (ii) the date of termination
described in paragraphs (c)(i) through (iv) above. Payments
in cash may be made either in a lump sum or in equal annual
installments over a period not to exceed ten years. The
Committee shall have the sole discretion to determine the
form and method of payment under the Plan and the period
over which such payment shall be made. Notwithstanding the
foregoing, in the event that a Participant's employment with
the Corporation and its subsidiaries terminates following a
Change of Control of the Corporation for any reason other
than attainment of Retirement Age, death, Disability or
termination by the Corporation for Cause, payments with
respect to all Performance Shares and Performance Units in
his Account, including credits with respect to dividends on
Performance Shares or earnings on Performance Units, shall
be made in cash within ten days after such termination takes
<PAGE> 49
place. Except as provided in subsection (b), a Participant
shall not be entitled to receive any earnings on the value
of his Performance Shares or Performance Units with respect
to the period between his termination of employment and the
receipt of payments under the Plan.
10. ASSIGNMENT
Except as provided in subsection 8(e) and (f) or in connection
with unrestricted Common Shares issued pursuant to an Award, Awards
granted under the Plan and any rights and privileges pertaining
thereto, may not be transferred, assigned, pledged or hypothecated in
any manner, by operation of law or otherwise, other than by will or by
the laws of descent and distribution, and shall not be subject to
execution, attachment or similar process. In the event of the death
of a Participant or a Nonemployee Director, any distribution due under
the Plan shall be made to the duly appointed and qualified executor or
other personal representative of the Participant or the Nonemployee
Director to be distributed in accordance with the will or applicable
intestacy law of the Participant or Nonemployee Director; or in the
event that there shall be no representative duly appointed and
qualified within six months after the date of death of such deceased
Participant or Nonemployee Director, then to such persons as, at the
date of his death, would be entitled to share in the distribution of
such deceased person's personal estate under the provisions of the
applicable statute then in force governing the descent of intestate
property, in the proportions specified in such statute.
11. ADJUSTMENTS
The number of shares available for issuance under the Plan, the
number of shares subject to Awards granted under the Plan, the number
of Performance Shares credited to a Participant's Account or
applicable to performance periods in progress, and the exercise price
with respect to Options and base price with respect to SARs granted
under the Plan may be appropriately adjusted as the Committee may
determine for any increase or decrease in the number of issued Common
Shares resulting from a subdivision or consolidation of shares whether
through reorganization, recapitalization, share split, reverse share
split, share distribution or combination of shares, or the payment of
a share dividend or other increase or decrease in the number of such
shares outstanding effected without receipt of consideration by the
Corporation. Adjustments under this Section 11 shall be made
according to the sole discretion of the Committee, and the decision of
the Committee as to the timing, nature and amount of such adjustments
shall be binding and conclusive. If any such adjustment results in
the computation of a number of Common Shares that is not a whole
number, such number shall be rounded down to the next whole number.
12. DISSOLUTION OR LIQUIDATION
Upon the dissolution or liquidation of the Corporation, each
Participant's and Nonemployee Director's rights with respect to
Options and SARs that have not been exercised, Restricted Shares that
are subject to forfeiture, and Performance Shares or Performance Units
<PAGE> 50
that are either unearned or not yet distributable, as of the date of
the occurrence of such event, shall terminate and be forfeited and
neither the Participant, the Nonemployee Director, nor their heirs,
personal representatives, successors or assigns shall have any future
rights with respect to any such Options, SARs, Restricted Shares,
Performance Shares, or Performance Units. Notwithstanding the
foregoing, the Committee, in its discretion exercised in a
nondiscriminatory way, may (i) adjust the terms of any Award to give
the holder thereof the opportunity to participate in any distribution
on Common Shares related to the dissolution or liquidation, or (ii)
otherwise provide for a distribution to any holder of an Award
affected by the dissolution or liquidation; provided, however, that if
the dissolution or liquidation occurs after a Change of Control of the
Corporation, the Committee shall, (i) by such adjustment or
distribution, provide that the holder of each Award shall benefit in
the same manner as if such Award had been exercised or made
unrestricted prior to the distributions on Common Shares related to
the dissolution or liquidation, or (ii) make a cash distribution to
such holder in an amount equal to the value of the Award (including,
in the case of a Performance Share and Performance Unit, the Account
related thereto).
13. GOVERNMENT REGULATIONS
Notwithstanding any of the provisions hereof, or of any Option,
SAR, Restricted Share, Performance Share, or Performance Unit granted
hereunder, the obligation of the Corporation to issue and deliver
shares upon the exercise of such Option or SAR or upon a distribution
with respect to a Performance Share or Performance Unit, or the
obligation of the Corporation to issue and deliver certificates
evidencing Restricted Shares, 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,
including, without limitation, the obligation of the Corporation to
have a registration statement or statement that complies with the
provisions of the Securities Act of 1933, as amended, in effect with
respect to such shares at the time of such issuance and delivery
unless the Corporation receives evidence satisfactory to it that such
issuance and delivery, in absence of such an effective registration
statement or statements, would not constitute a violation of the terms
and provisions of such act.
14. TERMINATION AND AMENDMENT OF PLAN
The Board (or the Committee) may amend, alter or terminate the
Plan, provided that, subject to Section 11, no amendment, alteration
or termination shall be made which would materially and adversely
affect the rights of any Participant or Nonemployee Director under any
Option, SAR, Performance Share, or Performance Unit theretofore
granted, or of any Participant who had theretofore acquired Restricted
Shares pursuant to the Plan, without such Participant's or Nonemployee
Director's consent, as the case may be.
<PAGE> 51
15. WITHHOLDING TAXES
Whenever the Corporation proposes or is required to issue or
transfer Common Shares to a Participant under the Plan, the
Corporation shall have the right to require the Participant to remit
to the Corporation an amount sufficient to satisfy all federal, state
and local withholding tax requirements prior to the delivery of any
certificate or certificates for such shares. If such certificates
have been delivered prior to the time a withholding obligation arises,
the Corporation shall have the right to require the Participant to
remit to the Corporation an amount sufficient to satisfy all federal,
state or local withholding tax requirements at the time such
obligation arises and to withhold from other amounts payable to the
Participant, as compensation or otherwise, as necessary. Whenever
payments under the Plan are to be made to a Participant in cash, such
payments shall be net of any amounts sufficient to satisfy all
federal, state and local withholding tax requirements. The
Corporation may, if approved by the Committee in its discretion, in
connection with an Award in the form of Common Shares, allow a
Participant to direct the Corporation to withhold a portion of the
Common Shares otherwise distributable or to transfer to the
Corporation a certain number of Common Shares (either subject to a
Restricted Share Award or previously owned) with a Fair Market Value
at the date of exercise equal to the amount required to be withheld,
and make necessary cash payments to appropriate taxing authorities to
satisfy its withholding obligation.
16. RIGHT TO TERMINATE EMPLOYMENT
Nothing in the Plan or any agreement entered into pursuant to the
Plan shall confer upon any Participant the right to continue in the
employment of the Corporation or its subsidiaries or affect any right
that the Corporation or its subsidiaries may have to terminate the
employment of such Participant.
17. RIGHTS AS SHAREHOLDER
The recipient of any Award under the Plan shall have no rights as
a shareholder with respect thereto unless and until certificates for
Common Shares are issued to him.
18. LEAVES OF ABSENCE
The Committee shall be entitled to make such rules, regulations
and determinations as it deems appropriate under the Plan in respect
of any leave of absence taken by the recipient of any Award. Without
limiting the generality of the foregoing, the Committee shall be
entitled to determine (i) whether or not any such leaves of absence
shall constitute a termination of employment within the meaning of the
Plan, and (ii) the impact, if any, of any such leave of absence on
awards under the Plan theretofore made to any recipient who takes such
leave of absence.
<PAGE> 52
19. EFFECTIVE DATE
The Plan shall become effective as of the date it is approved by
the holders of a majority of the Common Shares of the Corporation
(voting as a single class) present, or represented, and entitled to
vote at the 1998 Annual Meeting of Shareholders of the Corporation.
There shall be no Options, SARs, Restricted Shares, Performance
Shares, or Performance Units granted or awarded under the Plan after
2008; provided, however, that all Options, SARs, Restricted Shares,
Performance Shares, and Performance Units granted or sold under the
Plan prior to such date shall remain in effect and subject to
adjustment and amendment as herein provided until they have been
satisfied or terminated in accordance with the Plan and the terms of
their related agreements.
20. GOVERNING LAW
The Plan, and all agreements hereunder, shall be construed in
accordance with and governed by the laws of the State of Indiana and,
in the case of ISOs, Section 422A of the Code.
21. 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
Corporation against and from any loss, cost, liability, or expense
that may be imposed upon or reasonably incurred by him in connection
with or resulting from any claim, action, suit, or proceeding to which
he may be a party or in which he 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 in settlement thereof with the
Corporation's approval, or paid by him in satisfaction of any judgment
in any such action, suit or proceeding against him; provided, however,
that he shall give the Corporation an opportunity at its own expense,
to handle and defend the same before he undertakes to handle and
defend it on his 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 Corporation's Articles of
Incorporation or By-laws, as a matter of law, or otherwise, or any
power that the Corporation may have to indemnify them or to hold them
harmless.
22. SUCCESSORS
In the event of a sale of substantially all of the assets of the
Corporation, or a merger, consolidation or share exchange involving
the Corporation, all obligations of the Corporation under the Plan
with respect to awards granted hereunder shall be binding on the
successor to the Corporation in the transaction. Employment with such
a successor shall be considered employment with the Corporation for
purposes of the Plan.
<PAGE> 53
23. NOTICES
Notices given pursuant to this Agreement shall be in writing and
shall be deemed received when personally delivered or five days after
mailed by United States registered or certified mail, return receipt
requested, addressee only, postage prepaid. Notice to the Corporation
shall be directed to:
Secretary
Arvin Industries, Inc.
One Noblitt Plaza
Box 3000
Columbus, Indiana 47202-3000
Notices to Participants and Nonemployee Directors shall be
directed to such person at the home address of such person on the
records of the Corporation. Notwithstanding the foregoing, if either
party shall have previously designated address by notice to the other
party given in the foregoing manner, then notices to such party shall
be directed as designated.
