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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
WALTER 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)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[LOGO]
August 12, 1997
To Our Stockholders:
You are cordially invited to attend the 1997 Annual Meeting of Stockholders
of Walter Industries, Inc. (the "Company") to be held at 10:00 A.M., local time,
on Tuesday, September 16, 1997, at the Tampa Convention Center, 333 S. Franklin
Street, Tampa, FL 33602.
As fully discussed in the accompanying Proxy Statement, stockholders will be
asked to consider and approve proposals to (1) approve an Annual Incentive Plan
for Key Employees which is intended to satisfy the provisions of Section 162(m)
of the Internal Revenue Code; (2) approve the Amended 1995 Long-Term Incentive
Stock Plan of Walter Industries, Inc., and (3) ratify the appointment of Price
Waterhouse LLP as independent certified public accountants for the Company for
the fiscal year ending May 31, 1998.
The Board of Directors unanimously recommends that all stockholders vote in
favor of each of these proposals, and we urge you to sign, date and return your
proxy in the addressed envelope enclosed for your convenience so that as many
shares as possible may be represented at the Annual Meeting. The giving of the
proxy will not affect your right to attend the meeting nor, if you choose to
revoke the proxy, your right to vote in person.
Sincerely,
/s/ Kenneth E. Hyatt
Kenneth E. Hyatt
Chairman of the Board
<PAGE>
[LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
SEPTEMBER 16, 1997
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Walter
Industries, Inc., (the "Company") a Delaware corporation, will be held on
Tuesday, September 16, 1997 at 10:00 A.M., local time, at the Tampa Convention
Center, Ball Room Level, Meeting Room 6-7, 333 S. Franklin St., Tampa, FL 33602,
for the following purposes:
1. To approve an Annual Incentive Plan for Key Employees of the Company;
2. To approve the Amended 1995 Long-Term Incentive Stock Plan of Walter
Industries, Inc.;
3. To ratify the appointment of Price Waterhouse LLP as independent
certified public accountants for the Company for the fiscal year ending
May 31, 1998;
4. To transact such other business as may properly come before the Annual
Meeting or any adjournments thereof.
Only stockholders of record at the close of business on July 25, 1997 are
entitled to notice of and to vote at the Annual Meeting and any adjournments
thereof. The Annual Report of the Company for the fiscal year ended May 31, 1997
is enclosed.
The mailing address of the principal executive offices of the Company is
Post Office Box 31601, Tampa, Florida 33631-3601.
Your attention is invited to the Proxy Statement on the following pages.
By Order of the Board of Directors
/s/ Edward A. Porter
EDWARD A. PORTER
Secretary
Tampa, Florida
August 12, 1997
<PAGE>
WALTER INDUSTRIES, INC.
1500 North Dale Mabry Highway
Tampa, Florida 33607
PROXY STATEMENT
----------------
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of Walter Industries, Inc. (the "Company") of proxies for the
Annual Meeting of Stockholders of the Company to be held on September 16, 1997
at 10:00 a.m., local time, at the Tampa Convention Center, Ball Room Level,
Meeting Room 6-7, 333 S. Franklin Street, Tampa, Florida 33602, and at any
adjournments thereof (the "Annual Meeting").
THE PROXY
In addition to soliciting stockholders by mail, the Company will request
banks, brokerage houses and other custodians, nominees and fiduciaries to
forward solicitation materials to the beneficial owners of the stock held of
record by such persons and the Company will reimburse them for their reasonable
out-of-pocket expenses incurred in doing so. The Company may use the services of
its officers, directors and other employees of the Company to solicit proxies
personally, by telephone or by facsimile transmission. The cost of soliciting
proxies will be borne by the Company.
The date of this Proxy Statement is August 12, 1997, the approximate date on
which this Proxy Statement and enclosed proxy were first mailed to stockholders.
The close of business on July 25, 1997 has been fixed by the Board of
Directors as the record date (the "Record Date") for determination of
stockholders entitled to notice of and to vote at the Annual Meeting. On the
Record Date there were outstanding and entitled to vote 53,666,630 shares of
common stock, par value $.01 per share, of the Company (the "Common Stock").
Each stockholder is entitled to one vote for each share of stock held. Presence
in person or by proxy of a majority of the shares of Common Stock outstanding
and entitled to vote on the Record Date is required for a quorum. An affirmative
vote of a majority of the shares of Common Stock present in person or by proxy
and entitled to vote at the Annual Meeting is required for approval of the
proposals set forth herein. Broker non-votes and abstentions will be counted as
present for purposes of determining a quorum and will be treated as votes
against each of the proposals for purposes of determining whether such proposals
have been approved by the stockholders.
If the enclosed proxy is properly signed and returned and not revoked, the
shares represented thereby will be voted at the Annual Meeting. If the
stockholder specifies in the proxy how the shares are to be voted, they will be
voted accordingly. If the stockholder does not specify how the shares are to be
voted, they will be voted FOR the approval of the Annual Incentive Plan for Key
Employees of the Company, FOR the approval of the Amended 1995 Long-Term
Incentive Stock Plan of Walter Industries, Inc., and FOR the ratification of the
appointment of Price
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Waterhouse LLP as independent certified public accountants for the Company for
the fiscal year ending May 31, 1998.
A stockholder giving a proxy has the power to revoke it at any time prior to
its exercise by giving written notice revoking it or by a later proxy, in either
case delivered by mail to the Secretary of the Company. Attendance at the Annual
Meeting will not automatically revoke a proxy, but a stockholder in attendance
may request a ballot and vote in person, thereby revoking a prior granted proxy.
The Stockholder's Agreement dated as of March 17, 1995 between the Company
and The Celotex Corporation ("Celotex"), solely in its capacity as the Celotex
Settlement Fund Recipient, (the "Stockholders Agreement") under and as defined
in the Second Amended and Restated Veil Piercing Settlement Agreement dated as
of November 22, 1994 (the "Veil Piercing Settlement Agreement"), provides that
Celotex or its successor will vote its shares of Common Stock for and/or against
each matter in proportion to the votes cast by the other holders of Common Stock
who voted. The Common Stock held by the Celotex Settlement Fund Recipient was
transferred to the Asbestos Settlement Trust (the "Celotex Trust") on May 30,
1997, and the rights and obligations of Celotex under the Stockholders Agreement
were assumed by the Celotex Trust. The Company will advise the Celotex Trust of
the proportion of such votes and the Celotex Trust shall have no responsibility
for the determination thereof. The Celotex Trust shall be present in person or
by proxy at all meetings of holders of Common Stock so that all shares of Common
Stock beneficially owned by the Celotex Trust may be counted for the purpose of
determining the presence of a quorum at such meetings. See "Security Ownership
of Management and Principal Stockholders--Ownership of Principal Stockholders"
herein for information concerning the Celotex Trust's beneficial ownership of
Common Stock.
The Annual Report of the Company for the year ended May 31, 1997, containing
audited financial statements for such year, is enclosed with this Proxy
Statement.
IN ORDER THAT YOUR SHARES OF COMMON STOCK MAY BE REPRESENTED AT THIS
MEETING, IN CASE YOU ARE NOT PERSONALLY PRESENT, YOU ARE REQUESTED TO PLEASE
SIGN, DATE AND MAIL THE PROXY PROMPTLY.
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CORPORATE GOVERNANCE
GENERAL INFORMATION
The Company was organized in August 1987 by a group of investors led by
Kohlberg Kravis Roberts & Co. L.P. ("KKR") for the purpose of acquiring Jim
Walter Corporation, a Florida corporation ("Original Jim Walter"), pursuant to a
leveraged buyout. Following its organization, the Company organized and acquired
all of the outstanding shares of capital stock of a group of direct and indirect
wholly owned subsidiaries, including Hillsborough Acquisition Corporation
("HAC"). On September 18, 1987, HAC acquired approximately 95% of the
outstanding shares of common stock of Original Jim Walter pursuant to a cash
tender offer (the "Tender Offer"). In January 1988, Original Jim Walter merged
(the "Merger") into HAC (which changed its name to Jim Walter Corporation) and
HAC distributed substantially all of its assets (principally excluding the stock
of Celotex and several other subsidiaries of Original Jim Walter) to a parent
corporation of HAC (which was merged into the Company in April 1991) in
redemption of all of the shares of capital stock of HAC owned by such parent
corporation.
Following the Merger and prior to the commencement of the Chapter 11
proceedings (as described below), the Company undertook a program of corporate
reorganizations and asset dispositions, which were contemplated by all of the
debt agreements entered into in connection with the Tender Offer and the Merger.
Pursuant to this program the Company restructured and/ or disposed of certain of
the businesses of Original Jim Walter, including the disposition in April 1988
of all of the stock of the parent corporation of Jim Walter Corporation.
On December 27, 1989, the Company and substantially all of its subsidiaries
each filed a voluntary petition for reorganization under Chapter 11 ("Chapter
11") of the United States Bankruptcy Code (the "Bankruptcy Code") with the
Bankruptcy Court for the Middle District of Florida, Tampa Division (the
"Bankruptcy Court").
On March 17, 1995 (the "Effective Date"), the Company and its subsidiaries
emerged from bankruptcy pursuant to the Amended Joint Plan of Reorganization
Dated as of December 9, 1994 as modified on March 1, 1995 (the "Plan of
Reorganization").
The Plan of Reorganization and the Restated Certificate of Incorporation of
the Company (the "Charter") provide that, upon emerging from Chapter 11, the
Board of Directors of the Company shall consist of nine members until March 17,
1998, the third anniversary of the Effective Date (the "Initial Three Year
Term"), of which: (i) three directors (currently Kenneth E. Hyatt, Richard E.
Almy and James W. Walter (a non-employee director as of October 6, 1995)) are to
be selected by the directors from the senior officers of the Company; (ii) two
directors (currently Michael T. Tokarz and Perry Golkin) are to be designated by
KKR, an affiliate of certain principal stockholders of the Company; (iii) two
directors (currently, Howard L. Clark, Jr. and Eliot M. Fried) are to be
designated by Lehman Brothers Inc. ("Lehman"), whose affiliate Lehman Brothers
Holdings, Inc. ("Lehman Holdings") is another principal stockholder of the
Company; and (iv) two directors (currently James B. Farley and James L. Johnson)
are to be Independent Directors (as defined in the following paragraph).
Independent Directors are defined as persons who (i) are not (a) officers,
affiliates, employees, Interested Stockholders, consultants or partners of any
Significant Stockholder or any affiliate of any Significant Stockholder or of
any entity that was dependent upon any Significant Stockholder or any affiliate
of any Significant Stockholder for more than 5% of its revenues or
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earnings in its most recent fiscal year, (b) officers, employees, consultants or
partners of the Company or any of its affiliates, or officers, employees,
Interested Stockholders, consultants or partners of any entity that was
dependent upon the Company or any of its affiliates for more than 5% of its
revenues or earnings in its most recent fiscal year or (c) any relative or
spouse of any of the foregoing persons or a relative of a spouse of any of the
foregoing persons, and (ii) are selected by management of the Company from a
list of qualified candidates provided by an independent search firm selected by
management and Lehman. For these purposes "Interested Stockholder" means, with
respect to any person, any other person that together with its affiliates and
associates "beneficially owns" (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended) (the "Exchange Act") 5% or more of the equity
securities of such person, and "Significant Stockholder" means an Interested
Stockholder of the Company.
The Plan of Reorganization provides that, if, at any time during the Initial
Three Year Term, Lehman and its affiliates fail to have beneficial ownership of
8% or more of the outstanding Common Stock (without giving effect to shares of
Common Stock held in escrow pursuant to the Plan of Reorganization -- see
Footnote (3) to "Security Ownership of Management and Principal Stockholders --
Ownership of Principal Stockholders" herein) (the "Outstanding Common Stock")
and KKR and its affiliates have, at such time, beneficial ownership of 8% or
more of the Outstanding Common Stock, then KKR shall have the right to compel
one director selected by Lehman (from among those designated by Lehman) to
resign as a director and to appoint a successor. If, at any time during the
Initial Three Year Term, KKR and its affiliates fail to have beneficial
ownership of 8% or more of the Outstanding Common Stock and Lehman and its
affiliates have, at such time, beneficial ownership of 8% or more of the
Outstanding Common Stock, then Lehman shall have the right to compel one
director selected by KKR (from among those designated by KKR) to resign as a
director and to appoint a successor. If, at any time during the Initial Three
Year Term, either Lehman and its affiliates or KKR and its affiliates fail to
have beneficial ownership of 5% or more of the Outstanding Common Stock, then
the directors appointed by Lehman or by KKR, respectively, shall resign and the
remaining directors of the Company shall appoint their successor(s) for the
remainder of the Initial Three Year Term; provided, however, that KKR shall be
entitled to designate one director during the Initial Three Year Term if, and so
long as, the number of shares of Common Stock beneficially owned by KKR and its
affiliates, together with shares of Common Stock held in escrow pursuant to the
Plan of Reorganization that would be distributed to KKR or its affiliates upon
release from escrow, shall together equal 5% or more of the then outstanding
Common Stock of the Company, including, for purposes of this calculation only,
any shares held in escrow pursuant to the Plan of Reorganization.
After the Initial Three Year Term, the Charter currently provides that all
the directors of the Company shall be elected by the stockholders of the Company
annually for a term of one year each.
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DIRECTORS
Set forth below is a list showing the names, ages (as of July 1, 1997) and
business background of all directors of the Company, the year in which he became
a director, and, where applicable, the executive office or offices held by each
director with the Company.
<TABLE>
<CAPTION>
SERVED AS DIRECTOR
NAME AGE POSITION OF THE COMPANY FROM
- ------------------------------------------ --- ------------------------------------------ -----------------------
<S> <C> <C> <C>
James W. Walter........................... 74 Chairman Emeritus 1988
Kenneth E. Hyatt.......................... 56 Chairman, Chief Executive 1995
Officer and President
Richard E. Almy........................... 55 Director, 1996
Executive Vice President and
Chief Operating Officer
Howard L. Clark, Jr....................... 53 Director 1995
James B. Farley........................... 66 Director 1995
Eliot M. Fried............................ 64 Director 1995
James L. Johnson.......................... 70 Director 1995
Perry Golkin.............................. 43 Director 1995
Michael T. Tokarz......................... 47 Director 1987
</TABLE>
JAMES W. WALTER has been a director of the Company since 1988, serving as
Chairman until October 6, 1995 and Chairman Emeritus thereafter. Mr. Walter
founded Walter Construction Co., a predecessor of Jim Walter Corporation, in
1948 and Jim Walter Corporation in 1955. He was President and Chief Executive
Officer of Jim Walter Corporation from 1955 to 1963, Chairman and Chief
Executive Officer from 1963 to 1983 and Chairman until 1988.
HOWARD L. CLARK, JR. has been the Vice Chairman of Lehman, an investment-banking
firm, since February 1993; prior thereto he served as Chairman and Chief
Executive Officer of Shearson Lehman Brothers, Inc. Prior thereto he was an
Executive Vice President and the Chief Financial Officer of American Express
Company, a financial services firm. He also is a director of Lehman,
Plasti-Line, Inc., The Maytag Corporation and Fund American Enterprises
Holdings, Inc.
JAMES B. FARLEY is the retired Chairman of the Board, and a current Trustee, of
Mutual of New York, a life insurance company. He served as Chairman and Chief
Executive Officer of Mutual of New York from 1989 to 1994. He also is a director
of Ashland Oil, Inc. and Harrah's Entertainment Company.
ELIOT M. FRIED has been a Managing Director of Lehman or Shearson Lehman
Brothers, Inc. since 1991 and is a member of Lehman's Firm Wide Investment and
Commitment Committees. He served as a Senior Vice President of a predecessor
firm of Lehman from 1982 to 1991. He
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also is a director of Bridgeport Machines, Inc., EVI, Inc., SunSource L.P.,
Axsys Technologies, Inc. and L-3 Communications Corporation.
JAMES L. JOHNSON is Chairman Emeritus of GTE Corporation, a telephone company
and cellular service provider. From April 1988 to May 1992 he was Chairman and
Chief Executive Officer of GTE. He also is a director of Contel Cellular, Inc.,
CellStar Corporation, The FINOVA Group Inc., Harte-Hanks Communications Inc. and
Valero Energy Corp. and a Trustee of Mutual of New York.
MICHAEL T. TOKARZ is a member of the limited liability company which serves as
the general partner of KKR. He is also a general partner of KKR Associates L.P.
Prior to 1993 he was an executive of KKR. He also is a director of Safeway,
Inc., K-III Communications Corporation, Flagstar Companies, Inc., Flagstar
Corporation, Neway Anchorlok International, Inc., KSL Recreation Corporation,
IDEX Corporation, Canteen Holdings, Inc., Denny's Holdings, Inc. Spalding &
Evenflo Companies, Inc., Spartan Holdings, Inc., FRD Acquisition Co., KSL Land
Corporation, KSL Golf Holdings, Inc. and U. F. Holdings, Inc.
KENNETH E. HYATT has been Chairman of the Board and Chief Executive Officer of
the Company since June 1, 1996 and has been President of the Company since
September 1, 1995. Between September 1, 1995 and June 1, 1996, he also served as
Chief Operating Officer of the Company. He was elected a director on September
12, 1995. Mr. Hyatt served as President and Chief Executive Officer and a
director of Celotex from 1990 until shortly prior to his election, effective
September 1, 1995, as President and Chief Operating Officer of the Company. Mr.
Hyatt held various management and executive positions with various subsidiaries
of Jim Walter Corporation from 1966 until 1984, at which time he was named Vice
President and Group Executive of Jim Walter Corporation. In 1986 he was elected
Executive Vice President and Chief Operating Officer of Jim Walter Corporation.
Following Jim Walter Corporation's leveraged buyout in 1988 by KKR, Mr. Hyatt
joined with an investor group in the acquisition of Celotex and certain related
entities. In October 1990 Celotex and one of its subsidiaries filed voluntary
petitions for reorganization under Chapter 11 of the Bankruptcy Code in the
Bankruptcy Court, as a result of massive litigation involving asbestos-related
liabilities. The Celotex Plan of Reorganization was confirmed in December 1996
and became effective May 1997. The Celotex Trust is a principal stockholder of
the Company. See "Security Ownership of Management and Principal Stockholders --
Ownership of Principal Stockholders" herein.
PERRY GOLKIN is a member of the limited liability company which serves as the
general partner of KKR. He is also a general partner of KKR Associates, L.P.
Prior to 1995, he was an executive of KKR. He is also a director of K-III
Communications Corporation and Canadian General Insurance Group. Mr. Golkin was
a director of the Company from 1987 to March 2, 1995.
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RICHARD E. ALMY has been Executive Vice President and Chief Operating Officer of
the Company since June 1, 1996. Previously, Mr. Almy had been President and
Chief Operating Officer at JW Aluminum Company since 1991 and JW Window
Components, Inc. since 1995, two subsidiaries of the Company.
Except during the Initial Three Year Term, as described in "Corporate
Governance -- General Information" above, directors of the Company are elected
by the stockholders of the Company. Each director holds office until his
successor is elected and qualified. The Company is not aware of any family
relationships among any of the foregoing directors.
COMMITTEES OF THE BOARD OF DIRECTORS
There are five standing committees of the Board: the Audit Committee, the
Compensation Committee, the Finance Committee, the Nominating Committee and the
Environmental, Health and Safety Committee. There is one special committee, the
Tax Oversight Committee. The Board may, from time to time, establish certain
other committees to facilitate the management of the Company.
The Audit Committee is responsible for meeting with representatives of the
Company's independent certified public accountants and financial management to
review accounting, internal control, auditing and financial reporting matters.
It is also responsible, among other things, for maintaining liaison with and
exercising such supervision of the actions of the Company's public accountants
in whatever manner and to whatever extent shall be deemed, at its discretion,
necessary, proper and in the best interest of the Company and its stockholders.
The Audit Committee consists of directors who are not and never have been
employees of the Company. The present members of the Committee are Eliot M.
Fried, Chairman, Perry Golkin, James L. Johnson and James B. Farley.
The Compensation Committee is responsible for reviewing and approving
officer and executive salaries of the Company and its subsidiaries in amounts
over $100,000 annually and for reviewing and recommending for approval by the
Board executive and key employee compensation plans, including incentive
compensation, stock incentives and other benefits, and consists of directors who
are not and never have been employees of the Company. The present members of the
Committee are James L. Johnson, Chairman, Howard L. Clark, Jr., James B. Farley
and Michael T. Tokarz.
The Finance Committee is responsible for recommendations to the Board
concerning public and private financings, dividends, discretionary contributions
by the Company under the Company's and its subsidiaries' employee benefit plans
and other financial matters, approval of the designation of the investment fund
managers for the Company's and its subsidiaries' employee benefit plans, and
approval of investment of the Company's funds by establishment of policies for
investment of funds by the Company's officers. The present members of the
Committee are James B. Farley, Chairman, Michael T. Tokarz, Howard L. Clark,
Jr., and James W. Walter.
The Environmental, Health and Safety Committee is responsible for receiving
environmental, health and safety reports from the Company's and its
subsidiaries' environmental counsel and engineers and health and safety
personnel; examining and reporting upon the Company's and its subsidiaries'
compliance with environmental, reclamation, health and safety requirements and
the policies pertaining thereto and reporting the same to the Board; approving
the proposed scope of internal and independent environmental and health and
safety audits; and periodically
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evaluating and recommending to the Board changes in the Company's and its
subsidiaries' environmental, health and safety policies. The present members of
the Committee are Michael T. Tokarz, Chairman, James B. Farley, Eliot M. Fried
and James L. Johnson.
The Nominating Committee is responsible for establishing the criteria for
and the qualifications of persons suitable for nomination as directors,
including nominees recommended by stockholders, and reporting its
recommendations to the Board. During the Initial Three Year Term, selection of
directors is subject to restrictions discussed in "Corporate Governance --
General Information" above. The present members of the Committee are Howard L.
Clark, Jr., Chairman, Perry Golkin, James L. Johnson and James W. Walter.
The Tax Oversight Committee is a special purpose temporary committee and is
responsible for (i) approving all settlements and agreements by the Company or
any of its subsidiaries regarding all claims of the Internal Revenue Service
that are entitled to priority under the Bankruptcy Code, and (ii) determining
final resolution of certain contingencies regarding Federal income tax claims,
both as more fully described in the Plan of Reorganization. The members of the
Tax Oversight Committee shall consist at all times of two Independent Directors
and a director (or other person) designated by Lehman. The present members of
the Committee are Howard L. Clark, Jr., Chairman, James B. Farley and James L.
Johnson.
Pursuant to the Charter and By-laws, at all times during the Initial Three
Year Term, each committee of the Board (other than the Tax Oversight Committee,
which shall be constituted as described above) shall include such number of
directors (but in any event at least one director) designated by each of KKR and
Lehman so that each of KKR and Lehman has representation on each such committee
proportionate to the representation it has on the Board. The Charter provides
that the foregoing provision of the By-laws and certain other provisions of the
By-laws cannot be amended by the Board during the Initial Three Year Term unless
67% of the whole Board votes in favor of the amendment. Thereafter, the
affirmative vote of a majority of directors will be required to amend those
provisions.
BOARD AND COMMITTEE MEETINGS
During the fiscal year ended May 31, 1997, there were six meetings of the
Board, two meetings of the Audit Committee, three meetings of the Compensation
Committee, one meeting of the Finance Committee, and one meeting of the
Environmental, Health and Safety Committee. Neither the Nominating Committee nor
the Tax Oversight Committee met during the fiscal year ended May 31, 1997.
All of the directors attended at least 75% of the combined number of Board
meetings and meetings of Committees of which they were members that were held
during the fiscal year ended May 31, 1997.
DIRECTORS' COMPENSATION
No directors' fees are paid to directors who are full-time employees of the
Company or any of its subsidiaries. Non-employee directors of the Company
(Messrs. Clark, Farley, Fried, Johnson, Walter, Golkin and Tokarz) are paid
retainer fees of $25,000 per year. Committee Chairmen receive an additional
retainer fee of $5,000 per year. Each non-employee director also receives a fee
of $1,500 for each Board or Committee meeting attended and is reimbursed for
travel and lodging expenses.
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On April 11, 1995, the Board approved and adopted the Walter Industries,
Inc. Directors' Deferred Fee Plan under which non-employee directors may elect
to defer all or a portion of their director's fees. The deferred fees, at each
electing director's option, are credited to either an income account or a stock
equivalent account or divided between the two accounts. The income account is
credited quarterly with interest at the prime rate and the stock equivalent
account is credited with an amount equal to the number of equivalent shares of
Common Stock which could have been purchased with the cash dividend, if any,
which would have been payable had the participant been the actual owner of the
number of shares of Common Stock credited to his account. Payments begin, at the
participant's election, upon the later of the termination of his services as a
director or date of retirement from his principal occupation or employment in
such number of annual installments as shall be determined by the Company.
Payments from the income account are in cash and payments from the stock
equivalent account are in cash at the Common Stock's then current market value,
or, at the Company's option, in shares of Common Stock. Mr. Farley has elected
to have all of his director's fees credited to a stock equivalent account.
Mr. Walter, Chairman Emeritus, entered into a consulting agreement upon his
retirement from employment with the Company on October 6, 1995 (see "Certain
Relationships and Certain Related Transactions"). During the fiscal year ended
May 31, 1997, he received $150,000 pursuant to this agreement.
CERTAIN RELATIONSHIPS AND CERTAIN RELATED TRANSACTIONS
In July 1986, Waltsons, Inc., a family owned corporation in which James W.
Walter, Chairman Emeritus of the Board, has a twenty percent (20%) interest,
acquired a fifty percent (50%) interest in the operations of Booker & Company,
Inc. ("Booker"), a wholesale distributor of building supplies and materials
headquartered in Tampa, Florida. For over 30 years, Booker has been a supplier
of various building supplies and materials to Dixie Building Supplies, Inc., a
wholly owned subsidiary of the Company. During the fiscal year ended May 31,
1997, Booker's sales of building supplies and materials to such subsidiary
totaled $6,091,200. The Company believes that the terms of the transactions
between the Company and Booker were at least as favorable to the Company as
those that could be obtained from unaffiliated third parties. In December 1996,
Waltsons, Inc. sold all of its interest in the operations of Booker.
The Company entered into a consulting agreement with Mr. Walter effective
upon his retirement on October 6, 1995. The term of the agreement is for a
period of three years, commencing October 6, 1995, during which time Mr. Walter
will render to the Company such services of an advisory or consulting nature as
the Company may reasonably require. Mr. Walter will be paid an annual consulting
fee of $150,000. The agreement also contains a restrictive covenant prohibiting,
during the term of the agreement and for a period of three years after its
termination, Mr. Walter's employment by any person, firm or corporation which is
engaged in a business in competition with the Company or its subsidiaries, or
his engaging in such business for his own account.
9
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SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following tables furnish information, as of August 1, 1997 as to: (i)
shares of Common Stock beneficially owned by each director and each executive
officer of the Company named in the Summary Compensation Table herein; (ii)
shares of Common Stock beneficially owned by all current directors and executive
officers of the Company as a group; and (iii) the name and address of each
person known by the Company to be the beneficial owner of more than five percent
(5%) of the outstanding shares of Common Stock. Except as indicated below, to
the knowledge of the Company each person indicated in the following tables has
sole voting and investment power as to the shares shown.
OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK
BENEFICIALLY PERCENT OF COMMON
NAME OF BENEFICIAL OWNER OWNED STOCK OUTSTANDING
- ----------------------------------------------------------------------- ----------------- -------------------
<S> <C> <C>
James W. Walter........................................................ 199,377(1)(2) *
Chairman Emeritus and Director
Kenneth E. Hyatt....................................................... 173,984(1)(3) *
Chairman, Chief Executive Officer and President
Howard L. Clark, Jr. .................................................. (4) (4)
Director
James B. Farley........................................................ 10,000 *
Director
Eliot M. Fried......................................................... (4) (4)
Director
James L. Johnson....................................................... 10,000 *
Director
Perry Golkin........................................................... 13,958,589(5) 26.0(5)
Director
Michael T. Tokarz...................................................... 13,958,589(5) 26.0(5)
Director
Richard E. Almy........................................................ 62,238(6) *
Director, Executive Vice President and
Chief Operating Officer
William Carr (retired May 31, 1997).................................... 66,858(1)(7) *
President and Chief Operating Officer of
Jim Walter Resources, Inc., a
subsidiary of the Company
William N. Temple...................................................... 53,473(1)(8) *
Senior Vice President and Group Executive;
President of United States Pipe and Foundry Company, Inc.,
a subsidiary of the Company
Dean M. Fjelstul....................................................... 45,772(9) *
Senior Vice President and
Chief Financial Officer
</TABLE>
<TABLE>
<S> <C> <C>
All current directors and executive officers as a group
(17 individuals).................................................... 14,731,713(10) 27.1
</TABLE>
- ------------------------
* LESS THAN 1% OF OUTSTANDING COMMON STOCK
10
<PAGE>
(1) Includes 6,234, 23,689, 1,246, 4,363, and 3,595,768 shares of Common Stock
issued to an escrow account for the benefit of Messrs. Hyatt, Walter, Temple
and Carr, and to all current directors and executive officers as a group
(including 3,553,380 shares for the benefit of the KKR Investors),
respectively, on September 13, 1995 pursuant to the Plan of Reorganization.
To the extent that certain contingencies regarding Federal income tax claims
of the Company are resolved satisfactorily, such escrowed shares will be
distributed to such persons under the Plan of Reorganization. To the extent
such matters are not settled satisfactorily, the escrowed shares will be
returned to the Company and canceled. Until such matters are finally
determined, such persons will have the power to exercise voting rights with
respect to such respective escrowed shares of Common Stock. For so long as
such persons have the power to exercise voting rights with respect to all
such escrowed shares, or if all such escrowed shares were distributed to
such persons, such persons will beneficially own such 6,234, 23,689, 1,246,
4,363, and 3,595,768 shares of Common Stock, respectively.
(2) Includes options to purchase 133,333 shares, exercisable currently or within
60 days of August 1, 1997.
(3) Includes options to purchase 150,000 shares exercisable currently or within
60 days of August 1, 1997. Also includes 100 shares held by Mr. Hyatt's son
of which Mr. Hyatt disclaims beneficial ownership.
(4) Messrs. Clark and Fried are Vice Chairman and Managing Director,
respectively, of Lehman. See "Ownership of Principal Stockholders" below for
information concerning ownership of shares by Lehman's affiliate, Lehman
Holdings.
(5) Messrs. Tokarz and Golkin are general partners of KKR Associates, L.P.,
which is the sole general partner of each of JWC Associates, L.P., JWC
Associates II, L.P. and KKR Partners II, L.P. (the "KKR Investors") and
Channel One Associates, L.P. ("Channel One"), and thus Messrs. Tokarz and
Golkin may be deemed to be beneficial owners of the shares owned by the KKR
Investors and Channel One (see "Ownership of Principal Stockholders" below).
Messrs. Tokarz and Golkin disclaim beneficial ownership of such shares.
The number of shares of Common Stock includes 3,553,380 shares of Common
Stock issued to an escrow account on September 13, 1995 for the benefit of
the KKR Investors pursuant to the Plan of Reorganization. See Footnote (3)
under "Ownership of Principal Stockholders" below. For so long as the KKR
Investors have the power to exercise voting rights with respect to all such
escrowed shares, or if all such escrowed shares were distributed to the KKR
Investors, Messrs. Tokarz and Golkin may be deemed to be beneficial owners
of such 3,553,380 escrowed shares of Common Stock. Messrs. Tokarz and Golkin
disclaim beneficial ownership of such shares.
(6) Includes options to purchase 54,666 shares exercisable currently or within
60 days of August 1, 1997.
(7) Includes options to purchase 49,999 shares exercisable currently or within
60 days of August 1, 1997.
(8) Includes options to purchase 49,999 shares exercisable currently or within
60 days of August 1, 1997.
(9) Includes options to purchase 30,000 shares exercisable currently or within
60 days of August 1, 1997.
(10) Includes 13,958,589 shares of Common Stock beneficially owned by the KKR
Investors and Channel One, which may be deemed to be beneficially owned by
Messrs. Tokarz and Golkin. See Footnote (5) above. Does not include shares
of Common Stock owned by Lehman Holdings. See Footnote (4) above. Also
includes 605,993 shares purchasable under stock options exercisable
currently or within 60 days of August 1, 1997.
11
<PAGE>
OWNERSHIP OF PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the close of business on August 1,
1997, information as to those holders (other than officers and directors of the
Company), known to the Company to be the beneficial owners of more than 5% of
the outstanding shares of the Company's Common Stock. Such information has been
derived from the public filings made by the listed principal stockholders.
<TABLE>
<CAPTION>
NAME AND COMPLETE MAILING ADDRESS NUMBER OF SHARES PERCENT OF CLASS
- ------------------------------------------------------------------------------ ----------------- -----------------
<S> <C> <C>
Asbestos Settlement Trust..................................................... 10,941,326(1) 20.4
9 Burr Road
Westport, CT 06880
Lehman Brothers Holdings, Inc................................................. 7,869,525(2) 14.7
3 World Financial Center
New York, NY 10285
The KKR Investors............................................................. 13,958,589(3) 26.0
(JWC Associates, L.P.,
JWC Associates II, L.P.
and KKR Partners II, L.P.)
and Channel One Associates, L.P.
c/o Kohlberg Kravis Roberts & Co. L.P.
9 West 57th Street
New York, NY 10009
</TABLE>
- ------------------------
(1) The Celotex Trust has agreed with the Company and Lehman to vote and execute
written consents with respect to the shares of Common Stock held by it in
proportion to the votes cast or consents executed and delivered by all other
holders of Common Stock on each matter voted on by stockholders. Identical
restrictions on the voting of Common Stock by the Celotex Trust are
contained in the Charter and in the Plan of Reorganization.
(2) Lehman transferred the shares of Common Stock which it received pursuant to
the Plan of Reorganization to its affiliate, Lehman Holdings.
(3) The shares of Common Stock beneficially owned by the KKR Investors are as
follows: 9,309,427 shares are beneficially owned by JWC Associates, L.P.;
61,687 shares are beneficially owned by JWC Associates II, L.P.; and 225,675
shares are beneficially owned by KKR Partners II, L.P., including 3,446,979,
22,841, and 83,560 shares, respectively, issued to an escrow account on
September 13, 1995 pursuant to the Plan of Reorganization. To the extent
that certain contingencies regarding Federal income tax claims of the
Company are resolved satisfactorily, up to 3,553,380 of the escrowed shares
will be distributed to the KKR Investors under the Plan of Reorganization.
To the extent such matters are not settled satisfactorily, the escrowed
shares will be returned to the Company and canceled. Until such matters are
fully determined, the KKR Investors will have the power to exercise voting
rights with respect to such shares of Common Stock. For so long as the KKR
Investors have the power to exercise voting rights with respect to all such
escrowed shares, or if all such escrowed shares were distributed to the KKR
Investors, the KKR Investors will beneficially own such 3,553,380 shares of
Common Stock. The Company has been advised that as of July 25, 1997 Channel
One beneficially owned 4,361,800 shares of Common Stock.
KKR Associates, L.P. is the sole general partner of each of the KKR Investors
and Channel One. The general partners of KKR Associates, L.P. are Henry R.
Kravis, George R. Roberts, Robert I. MacDonnell, Michael W. Michelson, Paul
E. Raether, Michael T. Tokarz, James H. Greene, Jr., Perry Golkin, Scott M.
Stuart, Clifton S. Robbins and Edward A. Gilhuly.
12
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation paid to
or accrued by the Company for the account of the Chief Executive Officer of the
Company and each of the next four most highly compensated executive officers of
the Company whose cash compensation exceeded $100,000 during the fiscal year
ended May 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
--------------
YEAR ANNUAL COMPENSATION SECURITIES
ENDING -------------------------- UNDERLYING
NAME AND PRINCIPAL POSITION MAY 31 SALARY($)(1) BONUS($)(2) OPTIONS(#)(3)
- ------------------------------------------------------------ ----------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Kenneth E. Hyatt (5)........................................ 1997 551,083 550,000 150,000
Chairman of the Board, Chief Executive 1996 340,245 300,000 150,000
Officer and President 1995 (5) (5) (5)
Richard E. Almy (6)......................................... 1997 260,542 160,000 115,000
Executive Vice President and 1996 (6) (6) 35,000
Chief Operating Officer 1995 (6) (6) 0
William Carr (retired May 31, 1997)......................... 1997 254,089 80,000 50,000
President and Chief Operating Officer of Jim Walter 1996 263,857 30,000 50,000
Resources, Inc., a subsidiary of the Company 1995 247,077 215,000 0
William N. Temple........................................... 1997 211,364 125,000 50,000
Senior Vice President and Group Executive; 1996 213,854 106,000 50,000
President of United States Pipe and Foundry 1995 205,202 287,000 0
Company, Inc., a subsidiary of the Company
1997 191,667 130,000 90,000
Dean M. Fjelstul............................................ 1996 (7) (7) (7)
Senior Vice President and Chief Financial Officer 1995 (7) (7) (7)
<CAPTION>
ALL OTHER
NAME AND PRINCIPAL POSITION COMPENSATION($)(4)
- ------------------------------------------------------------ -------------------
<S> <C>
Kenneth E. Hyatt (5)........................................ *
Chairman of the Board, Chief Executive 70,650
Officer and President (5)
Richard E. Almy (6)......................................... *
Executive Vice President and (6)
Chief Operating Officer (6)
William Carr (retired May 31, 1997)......................... *
President and Chief Operating Officer of Jim Walter 128,876
Resources, Inc., a subsidiary of the Company 74,854
William N. Temple........................................... *
Senior Vice President and Group Executive; 54,818
President of United States Pipe and Foundry 128,596
Company, Inc., a subsidiary of the Company
*
Dean M. Fjelstul............................................ (7)
Senior Vice President and Chief Financial Officer (7)
</TABLE>
- ------------------------
* Not currently available. See footnote (4)
(1) The amounts shown in this column for fiscal 1995 and 1996 include amounts
paid by the Company as the premium on term life insurance for the benefit of
each of the named executive officers and imputed income relating to personal
use of Company-owned automobiles provided to the named executive officers.
Such amounts will henceforth be reported under the All Other Compensation
column. For fiscal 1997 such amounts do not exceed mandated reporting
thresholds.
(2) For fiscal 1995, the amounts shown in this column include bonuses paid to
Messrs. Temple and Carr pursuant to the Plan of Reorganization in addition
to incentive bonus compensation. At the time of filing by the Company and
virtually all of its subsidiaries under Chapter 11, accounting professionals
for the official committees in the Chapter 11 cases recommended that the
Company adopt a retention bonus arrangement, a common method of assuring
retention of key personnel during bankruptcy proceedings. The Company
decided not to adopt such a retention bonus plan but determined instead to
pay bonuses informally upon completion of the reorganization to key
personnel who continued their employment with the Company and its
subsidiaries during the pendency of the Chapter 11 cases (which were
initiated on December 27, 1989 and concluded on March 17, 1995) despite the
unavailability of long-term incentive compensation plans and the limitations
on salaries and incentive compensation imposed by the Bankruptcy Court
during such time. The Company's proposal to make
13
<PAGE>
such informal payments was incorporated in the Plan of Reorganization and
approved by the Bankruptcy Court. Upon the Effective Date of the Plan of
Reorganization Messrs. Temple and Carr were each paid bonuses in the amount
of $175,000.
(3) Options were awarded pursuant to the 1995 Long-Term Incentive Stock Plan of
Walter Industries, Inc.
(4) The amount shown in this column for fiscal 1996 for Mr. Hyatt represents the
Company's contributions for his account in the Walter Industries, Inc.
Profit Sharing Plan (the "Profit Sharing Plan") and accruals for the related
Supplemental Profit Sharing Plan (the "Supplemental Profit Sharing Plan")
which provides benefits which would have been provided under the
tax-qualified Profit Sharing Plan but for restrictions on such benefits
imposed by the Internal Revenue Code of 1986, as amended. The Profit Sharing
Plan and the Supplemental Profit Sharing Plan amounts are for the plan year
ended August 31, 1996. Amounts for the plan year ended August 31, 1997 are
not currently available, but are anticipated not to be materially different
from amounts for the plan year ended August 31, 1996.
The amounts shown in this column for fiscal 1995 and 1996 for Messrs. Carr
and Temple represent accruals for the Supplemental Pension Plan which
provides benefits which would have been provided under a tax-qualified
pension plan but for restrictions on such benefits imposed by the Internal
Revenue Code of 1986, as amended. The current Supplemental Pension Plan year
ends December 31, 1997; amounts accrued for Messrs. Carr and Temple under
the Supplemental Pension Plan for 1997 have thus not been determined.
Except as noted above, the Company did not pay or provide other forms of
compensation (such as perquisites) to any of the named executive officers in
amounts having an aggregate value exceeding the lesser of $50,000, or 10%,
of the total annual salary and bonus reported for such officers.
(5) Mr. Hyatt became an executive officer of the Company on September 1, 1995.
He has been Chairman of the Board and Chief Executive Officer of the Company
since June 1, 1996 and has been President since September 1, 1995. Between
September 1, 1995 and June 1, 1996 he also served as Chief Operating
Officer.
(6) Mr. Almy became an executive officer of the Company on June 1, 1996.
(7) Mr. Fjelstul became an executive officer of the Company on June 10, 1996.
14
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------- POTENTIAL REALIZABLE
% OF VALUE AT ASSUMED ANNUAL
NUMBER OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS EXERCISE APPRECIATION FOR OPTION
UNDERLYING GRANTED TO OR BASE TERM
OPTIONS EMPLOYEES PRICE EXPIRATION -----------------------
NAME GRANTED(#) (1) IN FISCAL 1997 ($/SH) DATE (2) 5% ($) (3) 10% ($) (3)
- ------------------------------------------ -------------- --------------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Kenneth E. Hyatt.......................... 150,000 12.3% 12.3125 07/23/06 1,018,234 2,507,960
Richard E. Almy........................... 115,000 9.4% 12.3125 07/23/06 780,646 1,922,769
William Carr.............................. 50,000 4.1% 12.3125 05/31/02 170,085 375,845
William N. Temple......................... 50,000 4.1% 12.3125 07/23/06 339,411 835,987
Dean M. Fjelstul.......................... 90,000 7.4% 12.3125 07/23/06 610,941 1,504,776
</TABLE>
- ------------------------
(1) All options included in this table will become exercisable in three equal
installments commencing on the first anniversary of the date of grant and
continuing on each of the two anniversaries thereafter. The right to
exercise all of the options is contingent on the optionee's refraining from
conduct which the Compensation Committee determines is contrary to the best
interests of the Company (including but not limited to competition with the
Company) and, except in the case of Messrs. Temple and Carr (see footnote
(2) below), upon the optionee's remaining in the employ of the Company or a
subsidiary of the Company until the date on which the installment becomes
exercisable.
(2) The right to exercise all of the options expires on the tenth anniversary of
the date on which they were granted or, if earlier, three months after
termination of employment (one year in the event of death or disability).
However, in recognition of Messrs. Temple and Carr having continued in the
Company's employ until its emergence from Chapter 11 and to reward them for
their past, present and future services, the right to exercise their options
is not contingent upon continued employment by the Company or a subsidiary
(see footnote (1) above) and such options will not expire as a result of
termination of employment until five years after such termination or, if
later, one year after death. Since Mr. Carr retired on May 31, 1997, his
options are scheduled to expire five years from his date of retirement.
(3) The amounts of hypothetical potential appreciation shown in these columns
reflect required calculations at annual appreciation rates of 5% and 10% set
by the Securities and Exchange Commission and, therefore, are not intended
to represent either historical appreciation or anticipated future
appreciation in the price of Common Stock.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR-END IN-THE-MONEY OPTIONS AT
SHARES (#) FISCAL YEAR-END ($)(1)
ACQUIRED ON
NAME EXERCISE (#) VALUE REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------- ----------------- ----------------------- ---------------------------- -----------------------
<S> <C> <C> <C> <C>
Kenneth E. Hyatt......... 0 0 150,000/150,000 115,625/203,125
Richard E. Almy.......... 0 0 61,666/88,334 77,187/150,000
William Carr............. 0 0 49,999/50,001 36,457/66,668
William N. Temple........ 0 0 49,999/50,001 36,457/66,668
Dean M. Fjelstul......... 0 0 30,000/60,000 58,125/116,250
</TABLE>
- ------------------------
(1) Represents the fair market value as of May 30, 1997 ($14.25 per share
closing stock price) of the option shares less the exercise price of the
options.
15
<PAGE>
ANNUAL BENEFITS PAYABLE UNDER PENSION PLANS
The table below sets forth the aggregate estimated annual retirement
benefits payable under the Pension Plan for Salaried Employees of Subsidiaries,
Divisions and/or Affiliates of Walter Industries, Inc. (the "Pension Plan") and
under the Company's unfunded, non-qualified, Supplemental Pension Plan (the
"Supplemental Pension Plan" and together with the Pension Plan, the "Pension
Plans") for employees retiring at normal retirement age (65) on June 1, 1997,
and is based on social security covered compensation in effect on June 1, 1997:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
-----------------------------------------------------
REMUNERATION 15 20 25 30 35
- ----------------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
150,000.................................................... 30,990 41,320 51,650 61,979 72,309
175,000.................................................... 36,521 48,695 60,868 73,042 85,216
200,000.................................................... 42,052 56,070 70,087 84,104 98,122
225,000.................................................... 47,583 63,445 79,306 95,167 111,028
250,000.................................................... 53,115 70,820 88,525 106,229 123,934
300,000.................................................... 64,177 85,570 106,962 128,354 149,747
350,000.................................................... 75,240 100,320 125,400 150,479 175,559
400,000.................................................... 86,302 115,070 143,837 172,604 201,372
450,000.................................................... 97,365 129,820 162,275 194,729 227,184
500,000.................................................... 108,427 144,570 180,712 216,854 252,997
550,000.................................................... 119,490 159,320 199,150 238,979 278,809
600,000.................................................... 130,552 174,070 217,587 261,104 304,622
</TABLE>
Benefit payments under the Pension Plans are based on final average annual
compensation (including overtime pay, incentive compensation and certain other
forms of compensation reportable as wages taxable for Federal income tax
purposes) for the five consecutive years within the final ten years of
employment prior to normal retirement age (65) which produce the highest
average. This is generally equivalent to the sum of the amounts included under
the Salary and Bonus column headings in the Summary Compensation Table above.
Benefit amounts are shown on a straight-line annuity basis, payable annually
upon retirement at age 65. No offsets are made for the value of any social
security benefits earned. The Company makes accruals for the Supplemental
Pension Plan only for such employees as to which the pension benefits under the
Pension Plan have been limited by the Code. In the case of the Supplemental
Pension Plan, the applicable company may, in its sole discretion, elect to
furnish any and all benefits due by purchasing annuities, or by other means at
its disposal, including payment of the present value of such benefits.
Only employees of the Company's subsidiaries (except Jim Walter Homes, Inc.,
Mid-State Homes, Inc., Best Insurors, Inc., Best Insurors of Mississippi, Inc.,
Jim Walter Insurance Services, Inc., Dixie Building Supplies, Inc., Coast to
Coast Advertising, Inc. and Neatherlin Homes, Inc.) participate in the Pension
Plans. Of the named executive officers, Messrs. Carr (who retired on May 31,
1997) and Temple are participants in the Pension Plans with twenty-one and
eleven years of credited service, respectively. Prior to June 1, 1996, Mr. Almy
was employed by a subsidiary of the Company and participated in the Pension
Plans. Messrs. Hyatt and Fjelstul are not participants in the Pension Plans.
16
<PAGE>
PROFIT SHARING PLANS
Under the Profit Sharing Plan and the Supplemental Profit Sharing Plan,
amounts contributed by the Company for the benefit of the participants become
payable upon termination of employment. In the case of the Supplemental Profit
Sharing Plan, accrued amounts are payable, at the discretion of the Company, in
either a lump sum or in sixty equal monthly installments. While the Profit
Sharing Plan provides retirement benefits for all salaried employees of the
Company and certain of its subsidiaries not covered by the Pension Plans, the
Company makes accruals for the Supplemental Profit Sharing Plan only for such
employees as to which the full contribution under the Profit Sharing Plan has
been limited by the Code. For the Supplemental Profit Sharing Plan year ending
August 31, 1997, Messrs. Hyatt, Almy and Fjelstul qualified for participation in
the Supplemental Profit Sharing Plan. Amounts for the plan year ended August 31,
1997 are not currently available. See footnote (4) to the Summary Compensation
Table herein.
COMPENSATION COMMITTEE INTERLOCKS OR INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
During the fiscal year ended May 31, 1997, the Company's two employee
directors, Messrs. Hyatt and Almy, participated in deliberations of the
Company's Board concerning executive compensation. However, Mr. Hyatt and Mr.
Almy did not vote on executive compensation matters in which they were directly
involved; instead they abstained on such occasions.
17
<PAGE>
PERFORMANCE GRAPH
The following line graph illustrates the Company's cumulative stock market
performance for the two fiscal years since the Company's Common Stock was issued
in conjunction with the Company's emergence from its five-year Chapter 11
reorganization in March 1995.
For purposes of this graph, the Company's performance is measured against
the Standard & Poor's 500 Stock Index ("S&P 500") and the Dow Jones
Industrial-Diversified Index ("Dow Jones Diversified") average for the same
two-year period. The Company, as a highly diversified business with interests in
homebuilding and financing, coal mining, and various industrial manufacturing
operations, is not easily categorized with other, more specific industry
indices.
Total return values were calculated based on cumulative total return
assuming (i) the investment of $100 in the Common Stock, the S&P 500 and the Dow
Jones Diversified on June 1, 1995 and (ii) reinvestment of dividends.
COMPARISON OF TWO-YEAR CUMULATIVE TOTAL RETURN
AMONG WALTER INDUSTRIES, INC., S&P 500 INDEX AND DOW JONES
INDUSTRIAL-DIVERSIFIED
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
WALTER INDUSTRIES, INC. 100 104.18 96.74 93.95 95.81 99.53 98.6 113.02 106.04
S&P 500 INDEX 100 106.02 114.93 122.25 128.48 125.87 146.95 154.24 166.27
DJ INDUSTRIAL-DIVERSIFIED 100 109.73 111.56 126.31 129.79 129.55 150.38 149.73 164.38
</TABLE>
18
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors (the "Committee"),
consisting entirely of non-employee directors, reviews and approves executive
compensation philosophy and policies, as well as the application of such
policies to the compensation of the Company's Chief Executive Officer and other
executive officers. The Committee is also responsible for the administration of
and awards under the 1995 Long-Term Incentive Stock Plan of Walter Industries,
Inc.
GENERAL COMPENSATION POLICY
The purpose of the Company's executive compensation program is to (i)
attract, motivate and retain qualified key executives who are responsible for
the success of the Company as a whole, (ii) provide incentives to management to
increase stockholder value, (iii) increase the overall performance of the
Company and (iv) increase the performance of individual executives.
PRINCIPAL COMPENSATION ELEMENTS
For fiscal 1997 the principal elements of the Company's executive
compensation were base pay, short-term cash incentive compensation and stock
based incentives. To determine guidelines for each of these elements of
compensation, the Company has, for many years, maintained specific salary grade
levels and corresponding pay ranges for every salaried position in the Company.
Such salary ranges are periodically benchmarked against external salary survey
data, including comparable compensation data for numerous diversified
manufacturing and residential construction companies. While none of the
companies in these surveys engage in precisely the same mix of businesses as the
Company, the Committee believes that such surveys provide a reliable standard
for measuring the Company's compensation practices. Periodically, the Company
reviews and evaluates its executive pay structure with outside compensation
consultants to confirm the validity of the executive salary ranges and to
conform such structure with competitive market levels for several key positions,
including the Chief Executive Officer.
BASE SALARY
The Committee annually reviews and approves the base salary of each
executive officer. In determining salary adjustments, the Committee considers
the responsibilities associated with the position, individual contribution and
performance, and applicable external salary survey data.
Mr. Hyatt was elected Chairman and Chief Executive Officer of the Company
effective June 1, 1996. In recognition of his promotion, the Board set his base
compensation at $550,000 per year, based upon objective external salary data and
the advice of Buck Consultants, Inc., a consultant to the Committee. The
Committee targeted the median level of compensation for comparable industries
and similar positions.
EXECUTIVE INCENTIVE COMPENSATION
For fiscal 1997, the Committee, after discussions with its outside
consultant, developed a comprehensive incentive plan for key employees including
Messrs. Hyatt, Almy, Carr, Temple and Fjelstul (the "1997 Incentive Plan"). The
1997 Incentive Plan utilized targets based on operating income and return on
assets employed objectives to determine bonus funding pools for key corporate
and subsidiary employees. Under the 1997 Incentive Plan, the Company's plan
19
<PAGE>
participants (including Mr. Hyatt) were paid from a pool that could not exceed
2 1/2% of consolidated earnings after dedicated interest expense of the
Company's mortgage portfolio but before corporate interest, taxes, goodwill
amortization and extraordinary items. For fiscal 1997, 72% of the maximum
permitted amount was paid to eligible employees. Incentive compensation awards
paid to individual plan participants, other than Mr. Hyatt, were based on the
relative performances of each of the Company's operating subsidiaries, and, for
corporate participants, aggregate results of the Company. The amount of
incentive compensation paid to Mr. Hyatt for fiscal 1997 was recommended by the
Committee, after consultation with its outside consultant, and approved by the
Board. Under the 1997 Incentive Plan, Mr. Hyatt could have earned an amount
equal to up to 130% of his base annual compensation. Mr. Hyatt's bonus award in
any given year reflects the Company's operating results and in fiscal 1997 was
based on year-over-year growth in operating income and return on assets employed
at the Company's subsidiaries as well as the Company's performance in the
aggregate.
STOCK BASED COMPENSATION
The Committee believes that equity ownership by management is beneficial in
aligning the interests of management and the Company's stockholders for the
purpose of enhancing stockholder value. To this end in July 1995 the Company
adopted the 1995 Long-Term Incentive Stock Plan of Walter Industries, Inc. (the
"Stock Plan") which was ratified by the stockholders in October 1995. Proposal 2
contained in this Proxy Statement requests stockholder approval to amend the
Stock Plan, among other matters, to provide for additional shares of Common
Stock which would be subject to the Stock Plan.
The purpose of the Stock Plan is to utilize stock options, stock
appreciation rights and stock awards as components of executive compensation to
assure external competitiveness of total compensation, encourage equity
ownership by key executives, motivate executives to improve long-term stock
performance, and align executives' interests with the enhancement of stockholder
value. Grants are made periodically by the Committee, with the exception of
grants to the Chief Executive Officer, based on recommendations of the Chief
Executive Officer and the advice of the Committee's outside consultant, taking
into consideration the respective responsibilities of each position, external
stock-based compensation survey data, and the strategic and operational goals
and performance of each participant. Awards to the Chief Executive Officer are
determined separately by the Committee and are based, among other things, on the
Committee's perception of expected future contributions to the Company's
long-term performance.
The exercise price for all options granted during fiscal 1997 were at the
then market value of the Common Stock based on an average of the high and low
prices on the date of the grant. The exercise price of awards granted, the life
of such awards, vesting of awards and other terms and conditions of awards
granted under the Stock Plan are determined by the Committee, in its discretion.
Options must expire not more than 10 years from their date of grant.
Mr. Hyatt's award under the Stock Plan during fiscal 1997 reflects his level
of responsibility within the Company, while taking into account relative amounts
of awards granted to other key executives.
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COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Internal Revenue Code of 1986, as amended, limits the
tax deductibility by a company of compensation in excess of $1 million paid to
any of its five most highly compensated executive officers. However,
performance-based compensation that has been approved by stockholders is
excluded from the $1 million limit if, among other requirements, the
compensation is payable only upon attainment of pre-established, objective
performance goals and the board committee that establishes such goals consists
only of "outside directors" as defined for purposes of Section 162(m). All of
the members of the Committee qualify as "outside directors." The Committee
intends to maximize the extent of tax deductibility of executive compensation
under the provisions of Section 162(m) so long as doing so is compatible with
its determinations as to the most appropriate methods and approaches for the
design and delivery of compensation. To this end, Proposal 1 contained in this
Proxy Statement requests stockholder approval of an executive incentive plan
which is intended to ensure that amounts paid under such plan are deductible for
federal income tax purposes.
SUMMARY
The Committee believes that the mix of market-based salaries, significant
variable cash incentives for short-term performance and stock-based awards,
which provide the potential for equity ownership in the Company, represents a
balance that will enable the Company to attract and retain key executive talent
necessary for sustainable, long-term growth. The Committee further believes that
this program strikes an appropriate balance between the interests of
stockholders and needs of the Company in operating its businesses.
COMPENSATION COMMITTEE
James L. Johnson, Chairman
Howard L. Clark, Jr.
James B. Farley
Michael T. Tokarz
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires executive officers and directors, and persons who
beneficially own more than ten percent (10%) of the Company's Common Stock to
file initial reports of ownership and reports of changes in ownership with the
Securities and Exchange Commission ("SEC"). Executive officers, directors and
greater than ten percent (10%) beneficial owners are required by SEC regulations
to furnish the Company with copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the
Company and written representations from the executive officers and directors,
the Company believes that all Section 16(a) filing requirements applicable to
its executive officers and directors were complied with during its 1997 fiscal
year.
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PROPOSALS TO BE PRESENTED TO THE ANNUAL MEETING
PROPOSAL 1. TO APPROVE AN ANNUAL INCENTIVE PLAN FOR KEY
EMPLOYEES OF THE COMPANY
The stockholders are being asked to consider and approve an Annual Incentive
Plan for Key Employees (the "Plan" or "AIP"). The Plan is intended to satisfy
the applicable provisions of, and is being submitted to stockholders pursuant to
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). On
July 22, 1997 the Board of Directors approved the Plan as reflected in this
Proposal 1, subject to approval of this Proposal 1 by the stockholders. The
following description of the Plan is qualified in its entirety by reference to
the text of the Plan set forth in Exhibit A.
Under Section 162(m) of the Code, the amount which the Company may deduct on
its tax returns for compensation paid to certain "covered employees" (generally
the chief executive officer and the four highest paid executive officers other
than the chief executive officer) in any taxable year is generally limited to $1
million per individual. However, compensation that qualifies as
"performance-based compensation" is not subject to the $1 million deduction
limit. In order for compensation to qualify as "performance-based" for this
purpose, it must meet certain conditions, one of which is that the material
terms of the performance goal under which the compensation is to be paid must be
disclosed to and approved by stockholders. The Plan is being submitted to
stockholders for approval so that any compensation paid pursuant to the Plan
will qualify as "performance-based" and be deductible by the Company.
The persons who are eligible to be selected to participate in the Plan are
employees of the Company and its subsidiaries who are executive officers of the
Company and whose annual incentive compensation for any taxable year of the
Company commencing on or after June 1, 1997 the Committee anticipates may not be
deductible by the Company in whole or in part unless such compensation qualifies
as "performance-based" under Section 162(m)(4)(C) of the Code, including members
of the Board of Directors who are such employees. At the present time, only one
person, Mr. Hyatt, is eligible to be (and has been) selected to participate in
the Plan. However, approximately 110 other officers and employees of the Company
are eligible to be selected to participate in similar annual incentive
compensation arrangements on terms that are generally less restrictive than the
Plan. Under the Plan, the Committee selects participants in the Plan, determines
the amount of their award opportunities, selects the performance criteria and
the performance goals for each year, and administers and interprets the Plan. An
eligible employee may (but need not) be selected to participate in the Plan each
year.
No later than 90 days after the commencement of each fiscal year of the
Company that commences on or after June 1, 1997 (or by such other deadline as
may apply under Code Section 162(m)(4)(C) or the Treasury regulations
thereunder), the Committee will select the persons who will participate in the
Plan in such fiscal year and establish in writing the performance goals for that
fiscal year as well as the method for computing the amount of compensation which
each such participant will be paid if such performance goals are attained in
whole or in part. Such method will be stated in terms of an objective formula or
standard; neither the Committee nor the Company has any discretion to increase
the amount that will be due upon attainment of the goals. The Committee retains
discretion under the Plan to reduce an award at any time before it is paid.
Participants pay no cash consideration for awards under the Plan.
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<PAGE>
The maximum amount of compensation that may be paid under the Plan to any
participant for any fiscal year to $2,000,000. In addition, in no event may any
participant's award, when added to all other incentive compensation awarded for
the same fiscal year to management employees of the Company and its
subsidiaries, exceed 2.5% of the Company's earnings after dedicated interest
expense of the Company's mortgage portfolio but before corporate interest,
taxes, goodwill amortization, and extraordinary items.
Under the Plan, the performance goals used to determine awards for any
fiscal year may be based on any of the following criteria, either alone or in
any combination, and on either a consolidated or business unit or divisional
level, as the Compensation Committee of the Board of Directors, or another
committee designated by the Board and consisting exclusively of "outside
directors" within the meaning of Section 162(m) of the Code (the "Committee")
may in each case determine: level of sales; earnings per share; earnings after
dedicated interest expense of the Company's mortgage portfolio but before
corporate interest, taxes and goodwill amortization expense; net income;
operating income net of interest expense; operating income before interest
expense; return on assets employed; return on net assets; return on equity;
return on capital employed; total stockholder return; and market valuation. The
foregoing terms shall be determined in accordance with generally accepted
accounting principles, and may include or exclude any or all of the following
items, as the Committee may specify: extraordinary, unusual or non-recurring
items; discontinued operations; effects of accounting changes; effects of
currency fluctuations; effects of financing activities (e.g., effect on earnings
per share of issuing convertible debt securities); expenses for restructuring or
productivity initiatives; non-operating items; acquisition expenses (e.g.,
pooling of interests); and effects of divestitures. Any of the foregoing
criteria may apply to a participant's award opportunity for any year in its
entirety or to any designated portion of the award opportunity, as the Committee
may specify. Unless the Committee determines otherwise at any time prior to
payment of a participant's award under the Plan for any year, extraordinary
items, such as capital gains and losses, which affect any performance criterion
applicable to the award will be automatically excluded or included (depending on
which will produce the higher award) in calculating the award that has been
earned. This provision is included in the Plan because awards may qualify as
"performance-based compensation" under Section 162(m) of the Code if the
Committee has discretion to reduce an award, but not if the Committee has
discretion to increase an award.
The performance goals that have been established by the Committee under the
Plan for the fiscal year commencing June 1, 1997 are based on operating income
and return on assets employed. Under the Plan, the Committee may but need not
use the same criteria for awards in future years.
Awards may be paid under the Plan for any fiscal year only if and to the
extent the awards are earned on account of the attainment of the performance
goals applicable to such year (including continued employment during the year).
The only exceptions to this rule apply if employment terminates by reason of
death or disability during a year, or if a change of ownership or control (as
defined by the Committee) occurs during the year, in which case a full or
prorated award may be paid at or after the time of the termination of employment
or the change of ownership or control (as determined by the Committee). If a
participant's employment terminates for any reason other than death or
disability during a fiscal year, any unpaid award for such year will be
forfeited.
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<PAGE>
Unless the Committee provides otherwise, all payments pursuant to the Plan
are to be made in cash when the Committee certifies that the performance goals
for the year have been satisfied.
The Plan is in effect for the year commencing June 1, 1997 and will continue
in effect for subsequent years unless and until terminated by the Committee in
accordance with the provisions of the Plan. The Board may amend or terminate the
Plan without stockholder approval at any time.
The following table sets forth the award that will be payable pursuant to
the Plan for the fiscal year ending May 31, 1998 if the maximum performance
goals established by the Committee for that fiscal year are attained and there
is no interruption of Mr. Hyatt's employment during that year. This award is
payable only if stockholders approve the Plan, and is subject to reduction by
the Committee in its discretion, as provided by the Plan.
NEW PLAN BENEFITS
ANNUAL INCENTIVE PLAN
<TABLE>
<CAPTION>
DOLLAR VALUE ($)
NAME AND POSITION (1) MAXIMUM AWARD OPPORTUNITY
- ----------------------------------------------------------------- ---------------------------
<S> <C>
Kenneth E. Hyatt................................................. 745,800(2)
Chairman, Chief Executive Officer and President
</TABLE>
- ------------------------
(1) For the fiscal year ending May 31, 1998, Mr. Hyatt is the only employee
eligible for an award under the Plan.
(2) Represents the maximum award opportunity for the fiscal year ending May 31,
1998 if there is no interruption of Mr. Hyatt's employment and a specified
maximum level of performance is attained or exceeded. The $745,800 shown
above represents the actual maximum award opportunity established by the
Committee for fiscal 1998 and is substantially below the $2,000,000 maximum
allowable annual incentive compensation payable to any individual under the
terms of the Plan. Lesser amounts will be payable at lower levels of
performance above a specified minimum level. If such minimum level of
performance is not attained, no amount will be paid under the Plan. The
amount shown in the table does not reflect any reductions which the
Committee is authorized to make in its discretion pursuant to the Plan.
Any other amounts that will be received by or allocated to any person in the
future pursuant to the Plan, and any amounts that would have been received by or
allocated to any person for the fiscal year ended May 31, 1997 if the Plan had
been in effect, are not determinable at the present time, as all such
determinations are made by the Committee in its sole discretion, subject to the
provisions of the Plan. However, the maximum amount that could have been
received by or allocated to any participant for the fiscal year ended May 31,
1997 had the Plan been in effect for that year would have been $2,000,000.
Payment of any awards pursuant to the Plan is contingent on stockholder
approval of the Plan. If such approval is not obtained, no such awards will be
paid.
The Plan will be approved if it receives the affirmative vote of the holders
of a majority of the Common Stock represented in person or by proxy and entitled
to vote at the Annual Meeting under Delaware law. Unless marked to the contrary,
proxies received will be voted FOR approval of the Annual Incentive Plan for Key
Employees.
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR APPROVAL OF THE ANNUAL
INCENTIVE PLAN FOR KEY EMPLOYEES.
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<PAGE>
PROPOSAL 2. TO APPROVE THE AMENDED 1995 LONG-TERM INCENTIVE STOCK PLAN OF
WALTER INDUSTRIES, INC.
The stockholders are being asked to consider and approve the Company's 1995
Long-Term Incentive Stock Plan (the "Stock Plan"), as amended and described
herein. The Stock Plan was previously adopted by the Board of Directors and
approved by stockholders. On July 22, 1997 the Board of Directors approved the
amendments to the Stock Plan reflected in this Proposal 2, subject to approval
of this Proposal 2 by the stockholders. The descriptions of the Stock Plan and
the proposed amendments thereto are qualified in their entirety by reference to
the complete text of the amended and restated Stock Plan set forth in Exhibit B.
Stockholder approval is requested because certain of the amendments require
stockholder approval under the terms of the Stock Plan and to ensure that stock
options and stock awards issued under the Stock Plan, as amended, can be tax
deductible as performance-based compensation, as defined by the regulations
under Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code").
The amendments:
(1) increase the aggregate number of shares of Common Stock that may be
issued or transferred to participants under the Stock Plan, as amended, by three
million shares, to a total of six million shares, subject to adjustment in the
event of recapitalizations, stock splits, and similar corporate transactions;
(2) increase the maximum number of shares of Company Common Stock with
respect to which options, stock appreciation rights, stock awards or any
combination of such options, rights and awards may be granted to any employee
during the period in which the Stock Plan is in effect by 500,000 shares to one
million shares, subject to adjustment in the event of recapitalizations, stock
splits, and similar corporate transactions. Prior to its amendment, such maximum
was 500,000 shares and it applied only to the number of shares with respect to
which options or stock appreciation rights could be granted to any employee, and
not to the number of shares with respect to which stock awards (or any
combination of options, stock appreciation rights and stock awards) could be
granted to any employee;
(3) clarify that the class of children and grandchildren to whom the
Compensation Committee may permit a participant to transfer an award under the
Stock Plan (other than Incentive Stock Options) during such participant's
lifetime includes children and grandchildren by marriage (e.g., son-in-law,
daughter-in-law and step-children) and by adoption;
(4) provide that the performance objectives on which stock awards may (but
need not) be made contingent by the Compensation Committee shall be based on one
or more of: the fair market value or book value of Common Stock; level of sales;
earnings per share; earnings after dedicated interest expense of the Company's
mortgage portfolio but before corporate interest, taxes and goodwill
amortization; income before income taxes and the cumulative effect of accounting
changes; income before the cumulative effect of accounting changes; net income;
operating income net of interest expense; operating income before interest
expense; net worth; return on total assets; return on net assets; return on
equity; return on capital employed; total stockholder return; and market
valuation (each on either a consolidated or business unit or divisional level,
as the Compensation Committee may determine). Prior to its amendment, the Stock
Plan did not limit the business criteria on which such performance objectives
could be based; and
25
<PAGE>
(5) provide that the business criteria listed in clause (4) above shall be
determined in accordance with generally accepted accounting principles, and may
include or exclude any or all of the following items, as the Compensation
Committee may specify: discontinued operations; extraordinary, unusual or
non-recurring items; effects of accounting changes; effects of currency
fluctuations; effects of financing activities (e.g., effect on earnings per
share of issuing convertible debt securities); expenses for restructuring or
productivity initiatives; non-operating items; acquisition expenses (e.g.,
pooling of interests); and effects of divestitures.
The Board recommends that stockholders approve the amended Stock Plan at the
Annual Meeting. The increase in the aggregate number of shares that may be
issued or transferred under the amended Stock Plan was adopted by the Board of
Directors of the Company because only approximately 3,000 shares currently
remain available for grants under the Stock Plan, the balance of the original
authorization of three million shares having been issued pursuant to or reserved
for awards that were made from the inception of the Stock Plan to date. The
original authorization of shares has been largely expended on ordinary, ongoing
levels of long-term incentive compensation as well as on awards intended to
compensate certain key employees for the protracted period (5 years) during
which the Company was in Chapter 11 and no long-term incentive awards were made.
The increase in the maximum number of shares with respect to which options or
stock appreciation rights may be granted to any given employee was adopted by
the Board of Directors because it was anticipated that the original maximum
number of 500,000 shares might not be sufficient in the foreseeable future. The
period during which awards may be made under the Stock Plan continues to extend
until October 17, 2005, unless the Stock Plan is sooner terminated by the Board
of Directors. The amendments subjecting stock awards to the foregoing maximum
and relating to the performance criteria for stock awards were adopted in order
to enable stock awards to qualify as "performance-based compensation" within the
meaning of Section 162(m)(4)(C) of the Code without the need for additional
stockholder action.
Under section 162(m) of the Code, the amount which the Company may deduct on
its tax returns for compensation paid to certain "covered employees" (generally
the chief executive officer and the four highest paid executive officers other
than the chief executive officer) in any taxable year is generally limited to $1
million per individual. However, compensation that qualifies as
"performance-based compensation" is not subject to the $1 million deduction
limit. In order for compensation to qualify as "performance-based" for this
purpose, it must meet certain conditions, one of which is that certain material
terms of the compensation arrangement must be disclosed to and approved by
stockholders. The foregoing description of the amendments, together with the
description of the Stock Plan that follows, is intended to satisfy that
requirement.
The adoption of the amended Stock Plan is contingent on stockholder
approval. If such approval is not obtained, the amended Stock Plan will be of no
force or effect, and the Stock Plan as in effect prior to its amendment will
continue in effect in accordance with its terms.
SUMMARY OF THE STOCK PLAN
The purposes of the Stock Plan are to promote the interests of the Company
and its stockholders by strengthening the Company's ability to attract and
retain highly competent officers and other key employees; to permit Stock Plan
participants to be rewarded using stock-
26
<PAGE>
based incentives; and to provide a means to encourage stock ownership and
proprietary interest in the Company by the recipients of awards made under the
Stock Plan.
The Stock Plan authorizes the Compensation Committee of the Board of
Directors, or such other committee as the Board of Directors may appoint to
administer the Stock Plan (in either case, the "Committee"), to grant eligible
employees options to purchase shares of Common Stock. The options may be either
options that qualify for the special tax treatment accorded to incentive stock
options ("ISOs") under Section 422 of the Code, or options that do not so
qualify (so-called "non-qualified stock options" or "NQSOs"). The Stock Plan
also authorizes the Committee to grant eligible employees stock appreciation
rights ("SARs") and stock awards. Options, SARs and stock awards may be granted
singly, in combination or in tandem, or in replacement of, as alternatives to or
as the payment form for grants or rights under any other compensation plan of
the Company.
If approved by stockholders, the amended Stock Plan will remain in effect
until October 17, 2005, or until sooner terminated by the Board of Directors.
As amended, the Stock Plan provides that a total of six million shares of
Common Stock may be issued or transferred under the Stock Plan, three million of
which may (but need not) be issued or transferred in respect of ISOs. Under the
amended Stock Plan, the maximum number of such shares with respect to which
stock options, stock appreciation rights, stock awards or any combination of
options, rights and stock awards may be granted to any employee during the
period in which the amended Stock Plan is in effect is one million shares, and
the aggregate number of such shares that may be used in settlement of stock
awards is one million. Shares used under the Stock Plan may be authorized and
unissued shares or treasury shares or any combination thereof. Shares subject to
an award which is forfeited, expires or is cancelled shall become available for
the granting of other awards. Any shares and awards issued by the Company as a
result of its assumption of, or in substitution for, awards previously granted
by an acquired entity shall not be counted against the shares available for
issuance under the Stock Plan. The Stock Plan provides for the Committee to make
such proportionate adjustments as it deems appropriate in the share limitations
set forth above, in outstanding grants, and in the exercise price of outstanding
stock options, SARs or similar awards, to reflect recapitalizations, stock
splits, stock dividends, mergers, spin-offs and similar transactions. Any cash
proceeds received by the Company from the issuance of shares pursuant to the
exercise of options or the settlement of other awards under the Stock Plan shall
be available for general corporate purposes.
The Company anticipates that the three million shares to be made available
under the amended Stock Plan, together with the balance of shares remaining in
the Stock Plan, will provide for share grants to be made over a five-year
period.
Any employee of the Company or any entity that is directly or indirectly
controlled by the Company or in which the Company has a significant equity
interest (as determined by the Committee) is eligible to be selected by the
Committee to participate in the Stock Plan, including officers and members of
the Board of Directors who are employees of the Company. The number of persons
who are eligible to be selected to participate in the Stock Plan at the present
time is approximately 150 and is subject to change.
The Stock Plan is administered by the Committee which, within the parameters
set forth in the Stock Plan, determines the type of awards to grant, selects
participants from the class of employees eligible to participate, determines the
number of shares of Common Stock to be
27
<PAGE>
subject to each award, and determines the terms and conditions of the awards.
The Committee interprets the Stock Plan and is authorized to make all
determinations and decisions thereunder. The Committee is not authorized to
cancel outstanding stock options or SARs for the purpose of replacing them with
stock options or SARs that have lower exercise prices. Under the Stock Plan, the
Committee must consist of two or more members of the Board of Directors, each of
whom qualifies to administer the Stock Plan under Section 16(b) of the Exchange
Act and Section 162(m)(4)(C) of the Code, unless the Company's Board of
Directors determines otherwise. (Rule 16b-3 of the Exchange Act exempts certain
transactions by executive officers and directors under employee benefit plans
such as the Stock Plan from the short-swing trading rules of federal securities
legislation. Section 162(m)(4)(C) of the Code exempts certain performance-based
compensation from the $1 million limit on the amount of certain executives'
compensation which publicly traded corporations may deduct on their tax returns,
provided, among other matters, that the performance goals are determined by a
Board committee comprised solely of outside directors).
Unless the Committee determines otherwise, transactions by executive
officers and directors under the Stock Plan are intended to qualify for the
exemptions available under Rule 16b-3 of the Exchange Act, and awards granted to
executive officers are intended to qualify as "performance-based compensation"
if such qualification is necessary to preserve the Company's deduction for such
awards under Code Section 162(m). The Stock Plan is specifically intended to
give the Committee authority to grant awards that will qualify as
"performance-based compensation" as well as awards that will not so qualify.
Stock options and other awards granted under the Stock Plan shall be
evidenced by agreements that set forth the terms and conditions of the award.
The Committee need not require the execution of any such agreement by the
recipient, in which case acceptance of the award by the recipient will
constitute the participant's agreement to the terms and conditions of the award.
Awards granted under the Stock Plan (including stock options) are
exercisable, during the employee's lifetime, only by the employee and are not
transferable by the employee except by will, the laws of descent and
distribution or to a designated beneficiary. However, the Committee may in its
discretion authorize an employee who is granted a NQSO or any other award (other
than an ISO or an award linked to an ISO) to transfer the award during his
lifetime to members of his immediate family (defined as being children,
grandchildren and spouse) or to family trusts or partnerships without
consideration for estate planning purposes. In the event of such a transfer, the
award would continue to be subject to substantially the same terms and
conditions as applied before the transfer occurred. The class of children and
grandchildren to whom awards may be transferred is the subject of amendment (3)
described above.
The Committee may permit or require any award under the Stock Plan to be
deferred with or without interest, to be paid in cash or shares of Common Stock
or a combination thereof, and to earn amounts equivalent to dividends ("dividend
equivalents"), which may be paid currently in cash or shares or may be credited
to the participant's account, as the Committee may determine. If credited to the
participant's account, dividend equivalents may be deemed reinvested in
additional shares or units equivalent to shares, as the Committee may determine.
Dividend equivalents that are paid in cash in conjunction with awards shall not
be counted against the shares available for issuance under the Stock Plan.
28
<PAGE>
The Stock Plan is not intended to preclude the establishment or continuation
of, or be a substitute for, any other employee compensation plan, practice or
arrangement which the Company now has or may hereafter put into effect,
including, without limitation, any retirement, incentive compensation, stock
purchase, stock option or stock bonus plan.
OPTIONS
The price at which a share of Common Stock may be purchased under any option
granted under the Stock Plan is at least 100% of the fair market value of a
share of Common Stock on the date the option is granted (or, if greater, the par
value of a share). Under the Stock Plan, "fair market value" is defined as the
average of the high and low sale prices of a share of Common Stock in
consolidated trading on the date in question as reported in the WALL STREET
JOURNAL or, if such prices are not reported in the WALL STREET JOURNAL, the
average of the closing bid and asked prices of a share of Common Stock on the
date in question as furnished by a professional market maker making a market in
the Common Stock.
Options may be granted for such lawful consideration as the Committee may
determine when the options are granted. Such consideration may consist of money
or other property, tangible or intangible, or labor or services received or to
be received by the Company. Property for this purpose includes an obligation of
the Company unless prohibited by applicable law. Options may become exercisable
in full at the time of grant or at such other time or times and in such
installments as the Committee may determine. The Stock Plan provides that the
Committee may at any time accelerate the date on which an option becomes
exercisable, and no additional consideration need be received by the Company in
exchange for such acceleration. Options may be exercised during such periods
before and after the date on which the optionee ceases to be an employee of the
Company and its subsidiaries as the Committee may determine. Each option will
expire at such time as the Committee may determine at the time of grant, but no
option will be exercisable after the tenth anniversary of the date on which it
was granted.
The purchase price of the shares subject to an option may be paid in cash or
such other method as the Committee may permit, including (a) tendering (actually
or by attestation) shares of Common Stock already owned by the optionee, or (b)
authorizing a third party (such as a stockbroker) to sell the shares (or a
portion of the shares) being purchased upon exercise of the option, and
assigning to the Company a sufficient amount of the sale proceeds to pay for all
the shares being purchased (and any taxes due on the exercise). If an optionee
pays the purchase price by surrendering shares of Common Stock he already owns,
such shares will be valued at their fair market value on the date of such
surrender and will be added back to the number of shares available for issuance
under the Stock Plan.
The Committee may provide that, at the time of grant of an option (the
"Original Option"), the recipient employee shall be granted an additional option
(a "Restored Option") in the event such employee pays the purchase price of the
shares subject to the Original Option by tendering shares of Common Stock the
employee already owns. Each Restored Option shall cover the number of shares of
Common Stock equal to the number of shares of Common Stock surrendered by the
employee in payment of the purchase price, shall have a purchase price per share
of Common Stock subject to the Restored Option equal to the fair market value of
the Common Stock on the date of grant of such Restored Option, and shall expire
not later than on the stated expiration date of the Original Option.
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<PAGE>
STOCK APPRECIATION RIGHTS
SARs represent the right to receive a payment, in cash, shares of Common
Stock or a combination of cash and such shares, equal to the excess of the fair
market value of a specified number of shares of Common Stock on the date the
SARs are exercised over the fair market value of such number of shares on the
date the SARs were granted (or, in the case of SARs granted retroactively in
tandem with or in substitution for a stock option, the excess of the fair market
value, on the date the SARs are exercised, of the number of shares of Common
Stock subject to the option over the fair market value of such shares on the
date the option was granted). If SARs are settled in cash, the shares covered by
the SARs shall remain available for awards under the Stock Plan.
STOCK AWARDS
The Committee may award eligible employees shares of Common Stock or units
equivalent in value to shares of Common Stock, subject to such terms, conditions
and restrictions as the Committee may impose, which may (but need not) include
requirements of continuous service with the Company and/or the achievement of
performance goals ("Stock Awards"). The performance criteria that the Committee
may use for this purpose are the subject of amendments (4) and (5) described
above. If a Stock Award is settled in cash, the shares covered by such award
shall remain available for awards under the Stock Plan.
CERTAIN CHANGE IN CONTROL PROVISIONS
Under the Stock Plan, the Committee may provide, either at the time an award
is granted or at a subsequent date, for appropriate adjustments and settlements
of awards, including accelerated vesting, in contemplation of, or if the Company
undergoes, a change in control (as defined by the Committee), a merger or
consolidation with another corporation in which the Company is not the surviving
corporation, or a liquidation or reorganization.
AMENDMENT OF THE STOCK PLAN
The Board of Directors may amend the Stock Plan at any time and in any
respect without stockholder approval, unless stockholder approval of the
amendment in question is required under Delaware law, the Code, any applicable
exemption from Section 16 of the Exchange Act for which the Company intends
transactions by executive officers or directors to qualify, any national
securities exchange or system on which the Common Stock is then listed or
reported, or under any other applicable laws, rules or regulations. The Board of
Directors may also terminate the Stock Plan at any time. However, no amendment
or termination of the Stock Plan may adversely affect any awards that were
granted before the date of such amendment or termination without the consent of
the participant.
NEW PLAN BENEFITS
The amount of options and benefits to be received by or allocated to any
individual under the amended Stock Plan in the future, or that would have been
received by or allocated to any individual if the amended Stock Plan had been in
effect during the last completed fiscal year, is not determinable at the present
time, as all such determinations under the Stock Plan are to be made by the
Committee in its sole discretion. The market value of a share of Common Stock on
August 7, 1997, the latest practicable date before publication of this proxy
statement, was $18.50.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF STOCK OPTIONS
The following brief description of the tax consequences of stock options
granted under the Stock Plan is based on Federal income tax laws currently in
effect and does not purport to be a complete description of such Federal income
tax consequences.
There are no Federal income tax consequences either to the optionee or the
Company upon the grant of an ISO or a NQSO. If shares are purchased under an ISO
(i.e., an ISO is exercised) during employment or within three months thereafter,
the optionee will not recognize any income and the Company will not be entitled
to a deduction in respect of the option exercise. However, the excess of the
fair market value of the shares on the date of such exercise over the purchase
price of the shares under the option will be includible in the optionee's
alternative minimum taxable income, which may give rise to alternative minimum
tax liability for the optionee in the year of exercise. Generally, if the
optionee disposes of shares purchased under an ISO within two years of the date
of grant or one year of the date of exercise of the ISO, the optionee will
recognize ordinary income, and the Company will be entitled to a deduction equal
to the excess of the fair market value of the shares on the date of exercise
over the purchase price of such shares (but not more than the actual gain
realized by the optionee on the disposition of the shares). Any gain after the
date on which the optionee purchased the shares will be treated as capital gain
to the optionee and will not be deductible by the Company. If the shares are
disposed of after the two year and one year periods mentioned above, the Company
will not be entitled to any deduction and the entire gain or loss realized by
the optionee will be treated as capital gain or loss.
When shares are purchased under a NQSO, the excess of the fair market value
of the shares on the date of purchase over the purchase price of such shares
under the option will generally be taxable to the optionee as ordinary income
and deductible by the Company. The disposition of shares purchased under a NQSO
will generally result in a capital gain or loss for the optionee, but will have
no tax consequences for the Company.
EFFECT OF CHANGE OF CONTROL
Under the "golden parachute" tax provisions of the Code, if compensatory
payments made to certain officers, employees and stockholders, including the
vesting of stock options, is contingent, or is deemed to be contingent, on a
change in control of a publicly-traded corporation, and if the value of such
payments exceeds certain limits, the person who receives such payments may be
subject to a 20% excise tax on most of the payments, payable in addition to
ordinary income taxes, and the corporation may be denied a deduction for the
portion of the payments which is subject to such excise tax. If a change in
control of the Company occurs, stock options granted under the Stock Plan that
are deemed to be contingent on the change in control may be subject to such
excise tax, in whole or in part, and may be nondeductible by the Company. The
foregoing tax summary does not reflect the potential application of these Code
provisions in the event of a change in control.
VOTE REQUIRED
The amendment of the Stock Plan must be approved by the affirmative vote of
the holders of a majority of the Common Stock represented in person or by proxy
and entitled to vote at the Annual Meeting under Delaware law. Unless marked to
the contrary, proxies will be voted FOR approval of the Amended 1995 Long-Term
Incentive Stock Plan.
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THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR APPROVAL OF THE AMENDED 1995
LONG-TERM INCENTIVE STOCK PLAN.
PROPOSAL 3. TO RATIFY THE APPOINTMENT OF PRICE WATERHOUSE LLP AS
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR THE
FISCAL YEAR ENDING MAY 31, 1998
The Board has appointed Price Waterhouse LLP as certified public accountants
for the fiscal year ending May 31, 1998. A representative of Price Waterhouse
LLP will be present at the Annual Meeting. He will have the opportunity to make
a statement if he desires to do so and will be available to respond to
appropriate questions. Price Waterhouse LLP has served as independent certified
public accountants for the Company since its formation in 1987.
The appointment of Price Waterhouse LLP as independent certified public
accountants for the fiscal year ending May 31, 1998 will be ratified if approved
by the affirmative vote of the holders of a majority of the Common Stock
represented in person or by proxy and entitled to vote at the Annual Meeting
under Delaware law. Unless marked to the contrary, proxies will be voted FOR
ratification of the appointment of Price Waterhouse LLP as independent certified
public accounts for the fiscal year ending May 31, 1998.
THE BOARD RECOMMENDS VOTING FOR THE RATIFICATION OF THE APPOINTMENT OF PRICE
WATERHOUSE LLP AS INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR THE COMPANY FOR
THE FISCAL YEAR ENDING MAY 31, 1998.
OTHER BUSINESS
The Board and management do not now intend to bring before the Annual
Meeting any matters other than those disclosed in the Notice of Annual Meeting
of Stockholders, nor do they know of any business which other persons intend to
present at the Annual Meeting. Should any other matter or business requiring a
vote of stockholders arise, the persons named in the enclosed proxy intend to
exercise the authority conferred by the proxy and vote the shares represented
thereby in respect of any such other matter or business in accordance with their
best judgment in the interest of the Company.
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DEADLINE FOR STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Under regulations issued by the Securities and Exchange Commission, all
stockholder proposals to be presented at the 1998 Annual Meeting must be
received at the principal office of the Company no later than the close of
business on April 14, 1998 to be considered for inclusion in the proxy statement
and form of proxy relating to that meeting.
By Order of the Board of Directors
/s/ Edward A. Porter
EDWARD A. PORTER
Secretary
Walter Industries, Inc.
Tampa, Florida
August 12, 1997
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EXHIBIT A
ANNUAL INCENTIVE PLAN FOR KEY EMPLOYEES
1. APPLICATION
This document sets forth the annual incentive plan applicable to those
employees of Walter Industries, Inc. (the "Company") and its subsidiaries (a)
who are executive officers of the Company, (b) whose annual incentive
compensation for any taxable year of the Company commencing on or after June 1,
1997 the Committee (as hereafter defined) anticipates may not be deductible by
the Company in whole or in part but for compliance with Section 162(m)(4)(C) of
the Internal Revenue Code of 1986 as amended ("162(m) Covered Employee"), and
(c) who are selected to participate in the Plan, including members of the Board
of Directors of the Company who are such employees. This plan is hereafter
referred to as the "Plan" or "Annual Incentive Plan".
2. ELIGIBILITY
All 162(m) Covered Employees shall be eligible to be selected to participate
in this Plan. The Committee shall select the 162(m) Covered Employees who shall
participate in this Plan in any year no later than 90 days after the
commencement of the year (or no later than such earlier or later date as may be
the deadline for the compensation payable to such 162(m) Covered Employee
hereunder to qualify as "performance-based" under Section 162(m)(4)(C) of the
Internal Revenue Code of 1986 as amended (the "Code")). Selection to participate
in this Plan in any year does not require the Committee to, or imply that the
Committee will, select the same person to participate in the Plan in any
subsequent year.
3. ADMINISTRATION
The Plan shall be administered by the Compensation Committee of the Board of
Directors of the Company (the "Board"), or by another committee appointed by the
Board, provided in either case that the administering committee consists of not
less than two (2) Directors who are not employees of the Company or any
subsidiary of the Company (the "Committee"). The Committee shall be comprised
solely of Directors who are not employees of the Company or any subsidiary of
the Company and who are "outside directors" within the meaning of Section
162(m)(4)(C)(i) of the Code. The Committee shall have authority, subject to the
provisions of the Plan, to: select employees to participate in the Plan;
establish and administer the performance goals and the award opportunities
applicable to each participant and certify whether the goals have been attained;
construe and interpret the Plan and any agreement or instrument entered into
under the Plan; establish, amend, and waive rules and regulations for the Plan's
administration; and make all other determinations which may be necessary or
advisable for the administration of the Plan. Any determination by the Committee
pursuant to the Plan shall be final, binding and conclusive on all employees and
participants and anyone claiming under or through any of them.
4. ESTABLISHMENT OF PERFORMANCE GOALS AND AWARD OPPORTUNITIES
No later than 90 days after the commencement of each year commencing on or
after June 1, 1997 (or than such earlier or later date as may be the applicable
deadline for compensation payable under the Plan for such year to qualify as
"performance-based" under Section
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162(m)(4)(C) of the Code), the Committee shall establish in writing, in terms of
an objective formula or standard, the method for computing the amount of
compensation which will be payable under the Plan to each participant in the
Plan for such year if the performance goal or goals established by the Committee
for such year are attained in whole or in part and if the participant's
employment by the Company or a subsidiary continues without interruption during
that year. The terms of the objective formula or standard shall preclude
discretion to increase the amount of the award that would otherwise be due upon
attainment of the goal or goals. No provision of this Plan shall preclude the
Committee from exercising negative discretion with respect to any award
hereunder, within the meaning of Treasury Regulation Section
1.162-27(e)(2)(iii)(A).
No later than 90 days after the commencement of each year commencing on or
after June 1, 1997 (or than such earlier or later date as may be the applicable
deadline for compensation payable under the Plan for such year to qualify as
"performance-based" under Section 162(m)(4)(C) of the Code), the Committee shall
establish in writing the performance goal or goals for such year, which may be
based on any of the following performance criteria, either alone or in any
combination, and on either a consolidated or business unit or divisional level,
as the Committee may determine: level of sales; earnings per share; earnings
after dedicated interest expense of the Company's mortgage portfolio but before
corporate interest, taxes and goodwill amortization; net income; operating
income net of interest expense; operating income before interest expense; return
on assets employed; return on net assets; return on equity; return on capital
employed; total shareholder return; and market valuation. The foregoing criteria
shall be determined in accordance with generally accepted accounting principles,
and may include or exclude any or all of the following items, as the Committee
may specify: extraordinary, unusual or non-recurring items; discontinued
operations; effects of accounting changes; effects of currency fluctuations;
effects of financing activities (e.g., effect on earnings per share of issuing
convertible debt securities); expenses for restructuring or productivity
initiatives; non-operating items; acquisition expenses (e.g., pooling of
interests); and effects of divestitures. Any such performance criterion or
combination of such criteria may apply to the participant's award opportunity in
its entirety or to any designated portion or portions of the award opportunity,
as the Committee may specify. Unless the Committee determines otherwise at any
time prior to payment of a participant's award under the Plan for any year,
extraordinary items, such as capital gains and losses, which affect any
performance criterion applicable to the award (including but not limited to the
criterion of net income) shall be automatically excluded or included in
determining the extent to which the performance goal has been achieved,
whichever will produce the higher award.
5. MAXIMUM AWARD
The maximum amount of compensation that may be paid under the Plan to any
participant for any fiscal year of the Company is $2,000,000. In addition, in no
event may any participant's award, when added to all other incentive
compensation awarded for the same fiscal year to management employees of the
Company and its subsidiaries, exceed 2.5% of the Company's earnings after
dedicated interest expense of the Company's mortgage portfolio but before
corporate interest, taxes, goodwill amortization, and extraordinary items.
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6. ATTAINMENT OF PERFORMANCE GOALS REQUIRED
Awards shall be paid under this Plan for any year solely on account of the
attainment of the performance goal or goals established by the Committee with
respect to such year, within the meaning of Section 162(m)(4)(C) of the Code and
the related Treasury regulations. Awards shall also be contingent on continued
employment by the Company or a subsidiary of the Company during such year. The
only exceptions to this rule apply in the event of termination of employment by
reason of death or disability (as determined by the Committee), or in the event
of a change of ownership or control of the Company (as determined by the
Committee), during such year, in which case the Committee may but need not
authorize the Company to pay the participant (or the participant's estate) all
or part of the participant's potential award under this Plan for such year, at
any time upon or after such termination of employment or change of ownership or
control (as the case may be). Except as provided in the preceding sentence, a
participant whose employment terminates prior to the end of a Plan year for any
reason shall not be entitled to any award under the Plan for that year.
7. SHAREHOLDER APPROVAL AND COMMITTEE CERTIFICATION CONTINGENCIES; PAYMENT OF
AWARDS
Payment of any awards under this Plan shall be contingent upon shareholder
approval, prior to payment, of the material terms under which the awards are to
be paid, in accordance with Section 162(m)(4)(C)(ii) of the Code and the related
Treasury regulations. Unless and until such shareholder approval is obtained, no
award shall be paid pursuant to this Plan. Subject to the provisions of
paragraph 6 above relating to death, disability and change of ownership or
control, payment of any award under this Plan shall also be contingent upon the
Compensation Committee's certifying in writing that the performance goals and
any other material terms applicable to such award were in fact satisfied, in
accordance with Section 162(m)(4)(C)(iii) of the Code and the related Treasury
regulations. Unless and until the Committee so certifies, such award shall not
be paid. Unless the Committee provides otherwise, (a) earned awards shall be
paid promptly following such certification, and (b) such payment shall be made
in cash (subject to any payroll tax withholding the Company may determine
applies).
8. AMENDMENT OR TERMINATION
The Board of Directors may amend, modify or terminate this Plan at any time,
provided that no such amendment, modification or termination shall adversely
affect the incentive opportunity of any participant with respect to the portion
of the year elapsed prior to the date of such amendment, modification or
termination, without such participant's written consent.
9. INTERPRETATION AND CONSTRUCTION
Any provision of this Plan to the contrary notwithstanding, (a) awards under
this Plan are intended to qualify as performance-based compensation under Code
Section 162(m)(4)(C), and (b) any provision of the Plan that would prevent an
award under the Plan from so qualifying shall be administered, interpreted and
construed to carry out such intention and any provision that cannot be so
administered, interpreted and construed shall to that extent be disregarded. No
provision of the Plan, nor the selection of any eligible employee to participate
in the Plan, shall constitute an employment agreement or affect the duration of
any participant's employment, which shall remain "employment at will" unless an
employment agreement between the Company and the participant provides otherwise.
Both the participant and the Company shall remain free to terminate employment
at any time to the same extent as if the Plan had not been adopted.
10. GOVERNING LAW
The terms of this Plan shall be governed by the laws of the State of
Delaware, without reference to the conflicts of laws principles of that State.
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EXHIBIT B
AMENDED 1995 LONG-TERM INCENTIVE STOCK PLAN
OF WALTER INDUSTRIES, INC.
1. PURPOSES OF THE PLAN
The purposes of the Amended 1995 Long-Term Incentive Stock Plan (the "Plan")
of Walter Industries, Inc. (the "Company") are to: promote the interests of the
Company and its stockholders by strengthening the Company's ability to attract
and retain highly competent officers and other key employees; permit the
awarding of opportunities for Plan participants to be rewarded using stock-based
incentives; and to provide a means to encourage stock ownership and proprietary
interest in the Company by the recipients of awards made under the Plan.
2. EFFECTIVE DATE OF PLAN AND DURATION OF PLAN
The Plan shall become effective upon its approval by the Board of Directors
of the Company. However, in no event shall the Company issue, transfer or
distribute, or have any legal obligation to issue, transfer or distribute, nor
shall any participant in the Plan have any legal right to receive, any shares of
Common Stock of the Company, par value $.01 per share ("Shares"), cash, property
or other consideration in respect of any award granted under the Plan, and in no
event shall any stock option or other award granted under the Plan be or become
exercisable, redeemable or non-forfeitable, unless and until the stockholders of
the Company approve the Plan. Unless previously terminated by the Company's
Board of Directors (the "Board"), the Plan shall expire at the close of business
on October 17, 2005.
3. PLAN ADMINISTRATION AND RELATED MATTERS
a) COMMITTEE--The Compensation Committee of the Board, or such other
committee (the "Committee"), as may be appointed by the Board, shall be
responsible for administering the Plan. Unless the Board determines otherwise,
the Committee shall be comprised of at least two non-employee members of the
Board who shall qualify to administer the Plan as contemplated by both Rule
16b-3 under the Securities Exchange Act of 1934 (the "1934 Act"), and Section
162(m)(4)(C) of the Internal Revenue Code of 1986, as amended (the "Code"). Each
member of the Committee shall serve for such term as the Board may determine,
subject to removal by the Board at any time.
b) COMMITTEE AUTHORITY--The Committee shall have full and exclusive power to
interpret the Plan and to adopt such rules, regulations and guidelines for
carrying out the Plan as it may deem necessary or proper, all of which power
shall be executed in keeping with the provisions and objectives of the Plan.
This power includes, but is not limited to, selecting award recipients,
establishing all award terms and conditions, adopting procedures and regulations
governing awards, and to make all other determinations necessary or advisable
for the administration of this Plan. In no event, however, shall the Committee
have the right to cancel outstanding stock options or stock appreciation rights
(the "SARs") for the purpose of replacing or re-granting such options or SARs
with a purchase price that is less than the purchase price of the original
option. All decisions made by the Committee shall be final and binding on all
persons affected by such decisions.
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c) RULE 16B-3 REQUIREMENTS; CODE SECTION 162(M). Any provision of the Plan
to the contrary notwithstanding: (i) the Committee may impose such conditions on
any award as it may determine, on the advice of counsel, are necessary or
desirable to satisfy any exemption from Section 16 of the 1934 Act for which the
Company intends transactions by participants in the Plan who are subject to
Section 16(b) of the 1934 Act with respect to purchases and sales of equity
securities of the Company ("Section 16 Persons") to qualify, including without
limitation SEC Rule 16b-3 promulgated under the 1934 Act ("SEC Rule 16b-3");
(ii) transactions by and with respect to Section 16 Persons shall comply with
any applicable conditions of Rule 16b-3 unless the Committee determines
otherwise; (iii) transactions with respect to persons whose remuneration would
not be deductible by the Company but for compliance with the provisions of
Section 162(m)(4)(C) of the Code shall conform to the requirements of Section
162(m)(4)(C) of the Code unless the Committee determines otherwise; (iv) the
Plan is intended to give the Committee the authority to grant awards that
qualify as performance-based compensation under Code Section 162(m)(4)(C) as
well as awards that do not so qualify; and (v) any provision of the Plan that
would prevent the Committee from exercising the authority referred to in clause
(iv) above or that would prevent an award that the Committee intends to qualify
as performance-based compensation under Code Section 162(m)(4)(C) from so
qualifying shall be administered, interpreted and construed to carry out the
Committee's intention and any provision that cannot be so administered,
interpreted and construed shall to that extent be disregarded.
4. PARTICIPATION
Awards may be granted under the Plan to those employees of the Company as
the Committee may from time to time select, including officers and directors who
are employees of the Company. For purposes of the participation provisions of
this section 4, the term "Company" shall include any entity that is directly or
indirectly controlled by the Company or any entity, including an acquired
entity, in which the Company has a significant equity interest, as determined by
the Committee.
5. AVAILABLE SHARES OF COMMON STOCK
a) LIMITATIONS--Subject to the provisions of Section 5(c) of the Plan, (i)
the aggregate number of Shares which may be issued or transferred to
participants under the Plan shall be 6,000,000, (ii) the maximum number of
Shares with respect to which options, stock appreciation rights, stock awards
granted pursuant to Section 7(d) of the Plan ("stock awards"), or any
combination of options, stock appreciation rights and stock awards may be
granted to any employee during the period in which the Plan is in effect is
1,000,000, (iii) the aggregate number of Shares that may be used in settlement
of awards granted pursuant to Section 7(d) of the Plan shall not exceed
1,000,000, and (iv) the aggregate number of Shares that may be covered by awards
made in the form of incentive stock options intended to comply with Section 422
of the Code ("ISOs" or "Incentive Stock Options") shall not exceed 3,000,000.
b) USAGE AND REPLENISHMENT--Shares subject to an award under the Plan which
are forfeited, expire, or canceled shall remain available for the granting of
other awards. Any Shares tendered, either actually or by attestation, by a
person as full or partial payment made to the Company in connection with any
exercise of a stock option under the Plan shall increase the number of Shares
available under the Plan. In instances where an SAR or an award granted pursuant
to Section 7(d) of the Plan is settled in cash, the Shares covered by such award
shall remain available for awards under the Plan. Likewise, cash dividends and
dividend equivalents
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paid in cash in conjunction with outstanding awards shall not be counted against
the Shares available for issuance under the Plan. Further, subject to Section
3(c) above, any Shares that are issued by the Company, and any awards that are
granted, as a result of the assumption of, or in substitution for, outstanding
awards previously granted by an acquired entity shall not be counted against the
Shares available for awards under the Plan.
Any Shares issued under the Plan may consist in whole or in part of
authorized and unissued shares or treasury shares, and no fractional Shares
shall be issued under the Plan. Cash may be paid in lieu of any fractional
Shares in settlements of awards under the Plan.
c) ADJUSTMENTS--In the event of any stock dividend, stock split, combination
or exchange of equity securities, merger, consolidation, recapitalization,
spin-off or other distribution (other than normal cash dividends) of Company
assets to stockholders, or any other change affecting Shares or share price,
such proportionate adjustments, if any, as the Committee in its discretion may
deem appropriate to reflect such change (including without limitation
adjustments to the number and class of shares subject to the Plan) shall be made
with respect to: (a) the Share limitations set forth in Section 5(a); (b) each
outstanding award made under the Plan; and (c) the exercise price per Share for
any outstanding stock options, SARs or similar awards under the Plan; provided
that any adjustments with respect to Incentive Stock Options shall comply with
Sections 422 and 424 of the Code and related Treasury Department regulations.
6. FAIR MARKET VALUE
"Fair Market Value" on a particular date means as follows:
(a) If Shares are listed or admitted to trading on such date on the New York
Stock Exchange, the mean between the high and low sales price of a Share in
consolidated trading as reported for such date in the WALL STREET JOURNAL; or
(b) If Shares are not listed or admitted to trading on the New York Stock
Exchange but are listed or admitted to trading on another national exchange, the
mean between the high and low sales price of a Share in consolidated trading as
reported for such date in the WALL STREET JOURNAL with regard to securities
listed or admitted to trading on such national exchange; or
(c) If Shares are not listed or admitted to trading on any national
exchange, the mean between the high and low sales price of a Share as reported
for such date in the WALL STREET JOURNAL with regard to NASDAQ issues or, if
Shares are publicly traded on such date but NASDAQ prices are not quoted for
such date in the WALL STREET JOURNAL, the mean between the closing bid and asked
prices of a Share on such date as furnished by a professional market maker
making a market in the Shares; or
(d) If in (a), (b) or (c) above, as applicable, there were no sales on such
date reported as provided above, the respective prices on the most recent prior
day on which a sale was so reported.
In the case of an ISO, if the foregoing method of determining fair market value
should be inconsistent with Section 422 of the Code, "Fair Market Value" shall
be determined by the Committee in a manner consistent with such section of the
Code and shall mean the value as so determined.
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7. AWARDS
a) GENERAL--The Committee shall determine the type or types of award(s) to
be made to each participant. Awards may be granted singly, in combination or in
tandem. Awards also may be made in combination or in tandem with, in replacement
of, as alternatives to, or as the payment form for grants or rights under any
other employee or compensation plan of the Company. The types of awards that may
be granted under the Plan are:
b) STOCK OPTIONS--A stock option shall represent a right to purchase a
specified number of Shares during a specified period as determined by the
Committee. Options may be granted for such lawful consideration, including money
or other property, tangible or intangible, or labor or services received or to
be received by the Company, as the Committee may determine when the option is
granted, and the Committee's judgment as to the consideration and its adequacy
shall be conclusive and binding on all concerned. Property for purposes of the
preceding sentence shall include an obligation of the Company unless prohibited
by applicable law. Subject to the foregoing and the other provisions of the
Plan, (i) each option may be exercisable in full at the time of grant or may
become exercisable in one or more installments and at such time or times, as the
Committee may determine, and (ii) the Committee may at any time, and subject to
such terms and conditions as it may impose, authorize the holder of an option to
exercise the option following the termination of the participant's employment
with the Company and its subsidiaries, or following the participant's death or
disability, whether or not the option would otherwise be exercisable following
such event, until the expiration of its term (or until an earlier date or
specified event occurs). The Committee may at any time accelerate the date on
which an option becomes exercisable, and no additional consideration need be
received by the Company in exchange for such acceleration. Unless otherwise
provided in the option, an option, to the extent it becomes exercisable, may be
exercised at any time in whole or in part until the expiration or termination of
the option. Each stock option shall expire at such time as the Committee shall
determine at the time of grant, provided, however, that no option shall be
exercisable after the tenth anniversary of its date of grant and no Incentive
Stock Option which is granted to any optionee who, at the time such Incentive
Stock Option is granted, owns stock possessing more than 10% of the total
combined voting power of all classes of stock of his employer corporation or of
its parent or subsidiary corporation, shall be exercisable after the expiration
of five years from the date such Incentive Stock Option is granted. The purchase
price per Share for each stock option shall be not less than 100% of the Fair
Market Value on the date of grant except that in the case of an optionee who, at
the time an Incentive Stock Option is granted, owns stock possessing more than
10% of the total combined voting power of all classes of stock of his employer
corporation or of its parent or subsidiary corporation, the purchase price per
Share under such Incentive Stock Option shall be not less than 110% of the Fair
Market Value of such stock on the date the Incentive Stock Option is granted. In
all cases, the purchase price per Share under each stock option shall be not
less than the par value (if any) of the optioned Shares. A stock option may be
in the form of an Incentive Stock Option which, in addition to being subject to
the applicable terms, conditions and limitations established by the Committee,
complies with Section 422 of the Code. The Shares covered by a stock option may
be purchased, in accordance with the applicable award agreement, by cash payment
or such other method permitted by the Committee, including (A) tendering (either
actually or by attestation) Shares valued at the Fair Market Value at the date
of exercise; (B) authorizing a third party to sell the Shares (or a sufficient
portion thereof) acquired upon exercise of a stock option, and assigning to the
Company a sufficient amount of the sale proceeds to pay for all the Shares
acquired through such
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exercise and any tax withholding obligations resulting from such exercise; or
(C) any combination of the above. The Committee may grant stock options that
provide for the grant of a subsequent restoration stock option if the exercise
price has been paid for by tendering Shares to the Company. Any restoration
stock option may cover up to the number of Shares tendered in exercising the
predecessor option, with the stock option purchase price set at the then-current
Fair Market Value, and such restoration option would not extend beyond the
remaining term of the original option.
c) SARS--An SAR shall represent a right to receive a payment, in cash,
Shares or a combination, equal to the excess of the Fair Market Value of a
specified number of Shares on the date the SAR is exercised over the Fair Market
Value on the date the SAR was granted as set forth in the applicable award
agreement; except that if an SAR is granted retroactively in tandem with or in a
substitution for a stock option, the designated Fair Market Value in the
applicable award agreement may be the Fair Market Value on the date such stock
option was granted.
d) STOCK AWARDS--A stock award shall represent an award made in Shares or
denominated in units equivalent in value to Shares. All or part of any stock
award may be subject to conditions and restrictions established by the
Committee, and set forth in the award agreement, which may include, but are not
limited to, continuous service with the Company, and/or the achievement of
performance goals. The Committee may grant stock awards that qualify as
"performance-based compensation" under Section 162(m)(4)(C) of the Code, as well
as stock awards that do not so qualify. The performance criteria that may be
used by the Committee in granting stock awards that qualify as
"performance-based compensation" shall consist of (i) the Fair Market Value or
book value of Shares, (ii) any of the following, on either a consolidated or
business unit or divisional level, as the Committee may determine: level of
sales, earnings per share, earnings after dedicated interest expense of the
Company's mortgage portfolio but before corporate interest, taxes and goodwill
amortization; income before income taxes and cumulative effect of accounting
changes; income before cumulative effect of accounting changes; net income;
operating income net of interest expense; operating income before interest
expense; net worth; return on total assets; return on net assets; return on
equity; return on capital employed; total stockholder return; and market
valuation, or (iii) a combination of any two or more of the business criteria
set forth in (i) and/or (ii). The foregoing business criteria shall be
determined in accordance with generally accepted accounting principles and may
include or exclude any or all of the following items, as the Committee may
specify: extraordinary, unusual or non-recurring items; discontinued operations;
effects of accounting changes; effects of currency fluctuations; effects of
financing activities (e.g., effect on earnings per share of issuing convertible
debt securities); expenses for restructuring or productivity initiatives;
non-operating items; acquisition expenses (e.g., pooling of interests); and
effects of divestitures.
8. DIVIDENDS AND DIVIDEND EQUIVALENTS
The Committee may provide that any awards under the Plan earn dividends or
dividend equivalents. Such dividends or dividend equivalents may be paid
currently or may be credited to a participant's account. Any crediting of
dividends or dividend equivalents may be subject to such restrictions and
conditions as the Committee may establish, including reinvestment in additional
Shares or share equivalents.
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9. PAYMENTS AND PAYMENT DEFERRALS
Payment of awards may be in the form of cash, Shares, other awards or
combinations thereof as the Committee shall determine, and with such
restrictions as it may impose. The Committee also may require or permit
participants to elect to defer the issuance of Shares or the settlement of
awards in cash under such rules and procedures as it may establish under the
Plan. It also may provide that deferred settlements include the payment or
crediting of interest on the deferral amounts, or the payment or crediting of
dividend equivalents where the deferral amounts are denominated in share
equivalents.
10. TRANSFERABILITY
Awards granted under the Plan, including any "derivative securities" issued
under the Plan, shall not be transferable or assignable other than by will or
the laws of descent and distribution (or, if so permitted by the Committee,
pursuant to a beneficiary designation by the participant that is consistent with
any applicable exemption from Section 16 of the 1934 Act for which the Company
intends transactions by Section 16 Persons to qualify (including without
limitation SEC Rule 16b-3) or, in the case of an ISO, with Section 422 of the
Code and any related Treasury Department rulings and regulations), and shall be
exercisable, during the participant's lifetime, only by him. Notwithstanding the
foregoing, the Committee may, on such terms and subject to such conditions as it
may impose, permit a participant to transfer any award granted under this Plan,
other than an Incentive Stock Option or any other award that is linked to an
Incentive Stock Option, to members of his immediate family (defined as his
children, grandchildren and spouse, including children and grandchildren by
marriage (e.g., son-in-law, daughter-in-law or step-child) or adoption) or to
one or more trusts for the benefit of such family members or partnerships in
which such family members are the only partners if (and only if) the instrument
evidencing such award expressly so provides (or is amended to so provide) and
the participant does not receive any consideration for the transfer; provided
that any such transferred award shall continue to be subject to the same terms
and conditions that were applicable to such award immediately prior to its
transfer (except that such transferred award shall not be further transferable
by the transferee during lifetime) and provided, further, that the foregoing
provisions of this sentence shall not apply to any award granted to or held by a
Section 16 Person unless and until the Company's counsel determines that such
provisions would not jeopardize any exemption from such Section for which the
Company intends transactions by Section 16 Persons to qualify.
11. CHANGE-IN-CONTROL
Either in contemplation of or in the event that the Company undergoes a
change in control (as defined by the Committee) or is not the surviving
corporation in a merger or consolidation with another corporation, or in the
event of a liquidation or reorganization of the Company, the Committee may
provide for appropriate adjustments (including the acceleration of vesting) and
settlements of awards either at the time an award is granted or at a subsequent
date.
12. AWARD AGREEMENTS
Awards under the Plan shall be evidenced by agreements that set forth the
terms, conditions and limitations for each award, including (if applicable) the
term of the award, the provisions applicable in the event the participant's
employment terminates, and the Company's authority to unilaterally or
bilaterally amend, modify, suspend, cancel or rescind any award. The Committee
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need not require the execution of any such agreement by the recipient, in which
case acceptance of the award by the respective participant shall constitute
agreement by the participant to the terms of the award.
13. PLAN AMENDMENT
The Plan may be amended by the Board of Directors, without stockholder
approval, at any time and in any respect, unless stockholder approval of the
amendment in question is required under Delaware law, the Code (including
without limitation Code Section 422 and Proposed Treasury Regulation Section
1.422A(b)(iv) thereunder), any applicable exemption from Section 16 of the 1934
Act (including without limitation SEC Rule 16b-3) for which the Company intends
transactions by Section 16 Persons to qualify, any national securities exchange
or system on which the Stock is then listed or reported, by any regulatory body
having jurisdiction with respect to the Plan, or under any other applicable
laws, rules or regulations. The Plan may also be terminated at any time by the
Board of Directors. No amendment or termination of this Plan shall adversely
affect any award that was granted prior to the date of such amendment or
termination without the written consent of the participant.
14. TAX WITHHOLDING
The Company shall have the right to deduct from any settlement of an award
made under the Plan, including the delivery or vesting of Shares, a sufficient
amount to cover withholding of any federal, state or local taxes required by law
or such greater amount of withholding as the Committee shall determine from time
to time, or to take such other action as may be necessary to satisfy any such
withholding obligations. If the Committee permits or requires Shares to be used
to satisfy required tax withholding, such Shares shall be valued at the Fair
Market Value as of the tax recognition date for such award.
15. OTHER BENEFIT AND COMPENSATION PROGRAMS
a) Nothing in this Plan is intended to be a substitute for, or shall
preclude or limit the establishment or continuation of, any other plan, practice
or arrangement for the payment of compensation or fringe benefits to directors,
officers, or employees generally, or to any class or group of such persons,
which the Company or any subsidiary now has or may hereafter lawfully put into
effect, including, without limitation, any incentive compensation, retirement,
pension, group insurance, stock purchase, stock bonus or stock option plan.
b) No employee shall make any elective contribution or employee contribution
to the Plan (within the meaning of Treasury Regulation Section
1.401(k)-1(d)(2)(iv)(B)(4)) during the balance of the calendar year after the
employee's receipt of a hardship distribution from a plan of the Company or a
related party within the provisions of Code Sections 414(b), (c), (m) or (o)
containing a cash or deferred arrangement under Section 401(k) of the Code, or
during the following calendar year. The preceding sentence shall not apply if
and to the extent that the Company's counsel determines it is not necessary to
qualify any such plan as a cash or deferred arrangement under Section 401(k) of
the Code.
16. UNFUNDED PLAN
Unless otherwise determined by the Committee, the Plan shall be unfunded and
shall not create (or be construed to create) a trust or a separate fund or
funds. The Plan shall not establish
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any fiduciary relationship between the Company and any participant or other
person. To the extent any person holds any rights by virtue of an award granted
under the Plan, such rights shall constitute general, unsecured liabilities of
the Company and shall not confer upon any participant any right, title or
interest in any assets of the Company.
17. USE OF PROCEEDS
The cash proceeds received by the Company from the issuance of Shares
pursuant to the exercise of stock options or the settlement of other awards
under the Plan shall be used for general corporate purposes.
18. REGULATORY APPROVALS
The implementation of the Plan, the granting of any award under the Plan,
and the issuance of Shares upon the exercise or settlement of any award shall be
subject to the Company's procurement of all approvals and permits required by
regulatory authorities having jurisdiction over the Plan, the awards granted
under it or the Shares issued pursuant to it.
19. FUTURE RIGHTS
No person shall have any claim or rights to be granted an award under the
Plan, and no participant shall have any rights under the Plan to be retained in
the employ of the Company. Likewise, participation in the Plan will not in any
way affect the Company's right to terminate the employment of the participant at
any time with or without cause.
20. GOVERNING LAW
The validity, construction and effect of the Plan and any actions taken or
relating to the Plan shall be determined in accordance with the laws of the
State of Delaware and applicable federal law.
21. SUCCESSORS AND ASSIGNS
The Plan shall be binding on all successors and assigns of a participant,
including, without limitation, the estate of such participant and the executor,
administrator or trustee of such estate, or any receiver or trustee in
bankruptcy or representative of the participant's creditors. However, no award
or other interest in the Plan may be assigned, pledged or otherwise alienated,
except to the extent permitted in accordance with Section 10 of the Plan and the
applicable award agreement.
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