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SCHEDULE I
ELJER INDUSTRIES, INC.
17120 DALLAS PARKWAY
DALLAS, TEXAS 75248
INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14f-1 THEREUNDER
NO VOTE OR OTHER ACTION OF THE COMPANY'S STOCKHOLDERS IS REQUIRED IN
CONNECTION WITH THIS INFORMATION STATEMENT. NO PROXIES ARE BEING SOLICITED AND
YOU ARE REQUESTED NOT TO SEND THE COMPANY A PROXY.
This Information Statement is being mailed on or about December 20, 1996, as
part of the Company's Solicitation/Recommendation Statement on Schedule 14D-9
(the "Schedule 14D-9"), to holders of record of the common stock, par value
$1.00 per share (the "Common Stock"), of Eljer Industries, Inc., a Delaware
corporation (the "Company"), at the close of business on December 18, 1996.
Capitalized terms used and not otherwise defined herein shall have the meaning
ascribed to them in the Schedule 14D-9. You are receiving this Information
Statement in connection with the possible election to the Company's Board of
Directors (the "Board" or the "Board of Directors") of persons to be
designated by Zurn Industries, Inc., a Pennsylvania corporation ("Parent").
Pursuant to the Merger Agreement, upon the acquisition by Zurn Acquisition
Co., Inc., a Delaware corporation and a wholly owned subsidiary of Parent
("Purchaser"), of at least 50.1% of the outstanding shares of Common Stock
(each, a "Share" and collectively, the "Shares") on a fully diluted basis
pursuant to the Offer (as defined below), and from time to time thereafter,
Parent will be entitled to designate such number of directors ("Parent's
Designees"), as will give Parent, subject to compliance with Section 14(f) of
the Exchange Act, that number of directors, rounded up to the next whole
number, equal to the product of (i) the total number of directors on the Board
at such time (giving effect to any increase in the number of directors
pursuant to the Merger Agreement) and (ii) the percentage that the number of
Shares purchased by Purchaser pursuant to the Offer bears to the aggregate
number of Shares outstanding (such number being the "Board Percentage"). The
Merger Agreement provides, however, that at all times prior to the effective
time of the Merger (the "Effective Time"), the Board shall include at least
two of the directors then in office who were directors on December 14, 1996
and who voted to approve the Merger Agreement ("Continuing Directors"). The
Merger Agreement requires the Company, at the request of Parent, to take all
action necessary, including increasing the size of the Board or using its
reasonable best efforts to secure the resignations of incumbent directors, to
cause Parent's Designees to be elected to the Board under the circumstances
described therein.
This Information Statement is required by Section 14(f) of the Exchange Act
and Rule 14f-1 thereunder. You are urged to read this Information Statement
carefully. You are not, however, required to take any action in connection
with this Information Statement.
Pursuant to the Merger Agreement, the Purchaser commenced the Offer on
December 20, 1996. The Offer is scheduled to expire at 12:00 midnight, New
York City time, on January 21, 1997, unless extended in accordance with its
terms.
The information contained in this Information Statement concerning Purchaser
and Parent and Parent's Designees has been furnished to the Company by
Purchaser and Parent, and the Company assumes no responsibility for the
accuracy or completeness of such information.
VOTING SECURITIES
The only voting security of the Company outstanding is its Common Stock. As
of December 13, 1996, there were 7,153,657 shares of Common Stock outstanding.
Each share of Common Stock is entitled to one vote.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information as of December 13, 1996 (except
as otherwise noted in footnote (2) below) with respect to the persons known to
the Company to be the beneficial owners of more than five percent of the
outstanding Shares of Common Stock.
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED
----------------------
NAME AND ADDRESS OF NUMBER PERCENT
BENEFICIAL OWNER OF SHARES OF CLASS(1)
- ------------------- ---------- -----------
<S> <C> <C>
Gabelli Funds, Inc....................................... 785,400(2) 11.0%
655 Third Avenue
New York, New York 10017
James P. Lennane......................................... 479,400(3) 6.7%
4820 Bayshore Drive, Suite D
Naples, Florida 33962
</TABLE>
- --------
(1) As of December 13, 1996, there were outstanding 7,153,657 shares of Common
Stock.
(2) The number of Shares is based on information contained in a Schedule 13D,
as amended through Amendment No. 18 thereto, filed with the Securities and
Exchange Commission (the "SEC") by Gabelli Funds, Inc. and certain of its
affiliates, which reflects their beneficial ownership of Shares as of
December 16, 1996. According to the filing, Gabelli Funds and such
affiliates reported that they may be deemed to have sole voting power with
respect to 745,400 Shares and sole dispositive power over 785,400 Shares.
(3) The number of Shares is based on information contained in a Schedule 13D,
as amended through Amendment No. 7 thereto, filed with the SEC by James P.
Lennane, Bette M. Byouk and Susan Kahl Lennane which reflects their
beneficial ownership of Shares as of October 31, 1996. According to the
filing, Mr. Lennane reported that he may be deemed to have sole voting and
dispositive power over 476,400 Shares and Ms. Byouk and Ms. Lennane each
reported that they may be deemed to have sole voting and dispositive power
over 1,000 and 2,000 Shares, respectively.
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SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth as of December 13, 1996 the beneficial
ownership of Common Stock by each director of the Company, each named
executive officer listed in the Summary Compensation Table appearing in this
Information Statement and all directors and executive officers as a group.
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED
-------------------
NUMBER PERCENT
OF SHARES OF CLASS
---------- --------
<S> <C> <C>
Directors
Scott G. Arbuckle........................................ 246,554(1) 3.3%
John H. Deininger........................................ 21,553(2) *
Walter C. Minnick........................................ 9,561(2) *
Frank J. Morgan.......................................... 36,159(2) *
Paul E. Price............................................ 4,008(2) *
C. A. Rundell, Jr........................................ 8,469(2) *
Named Executive Officers (excluding any director named
above) and Group
James A. Harris.......................................... 80,994(3) 1.1%
James F. Thomason........................................ 83,824(4) 1.2%
George W. Hanthorn....................................... 33,308(5) *
G. Michael Morrell....................................... 38,000(6) *
All directors and executive officers as a group (14
persons)................................................. 683,780(7) 8.9%
</TABLE>
- --------
*Beneficial ownership represents less than one percent of the outstanding
Common Stock.
(1) Includes 214,173 Shares Mr. Arbuckle has the right to acquire within 60
days pursuant to stock options (assuming acceleration of the vesting
periods with respect to such options upon consummation of the Offer);
10,131 Shares held for the account of Mr. Arbuckle under the Eljer Tax
Reduction Investment Plan ("TRIP"), with respect to which Mr. Arbuckle has
sole voting power and dispositive power, subject to the terms of the TRIP;
16,600 Shares held jointly by Mr. Arbuckle and his wife with respect to
which they share voting and dispositive power; and 5,650 Shares with
respect to which Mr. Arbuckle has sole voting and dispositive power.
(2) The beneficial owner has sole voting and investment power with respect to
all Shares listed.
(3) Includes 68,100 Shares Mr. Harris has the right to acquire within 60 days
pursuant to stock options (assuming acceleration of the vesting periods
with respect to such options upon consummation of the Offer); 2,744 Shares
held for the account of Mr. Harris under the TRIP with respect to which
Mr. Harris has sole voting power and dispositive power, subject to the
terms of the TRIP; 5,150 Shares with respect to which Mr. Harris has sole
voting and dispositive power; and 5,000 restricted Shares with respect to
which Mr. Harris has sole voting power, but no dispositive power. The
restricted period for the 5,000 restricted Shares, which were granted in
1994, terminates on February 15, 1997 (or, if earlier, upon consummation
of the Offer).
(4) Includes 68,700 Shares Mr. Thomason has the right to acquire within 60
days pursuant to stock options (assuming acceleration of the vesting
periods with respect to such options upon consummation of the Offer);
3,529 Shares held for the account of Mr. Thomason under the TRIP, with
respect to which Mr. Thomason has sole voting power and dispositive power,
subject to the terms of the TRIP; 3,695 Shares with respect to which Mr.
Thomason has sole voting and dispositive power; 1,300 Shares held by Mr.
Thomason' s wife with respect to which she has sole voting and dispositive
power; and 6,600 restricted Shares, with respect to which Mr. Thomason has
sole voting power, but no dispositive power. The restricted period for
those 6,600 restricted Shares, which were granted in 1996, terminates on
February 20, 1999 (or, if earlier, upon consummation of the Offer).
(5) Includes 31,700 Shares Mr. Hanthorn has the right to acquire within 60
days pursuant to stock options (assuming acceleration of the vesting
periods with respect to such options upon consummation of the Offer); and
1,608 Shares held for the account of Mr. Hanthorn under the TRIP with
respect to which Mr. Hanthorn has sole voting power and dispositive power,
subject to the terms of the TRIP.
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(6) Includes 14,000 Shares Mr. Morrell has the right to acquire within 60 days
pursuant to stock options (assuming acceleration of the vesting periods
with respect to such options upon consummation of the Offer); 10,000
Shares with respect to which Mr. Morrell has sole voting and dispositive
power; and 14,000 restricted Shares, with respect to which Mr. Morrell has
sole voting power, but no dispositive power. The restricted period for
10,000 restricted Shares, which were granted in 1994, terminates on April
19, 1997 (or, if earlier, upon consummation of the Offer) and the
restricted period for the remaining restricted Shares, which were granted
in 1996, terminates on February 20, 1999 (or, if earlier, upon
consummation of the Offer).
(7) Includes 495,673 Shares with respect to which executive officers and
directors have the right to acquire within 60 days pursuant to stock
options (assuming acceleration of the vesting periods with respect to such
options upon consummation of the Offer); 27,712 Shares held for the
account of such persons under the TRIP; and 35,600 restricted Shares.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
GENERAL
The Company's Restated Certificate of Incorporation provides that there
shall be three classes of directors. At each annual meeting of stockholders of
the Company, successors to directors of the class whose term of office expires
in that year are to be elected for a three-year term or until their successors
have been duly elected and qualified. The total number of directors is fixed
by the Board of Directors pursuant to authority granted it under the Company's
Restated Certificate of Incorporation. The Board of Directors is presently
comprised of six directors, one of whom is a salaried employee of the Company.
The current terms of the three classes of directors expire at the 1997, 1998
and 1999 annual meetings, respectively.
RIGHT TO DESIGNATE DIRECTORS; PARENT'S DESIGNEES
The Merger Agreement provides that promptly upon the purchase by Purchaser
of such number of Shares which represents at least 50.1% of the outstanding
Shares on a fully diluted basis pursuant to the Offer, and from time to time
thereafter, Parent shall be entitled to designate the Parent's Designees. The
Merger Agreement requires the Company, at the request of Parent, to take all
action necessary, including increasing the size of the Board or using
reasonable best efforts to secure the resignations of incumbent directors to
cause Parent's Designees to be elected under the circumstances described
herein. The Merger Agreement provides, however, that at all times prior to the
Effective Time of the Merger, the Board shall include at least two Continuing
Directors. None of the Parent Designees will begin serving as directors of the
Company until at least ten days after the date this Information Statement is
filed with the Commission and mailed to the Stockholders of record.
Following the election or appointment of Parent's Designees pursuant to the
Merger Agreement and prior to the Effective Time of the Merger, any amendment
or termination of the Merger Agreement, extension for the performance or
waiver of the obligations or other acts of Parent or Purchaser or waiver of
the Company's rights thereunder shall require the concurrence of a majority of
the directors of the Company then in office who are Continuing Directors.
It is expected that Parent's Designees may assume office at any time
following the purchase of Shares by Purchaser pursuant to the Offer, which
purchase may not be consummated prior to midnight on Tuesday, January 21, 1997
and that, upon assuming office, Parent's Designees will thereafter constitute
at least a majority of the Board of Directors. To the extent the Board of
Directors will consist of persons who are not Parent's Designees, the Company
expects such persons will be Continuing Directors.
Parent's Designees will be selected by Parent from among the individuals
listed below. The Company has been informed that each of the following
individuals has consented to serve as a director of the Company if
4
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appointed or elected. None of the following individuals owns any Shares. In
addition, none of the following individuals is a director of, or holds any
position with, the Company. The name, age, present principal occupation or
employment and five-year employment history of each of the following
individuals are set forth below. Each person is a citizen of the United
States, and, except as indicated otherwise, the business address of each
person is One Zurn Place, Erie, Pennsylvania 16505.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR PERIOD
NAME AGE AT 12/1/96 EMPLOYMENT AND FIVE-YEAR EMPLOYMENT HISTORY SERVED
---- -------------- ------------------------------------------- ------
<S> <C> <C> <C>
Robert R. Womack 59 Chairman and Chief Executive Officer Since 1995
Director and Chief Executive Officer Since 1994
Independent Consultant 1993-1994
Vice Chairman and Chief Executive Officer 1990-1993
(1992-1993) and President and Chief Operating
Officer (1990-1992)--IMO Industries, Inc.,
Lawrenceville, NJ (controls, pumps, and
engineered power products)
Dennis Haines 43 General Counsel and Secretary Since 1993
Associate General Counsel 1989-1993
Robert D. Neary 63 Director Since 1995
Trustee Chairman and President, Armada Funds, Since 1996
Wilmington, DE (group of mutual funds)
Co-Chairman, Ernst & Young LLP, Cleveland, OH 1984-1993
(international accounting and consulting
firm)
Director, Cold Metal Products, Inc. (strip Since 1994
steel producer and service center processor)
Edward J. Campbell 68 Director Since 1986
President, JI Case Co., Racine, WI (farm 1992-1994
and construction machinery and equipment)
President, Newport News Shipbuilding, Newport 1979-1992
News, VA (shipbuilding and repairing)
Director of Global Marine, Inc. and Titan
Wheel International
</TABLE>
DIRECTORS OF THE COMPANY
Set forth below is certain information concerning the Company's directors,
including their classes and terms, ages, present principal occupations and
business experience during the past five years and the period during which
they have served as directors. The business address of each director is 17120
Dallas Parkway, Dallas, Texas 75248.
CLASS WHOSE TERM EXPIRES IN 1997
<TABLE>
<S> <C>
C. A. RUNDELL, JR.,
age 65, director since
October 1992........... Mr. Rundell serves as a consultant to and/or as a member of the
boards of
directors of a number of companies. His business is conducted
under the name
Rundell Enterprises, a sole proprietorship. Mr. Rundell is also
a director of
Inter-Regional Financial Group, Inc., NCI Building Systems,
Inc., Tandy Brands
Accessories, Inc. and Tyler Corporation.
</TABLE>
5
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CLASS WHOSE TERM EXPIRES IN 1998
<TABLE>
<S> <C>
SCOTT G. ARBUCKLE,
age 65, director since
February 1990.......... Mr. Arbuckle has served as Chairman of the Board since April
1996, and as
President and Chief Executive Officer of the Company since
February 1990. Mr. Arbuckle previously served as Executive Vice
President of the Company and President of the HVAC Group from
April 1989 to February 1990. He joined United States Brass
Corporation ("US Brass"), an indirect, wholly owned subsidiary
of the Company, in 1963.
WALTER C. MINNICK,
age 54, director since
April 1993............. Mr. Minnick served until February 1995 as President and Chief
Operating Officer, Chief Executive Officer and a director of TJ
International Inc., a manufacturer and distributor of specialty
building products. From 1974 to 1979, Mr. Minnick was employed
by TJ International in various other capacities, including
Corporate Secretary, National Manufacturing Manager and Vice
President, Division Operations. He is also a director of
MacMillan Bloedel, Ltd.
PAUL E. PRICE,
age 62, director since
February 1993.......... Mr. Price served in various capacities with The Quaker Oats
Company from 1972 until his retirement in June 1991 and, most
recently, served as its Senior Vice-President, Finance and Chief
Financial Officer from 1988 until his retirement. He also served
as President of the Fisher Price Toys division during 1990 and
as Executive Vice-President of the International Grocery
Products division of Quaker Oats in 1987 and 1988. Mr. Price is
also a director of DeSoto, Inc. and Xytronyx, Inc.
</TABLE>
CLASS WHOSE TERM EXPIRES IN 1999
<TABLE>
<S> <C>
FRANK J. MORGAN,
age 71, director since
April 1989............. Mr. Morgan served as Chairman of the Board of the Company from
December 1990 to April 1996. Mr. Morgan served as President and
Chief Operating Officer of The Quaker Oats Company, an
international marketer of foods, pet foods and toys, from 1983
to 1990. Prior thereto, he held various positions with Quaker
Oats since 1964. He is also a director of The Molson Companies
Limited.
JOHN H. DEININGER,
age 64 director since
April 1989............. Mr. Deininger serves as a consultant to and/or an investor in a
number of companies. His business is conducted under the name
J.D. Investments, Inc. He also has served as the Chairman of the
Board of Pawnee Rotation Molding Co., L.P. since May 1995. He
served as President, Chief Executive Officer and a director of
Union City Body Co., L.P., from October 1993 to October 1994. He
served as Executive Vice President of Illinois Tool Works, Inc.,
a manufacturer of industrial products and components from 1986
through 1990.
</TABLE>
BOARD MEETINGS AND COMMITTEES
During 1995 (the last full fiscal year of the Company), the Board of
Directors of the Company held 6 meetings. Each of the directors of the Company
attended at least 75 percent of the aggregate total number of
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meetings of the Board of Directors and meetings of any committee of the Board
on which that director served and which took place subsequent to his election
as a director. The Board of Directors has standing Audit, Compensation and
Executive Committees. It does not have a standing Nominating Committee.
The Audit Committee reviews the scope and results of the audit by the
Company's independent auditors, makes recommendations to the Board as to the
selection of independent auditors and has approval authority with respect to
services provided by the independent auditors. In addition, it reviews systems
of internal control, reviews accounting policies and procedures and directs
and supervises investigations into matters within the scope of its duties. The
members of this committee are Messrs. Deininger (chairperson), Morgan,
Rundell, Minnick and Price. The Audit Committee met 2 times in 1995.
The Compensation Committee reviews the cash compensation of management
personnel and takes action on all salary changes for certain management
personnel. In addition, it administers all aspects of the various management
stock incentive plans and awards stock-based compensation to executive
officers and employees of the Company. The members of this committee are
Messrs. Minnick (chairperson), Morgan, Deininger, Rundell and Price. The
Compensation Committee met 4 times in 1995.
The Executive Committee has, and may exercise, when the Board of Directors
is not in session, the powers of the Board of Directors in the management of
the business and affairs of the Company. The Executive Committee does not have
the power to change the membership or fill vacancies in the Board of Directors
or in the Executive Committee. The members of the Committee are Messrs. Morgan
(Chairperson), Rundell and Arbuckle. The Executive Committee met 5 times in
1995.
DIRECTORS' FEES AND COMPENSATION
Directors who are not employees of the Company or any of its subsidiaries
receive for their services a retainer fee of $16,000 per annum payable in cash
or in shares of the Company's Common Stock and a fee of $800 in cash for each
Board or committee meeting attended. In addition, each chairperson of a
committee of the Board who is not an employee of the Company or any subsidiary
receives for his services as chairperson a retainer fee of $2,000 per annum
payable in cash or in shares of the Company's Common Stock. If a director
elects to receive the retainer fee in shares of Common Stock, the Company
transfers shares of treasury stock to the directors in payment of such fees at
the time of, or shortly after, the first meeting of the Board of Directors
following the annual meeting of shareholders of the Company based on the
market value of the Company's Common Stock at that time. Cash payments, if
elected, are also made at that time. Non-employee directors who are elected to
the Board between annual shareholder meeting dates are entitled to receive a
pro rata portion of the retainer fees for their services based on the number
of days from the date of their election until the next annual meeting of
shareholders. Directors who are employees of the Company or any subsidiary do
not receive any fees for Board or committee service. The Company reimburses
all directors for travel, lodging and related expenses they may incur in
attending Board and committee meetings.
In 1992, the Company adopted a retirement plan for directors of the Company
who are not employees of the Company or any of its subsidiaries. Under the
plan, an eligible director who has three or more years of credited service as
a director is entitled to receive upon his or her retirement from the Board of
Directors an annual payment in cash equal to the amount of the per annum
director retainer fee in effect for the year in which he or she retired. The
annual retirement entitlement is payable for a period of years equal to the
number of years he or she served as a Board member but not to exceed 10 years.
7
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EXECUTIVE OFFICERS OF THE COMPANY
Set forth below are the names, ages, titles with the Company, and principal
occupations and employment for the past five years of the executive officers
of the Company.
NAME AND AGE OFFICE AND EXPERIENCE
Scott G. Arbuckle, 65....Chairman of the Board, President and Chief Executive
Officer. Mr. Arbuckle has served as Chairman of the
Board since April 1996 and as President and Chief
Executive Officer since February 1990. Mr. Arbuckle
previously served as Executive Vice President of
Eljer Industries and President of HVAC Group. He
joined US Brass in 1963.
James A. Harris, 39......Executive Vice President. Mr. Harris has served in
his current position since January 1996 and also
serves as the President of Eljer Manufacturing, Inc.
Mr. Harris previously served as Vice President-Sales
and Marketing of Eljer Industries from January 1992
to December 1995. Prior to January 1992, Mr. Harris
served as Vice President-Marketing.
Brooks F. Sherman, 36....Vice President-Finance, Chief Financial Officer and
Treasurer. Mr. Sherman has served in his current
position since June 1995. Mr. Sherman previously
served as Controller, Treasurer and Assistant
Secretary from April 1991 to June 1995 and as
Controller and Assistant Secretary from 1989 to April
1991.
James F. Thomason, 62....Vice President-Manufacturing. Mr. Thomason has served
in his current position since April 1991, having
previously served as Group President-Selkirk/Dry N.A.
from April 1990 to April 1991. Prior to joining Eljer
Industries, Mr. Thomason served in various management
positions with Kohler Company, most recently as Vice
President-Operations for Plumbing and Specialty
Products, International.
George W. Hanthorn, 49...Vice President-General Counsel and Secretary. Mr.
Hanthorn has served in this position since October
1994. Mr. Hanthorn previously served as Senior Vice
President-General Counsel and Secretary of Greyhound
Lines, Inc., Dallas, Texas, a publicly-held
transportation services company, from 1990 to 1994,
and as Vice President, General Counsel and Secretary
of Greyhound Lines, Inc. from 1987 to 1990.
Nancy J. Duricic, 42.....Vice President-Human Resources. Ms. Duricic has
served in her current position since January 1996.
Ms. Duricic previously served as Director-Human
Resources from June 1995 to December 1995, as
Director-Compensation and Benefits from January 1992
to June 1995, and as Manager of Employee Benefits
from September 1990 to January 1992.
Steven M. Rodman, 42.....Vice President-Sales and Marketing. Mr. Rodman has
served in his current position since January 1996,
having previously served as Eljer Manufacturing,
Inc.'s Vice President-Consumer Sales since joining
the Company in August 1992. Mr. Rodman previously
served as Director of Sales for Artesian Plumbing
Products, Mansfield, Ohio, a privately-held plumbing
fixture manufacturer.
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Gerald J. Morris, 56.....Controller and Assistant Secretary. Mr. Morris has
served in his current position since June 1995 and
has held a variety of division controllership
positions since joining the Company in February 1981,
most recently as Controller-Manufacturing.
G. Michael Morrell, 60...Managing Director, European Operations. Mr. Morrell
has served in his current position since March 1994.
Mr. Morrell was a self-employed consultant prior to
March 1994 and held several senior management
positions with subsidiaries of Household
International, Inc., the Company's former parent,
prior to April 1989.
9
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EXECUTIVE COMPENSATION AND OTHER MATTERS
COMPENSATION SUMMARY
The following table sets forth certain summary information concerning the
compensation awarded to, earned by, or paid to the CEO and the other four most
highly compensated executive officers of the Company whose combined salary and
bonus for 1995 exceeded $100,000 (collectively, the "named executive
officers") for the years indicated.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
---------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------------- ---------------------- ----------
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING ALL OTHER
NAME AND COMPEN- STOCK OPTIONS/ LTIP COMPEN-
PRINCIPAL POSITION YEAR SALARY($) BONUS($)(3) SATION($)(4) AWARD($)(5) SARS(#) PAYOUTS($) SATION($)(6)
- ------------------ ---- --------- ----------- ------------ ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Scott G. Arbuckle, 1995 400,000 200,000 25,954 -- 25,000 577,500 387,227(7)
President and CEO 1994 371,000 194,775 35,115 -- 35,000 -- 153,963(7)
1993 350,000 250,000 41,970 -- 50,000 -- 392,216(7)
James A. Harris, 1995 156,343 56,596 13,629 -- 10,000 137,830 6,506
Executive V.P. & 1994 144,095 60,520 13,629 44,688 15,000 -- 6,578
President of Eljer 1993 125,300 75,180 13,359 38,438 8,000 -- 5,049
Manufacturing, Inc.
James F. Thomason, 1995 198,278 79,708 15,267 -- 10,000 196,900 8,339
V.P. Manufacturing 1994 189,740 79,691 15,522 -- 15,000 -- 8,914
1993 179,000 107,400 15,149 -- 8,000 -- 7,512
George W. Hanthorn, 1995 200,000 66,400 12,790 -- -- 88,612 --
V.P., General Counsel 1994 41,667 10,416 3,135 -- 15,000 -- --
& Secretary(1) 1993 -- -- -- -- -- -- --
G. Michael Morrell, 1995 145,043 68,837 3,528 -- 10,000 95,286 --
Managing Director, 1994 103,965 72,236 2,521 70,000 -- -- --
European Operations(2) 1993 -- -- -- -- -- -- --
</TABLE>
- --------
(1) Mr. Hanthorn became an employee of the Company in October 1994.
(2) Mr. Morrell became an employee of the Company in April 1994. Amounts
indicated were paid in British pounds sterling and have been converted to
United States dollars on the basis of $1.578 per pound sterling.
(3) Annual bonus amounts are earned and accrued during the fiscal years
indicated and paid in the following year.
(4) Amounts consist of automobile lease payments made by the Company, tax
planning services and club dues for certain of the executives.
(5) As of December 31, 1995, the only restricted Shares outstanding that were
granted to the named executive officers were as follows: Mr. Harris, 5,000
in 1993 and 5,000 in 1994; and Mr. Morrell, 10,000 in 1994. The aggregate
value of these restricted Shares is based on the closing sales price of
the Company's Common Stock on the date of the grant. The restricted period
with respect to such Shares for Mr. Harris terminated on February 16, 1996
for those granted in 1993, and will terminate on February 15, 1997 for
those granted in 1994. The restricted period with respect to such Shares
for Mr. Morrell will terminate on April 19, 1997.
(6) Except as noted in footnote 7 below, these amounts represent matching
contributions by the Company to the TRIP and the defined contribution
portion of the Eljer Supplemental Benefit Plan (see "Defined Benefit and
Other Retirement Plans" below) on behalf of the named individuals.
(7) With respect to Mr. Arbuckle, these amounts include lump sum retirement
payments of $369,834 in 1995, $135,333 in 1994, $377,816 in 1993 earned
pursuant to the pension related benefit portion of the Eljer Supplemental
Benefit Plan. The payments reflect benefits as of December 31, 1995,
December 31, 1994 and December 31, 1993, respectively, a significant
amount of which Mr. Arbuckle earned prior to becoming President and Chief
Executive Officer of the Company.
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OPTION/SAR GRANTS
The following table sets forth certain information with respect to options
to purchase Common Stock granted during the year ended December 31, 1995 to
each of the named executive officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE
SECURITIES OPTIONS/ VALUE AT ASSUMED
UNDERLYING SARS ANNUAL RATES OF STOCK
OPTIONS/ GRANTED TO EXERCISE PRICE APPRECIATION FOR
SARS EMPLOYEES PRICE OPTION TERM(1)
-------------------------
GRANTED IN FISCAL PER EXPIRATION
NAME (#)(2) YEAR SHARE DATE 5%(3) 10%(4)
- ---- ---------- ---------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Scott G. Arbuckle....... 25,000 22.3% $5.88 2/22/05 $92,369 $234,080
James A. Harris......... 10,000 8.9% $5.88 2/22/05 $36,947 $ 93,632
James F. Thomason....... 10,000 8.9% $5.88 2/22/05 $36,947 $ 93,632
George W. Hanthorn(5)... -- -- -- -- -- --
G. Michael Morrell...... 10,000 8.9% $5.88 2/22/05 $23,917(6) $ 55,737(7)
</TABLE>
- --------
(1) The values shown are based on the indicated assumed annual rates of
appreciation compounded annually. Actual gains realized, if any, on stock
option exercises and Common Stock holdings are dependent on the future
performance of the Common Stock and overall stock market conditions. There
can be no assurance that the values shown in this table will be achieved.
(2) Options granted in 1995 did not include stock appreciation rights
("SARs").
(3) Represents an assumed market price per share of Common Stock of $9.57,
unless otherwise noted.
(4) Represents an assumed market price per share of Common Stock of $15.24,
unless otherwise noted.
(5) George W. Hanthorn was awarded no options in 1995. His most recent award
was October 17, 1994, which is Mr. Hanthorn's initial hire date.
(6) Represents an assumed market price per share of Common Stock of $8.27.
(7) Represents an assumed market price per share of Common Stock at $11.45.
OPTION/SAR EXERCISES
The following table sets forth certain information with respect to the
exercise of options to purchase Common Stock and SARs during the year ended
December 31, 1995, and the unexercised options held and the value thereof at
that date, by each of the named executive officers.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAREND OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS AT OPTIONS/SARS AT
ACQUIRED VALUE FISCAL YEAREND (#) FISCAL YEAREND ($)
ON EXERCISE REALIZED ------------------------- --------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Scott G. Arbuckle....... -0- -0- 106,046 85,000 78,670 249,764
James A. Harris......... -0- -0- 27,725 27,375 20,327 90,984
James F. Thomason....... -0- -0- 31,300 27,500 20,421 91,015
George W. Hanthorn...... -0- -0- 3,750 11,250 13,593 40,781
G. Michael Morrell...... -0- -0- -0- 10,000 -0- 48,750
</TABLE>
11
<PAGE>
LONG-TERM INCENTIVE PLAN AWARDS
The Long-Term Incentive Plan provides for awards based on performance units
to key executives. Units are earned based on the achievement of corporate
performance goals established by the Compensation Committee.
The Performance Target for the three-year period ended December 31, 1995
Performance Period was based on cumulative earnings per share excluding
certain unusual items. Results achieved were 110% of the target level.
<TABLE>
<CAPTION>
TARGET PAYOUT AMOUNT
AWARD @110% OF TARGET
-------- ---------------
<S> <C> <C>
Scott G. Arbuckle...................................... $525,000 $577,500
James A. Harris........................................ 125,300 137,830
James F. Thomason...................................... 179,000 196,900
George W. Hanthorn..................................... 80,555 88,611
G. Michael Morrell..................................... 86,624 95,286
</TABLE>
DEFINED BENEFIT AND OTHER RETIREMENT PLANS
The following table illustrates the amount of annual pension benefits on a
straight-life annuity basis for eligible employees retiring at age 65 in the
specified remuneration and years-of-service classifications under the
Retirement Plan, the Excess Plan and Supplemental Plan discussed below.
Offsets for Social Security payments and other offsets provided for in the
plans are reflected in this table.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE AT RETIREMENT
--------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 150,000......................... $ 30,662 $ 40,883 $ 51,103 $ 61,324 $ 71,545
200,000......................... 41,912 55,883 69,853 83,824 97,795
300,000......................... 64,412 85,883 107,353 128,824 150,295
400,000......................... 86,912 115,883 144,853 173,824 202,795
500,000......................... 109,412 145,883 182,353 218,824 255,295
750,000......................... 165,662 220,883 276,103 331,324 386,545
1,500,000......................... 334,412 445,883 557,353 668,824 780,295
</TABLE>
The Retirement Plan for Salaried Employees of Eljer Manufacturing, Inc. (the
"Retirement Plan") is a noncontributory, defined benefit plan for certain of
its salaried employees. The amount of a participant's pension benefits depends
primarily on years of employment, age at retirement and average annual
compensation (salary plus bonus, whether paid in cash or stock) for the five
successive highest-paid employment years out of the employee's last 10 years
of employment. Participants become fully vested in their accrued pension
benefits after five years of service.
The Retirement Plan was amended effective December 31, 1995, to freeze
compensation for benefit purposes at 1995 levels. In addition, benefit service
for participants under age 50 as of December 31, 1995, has been frozen;
participants age 50 or over continue to accrue service for benefit purposes.
All compensation received after 1995 is excluded in the determination of
benefits; all service after 1995 is excluded except for participants over the
age 50 on December 31, 1995.
The Company maintains two non-qualified, unfunded benefit plans (the "Excess
Plan" and the "Supplemental Plan") pursuant to which benefits of certain
participants under the Retirement Plan and TRIP, are supplemented to account
for limitations imposed on benefits under these plans by the Internal Revenue
Code of 1986, as amended (the "Code"). Benefits under the Excess Plan are
determined by reference to an employee's benefits under the Retirement Plan
and benefits under the Supplemental Plan are determined by reference to an
12
<PAGE>
employee's benefits under the Retirement Plan and TRIP calculated in each case
without regard to the contribution and benefit limitations contained in the
Code. In calculating an employee's benefits under the TRIP related portion of
the Supplemental Plan, amounts credited to an employee under such plan are
deemed to be invested in shares of Common Stock. Generally, benefits under the
Excess Plan and the Retirement Plan related portion of the Supplemental Plan
are payable at the time and in the form benefits are payable to an employee
under the Retirement Plan and benefits under the TRIP related portion of the
Supplemental Plan are payable in a single sum payment following an employee's
termination of employment with the Company or its participating subsidiaries,
death or disability. The Board has authorized the Eljer Pension Committee to
administer the Excess Plan and the Retirement Plan portion of the Supplemental
Plan and the Eljer TRIP Administrative and Investment Committee to administer
the TRIP related portion of the Supplemental Plan; provided that the Board
determines in each case the methods by which benefits are accumulated and
distributed (such as the timing and form of benefit payments) under the Excess
Plan and the Supplemental Plan. The amendment to the Retirement Plan discussed
above is also applicable to the Excess Plan in the same manner it affects
benefits and service earned under the Retirement Plan. The Company's
obligations under the Supplemental Plan and the Excess Plan are partially
secured by the assets of a grantor trust held by Wachovia Bank of North
Carolina, N.A., as trustee.
For purposes of determining the benefits under the Retirement Plan, the
Excess Plan and the Supplemental Plan for the named executive officers,
credited years of service and the amount of covered compensation (salary plus
bonuses paid in cash or stock) for 1995 are as follows: Mr. Arbuckle, 33 years
and $594,775; Mr. Harris, seven years and $216,863; Mr. Thomason, six years
and $277,969; and Mr. Hanthorn, two years and $210,416. In calculating
credited years of service, years of service with Household International, Inc.
prior to the spin-off of the Company have been taken into account.
The Company maintains TRIP, which is a defined contribution plan intended to
constitute a qualified plan under Section 401(a) of the Code containing a
salary reduction feature, pursuant to which eligible employees of the Company
and its participating subsidiaries who are not covered by a collective
bargaining agreement may elect to contribute a portion of their compensation
on a before-tax and/or an after-tax basis and the Company and its
participating subsidiaries make matching contributions in an amount not
exceeding 50% of each employee's compensation contributed to TRIP up to 6% of
the employee's compensation. TRIP was amended effective January 1, 1996 to
include a profit sharing contribution referred to as "TRIP+" based, in part,
on each employee's years of credited service under TRIP. TRIP+ contributions
range from 2% of an employee's compensation to 9% of an employee's
compensation. Employees' contributions, matching contributions, and TRIP+
contributions are subject to certain restrictions and limitations imposed on
TRIP by the Code and the maximum amount of compensation that can be considered
under TRIP on behalf of an employee for 1996 is $150,000. Employees' may,
subject to certain limitations contained in TRIP, elect to invest their TRIP
accounts in certain investment funds, including a fund consisting primarily of
Common Stock.
Mr. Morrell is covered by a retirement plan of Selkirk Manufacturing
Limited, an indirect wholly-owned subsidiary of the Company. The plan provides
for an annual retirement benefit to Mr. Morrell, beginning at age 60, equal to
two-thirds of his final average compensation. Final average compensation means
the average annual compensation during the last three years of Mr. Morrell's
employment. The amount of covered compensation for 1995 to Mr. Morrell was
$217,279.
EXECUTIVE COMPENSATION (INCLUDING TERMINATION OF EMPLOYMENT) AGREEMENTS
Mr. Arbuckle entered into an agreement with the Company in 1991 that
provides for, among other things, certain continued compensation in the event
of (i) termination of Mr. Arbuckle's employment by the Company prior to age 65
for any reason other than willful and deliberate misconduct or disability for
a specified period that prevents him from reasonably performing his duties or
(ii) resignation of employment prior to age 65 by reason of reassignment to a
lesser rank or status, reduction of salary, benefits or target bonus, or
reassignment to a geographic area more than 50 miles from his residence as of
the date the agreement was executed.
13
<PAGE>
In the event Mr. Arbuckle's employment is terminated or he resigns for any
such reason described above, he will be entitled for 18 months thereafter to
(i) continued salary (prorated for the partial year), (ii) continued target
bonuses (prorated for the partial year) and (iii) continuation of pension
accrual, savings plan contributions, deferred compensation (if any) and
medical and life insurance benefits or, in each case under this clause (iii),
the economic equivalent thereof. Benefit plan accruals that would be payable
on a deferred basis were he to continue in employment, may, at the Company's
option, be deferred or payable in an actuarially equivalent lump sum at the
end of the 18-month period.
Messrs. Harris and Thomason entered into agreements with the Company in
1991. Mr. Hanthorn entered into an agreement with the Company in 1994. They
are identical to Mr. Arbuckle's agreement, except that (i) the continuation of
compensation provisions apply if the officer's employment is terminated or he
resigns (for the same reasons set forth in Mr. Arbuckle's agreement) prior to
the termination of the agreement (rather than at any time prior to age 65) and
(ii) the period of continued compensation post-employment is 12 months (rather
than 18 months). The agreements with Messrs. Harris and Thomason were
originally scheduled to terminate on May 1, 1995, and the agreement with Mr.
Hanthorn was originally scheduled to terminate on October 17, 1995. The term
of each of the agreements with Messrs. Harris, Thomason and Hanthorn is,
however, renewed automatically for successive one-year periods unless the
Company notifies the officer at least 90 days prior to the scheduled
termination date of the agreement (as originally fixed or as extended) of the
Company's election not to extend the agreement beyond such date. The term of
the agreements with Messrs. Harris, Thomason and Hanthorn were automatically
extended the additional one year period.
Mr. Morrell entered into an agreement with the Company in 1994 with terms
that are substantially the same as those contained in the agreements with
Messrs. Harris, Thomason and Hanthorn, with one exception. The term of the
agreement has no expiration date.
CHANGE-IN-CONTROL AGREEMENTS
The Company has entered into agreements with Messrs. Harris, Thomason,
Hanthorn and Morrell and four other officers of the Company, providing
severance benefits in the event their employment is terminated within two
years following a change-in-control of the Company. The provisions of these
agreements supersede the provisions of the compensation agreements described
above to the extent that those provisions would apply following a change-in-
control of the Company.
Under these agreements, a "change-in-control" is defined as the occurrence
of any one of the following: (i) the acquisition by a person or entity of
shares of stock of the Company representing 25 percent or more of the combined
voting power of the stock of the Company; (ii) a change in the majority of the
Board of Directors; or (iii) shareholder approval of a liquidation of the
Company, a sale or disposition of all or substantially all of the Company's
assets or a merger, consolidation or reorganization of the Company.
If the employment of an officer who is a party to a change-in-control
agreement is terminated by the Company other than for "cause" within two years
following a change-in-control, or if such an officer voluntarily terminates
his or her employment within such time period for "good reason", then the
officer will be entitled to the following severance benefits: (i) two times
the officer's highest annual base salary while employed by the Company; (ii)
two times the greater of (a) the officer's average annual bonus over the
preceding three years or (b) the officer's target bonus for the year in which
the change-in-control occurs; (iii) the officer's unpaid base salary and
accrued vacation pay through the date of employment termination; and (iv) two
years of continued coverage under welfare benefit plans, pension plans and
profit sharing plans (however, in the event an officer receives substantially
similar benefits from a subsequent employer, the coverage under the officer's
change-in- control agreement will be discontinued).
Mr. Arbuckle also has entered into a change-in-control agreement with terms
similar to those summarized above. However, in addition to the methods of
termination entitling officers to payment under the agreements described
above, Mr. Arbuckle's severance benefits also will be payable upon any
voluntary termination of his
14
<PAGE>
employment within the two-year period following a change-in-control. Mr.
Arbuckle's severance benefits will consist of the following: (i) three times
his highest annual base salary while employed by the Company; (ii) three times
the greater of (a) his average annual bonus over the preceding three years or
(b) his target bonus for the year in which the change-in-control occurs; (iii)
his unpaid base salary and accrued vacation pay through the date of employment
termination; and (iv) three years of continued coverage under welfare benefit
plans, pension plans, and profit sharing plans (except that if Mr. Arbuckle
receives substantially similar benefits from a subsequent employer, the
continued coverage under his change-in-control agreement will be
discontinued).
Upon a change-in-control of the Company, all outstanding awards granted
under the Company's Long- Term Executive Incentive Compensation Plan and the
1995 Long-Term Incentive Plan shall also become fully vested, exercisable
and/or payable.
The Company's obligations under the change-in-control agreements with all of
the officers of the Company are partially secured by a cash-collateralized
letter of credit in the amount of $2,500,000 held by Wachovia Bank of North
Carolina, N.A., as trustee.
Under the terms of the Merger Agreement, Parent has agreed to cause the
Surviving Corporation to honor and perform all existing change-in-control
agreements with the officers of the Company.
REPRICING OF OPTIONS
In 1995, the Company did not adjust or amend the exercise price of stock
options or SARs previously granted to any of the named executive officers.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Frank J. Morgan, who served on the Compensation Committee in 1995, served in
a salaried executive office as Chairman of the Board in 1992. In 1993, the
position of Chairman of the Board became a non-employee position.
COMPENSATION COMMITTEE
The Company's executive compensation program is administered by the
Compensation Committee. The Board designates the members and the Chairman of
the committee. At the present time, the Compensation Committee consists of all
of the directors who are not employees of the Company. The Compensation
Committee establishes the general compensation policies of the Company,
establishes the compensation plans and specific compensation levels for
executive officers and administers the Company's Executive Incentive
Compensation Program, 1991 Long-Term Performance Plan, 1995 Long-Term
Incentive Plan and the Long-Term Executive Incentive Compensation Plan and
awards stock-based compensation to executive officers and employees of the
Company.
The following is a report submitted by members of the Compensation Committee
addressing the Company's compensation policy as it related to the executive
officers for fiscal 1995. The report and the information herein under
"Executive Compensation--Performance Graph" shall not be deemed to be
"soliciting material" or to be "filed" with the SEC or subject to the SEC's
proxy rules, except for the required disclosure herein, or to the liabilities
established under Section 18 of the Securities Exchange Act of 1934 (the
"Exchange Act") and such information shall not be deemed to be incorporated by
reference into any filing made by the Company under the Securities Act of 1933
or the Exchange Act.
15
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
To the Shareholders of Eljer Industries, Inc.:
As members of the Compensation Committee of the Board of Directors (the
"Committee") it is our responsibility to review and set compensation levels of
the executive officers of the Company, evaluate the performance of management
and consider management succession and related matters.
The Committee retains the services of Hewitt Associates LLC, a compensation
and benefits consulting firm ("Hewitt Associates"), to provide information to
the Committee to assist it in connection with the performance of its duties.
Hewitt Associates provides advice to the Committee with respect to the
compensation of executive officers of the Company. The Committee takes into
account the performance of the Company and how compensation paid by the
Company compares to compensation paid by a comparator group of companies.
Members of the Committee also review various compensation surveys provided
during the year by Hewitt Associates and other firms specializing in executive
compensation. In 1995, these surveys included reports of middle market
manufacturing and service companies, and the market data of general industry
companies of similar size. Salaries for the executives are reviewed by the
Committee on an annual basis and may be increased at that time on the basis of
salary increase guidelines established each year by the Company, the
individual performance, and changes in pay levels at the comparator companies
and in industry in general. This group is referenced for establishing all
components of pay. The Committee believes that this group is the most
representative comparator group of companies for establishing competitive
levels of executive pay. Competitors chosen for comparison purposes in the
compensation area generally are not the same companies which comprise the peer
group index in the performance graph included in this Proxy Statement. The
Committee believes that the Company's most direct competitors for executive
talent are not necessarily those companies that would be included in the peer
group established for comparing shareholder returns.
In establishing executive compensation, the Committee neither bases its
decisions entirely on quantitative relative weights of various factors, nor
does it follow a mathematical formula. Rather, the Committee exercises
discretion and makes judgments after considering all factors that are deemed
relevant, including the achievement of certain objective targets set by the
Committee relating to the Company's financial performance. In establishing
each component of pay, the Committee considers the entire pay package.
Executive compensation policies are designed to use executive pay as
incentive to promote the Company's overall business strategies, values and
management initiatives. The policies are intended to (i) attract and retain
those kinds of executives who are considered essential to the long-term
success of the Company through the salaried administration program; (ii)
support a performance-based environment that rewards achievement of
established Company goals and corporate performance through the payment of
cash awards annually; and (iii) reward executives for long-term strategic
management and the enhancement of shareholder value through stock- based and
long-term incentive awards. The total compensation program emphasizes variable
compensation opportunities over time and encourages long-term stock ownership.
Section 162(m) of the Omnibus Budget Reconciliation Act of 1993 (the "1003
Act") limits the deductibility of compensation in excess of $1 million paid to
the Company's chief executive officer and the next four highest paid officers
during any fiscal year, beginning with 1994, unless such compensation meets
certain requirements.
The Compensation Committee believes that the current Executive Compensation
program is generally fully deductible. However, the Committee may occasionally
grant restricted shares or compensation regarding the long-term incentive
programs that are in excess of the $1 million limit and may not be deductible.
Therefore, the Committee's policy is to retain the discretion to pay non-
deductible compensation if that would be in the best interests of the Company
and shareholders under the circumstances. Nonetheless, all taxable income for
1995 of the Chief Executive Officer and other named executive officers
qualified as deductible by the Company.
16
<PAGE>
For 1995, as in years past, the Company's executive compensation program
consisted of three elements of a total compensation program: base salary,
annual incentive bonus and long-term, primarily stock-based, incentive
compensation. This approach emphasizes the management of total compensation
rather than the administration of separate components of pay. In its
compensation decisions with respect to 1995, the Committee took particular
note of the management skills, abilities and dedication needed in order for
the Company to continue to make progress in resolving financial, legal and
operating difficulties facing the Company. The Committee attempts to structure
executive compensation packages so that the compensation paid to the Company's
executive officers, both individually and collectively, will rank in the
median range of the compensation reported by the comparator companies, and
actual pay in 1995 fell within this range.
BASE SALARIES
In establishing the base salaries for executive officers, the Committee
considers the individual executive's level of responsibility. That
responsibility is compared to compensation surveys provided in large part by
Hewitt Associates. The Committee feels that a larger portion of executive
compensation opportunity should consist of performance-based incentives.
Consequently, the Company's salaries continue to average at the mid-point
range of base salaries reported by comparator companies for the year 1995.
On February 22, 1995, the salary of Scott G. Arbuckle, the Company's chief
executive officer ("CEO"), was raised, by the Committee, from $371,000 to
$400,000--an increase of approximately 8%. In fixing the CEO's salary, the
Committee took into account the Company's continued financial and operational
progress and determined that a merit base salary increase was in order. The
Committee based the amount of the increase partly on industry comparative
salaries for chief executive officers, which were higher than the CEO, and
partly on industry averages for pay increases (3 1/2% to 4 1/2%) for chief
executive officers.
ANNUAL INCENTIVES
Bonuses awarded under the Executive Compensation Program consist of a
discretionary portion and a non-discretionary portion that is based on the
achievement of objectives established each year by the Committee. Bonus
opportunities are established to approximate median practices among the
comparator companies. Under the annual incentive plans, financial targets are
set at levels approved by the Board of Directors and include specific
accounting measures of success. In February 1995, the Committee established
1995 performance goals for the Company's executive officers. The Committee
determined that 30% of each officer's bonus would be based on whether an
earnings per share target was met; 30% on whether a return on net assets
target was met; 20% on whether a net operating income (excluding unusual
items) target was met; and, 20% would be discretionary with consideration
given to the achievement of certain individual performance objectives
established for each officer. This discretionary portion of annual earned
awards was based on discretionary factors that reflected differences in
individual contributions to the Company's success for the year.
In February 1996, the Committee met, reviewed the continued improved
operating performance of the Company in fiscal 1995, but determined that the
net operating income target established by the Committee under the bonus
program had not been met. Partial awards were given for achievement toward
return on net assets and earnings per share objectives. The Committee also
reviewed the CEO's and the other executive officers' success in meeting
individual performance objectives. Based on its evaluation of all factors, the
Committee concluded that the CEO and other executive officers achieved
improvements in long-term financial performance and continued to position the
Company for stability and future growth, and awarded commensurate bonuses. In
total, the bonus payments either met or were slightly below target levels
because the operating performance of the Company, and the executives'
performance, averaged target performance levels. The Committee believes that
the bonuses paid to the CEO and other executives for services in 1995, as a
percentage of base salary, are in keeping with the improvements made to
operations.
LONG-TERM INCENTIVES
Long-term incentives provide a significant portion of total compensation for
executives and encourage long-term stock ownership. Stock-based awards under
the Long-Term Executive Incentive Compensation Plan
17
<PAGE>
strengthen the ability of the Company to attract, motivate and retain capable
executives and more closely align the interests of management with those of
shareholders. Long-term awards granted in 1995 under this plan consisted of
non-qualified stock options. Unlike cash, the value of stock options and to a
lesser extent restricted stock, will not be immediately realized by the
executive. Stock options are granted with exercise prices equal to the
prevailing market value of the underlying stock on the date of grant, and will
only have value if the Company's stock price increases, resulting in a
commensurate benefit for the Company's shareholders. Options granted in 1995
vest in equal amounts over four years and executives must be employed by the
Company or an affiliate at the time of vesting in order to exercise the
options. Restricted stock is subject to a restricted period during which the
stock will be forfeited if the executive's employment is terminated and during
which the stock cannot be transferred. The restricted period for awards
granted is three years. Restricted stock awards are made for the hiring and
retention of key executives. In establishing relative levels of stock options
and restricted stock grants the Committee references marketplace practices in
this regard.
The Committee considers the grant of stock-based compensation to executive
officers and key managers on an annual basis. The amount of stock-based
compensation awarded is based upon the position held by an executive, his
expected contribution to the Company's future growth and profitability and his
current equity holdings. In granting stock-based compensation, the Committee
considers awards reflected in compensation surveys and attempts to base awards
at the mid-level indicated by the practices among the comparator companies.
The Committee did not reprice any options in 1995, and has not considered it
necessary to establish target stock ownership levels for its executive
officers.
In accordance with the foregoing guidelines, the CEO was granted options to
purchase 25,000 shares of Common Stock in 1995. The Committee believes that
top executives are best motivated by the opportunity for equity ownership and
that fact, coupled with practices at the comparator companies, suggested these
shares as an appropriate size of the option grant to the CEO.
No awards previously granted under the Company's 1991 Long-Term Performance
Plan were earned during the three-year performance period ended December 31,
1993 because performance targets were not achieved. In 1993, the Committee
established new long-term incentive awards under the Company's 1991 Long-Term
Performance Plan for the performance period ending December 31, 1995, and
established the cumulative earnings per share targets (excluding certain
unusual items) relating to those awards. Payouts to the Named Executive
Officers for the 1993-1995 award period are shown in the Summary Compensation
Table. The Committee has established a new long-term incentive program, the
1995 Long-Term Incentive Plan, designed to further strengthen the relationship
between executive pay and shareholder value creation. The incentive awards
under the 1995 Long-Term Incentive Plan will replace the annual grants of
performance awards under the 1991 Long-Term Incentive Plan for the performance
period beginning in 1995. Award opportunities under the 1995 Long-Term
Incentive Plan will be directly tied to stock price growth. The Committee
believes that the flexibility provided under the 1995 Long-Term Incentive Plan
will best complement the existing stock option and restricted stock components
of the Company's long-term incentive program, and will provide an effective
means for further tieing the incentive opportunities of the Company's
executives to shareholder value creation.
SUMMARY
The Committee believes that executive compensation levels during fiscal 1995
adequately reflect the Company's compensation goals and policies.
Compensation Committee
Walter C. Minnick, Chairman
Frank J. Morgan
John H. Deininger
C.A. Rundell, Jr.
Paul E. Price
18
<PAGE>
COMPARISON OF STOCKHOLDER RETURNS
The following graph sets forth the cumulative total shareholder return for
the Common Stock, the New York Stock Exchange Market Index and a Competitor
Group Index for the years indicated as prescribed by SEC rules.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN(1)
AMONG ELJER INDUSTRIES, INC.,
NYSE MARKET INDEX AND COMPETITOR GROUP INDEX(2)
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Company...................................... 91.23 126.32 92.98 80.70 150.88
NYSE Market.................................. 129.41 135.50 153.85 150.86 195.61
Competitor Group............................. 140.77 189.36 238.01 166.79 229.89
</TABLE>
- --------
(1) Total return assuming reinvestment of dividends. Assumes $100 invested on
January 1, 1991, in the Common Stock, the NYSE Market Index and a Company
constructed competitor group index.
(2) The Company constructed competitor group consists of the following
companies: Hughes Supply, Inc., Manville Corporation, Masco Corporation,
Morgan Products Ltd., Noland Company, Nortek, Inc., Owens- Corning
Fiberglass Corporation, Ply Gem Industries, Inc. and Waxman Industries,
Inc. Total return calculations were weighted according to the respective
company's market capitalization.
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<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires directors and officers of the
Company and persons who own more than 10 percent of the Common Stock to file
with the SEC initial reports of ownership and reports of changes in ownership
of the Common Stock. Directors, officers and more than 10 percent shareholders
are required by SEC regulations to furnish the Company with copies of all
Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required during the year ended December 31, 1995 (the Company's
last full fiscal year), all filings applicable to its directors, officers and
more than 10 percent beneficial owners were in compliance with Section 16(a)
filing requirements.
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