UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant
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Filed by a Party other than the
Registrant
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Check the appropriate box:
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to Section
240.14a-12
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LINCOLN ELECTRIC HOLDINGS, 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):
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No fee required.
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Fee computed on table below per Exchange Act
Rules
14a-6(i)(1)
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0-11.
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Aggregate number of securities to which transaction applies:
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Per unit price or other underlying value of transaction computed
pursuant to Exchange Act
Rule
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(set
forth the amount on which the filing fee is calculated and state
how it was determined):
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Proposed maximum aggregate value of transaction:
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Fee paid previously with preliminary materials.
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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.
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Amount Previously Paid:
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Form, Schedule or Registration Statement No.:
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Dear Shareholder:
You are cordially invited to attend the Annual Meeting of
Shareholders of Lincoln Electric Holdings, Inc., which will be
held at 10:00 a.m. on April 28, 2006 at the Marriott
Cleveland East, 26300 Harvard Road, Warrensville Heights,
Ohio. A map showing the location of the Annual Meeting is
printed on the outside back cover of the Proxy Statement.
Enclosed with this letter are the Annual Meeting Notice, Proxy
Statement, Proxy and Voting Instruction Form and an
envelope in which to return the Proxy and Voting
Instruction Form. Also enclosed is a copy of the Annual
Report. The Annual Report and Proxy Statement contain important
information about the Company, its Board of Directors and its
Executive Officers. Please read these documents carefully.
If you are a registered holder of Lincoln shares or a
participant in The Lincoln Electric Company Employee Savings
Plan (401(k) Plan), as a convenience to you and as a means of
reducing costs, you may choose to vote your proxy electronically
using the Internet or a touch-tone telephone instead of using
the conventional method of completing and mailing the enclosed
Proxy and Voting Instruction Form. Electronic proxy voting
is permitted under Ohio law and the Company’s Regulations.
You will find instructions on how to vote electronically in the
Proxy Statement and on the Proxy and Voting
Instruction Form. Having the freedom to vote by means of
the Internet, telephone or mail does not limit your right to
attend or vote in person at the Annual Meeting, if you prefer.
If you do plan to attend the Annual Meeting, please check the
attendance box on the enclosed Proxy and Voting
Instruction Form, or when prompted if you cast your vote
over the Internet or by telephone.
We look forward to seeing you at the Annual Meeting.
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Sincerely,
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John M. Stropki, Jr.
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Chairman, President and Chief Executive Officer
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Lincoln Electric Holdings, Inc.
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March 28, 2006
TABLE OF CONTENTS
Lincoln Electric Holdings, Inc.
22801 Saint Clair Avenue
Cleveland, Ohio 44117-1199
NOTICE OF
ANNUAL MEETING OF
SHAREHOLDERS
The Annual Meeting of Shareholders of Lincoln Electric Holdings,
Inc. will be held at 10:00 a.m. on Friday, April 28,
2006, at the Marriott Cleveland East, 26300 Harvard Road,
Warrensville Heights, Ohio. Shareholders will be asked to vote
on the following proposals:
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(1)
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Election of three Directors, each for a term scheduled to expire
in 2009;
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(2)
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Approval of the 2006 Equity and Performance Incentive Plan;
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(3)
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Approval of the 2006 Stock Plan for Non-Employee Directors;
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(4)
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Ratification of the appointment of Ernst & Young LLP as
the Company’s independent auditors for the year ending
December 31, 2006; and
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(5)
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Any other business properly brought before the meeting, or any
postponement(s) or adjournment(s) of the meeting.
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Shareholders of record as of the close of business on
March 20, 2006, the record date, are entitled to vote at
the Annual Meeting.
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Frederick G. Stueber
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Senior Vice President,
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General Counsel and Secretary
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March 28, 2006
Your vote is very important. Be sure that your shares are
represented. Whether or not you plan to attend the Annual
Meeting, we recommend that you mark, date, sign and return
promptly the enclosed Proxy and Voting Instruction Form in
the envelope provided or, in the alternative, vote your shares
electronically either over the Internet
(www.cesvote.com)
or by touch-tone
telephone
(1-888-693-8683)
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If your shares are not registered in your own name and you would
like to attend the Annual Meeting, please bring evidence of your
share ownership with you. You should be able to obtain evidence
of your share ownership from the bank, broker, trustee or other
nominee that holds the shares on your behalf.
1
GENERAL INFORMATION
Who is soliciting proxies and why?
The enclosed Proxy is being solicited by the Directors of the
Company, and the Company will pay the cost of the solicitation.
Certain Officers and other employees of the Company may also
solicit proxies by telephone, letter or personal interview. The
Company will begin mailing this Proxy Statement on or about
March 28, 2006.
If your shares are held in your name, in order to vote your
shares you must either attend the Annual Meeting and vote in
person or appoint a proxy to vote on your behalf. Because the
Directors of the Company realize that it would be highly
unlikely that all shareholders would be able to attend the
Annual Meeting, the Directors recommend that you appoint a proxy
to vote on your behalf, as indicated on the accompanying Proxy
and Voting Instruction Form, or appoint your proxy
electronically via telephone or the Internet.
What is Householding?
To reduce the expense of delivering duplicate voting materials
to shareholders who share the same address, we have taken
advantage of the Householding rules enacted by the Securities
and Exchange Commission (“SEC”). As long as we provide
proper notice to such shareholders, these rules permit us to
deliver only one set of voting materials to shareholders who
share the same address, meaning only one copy of the Annual
Report, Proxy Statement and any other shareholder communication
will be sent to those households. Each shareholder will,
however, receive a separate Proxy and Voting
Instruction Form.
How do I obtain a separate set of communications to
shareholders?
If you share an address with another shareholder and have
received only one copy of the Annual Report, Proxy Statement or
any other shareholder communication, you may request that the
Company send a separate copy of these materials to you at no
cost to you. The Company will promptly send a copy of these
materials to you upon your written or oral request. For future
Annual Meetings, you may request separate copies of these
materials, or request that the Company send only one set of
these materials to you if you are receiving multiple copies, by
sending a written notice to the Corporate Secretary at Lincoln
Electric Holdings, Inc., c/o National City Bank, Corporate
Trust Operations, Locator 5352, P.O. Box 92301,
Cleveland, Ohio 44197-1200. You may also request separate copies
of these materials for future Annual Meetings by calling Roy
Morrow, the Company’s Director, Corporate Relations, at
216-383-4893.
Who may vote?
Record holders of the common shares of Lincoln Electric
Holdings, Inc. (“Lincoln Common”) as of the close of
business on March 20, 2006, the record date, are entitled
to vote at the Annual Meeting. On that date,
42,418,775 shares of Lincoln Common were outstanding. Each
share is entitled to one vote on each proposal brought before
the meeting.
What shares are included on the proxy card?
If you are both a registered shareholder of the Company and a
participant in The Lincoln Electric Company Employee Savings
Plan (“401(k) Plan”), you may have received one Proxy
and Voting Instruction Form that shows all shares of
Lincoln Common registered in your name, including any Dividend
Reinvestment Plan shares, and all shares you have (based on the
units credited to your account) under the 401(k) Plan.
Accordingly, your Proxy and Voting Instruction Form also
serves as your voting directions to the 401(k) Plan Trustee.
2
Please note, however, that unless the identical name or names
appeared on all your accounts, we were not able to consolidate
your share information. If that was the case, you received more
than one Proxy and Voting Instruction Form and must vote
each one separately.
If your shares are held through a bank, broker, trustee or some
other nominee, you will receive either a voting form or a proxy
card from the nominee, instructing you on how to vote your
shares, which may also include instructions on telephone and
electronic voting.
What are the proposals on which I will be voting?
You are being asked to vote on four proposals:
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(1)
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Election of three Directors, each to serve for a term scheduled
to expire in 2009;
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(2)
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Approval of the 2006 Equity and Performance Incentive Plan;
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(3)
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Approval of the 2006 Stock Plan for Non-Employee Directors; and
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(4)
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Ratification of the appointment of Ernst & Young LLP as
the Company’s independent auditors for the year ending
December 31, 2006.
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The Directors do not know of any other matters that are to be
presented at the meeting. If any other matters come before the
meeting of which we did not have notice prior to
February 13, 2006 or that applicable laws otherwise would
permit proxies to vote on a discretionary basis, it is intended
that the persons authorized under solicited proxies will vote on
the matters in accordance with their best judgment.
How do I vote?
Registered Holders.
If your shares are registered in your
name, you may vote in person or by proxy. If you decide to vote
by proxy, you may do so in any
ONE
of the following three
ways.
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By telephone.
After reading the proxy materials and with
your Proxy and Voting Instruction Form in front of you, you
may call the toll-free number
1-888-693-8683
, using a
touch-tone telephone. You will be prompted to enter your Control
Number from your Proxy and Voting Instruction Form. This
number will identify you and the Company. Then you can follow
the simple instructions that will be given to you to record your
vote.
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Over the Internet.
After reading the proxy materials and
with your Proxy and Voting Instruction Form in front of
you, you may use a computer to access the website
www.cesvote.com.
You will be
prompted to enter your Control Number from your Proxy and Voting
Instruction Form. This number will identify you and the
Company. Then you can follow the simple instructions that will
be given to you to record your vote.
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By mail.
After reading the proxy materials, please mark,
sign and date your Proxy and Voting Instruction Form and
return it in the enclosed prepaid and addressed envelope.
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The Internet and telephone voting procedures have been set up
for your convenience and have been designed to authenticate your
identity, allow you to give voting instructions and confirm that
those instructions have been recorded properly.
Whether you choose to vote over the Internet, by telephone or by
mail, you can specify whether your shares should be voted for
all, some or none of the nominees for Director (Proposal 1
on the Proxy and Voting Instruction Form). You can also
specify whether you want to vote for or against, or abstain from
voting for, (1) the approval of the 2006 Equity and
Performance Incentive Plan (Proposal 2 on the Proxy and
Voting Instruction Form), (2) the approval of the 2006
Stock Plan for Non-Employee Directors (Proposal 3 on the
Proxy and Voting Instruction Form) and (3) the
ratification of the appointment of the independent auditors
(Proposal 4 on the Proxy and Voting Instruction Form).
If you make such specifications, your shares will be voted in
accordance therewith. If you sign, date and return your Proxy
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and Voting Instruction Form but do not specify how you want
to vote your shares, your shares will be voted
FOR
the
election of all the Director nominees,
FOR
the approval
of the 2006 Equity and Performance Incentive Plan,
FOR
the approval of the 2006 Stock Plan for Non-Employee
Directors and
FOR
the ratification of the appointment of
the independent auditors.
Participants in the 401(k) Plan.
If you participate in
the 401(k) Plan, the Plan’s independent Trustee, Fidelity
Management Trust Company, will vote your 401(k) Plan shares
according to your voting directions. You may give your voting
directions to the Plan Trustee in any
ONE
of the three
ways set forth above under “Registered Holders.” If
you do not return your Proxy and Voting Instruction Form or
do not vote over the Internet or by telephone, the Trustee will
not vote your Plan shares. Each participant who gives the
Trustee voting directions acts as a named fiduciary for the
401(k) Plan under the provisions of the Employee Retirement
Income Security Act of 1974, as amended.
Nominee shares.
If your shares are held by a bank,
broker, trustee or some other nominee, that entity will give you
separate voting instructions.
May I revoke my proxy or change my vote?
Yes. You may change or revoke your proxy prior to the closing of
the polls in any one of the following four ways:
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(1)
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by sending a written notice to the Company’s Corporate
Secretary stating that you want to revoke your proxy;
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(2)
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by submitting a properly completed and signed Proxy and Voting
Instruction Form with a later date (which will
automatically revoke the earlier proxy);
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(3)
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by entering later-dated telephone or Internet voting
instructions (which will automatically revoke the earlier
proxy); or
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(4)
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by voting in person at the Annual Meeting after requesting that
the earlier proxy be revoked.
NOTE: Because your 401(k)
shares are held in a qualified plan, you are not able to
vote 401(k) Plan shares at the Annual Meeting.
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If you plan to attend the Annual Meeting, please check the
attendance box on the enclosed Proxy and Voting
Instruction Form or indicate so when prompted if you are
voting by telephone or over the Internet.
If your shares are held by a bank, broker, trustee or some other
nominee, you will have to check with your bank, broker, trustee
or other nominee to determine how to change your vote. Also note
that if you plan to attend the Annual Meeting, you will not be
able to vote in person at the meeting any of your shares held by
a nominee unless you have a valid proxy from the nominee.
How are the votes counted?
Shareholder votes will be tabulated by an independent inspector
of elections for the Annual Meeting. All properly signed Proxy
and Voting Instruction Forms and all properly recorded
Internet and telephone votes (including votes marked
“abstain” and broker non-votes) will be counted to
determine whether or not a quorum is present at the meeting.
Votes for the Director nominees (Proposal 1) that are
marked “withhold,” and any broker non-votes or other
abstentions, will not be counted in determining the election of
Directors. Votes on Proposals 2 through 4 that are marked
“abstain” have the same effect as votes
AGAINST
those Proposals. A broker non-vote occurs when a nominee
holding shares for the beneficial owner does not vote those
shares on a particular proposal because the nominee does not
have discretionary authority to do so, and has not received
voting instructions with respect to the proposal from the
beneficial owner. Broker non-votes on Proposals 2 through 4
will have no effect on the results of those proposals.
4
May I receive future shareholder communications over the
Internet?
If you are a registered shareholder, you may consent to
accessing future shareholder communications (
e.g.
, proxy
materials, Annual Reports and interim communications) over the
Internet instead of receiving copies in the mail. You may give
your consent by marking the appropriate box on your Proxy and
Voting Instruction Form or following the prompts given you
when you vote by telephone or over the Internet. If you choose
electronic access to future shareholder communications, once
there is sufficient interest in electronic delivery we will
discontinue mailing the Proxy Statement and Annual Report to
you, but you will receive a Proxy and Voting
Instruction Form, together with a formal notice of the
meeting, in the mail with instructions containing the Internet
address or addresses to access shareholder communications.
Providing shareholder communications over the Internet will
reduce the Company’s printing and postage costs and the
number of paper documents that you would otherwise receive. If
you give your consent, there is no cost to you for this service
other than charges you may incur from your Internet provider,
telephone and/or cable company. Once you give your consent, it
will remain in effect until you inform us otherwise.
If your shares are held through a bank, broker, trustee or some
other nominee, check the information provided by that entity for
instructions on how to choose to access future shareholder
communications over the Internet.
When are shareholder proposals due for the 2007 Annual
Meeting?
In order for proposals to be considered for inclusion in next
year’s Proxy Statement, a shareholder proposal must be
submitted in writing to the Corporate Secretary at Lincoln
Electric Holdings, Inc., 22801 Saint Clair Avenue, Cleveland,
Ohio 44117-1199 by November 28, 2006. If a shareholder
intends to present a proposal at the 2007 Annual Meeting without
the inclusion of that proposal in the Proxy Statement, written
notice of the proposal must be received by February 11,
2007 or proxies solicited by the Board for the 2007 Annual
Meeting will confer discretionary authority to vote on the
proposal if presented at the 2007 Annual Meeting.
May I submit a nomination for Director?
The Company’s Regulations permit shareholders to nominate
one or more persons for election as a Director but require that
nominations be received by the Company by a certain date
depending on when the Company publicly announced the date of the
annual meeting at which the nomination is to be made. For this
year’s Annual Meeting, the Company must receive nominations
no later than the close of business on the tenth day following
the day on which the Company publicly announced the date of the
Annual Meeting. The Company publicly announced the date of this
year’s Annual Meeting on March 17, 2006;
accordingly, this means that no additional nominations can be
made for this year’s Annual Meeting.
To nominate a candidate for election at a future meeting, you
must send a written notice to the Corporate Secretary at Lincoln
Electric Holdings, Inc., 22801 Saint Clair Avenue, Cleveland,
Ohio 44117-1199. The notice must include certain information
about you as a shareholder of the Company and about the person
you intend to nominate, including a statement about the
person’s willingness to serve, if elected. This written
notice must be received in the Corporate Secretary’s Office
at least 80 days before the date of the annual meeting at
which the nomination is to be made in those instances when the
Company publicly announced the date of the annual meeting more
than 90 days prior to the annual meeting date
or
no
later than the close of business on the tenth day following the
day on which the Company publicly announced the date of the
annual meeting in those instances when the Company has not
publicly announced the date of the annual meeting more than
90 days prior to the annual meeting date. For complete
details on the nomination process, contact the Company’s
Corporate Secretary.
5
How do I contact the Company?
For general information, shareholders may contact the Company at
the following address:
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Lincoln Electric Holdings, Inc.
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22801 Saint Clair Avenue
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Cleveland, Ohio 44117-1199
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Attention: Roy Morrow, Director, Corporate Relations
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Throughout the year, you may visit our website at
www.lincolnelectric.com for information about current
developments at the Company.
How do I contact the Directors?
Shareholders may send communications to any or all of the
Directors of the Company through the Corporate Secretary at the
following address:
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Lincoln Electric Holdings, Inc.
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22801 Saint Clair Avenue
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Cleveland, Ohio 44117-1199
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Attention: Corporate Secretary
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The name of any specific intended Board recipient should be
noted in the communication. The Corporate Secretary will forward
such correspondence only to the intended recipients. Prior to
forwarding any correspondence, the Corporate Secretary will
review such correspondence and, in his discretion, not forward
certain items if they are deemed of a frivolous nature or
otherwise inappropriate for the Board’s consideration. In
such cases, some of that correspondence may be forwarded
elsewhere in the Company for review and possible response.
6
ELECTION OF DIRECTORS
Proposal No. 1
The Company’s Regulations provide for three classes of
Directors whose terms expire in different years. Ohio’s
General Corporation Law provides that, a quorum being present,
the Director nominees receiving the greatest number of votes
will be elected as Directors of the Company. Unless otherwise
directed, shares represented by proxy will be voted
FOR
the following:
Class of 2009.
The class of Directors whose term ends in
2009 has been fixed at three. Harold L. Adams, Robert J.
Knoll and John M. Stropki, Jr. are standing for election.
All of the Director nominees have been elected previously by the
shareholders.
Each of the nominees has agreed to stand for election. If any of
the nominees is unable to stand for election, the Board may
provide for a lesser number of nominees or designate a
substitute. In the latter event, shares represented by proxies
solicited by the Directors may be voted for the substitute. We
have no reason to believe that any of the nominees will be
unable to stand for election.
All Directors are expected to attend the Annual Meeting. All of
the nominee Directors, as well as the continuing Directors, plan
to attend this year’s Annual Meeting. At the 2005 Annual
Meeting, all of the current Directors of the Company were in
attendance.
7
DIRECTORS’ BIOGRAPHIES
The following table sets forth biographical information about
the Director nominees and the Directors whose terms of office
will continue after this Annual Meeting. Except as otherwise
indicated, each of the Director nominees and continuing
Directors has held the occupation listed below for more than
five years.
None of the nominee Directors or continuing Directors has any
special arrangement or understanding with any other person
pursuant to which the nominee Director or continuing Director
was or is to be selected as a Director or nominee. There are no
family relationships, as defined by SEC rules, among any of our
Directors or Executive Officers. SEC rules define the term
“family relationship” to mean any relationship by
blood, marriage or adoption, not more remote than first cousin.
NOMINEES FOR ELECTION
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Harold L.
Adams
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Age:
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66
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Term Expires/Service:
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2006; standing for reelection at
this Annual Meeting to serve until 2009; Director since 2002.
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Recent Business Experience:
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Mr. Adams is Chairman Emeritus
of RTKL Associates Inc. (architects and engineers) and the
former Chairman, President and Chief Executive Officer of RTKL,
a position he held from 1967 to November 2003.
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Other Directorships:
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Commercial Metals Company and Legg
Mason, Inc.
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Robert J.
Knoll
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Age:
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64
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Term Expires/Service:
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2006; standing for reelection at
this Annual Meeting to serve until 2009; Director since 2003.
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Recent Business Experience:
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Mr. Knoll is a former Partner
of Deloitte & Touche LLP (accounting), a position he
held from 1978 to his retirement in 2000. From 1995 to 1999,
Mr. Knoll served as National Director of the firm’s
Accounting and Auditing Professional Practice with oversight
responsibility for the firm’s accounting and auditing
consultation process, SEC practice and risk management process.
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John M.
Stropki, Jr.
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Age:
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55
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Term Expires/Service:
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2006; standing for reelection at
this Annual Meeting to serve until 2009; Director since 1998.
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Recent Business Experience:
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Mr. Stropki is Chairman,
President and Chief Executive Officer of the Company.
Mr. Stropki was elected President and Chief Executive
Officer in June 2004 and Chairman in October 2004. From May 2003
to June 2004, Mr. Stropki was Executive Vice President and
Chief Operating Officer of the Company. From May 1996 to May
2003, Mr. Stropki was Executive Vice President of the
Company and President, North America of The Lincoln Electric
Company.
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8
CONTINUING DIRECTORS
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Ranko
Cucuz
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Age:
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62
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Term Expires/Service:
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2007; Director since 2001.
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Recent Business Experience:
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Mr. Cucuz is the former
Chairman, President and Chief Executive Officer of Hayes Lemmerz
International, Inc. (motor vehicle parts and accessories),
formerly known as Hayes Wheels International, Inc. (“Hayes
Lemmerz”). Mr. Cucuz held these positions from 1997 to
September 2001. Mr. Cucuz was President and Chief Executive
Officer of Hayes Wheels from 1992 to 1997, when Hayes Wheels
acquired Lemmerz Holding.
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Mr. Cucuz ceased serving as
President and Chief Executive Officer of Hayes Lemmerz in August
2001 and ceased serving as Chairman in September 2001. In
December 2001, Hayes Lemmerz filed for protection under
Chapter 11 of the United States Bankruptcy Code. It emerged
from bankruptcy proceedings in June 2003, at which time
Mr. Cucuz ceased serving as a director.
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Other Directorships:
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Cleveland-Cliffs Inc and Rosta
International
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Kathryn Jo
Lincoln
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Age:
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51
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Term Expires/Service:
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2007; Director since 1995.
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Recent Business Experience:
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Ms. Lincoln is Chairman of the
Lincoln Institute of Land Policy (a non-profit educational
institution teaching land economics and taxation), a position
she has held since 1996, and President of the Lincoln
Foundation, Inc. (a non-profit foundation that supports the
foregoing Institute), a position she has held since 1999.
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Other Directorships:
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Johnson Bank Arizona, NA.
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George H.
Walls, Jr.
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Age:
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63
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Term Expires/Service:
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2007; Director since 2003.
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Recent Business Experience:
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General Walls is the former Chief
Deputy Auditor of the State of North Carolina, a position he
held from January 2001 through December 2004. From 1993 to 2000,
General Walls was special assistant to the chancellor and
assistant secretary to the Board of Trustees at North Carolina
Central University. General Walls retired from the
U.S. Marine Corps in 1993 with the rank of Brigadier
General, after nearly 29 years of distinguished service.
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9
CONTINUING DIRECTORS
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David H.
Gunning
|
|
|
|
Age:
|
|
63
|
|
Term Expires/Service:
|
|
2008; Director since 1987.
|
|
Recent Business Experience:
|
|
Mr. Gunning serves as Vice
Chairman of Cleveland-Cliffs Inc (iron ore producer), a position
he has held since April 2001. Previously, Mr. Gunning
served as the Principal of Encinitos Ventures (venture capital),
a position he held from 1997 to 2001. Mr. Gunning also
served as Chairman, President and Chief Executive Officer of
Capitol American Financial Corporation from 1993 until its sale
in early 1997.
|
|
Other Directorships:
|
|
Cleveland-Cliffs Inc and MFS Funds,
Inc.
|
|
|
|
G. Russell
Lincoln
|
|
|
|
Age:
|
|
59
|
|
Term Expires/Service:
|
|
2008; Director since 1989.
|
|
Recent Business Experience:
|
|
Mr. Lincoln is President of
N.A.S.T. Inc. (a personal investment firm), a position he has
held since 1996. From 1984 to 1996, Mr. Lincoln served as
Chairman of the Board and Chief Executive Officer of Algan, Inc.
(chemicals).
|
|
|
|
Hellene S.
Runtagh
|
|
|
|
Age:
|
|
57
|
|
Term Expires/Service:
|
|
2008; Director since 2001.
|
|
Recent Business Experience:
|
|
Ms. Runtagh is the former
President and Chief Executive Officer of Berwind Group
(manufacturing and real estate holdings), a position she held
from June 2001 through December 2001. Prior to that,
Ms. Runtagh was Executive Vice President of Universal
Studios (media) from 1998 until 2001.
|
|
Other Directorships:
|
|
Avaya Inc.
|
|
|
10
DIRECTOR COMMITTEES AND
MEETINGS
The Company has a separately-designated standing Audit Committee
established in accordance with SEC rules. The Company also has
standing Compensation and Executive Development, Nominating and
Corporate Governance and Finance Committees. Information on each
Committee is set forth below.
|
|
|
|
|
|
|
Audit
Committee
|
|
|
|
Members:
|
|
Robert J. Knoll (Chair), Kathryn Jo
Lincoln, Hellene S. Runtagh and George H. Walls, Jr., each
of whom meets the independence standards set forth in the NASDAQ
listing standards, and each of whom the Board of Directors has
determined to have the financial competency required by the
listing standards. In addition, because of Mr. Knoll’s
professional training and past employment experience as
described above under the caption “Director
Biographies,” the Board of Directors has determined that he
is a financially sophisticated Audit Committee Member under the
NASDAQ listing standards and that he qualifies as an “audit
committee financial expert” in accordance with SEC rules.
Shareholders should understand that Mr. Knoll’s
designation as an “audit committee financial expert”
is an SEC disclosure requirement and that it does not impose
upon him any duties, obligations or liabilities that are greater
than those generally imposed on him as a member of the Audit
Committee and the Board.
|
|
Number of 2005 Meetings:
|
|
Ten
|
|
Principal Responsibilities:
|
|
• appoints and determines
whether to retain or terminate the independent auditors
|
|
|
|
• approves all audit
engagement fees, terms and services; approves any non-audit
engagements
|
|
|
|
• reviews and discusses
the independent auditors’ quality control
|
|
|
|
• reviews and discusses
the independence of the auditors, the audit plan, the conduct of
the audit and the results of the audit
|
|
|
|
• reviews and discusses
with management the Company’s financial statements and
disclosures, its interim financial reports and its earnings
press releases
|
|
|
|
• reviews with the
Company’s General Counsel legal matters that might have a
significant impact on the Company’s financial statements
and issues relating to compliance with the Company’s Code
of Corporate Conduct and Ethics
|
|
|
|
• reviews with management
the appointment, replacement, reassignment or dismissal of the
Director of internal audit, the internal audit charter, internal
audit plans and reports
|
|
|
|
• reviews with management
the adequacy of internal controls over financial reporting
|
|
|
|
A copy of this Committee’s
Charter, which was adopted by the Board, is included in this
Proxy Statement as Appendix A.
|
|
|
11
|
|
|
|
|
|
|
Compensation and
Executive Development Committee
|
|
|
|
Members:
|
|
Hellene S. Runtagh (Chair), Harold
L. Adams, Ranko Cucuz and G. Russell Lincoln, each of whom
meets the independence standards set forth in the NASDAQ listing
standards and each of whom is deemed to be an outside Director
within the meaning of Section 162(m) of the Internal
Revenue Code. Paul E. Lego also served as a member of the
Committee until the Company’s 2005 Annual Meeting, when he
retired from the Board.
|
|
Number of 2005 Meetings:
|
|
Seven
|
|
Principal Responsibilities:
|
|
• reviews and establishes
total compensation of the Chief Executive Officer and the other
Executive Officers
|
|
|
|
• annually assesses the
performance of the Chief Executive Officer and the other
Executive Officers
|
|
|
|
• monitors the
Company’s key management resources, structure, succession
planning, development and selection processes and the
performance of key executives
|
|
|
|
• reviews and recommends
to the Board the appointment and removal of elected officers of
the Company
|
|
|
|
• administers the
Company’s employee stock and incentive plans and reviews
and makes recommendations to the Board concerning all employee
benefit plans
|
|
|
|
• reviews and recommends
to the Board new or amended executive compensation plans
|
|
|
|
A copy of this Committee’s
Charter (i) may be found on the Company’s website at
www.lincolnelectric.com/corporate/about/governance.asp or
(ii) will be made available upon request to the
Company’s Corporate Secretary.
|
|
|
12
|
|
|
|
|
|
|
Nominating and
Corporate Governance Committee
|
|
|
|
Members:
|
|
Harold L. Adams (Chair), David H.
Gunning, Kathryn Jo Lincoln and George H. Walls, Jr., each
of whom meets the independence standards set forth in the NASDAQ
listing standards.
|
|
Number of 2005 Meetings:
|
|
Five
|
|
Principal Responsibilities:
|
|
In evaluating candidates for
Director, including persons nominated by shareholders, the
Committee expects that any candidate for election as a Director
of the Company must have these minimum qualifications:
|
|
|
|
• demonstrated character,
integrity and judgment
|
|
|
|
• high-level managerial
experience or experience dealing with complex problems
|
|
|
|
• ability to work
effectively with others
|
|
|
|
• sufficient time to
devote to the affairs of the Company
|
|
|
|
and these specific qualifications:
|
|
|
|
• specialized experience
and background that will add to the depth and breadth of the
Board
|
|
|
|
• independence as defined
by the NASDAQ listing standards
|
|
|
|
• financial literacy
|
|
|
|
The Committee’s process for
identifying and evaluating nominees for Director includes
annually preparing and discussing prospective Director
specifications, which serve as the baseline to evaluate
candidates. From time-to-time, the Company has retained an
outside firm to help identify candidates, but no firm was
retained on that basis in 2005, and no firm is currently being
retained.
|
|
|
|
Shareholders may nominate one or
more persons for election as Director of the Company. The
process for doing so is set forth on page 5 of the Proxy
Statement, under the caption “May I submit a nomination for
Director?”.
|
|
|
|
A copy of this Committee’s
Charter (i) may be found on the Company’s website at
www.lincolnelectric.com/corporate/about/governance.asp or
(ii) will be made available upon request to the
Company’s Corporate Secretary.
|
|
|
13
|
|
|
|
|
|
|
Finance
Committee
|
|
|
|
Members:
|
|
David H. Gunning (Chair), Ranko
Cucuz, Robert J. Knoll and G. Russell Lincoln. Paul E. Lego
served as the Chair of the Committee until the Company’s
2005 Annual Meeting, when he retired from the Board.
|
|
Number of 2005 Meetings:
|
|
Five
|
|
Principal Responsibilities:
|
|
considers and makes
recommendations, as necessary, on matters related to the
financial affairs and policies of the Company, including
|
|
|
|
• financial performance
|
|
|
|
• capital structure issues
|
|
|
|
• financial operations
|
|
|
|
• capital expenditures
|
|
|
|
• pension plan funding
and plan investment management performance
|
|
|
|
A copy of this Committee’s
Charter (i) may be found on the Company’s website at
www.lincolnelectric.com/corporate/about/governance.asp or
(ii) will be made available upon request to the
Company’s Corporate Secretary.
|
|
|
Your Board held six meetings in 2005. Each of the current
Directors attended at least 75 percent of the total number
of meetings of Directors and meetings of committees on which he
or she served.
14
CORPORATE GOVERNANCE
Each of the non-employee Directors meets the independence
standards set forth in the NASDAQ listing standards. The NASDAQ
independence standards include a series of objective tests, such
as that the Director is not an employee of the Company and has
not engaged in various types of business dealings with the
Company.
During 2005, the independent Directors met in Executive Session,
separate from the sole management Director, in conjunction with
each of the six meetings of the Board. The Lead Director,
discussed below, was the presiding Director of these Sessions.
Lead Director
During 2004, as part of the Company’s continued focus on
best practices with respect to corporate governance, the Board
modified its Guidelines on Significant Corporate Governance
Issues, which are discussed below, to provide for the annual
appointment of a Lead Director. The Company believes the
addition of the Lead Director position will further enhance the
Company’s corporate governance practices and help
facilitate the functioning of the Board independently from
Company management. The Lead Director will be appointed each
year by the independent Directors to serve as a liaison between
the Chairman of the Board and the independent Directors and will
preside over Executive Sessions attended only by independent
Directors. The Lead Director will also consult with the Chairman
of the Board on meeting agendas, the format and adequacy of
information the Directors receive and the effectiveness of the
Board meeting process. The Lead Director may also speak on
behalf of the Company from time to time as the Board may decide.
In May 2005, Harold L. Adams was appointed as the Lead Director
for 2005-2006. Mr. Adams has been a Director of the Company
since 2002 and is the former Chairman, President and Chief
Executive Officer of RTKL Associates Inc., an architectural and
engineering firm.
Guidelines on Significant Corporate Governance Issues
Your Board has adopted Guidelines on Significant Corporate
Governance Issues to assure good business practices,
transparency in financial reporting and the highest level of
professional and personal conduct. These guidelines address
current developments in the area of corporate governance,
including developments in Federal securities law, developments
related to the Sarbanes-Oxley Act of 2002 and changes in the
NASDAQ listing standards. The guidelines also provide for the
annual appointment of the Lead Director.
You can access the Guidelines on Significant Corporate
Governance Issues on the Company’s website at
www.lincolnelectric.com/corporate/about/governance.asp.
Code of Corporate Conduct and Ethics
Your Board also has adopted a Code of Corporate Conduct and
Ethics to govern the Company’s Directors, officers and
employees, including the principal executive officers and senior
financial officers.
The Company intends to satisfy the disclosure requirements of
Item 10 of
Form
8-K
regarding
an amendment to, or a waiver from, any provision of its Code of
Corporate Conduct and Ethics that applies to its principal
executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions, and relates to any element of the code of ethics
definition as set forth in Item 406(b) of
Regulation
S-K
of
the Securities Exchange Act of 1934 by posting such information
on its website. You can access the Code of Corporate Conduct and
Ethics, and any such amendments or waivers thereto, on the
Company’s website at www.lincolnelectric.com/ corporate/
about/ governance.asp. There have been no waivers or amendments
to the Code of Corporate Conduct and Ethics as of the date of
this Proxy Statement.
15
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
Greg D. Blankenship, the brother of George D. Blankenship,
Senior Vice President, Global Engineering, is the sole
stockholder and President of P&R Specialty, Inc., a supplier
to the Company. During 2005, the Company purchased approximately
$2.7 million worth of products from P&R Specialty in
ordinary course of business transactions. George D. Blankenship
has no ownership interest in or any involvement with P&R
Specialty. The Company believes that the transactions with
P&R Specialty were on terms no less favorable to the Company
than those that could have been obtained from unaffiliated
parties.
DIRECTOR COMPENSATION
General.
Based upon the recommendations of the Nominating
and Corporate Governance Committee, the Board of Directors
determines Director compensation. An employee of the Company who
also serves as a Director does not receive any additional
compensation for serving as a Director or as a member or chair
of a committee.
2005 Director Compensation Package.
The Nominating
and Corporate Governance Committee periodically reviews the
status of Board compensation in relation to other comparable
companies and other factors it deems appropriate. During 2005,
the Directors’ compensation package for non-employee
Directors was based on the following principles:
|
|
|
|
|
|
•
|
a significant portion of Director compensation should be aligned
with creating and sustaining shareholder value;
|
|
|
|
|
•
|
Directors should have equity interest in the Company; and
|
|
|
|
|
•
|
total compensation should be structured to attract and retain a
diverse and truly superior Board of Directors.
|
With the above principles in mind, the compensation package for
2005 was comprised of the following components:
Cash
|
|
|
|
|
|
•
|
an annual cash retainer of $30,000 for all Directors;
|
|
|
|
|
•
|
an annual cash retainer of $10,000 for the Lead Director;
|
|
|
|
|
•
|
an annual cash retainer of $5,000 for each Committee Chair;
|
|
|
|
|
•
|
Board meeting fees of $1,500 for each meeting attended; and
|
|
|
|
|
•
|
Committee meeting fees of $1,500 for each meeting attended
|
Stock
|
|
|
|
|
|
•
|
an annual award of options to purchase shares of Lincoln Common
pursuant to the Stock Option Plan for Non-Employee Directors;
for 2005, the Nominating and Corporate Governance Committee
awarded options to purchase 3,500 shares of Lincoln
Common under the Plan; and
|
|
|
|
|
•
|
an initial award of options to purchase 6,000 shares
of Lincoln Common to Directors who become eligible by virtue of
their election after December 31, 1999.
|
16
The following table details the cash retainers and fees, as well
as equity compensation in the form of stock options, received by
our non-employee Directors during 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chair
|
|
|
Meeting
|
|
|
Total Cash
|
|
|
Stock
|
|
|
Director
|
|
|
Retainer
|
|
|
Retainers
|
|
|
Fees
|
|
|
Compensation
|
|
|
Options (#)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harold L. Adams
|
|
|
$
|
40,000
|
(1)
|
|
|
$
|
5,000
|
|
|
|
$
|
27,000
|
|
|
|
$
|
72,000
|
|
|
|
|
3,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ranko Cucuz
|
|
|
|
30,000
|
|
|
|
|
—
|
|
|
|
|
25,500
|
|
|
|
|
55,500
|
|
|
|
|
3,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David H. Gunning
|
|
|
|
30,000
|
|
|
|
|
5,000
|
|
|
|
|
27,000
|
|
|
|
|
62,000
|
|
|
|
|
3,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert J. Knoll
|
|
|
|
30,000
|
|
|
|
|
2,500
|
(2)
|
|
|
|
31,500
|
|
|
|
|
64,000
|
|
|
|
|
3,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
G. Russell Lincoln
|
|
|
|
30,000
|
|
|
|
|
—
|
|
|
|
|
27,000
|
|
|
|
|
57,000
|
|
|
|
|
3,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kathryn Jo Lincoln
|
|
|
|
30,000
|
|
|
|
|
—
|
|
|
|
|
31,500
|
|
|
|
|
61,500
|
|
|
|
|
3,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hellene S. Runtagh
|
|
|
|
30,000
|
|
|
|
|
5,000
|
|
|
|
|
34,500
|
|
|
|
|
69,500
|
|
|
|
|
3,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
George H.
Walls, Jr.
|
|
|
|
30,000
|
|
|
|
|
—
|
|
|
|
|
31,500
|
|
|
|
|
61,500
|
|
|
|
|
3,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes Lead Director retainer of $10,000.
|
|
|
|
(2)
|
Represents a pro rata portion of Committee Chair fees.
Mr. Knoll was Chair of the Audit Committee for a portion of
2005 as the successor to Mr. Gunning.
|
Other Arrangements.
The Company reimburses all Directors
for
out-of
-pocket
expenses incurred in connection with attendance at Board
meetings, or when traveling in connection with the performance
of their services for the Company. With respect to the use of
private aircraft, the Company will reimburse the Director for
the cost of a first-class ticket (which amount is increased
proportionately should other Directors travel on the same
flight).
Continuing Education.
Directors are reimbursed up to
$5,000 annually for continuing education expenses, in such
amounts and on such programs and related expenses as each
Director may elect.
Changes in Director Compensation for 2006.
During 2005,
in light of the increased workload demands on our Directors and
upon review of both existing as well as emerging trends in
director compensation, the compensation of our Directors was
increased for 2006 as follows:
|
|
|
|
|
|
•
|
an annual cash retainer of $40,000 for all Directors;
|
|
|
|
|
•
|
an annual cash retainer of $15,000 for the Lead Director;
|
|
|
|
|
•
|
an annual cash retainer of $10,000 for the Chairs of the Audit
and the Compensation and Executive Development Committees and
$5,000 for each other Committee Chair;
|
|
|
|
|
•
|
Board meeting fees of $3,000 for each meeting attended; and
|
|
|
|
|
•
|
Committee meeting fees of $1,500 for each meeting attended.
|
During 2005, the Committee also determined that the Director
compensation package should include other types of stock awards
(such as restricted stock) in addition to, or in place of, stock
options in order to provide Directors with an opportunity to
obtain more of a proprietary interest in the Company and in
light of the new non-employee Director stock ownership
guidelines discussed below. Accordingly, the new 2006 Stock Plan
for Non-Employee Directors was approved and adopted by the Board
in March 2006, subject to approval by the shareholders at this
year’s Annual Meeting (see Proposal 3 below). The new
plan is intended to replace the current Stock Option Plan for
Non-Employee Directors. For a complete discussion of the
proposed new plan, see the discussion of Proposal 3 below.
Stock Ownership Guidelines.
In keeping with the
philosophy that Directors’ interests should be aligned with
creating and sustaining shareholder value and as part of its
continued focus on best practices with respect to corporate
governance, the Company introduced stock ownership guidelines
for the non-employee Directors effective January 1, 2006.
Guidelines were also introduced for officers, which are
described below in the Compensation and Executive Development
Committee Report on
17
Executive Compensation. Under these new guidelines, non-employee
Directors are required to accumulate over time a certain number
of shares of Lincoln Common equal in value to at least three
times the Board’s 2006 annual cash retainer of $40,000 (or
$120,000). Non-employee Directors have five years to satisfy the
stock ownership guidelines, which can be satisfied by holding
either (1) shares aggregating the specified dollar amount,
or (2) 3,025 shares, which amount is the equivalent to
three times the annual retainer in effect on January 1,
2006 ($120,000) divided by the closing price of a share of
Lincoln Common on December 30, 2005 ($39.66). Restricted
stock awards, if awarded, will count towards the stock ownership
guidelines; shares of Lincoln Common underlying stock options
and shares held in another person’s name (including a
relative) will not.
Stock Option Plan for Non-Employee Directors.
Approved by
shareholders in May 2000, the Plan provides for the annual and
initial grants of options to purchase shares of Lincoln Common
as outlined above.
Under the Plan, the option price may not be less than the per
share fair market value of Lincoln Common on the date of grant.
An option becomes exercisable after the optionee has
continuously served as a Director for one year from the date of
grant. Once the optionee has vested in his or her options, the
option may be exercised in whole or in part with respect to 100%
of the underlying shares of Lincoln Common. Options granted
under the Plan have a
10-year
term.
In accordance with the terms of the Plan, on November 30,
2005, each of the current non-employee Directors received an
option to purchase 3,500 shares of Lincoln Common at
an exercise price of $39.93 per share.
As mentioned above, a new 2006 Stock Plan for Non-Employee
Directors is proposed for approval at this year’s Annual
Meeting, which plan is intended to supersede the Stock Option
Plan for
Non-Employee
Directors. The new plan provides for awards of stock options and
other types of awards, including restricted stock, and is
discussed in more detail below.
Non-Employee Directors’ Deferred Compensation Plan.
Adopted in 1995, this Plan allows the non-employee Directors to
defer payment of all or a portion of their annual cash
compensation. This Plan allows each participating non-employee
Director to:
|
|
|
|
|
|
•
|
elect to defer a specified dollar amount or a percentage of his
or her cash compensation;
|
|
|
|
|
•
|
have the deferred amount credited to the Director’s account
and deemed invested in one or more of the options available
under the Plan; and
|
|
|
|
|
•
|
elect to begin payment of the deferred amounts as of the earlier
of termination of services as a Director, death or a date not
less than two years after the fees are initially deferred.
|
On November 30, 2005, the Company amended the Plan to
reinstate future benefit accruals under the Plan effective as of
January 1, 2006. The Plan previously had been frozen with
respect to benefit accruals for the period after
December 31, 2004 in response to the adoption of the
American Jobs Creation Act of 2004, which significantly changed
the Federal tax law applicable to amounts deferred under the
Plan after that date. All benefit accruals vested prior to
January 1, 2005 qualify for “grandfathered”
status and continue to be governed by the law applicable to
nonqualified deferred compensation prior to the addition of
Section 409A of the U.S. Internal Revenue Code.
Accordingly, there were no deferrals under the Plan for 2005.
Directors’ Charitable Award Program.
This Program
was terminated in 2003, other than for Directors already vested.
Upon the death of a vested non-employee Director, the Company
will donate an aggregate of $500,000 (in 10 annual installments)
to one or more charitable organizations recommended by the
vested Director and approved by the Company. This Program is
funded through insurance policies on the lives of the vested
Directors.
In 2005, the Company paid $251,000 in premiums on current
insurance policies.
18
All charitable deductions and the cash surrender value of the
policies accrue solely to the Company; the vested Directors
derive no financial benefit. The current non-employee Directors
who are already vested in the Program are David H. Gunning, G.
Russell Lincoln and Kathryn Jo Lincoln.
19
MANAGEMENT OWNERSHIP OF
SHARES
The following table sets forth certain information regarding
ownership of Lincoln Common as of February 28, 2006 by each
of the Directors, each of the Company’s Executive Officers
named in the “Summary Compensation Table” on
page 29 and all Directors and Executive Officers as a
group. Except as otherwise indicated, voting and investment
power with respect to shares reported in this table are not
shared with others.
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BENEFICIAL OWNERSHIP TABLE
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Number of Shares
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Percent
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of Lincoln Common
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of
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Directors
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Beneficially Owned (1)
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Class
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Harold L. Adams
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14,000(2
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)
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*
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Ranko Cucuz
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14,000(3
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)
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*
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David H. Gunning
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13,485(4
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)
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*
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Robert J. Knoll
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10,000(5
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)
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*
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G. Russell Lincoln
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231,597(6
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)
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*
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Kathryn Jo Lincoln
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531,105(7
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)
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1.26
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%
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Hellene S. Runtagh
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16,000(8
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*
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George H. Walls, Jr.
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10,000(9
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)
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*
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John M. Stropki, Jr.
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351,009(10
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)
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*
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Vincent K. Petrella
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30,849(11
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)
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Frederick G. Stueber
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36,401(12
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*
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James E. Schilling
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10,706(13
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)
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*
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George D. Blankenship
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45,468(14
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)
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*
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All Directors and
Executive Officers
as a group (14 persons)
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1,331,202(15
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)
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3.11
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%
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(1)
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Reported in compliance with the beneficial ownership rules of
the Securities and Exchange Commission, under which a person is
deemed to be the beneficial owner of a security, for these
purposes, if he or she has or shares voting power or investment
power over the security or has the right to acquire the security
within 60 days of February 28, 2006.
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(2)
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Includes 12,000 shares that may be acquired upon the
exercise of stock options within 60 days of
February 28, 2006.
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(3)
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Consists of 14,000 shares that may be acquired upon the
exercise of stock options within 60 days of
February 28, 2006.
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(4)
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Includes 10,000 shares that may be acquired upon the
exercise of stock options within 60 days of
February 28, 2006.
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(5)
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Includes 7,000 shares that may be acquired upon the
exercise of stock options within 60 days of
February 28, 2006.
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(6)
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Of the 231,597 shares reported, G. Russell Lincoln held of
record 152,145 shares. An additional 514 shares were
held of record by his spouse. The remaining 78,938 shares
were held of record as follows: 6,159 shares by a trust for
the benefit of his son, as to which Mr. Lincoln is a
trustee; 35,279 shares by the Laura R. Heath Family Trust
for which Mr. Lincoln serves as trustee; 27,500 shares
by The G. Russell and Constance P. Lincoln Family Foundation for
which Mr. Lincoln serves as a trustee; and
10,000 shares that may be acquired upon the exercise of
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20
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stock options within 60 days of February 28, 2006.
Mr. Lincoln disclaims beneficial ownership of the shares
held by his spouse, the trust and the Foundation.
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(7)
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Of the 531,105 shares reported, 23,443 shares were
held of record by a trust established by Ms. Lincoln, under
which she has sole investment and voting power. The remaining
507,662 shares were held of record as follows:
501,662 shares were held of record by the Lincoln
Foundation, Inc., of which Ms. Lincoln is the President, as
to which shares Ms. Lincoln disclaims beneficial ownership;
and 6,000 shares may be acquired upon the exercise of stock
options within 60 days of February 28, 2006.
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(8)
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Includes 14,000 shares that may be acquired upon the
exercise of stock options within 60 days of
February 28, 2006.
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(9)
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Includes 8,000 shares that may be acquired upon the
exercise of stock options within 60 days of
February 28, 2006.
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(10)
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Of the 351,009 shares reported, Mr. Stropki held of
record 40,251 shares, 11,480 shares of which are
restricted shares, and 6,025 shares were held of record by
a trust established by Mr. Stropki and his spouse, under
which they share investment and voting power. Mr. Stropki
has or had the right to acquire 304,733 shares upon the
exercise of stock options within 60 days of
February 28, 2006.
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(11)
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Of the 30,849 shares reported, Mr. Petrella held of
record 7,050 shares, 3,330 shares of which are
restricted shares, and has or had the right to acquire
23,799 shares upon the exercise of stock options within
60 days of February 28, 2006.
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(12)
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Of the 36,401 shares reported, Mr. Stueber held of
record 8,000 shares, 3,000 shares of which are
restricted shares, and has or had the right to acquire
28,401 shares upon the exercise of stock options within
60 days of February 28, 2006.
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(13)
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Of the 10,706 shares reported, Mr. Schilling held of
record 4,040 shares, 1,040 shares of which are
restricted shares, and has or had the right to acquire
6,666 shares upon the exercise of stock options within
60 days of February 28, 2006.
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(14)
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Of the 45,468 shares reported, Mr. Blankenship held of
record 3,433 shares, 1,710 shares of which are
restricted shares, and has or had the right to acquire
40,325 shares upon the exercise of stock options within
60 days of February 28, 2006.
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(15)
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Includes 496,924 shares which all Executive Officers and
Directors, as a group, have or had the right to acquire upon the
exercise of stock options within 60 days of
February 28, 2006.
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In addition to the above management holdings, as of
February 28, 2006, The Lincoln Electric Company Employee
Savings Plan held 1,098,646 shares of Lincoln Common, or
2.60% of the shares of Lincoln Common outstanding.
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934
requires the Company’s Directors, Executive Officers and
beneficial owners of 10% or more of Lincoln Common to file
reports of beneficial ownership and changes in beneficial
ownership with respect to the securities of the Company with the
Securities and Exchange Commission and to furnish copies of
these reports to the Company. Based solely on a review of the
Forms 3 and 4 and amendments thereto furnished to the
Company during 2005 and Forms 5 and amendments thereto
furnished to the Company with respect to the fiscal year ended
December 31, 2005, the Company believes that for the year
2005 all filing requirements were met on a timely basis.
21
OTHER OWNERSHIP OF SHARES
Set forth below is information with respect to any person
(including any “group” as that term is used in
Section 13(d)(3) of the Securities Exchange Act of 1934)
known to the Company to be an owner of more than 5% of the
shares of Lincoln Common, other than the persons indicated in
the “Beneficial Ownership Table” on page 20.
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No. of Shares and
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Nature of Beneficial
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Percent
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Name and Address of Beneficial Owner
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Ownership
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of Class
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David C. Lincoln
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2,279,908
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(1)
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5.4%
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1741 East
Morten Avenue, Suite A
Phoenix,
Arizona 85020
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Royce &
Associates, LLC
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5,213,857
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(2)
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12.4%
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1414 Avenue
of the Americas
New York, New York
10019
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(1)
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Of the total amount reported by Mr. Lincoln, he has sole
voting and dispositive power over 90,130 shares, which
amount includes stock options for 4,000 shares exercisable
within 60 days of December 31, 2005, and shared voting
and dispositive powers over 2,189,778 shares. With respect
to the shares over which Mr. Lincoln has sole voting and
dispositive powers, he disclaims beneficial ownership of
86,130 shares held by two trusts of which he is the sole
trustee. With respect to the shares over which Mr. Lincoln
has shared voting and dispositive powers, he disclaims
beneficial ownership of (a) 183,523 shares held by
four trusts of which he is one of two trustees and
(b) 501,622 shares held by the Lincoln Foundation,
Inc. of which he is a Director. In his Schedule 13G filed
with the Securities and Exchange Commission on January 25,
2006, Mr. Lincoln states that the shares of Lincoln Common
reported in the filing were not acquired and are not held for
the purpose of or with the effect of changing or influencing the
control of the Company and were not acquired and are not held in
connection with or as a participant in any transaction having
that purpose or effect.
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(2)
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According to its Schedule 13G, most recently amended on
January 30, 2006, Royce & Associates, LLC has sole
voting and dispositive power over 5,213,857 shares. In its
Schedule 13G filing, Royce states that the shares of
Lincoln Common reported in the filing were acquired and are held
in the ordinary course of business and were not acquired and are
not held for the purpose of or with the effect of changing or
influencing the control of the issuer of the securities and were
not acquired and are not held in connection with or as a
participant in any transaction having that purpose or effect.
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22
COMPENSATION AND EXECUTIVE DEVELOPMENT
COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Compensation and Executive Development Committee of the
Board of Directors consists solely of non-employee Directors.
Its primary charge is to determine and report to the Board on
the compensation (or method of calculating it) for the Chairman,
President and Chief Executive Officer and each other Executive
Officer. In addition, the Committee establishes procedures and
conducts succession planning for the Chief Executive Officer and
other executive management positions, and reviews and makes
recommendations to the Board concerning the Company’s
employee stock, incentive compensation and employee benefit
programs. The Chief Executive Officer recommends the
compensation of the other Executive Officers, subject to
Committee review and approval.
Executive Compensation Policy
Cash Compensation
Our executive compensation policy is based on our long-standing
commitment to incentive-based compensation for all employees,
including officers. The employee cash bonus program exemplifies
this commitment. For many years, The Lincoln Electric Company,
the Company’s principal domestic subsidiary, has
administered a discretionary employee bonus program featuring a
cash distribution determined on the basis of a formula that
takes into account company performance, as well as
individual earnings and performance. Virtually all domestic
full-time employees participate in the program. Generally, the
Company’s foreign subsidiaries have also adopted
formula-based cash bonus programs. The cost of the
Company’s cash bonus programs, net of hospitalization costs
but inclusive of payroll taxes, was $62.9 million in 2005,
$46.5 million in 2004 and $26.2 million in 2003.
The Committee’s approach to executive compensation is
generally the same as the Company’s approach to employee
compensation, with a strong belief in pay for performance. The
base salaries of executives are set at approximately the
45th percentile of the Company’s peer group;
i.e
., base salaries are somewhat below market average.
The Committee believes that, given base pay is set below market,
annual cash bonus opportunities should be above average, with
the 65th percentile of the Company’s peer group used
as the target for total cash compensation (base and bonus). In
evaluating compensation, the Committee uses a peer group
consisting of manufacturers based in the United States, but with
significant foreign operations, having revenues comparable to
those of the Company.
The Committee believes that payments of above-average bonuses
should only be made where both the individual’s performance
and that of his or her particular business unit warrant it.
Therefore, target bonus amounts are established each year based
on anticipated superior individual performance and achievement
of applicable financial results. If either of these factors is
not met, the percentage of target paid is reduced significantly,
with the potential that no bonus will be paid. If either of
these factors significantly exceeds expectations, the percentage
paid can be above target, but with a maximum payout capped at
135% of target.
A portion of the financial component is based on consolidated
financial results while the remainder is attributable to
regional/business unit financial results, depending upon the
individual’s responsibilities. The financial targets for
2005 were based on achievement of earnings before interest,
taxes and the cash bonus referred to above. The financial
targets were set on the same basis for 2006. By tying a
significant portion of the target to specific business unit
results, it is possible for certain participants to receive a
higher percentage of target than that of other participants
where their business unit performance is better. This was the
case in 2005, where the consolidated and certain business unit
results were significantly above expectations. As a result,
certain executives, including all of the named Executive
Officers, received payouts that were above their target amounts.
Cash bonuses paid to the named Executive Officers for 2005 were
31% above the amounts paid to the named Executive Officers for
2004, due to the above average financial performance mentioned
above, and as a result of higher target awards given to
Messrs. Stropki and Petrella who had broader roles than at
the beginning of
23
2004. In total, bonuses for all executives in this program were
9% below the amounts paid to all participants for 2004,
partially due to retirements from 2004. Excluding 2004 retirees,
total bonuses for all participants were 12% above amounts paid
to active participants for 2004 and were 17% above the target
amounts set for 2005, again primarily due to superior financial
performance.
Long-Term Incentives
The Committee’s compensation philosophy, after taking into
account lower than average base salaries and above average cash
bonus opportunities, includes a third principle, which is that
long-term incentive opportunities should be established that
rank executives at the median of their peer group for long-term
incentive programs. The Committee believes that long-term
incentive compensation should be weighted toward equity rewards.
Therefore, stock-based compensation is awarded such that it
accounts for approximately two-thirds of an executive’s
long-term incentive compensation.
In the past, stock-based compensation had been delivered almost
exclusively through the grant of stock options to executives.
The Company did grant tandem stock appreciation rights (SARs) to
executives in 2003 and early 2004. However, in response to the
American Jobs Creation Act of 2004 (the “Act”), the
Company determined that no further tandem SARs would be granted,
and the Company modified its existing tandem SAR program to
eliminate the cash settlement feature and to cancel (with
agreement from participants) all unvested tandem SARS. The
cancellation of the unvested tandem SARs did not affect the
underlying stock options granted to the executives in 2003 or
2004.
After a detailed review of long-term incentive programs and
trends, the Company determined that its stock-based compensation
component for officers would be split evenly between stock
options and restricted stock. Therefore, beginning with the 2005
award, officers were granted stock options which accounted for
approximately one-third of the value of their long-term
incentive compensation and they were granted shares of
restricted stock, which accounted for another one-third of their
long-term incentive compensation — the final one-third
value was reserved for the cash long-term incentive plan
described below.
The restricted stock awarded to officers has a vesting term of
five years. Vesting may be accelerated to just over three years
if the cash long-term incentive plan financial targets
(described below) are satisfied. Until vested, the restricted
stock earns dividends and officers are entitled to vote those
shares. However, dividends are held in suspense until vesting
occurs, at which time such dividends are paid in shares of
Lincoln Common.
Stock options awarded to officers have a rateable vesting period
of three years, with accelerated vesting upon retirement or
change of control. Stock options are valued and then awarded
using the Black-Scholes valuation method, and the option price
may not be less than the per share fair market value of Lincoln
Common on the date of grant.
In keeping with the Committee’s belief that equity awards
are a valuable compensation tool, the Committee extends the
stock option portion of the long-term incentive program to
senior managers and also makes available certain one-time option
grants to significant contributors, regardless of their position
within the Company. Unlike executive options, options under the
one-time option grants vest after one year.
A cash long-term performance plan was also introduced in 1997
for executive officers. Under this program, which accounts for
one-third of executives’ long-term incentive opportunities,
targets are set at the beginning of a three-year performance
cycle. Payouts are based on growth in net income during that
period against pre-established thresholds. Payouts were achieved
in 2005, based on average annual growth during the 2003 to 2005
cycle. Payments were made at the maximum 140% of targets for 18
executives due to growth during that period that was above
expectations. This is only the third time a payment has been
made under this plan.
The Company approved certain changes to the cash long-term
incentive plan, beginning with the 2005 to 2007 performance
cycle. Although awards are still based on growth in net income
over a three-
24
year period, performance is now measured over the entire period
(instead of on a year-by-year basis). The financial threshold
for payment, which is approved by the Committee, is determined
based on internal as well as external and macro-economic
factors. As in the past, the Committee has discretion to modify
payments to any participant.
During its 2005 review of long-term incentive programs and
trends, the Committee determined that the Company’s program
should provide for greater flexibility, and in a way that
continues to strengthen our commitment to incentive-based
compensation tied to value creation for shareholders.
Accordingly, the new 2006 Equity and Performance Incentive Plan
(the “2006 EPI Plan”) was approved and adopted by the
Board in March 2006, subject to shareholder approval at this
year’s Annual Meeting (see Proposal 2 below). The new
plan is intended to replace the current 1998 Stock Plan and
provides for awards of stock options, SARs, restricted shares,
restricted stock units, performance shares and performance
units. For a complete discussion of the proposed new plan, see
the discussion of Proposal 2 below.
Stock Ownership Guidelines
As with the Directors, in keeping with its philosophy that
officers should maintain an equity interest in the Company and
based on its view that such ownership is a component of good
corporate governance, the Company adopted stock ownership
guidelines for officers effective January 1, 2006. Under
the guidelines, officers of the Company are required to own and
hold a certain number of shares of Lincoln Common, currently at
the levels set forth in the table below:
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Executive Group
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Ownership Guideline
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CEO
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3 times base salary
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Management Committee Members*
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1 times base salary
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Other Officers
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1/2 times base salary
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*
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Includes Messrs. Petrella, Stueber, Schilling and
Blankenship and other officers of the Company.
|
Officers have five years to satisfy the stock ownership
guidelines, which can be satisfied by holding either
(1) shares aggregating the dollar amount specified above,
or (2) that number of shares needed to satisfy the
ownership guidelines tied to the base salaries in effect on
January 1, 2006 divided by the closing price of a share of
Lincoln Common on December 30, 2005 ($39.66). The Committee
reserves the right to modify these guidelines in the future.
Restricted stock awards will count towards the stock ownership
guidelines; shares of Lincoln Common underlying stock options
and shares held in another person’s name (including a
relative) will not.
CEO Compensation
On June 3, 2004, Mr. Stropki was elected as President
and Chief Executive Officer of the Company. The Committee takes
the approach that a person’s compensation will be brought
up to levels commensurate with a new position over time, not all
at once. Therefore, during 2005, Mr. Stropki’s
compensation reflected a greater move toward the market levels
for CEO compensation. Mr. Stropki’s compensation for
2005 reflects the Committee’s three-part compensation
philosophy, emphasizing incentives and performance and includes:
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|
•
|
base compensation for Mr. Stropki of $660,000, which is 30%
above his base compensation for 2004 but is below the
45th percentile of his peer group;
|
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|
•
|
cash bonus of $991,500 for Mr. Stropki, based on superior
individual performance and consolidated financial results, which
is 54% above the amount paid to him in 2004 (primarily due to a
higher 2005 target) and is 32% above his target award, which
places his 2005 cash compensation at the 65th percentile of
his peer group;
|
25
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•
|
a stock option grant of 49,600 shares and a restricted
stock award of 11,480 shares for long-term incentive
compensation for Mr. Stropki, placing him at what the
Committee believes is just below the median of his current peer
group for those portions of the long-term incentive
program; and
|
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|
•
|
a cash long-term performance plan payout of $224,000 for
Mr. Stropki for the 2003 to 2005 performance cycle, placing
him significantly below the median of his current peer group for
overall long-term incentive compensation, primarily due to the
fact that this cash plan target was set before Mr. Stropki
became CEO.
|
Other Executive Officers
The base salaries of Messrs. Petrella, Stueber, Schilling
and Blankenship were established according to the principles
discussed above. A total of $1,015,000 was paid to them as base
pay in 2005 (placing them, in aggregate, just below the peer
group 45th percentile). A total of $950,950 was paid to
them for 2005 bonuses, which was, in aggregate, 14% above the
amount paid to them for 2004, was 31% above target for 2005, and
placed them above the peer group 65th percentile due to
superior financial and individual performance. Aggregate option
grants of 39,300 shares and 9,080 shares of restricted
stock were awarded to these executives in 2005 under the
Company’s 1998 Stock Plan, and a total of $323,400 was paid
to them for 2005 under the cash long-term performance plan,
placing them just below the median of their current peer group
for long-term incentive compensation, primarily due to the fact
that the cash plan targets were set before some of these
individuals took on their current roles.
1993 Tax Act
The Committee’s general philosophy is to qualify future
compensation for tax deductibility under Section 162(m) of
the Internal Revenue Code, wherever appropriate, recognizing
that, under certain circumstances, the limitations may be
exceeded. Compensation paid by the Company to the named
Executive Officers during 2005 was tax deductible for Federal
income tax purposes, except with respect to a portion of the
compensation paid to Mr. Stropki. The Committee intends to
preserve the deductibility of compensation and benefits to the
extent practicable and to the extent consistent with its other
compensation objectives.
By the Compensation and Executive Development Committee:
|
|
|
|
Hellene S. Runtagh, Chair
Harold L. Adams
|
|
Ranko Cucuz
G. Russell Lincoln
|
26
COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION
During 2005, none of the Compensation and Executive Development
Committee members were employees of the Company or any of its
subsidiaries, and there were no reportable business
relationships between the Company and the Committee members.
None of the Company’s Executive Officers serves as a member
of the board of directors or compensation committee of any
entity that has one or more of its executive officers serving as
a member of the Company’s Committee. In addition, none of
the Company’s Executive Officers serves as a member of the
compensation committee of any entity that has one or more of its
executive officers serving as a member of the Company’s
Board of Directors.
27
STOCK PERFORMANCE GRAPH
The following line graph compares the yearly percentage change
in the cumulative total shareholder return on Lincoln Common
against the cumulative total return of the S&P Composite 500
Stock Index and The Russell 2000 Stock Index for the five-year
calendar period commencing January 1, 2001 and ending
December 31, 2005. This graph assumes that $100 was
invested on December 31, 2000 in each of Lincoln
Common, the S&P 500 companies and The Russell 2000
Stock Index. A compatible peer-group index for the welding
industry, in general, was not readily available because the
industry is comprised of a relatively small number of
competitors, many of whom either are based overseas and/or are
privately held and not actively traded in the United States. The
Russell 2000, published by the Frank Russell Company, represents
a developed index based on a concentration of companies having
relatively small market capitalization, similar to that of the
Company.
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|
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|
|
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|
|
2000
|
|
|
2001
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
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|
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|
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|
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|
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|
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|
Lincoln
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|
|
|
100
|
|
|
|
|
132
|
|
|
|
|
124
|
|
|
|
|
139
|
|
|
|
|
198
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|
|
|
|
232
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S&P 500
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|
100
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|
|
|
88
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|
|
|
69
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|
|
|
|
88
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|
|
|
|
98
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|
103
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|
Russell 2000
|
|
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|
100
|
|
|
|
|
103
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|
|
|
|
82
|
|
|
|
|
120
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|
|
|
|
142
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|
|
|
148
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28
SUMMARY COMPENSATION TABLE
The following table provides information on the compensation for
the last three calendar years for John M. Stropki, Jr., the
Company’s Chief Executive Officer, and the four next
highest paid Executive Officers.
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|
|
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Annual Compensation
|
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Long-Term Compensation
|
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|
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|
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|
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Awards
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|
Payouts
|
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|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
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Restricted
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Underlying
|
|
|
LTIP
|
|
|
|
|
|
Name and
|
|
|
|
|
|
|
|
|
|
|
|
Other Annual
|
|
|
Awards
|
|
|
Options/
|
|
|
Payouts
|
|
|
All Other
|
|
|
Principal Position
|
|
|
Year
|
|
|
Salary
|
|
|
Bonus
|
|
|
Compensation
|
|
|
(1)
|
|
|
SARs
|
|
|
(2)
|
|
|
Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John M. Stropki, Jr.(3)
|
|
|
|
2005
|
|
|
|
$
|
660,000
|
|
|
|
$
|
991,500
|
|
|
|
|
—
|
|
|
|
$
|
468,499
|
|
|
|
|
49,600
|
|
|
|
$
|
224,000
|
|
|
|
|
—
|
|
|
|
Chairman, President
|
|
|
|
2004
|
|
|
|
|
506,250
|
|
|
|
|
644,583
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
120,000
|
|
|
|
|
158,620
|
|
|
|
|
—
|
|
|
|
and Chief Executive
|
|
|
|
2003
|
|
|
|
|
320,000
|
|
|
|
|
211,875
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
50,000
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vincent K. Petrella(4)
|
|
|
|
2005
|
|
|
|
$
|
285,000
|
|
|
|
$
|
279,930
|
|
|
|
|
—
|
|
|
|
$
|
135,897
|
|
|
|
|
14,400
|
|
|
|
$
|
43,400
|
|
|
|
|
—
|
|
|
|
Senior Vice President,
|
|
|
|
2004
|
|
|
|
|
206,644
|
|
|
|
|
185,000
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
25,000
|
|
|
|
|
20,394
|
|
|
|
|
—
|
|
|
|
Chief Financial Officer
|
|
|
|
2003
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
and Treasurer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frederick G. Stueber
|
|
|
|
2005
|
|
|
|
$
|
275,000
|
|
|
|
$
|
284,230
|
|
|
|
|
—
|
|
|
|
$
|
122,430
|
|
|
|
|
13,000
|
|
|
|
$
|
116,200
|
|
|
|
|
—
|
|
|
|
Senior Vice President,
|
|
|
|
2004
|
|
|
|
|
260,000
|
|
|
|
|
279,500
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
25,000
|
|
|
|
|
96,305
|
|
|
|
|
—
|
|
|
|
General Counsel and
|
|
|
|
2003
|
|
|
|
|
260,000
|
|
|
|
|
141,200
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
25,000
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James E. Schilling
|
|
|
|
2005
|
|
|
|
$
|
230,000
|
|
|
|
$
|
208,320
|
|
|
|
|
—
|
|
|
|
$
|
42,442
|
|
|
|
|
4,500
|
|
|
|
$
|
107,800
|
|
|
|
|
—
|
|
|
|
Senior Vice President,
|
|
|
|
2004
|
|
|
|
|
225,000
|
|
|
|
|
208,000
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
20,000
|
|
|
|
|
79,310
|
|
|
|
|
—
|
|
|
|
Corporate Development
|
|
|
|
2003
|
|
|
|
|
225,000
|
|
|
|
|
135,000
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
20,000
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
George D. Blankenship
|
|
|
|
2005
|
|
|
|
$
|
225,000
|
|
|
|
$
|
178,470
|
|
|
|
|
—
|
|
|
|
$
|
69,785
|
|
|
|
|
7,400
|
|
|
|
$
|
56,000
|
|
|
|
|
—
|
|
|
|
Senior Vice President,
|
|
|
|
2004
|
|
|
|
|
200,000
|
|
|
|
|
162,500
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
15,000
|
|
|
|
|
45,320
|
|
|
|
|
—
|
|
|
|
Global Engineering
|
|
|
|
2003
|
|
|
|
|
195,000
|
|
|
|
|
77,520
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
12,000
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The amounts shown in this column represent the dollar value of
restricted stock grants during the past three fiscal years. All
grants of restricted stock were made under the Company’s
1998 Stock Plan.
|
|
|
|
|
|
On November 30, 2005, Mr. Stropki received a grant of
11,480 shares of restricted stock, Mr. Petrella
received a grant of 3,330 shares of restricted stock,
Mr. Stueber received a grant of 3,000 shares of
restricted stock, Mr. Schilling received a grant of
1,040 shares of restricted stock and Mr. Blankenship
received a grant of 1,710 shares of restricted stock. The
dollar values shown are based on the closing price of a share of
Lincoln Common on November 30, 2005 ($40.81). The
restricted stock vests upon the earlier of (1) the
recipient remaining in continuous employment for five years (to
November 30, 2010), or (2) a determination by the
Compensation and Executive Development Committee of the Board
that the financial targets for the Company’s 2006-2008 cash
long-term incentive plan are met (3 years). Any cash
dividends on the restricted stock are sequestered by the Company
until the shares are nonforfeitable, at which time such
dividends are paid in shares of Lincoln Common.
|
29
|
|
|
|
|
The following details the aggregate share amount and the dollar
value based on the closing price of a share of Lincoln Common on
December 30, 2005 ($39.66) of the restricted stock held by
the CEO and the next four highest paid Executive Officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
John M. Stropki, Jr.
|
|
|
|
11,480
|
|
|
|
$
|
455,297
|
|
|
|
Vincent K. Petrella
|
|
|
|
3,330
|
|
|
|
|
132,068
|
|
|
|
Frederick G. Stueber
|
|
|
|
3,000
|
|
|
|
|
118,980
|
|
|
|
James E. Schilling
|
|
|
|
1,040
|
|
|
|
|
41,246
|
|
|
|
George D. Blankenship
|
|
|
|
1,710
|
|
|
|
|
67,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)
|
Amounts for 2005 and 2004 represent cash payouts earned for the
periods 2003 to 2005 and 2002 to 2004, respectively, pursuant to
the Company’s cash long-term incentive plan, which payments
were based on average annual net income growth over those
three-year periods.
|
|
|
|
(3)
|
Mr. Stropki was elected Chairman, President and Chief
Executive Officer during 2004. Mr. Stropki served as
Executive Vice President during 2002 and 2003, and as Chief
Operating Officer for a portion of 2003 and the beginning of
2004.
|
|
|
|
(4)
|
Mr. Petrella was Corporate Controller of The Lincoln
Electric Company during 2003. As Mr. Petrella was not an
Executive Officer for 2003, no compensation information for that
year has been provided.
|
30
STOCK OPTION/ SAR GRANTS IN
2005
The following table provides information relating to stock
options awarded in 2005 to our named Executive Officers. No SARs
were awarded to the named Executive Officers during 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
Options/SARs
|
|
|
Exercise
|
|
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
Granted to
|
|
|
or Base
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
Options/SARs
|
|
|
Employees in
|
|
|
Price
|
|
|
Expiration
|
|
|
Present
|
|
|
Name
|
|
|
Granted (1)
|
|
|
Fiscal Year
|
|
|
($/Sh.)
|
|
|
Date
|
|
|
Value (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John M.
Stropki, Jr.
|
|
|
|
49,600
|
|
|
|
|
14.1
|
%
|
|
|
$
|
39.93
|
|
|
|
|
11/30/15
|
|
|
|
$
|
474,672
|
|
|
|
Vincent K. Petrella
|
|
|
|
14,400
|
|
|
|
|
4.1
|
%
|
|
|
$
|
39.93
|
|
|
|
|
11/30/15
|
|
|
|
|
137,808
|
|
|
|
Frederick G. Stueber
|
|
|
|
13,000
|
|
|
|
|
3.7
|
%
|
|
|
$
|
39.93
|
|
|
|
|
11/30/15
|
|
|
|
|
124,410
|
|
|
|
James E. Schilling
|
|
|
|
4,500
|
|
|
|
|
1.3
|
%
|
|
|
$
|
39.93
|
|
|
|
|
11/30/15
|
|
|
|
|
43,065
|
|
|
|
George D. Blankenship
|
|
|
|
7,400
|
|
|
|
|
2.1
|
%
|
|
|
$
|
39.93
|
|
|
|
|
11/30/15
|
|
|
|
|
70,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Options were granted pursuant to the Company’s 1998 Stock
Plan. The options were granted at the fair market value of
Lincoln Common on the date of grant, have
10-year
terms and
become exercisable in equal annual increments over a three-year
period. Vesting of the options is accelerated by the occurrence
of a change in control (see “Other Compensation
Arrangements”).
|
|
|
|
(2)
|
The Grant Date Present Value was calculated using the
Black-Scholes option pricing model. The model assumes
(i) volatility calculated using the trading information for
Lincoln Common during the four and one-half year period ended
November 29, 2005 (25.75% for Lincoln Common); (ii) a
risk-free rate of return based on the
5-year
treasury bond
rate at November 29, 2005 (4.4%); and (iii) a dividend
yield for Lincoln Common of 1.90%. The actual amount, if any,
realized upon the exercise of stock options will depend upon the
market price of Lincoln Common relative to the exercise price
per share of the stock option at the time of exercise. There is
no assurance that the hypothetical Grant Date Present Values of
the stock options reflected in this table will actually be
realized.
|
31
STOCK OPTION EXERCISES IN 2005 AND
YEAR-END OPTION/ SAR VALUES
The following table provides information relating to exercisable
and unexercisable stock options/SARs at December 31, 2005
for our named Executive Officers. The value of unexercised stock
options/SARs is based on the difference between the exercise
price of the options/SARs and the closing price of Lincoln
Common on December 30, 2005, which was $39.66. No SARs were
awarded to the named Executive Officers during 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying Unexercised
|
|
|
Value of Unexercised
|
|
|
|
|
|
|
|
|
|
|
|
Options/SARS at Fiscal Year
|
|
|
In-the-Money Options/SARs
|
|
|
|
|
|
|
|
|
|
|
|
End
|
|
|
at Fiscal Year End
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
|
Exercise
|
|
|
Realized
|
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John M.
Stropki, Jr.
|
|
|
|
24,000
|
|
|
|
$
|
534,324
|
|
|
|
|
304,733
|
|
|
|
|
146,267
|
|
|
|
$
|
5,430,388
|
|
|
|
$
|
671,672
|
|
|
|
Vincent K. Petrella
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
23,799
|
|
|
|
|
34,401
|
|
|
|
|
282,865
|
|
|
|
|
123,045
|
|
|
|
Frederick G. Stueber
|
|
|
|
30,798
|
|
|
|
|
380,994
|
|
|
|
|
28,401
|
|
|
|
|
38,001
|
|
|
|
|
355,070
|
|
|
|
|
201,845
|
|
|
|
James E. Schilling
|
|
|
|
24,698
|
|
|
|
|
245,642
|
|
|
|
|
20,851
|
|
|
|
|
24,501
|
|
|
|
|
255,061
|
|
|
|
|
161,475
|
|
|
|
George D. Blankenship
|
|
|
|
22,000
|
|
|
|
|
343,900
|
|
|
|
|
40,325
|
|
|
|
|
21,400
|
|
|
|
|
616,275
|
|
|
|
|
105,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM INCENTIVE PLANS —
AWARDS IN LAST FISCAL YEAR
The following table provides information relating to awards made
to the named Executive Officers during 2005 under the
Company’s cash long-term incentive plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future Payouts Under
|
|
|
|
|
|
|
|
|
|
|
|
Non-Stock Price-Based Plans (1)
|
|
|
|
|
|
Number of
|
|
|
Performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares, Units
|
|
|
or Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
or Other
|
|
|
Period Until
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rights
|
|
|
Maturation or
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
|
($)
|
|
|
Payout
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John M.
Stropki, Jr.
|
|
|
$
|
459,000
|
|
|
|
|
2006 to 2008
|
|
|
|
$
|
0
|
|
|
|
$
|
459,000
|
|
|
|
$
|
642,000
|
|
|
|
Vincent K. Petrella
|
|
|
|
133,000
|
|
|
|
|
2006 to 2008
|
|
|
|
|
0
|
|
|
|
|
133,000
|
|
|
|
|
186,200
|
|
|
|
Frederick G. Stueber
|
|
|
|
120,000
|
|
|
|
|
2006 to 2008
|
|
|
|
|
0
|
|
|
|
|
120,000
|
|
|
|
|
168,000
|
|
|
|
James E. Schilling
|
|
|
|
83,000
|
|
|
|
|
2006 to 2008
|
|
|
|
|
0
|
|
|
|
|
83,000
|
|
|
|
|
99,600
|
|
|
|
George D. Blankenship
|
|
|
|
68,000
|
|
|
|
|
2006 to 2008
|
|
|
|
|
0
|
|
|
|
|
68,000
|
|
|
|
|
95,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents a range of possible cash payouts earned for the
period 2006 to 2008 pursuant to the Company’s cash
long-term incentive plan, which payments are based on income
growth over a three-year cycle.
|
32
EQUITY COMPENSATION PLAN
INFORMATION
The following table provides information regarding outstanding
options and shares reserved for issuance under the
Company’s equity compensation plans as of December 31,
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
|
Remaining Available
|
|
|
|
|
|
|
|
|
|
|
for Future Issuance
|
|
|
|
|
|
|
|
|
|
|
Under Equity
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
Compensation Plans
|
|
|
|
|
|
to be Issued Upon
|
|
|
Weighted-average
|
|
Excluding
|
|
|
|
|
|
Exercise of
|
|
|
Exercise Price of
|
|
Securities Reflected
|
|
|
Plan Category
|
|
|
Outstanding Options
|
|
|
Outstanding Options
|
|
in Column (a)) (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans
approved by security holders
|
|
|
|
2,071,325
|
|
|
|
$
|
28.54
|
|
|
|
1,048,694
|
|
|
|
Equity compensation plans not
approved by security holders
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
2,071,325
|
|
|
|
$
|
28.54
|
|
|
|
1,048,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents 1,048,694 shares available for issuance under
the 1998 Stock Plan and the Stock Option Plan for Non-Employee
Directors, under which no further awards will be made if the
proposals to approve the 2006 Equity and Performance Incentive
Plan (Proposal 2) and the 2006 Stock Plan for Non-Employee
Directors (Proposal 3) are approved. The 2006 Equity and
Performance Incentive Plan authorizes the issuance of up to
3,000,000 shares and the 2006 Stock Plan for
Non-Employee
Directors
authorizes the issuance of up to 300,000 shares, resulting
in a net increase of 2,251,306 shares available for future
issuance if the two new plans are approved.
|
33
PENSION BENEFITS
We provide pension benefits for our Executive Officers under two
defined benefit programs: the Supplemental Executive Retirement
Plan (the “SERP”), which became effective
January 1, 1994; and The Lincoln Electric Company
Retirement Annuity Program (the “Retirement Annuity
Program”), which has been in effect since 1936 and applies
to all eligible employees. Effective January 1, 2006, new
employees will not be eligible to participate in the Retirement
Annuity Program as discussed below.
We also provide two defined contribution benefits for our
Executive Officers: a supplemental deferred compensation plan
and a qualified 401(k) savings plan, the latter of which was
established in 1994 and applies to all eligible employees. As a
result of the adoption of the American Jobs Creation Act of 2004
(the “Act”), supplemental deferred compensation is
provided through two separate plans. The 2005 Deferred
Compensation Plan for Executives (the “New Deferred
Compensation Plan”) was adopted on December 30, 2004
to replace the Company’s old supplemental deferred
compensation plan. The Deferred Compensation Plan for Executives
(the “Old Deferred Compensation Plan”), which was
originally adopted in 1994, was frozen with respect to future
deferrals effective December 31, 2004 in response to the
adoption of the Act. The New Deferred Compensation Plan is
intended to be a
“top-hat”
plan that complies with new Internal Revenue Code
Section 409A created by the Act
(“Section 409A”).
On December 30, 2005, the Company amended the Old Deferred
Compensation Plan to provide that all benefit accruals shall
comply with Section 409A. On December 22, 2005, the
Board authorized the termination of the Old Deferred
Compensation Plan as to the accounts for those participants who
consented to such termination. Six of the participants consented
to the termination and received cash distributions on
December 29, 2005. One of the six was Vincent K. Petrella,
a named Executive Officer. Mr. Petrella received a
distribution of $305,365 on December 29, 2005. Twenty-five
other participants consented to the amendment of the plan in
lieu of termination and cash distribution, including the other
named Executive Officers. Accordingly, their accounts will
continue to be held in the plan subject to Section 409A.
Participation in the SERP and the New Deferred Compensation Plan
is limited to individuals approved by the Compensation and
Executive Development Committee (the “Compensation
Committee”).
Supplemental Executive Retirement Plan
The purpose of the SERP is, in part, to make up for limitations
imposed by the Internal Revenue Code on payments of retirement
benefits under the Company’s tax-qualified retirement
plans, including the Retirement Annuity Program, and, primarily,
to provide an aggregate competitive retirement benefit for SERP
participants. The SERP was amended during 2004 in response to
the adoption of the Act, which significantly changed the Federal
tax law applicable to non-qualified deferred compensation plans
after December 31, 2004. Under the amendment, effective
December 31, 2004, further benefit accruals under the plan
were temporarily frozen.
On February 16, 2005, the SERP was further amended in
response to temporary regulations issued by the Internal Revenue
Service relating to the Act and to modify the benefit formula
applicable to new participants in the SERP in light of emerging
trends in executive compensation. Under the most recent
amendment, effective January 1, 2005: (i) all benefit
accruals under the SERP were unfrozen, (ii) all benefit
accruals vested prior to January 1, 2005 were
“grandfathered” and continue to be governed by the law
applicable to non-qualified deferred compensation prior to the
adoption of the Act, (iii) all benefit accruals that were
not so “grandfathered” will be administered so as to
qualify under new Section 409A, and (iv) a two-tier
benefit structure was established.
Under the new two-tier benefit structure, all future
participants designated as “Management Committee and
Regional President Participants” will be entitled to a
retirement benefit equal to 1.333% of such participant’s
final average pay multiplied by his/her years of service, but
not greater than 60% of
34
the participant’s final average pay, less applicable
offsets. All future participants designated as “Other
Participants” will be entitled to a retirement benefit
equal to 1.111% of such participant’s final average pay
multiplied by his/her years of service, but not greater than 50%
of the participant’s final average pay, less applicable
offsets.
The following table shows the estimated annual pension benefits
provided under the SERP. These numbers include the employer-paid
benefits under our qualified plans, which would be payable to
employees in various compensation classifications upon
retirement on December 31, 2005, at age 60 after the
selected periods of service. The numbers also include, in
certain cases, previous employer’s retirement benefits.
Mr. Schilling’s benefit would be approximately 75% of
the noted benefits on the table based on his SERP arrangement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years of Service
|
|
|
Average
|
|
|
|
|
|
Compensation
|
|
|
25 Years
|
|
|
30 Years
|
|
|
35 Years
|
|
|
40 Years
|
|
|
45 Years
|
|
|
|
|
|
$
|
300,000
|
|
|
$
|
85,887
|
|
|
$
|
107,562
|
|
|
$
|
129,237
|
|
|
$
|
150,912
|
|
|
$
|
172,512
|
|
|
|
|
|
600,000
|
|
|
|
194,262
|
|
|
|
237,612
|
|
|
|
280,962
|
|
|
|
324,312
|
|
|
|
367,512
|
|
|
|
|
|
900,000
|
|
|
|
302,637
|
|
|
|
367,662
|
|
|
|
432,687
|
|
|
|
497,712
|
|
|
|
562,512
|
|
|
|
|
|
1,200,000
|
|
|
|
411,012
|
|
|
|
497,712
|
|
|
|
584,412
|
|
|
|
671,112
|
|
|
|
757,512
|
|
|
|
|
|
1,500,000
|
|
|
|
519,387
|
|
|
|
627,762
|
|
|
|
736,137
|
|
|
|
844,512
|
|
|
|
952,512
|
|
|
|
|
|
1,800,000
|
|
|
|
627,762
|
|
|
|
757,812
|
|
|
|
887,862
|
|
|
|
1,017,912
|
|
|
|
1,147,512
|
|
|
|
|
|
2,100,000
|
|
|
|
736,137
|
|
|
|
887,862
|
|
|
|
1,039,587
|
|
|
|
1,191,312
|
|
|
|
1,342,512
|
|
|
|
|
|
2,400,000
|
|
|
|
844,512
|
|
|
|
1,017,912
|
|
|
|
1,191,312
|
|
|
|
1,364,712
|
|
|
|
1,537,512
|
|
Generally, benefits under the SERP for current participants,
including each named Executive Officer are based upon 1.445% of
the average annual compensation for the three highest years in
the seven-year period preceding retirement multiplied by the
covered employee’s years of service (including service with
certain previous employers), except that the maximum benefit may
not exceed 65% (50% for Mr. Schilling) of the average
annual compensation for the three highest years used in the
calculation, and service after age 65 is not included. The
benefits payable under the SERP are reduced by the maximum
Social Security benefit payable in the year of retirement, and
the table reflects such reduction. The amounts reflected in the
table will also be reduced by the single life benefit payable
under the Retirement Annuity Program, the lifetime benefit
equivalence of any account balance attributable to employer
matching contributions, ESOP contributions and/or Financial
Security Program contributions under the 401(k) Plan, and other
employer-paid qualified plan benefits paid by previous employers
(but only if prior years of service are awarded under the SERP
for service with that previous employer). Benefits under the
SERP are also reduced if the covered employee has participated
in the SERP for fewer than eight years at the time of
retirement. Unless a different factor is set by the Compensation
Committee, participants are credited with only 20% of the net
amount of the benefit otherwise payable under the SERP when they
first become participants, and in each of the next eight years
an additional 10% of the net amount of the benefit will become
payable upon retirement. Messrs. Stropki and Stueber have
100% participation factors while Mr. Schilling has a 89%
participation factor, and Messrs. Petrella and Blankenship
have 60% participation factors as of December 31, 2005.
Certain terms of the SERP may be modified as to individual
participants, upon action by the Compensation Committee.
The compensation covered by the SERP is the same as shown in the
salary and bonus columns of the “Summary Compensation
Table” on page 29. Credited service for SERP purposes
for Messrs. Stropki, Petrella, Stueber, Schilling and
Blankenship is 33, 10, 32, 45 and 21 years,
respectively.
35
Retirement Annuity Program
Under the Retirement Annuity Program, each employee accumulates
2.5% of each year’s base compensation (limited to $210,000
for compensation earned during the period November 1, 2005
through October 31, 2006 and $220,000 thereafter) in the
form of an annuity payable at normal retirement age (age 60
or five years of employment, if later). In addition to the 2.5%
accumulation each year, the Company has granted, on a number of
occasions, additional past service benefits. The Program also
provides accumulated benefits to eligible spouses of deceased
employees or former employees. Benefits under the program are in
addition to those payable under Social Security.
In 2006, the Retirement Annuity Program is being modified to
provide a one-time choice to current employees (those hired
before January 1, 2006), between maintaining the current
program or opting into an alternative program in which the
prospective annual earned annuity in the Retirement Annuity
Program is reduced to 1.25% of each year’s base
compensation and the employee is entitled to an enhanced Company
contribution in the qualified 401(k) savings plan, based on
service. All employees hired after January 1, 2006 will be
entitled only to the enhanced defined contribution program.
The anticipated retirement benefits under the Retirement Annuity
Program for the named Executive Officers are as follows,
assuming they continue to participate in the existing program
and do not opt for the alternative program outlined above:
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Annual Retirement
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Name
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Annuity Program Benefits
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John M.
Stropki, Jr.
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$
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99,589
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(1)
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Vincent K. Petrella
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116,531
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(1)
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Frederick G. Stueber
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86,250
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(1)
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James E. Schilling
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32,719
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(2)
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George D. Blankenship
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138,854
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(1)
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(1)
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Messrs. Stropki, Petrella, Stueber and Blankenship are
currently under normal retirement age. The amounts shown
represent those anticipated at normal retirement age, assuming
that current compensation continues unchanged to that date and
that the benefits are payable on a single life basis.
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(2)
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Mr. Schilling is currently not receiving benefits but is
beyond normal retirement age. The amount shown represents the
benefit available on December 31, 2005 payable on a single
life basis.
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OTHER COMPENSATION
ARRANGEMENTS
Mr. Stropki was elected President and Chief Executive
Officer of the Company effective June 3, 2004. In
connection with his election, the Company and Mr. Stropki
entered into a letter agreement modifying the terms of his
retirement benefits. Under the terms of the letter agreement,
Mr. Stropki will continue to participate in the SERP under
the same terms and conditions that existed prior to his
appointment as Chief Executive Officer, except that his annual
benefit limit under the SERP was increased from the standard
$300,000 to $500,000.
Mr. Stueber entered into an employment agreement in
February 1995, which was modified in May 1998. The agreement
grants credited service as of such date for purposes of the SERP
of 22 years as of his date of hire, assuming a normal
retirement age of 60 and service of 45 years at age 65.
The Compensation Committee granted Mr. Schilling
participation in the SERP, effective February 1, 1999. That
action awarded Mr. Schilling
43
3
/
4
years of service but provided that his target
benefit would be 50% of final average pay (instead of the normal
65%) and provided that his benefits would not vest until he
reached age 66.
36
In addition to the foregoing arrangements, the Company entered
into agreements in 1998 with certain officers, including
Messrs. Stropki and Stueber, designed generally to assure
continued management in the event of a change in control of the
Company. The agreements with Messrs. Stropki and Stueber
were further modified in March 2000. These arrangements are
operative only if a change in control occurs and payments are
only made if the executive’s employment is terminated. The
agreements provide that following a change in control, a
three-year severance period commences. If the Company were to
terminate a covered officer’s employment for reasons
relating to changed circumstances, then the amounts and benefits
the officer would be entitled to receive include (i) a
lump-sum
payment equal
to the amount of base and incentive pay that would have been
paid to the officer for the greater of one year or the remainder
of the severance period; (ii) long-term incentive awards
granted prior to the change in control; (iii) continuation
of medical insurance, life insurance, and other welfare benefits
for the greater of one year or the remainder of the severance
period, subject to reduction for comparable welfare benefits
received in any subsequent employment; and (iv) enhanced
service credit and age under the SERP of three years and
immediate vesting under the SERP. The officer would be entitled
to receive an additional payment, net of taxes, to compensate
for the excise tax imposed on these and other payments if they
are determined to be excess parachute payments under the
Internal Revenue Code. Payments under these agreements would be
in lieu of any other rights to severance pay under other
agreements.
37
APPROVAL OF 2006 EQUITY AND PERFORMANCE
INCENTIVE PLAN
Proposal No. 2
General
In March 2006, your Board of Directors approved and adopted the
2006 Equity and Performance Incentive Plan (the “2006 EPI
Plan”), subject to shareholder approval at the 2006 Annual
Meeting of Shareholders. The 2006 EPI Plan will replace the
Company’s 1998 Stock Plan. If the 2006 EPI Plan is approved
by shareholders, no further awards will be made under the 1998
Stock Plan. Your Board of Directors believes that the 2006 EPI
Plan gives more flexibility to continue our stock incentive
compensation program which has been of significant benefit to
us. The program also strengthens our commitment to
incentive-based compensation tied to value creation for
shareholders and is consistent with our compensation philosophy.
The 2006 EPI Plan does not replace the Company cash long-term
incentive plan, which the Company has used for cash performance
awards for 2005 and intends to continue to use in the future.
The complete text of the 2006 EPI Plan is attached to this Proxy
Statement as Appendix B. The following is a summary of the
key terms of the 2006 EPI Plan, which is qualified in its
entirety by reference to the text of the 2006 EPI Plan.
Summary Description of the 2006 EPI Plan
General.
Under the 2006 EPI Plan, the Board or its
Compensation and Executive Development Committee (the
“Compensation Committee”) is authorized to make the
following types of awards:
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•
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options to purchase shares of Lincoln Common (“Option
Rights”);
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•
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awards of free-standing or tandem appreciation rights
(“SARs”);
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•
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restricted shares (“Restricted Shares”);
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•
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restricted stock units (“Restricted Stock Units”);
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•
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performance shares (“Performance Shares”); and
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•
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performance units (“Performance Units”).
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The Board intends to delegate to the Compensation Committee
(consisting of only independent directors) administration of the
2006 EPI Plan if it is approved by the shareholders. Pursuant to
such delegation, the Compensation Committee will have all of the
powers and authority of the Board as described herein.
Shares Available.
Subject to the adjustments provided in
the 2006 EPI Plan (as described below under
“Adjustments”), a total of 3,000,000 shares of
Lincoln Common may be issued or transferred:
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•
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upon the exercise of Option Rights or SARs;
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•
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as Restricted Shares and released from substantial risk of
forfeiture;
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•
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in payment of Restricted Stock Units;
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•
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in payment of Performance Shares or Performance Units that have
been earned; and
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•
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in payment of dividend equivalents, paid with respect to awards
under the 2006 EPI Plan.
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These shares may be of original issuance or treasury shares or a
combination of both.
No Liberal Recycling.
Shares covered by an award granted
under the 2006 EPI Plan will not be counted as used unless and
until they are actually issued and delivered to a participant.
Upon payment in cash of the benefit provided by any award
granted under the 2006 EPI Plan, any shares that were covered by
that award will be available for issue or transfer thereunder.
The following shares will not be added back to the aggregate
plan limit: (a) shares tendered in payment of the exercise
price of an
38
Option Right; (b) shares withheld by the Company to satisfy
the tax withholding obligation; and (c) shares that are
repurchased by the Company with Option Right proceeds. Further,
all shares covered by an SAR, to the extent that it is exercised
and settled in shares, whether or not all shares covered by the
award are actually issued to the participant upon exercise of
the right, shall be considered issued or transferred pursuant to
the 2006 EPI Plan.
Special Limits.
The 2006 EPI Plan provides for the
following specific limits:
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The aggregate number of shares actually issued or transferred by
the Company upon the exercise of Incentive Stock Options may not
exceed 2,000,000 shares.
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•
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The aggregate number of shares issued with respect to Restricted
Shares (and released from substantial risk of forfeiture),
Restricted Stock Units, Performance Shares or Performance Units
may not exceed 1,000,000 shares.
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•
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No individual participant will be granted Option Rights or SARs,
in the aggregate, for more than 500,000 shares of Lincoln
Common during any calendar year.
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•
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No individual participant will be granted Restricted Shares or
Restricted Stock Units that specify Management Objectives or
Performance Shares, in the aggregate, for more than
250,000 shares during any calendar year.
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•
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In no event will any individual participant in any calendar year
receive an award of Performance Units having an aggregate
maximum value as of their respective dates of grant in excess of
$1,500,000.
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Eligibility.
Officers (including officers who are members
of the Board), other employees and consultants of the Company or
any of its subsidiaries are eligible to receive awards under the
2006 EPI Plan. Outside the United States, any person who
provides services to the Company or a subsidiary that are
equivalent to those typically provided by an employee is also
eligible.
Option Rights.
Option Rights entitle the optionee to
purchase shares of Lincoln Common at a predetermined price per
share (which may not be less than the fair market value of
Lincoln Common at the date of grant). The closing price of a
share of Lincoln Common on the NASDAQ National Market on
March 17, 2006 was $52.96 per share. Option Rights
granted under the 2006 EPI Plan may be:
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•
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options that are intended to qualify under particular provisions
of the Internal Revenue Code (Incentive Stock Options),
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•
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options that are not intended to qualify under the Internal
Revenue Code (Nonqualified Stock Options), or
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•
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a combination of the two.
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Each grant will specify the number of shares of Lincoln Common
to which it pertains. Each grant will also specify whether the
exercise price will be payable:
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•
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in cash;
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•
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by the transfer to the Company of shares of Lincoln Common
previously owned by the optionee, having a value at the time of
exercise equal to the total option price;
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•
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by a combination of those payment methods; or
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•
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by such other method as may be approved by the Board.
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To the extent permitted by law, grants may provide for the
deferred payment of the exercise price from the proceeds of sale
through a bank or broker on a date satisfactory to the Company
of some or all of the shares of Lincoln Common to which such
exercise relates.
No Option Rights may be exercisable more than ten years from the
date of grant. Each grant will specify the period or periods of
continuous service by the optionee with the Company or any of its
39
subsidiaries that is necessary before the award or installments
thereof become exercisable. A grant of Option Rights may provide
for the earlier vesting of such Option Rights in the event of
retirement, death or disability of the participant or a change
of control of the Company. Successive grants may be made to the
same optionee whether or not Option Rights previously granted to
such optionee remain unexercised.
Any grant of Option Rights may specify Management Objectives (as
described below) that must be achieved as a condition to
exercising such rights. Such grant will specify that before the
exercise or early exercise of the Option Rights the Board must
determine the Management Objectives have been satisfied. Option
Rights will be evidenced by an evidence of award containing such
terms and provisions, consistent with the 2006 EPI Plan, as the
Board may approve.
SARs.
An SAR is a right, exercisable by surrender of the
related Option Right (if granted in tandem with Option Rights)
or by itself (if granted as a free-standing SAR), to receive
from the Company an amount not exceeding 100% of the spread
between the base price (or option price if a tandem SAR) and the
value of a share of Lincoln Common on the date of exercise. Any
grant may specify that the amount payable on exercise of a SAR
may be paid by the Company in cash, in shares of Lincoln Common,
or in any combination thereof, and may either grant to the
participant or retain in the Board the right to elect among
those alternatives. Any SAR grant may specify that the amount
payable on exercise may not exceed a maximum specified by the
Board at the time of grant. Any grant may specify waiting
periods before exercise and permissible exercise dates and
periods. Any grant of an SAR may specify that such SAR be
exercised only in the event of, or earlier in the event of,
retirement, death or disability of the participant or a change
of control of the Company. Any grant may provide for the payment
to the participant of dividend equivalents thereon in cash or
shares of Lincoln Common on a current, deferred or contingent
basis.
Any grant of SARs may specify Management Objectives that must be
achieved as a condition to exercise such rights. Such grant will
specify that before the exercise or earlier exercise of such
SARs, the Board must determine that the Management Objectives
have been satisfied. SARs will be evidenced by an evidence of
award containing such terms and provisions, consistent with the
2006 EPI Plan, as the Board may approve.
Tandem SARs may be exercised only at a time when the related
Option Right is exercisable and the spread is positive, and
require that the related Option Right be surrendered for
cancellation.
Free-standing
SARs must
have a base price that is not less than the fair market value of
a share of Lincoln Common on the date of grant. Successive
grants of free-standing SARs may be made to the same participant
regardless of whether any free-standing SARs previously granted
to such participant remain unexercised. No free-standing SAR may
be exercised more than ten years from the date of grant.
Restricted Shares.
An award of Restricted Shares involves
the immediate transfer of ownership of a specific number of
shares of Lincoln Common by the Company to a participant in
consideration of the performance of services. The participant is
immediately entitled to voting, dividend and other ownership
rights in those shares of Lincoln Common.
Restricted Shares that vest only upon the passage of time must
be subject to a “substantial risk of forfeiture”
within the meaning of Section 83 of the Internal Revenue
Code for a period of not less than three years, as determined by
the Board. In order to enforce these forfeiture provisions, the
transferability of Restricted Shares will be prohibited or
restricted in a manner and to the extent prescribed by the Board
for the period during which the forfeiture provisions are to
continue. The Board may provide for a shorter period during
which the forfeiture provisions are to apply in the event of
retirement, death or disability of the participant or a change
of control of the Company.
Any award of Restricted Shares may specify Management Objectives
which, if achieved, will result in termination or early
termination of the restrictions applicable to such shares. If
the grant of Restricted Shares provides that Management
Objectives must be achieved to result in a lapse of
restrictions, the
40
restrictions cannot lapse sooner than one year from the date of
grant, but may provide for earlier lapse in the event of the
retirement, death or disability of the participant or the change
of control of the Company. Any such grant may also specify in
respect of such specified Management Objectives, a minimum
acceptable level of achievement and may set forth a formula for
determining the number of Restricted Shares on which
restrictions will terminate if performance is at or above the
minimum level, but below full achievement of the specified
Management Objectives. The grant of Restricted Shares will
specify that, before termination or early termination of the
restrictions, the Board must determine that the Management
Objectives have been satisfied. Restricted Shares will be
evidenced by an evidence of award containing such terms and
provisions, consistent with the 2006 EPI Plan, as the Board may
approve.
Restricted Stock Units.
An award of Restricted Stock
Units involves an agreement by the Company to deliver shares of
Lincoln Common or cash to the participant in the future in
consideration of the performance of services, but subject to the
fulfillment of such conditions as the Board may specify
(including Management Objectives) during a restriction period.
Awards of Restricted Stock Units may be made without additional
consideration or in consideration of a payment by such
participant that is less than the market value per share at the
date of grant. During the restriction period, the participant
has no right to transfer any rights under his or her award and
no right to vote such Restricted Stock Units, but the Board may,
at the date of grant, authorize the payment of dividend
equivalents on such Restricted Stock Units on either a current
or deferred or contingent basis, either in cash or in additional
shares of Lincoln Common. Each grant or sale will specify the
time and manner of payment of Restricted Stock Units that have
been earned. Any grant or sale may specify that the amount
payable with respect thereto may be paid by the Company in cash,
in shares of Lincoln Common or in any combination thereof and
may either grant to the participant or retain in the Board the
right to elect among those alternatives.
Restricted Stock Units must be subject to a restriction period
of at least three years if such restriction period lapses only
by the passage of time, as determined by the Board at the date
of grant. However, the Board may provide for a shorter
restriction period in the event of retirement, death or
disability of the participant or a change of control of the
Company. Any grant of Restricted Stock Units may specify
Management Objectives which, if achieved, will result in
termination or early termination of the restriction period
applicable to such shares. If the grant of Restricted Stock
Units provides that Management Objectives must be achieved to
result in a lapse of the restriction period, the restriction
period cannot lapse sooner than one year from the date of grant,
but may be subject to earlier lapse in the event of retirement,
death or disability of the participant or change of control of
the Company. Any such grant may also specify in respect of such
specified Management Objectives, a minimum acceptable level of
achievement and may set forth a formula for determining the
number of shares of Restricted Stock Units on which the
restriction period will terminate if performance is at or above
the minimum level, but below full achievement of the specified
Management Objectives. The grant of Restricted Stock Units will
specify that, before termination or early termination of the
restrictions, the Board must determine that the Management
Objectives have been satisfied. Restricted Stock Units will be
evidenced by an evidence of award containing such terms and
provisions, consistent with the 2006 EPI Plan, as the Board may
approve.
Performance Shares and Performance Units.
A Performance
Share is the equivalent of one share of Lincoln Common and a
Performance Unit is the equivalent of $1.00 or such other value
as determined by the Board. A participant may be granted any
number of Performance Shares or Performance Units, subject to
the limitations discussed above. The participant will be given
one or more Management Objectives to meet within a specified
performance period. Each grant may also specify a minimum level
of achievement. The specified performance period will be a
period of time not less than one year, except the Board may
provide for a shorter period in the case of retirement, death or
disability of the participant or a change of control of the
Company, if determined by the Board at the time of grant. Any
such grant may also specify in respect of such specified
Management Objectives, a minimum acceptable level of achievement
and may set forth a formula for determining the number of
Performance
41
Shares or Performance Units on which the performance period will
terminate if the performance is at or above the minimum level,
but below full achievement of the specified Management
Objectives.
To the extent earned, the Performance Shares or Performance
Units will be paid to the participant at the time and in the
manner determined by the Board. The grant of Performance Shares
or Performance Units will specify that, before the Performance
Shares or Performance Units will be earned and paid, the Board
must determine that the Management Objectives have been
satisfied. Any grant may specify that the amount payable with
respect thereto may be paid by the Company in cash, shares of
Lincoln Common or any combination thereof and may either grant
to the participant or retain in the Board the right to elect
among those alternatives. The grant may provide for the payment
of dividend equivalents thereon in cash or in shares of Lincoln
Common on a current, deferred or contingent basis. Performance
Shares and Performance Units will be evidenced by an evidence of
award containing such terms and provisions, consistent with the
2006 EPI Plan, as the Board may approve.
Management Objectives.
The 2006 EPI Plan requires that
the Board establish “Management Objectives” for
purposes of Performance Shares and Performance Units. When so
determined by the Board, Option Rights, SARs, Restricted Shares,
Restricted Stock Units or dividend credits may also specify
Management Objectives. Management Objectives may be described in
terms of either Company-wide objectives or objectives that are
related to the performance of the individual participant or of
the subsidiary, division, department, region or function within
the Company or subsidiary in which the participant is employed.
The Management Objectives may be made relative to the
performance of other companies. Management Objectives applicable
to any award to a participant who is, or is determined by the
Board likely to become, a “covered employee” within
the meaning of Section 162(m) of the Internal Revenue Code,
if applicable to an award that is intended to satisfy the
requirements for “qualified
performance-based
compensation” under such Section, will be limited to
specified levels of or growth in:
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Profits
(e.g., operating income, EBIT, EBIT before bonus,
EBT, net income, earnings per share, residual or economic
earnings — these profitability metrics could be
measured before special items and/or subject to GAAP definition);
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Cash Flow
(e.g., EBITDA, operating cash flow, total cash
flow, cash flow in excess of cost of capital or residual cash
flow or cash flow return on investment);
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Returns
(e.g., profits or cash flow returns on: assets,
invested capital, net capital employed, and equity);
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Working Capital
(e.g., working capital divided by sales,
days’ sales outstanding, days’ sales inventory, and
days’ sales in payables);
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Profit Margins
(e.g., profits divided by revenues, gross
margins and material margins divided by revenues, and material
margin divided by sales pounds);
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Liquidity Measures
(e.g.,
debt-to
-capital,
debt-to
-EBITDA, total
debt ratio);
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Sales Growth, Cost Initiative and Stock Price Metrics
(e.g., revenues, revenue growth, stock price appreciation,
total return to shareholders, sales and administrative costs
divided by sales, and sales and administrative costs divided by
profits);
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Strategic Initiative Key Deliverable Metrics
consisting
of one or more of the following: product development, strategic
partnering, research and development, market penetration,
geographic business expansion goals, cost targets, customer
satisfaction, employee satisfaction, management of employment
practices and employee benefits, supervision of litigation and
information technology, and goals relating to acquisitions or
divestitures of subsidiaries, affiliates and joint
ventures; or
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42
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•
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Any of the above criteria as compared to the performance of a
published or a special index deemed applicable by the Board,
including, but not limited to, the Standard &
Poor’s 500 Stock Index.
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If the Board determines that a change in the business,
operations, corporate structure or capital structure of the
Company, or the manner in which it conducts its business, or
other events or circumstances render the Management Objectives
unsuitable, the Board may in its discretion modify such
Management Objectives or the minimum level or levels of
achievement, in whole or in part, as the Board deems appropriate
and equitable, except in the case of a qualified
performance-based award to a “covered employee” where
such action would result in the loss of the otherwise available
exemption under Section 162(m) of the Internal Revenue
Code. In such case, the Board of Directors may not make any
modification of the Management Objectives or minimum level or
levels of achievement with respect to such “covered
employee.”
The Management Objectives do not apply to the Company’s
cash long-term incentive plan, which the Company intends to
continue to use for cash-based performance awards. At this time,
the Company has not determined whether or not it will grant
performance-based stock awards using Management Objectives
meeting the requirements for exemption under Section 162(m)
of the Internal Revenue Code under the 2006 EPI Plan in the
future.
Administration.
The 2006 EPI Plan provides that it is to
be administered by the Board, except that the Board has the
authority to delegate any or all of its powers under the 2006
EPI Plan to a committee of the Board (or a subcommittee
thereof). As noted above, the Board intends to delegate its
authority to the Compensation Committee. The Board is authorized
to interpret the 2006 EPI Plan and related agreements and other
documents. To the extent permitted by Ohio law, the Board may,
from time to time, delegate to one or more officers of the
Company the authority of the Board to grant and determine the
terms and conditions of awards granted under the 2006 EPI Plan.
However, such delegation will not be permitted with respect to
awards to any executive officer or any person subject to
Section 162(m) of the Internal Revenue Code.
Adjustments.
The numbers and kind of shares covered by
outstanding awards under the 2006 EPI Plan and, if applicable,
the prices per share applicable thereto, are subject to
adjustment in the event of stock dividends, stock splits,
combinations of shares, recapitalizations, mergers,
consolidations, spin-offs, reorganizations, liquidations,
issuances of rights or warrants, and similar events. In the
event of any such transaction or event, the Board, in its
discretion, may provide in substitution for any or all
outstanding awards under the 2006 EPI Plan such alternative
consideration (including cash), if any, as it may determine to
be equitable in the circumstances and may require the surrender
of all awards so replaced. The Board may also make or provide
for such adjustments in the numbers of shares available under
the 2006 EPI Plan and the other limitations contained in the
2006 EPI Plan as the Board may determine appropriate to reflect
any transaction or event described above.
Detrimental Activity.
Any grant may provide that if a
participant, either during employment by the Company or a
subsidiary or within a specified period after termination of
employment, engages in any “detrimental activity” (as
defined by the Board in the evidence of award), the participant
shall forfeit any awards granted under the 2006 EPI Plan then
held by the participant or return to the Company, in exchange
for payment by the Company of any amount actually paid by the
participant, all shares of Lincoln Common that the participant
has not disposed of that were offered pursuant to the 2006 EPI
Plan within a specified period prior to the date of the
commencement of the detrimental activity. With respect to any
shares of Lincoln Common acquired under the 2006 EPI Plan that
the participant has disposed of, if so provided in the evidence
of award for such grant, the participant will pay to the Company
in cash the difference between (1) any amount actually paid
therefor by the participant pursuant to the 2006 EPI Plan and
(2) the market value per share of the shares on the date
they were acquired.
Transferability.
No Option Right or SAR granted under the
2006 EPI Plan is transferable by a participant except, upon
death, by will or the laws of descent and distribution. However,
the Board may
43
determine at the date of grant that Option Rights (other than
Incentive Stock Options) and SARs may be transferred to members
of the participant’s “immediate family” (as
defined in the 2006 EPI Plan). Except as otherwise determined by
the Board, Option Rights and SARs are exercisable during the
optionee’s lifetime only by him or her or by his or her
guardian or legal representative.
The Board may specify at the date of grant that part or all of
the shares that are (1) to be issued or transferred by the
Company upon exercise of Option Rights or SARs, upon termination
of the restriction period applicable to Restricted Stock Units
or upon payment under any grant of Performance Shares or
Performance Units or (2) no longer subject to the
substantial risk of forfeiture and restrictions on transfer
referred to in the 2006 EPI Plan with respect to Restricted
Shares, will be subject to further restrictions on transfer.
Withholding Taxes.
To the extent that the Company is
required to withhold Federal, state, local or foreign taxes in
connection with any payment made or benefit realized by a
participant or other person under the 2006 EPI Plan, and the
amounts available to the Company for such withholding are
insufficient, it will be a condition to the receipt of such
payment or the realization of such benefit that the participant
or such other person make arrangements satisfactory to the
Company for payment of the balance of such taxes required to be
withheld, which arrangements (in the discretion of the Board)
may include relinquishment of a portion of such benefit. In no
event shall the fair market value of the shares of Lincoln
Common to be withheld and/or delivered to satisfy applicable
withholding taxes in connection with the benefit exceed the
minimum amount of taxes required to be withheld.
Non-U.S.
Employees.
The Board may provide for special terms for awards to
participants who are foreign nationals or whom the Company
employs outside the United States as the Board may consider
necessary or appropriate to accommodate differences in local
law, tax policy or custom.
Effective Date.
The 2006 EPI Plan will be effective
April 28, 2006 if it is approved by shareholders at the
2006 Annual Meeting.
Amendments.
The Board may amend the 2006 EPI Plan from
time to time without further approval by the shareholders.
However, if an amendment (1) would materially increase the
benefits accruing to participants under the 2006 EPI Plan;
(2) would materially increase the number of securities
which may be issued under the 2006 EPI Plan; (3) would
materially modify the requirements for participation in the 2006
EPI Plan; or (4) must otherwise be approved by the
shareholders in order to comply with applicable law or the rules
and regulations of The NASDAQ stock market, the amendment will
be subject to shareholder approval and will not be effective
unless and until such approval is obtained. The Board will not,
without further approval of the shareholders, authorize the
amendment to any outstanding Option Right to reduce the option
price or cancel any Option Right and replace it with an award
having a lower option price.
If permitted by Section 409A of the Internal Revenue Code,
in case of a termination of employment by reason of death,
disability or normal or early retirement, or in the case of
unforeseeable emergency or other special circumstances, of a
participant who holds an Option Right or SAR not immediately
exercisable in full, or any Restricted Shares as to which the
substantial risk of forfeiture or the prohibition or restriction
on transfer has not lapsed, or any Restricted Stock Units as to
which the restriction period has not been completed, or any
Performance Shares or Performance Units which have not been
fully earned, or any other awards made pursuant to the 2006 EPI
Plan subject to any vesting schedule or transfer restriction, or
who holds shares of Lincoln Common subject to any other transfer
restriction imposed pursuant to the 2006 EPI Plan, the Board
may, in its sole discretion, accelerate the time at which such
Option Right, SAR or other award may be exercised or the time at
which such substantial risk of forfeiture or prohibition or
restriction on transfer will lapse or the time when such
restriction period will end or the time at which such
Performance Shares or Performance Units will be deemed to have
been fully earned or the time when such transfer restriction
will terminate or may waive any other limitation or requirement
under any such award.
44
Term of the 2006 EPI Plan.
No grant will be made under
the 2006 EPI Plan more than ten years after the date on which
the 2006 EPI Plan is first approved by shareholders, but all
grants made on or prior to such date will continue in effect
thereafter subject to the terms thereof and of the 2006 EPI Plan.
Compliance with Section 409A of the Internal Revenue
Code.
To the extent applicable, it is intended that the 2006
EPI Plan and any grants made under the 2006 EPI Plan comply with
the provisions of Section 409A of the Internal Revenue
Code. The 2006 EPI Plan and any grants made under the 2006 EPI
Plan will be administered in a manner consistent with this
intent, and any provision of the 2006 EPI Plan that would cause
the 2006 EPI Plan or any grant made under the 2006 EPI Plan to
fail to satisfy Section 409A shall have no force and effect
until amended to comply with Section 409A (which amendment
may be retroactive to the extent permitted by Section 409A
and may be made by the Company without the consent of the
participants). Any reference to Section 409A will also
include any proposed, temporary or final regulations, or any
other guidance promulgated with respect to such Section by the
U.S. Department of the Treasury or the Internal Revenue
Service.
New Plan Benefits
It is not possible to determine specific amounts and types of
awards that may be awarded in the future under the 2006 EPI Plan
because the grant and actual pay-out of awards under the 2006
EPI Plan are discretionary.
Federal Income Tax Consequences
The following is a brief summary of some of the Federal income
tax consequences of certain transactions under the 2006 EPI Plan
based on Federal income tax laws in effect on January 1,
2006. This summary is not intended to be exhaustive or tax
advice to any person and does not describe Federal insurance
contributions or state or local tax consequences.
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Tax Consequences to Participants
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Nonqualified Stock Options.
In general, (1) no
income will be recognized by an optionee at the time a
Nonqualified Stock Option is granted; (2) at the time of
exercise of a Nonqualified Stock Option, ordinary income will be
recognized by the optionee in an amount equal to the difference
between the option price paid for the shares and the fair market
value of the shares, if unrestricted, on the date of exercise;
and (3) at the time of sale of shares acquired pursuant to
the exercise of a Nonqualified Stock Option, appreciation (or
depreciation) in value of the shares after the date of exercise
will be treated as either short-term or long-term capital gain
(or loss) depending on how long the shares have been held.
Incentive Stock Options.
No income generally will be
recognized by an optionee upon the grant or exercise of an ISO.
The exercise of an ISO, however, may result in alternative
minimum tax liability. If shares of Lincoln Common are issued to
the optionee pursuant to the exercise of an ISO, and if no
disqualifying disposition of such shares is made by such
optionee within two years after the date of grant or within one
year after the transfer of such shares to the optionee, then
upon sale of such shares, any amount realized in excess of the
exercise price will be taxed to the optionee as a long-term
capital gain and any loss sustained will be a long-term capital
loss.
If shares acquired upon the exercise of an ISO are disposed of
prior to the expiration of either holding period described
above, the optionee generally will recognize ordinary income in
the year of disposition in an amount equal to the excess (if
any) of the fair market value of such shares at the time of
exercise (or, if less, the amount realized on the disposition of
such shares if a sale or exchange) over the exercise price paid
for such shares. Any further gain (or loss) realized by the
participant generally will be taxed as short-term or long-term
capital gain (or loss) depending on the holding period.
SARs.
No income will be recognized by a participant in
connection with the grant of a tandem SAR or a free-standing
SAR. When the SAR is exercised, the participant generally will
be required to include as taxable ordinary income in the year of
exercise an amount equal to the amount of cash
45
received and the fair market value of any unrestricted shares of
Lincoln Common received on the exercise.
Restricted Shares.
The recipient of Restricted Shares
generally will be subject to tax at ordinary income rates on the
fair market value of the Restricted Shares (reduced by any
amount paid by the participant for such Restricted Shares) at
such time as the shares are no longer subject to forfeiture or
restrictions on transfer for purposes of Section 83 of the
Internal Revenue Code (“Restrictions”). However, a
recipient who so elects under Section 83(b) of the Internal
Revenue Code within 30 days of the date of transfer of the
shares will have taxable ordinary income on the date of transfer
of the shares equal to the excess of the fair market value of
such shares (determined without regard to the Restrictions) over
the purchase price, if any, of such Restricted Shares. If a
Section 83(b) election has not been made, any dividends
received that relate to Restricted Shares subject to the
Restrictions generally will be treated as compensation that is
taxable as ordinary income to the participant.
Restricted Stock Units.
No income generally will be
recognized upon the award of Restricted Stock Units. Any
subsequent transfer of unrestricted shares of Lincoln Common or
cash in satisfaction of such award will generally result in the
recipient recognizing ordinary income at the time of transfer,
in an amount equal to the aggregate amount of cash and the fair
market value of the unrestricted shares of Lincoln Common
received over the amount paid, if any, by the participant.
Performance Shares and Performance Units.
No income
generally will be recognized upon the grant of Performance
Shares or Performance Units. Upon payment in respect of the
earn-out of Performance Shares or Performance Units, the
recipient generally will be required to include as taxable
ordinary income in the year of receipt an amount equal to the
amount of cash received and the fair market value of any
unrestricted shares of Lincoln Common received.
Tax Consequences to the Company
or Subsidiary
To the extent that a participant recognizes ordinary income in
the circumstances described above, the Company or the subsidiary
for which the participant performs services will be entitled to
a corresponding deduction; provided that, among other things,
the income meets the test of reasonableness, is an ordinary and
necessary business expense, is not an “excess parachute
payment” within the meaning of Section 280G of the
Internal Revenue Code and is not disallowed by the
$1 million limitation on certain executive compensation
under Section 162(m) of the Internal Revenue Code.
Required Vote
Approval of the 2006 EPI Plan requires the affirmative vote of a
majority of the shares of Lincoln Common represented in person
or by proxy at the Annual Meeting and entitled to vote on the
matter. Unless otherwise directed, shares represented by proxy
will be voted
FOR
the approval of the 2006 EPI Plan.
Your Board of Directors recommends that you vote FOR
approval of the 2006 Equity and Performance Incentive Plan.
46
APPROVAL OF 2006 STOCK PLAN FOR
NON-EMPLOYEE DIRECTORS
Proposal No. 3
General
In March 2006, your Board of Directors approved and adopted,
subject to shareholder approval, the 2006 Stock Plan for
Non-Employee Directors (the “Director Plan”). The
Director Plan will replace the Stock Option Plan for
Non-Employee Directors, which was approved by the shareholders
in 2000. If the Director Plan is approved by shareholders, no
further awards will be made under the Stock Option Plan for
Non-Employee Directors (the “2000 Director Plan”). The
Director Plan provides for greater flexibility of stock awards
as compared to the Stock Option Plan, which only provides for
the award of stock options. Your Board of Directors believes
that the Director Plan is in your and the Company’s best
interests since it will better align the non-employee
Directors’ compensation with creating and sustaining
shareholder value. The Director Plan will also assist in
attracting and retaining the highest qualified individuals to
serve as Directors of the Company.
The complete text of the Director Plan is attached to this Proxy
Statement as Appendix C. The following is a summary of the
key terms of the Director Plan, which is qualified in its
entirety by reference to the text of the Director Plan.
Summary Description of the Director Plan
General.
The Director Plan provides for the award of
options to purchase shares of Lincoln Common
(“Options”), restricted shares (“Restricted
Shares”) and restricted stock units (“Restricted Stock
Units”). Unless otherwise determined by the Nominating and
Corporate Governance Committee of the Board (the
“Governance Committee”), the Director Plan provides
for the following awards of Stock Options:
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An initial Option to purchase 6,000 shares of Lincoln
Common will be granted to each newly eligible Director upon his
or her election to the Board.
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•
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An annual grant of an Option to purchase 3,500 shares
of Lincoln Common will be granted after each annual meeting and
before the end of the calendar year to each eligible Director in
office on the date of the grant.
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These awards are at the same level as those provided in 2005
under the 2000 Director Plan. However, under the Director Plan
(as under the 2000 Director Plan), the Governance Committee has
the authority to modify the type and level of awards without
further shareholder approval. The Governance Committee currently
has this topic under review and is considering whether to issue
Restricted Shares or Restricted Stock Units in the future
instead of the Options described above, although it has not
reached any conclusion on the type of award(s) or the number of
shares or units that will be awarded. Options, Restricted Shares
and Restricted Stock Units are described in more detail below.
Shares Available.
The total number of shares of Lincoln
Common available for issuance under the Director Plan is
300,000, subject to adjustment by the Governance Committee as
described below under “Adjustments”. If the number of
shares of Lincoln Common authorized under the Director Plan is
insufficient for all Options to be granted automatically,
Options will be granted pro rata among all eligible Directors
entitled to be granted an Option on that date. These shares may
be of original issuance or treasury shares or a combination of
both.
No Liberal Recycling.
Shares covered by an award granted
under the Director Plan will not be counted as used unless and
until they are actually issued and delivered to a participant.
Upon payment in cash of the benefit provided by any award
granted under the Director Plan, any shares that were covered by
that award will be available for issue or transfer thereunder.
The following shares will not be added back to the aggregate
plan limit: (a) shares tendered in payment of the exercise
price of an Option; and (b) shares that are repurchased by
the Company with Option proceeds.
47
Special Limit.
The aggregate number of shares of Lincoln
Common issued as Restricted Shares or in payment of Restricted
Stock Units will not exceed 100,000.
Eligibility.
Only non-employee Directors are eligible to
receive awards under the Director Plan. For purposes of the
Director Plan, an “employee” is defined as an
individual whose wages are subject to the withholding of Federal
income tax under Sections 3401 and 3402 of the Internal
Revenue Code. Currently, there are eight Directors eligible to
participate in the Director Plan.
Options.
Options granted under the Director Plan will be
Nonqualified Options. Options entitle the optionee to purchase
shares of Lincoln Common at a predetermined price per share
(which may not be less than the fair market value of Lincoln
Common at the date of the grant). An Option becomes exercisable
when the optionee has earned it through continuous service as a
Director for one year from the date of grant. Once earned, the
Option may be exercised in whole or in part with respect to 100%
of the underlying shares of Lincoln Common. If an optionee
ceases to be a Director by reason of death, disability or
retirement or upon a change in control of the Company, all
Options held by the optionee will become immediately exercisable
in full.
To exercise an Option, an optionee must notify the Company of
his or her intention to exercise, specifying the number of
shares of Lincoln Common to be purchased. The exercise price
will be payable
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in cash or by other consideration acceptable to the Company;
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at the discretion of the Governance Committee, by the transfer
to the Company of shares of Lincoln Common previously owned by
the optionee for at least six months and having a market value
at the time of exercise equal to the total option price; or
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•
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by a combination of both methods of payment.
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To the extent permitted by applicable law, grants may provide
for the deferred payment of the exercise price from the proceeds
of sale through a broker on a date satisfactory to the Company
of some or all of the shares of Lincoln Common to which the
exercise relates. Except as otherwise determined by the
Governance Committee, no Option will be transferable by the
optionee otherwise than by will or the laws of descent and
distribution, or pursuant to a qualified domestic relations
order.
Restricted Shares.
An award of Restricted Shares involves
the immediate transfer of ownership of a specific number of
shares of Lincoln Common by the Company to a participant in
consideration of the performance of services. The participant is
immediately entitled to voting, dividend and other ownership
rights in those shares of Lincoln Common.
Restricted Shares must be subject to a “substantial risk of
forfeiture” within the meaning of Section 83 of the
Internal Revenue Code for a period of not less than three years,
as determined by the Governance Committee. In order to enforce
these forfeiture provisions, the transferability of Restricted
Shares will be prohibited or restricted in a manner and to the
extent prescribed by the Governance Committee for the period
during which the forfeiture provisions are to continue. The
Governance Committee may provide for a shorter period during
which forfeiture provisions are to apply in the event of
retirement, death or disability of the participant or a change
of control of the Company.
Restricted Stock Units.
An award of Restricted Stock
Units involves an agreement by the Company to deliver shares of
Lincoln Common or cash to the participant in the future in
consideration of the performance of services. Restricted Stock
Units must be subject to a restriction period of at least three
years, except that the Governance Committee may provide for a
shorter restriction period in the event of retirement, death or
disability of the participant or a change of control of the
Company.
Awards of Restricted Stock Units may be made without additional
consideration or in consideration of a payment by such
participant that is less than the market value per share at the
date of grant. During the restriction period, the participant
has no right to transfer any rights under his or her award and
no right to vote such Restricted Stock Units but the Governance
Committee may, at the date of grant, authorize the payment of
dividend equivalents on such Restricted Stock Units on either a
current or
48
deferred or contingent basis, either in cash or in additional
shares of Lincoln Common. Each grant or sale will specify the
time and manner of payment of Restricted Stock Units that have
been earned. Any grant or sale may specify that the amount
payable with respect thereto may be paid by the Company in cash,
in shares of Lincoln Common or in any combination thereof and
may either grant to the participant or retain in the Governance
Committee the right to elect among those alternatives.
Administration.
The Director Plan will be administered by
the Governance Committee. The Governance Committee is composed
exclusively of “non-employee Directors.” The
Governance Committee has full authority, discretion and power,
consistent with the provisions of the Director Plan, to determine
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the terms and conditions of awards under the Director Plan;
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the number of shares of Lincoln Common underlying awards to be
issued; and
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the duration and nature of the awards.
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Adjustments.
The number and kind of shares covered by
outstanding awards under the Director Plan and, if applicable,
the prices per share applicable thereto, are subject to
adjustment in the event of stock dividends, stock splits,
combinations of shares, recapitalizations, mergers,
consolidations,
spin-offs,
reorganizations, liquidations, issuances of rights or warrants,
and similar events. In the event of such transaction or event,
the Governance Committee, in its discretion, may provide in
substitution for any and all outstanding awards under the
Director Plan such alternative consideration (including cash),
if any, as it may determine to be equitable in the circumstances
and may require the surrender of all awards so replaced. The
Governance Committee may also make or provide for such
adjustments in the numbers of shares available under the
Director Plan and the other limitations contained in the
Director Plan as the Governance Committee may determine
appropriate to reflect any transaction or event described above.
Effective Date.
The Director Plan will be effective
April 28, 2006 if it is approved by shareholders at the
2006 Annual Meeting.
Amendment and Termination.
The Governance Committee may
amend the Director Plan from time to time, provided that any
amendment that must be approved by shareholders in order to
comply with Federal securities laws, other legal or regulatory
requirements or the rules of The NASDAQ Stock Market or other
applicable stock exchange and will not be effective unless and
until shareholder approval has been obtained. The Director Plan
may not be amended to increase the total number of shares of
Lincoln Common reserved for it or extend the maximum option
period without shareholder approval.
Term of the Director Plan.
No grant will be made under
the Director Plan more than ten years after the date on which
the Director Plan is first approved by shareholders, but all
grants made on or prior to such date will continue in effect
thereafter subject to the terms thereof and of the Director Plan.
Compliance with Section 409A of the Internal Revenue
Code.
To the extent applicable, it is intended that the
Director Plan and any grants made under the Director Plan comply
with the provisions of Section 409A of the Internal Revenue
Code. The Director Plan and any grants made under the Director
Plan will be administered in a manner consistent with this
intent, and any provision of the Director Plan that would cause
the Director Plan or any grant made under the Director Plan to
fail to satisfy Section 409A shall have no force and effect
until amended to comply with Section 409A (which amendment
may be retroactive to the extent permitted by Section 409A
and may be made by the Company without the consent of the
participants). Any reference to Section 409A will also
include any proposed, temporary or final regulations, or any
other guidance promulgated with respect to such Section by the
U.S. Department of the Treasury or the Internal Revenue
Service.
49
New Plan Benefits
It is not possible to determine all the specific amounts and
types of awards that will be awarded in the future under the
Director Plan because the grants are discretionary. The table
below sets forth the award of options for 3,500 shares of
Lincoln Common, which amount represents the aggregate awards
made in 2005 under the 2000 Director Plan. If the Director Plan
is approved by shareholders at the 2006 Annual Meeting, the
Governance Committee may make similar awards in 2006. However,
as described under “General” above, the Governance
Committee currently has this matter under review and has the
discretion to determine the amounts and types of awards.
New Plan Benefits
2006 Stock Plan for Non-Employee Directors
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Number of Securities Underlying
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Options Granted under
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the 2006 Stock Plan for
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Name
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Non-Employee Directors
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John M.
Stropki, Jr.
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N/A
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Vincent K. Petrella
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N/A
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Frederick G. Stueber
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N/A
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James E. Schilling
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N/A
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George D. Blankenship
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N/A
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Executive Officer Group
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N/A
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Non-Executive Director
Group
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28,000
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Non-Executive Officer
Employee Group
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N/A
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Federal Income Tax
The following is a brief summary of certain of the Federal
income tax consequences of certain transactions under the
Director Plan based on Federal income tax laws in effect on
January 1, 2006. This summary is not intended to be
exhaustive or tax advice to any person and does not describe
Federal insurance contributions or state or local tax
consequences.
Tax Consequences to
Participants
Options.
Options granted under the Director Plan are
Nonqualified Options. In general, to the extent that a
non-employee Director recognizes ordinary income on the exercise
of an Option, the Company will be entitled to a corresponding
deduction.
Restricted Shares.
The recipient of Restricted Shares
generally will be subject to tax at ordinary income rates on the
fair market value of the Restricted Shares (reduced by any
amount paid by the participant for such Restricted Shares) at
such time as the shares of Lincoln Common are no longer subject
to forfeiture or restrictions on transfer for purposes of
Section 83 of the Internal Revenue Code. However, a
recipient who elects under Section 83(b) of the Internal
Revenue Code within 30 days of the date of transfer of the
Restricted Shares will have taxable ordinary income on the date
of transfer of the shares equal to the excess of the fair market
value of such shares (determined without regard to the
restrictions) over the purchase price, if any, of such
Restricted Shares. If a Section 83(b) election has not been
made, any dividends received that relate to Restricted Shares
subject to restrictions generally will be treated as
compensation that is taxable as ordinary income to the
participant.
Restricted Stock Units.
No income generally will be
recognized upon the award of Restricted Stock Units. Any
subsequent transfer of unrestricted shares of Lincoln Common or
cash in satisfaction
50
of such award will generally result in the recipient recognizing
ordinary income at the time of transfer, in an amount equal to
the aggregate amount of cash and the fair market value of the
unrestricted shares of Lincoln Common received over the amount
paid, if any, by the participant.
Tax Consequences to the
Company
To the extent that a participant recognizes ordinary income in
the circumstances described above, the Company will be entitled
to a corresponding deduction; provided, among other things, that
the income meets the test of reasonableness, is an ordinary and
necessary business expense and is not an “excess parachute
payment” within the meaning of Section 280G of the Internal
Revenue Code.
Required Vote
Approval of the Director Plan requires the affirmative vote of a
majority of the shares of Lincoln Common represented in person
or by proxy at the Annual Meeting and entitled to vote on the
matter. Unless otherwise directed, shares represented by proxy
will be voted
FOR
the approval of the Director Plan.
Your Board of Directors recommends that you vote FOR
approval of the 2006 Stock Plan for Non-Employee Directors.
51
AUDIT COMMITTEE REPORT
The Audit Committee consists solely of independent Directors
within the meaning of the NASDAQ listing standards. The Audit
Committee oversees the Company’s financial reporting
process on behalf of the Board of Directors. Management has the
primary responsibility for the financial statements and the
reporting process, including the systems of internal control
over financial reporting. In fulfilling its oversight
responsibilities, the Committee reviewed and discussed with
management the audited financial statements in the Annual
Report, including a discussion of the quality, not just the
acceptability, of the accounting principles, the reasonableness
of significant judgments, and the clarity of disclosures in the
financial statements.
The Committee reviewed with the independent auditors, who are
responsible for expressing an opinion on the conformity of those
audited financial statements with accounting principles
generally accepted in the U.S., their judgments as to the
quality, not just the acceptability, of the Company’s
accounting principles and such other matters as are required to
be discussed with the Committee under Statement on Auditing
Standards 61, as amended. In addition, the Committee has
received the written disclosures and letter from the independent
auditors as required by Independence Standards Board Standard
No. 1 and discussed with the independent auditors the
auditor’s independence from management and the Company
including with respect to the matters in the written disclosures
required by the Independence Standards Board.
The Committee discussed with the Company’s internal and
independent auditors the overall scope and plan for their
respective audits. The Committee met with the internal and
independent auditors, with and without management present, to
discuss the results of their examinations, their evaluations of
the Company’s internal controls, and the overall quality of
the Company’s financial reporting.
In reliance on the reviews and discussions referred to above,
the Committee recommended to the Board of Directors (and the
Board approved) that the audited financial statements be
included in the Annual Report on
Form
10-K
for the
year ended December 31, 2005 for filing with the Securities
and Exchange Commission. The Committee and the Board have also
recommended the selection of the Company’s independent
auditors for the year ending December 31, 2006 and the
ratification thereof by the shareholders.
By the Audit Committee:
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Robert J. Knoll, Chair
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Hellene S. Runtagh
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Kathryn Jo Lincoln
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George H. Walls, Jr.
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52
RATIFICATION OF INDEPENDENT
AUDITORS
Proposal No. 4
A proposal will be presented at the Annual Meeting to ratify the
appointment of the firm of Ernst & Young LLP as the
Company’s independent auditors to examine our books of
account and other records and our internal control over
financial reporting for the fiscal year ending December 31,
2006.
Fees for professional services provided by the Company’s
independent auditors in each of the last two fiscal years, in
each of the following categories are:
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2005
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2004
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Audit Fees
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$
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2,292,000
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$
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2,285,000
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Audit-Related Fees
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90,000
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352,000
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Tax Fees
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235,000
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|
|
|
301,000
|
|
|
|
All Other Fees
|
|
|
|
0
|
|
|
|
|
69,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,617,000
|
|
|
|
$
|
3,007,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audit Fees include fees associated with the annual integrated
audit of the financial statements and internal control over
financial reporting in 2005, the reviews of the Company’s
quarterly reports on
Form
10-Q,
statutory audits required for the Company’s international
subsidiaries and services provided in connection with regulatory
filings with the Securities and Exchange Commission.
Audit-Related Fees for 2004 and 2005 principally include audits
of the Company’s employee benefit plans and accounting
advisory assistance. The amount reported for 2004 also includes
fees related to due diligence in connection with acquisitions.
Tax Fees include tax compliance and tax advisory services. All
Other Fees relate to services provided during 2004 in
participating on the statutory boards of certain of the
Company’s subsidiaries in Italy. The Company’s
independent auditors did not perform these latter services
during 2005, nor is it anticipated that they will do so during
2006.
Audit Committee Pre-Approval Policies and Procedures
The Audit Committee has established a policy regarding
pre-approval
of all
audit and
non-audit
services performed by the Company’s independent auditors,
including the scope of and fees for such services. Requests for
audit services, as defined in the policy, must be approved prior
to the performance of such services, and requests for
audit-related
services,
tax services and permitted
non-audit
services,
each as defined in the policy, must be presented for approval
prior to the performance of such services, to the extent known
at that time. The policy prohibits the Company’s
independent auditors from providing certain services described
in the policy as prohibited services. All of the fees included
in Audit-Related Fees, Tax Fees and All Other Fees shown above
were
pre-approved
by
the Audit Committee.
Generally, requests for independent auditor services are
submitted to the Audit Committee by the Company’s Senior
Vice President, Chief Financial Officer and Treasurer (or other
member of the Company’s senior financial management) and
the Company’s independent auditors for consideration at the
Audit Committee’s regularly scheduled meetings. Requests
for additional services in the categories mentioned above may be
approved at subsequent Audit Committee meetings to the extent
that none of such services is performed prior to its approval.
The Chairman of the Audit Committee is also delegated the
authority to approve independent auditor services requests under
certain dollar thresholds provided that the
pre-approval
is
reported at the next meeting of the Audit Committee. All
requests for independent auditor services must include a
description of the services to be provided and the fees for such
services.
Representatives of Ernst & Young LLP are expected to be
present at the Annual Meeting, will have an opportunity to make
a statement if they so desire and are expected to be available
to respond to appropriate shareholder questions. Although
ratification of the appointment of the independent auditors
53
is not required by law, the Audit Committee and the Board of
Directors believe that shareholders should be given the
opportunity to express their views on the subject. While not
binding on the Audit Committee or the Board of Directors, the
failure of the shareholders to ratify the appointment of
Ernst & Young LLP as the Company’s independent
auditors would be considered by the Board of Directors in
determining whether or not to continue the engagement of
Ernst & Young LLP. Ultimately, the Audit Committee and
the Board of Directors retain full discretion and will make all
determinations with respect to the appointment of independent
auditors, whether or not the Company’s shareholders ratify
the appointment. Ratification requires the affirmative vote of
the majority of the shares of Lincoln Common present or
represented and entitled to vote on the matter at the Annual
Meeting. Unless otherwise directed, shares represented by proxy
will be voted
FOR
ratification of the appointment of
Ernst & Young LLP.
Your Board of Directors recommends that you vote FOR
ratification of the appointment of Ernst & Young LLP as
the Company’s independent auditors.
OTHER MATTERS
The Board of Directors knows of no other matters that are likely
to be brought before the Annual Meeting, but if any such matters
properly come before the Annual Meeting, the persons named in
the enclosed Proxy, or their substitutes, will vote the Proxy in
accordance with their best judgment.
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|
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LINCOLN ELECTRIC HOLDINGS, INC.
|
|
|
|
|
Frederick G. Stueber
|
|
|
Senior Vice President,
|
|
|
General Counsel and Secretary
|
By Order of the Board of Directors
Cleveland, Ohio
March 28, 2006
54
Appendix A
AUDIT COMMITTEE CHARTER
Purposes
The Audit Committee has been created by the Board of Directors
to (a) assist the Board of Directors in fulfilling the
Board’s oversight responsibilities to the shareholders with
respect to (i) the integrity of the Company’s
financial statements, (ii) the Company’s financial
reporting process and compliance with ethics policies and legal
and other regulatory requirements, (iii) the independent
auditors’ qualifications and independence, (iv) the
Company’s systems of internal accounting and financial
controls, and (v) the performance of the independent
auditors and of the Company’s Internal Audit department;
(b) to recommend to the Board the inclusion of the
Company’s financial statements in the Company’s
periodic reports filed with the Securities and Exchange
Commission (the
“SEC”
) pursuant to the
Securities Exchange Act of 1934 (the
“Exchange
Act”
) and in its annual report to shareholders; and
(c) to prepare the Audit Committee’s report made and
included in the Company’s annual proxy statement.
Membership of the Audit Committee
Number and Appointment.
The Audit Committee will
be comprised of a minimum of three Directors. The Nominating and
Corporate Governance Committee will recommend to the Board and
the Board will appoint Directors to the Audit Committee and will
also appoint its Chairman. Audit Committee members serve at the
pleasure of the Board of Directors and for such term or terms as
the Board of Directors may determine.
Qualifications.
1.
Independence.
Each Audit Committee member must
meet the independence criteria of (a) the rules of NASDAQ
or any stock exchange on which the Company’s shares are
listed or traded, as such requirements are interpreted by the
Board of Directors in its business judgment, and
(b) Section 301 of the Sarbanes-Oxley Act of 2002 and
any rules promulgated thereunder by the SEC.
2.
Financial Literacy.
Each Audit Committee member
must be financially literate. Additionally, it is intended that
at least one member of the Audit Committee will have accounting
or related financial management expertise sufficient to meet the
criteria of a financial expert within the meaning of
Section 407 of the Sarbanes-Oxley Act of 2002 and any rules
promulgated thereunder by the SEC. The Board of Directors shall
determine, in its business judgment and upon the recommendation
of the Nominating and Corporate Governance Committee, whether a
member is financially literate and whether at least one member
of the Audit Committee has the requisite accounting or financial
expertise to meet the financial expert criteria.
3.
Compensation.
Each Audit Committee member is to
receive as compensation from the Company only director’s
fees (which includes all forms of compensation paid to Directors
of the Company for service as a Director or member of a Board
Committee).
4.
Service on Other Audit Committees.
If an Audit
Committee member simultaneously serves on the audit committee of
more than three public companies (including the Company), the
Board of Directors must determine that such simultaneous service
would not impair the ability of such member to effectively serve
on the Company’s Audit Committee. The Company will be
required to disclose any such determination in its annual proxy
statement.
General Responsibilities of the Audit Committee
The Audit Committee is responsible for overseeing the
Company’s financial reporting process on behalf of the
Board of Directors. Management is responsible for the
preparation, presentation, and
A-1
integrity of the Company’s financial statements and for the
appropriateness of the accounting and reporting policies that
are used by the Company. The independent auditors are
responsible for auditing the Company’s financial
statements, reviewing the Company’s interim financial
statements and attesting to management’s assertion of the
effectiveness of the Company’s internal controls in
accordance with Section 404 of the Sarbanes-Oxley Act of
2002.
Relationship Between the Audit Committee and the Independent
Auditors
1.
Retain the Independent Auditors.
The Audit
Committee has the sole authority to (a) retain and
terminate the Company’s independent auditors,
(b) approve all audit engagement fees, terms and services,
and (c) approve any non-audit engagements with the
Company’s independent auditors. The Audit Committee is to
exercise this authority in a manner consistent with
Sections 201 and 202 of the Sarbanes-Oxley Act of 2002. The
Audit Committee may delegate the authority to grant any
pre-approvals
required
by such sections to one or more members of the Audit Committee,
subject to the delegated member or members reporting any such
pre-approvals to the Audit Committee at its next scheduled
meeting.
2.
Review and Discuss the Auditors’ Quality
Control.
The Audit Committee is to, at least annually,
obtain and review and discuss a report by the independent
auditors describing (a) the audit firm’s internal
quality control procedures, (b) any material issues raised
by the most recent internal or peer quality control review of
the firm or any audit carried out thereby, or by any inquiry by
governmental or professional authorities, within the preceding
five years, and (c) any steps taken to deal with any such
issues.
3.
Review and Discuss the Independence of the
Auditors.
In connection with the retention of the
Company’s independent auditors, the Audit Committee is to
at least annually review and discuss the information provided by
management and the auditors relating to the independence of the
audit firm, including information related to the non-audit
services provided and expected to be provided by the auditors.
The Audit Committee is to set hiring policies for employees or
former employees of the independent auditors, which include the
restrictions set forth in Section 206 of the Sarbanes-Oxley
Act of 2002. The Audit Committee is responsible for
(a) ensuring that the independent auditors submit at least
annually to the Audit Committee a formal written statement
delineating all relationships between the auditors and the
Company that in the independent auditors’ judgment may
reasonably be thought to affect their independence, consistent
with Independence Standards Board Standard No. 1,
(b) actively engaging in a dialogue with the auditors with
respect to any disclosed relationship or services that may
impact the objectivity and independence of the auditors, and
(c) taking appropriate action in response to the
auditors’ report to satisfy itself of the auditors’
independence. In connection with the Audit Committee’s
evaluation of the auditors’ independence, the Audit
Committee is to also review and evaluate the lead partner of the
independent auditors and take such steps as may be required with
respect to the regular rotation of the lead audit partner and
the reviewing audit partner of the independent auditors, and
consider whether or not there should be rotation of the
independent audit firm itself.
4.
Review and Discuss the Audit Plan.
The Audit
Committee is to review and discuss with the independent auditors
the plans for, and the scope of, the annual audit and other
examinations, including the adequacy of staffing and
compensation.
5.
Review and Discuss Conduct of the Audit.
The
Audit Committee is to review and discuss with the independent
auditors the matters required to be discussed by Statement on
Auditing Standards (“SAS”) No. 61, as amended by
SAS No. 90, relating to the conduct of the audit, as well
as any audit problems or difficulties and management’s
response, including (a) any restriction on audit scope or
on access to requested information, (b) any disagreements
with management, and (c) significant issues discussed with
the independent auditors’ national office. The Audit
Committee is to decide all unresolved disagreements between
management and the independent auditors regarding financial
reporting.
A-2
6.
Review and Discuss the Systems of Internal Accounting
Controls.
The Audit Committee is to review and discuss with
the independent auditors the adequacy of the Company’s
internal accounting controls, the Company’s financial,
auditing and accounting organizations and personnel, and the
Company’s policies and compliance procedures with respect
to business practices, which shall include the disclosures
regarding internal controls and matters required to be reported
to the Audit Committee by Section 302 of the Sarbanes-Oxley
Act of 2002 and any rules promulgated thereunder by the SEC.
7.
Review and Discuss the Audit Results.
The Audit
Committee is to review and discuss with the independent auditors
(a) the report of their annual audit, or proposed report of
their annual audit, (b) the management letters,
(c) any comments resulting from their reviews of the
Company’s interim financial statements conducted in
accordance with SAS No. 100, and (d) the reports of
the results of such other examinations outside of the course of
the independent auditors’ normal audit procedures that the
independent auditors may from time to time undertake. The
foregoing is to include the reports required by Section 204
of the Sarbanes-Oxley Act of 2002.
8.
Obtain Assurances under Section 10A(b) of the
Exchange Act.
The Audit Committee is to obtain assurance
from the independent auditors that in the course of conducting
the audit, there have been no acts detected or that have
otherwise come to the attention of the audit firm that require
disclosure to the Audit Committee under Section 10A(b) of
the Exchange Act.
Responsibilities Relating to the Company’s Financial
Statements
1.
Review and Discuss Financial Statements and
Disclosures.
The Audit Committee is to review and discuss
with appropriate officers of the Company and the independent
auditors the annual audited and quarterly financial statements
(including the related footnotes) of the Company, including
(a) the Company’s disclosures under
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” and (b) the
disclosures regarding internal controls and other matters
required to be reported to the Audit Committee by
Section 302 of the Sarbanes-Oxley Act of 2002 and any rules
promulgated thereunder by the SEC.
2.
Review and Discuss Earnings Press Releases.
The
Audit Committee, or the Chair of the Audit Committee if the
Committee delegates the function, is to review and discuss
earnings and other financial press releases (including any use
of “pro forma” or “adjusted” non-GAAP
information).
3.
Discuss With General Counsel Matters Regarding
Financial Statements or Compliance Policies.
The Audit
Committee is to receive reports from the Company’s General
Counsel (usually acting in conjunction with the Controller)
regarding legal matters that may have a significant impact on
the financial statements or the Company’s compliance
policies and should discuss those reports with the
Company’s General Counsel and appropriate Finance staff.
The Audit Committee is to receive reports from the
Company’s General Counsel of evidence of any violation of
securities laws or breaches of fiduciary duties or violation of
the Code of Corporate Conduct and Ethics by (a) any officer
or director of Lincoln Electric Holdings, Inc. or any first-tier
subsidiary of Lincoln Electric Holdings, Inc., and (b) any
other employee whose violation or breach is significant, as
determined by either the Company’s General Counsel or the
Director of Internal Audit.
4.
Discuss Risk Management Policies.
The Audit
Committee is to discuss policies with respect to risk assessment
and risk management with management, the Director of Internal
Audit and the independent auditors to assess and manage the
Company’s exposure to risk. The Audit Committee should
discuss the Company’s major financial risk exposures and
the steps management has taken to monitor and control these
exposures. The Audit Committee should periodically review the
Company’s contingency plans for protection of vital
information and business conduct in the event of an operations
interruption.
5.
Establish Procedures for Complaints Regarding
Financial Statements or Accounting Policies.
The Audit
Committee is to establish and review procedures for (a) the
receipt, retention, and
A-3
treatment of complaints received by the Company regarding
accounting, internal accounting controls, or auditing matters,
and (b) the confidential, anonymous submission by employees
of the Company of concerns regarding questionable accounting or
auditing matters as required by Section 301 of the
Sarbanes-Oxley Act of 2002. The Audit Committee is to discuss
with management and the independent auditors any correspondence
which is brought to its attention with regulators or
governmental agencies and any complaints or concerns which are
brought to its attention regarding the Company’s financial
statements or accounting policies.
Relationship Between the Audit Committee and the Internal
Audit Department
1.
Director of Internal Audit.
The Audit Committee
will review with management the appointment, replacement,
reassignment or dismissal of the Director of Internal Audit. The
Director of Internal Audit reports to the chair of the Audit
Committee.
2.
Review and Discuss Internal Audit Charter.
The
Audit Committee is to periodically review and discuss with the
Director of Internal Audit the internal audit department charter
and approve any changes proposed thereto.
3.
Review and Discuss Internal Audit Plans.
The
Audit Committee is to review and discuss with the Director of
Internal Audit and appropriate members of the staff of the
internal audit department (who will have first consulted with
management) the plans for and the scope of their ongoing audit
activities, including adequacy of budget, staffing, and
compensation. The Audit Committee will consider and review with
management and the Director of Internal Audit any changes to the
planned scope of the internal audit plan that the Committee
thinks advisable.
4.
Review and Discuss Internal Audit Reports.
Management shall report regularly to the Audit Committee
regarding the audit activities, examinations and results thereof
of the internal audit department. The Audit Committee is to
review and discuss such report with the Director of Internal
Audit and appropriate members of the staff of the internal audit
department.
5.
Review and Discuss the Systems of Internal Accounting
Controls.
The Audit Committee is to review and discuss with
the Director of Internal Audit, the General Counsel and, if and
to the extent deemed appropriate by the Audit Committee, members
of their respective staffs the adequacy of the Company’s
internal accounting controls, the Company’s financial,
auditing and accounting organizations and personnel, which shall
include the disclosures regarding internal controls and matters
required to be reported to the Audit Committee by
Section 302 of the Sarbanes-Oxley Act of 2002 and any rules
promulgated thereunder by the SEC.
Other General Duties and Authority
1.
Resources.
The Audit Committee is to have the
resources and authority appropriate to discharge its
responsibilities and carry out its duties as required by law and
this Charter, including the authority to engage and determine
funding for independent auditors for special audits, reviews and
other procedures and to engage independent counsel and other
advisors, experts or consultants.
2.
Reviews and Discussions.
The Audit Committee
should review and discuss such other matters that relate to the
accounting, auditing and financial reporting practices and
procedures of the Company as the Audit Committee may, in its own
discretion, deem desirable in connection with the review
functions described herein.
3.
Meetings.
The Committee will normally meet four
times each year, more frequently if circumstances require. A
meeting of the Audit Committee may be called at any time by
either (a) the chair of the Audit Committee or (b) a
majority of the members of the Audit Committee. Management (CEO,
CFO and Corporate Controller) is welcome and expected to attend
the Committee meetings, except when the Committee elects to meet
in executive session.
A-4
4.
Executive Sessions.
The Committee will meet with
the Director of Internal Audit, the independent auditors and
management in separate executive sessions to discuss any matters
the Committee or those groups believe should be discussed
privately with the Audit Committee.
5.
Board Reports.
The Audit Committee shall report
its activities regularly to the Board of Directors in such
manner and at such times as the Audit Committee and the Board of
Directors deem appropriate. This report is to include the Audit
Committee’s conclusions with respect to its evaluation of
the independent auditors.
6.
Approve Related Party Transactions and Review
Compliance with the Company’s Code of Corporate Conduct and
Ethics.
The Audit Committee is to review and approve, and
discuss reports and disclosures of, Related Party Transactions
(as defined in the Code of Corporate Conduct and Ethics) by any
officer or director of Lincoln Electric Holdings, Inc. or any
first-tier subsidiary of Lincoln Electric Holdings, Inc.
(although Related Party Transactions by officers of Lincoln
Electric Holdings, Inc. are generally prohibited). The Audit
Committee is also to periodically review with management, the
Director of Internal Audit and the independent auditor Company
compliance with the Corporate Code of Conduct and Ethics.
7.
Other.
The Audit Committee will conduct and
review with the Board of Directors annually an evaluation of
this Charter and recommend any changes to the Board of
Directors. The Audit Committee may conduct such evaluation in
such manner as the Audit Committee, in its business judgment,
deems appropriate.
Annual Performance Evaluation
The Audit Committee will conduct and review with the Board of
Directors annually an evaluation of the Audit Committee’s
performance with respect to the requirements of this Charter.
The Audit Committee may conduct this performance evaluation in
such manner as the Audit Committee, in its business judgment,
deems appropriate.
Consistent with the listing requirements of NASDAQ or any stock
exchange on which the Company’s shares may be listed or
traded, this Charter will be included on the Company’s
website and will be made available upon request to the
Company’s Secretary.
March 31, 2003
A-5
Appendix B
LINCOLN ELECTRIC HOLDINGS, INC.
2006 EQUITY AND PERFORMANCE INCENTIVE PLAN
TABLE OF CONTENTS
B-i
LINCOLN ELECTRIC HOLDINGS, INC.
2006 Equity and Performance Incentive Plan
1.
Purpose.
The purpose of
this 2006 Equity and Performance Incentive Plan is to attract
and retain officers, other employees and consultants of Lincoln
Electric Holdings, Inc. and its Subsidiaries and to provide to
such persons incentives and rewards for performance.
2.
Definitions.
As used in
this Plan,
(a) “Appreciation Right” means a right granted
pursuant to Section 5 of this Plan, and will include both
Free-Standing Appreciation Rights and Tandem Appreciation Rights.
(b) “Base Price” means the price to be used as
the basis for determining the Spread upon the exercise of a
Free-Standing Appreciation Right or a Tandem Appreciation Right.
(c) “Board” means the Board of Directors of the
Company and, to the extent of any delegation by the Board to a
committee (or subcommittee thereof) pursuant to Section 9
of this Plan, such committee (or subcommittee).
(d) “Change of Control” of the Company shall have
the meaning determined by the Board from time to time and set
forth in the applicable Evidence of Award.
(e) “Code” means the Internal Revenue Code of
1986, as amended from time to time.
(f) “Common Shares” means shares of common stock,
without par value, of the Company or any security into which
such Common Shares may be changed by reason of any transaction
or event of the type referred to in Section 10 of this Plan.
(g) “Company” means Lincoln Electric Holdings,
Inc., an Ohio corporation, and its successors.
(h) “Covered Employee” means a Participant who
is, or is determined by the Board to be likely to become, a
“covered employee” within the meaning of
Section 162(m) of the Code (or any successor provision).
(i) “Date of Grant” means the date specified by
the Board on which a grant of Option Rights, Appreciation
Rights, Performance Shares, Performance Units, or a grant or
sale of Restricted Shares or Restricted Stock Units, will become
effective (which date will not be earlier than the date on which
the Board takes action with respect thereto).
(j) “Detrimental Activity” shall have the meaning
determined by the Board from time to time and set forth in the
applicable Evidence of Award.
(k) “Director” means a member of the Board of
Directors of the Company.
(l) “Evidence of Award” means an agreement,
certificate, resolution or other type or form of writing or
other evidence approved by the Board that sets forth the terms
and conditions of Option Rights, Appreciation Rights,
Performance Shares or Performance Units granted, or a grant or
sale of Restricted Shares or Restricted Stock Units. An Evidence
of Award may be in an electronic medium, may be limited to
notation on the books and records of the Company and need not be
signed by a representative of the Company or a Participant.
(m) “Free-Standing Appreciation Right” means an
Appreciation Right granted pursuant to Section 5 of this
Plan that is not granted in tandem with an Option Right.
(n) “Incentive Stock Options” means Option Rights
that are intended to qualify as “incentive stock
options” under Section 422 of the Code or any
successor provision.
(o) “Management Objectives” means the measurable
performance objective or objectives established pursuant to this
Plan for Participants who have received grants of Performance
Shares or
B-1
Performance Units or, when so determined by the Board, Option
Rights, Appreciation Rights, Restricted Shares, Restricted Stock
Units or dividend credits pursuant to this Plan. Management
Objectives may be described in terms of Company-wide objectives
or objectives that are related to the performance of the
individual Participant or of the Subsidiary, division,
department, region or function within the Company or Subsidiary
in which the Participant is employed. The Management Objectives
may be made relative to the performance of other companies. The
Management Objectives applicable to any award to a Covered
Employee applicable to a Qualified Performance-Based Award shall
be based on specified levels of or growth in one or more of the
following criteria:
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(i)
Profits
(e.g., operating income, EBIT, EBIT
before bonus, EBT, net income, earnings per share, residual or
economic earnings — these profitability metrics could
be measured before special items and/or subject to GAAP
definition);
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(ii)
Cash Flow
(e.g., EBITDA, operating cash flow,
total cash flow, cash flow in excess of cost of capital or
residual cash flow or cash flow return on investment);
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(iii)
Returns
(e.g., profits or cash flow returns
on: assets, invested capital, net capital employed, and equity);
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(iv)
Working Capital
(e.g., working capital divided
by sales, days’ sales outstanding, days’ sales
inventory, and days’ sales in payables);
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(v)
Profit Margins
(e.g., profits divided by
revenues, gross margins and material margins divided by
revenues, and material margin divided by sales pounds);
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(vi)
Liquidity Measures
(e.g.,
debt-to
-capital,
debt-to
-EBITDA, total
debt ratio);
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(vii)
Sales Growth, Cost Initiative and Stock Price
Metrics
(e.g., revenues, revenue growth, stock price
appreciation, total return to shareholders, sales and
administrative costs divided by sales, and sales and
administrative costs divided by profits);
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(viii)
Strategic Initiative Key Deliverable Metrics
consisting of one or more of the following: product
development, strategic partnering, research and development,
market penetration, geographic business expansion goals, cost
targets, customer satisfaction, employee satisfaction,
management of employment practices and employee benefits,
supervision of litigation and information technology, and goals
relating to acquisitions or divestitures of subsidiaries,
affiliates and joint ventures; and
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(ix) Any of the above criteria as compared to the
performance of a published or a special index deemed applicable
by the Board, including, without limitation, the
Standard & Poor’s 500 Stock Index.
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If the Board determines that a change in the business,
operations, corporate structure or capital structure of the
Company, or the manner in which it conducts its business, or
other events or circumstances render the Management Objectives
unsuitable, the Board may in its discretion modify such
Management Objectives or the related minimum level of
achievement, in whole or in part, as the Board deems appropriate
and equitable, except in the case of a Qualified
Performance-Based Award to a Covered Employee where such action
would result in the loss of the otherwise available exemption of
the award under Section 162(m) of the Code. In such case,
the Board will not make any modification of the Management
Objectives or the minimum level of achievement with respect to
such Covered Employee.
(p) “Market Value Per Share” means, as of any
particular date, the per share closing price of a Common Share
on NASDAQ on the day preceding the day such determination is
being made or, if there was no closing price reported on such
day, on the most recently preceding day on which such a closing
price was reported; or if the Common Shares are not listed or
admitted to trading on NASDAQ on the day as of which the
determination is being made, the amount determined by the
Committee to be the fair market value of a Common Share on such
day, unless otherwise determined by the Board.
B-2
(q) “Option Price” means the purchase price
payable on exercise of an Option Right.
(r) “Option Right” means the right to purchase
Common Shares upon exercise of an option granted pursuant to
Section 4 of this Plan.
(s) “Optionee” means the optionee named in an
Evidence of Award evidencing an outstanding Option Right.
(t) “Participant” means a person who is selected
by the Board to receive benefits under this Plan and who is at
the time an officer, other employee or consultant of the Company
or any one or more of its Subsidiaries, or who has agreed to
commence serving in any of such capacities within 90 days
of the Date of Grant. The term “Participant” shall
also include any person who provides services to the Company or
a Subsidiary that are equivalent to those typically provided by
an employee.
(u) “Performance Period” means, in respect of a
Performance Share or Performance Unit, a period of time
established pursuant to Section 8 of this Plan within which
the Management Objectives relating to such Performance Share or
Performance Unit are to be achieved.
(v) “Performance Share” means a bookkeeping entry
that records the equivalent of one Common Share awarded pursuant
to Section 8 of this Plan.
(w) “Performance Unit” means a bookkeeping entry
awarded pursuant to Section 8 of this Plan that records a
unit equivalent to $1.00 or such other value as is determined by
the Board.
(x) “Plan” means the Lincoln Electric Holdings,
Inc. 2006 Equity and Performance Incentive Plan, as may be
amended from time to time.
(y) “Qualified Performance-Based Award” means any
award or portion of an award of Option Rights, Appreciation
Rights, Restricted Shares, Restricted Stock Units, Performance
Shares or Performance Units that is intended to satisfy the
requirements for “qualified performance-based
compensation” under Section 162(m) of the Code.
(z) “Restricted Shares” means Common Shares
granted or sold pursuant to Section 6 of this Plan as to
which neither the substantial risk of forfeiture nor the
prohibition on transfer has expired.
(aa) “Restricted Stock Unit” means an award made
pursuant to Section 7 of this Plan of the right to receive
Common Shares or cash at the end of a specified period.
(bb) “Restriction Period” means the period of
time during which Restricted Stock Units are subject to
restrictions, as provided in Section 7 of this Plan.
(cc) “Spread” means the excess of the Market
Value Per Share on the date when an Appreciation Right is
exercised over the Option Price or Base Price provided for in
the related Option Right or
Free-Standing
Appreciation Right, respectively.
(dd) “Subsidiary” means a corporation, company or
other entity (i) at least 50 percent of whose
outstanding shares or securities (representing the right to vote
for the election of directors or other managing authority) are,
or (ii) which does not have outstanding shares or
securities (as may be the case in a partnership, joint venture
or unincorporated association), but at least 50 percent of
whose ownership interest representing the right generally to
make decisions for such other entity is, now or hereafter, owned
or controlled, directly or indirectly, by the Company except
that for purposes of determining whether any person may be a
Participant for purposes of any grant of Incentive Stock
Options, “Subsidiary” means any corporation in which
at the time the Company owns or controls, directly or
indirectly, at least 50 percent of the total combined
voting power represented by all classes of stock issued by such
corporation.
(ee) “Tandem Appreciation Right” means an
Appreciation Right granted pursuant to Section 5 of this
Plan that is granted in tandem with an Option Right.
B-3
3.
Shares Subject to this
Plan.
(a)
Maximum Shares Available Under Plan
.
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(i) Subject to adjustment as provided in Section 10 of
this Plan, the number of Common Shares that may be issued or
transferred (A) upon the exercise of Option Rights or
Appreciation Rights, (B) as Restricted Shares and released
from substantial risks of forfeiture thereof, (C) in
payment of Restricted Stock Units, (D) in payment of
Performance Shares or Performance Units that have been earned,
or (E) in payment of dividend equivalents paid with respect
to awards made under this Plan will not exceed in the aggregate
3,000,000 Common Shares, plus any Common Shares relating to
awards that expire or are forfeited or are cancelled under this
Plan. Such shares may be shares of original issuance or treasury
shares or a combination of the foregoing.
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(ii) Common Shares covered by an award granted under this
Plan shall not be counted as used unless and until they are
actually issued and delivered to a Participant. Without limiting
the generality of the foregoing, upon payment in cash of the
benefit provided by any award granted under this Plan, any
Common Shares that were covered by that award will be available
for issue or transfer hereunder. Notwithstanding anything to the
contrary contained herein: (A) Common Shares tendered in
payment of the Option Price of an Option Right shall not be
added to the aggregate plan limit described above;
(B) Common Shares withheld by the Company to satisfy the
tax withholding obligation shall not be added to the aggregate
plan limit described above; (C) Common Shares that are
repurchased by the Company with Option Right proceeds shall not
be added to the aggregate plan limit described above; and
(D) all Common Shares covered by an Appreciation Right, to
the extent that it is exercised and settled in Common Shares,
whether or not all Common Shares covered by the award are
actually issued to the Participant upon exercise of the right,
shall be considered issued or transferred pursuant to this Plan.
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(b)
Life-of
-Plan
Limits
. Notwithstanding anything in this Section 3, or
elsewhere in this Plan, to the contrary and subject to
adjustment pursuant to Section 10 of this Plan:
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(i) The aggregate number of Common Shares actually issued
or transferred by the Company upon the exercise of Incentive
Stock Options shall not exceed 2,000,000.
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(ii) The aggregate number of Common Shares issued or
transferred as (or in payment of, as the case may be) Restricted
Shares, Restricted Stock Units, Performance Shares or
Performance Units shall not exceed 1,000,000.
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(c)
Individual Participant Limits
. Notwithstanding
anything in this Section 3, or elsewhere in this Plan, to
the contrary and subject to adjustment pursuant to
Section 10 of this Plan:
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(i) No Participant shall be granted Option Rights or
Appreciation Rights, in the aggregate, for more than 500,000
Common Shares during any calendar year.
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(ii) No Participant shall be granted Restricted Shares or
Restricted Stock Units that specify Management Objectives or
Performance Shares, in the aggregate, for more than 250,000
Common Shares during any calendar year.
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(iii) Notwithstanding any other provision of this Plan to
the contrary, in no event shall any Participant in any calendar
year receive an award of Performance Units having an aggregate
maximum value as of their respective Dates of Grant in excess of
$1,500,000.
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(d)
Exclusion from Certain Restrictions
.
Notwithstanding anything in this Plan to the contrary, up to 5%
of the maximum number of Common Shares provided for in
Section 3(a)(i) above may be used for awards granted under
Sections 4 through 8 of this Plan that do not comply with
the three-year requirements set forth in Sections 6(c) and
7(d) of this Plan and the one-year requirements of
Sections 6(e), 7(b) and 8(b) of this Plan.
B-4
(e)
Exclusion from Certain Limits
. If, under this
Plan, a Participant has elected to give up the right to receive
compensation in exchange for Common Shares based on Market Value
Per Share, such Common Shares will not count against the share
limitations in this Section 3.
4.
Option Rights.
The Board
may, from time to time and upon such terms and conditions as it
may determine, authorize the granting to Participants of options
to purchase Common Shares. Each such grant may utilize any or
all of the authorizations, and will be subject to all of the
requirements contained in the following provisions:
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(a) Each grant will specify the number of shares of Common
Shares to which it pertains subject to the limitations set forth
in Section 3 of this Plan.
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(b) Each grant will specify an Option Price per share,
which may not be less than the Market Value Per Share on the
Date of Grant.
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(c) Each grant will specify whether the Option Price will
be payable (i) in cash or by check acceptable to the
Company or by wire transfer of immediately available funds,
(ii) by the actual or constructive transfer to the Company
of Common Shares owned by the Optionee having a value at the
time of exercise equal to the total Option Price, (iii) by
a combination of such methods of payment, or (iv) by such
other methods as may be approved by the Board.
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(d) To the extent permitted by law, any grant may provide
for deferred payment of the Option Price from the proceeds of
sale through a bank or broker on a date satisfactory to the
Company of some or all of the shares to which such exercise
relates.
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(e) Successive grants may be made to the same Participant
whether or not any Option Rights previously granted to such
Participant remain unexercised.
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(f) Each grant will specify the period or periods of
continuous service by the Optionee with the Company or any
Subsidiary that is necessary before the Option Rights or
installments thereof will become exercisable. A grant of Option
Rights may provide for the earlier exercise of such Option
Rights in the event of retirement, death or disability of the
Participant or a Change of Control.
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(g) Any grant of Option Rights may specify Management
Objectives that must be achieved as a condition to the exercise
of such rights. Such grant of Option Rights will specify that,
before the exercise or early exercise of such Option Rights, the
Board must determine that the Management Objectives have been
satisfied.
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(h) Option Rights granted under this Plan may be
(i) options, including, without limitation, Incentive Stock
Options, that are intended to qualify under particular
provisions of the Code, (ii) options that are not intended
so to qualify, or (iii) combinations of the foregoing.
Incentive Stock Options may only be granted to Participants who
meet the definition of “employees” under
Section 3401(c) of the Code.
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(i) The Board may at the Date of Grant of any Option Rights
(other than Incentive Stock Options), provide for the payment of
dividend equivalents to the Optionee on either a current or
deferred or contingent basis, either in cash or in additional
Common Shares.
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(j) The exercise of an Option Right will result in the
cancellation on a share-for-share basis of any Tandem
Appreciation Right authorized under Section 5 of this Plan.
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(k) No Option Right will be exercisable more than
10 years from the Date of Grant.
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(l) The Board reserves the discretion at or after the Date
of Grant to provide for (i) the payment of a cash bonus at
the time of exercise; (ii) the availability of a loan at
exercise; and (iii) the right to tender in satisfaction of
the Option Price nonforfeitable, unrestricted Common Shares,
which are already owned by the Optionee and have a value at the
time of exercise that is equal to the Option Price.
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B-5
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(m) The Board may substitute, without receiving Participant
permission, Appreciation Rights payable only in Common Shares
(or Appreciation Rights payable in cash, Common Shares, or in
any combination thereof as elected by the Board) for outstanding
Options;
provided
,
however
, that the terms of the
substituted Appreciation Rights are substantially the same as
the terms for the Options and the difference between the Market
Value Per Share of the underlying Common Shares and the Base
Price of the Appreciation Rights is equivalent to the difference
between the Market Value Per Share of the underlying Common
Shares and the Option Price of the Options. If, in the opinion
of the Company’s auditors, this provision creates adverse
accounting consequences for the Company, it shall be considered
null and void.
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(n) Each grant of Option Rights will be evidenced by an
Evidence of Award. Each Evidence of Award shall be subject to
this Plan and shall contain such terms and provisions,
consistent with this Plan, as the Board may approve.
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5.
Appreciation Rights.
(a) The Board may also authorize the granting (i) to
any Optionee, of Tandem Appreciation Rights in respect of Option
Rights granted hereunder, and (ii) to any Participant, of
Free-Standing Appreciation Rights. A Tandem Appreciation Right
will be a right of the Optionee, exercisable by surrender of the
related Option Right, to receive from the Company an amount
determined by the Board, which will be expressed as a percentage
of the Spread (not exceeding 100 percent) at the time of
exercise. Tandem Appreciation Rights may be granted at any time
prior to the exercise or termination of the related Option
Rights;
provided
,
however
, that a Tandem
Appreciation Right awarded in relation to an Incentive Stock
Option must be granted concurrently with such Incentive Stock
Option. A Free-Standing Appreciation Right will be a right of
the Participant to receive from the Company an amount determined
by the Board, which will be expressed as a percentage of the
Spread (not exceeding 100 percent) at the time of exercise.
(b) Each grant of Appreciation Rights may utilize any or
all of the authorizations, and will be subject to all of the
requirements, contained in the following provisions:
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(i) Any grant may specify that the amount payable on
exercise of an Appreciation Right may be paid by the Company in
cash, in Common Shares or in any combination thereof and may
either grant to the Participant or retain in the Board the right
to elect among those alternatives.
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(ii) Any grant may specify that the amount payable on
exercise of an Appreciation Right may not exceed a maximum
specified by the Board at the Date of Grant.
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(iii) Any grant may specify waiting periods before exercise
and permissible exercise dates or periods.
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(iv) Any grant may specify that such Appreciation Right may
be exercised only in the event of, or earlier in the event of,
retirement, death or disability of the Participant or a Change
of Control.
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(v) Any grant may provide for the payment to the
Participant of dividend equivalents thereon in cash or Common
Shares on a current, deferred or contingent basis.
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(vi) Any grant of Appreciation Rights may specify
Management Objectives that must be achieved as a condition of
the exercise of such Appreciation Rights. Such grant of
Appreciation Rights will specify that, before the exercise or
early exercise of such Appreciation Rights, the Board must
determine that the Management Objectives have been satisfied.
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(vii) Each grant of Appreciation Rights will be evidenced
by an Evidence of Award, which Evidence of Award will describe
such Appreciation Rights, identify the related Option Rights (if
applicable), and contain such other terms and provisions,
consistent with this Plan, as the Board may approve.
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B-6
(c) Any grant of Tandem Appreciation Rights will provide
that such Tandem Appreciation Rights may be exercised only at a
time when the related Option Right is also exercisable and at a
time when the Spread is positive, and by surrender of the
related Option Right for cancellation.
(d) Regarding Free-Standing Appreciation Rights only:
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(i) Each grant will specify in respect of each
Free-Standing Appreciation Right a Base Price, which may not be
less than the Market Value Per Share on the Date of Grant;
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(ii) Successive grants may be made to the same Participant
regardless of whether any Free-Standing Appreciation Rights
previously granted to the Participant remain unexercised; and
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(iii) No Free-Standing Appreciation Right granted under
this Plan may be exercised more than 10 years from the Date
of Grant.
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6.
Restricted Shares.
The Board may also authorize
the grant or sale of Restricted Shares to Participants. Each
such grant or sale may utilize any or all of the authorizations,
and will be subject to all of the requirements, contained in the
following provisions:
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(a) Each such grant or sale will constitute an immediate
transfer of the ownership of Common Shares to the Participant in
consideration of the performance of services, entitling such
Participant to voting, dividend and other ownership rights, but
subject to the substantial risk of forfeiture and restrictions
on transfer hereinafter referred to.
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(b) Each such grant or sale may be made without additional
consideration or in consideration of a payment by such
Participant that is less than the Market Value Per Share at the
Date of Grant.
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(c) Each such grant or sale will provide that the
Restricted Shares covered by such grant or sale that vests upon
the passage of time will be subject to a “substantial risk
of forfeiture” within the meaning of Section 83 of the
Code for a period of not less than three years to be determined
by the Board at the Date of Grant and may provide for the
earlier lapse of such substantial risk of forfeiture as provided
in Section 6(e) below or in the event of retirement, death
or disability of the Participant or a Change of Control.
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(d) Each such grant or sale will provide that during the
period for which such substantial risk of forfeiture is to
continue, the transferability of the Restricted Shares will be
prohibited or restricted in the manner and to the extent
prescribed by the Board at the Date of Grant (which restrictions
may include, without limitation, rights of repurchase or first
refusal in the Company or provisions subjecting the Restricted
Shares to a continuing substantial risk of forfeiture in the
hands of any transferee).
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(e) Any grant of Restricted Shares may specify Management
Objectives that, if achieved, will result in termination or
early termination of the restrictions applicable to such
Restricted Shares;
provided
,
however
, that
restrictions relating to Restricted Shares that vest upon the
achievement of Management Objectives may not terminate sooner
than one year from the Date of Grant. Each grant may specify in
respect of such Management Objectives a minimum acceptable level
of achievement and may set forth a formula for determining the
number of shares of Restricted Shares on which restrictions will
terminate if performance is at or above the minimum level, but
falls short of full achievement of the specified Management
Objectives. Such grant of Restricted Shares will specify that,
before the termination or early termination of the restrictions
applicable to such Restricted Shares, the Board must determine
that the Management Objectives have been satisfied.
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(f) Any such grant or sale of Restricted Shares may require
that any or all dividends or other distributions paid thereon
during the period of such restrictions be automatically deferred
and reinvested in additional shares of Restricted Shares, which
may be subject to the same restrictions as the underlying award.
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(g) Each grant or sale of Restricted Shares will be
evidenced by an Evidence of Award and will contain such terms
and provisions, consistent with this Plan, as the Board may
approve. Unless
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B-7
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otherwise directed by the Board, all certificates representing
shares of Restricted Shares will be held in custody by the
Company until all restrictions thereon will have lapsed,
together with a stock power or powers executed by the
Participant in whose name such certificates are registered,
endorsed in blank and covering such Restricted Shares.
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7.
Restricted Stock Units.
The Board may also authorize the granting or sale of Restricted
Stock Units to Participants. Each such grant or sale may utilize
any or all of the authorizations, and will be subject to all of
the requirements contained in the following provisions:
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(a) Each such grant or sale will constitute the agreement
by the Company to deliver Common Shares or cash to the
Participant in the future in consideration of the performance of
services, but subject to the fulfillment of such conditions
(which may include the achievement of Management Objectives)
during the Restriction Period as the Board may specify.
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(b) If a grant of Restricted Stock Units specifies that the
Restriction Period will terminate upon the achievement of
Management Objectives, such Restriction Period may not terminate
sooner than one year from the Date of Grant. Each grant may
specify in respect of such Management Objectives a minimum
acceptable level of achievement and may set forth a formula for
determining the number of shares of Restricted Stock Units on
which restrictions will terminate if performance is at or above
the minimum level, but falls short of full achievement of the
specified Management Objectives. Such grant of Restricted Stock
Units will specify that, before the termination or early
termination of the Restriction Period applicable to such
Restricted Stock Units, the Board must determine that the
Management Objectives have been satisfied.
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(c) Each such grant or sale may be made without additional
consideration or in consideration of a payment by such
Participant that is less than the Market Value Per Share at the
Date of Grant.
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(d) If the Restriction Period lapses only by the passage of
time, each such grant or sale will be subject to a Restriction
Period of not less than three years, as determined by the Board
at the Date of Grant, and may provide for the earlier lapse or
other modification of such Restriction Period in the event of
retirement, death or disability of the Participant or a Change
of Control.
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(e) During the Restriction Period, the Participant will
have no right to transfer any rights under his or her award and
will have no rights of ownership in the Restricted Stock Units
and will have no right to vote them, but the Board may at the
Date of Grant, authorize the payment of dividend equivalents on
such Restricted Stock Units on either a current, deferred or
contingent basis, either in cash or in additional Common Shares.
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(f) Each grant or sale will specify the time and manner of
payment of Restricted Stock Units that have been earned. Any
grant or sale may specify that the amount payable with respect
thereto may be paid by the Company in cash, in Common Shares or
in any combination thereof and may either grant to the
Participant or retain in the Board the right to elect among
those alternatives.
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(g) Each grant or sale of Restricted Stock Units will be
evidenced by an Evidence of Award and will contain such terms
and provisions, consistent with this Plan, as the Board may
approve.
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8.
Performance Shares and
Performance Units.
The Board may also authorize the granting
of Performance Shares and Performance Units that will become
payable to a Participant upon achievement of specified
Management Objectives during the Performance Period. Each such
grant may utilize any or all of the authorizations, and will be
subject to all of the requirements, contained in the following
provisions:
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(a) Each grant will specify the number of Performance
Shares or Performance Units to which it pertains, which number
may be subject to adjustment to reflect changes in compensation
or other factors;
provided
,
however
, that no such
adjustment will be made in the case of a Covered Employee where
such action would result in the loss of the otherwise available
exemption of the award under Section 162(m) of the Code.
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B-8
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(b) The Performance Period with respect to each Performance
Share or Performance Unit will be such period of time (not less
than one year), commencing with the Date of Grant as will be
determined by the Board at the time of grant which may be
subject to earlier lapse or other modification in the event of
retirement, death or disability of the Participant or a Change
of Control.
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(c) Any grant of Performance Shares or Performance Units
will specify Management Objectives which, if achieved, will
result in payment or early payment of the award, and each grant
may specify in respect of such specified Management Objectives
level a minimum of achievement and will set forth a formula for
determining the number of Performance Shares or Performance
Units that will be earned if performance is at or above the
minimum level, but falls short of full achievement of the
specified Management Objectives. The grant of Performance Shares
or Performance Units will specify that, before the Performance
Shares or Performance Units will be earned and paid, the Board
must determine that the Management Objectives have been
satisfied.
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(d) Each grant will specify the time and manner of payment
of Performance Shares or Performance Units that have been
earned. Any grant may specify that the amount payable with
respect thereto may be paid by the Company in cash, in Common
Shares or in any combination thereof and may either grant to the
Participant or retain in the Board the right to elect among
those alternatives.
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(e) Any grant of Performance Shares may specify that the
amount payable with respect thereto may not exceed a maximum
specified by the Board at the Date of Grant. Any grant of
Performance Units may specify that the amount payable or the
number of Common Shares issued with respect thereto may not
exceed maximums specified by the Board at the Date of Grant.
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(f) The Board may at the Date of Grant of Performance
Shares, provide for the payment of dividend equivalents to the
holder thereof on either a current, deferred or contingent
basis, either in cash or in additional Common Shares.
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(g) Each grant of Performance Shares or Performance Units
will be evidenced by an Evidence of Award and will contain such
other terms and provisions, consistent with this Plan, as the
Board may approve.
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9.
Administration of this
Plan.
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(a) This Plan will be administered by the Board, which may
from time to time delegate all or any part of its authority
under this Plan to the Compensation and Executive Development
Committee or any other committee of the Board (or a subcommittee
thereof), as constituted from time to time. To the extent of any
such delegation, references in this Plan to the Board will be
deemed to be references to such committee or subcommittee. A
majority of the committee (or subcommittee) will constitute a
quorum, and the action of the members of the committee (or
subcommittee) present at any meeting at which a quorum is
present, or acts unanimously approved in writing, will be the
acts of the committee (or subcommittee).
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(b) The interpretation and construction by the Board of any
provision of this Plan or of any agreement, notification or
document evidencing the grant of Option Rights, Appreciation
Rights, Restricted Shares, Restricted Stock Units, Performance
Shares or Performance Units and any determination by the Board
pursuant to any provision of this Plan or of any such agreement,
notification or document will be final and conclusive. No member
of the Board will be liable for any such action or determination
made in good faith.
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(c) To the extent permitted by Ohio law, the Board may,
from time to time, delegate to one or more officers of the
Company the authority of the Board to grant and determine the
terms and conditions of awards granted under this Plan. In no
event shall any such delegation of authority be permitted with
respect to awards to any executive officer or any person subject
to Section 162(m) of the Code.
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B-9
10.
Adjustments.
The Board
may make or provide for such adjustments in the number and kind
of shares covered by outstanding Option Rights, Appreciation
Rights, Restricted Stock Units, Performance Shares and
Performance Units granted hereunder, in the Option Price and
Base Price provided in outstanding Appreciation Rights, and in
the kind of shares covered thereby, as the Board, in its sole
discretion, may determine is equitably required to prevent
dilution or enlargement of the rights of Participants or
Optionees that otherwise would result from (a) any stock
dividend, stock split, combination of shares, recapitalization
or other change in the capital structure of the Company, or
(b) any merger, consolidation, spin-off, split- off,
spin-out, split-up, reorganization, partial or complete
liquidation or other distribution of assets, issuance of rights
or warrants to purchase securities, or (c) any other
corporate transaction or event having an effect similar to any
of the foregoing. Moreover, in the event of any such transaction
or event, the Board, in its discretion, may provide in
substitution for any or all outstanding awards under this Plan
such alternative consideration (including cash), if any, as it,
in good faith, may determine to be equitable in the
circumstances and may require in connection therewith the
surrender of all awards so replaced. The Board may also make or
provide for such adjustments in the numbers and kind of shares
specified in Section 3 of this Plan as the Board in its
sole discretion, exercised in good faith, may determine is
appropriate to reflect any transaction or event described in
this Section 10;
provided
,
however
, that any
such adjustment to the number specified in Section 3(b)(i)
will be made only if and to the extent that such adjustment
would not cause any option intended to qualify as an Incentive
Stock Option to fail so to qualify.
11.
Detrimental Activity.
Any Evidence of Award may provide that if a Participant, either
during employment by the Company or a Subsidiary or within a
specified period after termination of such employment, shall
engage in any Detrimental Activity (as defined by the Board in
the Evidence of Award), and the Board shall so find, forthwith
upon notice of such finding, the Participant shall:
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(a) Forfeit any award granted under this Plan then held by
the Participant;
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(b) Return to the Company, in exchange for payment by the
Company of any amount actually paid therefor by the Participant,
all Common Shares that the Participant has not disposed of that
were offered pursuant to this Plan within a specified period
prior to the date of the commencement of such Detrimental
Activity; and
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(c) With respect to any Common Shares so acquired that the
Participant has disposed of, pay to the Company in cash the
difference between:
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(i) Any amount actually paid therefor by the Participant
pursuant to this Plan, and
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(ii) The Market Value Per Share of the Common Shares on the
date of such acquisition.
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To the extent that such amounts are not paid to the Company, the
Company may set off the amounts so payable to it against any
amounts that may be owing from time to time by the Company or a
Subsidiary to the Participant, whether as wages, deferred
compensation or vacation pay or in the form of any other benefit
or for any other reason.
12.
Non-U.S.
Participants.
In order to facilitate the making of any grant or combination of
grants under this Plan, the Board may provide for such special
terms for awards to Participants who are foreign nationals or
who are employed by the Company or any Subsidiary outside of the
United States of America or who provide services to the Company
under an agreement with a foreign nation or agency, as the Board
may consider necessary or appropriate to accommodate differences
in local law, tax policy or custom. Moreover, the Board may
approve such supplements to or amendments, restatements or
alternative versions of this Plan (including, without
limitation, sub-plans) as it may consider necessary or
appropriate for such purposes, without thereby affecting the
terms of this Plan as in effect for any other purpose, and the
Secretary or other appropriate officer of the Company may
certify any such document as having been approved and adopted in
the same manner as this Plan. No such special terms,
supplements, amendments or restatements, however, will include
any provisions that are inconsistent with the terms of this Plan
as then in effect unless this Plan could have been amended to
eliminate such inconsistency without further approval by the
shareholders of the Company.
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13.
Transferability.
(a) Except as provided in Section 13(c) below, no
Option Right or Appreciation Right granted under this Plan shall
be transferable by the Participant except by will or the laws of
descent and distribution. Except as otherwise determined by the
Board, Option Rights and Appreciation Rights will be exercisable
during the Participant’s lifetime only by him or her or, in
the event of the Participant’s legal incapacity to do so,
by his or her guardian or legal representative acting on behalf
of the Participant in a fiduciary capacity under state law
and/or court supervision.
(b) The Board may specify at the Date of Grant that part or
all of the Common Shares that are (i) to be issued or
transferred by the Company upon the exercise of Option Rights or
Appreciation Rights, upon the termination of the Restriction
Period applicable to Restricted Stock Units or upon payment
under any grant of Performance Shares or Performance Units or
(ii) no longer subject to the substantial risk of
forfeiture and restrictions on transfer referred to in
Section 6 of this Plan, will be subject to further
restrictions on transfer.
(c) The Board may determine at the Date of Grant that
Option Rights (other than Incentive Stock Options) and
Appreciation Rights may be transferable by a Participant,
without payment of consideration therefor by the transferee,
only to any one or more members of the Participant’s
immediate family;
provided
,
however
, that
(i) no such transfer shall be effective unless reasonable
prior notice thereof is delivered to the Company and such
transfer is thereafter effected in accordance with any terms and
conditions that shall have been made applicable thereto by the
Company or the Board and (ii) any such transferee shall be
subject to the same terms and conditions hereunder as the
Participant. For the purposes of this Section 13(c), the
term “immediate family” means any child, stepchild,
grandchild, parent, stepparent, grandparent, spouse, sibling,
mother-in
-law,
father-in
-law,
son-in
-law,
daughter-in
-law,
brother-in
-law, or
sister-in
-law,
including adoptive relationships, any person sharing the
Participant’s household (other than a tenant or employee),
a trust in which these persons have more than fifty percent of
the beneficial interest, a foundation in which these persons (or
the Participant) control the management of assets, and any other
entity in which these persons (or the Participant) own more than
fifty percent of the voting interests.
14.
Withholding Taxes.
To
the extent that the Company is required to withhold Federal,
state, local or foreign taxes in connection with any payment
made or benefit realized by a Participant or other person under
this Plan, and the amounts available to the Company for such
withholding are insufficient, it will be a condition to the
receipt of such payment or the realization of such benefit that
the Participant or such other person make arrangements
satisfactory to the Company for payment of the balance of such
taxes required to be withheld, which arrangements (in the
discretion of the Board) may include relinquishment of a portion
of such benefit. Participants shall also make such arrangements
as the Company may require for the payment of any withholding
tax obligation that may arise in connection with the disposition
of Common Shares acquired upon the exercise of Option Rights. In
no event shall the Market Value Per Share of the Common Shares
to be withheld and/or delivered pursuant to this Section to
satisfy applicable withholding taxes in connection with the
benefit exceed the minimum amount of taxes required to be
withheld.
15.
Compliance with
Section 409A of the Code.
To the extent applicable, it
is intended that this Plan and any grants made hereunder comply
with the provisions of Section 409A of the Code. This Plan
and any grants made hereunder shall be administered in a manner
consistent with this intent, and any provision that would cause
this Plan or any grant made hereunder to fail to satisfy
Section 409A of the Code shall have no force and effect
until amended to comply with Section 409A of the Code
(which amendment may be retroactive to the extent permitted by
Section 409A of the Code and may be made by the Company
without the consent of Participants). Any reference in this Plan
to Section 409A of the Code will also include any proposed,
temporary or final regulations, or any other guidance,
promulgated with respect to such Section by the
U.S. Department of the Treasury or the Internal Revenue
Service.
16.
Effective Date.
This
Plan will be effective on April 28, 2006, upon its approval
by the shareholders of the Company.
B-11
17.
Amendments.
(a) The Board may at any time and from time to time amend
this Plan in whole or in part;
provided
,
however
,
that if an amendment to this Plan (i) would materially
increase the benefits accruing to participants under this Plan,
(ii) would materially increase the number of securities
which may be issued under this Plan, (iii) would materially
modify the requirements for participation in this Plan or
(iv) must otherwise be approved by the shareholders of the
Company in order to comply with applicable law or the rules of
the NASDAQ or, if the Common Shares are not traded on The NASDAQ
stock market, the principal national securities exchange upon
which the Common Shares are traded or quoted, then, such
amendment will be subject to shareholder approval and will not
be effective unless and until such approval has been obtained.
(b) The Board will not, without the further approval of the
shareholders of the Company, authorize the amendment of any
outstanding Option Right to reduce the Option Price.
Furthermore, no Option Right will be cancelled and replaced with
awards having a lower Option Price without further approval of
the shareholders of the Company. This Section 17(b) is
intended to prohibit the repricing of “underwater”
Option Rights and will not be construed to prohibit the
adjustments provided for in Section 10 of this Plan.
(c) If permitted by Section 409A of the Code, in case
of termination of employment by reason of death, disability or
normal or early retirement, or in the case of unforeseeable
emergency or other special circumstances, of a Participant who
holds an Option Right or Appreciation Right not immediately
exercisable in full, or any Restricted Shares as to which the
substantial risk of forfeiture or the prohibition or restriction
on transfer has not lapsed, or any Restricted Stock Units as to
which the Restriction Period has not been completed, or any
Performance Shares or Performance Units which have not been
fully earned, or who holds Common Shares subject to any transfer
restriction imposed pursuant to Section 13 of this Plan,
the Board may, in its sole discretion, accelerate the time at
which such Option Right, Appreciation Right or other award may
be exercised or the time at which such substantial risk of
forfeiture or prohibition or restriction on transfer will lapse
or the time when such Restriction Period will end or the time at
which such Performance Shares or Performance Units will be
deemed to have been fully earned or the time when such transfer
restriction will terminate or may waive any other limitation or
requirement under any such award.
(d) Subject to Section 17(b) hereof, the Board may
amend the terms of any award theretofore granted under this Plan
prospectively or retroactively, but subject to Section 10
above, no such amendment shall impair the rights of any
Participant without his or her consent. The Board may, in its
discretion, terminate this Plan at any time. Termination of this
Plan will not affect the rights of Participants or their
successors under any awards outstanding hereunder and not
exercised in full on the date of termination.
18.
Termination.
No grant
will be made under this Plan more than 10 years after the
date on which this Plan is first approved by the shareholders of
the Company, but all grants made on or prior to such date will
continue in effect thereafter subject to the terms thereof and
of this Plan.
19.
Governing Law.
This Plan
and all grants and awards and actions taken thereunder shall be
governed by and construed in accordance with the internal
substantive laws of the State of Ohio.
20.
Miscellaneous Provisions.
(a) The Company will not be required to issue any
fractional Common Shares pursuant to this Plan. The Board may
provide for the elimination of fractions or for the settlement
of fractions in cash.
(b) This Plan will not confer upon any Participant any
right with respect to continuance of employment or other service
with the Company or any Subsidiary, nor will it interfere in any
way with any right the Company or any Subsidiary would otherwise
have to terminate such Participant’s employment or other
service at any time.
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(c) To the extent that any provision of this Plan would
prevent any Option Right that was intended to qualify as an
Incentive Stock Option from qualifying as such, that provision
will be null and void with respect to such Option Right. Such
provision, however, will remain in effect for other Option
Rights and there will be no further effect on any provision of
this Plan.
(d) No award under this Plan may be exercised by the holder
thereof if such exercise, and the receipt of cash or stock
thereunder, would be, in the opinion of counsel selected by the
Board, contrary to law or the regulations of any duly
constituted authority having jurisdiction over this Plan.
(e) Absence on leave approved by a duly constituted officer
of the Company or any of its Subsidiaries shall not be
considered interruption or termination of service of any
employee for any purposes of this Plan or awards granted
hereunder, except that no awards may be granted to an employee
while he or she is absent on leave.
(f) No Participant shall have any rights as a stockholder
with respect to any shares subject to awards granted to him or
her under this Plan prior to the date as of which he or she is
actually recorded as the holder of such shares upon the stock
records of the Company.
(g) The Board may condition the grant of any award or
combination of awards authorized under this Plan on the
surrender or deferral by the Participant of his or her right to
receive a cash bonus or other compensation otherwise payable by
the Company or a Subsidiary to the Participant.
(h) If any provision of this Plan is or becomes invalid,
illegal or unenforceable in any jurisdiction, or would
disqualify this Plan or any award under any law deemed
applicable by the Board, such provision shall be construed or
deemed amended or limited in scope to conform to applicable laws
or, in the discretion of the Board, it shall be stricken and the
remainder of this Plan shall remain in full force and effect.
B-13
Appendix C
LINCOLN ELECTRIC HOLDINGS, INC.
2006 STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
1.
Purposes.
The purposes of
this Plan are to: (i) encourage the non-employee Directors
of Lincoln Electric Holdings, Inc. (the “Company”) to
own shares of the Company and thereby to align their interests
more closely with the interests of the Company’s other
shareholders; (ii) encourage the highest level of Director
performance by providing the Directors with a vested interest in
the Company’s attainment of its financial goals; and
(iii) provide financial incentives that will help attract
and retain the most qualified non-employee Directors.
2.
Definitions.
As used in
this Plan:
“Board”
means the Board of Directors of the
Company.
“Change in Control”
shall have the meaning
defined in the agreement or notification evidencing the grant of
an Option.
“Committee”
means the Committee described in
Section 4 of this Plan.
“Common Shares”
means (i) shares of the
Company’s common stock, without par value, and
(ii) any securities into which common shares may be
converted by reason of any transaction or event described in
Section 9 of this Plan.
“Date of Grant”
means the date as of which an
Option is granted as provided in Section 5 of this Plan.
“Director”
means a member of the Board.
“Disability”
means permanent and total
disability as defined under the Company’s long-term
disability program.
“Effective Date.”
This Plan shall be effective
April 28, 2006, upon its approval by the shareholders of
the Company.
“Eligible Director”
means a Director who is not
an employee of the Company. For purposes of this Plan, an
employee is an individual whose wages are subject to the
withholding of Federal income tax under Sections 3401 and
3402 of the Internal Revenue Code.
“Fair Market Value”
means the closing price of
a share of the Company’s common stock on The NASDAQ Stock
Market on the day before the day the value determination is
being made, whether for an Option grant or exercise; or if there
was no closing price reported on that day, then the reported
closing price on the nearest date before the date of grant or
exercise; or if the shares are not listed or admitted to trading
on The NASDAQ Stock Market on the day as of which the
determination is being made, the amount determined by the
Committee to be the Fair Market Value of a share on that day.
“Newly Eligible Director”
means a Director
whose first term as a Director begins after April 28, 2006.
“Option”
means the right to purchase Common
Shares upon the exercise of an Option granted pursuant to this
Plan. Options may be evidenced by agreements or notifications,
in written or electronic form, containing terms and conditions
not inconsistent with this Plan.
“Option Price”
means the purchase price payable
upon the exercise of an Option.
“Optionee”
means a Director who has been
granted an Option under this Plan.
“Participant”
means an Eligible Director who is
selected by the Committee to receive benefits under this Plan.
C-1
“Plan”
means the Lincoln Electric Holdings,
Inc. 2006 Stock Plan for Non-Employee Directors, as amended from
time to time.
“Restricted Shares”
means an award made
pursuant to Section 7 of this Plan. Restricted Shares may
be evidenced by agreements or notifications, in written or
electronic form, containing terms and conditions not
inconsistent with this Plan.
“Restricted Stock Unit”
means an award made
pursuant to Section 8 of this Plan of the right to receive
Common Shares or cash at the end of a specified Restriction
Period. Restricted Stock Units may be evidenced by agreements or
notifications, in written or electronic form, containing terms
and conditions not inconsistent with this Plan.
“Restriction Period”
means the period of time
during which Restricted Stock Units are subject to restrictions,
as provided in Section 8 of this Plan.
“Retirement”
means a Termination of Service as
a Director occurring as a result of the Optionee’s
completion of his or her three-year term of service as a
Director of the Company.
“Termination of Service”
means the time at
which the Director ceases to serve as a Director for any reason,
with or without cause, which includes termination by
resignation, removal, death or retirement.
3.
Shares Available Under this
Plan.
(a) Subject to adjustments as provided in Section 9 of
this Plan, the total number of Common Shares that may be issued
or transferred (i) upon the exercise of Options,
(ii) as Restricted Shares, (iii) in payment of
Restricted Stock Units granted pursuant to this Plan, or
(iv) in payment of dividend equivalents paid with respect
to awards made under this Plan shall not in the aggregate exceed
300,000, plus any Common Shares relating to awards that expire
or are forfeited or are cancelled under this Plan. These shares
may be treasury shares or shares of original issue or a
combination of both.
(b) Notwithstanding any other provision of this Plan to the
contrary, if the number of Common Shares authorized under this
Plan is insufficient for all Options to be granted automatically
on a specific date under Section 5 of this Plan, Options
shall be granted pro rata among all Eligible Directors entitled
to be granted an Option on that date. In connection with the
issuance or transfer of Common Shares pursuant to this Plan, the
Company may repurchase Common Shares in the open market or
otherwise.
(c) Common Shares covered by an award granted under this
Plan shall not be counted as used unless and until they are
actually issued and delivered to a Participant. Upon payment in
cash of the benefit provided by any award granted under this
Plan, any Common Shares that were covered by that award will be
available for issue or transfer hereunder. The following shares
will not be added back to the aggregate plan limit:
(i) Common Shares tendered in payment of the Option Price
of an Option; and (ii) Common Shares that are repurchased
by the Company with Option proceeds.
(d) The aggregate number of Common Shares issued as
Restricted Shares or in payment of Restricted Stock Units shall
not exceed 100,000.
4.
Administration of this
Plan.
(a) This Plan shall be administered by the Nominating and
Corporate Governance Committee of the Board (the
“Committee”). The members of the Committee shall be
“non-employee directors” within the meaning of
Rule
16b-3
under
the Securities Exchange Act of 1934 (or any successor rule) as
in effect from time to time. A majority of the Committee members
shall constitute a quorum, and any action taken by a majority of
the members present at any Committee meeting at which a quorum
is present, or any actions of the Committee that are unanimously
approved by the members in writing, shall be acts of the
Committee. The Committee shall have full authority, discretion
and power to determine the terms and conditions of awards to be
granted pursuant to this Plan, the number of Common Shares to be
issued under this Plan, and the duration and nature of the
awards, consistent with the provisions of this Plan.
C-2
(b) Subject to Section 10 of this Plan, the
interpretation and construction by the Committee of any
provision of this Plan or any agreement or notification
evidencing the grant of any award, and any determination by the
Committee pursuant to any provision of this Plan or any
agreement or notification, shall be final and conclusive. No
Committee member shall be liable for any action taken or
determination made in good faith.
5.
Option Awards.
The
Committee may, from time to time and upon such terms and
conditions as it may determine, authorize the granting of
Options to Eligible Directors and may fix the number of Common
Shares to be covered by each Option. The Option Price of each
Option shall be equal to the Fair Market Value of the Common
Shares on the Date of Grant, unless the Committee shall specify
a higher Option Price. No Option shall be exercisable more than
10 years from the Date of Grant. Unless otherwise
determined by the Committee, the following awards shall be made
under this Plan, without further action of the Committee, except
as hereinafter specifically provided:
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(a) An initial Option to purchase 6,000 Common Shares
shall be granted to each Newly Eligible Director upon his or her
election to the Board.
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(b) An Option to purchase 3,500 Common Shares shall be
granted after each annual meeting of the Company’s
shareholders, and before the end of that calendar year, to each
Eligible Director serving as a Director on the Date of Grant.
The Date of Grant shall be the last business day in November,
unless the Committee specifies a different date.
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6.
Terms and Conditions of the
Options.
In addition to the terms specified pursuant to
Section 5 of this Plan, unless otherwise determined by the
Committee, all Options granted under this Plan shall have the
following terms and conditions:
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(a) Each Option, until terminated as provided in
Section 6(e) of this Plan, shall become exercisable to the
extent of 100% of the underlying Common Shares when the Optionee
has continuously served as a Director for one year from the Date
of Grant. If an Optionee ceases to be a Director by reason of
death, Disability or Retirement, or upon a Change in Control of
the Company, all Options held by that Optionee shall become
immediately exercisable in full.
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(b) An Optionee may exercise an Option in whole or in part
at any time and from time to time during the period within which
an Option may be exercised. To exercise an Option, an Optionee
shall give notice to the Company in either written or electronic
form, specifying the number of Common Shares to be purchased and
provide payment of the Option Price and any other documentation
that may be required by the Company.
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(c) The Option Price shall be payable (i) in cash or
by other consideration acceptable to the Company, (ii) at
the discretion of the Committee, by the actual or constructive
transfer to the Company of Common Shares owned by the Optionee
for at least six months, having a Fair Market Value at the time
of exercise equal to the Option Price, or (iii) by a
combination of both methods of payment.
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(d) To the extent permitted by law, any grant may provide
for deferred payment of the Option Price from the proceeds of
sale through a broker on a date satisfactory to the Company of
some or all of the Common Shares to which the exercise relates.
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(e) Each Option shall terminate on the earliest to occur of
the following dates:
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(i) The date on which the Optionee ceases to be a Director,
unless the Optionee ceases to be a Director after completion of
one year of continuous service as a Director, on account of
death, Disability or Retirement, or following a Change in
Control of the Company;
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(ii) One year after the death of the Optionee;
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(iii) Three years after the Optionee’s Termination of
Service becomes effective; provided, however, that this
Section 6(e)(iii) shall only apply where (x) the
Termination of Service occurs
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after the Optionee has served continuously as a Director for
less than six years and (y) the Termination of Service does
not occur following a Change in Control of the Company; or
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(iv) Ten years from the Date of Grant.
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(f) An Optionee shall be treated for all purposes as the
owner of record of the number of Common Shares purchased
pursuant to the exercise of the Option (in whole or in part) as
of the date the conditions set forth in Section 6(b) of
this Plan are satisfied. Upon the effective exercise of an
Option (in whole or in part), the Company shall deliver to the
Optionee the number of Common Shares for which the Option is
exercised, adjusted for any Common Shares sold or withheld in
connection with the exercise.
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(g) Except as otherwise determined by the Committee, no
Option shall be transferable other than by will or the laws of
descent and distribution, or pursuant to a qualified domestic
relations order, and each Option may be exercised, during an
Optionee’s lifetime, only by the Optionee or, in the event
of the Optionee’s incapacity, including incapacity arising
from a Disability, by the Optionee’s guardian or legal
representative acting in a fiduciary capacity.
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(h) To the extent permitted by Section 409A of the
Code, the Committee may permit Optionees to elect, or may
require Optionees, to defer the issuance of Common Shares under
this Plan pursuant to the rules, procedures or programs as it
may establish for purposes of this Plan. The Committee also may
provide that deferred issuances and settlements include the
payment or crediting of dividend equivalents or interest on the
deferral amounts.
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(i) On receipt of written or electronic notice to exercise,
the Committee may, in its sole discretion, elect to cash out all
or part of the portion of the Option(s) to be exercised by
paying the Optionee an amount, in cash or Common Shares, equal
to the excess of the Fair Market Value of the Common Shares over
the Option Price on the effective date of the cash-out.
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7.
Restricted Shares.
The
Committee may also authorize the award of Restricted Shares to
Eligible Directors. Each award of Restricted Shares may utilize
any or all of the authorizations, and shall be subject to all of
the requirements, contained in the following provisions:
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(a) Each such award shall constitute an immediate transfer
of the ownership of Common Shares to the Eligible Directors in
consideration of the performance of services, entitling such
Eligible Directors to voting, dividend and other ownership
rights, but subject to the substantial risk of forfeiture and
restrictions on transfer hereinafter referred to.
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(b) Each such award shall provide that the Restricted
Shares covered by such award shall be subject to a
“substantial risk of forfeiture” within the meaning of
Section 83 of the Code for a period of not less than three
(3) years to be determined by the Committee at the Date of
Grant and may provide for the earlier lapse of such substantial
risk of forfeiture in the event of Retirement, death or
Disability or upon a Change in Control.
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(c) Each such award shall provide that during the period
for which such substantial risk of forfeiture is to continue,
the transferability of the Restricted Shares shall be prohibited
or restricted in the manner and to the extent prescribed by the
Committee at the Date of Grant (which restrictions may include,
without limitation, rights of repurchase or first refusal in the
Company or provisions subjecting the Restricted Shares to a
continuing substantial risk of forfeiture in the hands of any
transferee).
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(d) Any such award of Restricted Shares may require that
any or all dividends or other distributions paid thereon during
the period of such restrictions be automatically deferred and
reinvested in additional Restricted Shares, which may be subject
to the same restrictions as the underlying award.
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(e) Unless otherwise directed by the Committee, all
certificates representing Restricted Shares shall be held in
custody by the Company until all restrictions thereon shall have
lapsed,
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together with a stock power or powers executed by the
Participant in whose name such certificates are registered,
endorsed in blank and covering such Restricted Shares.
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8.
Restricted Stock Units.
The Committee may also authorize the granting or sale of
Restricted Stock Units to Eligible Directors. Each such grant or
sale will be subject to all of the requirements contained in the
following provisions:
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(a) Each such grant or sale will constitute the agreement
by the Company to deliver Common Shares or cash to the Eligible
Director in the future in consideration of the performance of
services, but subject to the fulfillment of such conditions
during the Restriction Period as the Committee may specify.
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(b) Each such grant or sale may be made without additional
consideration or in consideration of a payment by such Eligible
Director that is less than the Fair Market Value at the Date of
Grant.
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(c) Each such grant or sale will be subject to a
Restriction Period of not less than three years, as determined
by the Committee at the Date of Grant, and may provide for the
earlier lapse or other modification of such Restriction Period
in the event of the Retirement, death or Disability of the
Eligible Director or upon a Change in Control of the Company.
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(d) During the Restriction Period, the Eligible Director
will have no right to transfer any rights under his or her award
and will have no rights of ownership in the Restricted Stock
Units and will have no right to vote them, but the Committee may
at the Date of Grant, authorize the payment of dividend
equivalents on such Restricted Stock Units on either a current,
deferred or contingent basis, either in cash or in additional
Common Shares.
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(e) Each grant or sale will specify the time and manner of
payment of Restricted Stock Units that have been earned. Any
grant or sale may specify that the amount payable with respect
thereto may be paid by the Company in cash, in shares of Common
Shares or in any combination thereof and may either grant to the
Eligible Director or retain in the Board the right to elect
among those alternatives.
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9.
Adjustments.
The
Committee may make or provide for such adjustments in the number
and kind of shares covered by outstanding Options and Restricted
Stock Units granted hereunder, in the Option Price and in the
kind of shares covered thereby, as the Committee, in its sole
discretion, may determine is equitably required to prevent
dilution or enlargement of the rights of Participants that
otherwise would result from (a) any stock dividend, stock
split, combination of shares, recapitalization or other change
in the capital structure of the Company, or (b) any merger,
consolidation,
spin-off,
split-off,
spin-out,
split-up,
reorganization, partial or complete liquidation or other
distribution of assets, issuance of rights or warrants to
purchase securities, or (c) any other corporate transaction
or event having an effect similar to any of the foregoing.
Moreover, in the event of any such transaction or event, the
Committee, in its discretion, may provide in substitution for
any or all outstanding awards under this Plan such alternative
consideration (including cash), if any, as it, in good faith,
may determine to be equitable in the circumstances and may
require in connection therewith the surrender of all awards so
replaced. The Committee may also make or provide for such
adjustments in the numbers and kinds of shares specified in
Section 3 of this Plan as the Committee in its sole
discretion, exercised in good faith, may determine is
appropriate to reflect any transaction or event described in
this Section 9.
10.
Fractional Shares.
The
Company shall not be required to issue any fractional Common
Shares pursuant to this Plan. Whenever a fractional Common Share
would otherwise be required to be issued, an amount in lieu
thereof shall be paid in cash, based upon the Fair Market Value
of the fractional Common Share.
11.
Amendments.
This Plan
may be amended from time to time by the Committee; provided,
however, that any amendment which must be approved by the
Company’s shareholders in order to comply with
(i) Federal securities laws, (ii) other legal or
regulatory requirements or (iii) the rules of The NASDAQ
Stock Market, or if the Common Shares are not quoted on NASDAQ,
the principal securities
C-5
exchange upon which the Common Shares are traded or quoted,
shall not be effective unless and until shareholder approval has
been obtained. Presentation of this Plan or any amendment for
shareholder approval shall not be construed to limit the
Company’s authority to offer similar or dissimilar benefits
under other plans without shareholder approval. Furthermore, no
amendment, alteration or discontinuation of this Plan shall be
made which would impair the rights of a Participant with respect
to any outstanding award under this Plan without the
Participant’s consent, or which, without approval of the
Company’s shareholders would, except as expressly provided
in this Plan, increase the total number of Shares reserved for
this Plan or extend the maximum Option period applicable under
this Plan.
12.
No Additional Rights.
Nothing contained in this Plan or in any award granted under
this Plan shall confer upon any Director any right to continue
in the service of the Company.
13.
Governing Law.
This Plan
and all awards granted and actions taken hereunder shall be
governed by and construed in accordance with the internal
substantive laws of the State of Ohio.
14.
Compliance with
Section 409A of the Code.
To the extent applicable, it
is intended that this Plan and any grants made hereunder comply
with the provisions of Section 409A of the Code. This Plan
and any grants made hereunder shall be administered in a manner
consistent with this intent, and any provision that would cause
this Plan or any grant made hereunder to fail to satisfy
Section 409A of the Code shall have no force and effect
until amended to comply with Section 409A of the Code
(which amendment may be retroactive to the extent permitted by
Section 409A of the Code and may be made by the Company
without the consent of Participants). Any reference in this Plan
to Section 409A of the Code will also include any proposed,
temporary or final regulations, or any other guidance,
promulgated with respect to such Section by the
U.S. Department of the Treasury or the Internal Revenue
Service.
15.
Duration.
No awards shall be granted pursuant to
this Plan on or after April 28, 2016, the
10th anniversary of the Effective Date, but awards granted
prior to the 10th anniversary may extend beyond that date.
C-6
c/o National City Bank
Corporate Trust Operations
Locator 5352
P. O. Box 92301
Cleveland, OH 44197-1200
V O T E
B Y
T E L E P H O N E
Have your proxy and voting
instruction form available when you
call the
Toll-Free number
1-888-693-8683
using a touch-tone phone
and follow the simple instructions to
record your vote.
V O T E
B Y I N T E R N E T
Have your proxy and voting
instruction form available when you
access the website
http://www.cesvote.com
and follow the
simple instructions to record your
vote.
V O T E
B Y M A I L
Please mark, sign and date your
proxy and voting instruction form and
return it in the
postage-paid envelope
provided or return it to: National City
Bank, P.O. Box 535300, Pittsburgh, PA
15230.
Vote by Telephone
Call Toll-Free using a
touch-tone telephone:
1-888-693-8683
Vote by Internet
Access the Website and
cast your vote:
http://www.cesvote.com
Vote by Mail
Return your proxy and
voting instruction form in the
postage-paid envelope provided.
Telephone and Internet access is available 24 hours a day, 7 days a week. In order to be
counted in the final tabulation, your telephone or Internet vote must
be received by 6:00 a.m.
Eastern Daylight Time on April 25, 2006 if you are a participant in The Lincoln Electric Company
Employee Savings Plan, or by 6:00 a.m. Eastern Daylight Time on
April 28, 2006 if you are a
registered holder.
¯
Please fold and detach card at perforation before mailing.
¯
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LINCOLN ELECTRIC HOLDINGS, INC.
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PROXY AND VOTING INSTRUCTION FORM
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THIS PROXY AND THESE VOTING INSTRUCTIONS ARE SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS FOR THE ANNUAL MEETING OF SHAREHOLDERS ON APRIL 28, 2006.
The shareholder signing this card appoints John M. Stropki, Jr., Vincent K. Petrella and
Frederick G. Stueber, together or separately, as proxies, each with the power to appoint a
substitute. They are directed to vote, as indicated on the reverse side of this card, all the
Lincoln Electric common shares held by the signing shareholder on the record date, at the Company’s
Annual Meeting of Shareholders to be held at 10:00 a.m. on
April 28, 2006, or at any postponement(s) or adjournment(s) of
the meeting, and, in their discretion, on all other business properly
brought before the meeting or at any postponement(s) or adjournment(s) of
the meeting.
As described more fully in the proxy statement and on the reverse side, this card also provides
voting instructions to Fidelity Management Trust Company, as Trustee under The Lincoln Electric
Company Employee Savings Plan (“401(k) Plan” or “Plan”). The signing Plan participant directs the
Trustee to vote, as indicated on the reverse side of this card, all the Lincoln Electric common
shares credited to the account of the signing Plan participant as of the record date, at the Annual
Meeting of Shareholders, and in the Trustee’s discretion, on all other business properly brought
before the meeting.
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Signature(s)________________________________________
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_________________________________________________
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Date: ________________________________________, 2006
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Please sign exactly as your name or names appear opposite. If shares are held jointly, all joint owners should sign. When signing as executor, administrator, attorney, trustee or guardian, etc., please give your full title.
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NOTE TO PARTICIPANTS IN THE LINCOLN ELECTRIC COMPANY EMPLOYEE SAVINGS PLAN (“4
01(k)
PLAN” or
“PLAN”).
As a participant in the 401(k) Plan, you have the right to direct Fidelity Management
Trust Company, as Trustee for the Plan, to vote the shares allocated to your Plan account.
Participant voting directions will remain confidential. Please note that the number of shares
reported on this card is an equivalent number of shares based on the units credited to your Plan
account. To direct the Trustee by mail to vote the shares allocated to your Plan account, please
mark the voting instruction form below and sign and date it on the
reverse side. A
postage-paid
envelope for mailing has been included with your materials. To direct the Trustee by telephone or
over the Internet to vote the shares allocated to your Plan account, please follow the instructions
and use the
Control Number
given on the reverse side. Each participant who gives the Trustee
voting directions acts as a named fiduciary for the 401(k) Plan under the provisions of the
Employee Retirement Income Security Act of 1974, as amended.
If you do not give specific voting directions on the voting instruction form or when you vote by
phone or over the Internet, the Trustee will vote your Plan shares as recommended by the Board of
Directors. If you do not return the voting instruction form or do not vote by phone or over the
Internet, the Trustee shall not vote your Plan shares. Plan shares representing forfeited Account
values that have not been reallocated at the time of the proxy solicitation will be voted by the
Trustee in proportion to the way other 401(k) Plan participants directed their Plan shares to be
voted.
YOUR VOTE IS IMPORTANT !
Be sure that your shares are represented. Whether or not you plan to
attend the Annual Meeting, please vote your shares by mail, by telephone or over
the Internet.
¯
Please fold and detach card at perforation before mailing.
¯
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LINCOLN ELECTRIC HOLDINGS, INC.
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PROXY AND VOTING INSTRUCTION FORM
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The Board of Directors recommends a vote
FOR
all nominees listed below in Proposal 1 and
FOR
Proposals 2 through 4. All of the proposals have been proposed by the Company. The shares represented by
your proxy will be voted in accordance with the voting instructions you specify below.
If you
sign, date and return your proxy but do not give specific voting instructions, your votes will be
cast FOR all nominees in Proposal 1 and FOR Proposals 2 through 4.
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1.
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Election of
Directors: Class Whose Term Ends in 2009:
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(01
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Harold L. Adams
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(02
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Robert J. Knoll
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(03
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John M. Stropki, Jr.
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o
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FOR ALL
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o
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WITHHOLD ALL
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o
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FOR ALL EXCEPT (write names below):
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Vote withheld from the following (write names below):
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2.
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Approval of the
2006 Equity and Performance Incentive Plan.
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o
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FOR
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o
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AGAINST
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o
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ABSTAIN
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3.
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Approval of the
2006 Stock Plan for Non-Employee Directors.
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o
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FOR
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o
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AGAINST
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o
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ABSTAIN
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4.
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Ratification of Independent Auditors.
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o
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FOR
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o
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AGAINST
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o
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ABSTAIN
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5.
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In their
discretion, the proxies named herein are also authorized to take any
action upon any other business that may properly
come before
the Annual Meeting, or any adjournment(s) or postponement(s) of the Annual Meeting.
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o
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I plan to attend the Annual Meeting.
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o
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I consent to access future shareholder communications over the Internet as stated in the Proxy Statement.
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o
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Change of Address:
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