SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-12
HARDINGE INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
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[LOGO]
HARDINGE INC.
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NOTICE OF 2002 ANNUAL MEETING AND PROXY STATEMENT
---------------------
Dear Stockholder:
The directors and officers of Hardinge Inc. are pleased to invite you to
attend the 2002 Annual Meeting of our stockholders, which will be held at the
Company's corporate headquarters, One Hardinge Drive, Elmira, New York, on
Tuesday, May 7, 2002, at 9:00 A.M.
At the meeting, we will (1) elect three Class II directors, (2) vote on a
proposal to approve the Hardinge Inc. 2002 Incentive Stock Plan and (3) vote on
a proposal to ratify the appointment of Ernst & Young LLP as Hardinge's
independent public accountants, each as described in the formal notice of the
meeting and Proxy Statement appearing on the following pages. We also will
report on the progress of Hardinge and comment on matters of current interest.
Stockholders will have an opportunity to comment or ask questions.
Your vote is important. Whether or not you expect to attend the meeting and
regardless of the number of shares you own, please be sure to fill in, sign and
return the enclosed proxy. A prompt return of your proxy will be appreciated.
Sincerely,
/s/ J. Patrick Ervin
J. Patrick Ervin
Chief Executive Officer and President
Corporate Headquarters-One Hardinge Drive, Elmira, NY 14902-1507
HARDINGE INC.
ONE HARDINGE DRIVE, ELMIRA, NY 14902
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TO THE STOCKHOLDERS OF
HARDINGE INC.
------------------------
NOTICE IS HEREBY GIVEN that the 2002 Annual Meeting of the Stockholders of
HARDINGE INC. will be held at the Company's corporate headquarters, One Hardinge
Drive, Elmira, New York, on Tuesday, May 7, 2002, at 9:00 A.M., for the
following purposes:
(1) To elect to the Board of Directors three Class II directors;
(2) To consider approval of the Hardinge Inc. 2002 Incentive Stock Plan;
(3) To consider ratification of the appointment of Ernst & Young LLP as
Hardinge's independent public accountants for the fiscal year ending
December 31, 2002; and
(4) To consider and transact such other business as may properly come before
the meeting or any adjournment thereof.
The close of business on March 18, 2002 has been fixed as the record date
for the determination of the stockholders entitled to notice of and to vote at
the meeting.
By Order of the Board of Directors,
/s/ J. PHILIP HUNTER
J. PHILIP HUNTER
Secretary
Dated: April 1, 2002
Elmira, New York
2002 ANNUAL MEETING OF STOCKHOLDERS
PROXY STATEMENT
TABLE OF CONTENTS
INFORMATION ABOUT THE PROXY MATERIALS AND THE ANNUAL
MEETING................................................... 1
ACTION TO BE TAKEN UNDER THE PROXY.......................... 2
PROPOSAL NO. 1--NOMINEES FOR ELECTION AS DIRECTORS.......... 2
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 4
5% Beneficial Ownership Table............................. 4
Security Ownership of Management.......................... 5
Section 16(a) Beneficial Ownership Reporting Compliance... 6
COMPENSATION OF EXECUTIVE OFFICERS.......................... 6
Report of the Compensation Committees on Executive
Compensation............................................ 6
Compensation Committee Interlocks and Insider
Participation........................................... 8
Summary Compensation Table................................ 9
Stock Price Performance Graph............................. 10
Pension Plan.............................................. 11
Employment Agreements..................................... 11
COMPENSATION OF DIRECTORS AND COMMITTEE MEETINGS............ 11
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS..... 12
PROPOSAL NO. 2--PROPOSAL TO ADOPT THE HARDINGE INC. 2002
INCENTIVE STOCK PLAN...................................... 13
PROPOSAL NO. 3--PROPOSAL TO RATIFY THE APPOINTMENT OF
INDEPENDENT AUDITORS...................................... 16
STOCKHOLDER PROPOSALS FOR 2003 ANNUAL MEETING............... 17
OTHER MATTERS............................................... 17
APPENDIX A--THE HARDINGE INC. 2002 INCENTIVE STOCK PLAN..... A-1
HARDINGE INC.
ONE HARDINGE DRIVE, ELMIRA, NY 14902
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PROXY STATEMENT
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This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors for use at the Annual Meeting of Stockholders
(the "Annual Meeting") of Hardinge Inc. (the "Company") to be held on Tuesday,
May 7, 2002 at 9:00 A.M., at the Company's corporate headquarters, One Hardinge
Drive, Elmira, New York. This Proxy Statement and the accompanying Proxy and
Notice of Annual Meeting of Stockholders are being mailed to stockholders on or
about April 1, 2002. A stockholder granting a proxy has the right to revoke it
by filing with the Secretary of the Company prior to the time such proxy is
voted a duly executed proxy bearing a later date, by attending the Annual
Meeting and voting in person, or by otherwise notifying the Secretary of the
Company in writing of such stockholder's intention to revoke such proxy prior to
the time such proxy is voted.
If the enclosed proxy card is returned properly signed, the shares
represented will be voted in accordance with your directions. You can specify
your choices by marking the appropriate boxes. If your proxy card is signed and
returned without specifying choices, the shares will be voted as recommended by
the directors. Abstentions are voted neither "for" nor "against," but are
counted in the determination of a quorum. If you wish to give your proxy to
someone other than those individuals designated on the enclosed proxy card, all
three names appearing on the proxy card must be crossed out and the name of
another person or persons inserted. The signed card must be presented at the
meeting by the person or persons representing you.
As a matter of policy, proxies, ballots and voting tabulations that identify
individual shareholders are kept private by the Company. Such documents are
available for examination only by the inspectors of election and certain
personnel associated with processing proxy cards and tabulating the vote. The
vote of any shareholder is not disclosed except as may be necessary to meet
legal requirements.
Shares allocated to the accounts of participants in the Hardinge Inc.
Savings Plan may be voted through separate participant direction cards that have
been mailed to participants in the Plan along with this Proxy Statement. If a
participant also owns shares outside this plan, the participant must return both
the proxy card and the participant direction card. The trustee of this Plan will
vote the number of shares allocated to a participant's account or accounts under
such plan in accordance with the directions on the participant direction card.
Shares for which the trustee receives no instructions will be voted by the
trustee in the same proportion as shares for which voting instructions have been
received.
Only stockholders of record at the close of business on March 18, 2002 are
entitled to receive notice of and to vote at the Annual Meeting. As of March 18,
2002, there were 8,802,593 shares of Common Stock outstanding and entitled to
vote. Each share of Common Stock is entitled to one vote. There are no
cumulative voting rights. Nominees for director will be elected by a plurality
of votes cast at the Annual Meeting by holders of Common Stock present in person
or by proxy and entitled to vote on such election. Any other matter requires the
affirmative vote of a majority of the votes cast at the meeting, except as
otherwise provided in the Certificate or By-laws. Only shares affirmatively
voted in favor of a nominee will be counted toward the achievement of a
plurality. Votes withheld (including broker non-votes) and abstentions are
counted as present for the purpose of determining a quorum but are not counted
as votes cast.
ACTION TO BE TAKEN UNDER THE PROXY
It is proposed that at the Annual Meeting action will be taken on the
matters set forth in the accompanying Notice of Annual Meeting of Stockholders
and described in this Proxy Statement. The Board of Directors does not know of
any other business to be brought before the Annual Meeting, but it is intended
that, as to any such other business, a vote may be cast pursuant to the proxies
granted in the form of the enclosed proxy card in accordance with the judgment
of the person or persons acting thereunder; and should any herein-named nominee
for the office of director become unable to accept nomination or election, which
is not anticipated, it is intended that the persons acting under such proxies
will vote for the election in the stead of such nominee of such other person as
the Board of Directors may recommend.
PROPOSAL NO. 1:
NOMINEES FOR ELECTION AS DIRECTORS
The Company's Board of Directors is divided into three classes. Nominees
Daniel J. Burke, J. Philip Hunter and Albert W. Moore are Class II directors and
if elected at the Annual Meeting, will serve a term of three years expiring at
the 2005 Annual Meeting or when their respective successors have been duly
elected and qualified.
The following table sets forth with respect to each nominee for director and
each director continuing in office such person's length of service as a
director, age, principal occupation during the past five years, other positions
such person holds with the Company, if any, and any other directorships such
person holds in companies with securities registered pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES.
PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS; LENGTH OF SERVICE
OTHER POSITIONS HELD WITH THE COMPANY; AS DIRECTOR AND
NAME AND AGE OTHER DIRECTORSHIPS OF PUBLICLY TRADED COMPANIES EXPIRATION OF TERM
------------ ------------------------------------------------- ------------------
NOMINEES FOR CLASS II DIRECTORS:
Daniel J. Burke ......... President and Chief Executive Officer, Swift Since 1998
(Age 61) Glass Co., Inc., a fabricator of glass component Expires 2002
parts; Member of the Company's Audit and
Investment Committees.
J. Philip Hunter......... Partner, Sayles & Evans, a law firm; Secretary of Since 1992
(Age 59) the Company; Member of the Company's Executive, Expires 2002
Compensation and Investment Committees.
Albert W. Moore.......... Retired since January 1998. Prior to that date, Since 1998
(Age 67) President, Association for Manufacturing Expires 2002
Technology, a trade association representing the
machine tool and related equipment manufacturers
of the United States; Member of the Company's
Executive, Compensation, Incentive Compensation,
and Nominating Committees.
2
PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS; LENGTH OF SERVICE
OTHER POSITIONS HELD WITH THE COMPANY; AS DIRECTOR AND
NAME AND AGE OTHER DIRECTORSHIPS OF PUBLICLY TRADED COMPANIES EXPIRATION OF TERM
------------ ------------------------------------------------- ------------------
CONTINUING IN SERVICE:
CLASS I DIRECTORS:
Richard J. Cole.......... Owner and President of CCS, a consulting company; Since 1991
(Age 70) retired June 2000 as President and Chief Expires 2004
Operating Officer, Meritus Consulting Services,
LLC, a management consulting firm; formerly
Division Vice President, IBM Corporation, a
manufacturer of information equipment; Member and
Chairman of the Company's Audit Committee; Member
of the Company's Executive, Compensation,
Incentive Compensation and Investment Committees.
J. Patrick Ervin......... Chief Executive Officer of the Company since May Since 2001
(Age 44) 1, 2001, and President since April 2000; formerly Expires 2004
Chief Operating Officer, Executive Vice President
--Operations, and Senior Vice President --
Manufacturing, Engineering and marketing.
E. Martin Gibson......... Non-Executive Chairman of the Board of the Since 1981
(Age 64) Company since May 1, 2001; retired December 1994 Expires 2004
as Chairman and Chief Executive Officer, Corning
Lab Services, Inc., provider of clinical and
pharmaceutical laboratory services, formerly a
subsidiary of Corning Incorporated, and as a
Director, Corning Incorporated, a specialty
materials manufacturer. Member and Chairman of
the Company's Executive, Compensation, Incentive
Compensation and Nominating Committees.
CLASS III DIRECTORS:
James L. Flynn........... Retired since March 1994. Prior to that date, Since 1984
(Age 67) Senior Vice President -- Investment Services, Expires 2003
Corning Incorporated; Member and Chairman of the
Company's Investment Committee; Member of the
Company's Executive, Audit and Nominating
Committees.
Douglas A. Greenlee...... Owner, Harpers Ferry Wood Products; Vice Since 1979
(Age 54) President of the Company from 1993-April, 1999; Expires 2003
Member of the Company's Investment Committee.
Richard L. Simons........ Executive Vice President and Chief Financial Since 2001
(Age 46) Officer of the Company since April 2000; formerly Expires 2003
Senior Vice President and Chief Financial
Officer.
3
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The only persons who, to the knowledge of the management of the Company,
owned beneficially on December 31, 2001 more than 5% of the Common Stock of the
Company are set forth below. Unless otherwise indicated, each of the persons
named below has sole voting and investment power with respect to the shares
listed.
SHARES OWNED AND
NAME AND ADDRESS NATURE OF BENEFICIAL
OF BENEFICIAL OWNER OWNERSHIP %
------------------- -------------------- --------
David L. Babson & Company Inc............................... 1,223,550 13.90%
One Memorial Drive
Cambridge, MA 02142
Chemung Canal Trust Company(1).............................. 730,789 8.30%
One Chemung Canal Plaza
Elmira, NY 14901
Hardinge Inc. Savings Plan(2)............................... 715,488 8.13%
c/o State Street Bank and Trust Company, Trustee
225 Franklin Street
Boston, MA 02110
Dimensional Fund Advisors Inc............................... 662,800 7.53%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
J. Patrick Ervin(3)......................................... 449,679 5.12%
One Hardinge Drive
Elmira, NY 14902
Richard L. Simons(4)........................................ 454,853 5.18%
One Hardinge Drive
Elmira, NY 14902
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(1) Chemung Canal Trust Company ("CCTC") held 730,789 shares of Common Stock for
various parties in personal trusts, agency and custodial accounts, pension
accounts, estates and guardianships, with respect to which shares CCTC had
sole voting power as to 584,173 shares, shared voting power with respect to
146,616 shares, sole investment power with respect to 406,035 shares and
shared investment power with respect to 146,616 shares.
(2) Includes all shares of Common Stock held by State Street Bank and Trust
Company as the Trustee of the Hardinge Inc. Savings Plan. The participants
in said Plan may instruct the Trustee as to the voting of 594,615 of such
shares. If no instructions are received, the Trustee votes the shares in the
same proportion as it votes all of the shares for which instructions are
received. The power to dispose of said shares is restricted by the
provisions of the Plan. With respect to 120,873 shares held by State Street
Bank and Trust Company as trustee of said Savings Plan, the trustee has the
power to vote and dispose of said shares, except that it is required in the
event of a tender offer or of any corporate action requiring a greater than
majority vote of stockholders to act in accordance with instructions
received from Plan participants. Does not include 7,700 shares held by State
Street Bank and Trust Company acting in other fiduciary capacities.
(3) As of February 1, 2002. See footnote (4) under Security Ownership of
Management.
(4) As of February 1, 2002. See footnote (8) under Security Ownership of
Management.
4
SECURITY OWNERSHIP OF MANAGEMENT
Set forth below is the number of shares of Common Stock of the Company
beneficially owned on February 1, 2001 by the directors and nominees for
directors, by the Executive Officers employed on December 31, 2001 and listed in
the Summary Compensation Table and by all directors and Executive Officers of
the Company as a group. Unless otherwise indicated, each of the persons named
below, and directors and officers as a group, has sole voting and investment
power with respect to the shares listed.
SHARES OWNED AND
NATURE
NAME OF OF BENEFICIAL
BENEFICIAL OWNER OWNERSHIP(1) %
---------------- ------------------- --------
Daniel J. Burke(2).......................................... 6,420 *
Richard J. Cole............................................. 17,252 *
Joseph T. Colvin(3)......................................... 29,377 *
J. Patrick Ervin(4)......................................... 449,679 5.12%
James L. Flynn(5)........................................... 14,468 *
E. Martin Gibson............................................ 27,302 *
Douglas A. Greenlee(6)...................................... 60,908 *
Richard B. Hendrick......................................... 3,277 *
J. Philip Hunter............................................ 17,654 *
Albert W. Moore(7).......................................... 8,610 *
Richard L. Simons(8)........................................ 454,853 5.18%
Douglas C. Tifft............................................ 75,985 *
All Executive Officers and Directors as a Group (14 persons
including the above)(9) 798,978 9.09%
*Less than one percent of the Company's outstanding shares of Common Stock.
------------------------
(1) Includes shares which may be purchased pursuant to stock options held by
directors that were exercisable within 60 days of February 1, 2002. Messrs.
Cole, Flynn, Gibson and Hunter each held 4,500, Mr. Moore 3,000, Mr. Burke
2,250, and Mr. Greenlee 1,500 of such options to purchase shares of Common
Stock. Also includes all shares held by the Trustee of the Hardinge Inc.
Savings Plan allocated to members of the group who have sole voting power
with respect to said shares. The Trustee holds for the benefit of Messrs.
Colvin, Ervin, Hendrick, Simons and Tifft and all Executive Officers as a
group 2,067, 1,289, 27, 1,754, 1,334 and 6,550 shares, respectively. Also
includes shares subject to forfeiture and restrictions on transfer granted
pursuant to the Company's 1996 Incentive Stock Plan.
(2) Includes 150 shares held by Mr. Burke's spouse, as to which Mr. Burke
disclaims beneficial ownership.
(3) Includes 2,190 shares held by Mr. Colvin's spouse, as to which shares Mr.
Colvin disclaims beneficial ownership.
(4) Sole beneficial owner of 65,793 shares of Common Stock and shares as trustee
with Richard L. Simons (see footnote 8 below) voting and dispositive powers
as to 383,886 shares of Common Stock as trustees under the Company's Pension
Plan.
(5) Includes 1,875 shares held by Mr. Flynn's spouse, as to which shares Mr.
Flynn disclaims beneficial ownership.
(6) Sole beneficial owner of 6,295 shares of Common Stock, and 53,113 shares are
held with two others as attorneys-in-fact for another.
(7) Includes 450 shares held by Mr. Moore's spouse, as to which shares Mr. Moore
disclaims beneficial ownership.
5
(8) Sole beneficial owner of 70,967 shares of Common Stock and shares as trustee
with J. Patrick Ervin (see footnote 4 above) voting and dispositive powers
as to 383,886 shares of Common Stock as trustees under the Company's Pension
Plan.
(9) Includes 383,886 shares of Common Stock owned by the Company's Pension Plan
as to which Messrs. Ervin and Simons share, as trustees, voting and
dispositive powers.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of the Company's
Common Stock, to file with the Securities and Exchange Commission initial
reports of ownership and reports of changes in ownership of Common Stock and
other equity securities of the Company. Certain officers, directors and greater
than ten percent stockholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file. To the Company's
knowledge, based solely on review of the copies of such reports furnished to the
Company and its representatives and certain representations that no other
reports were required, all persons subject to these reporting requirements filed
the required reports on a timely basis.
COMPENSATION OF EXECUTIVE OFFICERS
REPORT OF THE COMPENSATION COMMITTEES ON EXECUTIVE COMPENSATION:
The Company's annual compensation policies applicable to executive officers
are administered by the Compensation Committee (the "Committee") of the Board of
Directors, all of which Committee members are non-employee directors. The
compensation policies are designed to attract, motivate and retain qualified
individuals required to manage the Company to meet its short- and long-term
objectives and thereby increase stockholder value. Significant emphasis is also
placed on encouraging executive officers to build their holdings of the
Company's stock to align their goals with those of the stockholders. The
Company's program on executive compensation consists of three primary
components--base salary, annual incentive bonuses and long-term incentives under
incentive stock plans. The Committee recommends to the Board of Directors the
salaries and incentive bonuses of executive officers and the Incentive
Compensation Committee administers the incentive stock plans. The Committees
consider total individual performance and the overall financial and other
significant conditions of the Company in making their compensation
recommendations. Each of the three components of executive compensation is
reviewed for competitiveness and reasonableness in relation to a group of
companies the Committee deems comparable.
BASE SALARY:
In April 2001, the Committee considered adjustments in officers' salaries.
At that time the Committee considered the financial performance of the Company
as a whole and the contribution of each of the executive officers. The Committee
reviewed salaries recommended by Mr. J. Patrick Ervin for executive officers
other than himself, together with a survey of executive salaries for other
domestic machine tool manufacturers. Mr. Ervin's salary and other compensation
were determined out of his presence. Consistent with the Committee's emphasis on
incentive-based compensation, modest percentage increases in base salaries were
granted, together with a substantial increase for Mr. Ervin upon his election to
the position of Chief Executive Officer and a somewhat smaller increase for Mr.
Simons, to reflect their assumption of increased responsibilities upon the
retirement of Robert E. Agan as Chairman and Chief Executive Officer. For
reasons unrelated to personal performance but instead to the continuing downturn
in the machine tool business, Mr. Ervin's salary, together with all other
officers, was reduced by 10% effective September 1, 2001. In connection with Mr.
Agan's retirement as Chairman of the Board and Chief Executive Officer, the
Compensation Committee approved a one-time cash payment of $50,000 to Mr. Agan
together with the distribution to him of a life insurance policy on his life
having an approximate value of $150,000. In determining these payments, the
Committee considered a number of factors,
6
including Mr. Agan's distinguished service to the Company for 44 years which
included 18 years in the position of Chief Executive and Mr. Agan's level of
total compensation prior to his retirement.
INCENTIVE BONUSES:
The Committee administers the Company's incentive cash bonus program which
provides flexibility to the Committee from year to year to meet the
ever-changing business environment, provides competitive profit-focused cash
incentives for the corporate officers and allows the Chief Executive Officer to
establish specific individual objectives for all officers other than himself,
the achievement of which is rewarded by year-end cash bonuses if the Company is
sufficiently profitable. Although the Committee was pleased with the performance
of the executive officers, no bonuses were granted to any of the current
executives listed in the Summary Compensation Table.
During 2001 the Compensation Committee had not yet developed a policy in
order to qualify any compensation to the five highest-paid executive officers in
excess of $1 Million per year for federal tax deductibility pursuant to Section
162(m) of the Internal Revenue Code of 1986, as amended. The Compensation
Committee intends to balance the interests of the Company in maintaining
flexible incentive plans and the manner and extent to which the Company benefits
from the compensation package paid to any executive officer against the possible
loss of a tax deduction if and when taxable compensation for any of the five
highest-paid executive officers exceeds $1 Million per year.
E. Martin Gibson, Chair Richard J. Cole
J. Philip Hunter Albert W. Moore
REPORT OF THE INCENTIVE COMPENSATION COMMITTEE:
Under the 1996 Incentive Stock Plan (the "Plan") shares of Common Stock have
been set aside for grants to key employees of restricted stock, stock options
and performance share awards. Under the Plan, restricted stock grants were
selected by the Committee for award to key executives with a view to increasing
executive ownership of Company stock to encourage their focus on long-term
corporate results and to link a substantial portion of executive pay and
financial incentive to increases in stockholder value. Individual grant awards
are based upon an executive's responsibilities and role in increasing
stockholder value and the Committee's evaluation of individual performance based
upon qualitative and quantitative measurements. No consideration is given to the
number of shares currently directly or indirectly owned. Restrictions on shares
awarded lapse upon passage of time as established by the Committee on the date
of the award, if said shares are not earlier forfeited. Under this Plan for the
year 2001, Messrs. Ervin, Simons, Colvin, Tifft and Hendrick were awarded grants
of 15,000, 10,000, 5,000, 8,000 and 5,000, respectively, restricted shares of
Common Stock to be earned over an eight year period subject to forfeiture and
restrictions on transfer. All of Messrs. Ervin and Simons' grants, and 50% of
Messrs. Colvin, Tifft and Hendrick's grants were made subject to complete or
partial forfeiture upon the Company's not meeting certain specified earnings per
share targets for the year 2001. All of said shares were completely forfeited as
of December 31, 2001. Not fulfilling certain other performance criteria
established by the Committee resulted in an additional 25% forfeiture for those
shares granted to Messrs. Colvin and Hendrick. For those shares not so
forfeited, total unconditional vesting will occur only upon the completion of
eight years of continuous service (as specified at the time of grant) or, if
earlier, upon death, retirement after age 55, retirement prior to age 55 for
reasons of total and permanent disability or retirement for other medical or
health reasons which render an employee unable to perform his duties and
responsibilities or termination in other limited circumstances. Partial vesting
will occur if the employee is terminated during a period from one to eight years
(as specified at the time of grant) for reasons other than gross deviation from
duties and responsibilities. The Plan provides that the possibility of
forfeiture shall lapse in its entirety and the Company shall deliver to the
employee or his personal representative, free of any restrictions, certificates
representing the shares of Restricted Stock in the event of a termination of the
employee's employment with the Company or a subsidiary within four years
following a change of control as defined in the agreements entered into pursuant
to the Plan.
E. Martin Gibson, Chair Richard J. Cole Albert W. Moore
7
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION:
Messrs. Gibson, Cole, Hunter and Moore served as members of the Compensation
Committee during 2001. Mr. Hunter is the Secretary of the Company and Mr. Hunter
and Mr. Agan's son, Steven E. Agan, are partners with the law firm of Sayles &
Evans. Sayles & Evans has acted as regular outside legal counsel to the Company
since 1956 and the Company expects to continue to use such services in 2002.
During 2001 the Company paid Sayles & Evans $243,390 for legal services. J.
Patrick Ervin participates in the deliberations of the Compensation and
Incentive Compensation Committees for the purpose of providing evaluations and
recommendations with respect to the compensation paid to officers other than
himself. However, Mr. Ervin neither participates nor is otherwise involved in
the deliberations of the Compensation and Incentive Compensation Committees with
respect to his own compensation, and those deliberations are conducted by the
Compensation and Incentive Compensation Committees in executive session without
Mr. Ervin present.
8
EXECUTIVE COMPENSATION:
The following table sets forth information with respect to compensation paid
by the Company for periods during the last three years to the Chief Executive
Officer and the four other most highly compensated executive officers as
measured by salary and bonus.
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
ANNUAL COMPENSATION(1) ----------------
NAME AND ------------------------------ RESTRICTED STOCK ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS AWARDS(2) COMPENSATION(3)
------------------ -------- -------- -------- ---------------- ---------------
J. Patrick Ervin...................... 2001 $205,667 $ -0- $ -0- $ 2,350
Chief Executive Officer and 2000 171,667 90,000 68,750 2,146
President 1999 155,000 -0- 180,000 2,089
Richard L. Simons..................... 2001 148,000 -0- -0- 1,852
Executive Vice President and 2000 135,333 75,000 68,750 1,694
Chief Financial Officer 1999 126,000 -0- 144,000 1,619
Joseph T. Colvin...................... 2001 128,833 -0- 11,938 1,616
Vice President -- 2000 128,667 35,000 41,250 1,613
Workholding 1999 126,000 -0- 90,000 1,582
Douglas C. Tifft...................... 2001 118,833 -0- 38,200 1,487
Senior Vice President-- 2000 116,000 55,000 55,000 1,452
Administration 1999 110,000 -0- 108,000 1,377
Richard B. Hendrick................... 2001 108,807 -0- 11,938 -0-
Vice President and Controller 2000 49,000 10,000 -0- -0-
1999 -0- -0- -0- -0-
Robert E. Agan........................ 2001 127,500 -0- -0- 221,597
Chairman of the Board 2000 302,000 330,000 -0- 10,491
and Chief Executive Officer 1999 294,000 -0- 666,000 17,823
Retired May 1, 2001
------------------------
(1) Any perquisites or other personal benefits received from the Company by any
of the named executives were substantially less than the reporting
thresholds for "other annual compensation" established by the Securities and
Exchange Commission (the lesser of $50,000 or 10% of the individual's cash
compensation).
(2) Reflects grants made in January of each of the respective years. In the year
2001, 100% of the shares granted to Messrs. Ervin and Simons, 75% of the
shares granted to Messrs. Colvin and Hendrick and 50% of the shares granted
to Mr. Tifft were forfeited on December 31, 2001 on account of the Company's
failure to meet earnings per share targets and other performance criteria
upon which said grants were conditioned. The awards shown for Messrs.
Colvin, Tifft and Hendrick for the year 2001 reflect those shares not
forfeited as of said date. As of December 31, 2001, Messrs. Ervin, Simons,
Colvin, Tifft, Hendrick and Agan held 46,400, 43,000, 23,125, 42,500, 1,250
and 37,000, respectively, restricted shares of Common Stock having an
aggregate value on that date of $443,120, $410,650, $220,844, $405,875,
$11,938 and $353,350, respectively, based upon the closing price of the
Company's Common Stock on December 31, 2001. The restrictions on these
shares lapse on a scheduled time basis, or earlier, upon death and other
conditions as provided in restricted stock agreements with said persons. The
officers are entitled to vote said shares and to receive any and all
dividends paid on the stock.
(3) Represents Company contributions to the Hardinge Inc. Savings Plan for each
named executive officer, and for Mr. Agan for the years 2001, 2000 and 1999,
$213,849, $8,241 and $15,521, respectively, reimbursement for taxes paid by
Mr. Agan with respect to certain perquisites provided to him and for the
year 2001, includes a special retirement bonus awarded to Mr. Agan.
9
PERFORMANCE GRAPH:
The graph below compares the five-year cumulative total return for Hardinge
Inc. Common Stock with the comparable returns for the Nasdaq National Market
Composite Index and a group of six peer issuers selected for their presence in
the machine tool industry. Said peer group includes Bridgeport Machines, Inc.
(ceased public trading 8/19/99), Genesis Worldwide, Inc. (ceased public trading
6/2/00), Giddings & Lewis, Inc. (ceased public trading 9/30/97), Gleason
Corporation (ceased public trading 3/29/00), Hurco Companies Inc., and Milacron,
Inc. Cumulative total return represents the change in stock price and the amount
of dividends received during the indicated period, assuming reinvestment of
dividends. The graph assumes an investment of $100 on December 31, 1996. The
stock performance shown in the graph is included in response to SEC requirements
and is not intended to forecast or to be indicative of future performance.
COMPARATIVE FIVE-YEAR TOTAL RETURNS
HARDINGE INC., NASDAQ COMPOSITE, PEER GROUP
(PERFORMANCE RESULTS FROM 12/31/96 THROUGH 12/31/01)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Dollars
1996 1997 1998 1999 2000 2001
Hardinge, Inc. 100 144 109 80 92 64
NASDAQ-Composite 100 122 173 321 193 153
Peer Group 100 135 99 90 96 95
1996 1997 1998 1999 2000 2001
-------- -------- -------- -------- -------- --------
Hardinge Inc................................................ $100 $144 $109 $ 80 $ 92 $ 64
NASDAQ-Composite............................................ 100 122 173 321 193 153
Peer Group.................................................. 100 135 99 90 96 95
10
PENSION PLAN:
The Company maintains a non-contributory defined benefit Pension Plan for
all employees. Normal retirement is at age 65; however, retirement before age 65
can be selected under certain conditions. Annual pensions are computed on the
basis of adjusted career average compensation, excluding bonuses. The adjusted
career average compensation formula is the sum of (a) for service prior to
December 1, 1993, 1.25% of the annual compensation rate as of December 1, 1993,
times the number of years of service prior to December 1, 1993, plus (b) 1.5% of
compensation on or after December 1, 1993. Pension amounts are not subject to
reductions for Social Security benefits or offset amounts but are subject to
federal law limitations on pensions payable under tax qualified plans.
If the Executive Officers remain continuously employed at current
compensation levels until retirement at the normal retirement age of 65, the
estimated annual pension amounts payable under the Pension and Supplemental
Plans for Messrs. Ervin, Simons, Colvin, Tifft and Hendrick would be $91,890,
$69,628, $24,832, $59,639 and $30,649, respectively. Pensions described are
straight-life annuity amounts not reduced by joint and survivorship provisions
which are available to all retirees through reductions in pensions otherwise
payable.
EMPLOYMENT AGREEMENTS:
The Company has entered into written employment contracts with Messrs.
Ervin, Simons, Colvin, Tifft and Hendrick (the "officers"). The term of each
employment agreement is two years, with automatic, successive one-year
extensions unless either party provides the other with 60 days' prior notice of
termination. In the case of a change of control (as such term is defined in the
employment agreements), the term of each officer's employment agreement will be
automatically extended for a period of two years following the date of the
change of control. Officers' bonuses shall be determined in accordance with an
annual bonus policy.
If an officer is terminated without cause, or resigns for good reason (as
such term is defined in the employment agreements), such officer will be
entitled to continued payment of his base salary for the greater of six months
or the remainder of the current term. If an officer is terminated without cause
or resigns for good reason (as such term is defined in the employment
agreements) on or after a change of control, or resigns for any reason at any
time six months or more following a change of control, such officer will be
entitled (i) to receive a lump sum cash payment equal to one and one-half times
the sum of his base salary in effect immediately prior to his termination or
resignation (or as in effect immediately prior to the change of control, if
higher) and his average annual bonus for the three years preceding the change of
control, and (ii) to participate, at the Company's expense, in the Company's
welfare benefit plans for a period of three years following his resignation or
termination. Such lump sum cash payments shall be subject to reduction to the
extent necessary to prevent any amounts or benefits due from being deemed
"excess parachute payments" within the meaning of Section 280G of the Code.
COMPENSATION OF DIRECTORS AND COMMITTEE MEETINGS
The Board of Directors held six regularly scheduled meetings during the year
ended December 31, 2001. The Board has standing Executive, Audit, Nominating,
Compensation, Incentive Compensation and Investment Committees.
The Chairman of the Executive Committee is Mr. Gibson. Other members are
Messrs. Cole, Flynn, Hunter and Moore. During the interim between regular Board
meetings, the Executive Committee possesses and may exercise certain powers of
the Board in the management and direction of the Company. The Executive
Committee held no meetings during 2001.
The Chairman of the Audit Committee is Mr. Cole. Other members are Messrs.
Burke and Flynn. The functions of the Audit Committee are to recommend
engagement of independent accountants, review the arrangement and scope of the
audit, review the activities and consider any comments made by the
11
independent auditors with respect to any weaknesses in internal controls and
consideration given, or the corrective action taken, by management. During the
year, there were six Audit Committee meetings.
The Chairman of the Nominating Committee is Mr. Gibson. Other members are
Messrs. Flynn and Moore. The Committee selects and recommends to the Board
nominees for election to the Board and also selects and recommends to the Board
nominees for election as officers of the Company. The Committee will consider
written recommendations by stockholders for election to the Board, if such
recommendations are received by the Chairman of the Nominating Committee or to
the Chairman of the Board of Directors, at its main office, One Hardinge Drive,
Elmira, NY 14902. The Committee held three meetings during 2001.
The Chairman of the Compensation and Incentive Compensation Committees is
Mr. Gibson. Other members of the Compensation Committee include Messrs. Cole,
Hunter and Moore and the Incentive Compensation Committee has two other members,
Mr. Cole and Mr. Moore. The Compensation Committee reviews and recommends to the
Board bonuses paid to employees, and salaries and bonuses of officers. The
Incentive Compensation Committee administers the Company's 1996 Incentive Stock
Plan and grants stock options and restricted stock awards thereunder. There were
two meetings of the Compensation Committee and two meetings of the Incentive
Compensation Committee during 2001.
The Chairman of the Investment Committee is Mr. Flynn. Other members include
Messrs. Burke, Cole, Greenlee, Hunter and Simons. The Committee reviews the
investments and performance of the Trustees of the Pension and Savings Plans,
fixes desirable goals and consults with the Trustees thereon. There were six
meetings of the Committee during 2001.
All members of the Board attended at least 75% of the aggregate number of
Board meetings and meetings of committees of which they are members held during
2001.
During 2001, the members of the Board who are not full-time employees of the
Company were paid a quarterly fee of $500 ($1,250 until July 1, 2001) and $700
($800 until July 1, 2001) for each Board and Committee meeting attended. In
addition, each director received 1,290 shares of Common Stock and pursuant to
the Company's 1996 Incentive Stock Plan, an option to purchase 750 shares of
Common Stock effective on the date of the Company's Annual Meeting at its then
fair market value. Mr. Gibson received an additional 5,000 shares of Common
Stock for his services as Chairman of the Board of Directors. There is a
Deferred Directors Fee Plan that allows a director at his election to defer
receiving up to 100% of his fees payable in cash until the later of separation
or age 70.
REPORT OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
The Audit Committee of the Board of Directors of Hardinge Inc. serves as the
representative of the Board for general oversight of the Company's financial
accounting and reporting process, system of internal control, audit process and
process for monitoring compliance with laws and regulations and performs other
related functions as described in the Audit Committee's Charter adopted by the
Board. A copy of the Charter was attached to the Company's 2001 proxy statement
and has not been amended to date. The Company's management has primary
responsibility for preparing the Company's financial statements and its
financial reporting process. The Company's independent accountants, Ernst &
Young LLP, are responsible for expressing an opinion on the conformity of the
Company's audited financial statements to generally accepted accounting
principles.
In this context, the Audit Committee hereby reports as follows:
1. The Audit Committee has reviewed and discussed the audited financial
statements with the Company's management.
2. The Audit Committee has discussed with the independent accountants the
matters required to be discussed by Statement on Auditing Standards No. 61,
Communication with Audit Committees, as amended.
12
3. The Audit Committee has received the written disclosures and the letter
from the independent accountants required by Independence Standard's Board
Standard No. 1, "Independence Discussions with Audit Committees", as amended,
and has discussed with the independent accountants their independence from
management and the Company and considered the compatability of nonaudit services
with the auditors' independence.
4. Based on the review and discussions referred to in paragraphs (1)
through (3) above, the Audit Committee recommended to the Board of Directors of
Hardinge Inc., and the Board has approved, that the audited financial statements
be included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001 for filing with the Securities and Exchange Commission. The
Committee and the Board have also recommended, subject to shareholder approval,
the selection of Ernst & Young, LLP as the Company's independent auditors for
2002.
Richard J. Cole, Chair Daniel J. Burke
James L. Flynn
PROPOSAL NO. 2:
PROPOSAL TO ADOPT THE HARDINGE INC. 2002 INCENTIVE STOCK PLAN
The 2002 Incentive Stock Plan (the "Plan"), attached hereto as Appendix A,
provides for the granting of stock options, stock appreciation rights,
restricted stock incentives, performance share incentives (collectively,
"Incentives"), and dividend equivalents, payable in Common Stock or cash, or a
combination of shares and cash, to Company employees and directors. The Plan
will become effective on May 7, 2002 if adopted by the Company's stockholders at
the Annual Meeting and shall terminate on May 6, 2012, but awards made prior
thereto may extend beyond that date. The purpose of the Plan is to enhance the
profitability and value of the Company for the benefit of its shareholders by
providing stock awards to attract, retain and motivate officers, directors and
other key employees who make important contributions to the success of the
Company. The Plan will be administered by the Incentive Compensation Committee
of the Board of Directors (the "Committee"). Terms and conditions of awards will
be set forth in written agreements. The Plan provides that 450,000 shares of
Common Stock will be available for the granting of awards under the Plan,
limited in each calendar year commencing with 2002 to 1% of the Company's
outstanding stock--approximately 88,000 shares for 2002. The closing price of
the Common Stock on March 15, 2002 was $12.75.
Any employee of the Company or any of its subsidiaries will be eligible for
any award under the Plan if selected by the Committee. Subject to the provisions
of the Plan, the Committee will have full authority and discretion to determine
the employees to whom awards will be granted and the amount and form of such
awards. There are approximately 1,280 persons employed by the Company and its
subsidiaries who would be eligible for selection for participation by the
Committee. No determination has been made by the Committee with respect to the
specific employees who will be recipients or the amount or nature of any future
awards under the Plan. The aggregate number of shares in respect of which
Incentives may be granted in any calendar year to recipients under the Plan will
not exceed 1% of the Company's outstanding shares of Common Stock on the first
business day of that calendar year. The maximum number of shares in respect of
which Incentives may be granted during the term of the Plan to an individual
recipient will be 112,500.
13
Under the Plan, the Committee will be authorized to grant stock options that
qualify as "Incentive Stock Options" ("ISOs") under Section 422 of the Internal
Revenue Code (the "Code"), and to grant stock options that do not so qualify. No
stock option can be granted at an option price less than the fair market value
of the Common Stock at the time of grant. No stock option can be exercised more
than ten years after the date such option is granted. In the case of Incentive
Stock Options, the aggregate fair market value of the Common Stock with respect
to which options are exercisable for the first time by any recipient during any
calendar year cannot, under present tax rules, exceed $100,000. The Committee
will be authorized to issue, with limitations, reload options upon exercise of
stock options.
The Committee will also be authorized to grant eligible employees other
Incentives, including stock appreciation rights, restricted stock incentives,
performance share incentives, and dividend equivalents under such terms and
conditions as the Committee may prescribe. The Committee will establish
performance goals in respect of any performance share incentives, which goals
may include earnings per share, return on stockholders' equity, return on
assets, net income, Company earnings performance compared to its domestic
competition or any other financial or other measurement. The Shares of Common
Stock which may be granted pursuant to a restricted stock incentive will be
restricted and will not be able to be sold, pledged, transferred or otherwise
disposed of until such restrictions lapse. The Committee may in its discretion
accelerate the date of exercise, vesting or lapse of restrictions for any
Incentive but in no event shall the Restriction Period for Restricted Stock
Incentives be less than three years. Incentives and shares of Common Stock
issued pursuant to restricted stock incentives will be issued for no monetary
consideration.
Commencing with the Annual Meeting, outside directors of the Company shall
be granted options in respect of 750 shares of the Company's Common Stock as of
the close of the Annual Meeting at which such director is elected or following
which such director shall continue to serve as a director. The options granted
to outside directors will have a term of ten years and an exercise price equal
to 100% of the fair market value of the Company's Common Stock on the date the
options are granted. The Committee shall have no authority regarding the
granting of options to outside directors.
Appropriate adjustments will be made to the number of shares available for
awards and the terms of outstanding awards under the plan to reflect any
extraordinary dividend, reorganization, recapitalization, stock dividend, stock
split-up, change in par or no par value, combination of shares, merger,
consolidation, sale of all or substantially all of the assets of the Company,
warrant or rights offering or combination, exchange or reclassification of
Common Stock or any other similar event or any other change in the corporate
structure or shares of the Company. Except for such adjustments, neither the
Board nor the Committee will lower the exercise price of outstanding options
issued under the Plan.
Incentive holders shall forfeit all amounts not payable or privileges with
respect to stock options not immediately exercisable if the holder is terminated
for cause, voluntarily terminates other than by retirement after the age of 55
or if the holder engages in competition or any activity or conduct contrary to
the best interests of the Company. Stock options immediately exercisable at the
time of such events will remain exercisable for seven days.
Upon a change in control, all Incentives outstanding shall become fully
vested and exercisable and all stock options may be surrendered to the Company
for cash in an amount equal to the aggregate excess of the fair market value
over the exercise price of such options. For this purpose, a change of control
will include an acquisition (other than from or by the Company or by an employee
benefit plan of the Company) of 20% or more of the Common Stock, a change in
control of the Board, or a reorganization, merger, consolidation of all or
substantially all of the Company's assets (other than a transaction after which
beneficial owners of Common Stock prior to such transaction continue to
beneficially own more than 60% of the Common Stock, no person or entity holds
over 20% of the Common Stock and no change in control of the Board has
occurred).
The Plan is intended to comply with 162(m) of the Internal Revenue Code of
1986, as amended, and Rule 16b-3 promulgated pursuant to the Securities Exchange
Act of 1934, as amended.
14
The Committee has sole discretion to grant Incentives to employees under the
Plan. No determination has been made as to the nature or amount of awards that
would have been or will be made under the Plan. Therefore, the amount or nature
of awards that will be received by employees under the Plan cannot be now
determined. No grants will be made under the Company's 1996 Incentive Stock Plan
on and after shareholder approval of the Plan. As discussed above, outside
directors will be granted options in respect of 750 shares of Common Stock for
each year of service. Based on a Board immediately following the 2002 Annual
Meeting of Stockholders of seven outside members, the non-executive directors as
a group would receive options in respect of 5,250 shares of Common Stock each
year.
INCOME TAX CONSEQUENCES
Stock Options to be issued under the Plan as ISOs will satisfy the
requirements of Section 422 of the Code. Under the provisions of that section,
the optionee will not be deemed to receive any income at the time an ISO is
granted or exercised. If the optionee disposes of the shares of Common Stock
acquired more than two years after the grant and one year after the exercise of
the ISO, the gain, if any (i.e., the excess of the amount realized for the
shares over the option price) will be long-term capital gain. If the optionee
disposes of the shares acquired on exercise of an ISO within two years after the
date of grant or within one year after the exercise of the ISO, the disposition
will constitute a "disqualifying disposition" and the optionee will have
ordinary income in the year of the disqualifying disposition equal to the fair
market value of the stock on the date of exercise minus the option price. The
excess of the amount received for the shares over the fair market value at the
time of exercise will be short-term capital gain if the shares are disposed of
within one year after the ISO is exercised, or long-term capital gain if the
shares are disposed of more than one year after the ISO is exercised. If the
optionee disposes of the shares in a disqualifying disposition, and such
disposition is a sale or exchange which would result in a loss to the optionee,
then the amount treated as ordinary income shall not exceed the excess (if any)
of the amount realized on such sale or exchange over the adjusted basis of such
shares.
The Company is not entitled to a deduction as a result of the grant or
exercise of an ISO. If the optionee has ordinary income as a result of a
disqualifying disposition, the Company will have a corresponding deductible
expense in an equivalent amount in the taxable year of the Company in which the
disqualifying disposition occurs.
The difference between the fair market value of the option at the time of
exercise and the option price is a tax preference item for alternative minimum
tax purposes. The basis in stock acquired upon exercise of an ISO for
alternative minimum tax purposes is increased by the amount of the preference.
Stock options issued under the Plan which do not satisfy the requirements of
Section 422 of the Code will have the following tax consequences:
1. the optionee will have ordinary income at the time the option is
exercised in an amount equal to the excess of the fair market value of the
Common Stock acquired at the date of exercise over the exercise price;
2. the Company will have a deductible expense in an amount equal to the
ordinary income of the optionee;
3. no amount other than the price paid upon exercise of the option shall be
considered as received by the Company for shares so transferred; and
4. any gain from the subsequent sale of the shares of Common Stock acquired
upon exercise for an amount in excess of the fair market value on the date the
option is exercised will be capital gain and any loss will be capital loss.
In general, a recipient of other Incentives excluding restricted stock
awards (see below) will have ordinary income equal to the cash or fair market
value of the Common Stock on the date received in the year in which the award is
actually paid. The Company will have a corresponding deductible expense in an
amount equal to that reported by the recipient as ordinary income in the same
year so reported. The
15
recipient's basis in the stock received will be equal to the fair market value
of the Common Stock when received and his or her holding period will begin on
that date.
Restricted stock awards do not constitute taxable income under existing
Federal tax law until such time as restrictions lapse with respect to any
installment. When any installment of shares are released from restriction, the
market value of such shares of Common Stock on the date the restrictions lapse
constitutes income to the recipient in that year and is taxable at ordinary
income rates. The Code, however, permits a recipient of a restricted stock
incentive to elect to have the award treated as taxable income in the year of
the award and to pay tax at ordinary income tax rates on the fair market value
of all of the shares awarded based on the price of the shares on the date the
recipient receives a beneficial interest in such shares. The election must be
made promptly within time limits prescribed by the Code and the regulations
thereunder. Any appreciation in value thereafter would be taxed at capital gain
rates when the restrictions lapse and the stock is subsequently sold. However,
should the market value of the stock, at the time the restrictions lapse and the
stock is sold, be lower than at the date acquired, the recipient would have a
capital loss, to the extent of the difference. In addition, if, after electing
to pay tax on the award in the year received, the recipient subsequently
forfeits the award for any reason, the tax previously paid is not recoverable.
In the event of a change in control, the vesting, exercise and lapse of
restrictions on incentives may contribute to an excess parachute payment, as
defined in Section 280G of the Code. In such event, the Company's deduction with
respect to such excess parachute payment would be denied and the recipient would
be subject to a nondeductible 20% excise tax on such excess parachute payment.
VOTE REQUIRED
The affirmative vote of a majority of the votes cast at the Annual Meeting
is required to approve the Plan.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
HARDINGE INC. 2002 INCENTIVE STOCK PLAN.
PROPOSAL NO. 3:
PROPOSAL TO RATIFY THE APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors is seeking stockholder ratification of the
appointment of Ernst & Young LLP as its independent auditors for 2002.
The Audit Committee of the Board of Directors has reviewed and evaluated all
criteria it considered relevant in assessing the performance of Ernst & Young
LLP, such as the quality of its audit work, its knowledge of the industry and
the Company's affairs, the availability of its professional advice on a timely
basis and the reasonableness of its fees. Based upon such review and evaluation,
the engagement of Ernst & Young LLP as independent auditors has been approved by
the Board of Directors upon the recommendation of the Audit Committee. If
stockholders do not ratify the appointment of Ernst & Young LLP, the appointment
of independent auditors will be reconsidered by the Audit Committee and the
Board of Directors. Even if the appointment is ratified, the Audit Committee in
its discretion may nevertheless recommend to the Board of Directors another firm
of independent auditors at any time during the year if the Audit Committee
determines such a change would be in the best interests of the stockholders and
the Company.
Audit services provided by Ernst & Young, LLP during 2001 included an audit
of Hardinge's consolidated financial statements, audits of the separate
financial statements of certain Company affiliates, audits of employee benefit
plan financial statements and a review of Hardinge's Annual Report and certain
other filings with the SEC and other governmental agencies. In addition, Ernst &
Young, LLP provided various non-audit services to the Company during 2001. Fees
for the year 2001 were: Annual audit--$241,459, and all other fees were
$264,665, comprised of audit related services of $46,914 and non-audit
16
services of $217,751. Audit related services generally include fees for
statutory and pension audits and non-audit services were primarily for tax
consulting and services.
Ernst & Young LLP has audited the Company's financial statements annually
since 1984. A representative of Ernst & Young LLP is expected to attend the
Annual Meeting, and will have the opportunity to make a statement if such
representative desires to do so and will be able to respond to appropriate
questions from stockholders.
VOTE REQUIRED
The affirmative vote of a majority of the votes cast at the Annual Meeting
is required for ratification of the appointment of Ernst & Young LLP.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP.
STOCKHOLDER PROPOSALS
Any stockholder proposal, including director nominations, intended to be
presented at the 2003 Annual Meeting and included in the Company's Proxy
Statement and Proxy relating to that meeting must be received by the Company at
One Hardinge Drive, Elmira, NY 14902, Attention: The Secretary, not later than
December 1, 2002. Such proposals also will need to comply with Securities and
Exchange Commission regulations regarding the inclusion of stockholder proposals
in Company-sponsored proxy materials.
OTHER MATTERS
The Board of Directors knows of no business other than that set forth above
to be transacted at the meeting, but if other matters requiring a vote of the
stockholders arise, the persons designated as proxies will vote the shares of
common stock represented by the proxies in accordance with their judgment on
such matters. The cost of soliciting proxies will be borne by the Company. In
addition to solicitations by mail, some of the directors, officers and regular
employees of the Company may conduct additional solicitations by telephone and
personal interviews without remuneration. The Company may also request nominees,
brokerage houses, custodians and fiduciaries to forward soliciting material to
beneficial owners of stock held of record and will reimburse such persons for
any reasonable expense.
The Company has purchased insurance from Federal Insurance Company providing
for reimbursement of directors and officers of the Company and its subsidiary
companies for costs and expenses incurred by them in actions brought against
them in connection with their actions as directors or officers, including
actions as fiduciaries under the Employee Retirement Income Security Act of
1974. The insurance coverage, which expires on January 27, 2002, costs $102,606
on an annual basis, which will be paid by the Company.
Financial statements for the Company and its consolidated subsidiaries are
included in Hardinge Inc.'s Annual Report to stockholders for the year 2001
which was mailed to the stockholders on or about April 1, 2002.
17
A COPY OF HARDINGE INC.'S 2001 ANNUAL REPORT ON FORM 10-K FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS AVAILABLE WITHOUT CHARGE TO THOSE
STOCKHOLDERS WHO WOULD LIKE MORE DETAILED INFORMATION CONCERNING HARDINGE. TO
OBTAIN A COPY, PLEASE WRITE TO: RICHARD L. SIMONS, EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER, HARDINGE INC., ONE HARDINGE DRIVE, ELMIRA, NY 14902.
By Order of the Board of Directors,
/s/ J. PHILIP HUNTER
J. PHILIP HUNTER
SECRETARY
Dated: April 1, 2002
18
APPENDIX A
HARDINGE INC.
2002 INCENTIVE STOCK PLAN
1. Establishment of Plan
Hardinge Inc. (hereafter referred to as the "Company") proposes to grant to
selected employees of the Company and its subsidiaries: (a) Incentive Stock
Options, (b) Non-Qualified Stock Options, (c) Stock Appreciation Rights, (d)
Restricted Stock Incentives, and (e) Performance Share Incentives (collectively
hereinafter sometimes referred to as "Incentives") for the purpose of enhancing
the profitability and value of the Company for the benefit of its shareholders
by providing stock awards to attract, retain and motivate officers and other key
employees who make important contributions to the success of the Company.
The Company also proposes to grant to Outside Directors options to purchase
common stock of the Company pursuant to the Plan. The purpose of such Director
Options is to provide incentives for highly qualified individuals to stand for
election to the Board and to continue service on the Board and to encourage
increased stock ownership by Outside Directors in order to promote long-term
stockholder value. Restricted Stock Incentives, Incentive Stock Options (as
defined in Section 422A of the Internal Revenue Code), Stock Appreciation
Rights, Performance Share Incentives and Dividend Equivalents will not be
granted to Outside Directors under the Plan.
Incentives shall be granted pursuant to the plan herein set forth, which
shall be known as the Hardinge Inc. 2002 Incentive Stock Plan (hereinafter
referred to as the "Plan").
2. Definitions of Certain Terms Used in the Plan.
a. "Affiliate" means any subsidiary, whether directly or indirectly owned,
or parent of the Company, or any other entity designated by the
Committee.
b. "Board" means the Company's Board of Directors.
c. "Change of Control" is defined in Section 18 of the Plan.
d. "Code" means the Internal Revenue Code of 1986, as amended, or any
successor code thereto.
e. "Committee" means the Incentive Compensation Committee of the Board of
Directors of the Company or any successor committee the Board of
Directors may designate to administer the Plan.
f. "Common Stock" means the Hardinge Inc. Common Stock, par value $.01 per
share.
g. "Competition" means to manage, operate, join, control, participate in,
provide consulting advice to, act as an agent or director of, or have any
financial interest in (as a partner, stockholder, investor or otherwise),
any firm, corporation, partnership, association, joint stock company,
joint venture, unincorporated organization, limited liability company or
any such similar business operation or activity (or any portion thereof),
directly or indirectly, in competition with any of the business
operations or activities of the Company or its Affiliates or affecting or
attempting to affect a Change of Control.
h. "Director Stock Option" means a Nonqualified Option granted to Outside
Directors pursuant to Section 7 of the Plan.
i. "Employee" means any person who is employed by the Company or a
subsidiary of the Company.
j. "Exchange Act" means the Securities Exchange Act of 1934, as amended.
k. "Fair Market Value" of Stock means the fair and reasonable value thereof
as determined by the Committee according to prices in trades as reported
on the NASDAQ National Market. If there are no prices so reported or if,
in the opinion of the Committee, such reported prices do not
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represent the fair and reasonable value of the Stock, then the Committee
shall determine Fair Market Value by any means it deems reasonable under
the circumstances.
l. "Incentive Stock Options" means stock options granted under the Plan
that meet the definition of Incentive Stock Options under Section 422 of
the Code.
m. "Nonqualified Options" means stock options granted under the Plan that
are not Incentive Stock Options.
n. "Outside Director" means any member of the Company's Board of Directors
who is not also an Employee.
o. "Participant" shall mean any employee or director selected to receive a
grant under the Plan.
p. "Performance Share Incentives" means Incentives granted under Section 9
of the Plan.
q. "Restricted Stock Incentives" means Incentives granted under Section 10
of the Plan.
r. "Retirement" means retirement under any pension or retirement plan of
the Company or of a subsidiary, or termination of employment with the
Company or a subsidiary, by action of the employing company, because of
disability.
s. "Stock" means the Common Stock or any other authorized class or series
of common stock or any such other security outstanding upon the
reclassification of any of such classes or series of common stock,
including, without limitation, any stock split-up, stock dividend,
creation of targeted stock, or other distributions of stock in respect of
stock, or any reverse stock split-up, or recapitalization of the Company
or any merger or consolidation of the Company with any Affiliate.
t. "Stock Appreciation Rights" means Incentives granted under Section 8 of
the Plan.
u. "Stock Options" means Incentive Stock Options and Nonqualified Options
granted under the Plan.
v. A "subsidiary" means any corporation in which the Company owns, directly
or indirectly, at least thirty-five percent (35%) of the total combined
voting power of all classes of stock; except that for purposes of any
option subject to the provisions of Section 424 of the Internal Revenue
Code, as amended, the term "subsidiary" means any corporation in an
unbroken chain of corporations beginning with the Company if, at the time
of the granting of an Option, each of the corporations, other than the
last corporation in the unbroken chain, owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes
of stock of one of the other corporations in such chain.
w. "Termination for Cause" means an Employee's termination of employment
with the Company or an Affiliate or an Outside Director's removal from
office as a director of the Company, in each case because of such
person's willful engaging in gross misconduct; provided, however, that a
Termination for Cause shall not include termination attributable to (i)
poor work performance, bad judgment or negligence, (ii) an act or
omission believed by such person in good faith to have been in or not
opposed to the best interests of the Company and reasonably believed by
such person to be lawful, or (iii) the good faith conduct of such person
in connection with a Change of Control (including opposition to or
support of such Change of Control).
3. Stock Reserved for Incentives.
A maximum of 450,000 shares of Common Stock or the number of securities to
which said number of shares may be adjusted in accordance with Section 4 below,
may be issued upon granting of Restricted Stock Incentives, Performance Share
Incentives, and the exercise of Stock Options and Stock Appreciation Rights
under the Plan. Such shares may be either authorized and unissued shares or
previously issued shares purchased by the Company for purposes of the Plan.
Subject to adjustment in accordance with Section 4 below, a maximum of one
percent (1%) of the outstanding shares of the Company's Common
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Stock as of the first business day of any calendar year may be the subject of
Incentives granted under the Plan in that calendar year. The shares available
for granting Incentives in any year shall be increased by the number of shares
available under the Plan in previous years but not covered by Incentives granted
under the Plan in those years plus any shares as to which options or other
benefits granted under the Plan have lapsed, expired, terminated or been
cancelled. Any shares subject to stock options, grants or Incentives may
thereafter be subject to new stock options, grants or Incentives under the Plan
if there is a forfeiture of any such grants or Incentives, or the lapse,
expiration or termination of any such option but not if there is a surrender of
an option or portion thereof pursuant to a Stock Appreciation Right as provided
hereafter in Section 8. The maximum number of shares in respect of which
Incentives may be granted during the term of the Plan to an individual recipient
of Incentives shall be 112,500.
The inability of the Company to obtain authority from any regulatory body
having jurisdiction, which counsel to Company deems necessary to the proper
issuance and sale of any shares hereunder, shall relieve the Company from any
liability for failure to issue or sell such shares as to which such authority
has not been obtained.
4. Adjustment Provisions
In the event of any extraordinary dividend, reorganization,
recapitalization, stock dividend, stock split-up, change in par or no par value,
combination of shares, merger, consolidation, sale of all or substantially all
of the assets of the Company, warrant or rights offering or combination,
exchange or reclassification of Common Stock or any other similar event or any
other change in the corporate structure or shares of the Company, the Committee
or its delegate shall cause such equitable adjustment as it deems appropriate to
be made in the number and kind of shares then remaining available for issue
under the Plan, and in the terms of the outstanding Incentives to reflect such
event and preserve the value of such Incentives. In the event the Committee
determines that any such event has a minimal effect on the value of Incentives,
it may elect not to cause any such adjustments to be made. In all events, the
determination of the Committee or its delegee shall be conclusive. If any such
adjustment would result in a fractional security being issuable or awarded under
the Plan, such fractional security shall be disregarded. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect and no
adjustment by reason hereof shall be made with respect to the number or price of
shares subject to a grant.
5. Administration of the Plan.
The authority to grant Incentives to employees under the Plan shall be
vested in the Committee; provided, however, that the Committee shall have no
authority regarding the granting of Director Stock Options to Outside Directors,
which grants shall be non-discretionary. The Committee shall determine those
eligible to receive Incentives and the amount, type and terms of each Incentive,
subject to the provisions of the Plan. Each member of the Committee shall be (i)
an "outside director" within the meaning of Section 162(m) of the Code, subject
to any transitional rules applicable to the definition of outside director, and
(ii) a "disinterested person" within the meaning of Rule 16b-3 under the
Exchange Act, or otherwise qualified to administer this Plan as contemplated by
that Rule or any successor Rule under the Exchange Act. In making any
determinations under the Plan, the Committee shall be entitled to rely on
reports, opinions or statements of officers or employees of the Company, as well
as those of counsel, public accountants and other professional or expert
persons. All determinations, interpretations and other decisions under or with
respect to the Plan or any Incentives by the Committee shall be final,
conclusive and binding upon all parties, including without limitation, the
Company, any Employee, and any other person with rights to any Incentive under
the Plan, and no member of the Committee shall be subject to individual
liability with respect to the Plan.
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Subject to the provisions of the Plan, the Committee from time to time shall
determine the individuals to whom, and the time or times at which, Incentives
shall be granted and the terms thereof. In the case of officers to whom
Incentives may be granted, the selection of such officers and all of the
foregoing determinations shall be made directly by the Committee in its sole
discretion. In the case of key employees other than officers, the selection of
such employees and all of the foregoing determinations may be delegated by the
Committee to an administrative group of officers chosen by the Committee.
Incentives granted to one employee need not be identical to those granted other
employees.
The Committee shall administer and shall have full power to construe and
interpret the Plan; prescribe, amend and rescind rules and regulations relating
to the Plan; and make all other determinations and take all other actions that
the Committee believes reasonable and proper, including the power to delegate
responsibility to others to assist it in administering the Plan. The
determinations of the Committee shall be made in accordance with its judgment as
to the best interests of the Company and its stockholders and in accordance with
the purposes of the Plan. The Committee's determinations shall in all cases be
conclusive.
A majority of the members of the Committee shall constitute a quorum, and
all determinations of the Committee shall be made by a majority of the entire
Committee. Any determination of the Committee may be made, without notice or
meeting, by the written consent of a majority of the Committee members.
6. Eligibility.
Any Employee selected by the Committee, except a member of the Committee,
shall be eligible for any Incentive contemplated under the Plan. In making its
determination, the Committee shall take into account the present and potential
contributions of the Employees to the success of the Company and such other such
factors as the Committee shall deem relevant. Outside Directors of the Company
shall be eligible for grants of Director Stock Options under Section 7 of the
Plan. An Employee or Director who has been granted an Incentive under this or
any other plan of the Company or any of its Affiliates may or may not be granted
additional Incentives under the Plan at the discretion of the Committee. As a
condition to the exercise of a grant, the Company may require the Participant
exercising the grant to represent and warrant that at the time of exercise the
shares are being purchased only for investment and without any present intention
to sell or distribute such shares if, in the opinion of counsel to the Company,
such a representation is required by applicable law.
7. Stock Options.
The Committee may grant Incentive Stock Options, other statutory options
under the Code, and Nonqualified Options to eligible Employees, and such Stock
Options shall be subject to the terms and conditions of this Section 7 of the
Plan and such other terms and conditions as the Committee may prescribe.
(a) Option Price. The option price per share with respect to each Stock
Option shall be determined by the Committee, but shall not be less than
100% of the fair market value of the Common Stock on the date the Stock
Option is granted, as determined by the Committee. Except as provided in
Section 4 hereof, under no circumstances shall the Board or the Committee
lower the exercise price of outstanding options issued under the Plan.
(b) Period of Option. The period of each Stock Option shall be fixed by the
Committee; provided, however, that such period shall not exceed ten (10)
years from the grant date in the case of Incentive Stock Options.
(c) Payment. The option price shall be payable at the time the Stock Option
or the Director Stock Option is exercised in cash or, at the discretion
of the Committee, in whole or in part in the form of shares of Common
Stock already owned by the grantee (based on the fair market value of the
Common Stock on the date the option is exercised by the Committee). No
shares shall be issued until full payment therefor has been made. A
grantee of a Stock Option or a Director Stock Option shall have none of
the rights of a stockholder until the shares are issued.
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(d) Exercise of Option. The shares covered by a Stock Option may be
purchased in such installments and on such exercise dates as the
Committee may determine. Any shares not purchased on the applicable
exercise date may be purchased thereafter at any time prior to the final
expiration of the Stock Option. In no event (including those specified in
paragraphs (e), (f) and (g) of this section below) shall any Stock Option
or any Director Stock Option be exercisable after its specified
expiration period and in no event shall a Stock Option or Director Stock
Option be exercised after the expiration of ten (10) years from the date
such option is granted. The Committee may provide that, subject to such
conditions as it considers appropriate, upon the delivery of shares of
Common Stock to the Company in payment of the exercise price of a Stock
Option, the grantee of such Stock Option automatically be awarded a Stock
Option for up to the number of shares of Common Stock so delivered.
(e) Retirement and Termination. Upon Retirement or termination of employment
of the Stock Option grantee for reasons other than those described in
Section 14 of the Plan, Stock Option privileges shall apply only to those
Options immediately exercisable at the date of such Retirement or
termination. The Committee, however, in its discretion, may provide on a
case by case basis that any Stock Options outstanding but not yet
exercisable upon such Retirement or termination of the Stock Option
grantee may become exercisable in accordance with a schedule to be
determined by the Committee. Options exercisable upon Retirement shall
remain exercisable for three (3) years after Retirement; Options
exercisable upon termination for reasons other than Retirement or those
described in Section 14 of the Plan shall remain exercisable for six (6)
months after such termination.
(f) Death. Upon the death of a Stock Option or Director Stock Option
grantee, Stock Option or Director Stock Option privileges shall apply
only to those shares which were immediately exercisable at the time of
death, and options exercisable upon death shall remain exercisable for
three (3) years after death. The Committee, in its discretion, may
provide that any Stock Options or Director Stock Options outstanding but
not yet exercisable upon the death of a Stock Option or Director Stock
Option grantee may become exercisable in accordance with a schedule to be
determined by the Committee. Such privileges shall expire unless
exercised by legal representatives within such period of time as
determined by the Committee but in no event later than the date of the
expiration of the Stock Option or Director Stock Option.
(g) Limits on Incentive Stock Options. Except as may otherwise be permitted
by the Code, the Committee shall not, in the aggregate, grant to any
Employee Incentive Stock Options that are first exercisable during any
one calendar year (under all such plans of such Employee's employer
corporation and its parent and subsidiary corporations) to the extent
that the aggregate fair market value of the Common Stock, at the time the
Incentive Stock Options are granted, exceeds $100,000.
Commencing with the 2002 annual meeting of the stockholders of the Company,
Director Stock Options with an option period of ten (10) years and an option
price equal to 100% of the fair market value of the Common Stock on the date the
Director Stock Option is granted, shall be granted to each Outside Director for
750 shares of the Company's Common Stock effective as of the close of each
annual meeting of the stockholders of the Company (i) at which such individual
is elected a director, or (ii) following which such individual will continue to
serve as a director or member of a continuing class of directors, and except as
specifically provided in this paragraph, such Director Stock Options shall be
subject to the terms and conditions of this Section 7 of the Plan.
8. Stock Appreciation Rights.
The Committee may, in its discretion, grant a right to receive the
appreciation in the fair market value of shares of Common Stock either singly or
in combination with an underlying Stock Option granted
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hereunder. Such Stock Appreciation Rights shall be subject to the following
terms and conditions and such other terms and conditions as the Committee may
prescribe:
(a) Time and Period of Grant. If a Stock Appreciation Right is granted in
connection with an underlying Stock Option, it may be granted at the time
of the Stock Option Grant or at any time thereafter but prior to the
expiration of the Stock Option Grant. If a Stock Appreciation Right is
granted in connection with an underlying Stock Option, at the time the
Stock Appreciation Right is granted the Committee may limit the exercise
period for such Stock Appreciation Right, before and after which period
no Stock Appreciation Right shall attach to the underlying Stock Option.
In no event shall the exercise period for a Stock Appreciation Right
granted with respect to an underlying Stock Option exceed the exercise
period for such Stock Option. If a Stock Appreciation Right is granted
without an underlying Stock Option, the period for exercise of the Stock
Appreciation Right shall be set by the Committee.
(b) Value of Stock Appreciation Right. If a Stock Appreciation Right is
granted in connection with an underlying Stock Option, the grantee will
be entitled to surrender the Stock Option which is then exercisable and
receive in exchange therefor an amount equal to the excess of the fair
market value of the Common Stock on the date the election to surrender is
received by the Company over the Stock Option price multiplied by the
number of shares covered by the Stock Options which are surrendered. If a
Stock Appreciation Right is granted without an underlying Stock Option,
the grantee will receive upon exercise of the Stock Appreciation Right an
amount equal to the excess of the fair market value of the Common Stock
on the date the election to surrender such Stock Appreciation Right is
received by the Company over the fair market value of the Common Stock on
the date of grant multiplied by the number of shares covered by the grant
of the Stock Appreciation Right.
(c) Payment of Stock Appreciation Right. Payment of a Stock Appreciation
Right shall be in the form of shares of Common Stock, cash, or any
combination of shares and cash. The form of payment upon exercise of such
a right shall be determined by the Committee either at the time of the
grant of the Stock Appreciation Right or at the time of exercise of the
Stock Appreciation Right.
9. Performance Share Incentives.
The Committee may grant awards under which payment may be made in shares of
Common Stock, cash or any combination of shares and cash if the performance of
the grantee, the Company or any subsidiary or division of the Company selected
by the Committee during the award period meets certain goals established by the
Committee. Such Performance Share Incentives shall be subject to the following
terms and conditions and such other terms and conditions as the Committee may
prescribe.
(a) Incentive Period and Performance Goals. The Committee shall determine
and include in a Performance Share Incentive grant the period of time for
which a Performance Share Incentive is made ("Incentive Period"), which
period must be a minimum of one year. The Committee shall also establish
performance objectives ("Performance Goals") to be met by the Company,
subsidiary or division or the grantee during the Incentive Period as a
condition to payment of the Performance Share Incentive. The Performance
Goals may include earnings per share, return on stockholders' equity,
return on assets, net income, Company earnings performance compared to
its domestic competition or any other financial or other measurement
established by the Committee. The Performance Goal may include minimum
and optimum objectives or a single set of objectives.
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(b) Payment of Performance Share Incentives. The Committee shall establish
the method of calculating the amount of payment to be made under a
Performance Share Incentive if the Performance Goals are met, including
the fixing of a maximum payment. The Performance Share Incentive shall be
expressed in terms of shares of Common Stock referred to as "Performance
Shares". After the completion of an Incentive Period, the performance of
the grantee, the Company, subsidiary or division shall be measured
against the Performance Goals and the Committee shall determine whether
all, none or any portion of a Performance Share Incentive shall be paid.
The Committee, in its discretion, may elect to make payment in shares of
Common Stock, cash or a combination of shares and cash. Any cash payment
shall be based on the fair market value of Performance Shares on, or as
soon as practicable prior to, the date of payment.
(c) Revision of Performance Goals. At any time prior to the end of an
Incentive Period, the Committee may revise the Performance Goals and the
computation of payment if unforeseen events occur which have a
substantial effect on the performance of the Company, subsidiary or
division and which in the judgment of the Committee make the application
of the Performance Goals unfair unless a revision is made.
(d) Requirement of Employment. A grantee of a Performance Share Incentive
must remain in the employment of the Company until the completion of the
Incentive Period in order to be entitled to payment under the Performance
Share Incentive; provided that the Committee may, in its sole discretion,
provide for a partial payment where such an exception is deemed
equitable.
(e) Dividends. The Committee may, in its discretion, at the time of the
granting of a Performance Share Incentive, provide that any dividends
declared on the Common Stock during the Incentive Period, and which would
have been paid with respect to the Performance Shares had they been owned
by a grantee, be (i) paid to the grantee, or (ii) accumulated for the
benefit of the grantee and used to increase the number of Performance
Shares of the grantee.
10. Restricted Stock Incentives.
The Committee may issue shares of Common Stock to a grantee which shares
shall be subject to the following terms and conditions and such other terms and
conditions as the Committee may prescribe:
(a) Requirement of Employment. A grantee of a Restricted Stock Incentive
must remain in the employment of the Company during a period designated
by the Committee ("Restriction Period"). If the grantee leaves the
employment of the Company prior to the end of the Restriction Period, the
Restricted Stock Incentive shall terminate and the shares of Common Stock
shall be returned immediately to the Company; provided that the Committee
may, at the time of the grant, provide for the employment restriction to
lapse with respect to a portion or portions of the Restricted Stock
Incentive at different times during the Restriction Period. The Committee
may, in its discretion, also provide for such complete or partial
exceptions to the employment restriction as it deems equitable, but in no
event shall the Restriction Period be less than three years.
(b) Restrictions on Transfer and Legend on Stock Certificates. During the
Restriction Period, the grantee may not sell, assign, transfer, pledge or
otherwise dispose of the shares of Common Stock except as provided under
Section 11 hereof. Each certificate for shares of Common Stock issued
hereunder shall contain a legend giving appropriate notice of the
restrictions in the grant.
(c) Escrow Agreement. The Committee may require the grantee to enter into an
escrow agreement providing that the certificates representing the
Restricted Stock Incentive will remain in the physical custody of an
escrow holder until all restrictions are removed or expire.
(d) Lapse of Restrictions. All restrictions imposed under the Restricted
Stock Incentive shall lapse upon the expiration of the Restriction Period
if the conditions as to employment set forth above have been met. The
grantee shall then be entitled to have the legend removed from the
certificates.
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(e) Dividends. The Committee shall, in its discretion, at the grant of the
Restricted Stock Incentive, provide that any dividends declared on the
Common Stock during the Restriction Period shall either be (i) paid to
the grantee, or (ii) accumulated for the benefit of the grantee and paid
to the grantee only after the expiration of the Restriction Period.
11. Dividend Equivalents.
The Committee is hereby authorized to grant to eligible employees Dividend
Equivalents under which the employee shall be entitled to receive payments in
cash equivalent to the amount of cash dividends paid by the Company to holders
of Common Stock with respect to a number of shares of Common Stock granted under
the Plan as determined by the Committee. Subject to the terms of the Plan and
any applicable agreement, such Dividend Equivalents may have such terms and
conditions as the Committee shall determine.
12. Nontransferability.
Each Incentive granted under the Incentive Stock Plan shall not be
transferable other than by Will or the laws of descent and distribution, and
with respect to Stock Options, shall be exercisable during the grantee's
lifetime by the grantee only or the grantee's guardian or legal representative.
13. No Right of Employment.
The Incentive Stock Plan and the Incentives granted hereunder shall not
confer upon any eligible employee the right to continued employment with the
Company or affect in any way the right of the Company to terminate the
employment of an eligible employee at any time and for any reason.
14. Taxes.
The Company shall be entitled to withhold, or otherwise collect from the
recipient, the amount of any tax attributable to any amount payable or shares
deliverable under the Plan after giving the person entitled to receive such
amount or shares notice as far in advance as practicable. The recipient may
elect, subject to approval by the Committee, to have shares so deliverable
withheld by the Company in satisfaction of such taxes, or to deliver other
shares of Stock owned by the recipient in satisfaction of such taxes. With
respect to officers of the Company or a subsidiary or other recipients subject
to Section 16(b) of the Exchange Act, the Committee may impose such other
conditions on the recipient's election as it deems necessary or appropriate in
order to exempt such withholding from the penalties set forth in said Section.
The number of shares to be withheld or delivered shall be calculated by
reference to the Fair Market Value of the appropriate class or series of Stock
on the date that such taxes are determined.
15. Forfeiture of Incentives.
Unless the Committee shall have determined otherwise, the recipient of an
Incentive shall forfeit all amounts not payable or privileges with respect to
Stock Options not immediately exercisable upon the occurrence of any of the
following events:
a. The recipient is Terminated for Cause.
b. The recipient voluntarily terminates his or her employment other than by
Retirement after attainment of age 55, or such other age as may be
provided for in the Incentive.
c. The recipient engages in Competition with the Company or any Affiliate.
d. The recipient engages in any activity or conduct contrary to the best
interests of the Company or any Affiliate.
Stock Options and Director Stock Options immediately exercisable upon the
occurrence of any of the preceding events shall remain exercisable for seven (7)
days after the occurrence of such event unless the Committee in its sole
discretion shall provide that such Stock Options and Director Stock Options
shall remain exercisable for a longer period.
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The Committee may include in any Incentive any additional or different
conditions of forfeiture it may deem appropriate. The Committee also, after
taking into account the relevant circumstances, may waive any condition of
forfeiture stated above or in the Incentive contract.
In the event of forfeiture, the recipient shall lose all rights in and to
the Incentive. Except in the case of Restricted Stock Incentives as to which the
restrictions have not lapsed, this provision, however, shall not be invoked to
force any recipient to return any Stock already received under an Incentive.
Such determinations as may be necessary for application of this Section,
including any grant of authority to others to make determinations under this
Section, shall be at the sole discretion of the Committee, and its
determinations shall be conclusive.
16. Acceleration.
The Committee may, in its sole discretion, accelerate the date of exercise,
vesting, lapse of restrictions or other receipt of any Incentive, provided that
in no event shall the Restriction Period for Restricted Stock Incentives be less
than three years.
17. Rights as a Shareholder.
A recipient of an Incentive shall, unless the terms of the Incentive provide
otherwise, have no rights as a shareholder, with respect to any options or
shares which may be issued in connection with the Incentive until the issuance
of a Stock certificate for such shares, and no adjustment other than as stated
herein shall be made for dividends or other rights for which the record date is
prior to the issuance of such Stock certificate. In addition, with respect to
Restricted Stock Incentives, recipients shall have only such rights as a
shareholder as may be set forth on the certificate or in the terms of the
Incentive.
18. Foreign Nationals.
Incentives may be awarded to persons who are foreign nationals or employed
outside the United States on such terms and conditions different from those
specified in the Plan as the Committee considers necessary or advisable to
achieve the purposes of the Plan or to comply with applicable laws.
19. Change in Control Provisions.
(a) Impact of Event. Notwithstanding any other provision of the Plan to the
contrary, in the event of a Change in Control, any Incentives outstanding
as of the date such Change in Control is determined to have occurred and
not then exercisable and vested shall become fully exercisable and vested
to the full extent of the original grant and all restrictions on
Incentives shall immediately lapse.
(b) Change in Control Cash Out. Notwithstanding any other provision of the
Plan, upon the occurrence of a Change of Control all outstanding Stock
Options shall immediately become fully exercisable, and during the 60-day
period from and after such Change in Control (the "Exercise Period"), an
optionee shall have the right, in lieu of the payment of the exercise
price for the shares of Stock being purchased under the Stock Option or
Director Stock Option and by giving notice to the Company, to elect
(within the Exercise Period) to surrender all or part of the Stock Option
or Director Stock Option to the Company and to receive cash, within 30
days of such notice, in an amount equal to the amount by which the Change
in Control Price per share of Stock on the date of such election shall
exceed the exercise price per share of Stock under the Stock Option or
Director Stock Option (the "Spread") multiplied by the number of shares
of Stock granted under the Stock Option or Director Stock Option as to
which the right granted under this section shall have been exercised;
provided, however, that if the end of such 60-day period from and after a
Change in Control is within six months of the date of grant of a Stock
Option or Director Stock Option held by an optionee who is an officer or
director of the Company and is subject to Section 16(b) of the Exchange
Act, such Stock Option or Director Stock Option shall be cancelled in
exchange for a cash payment to the optionee, effected on the
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day which is six months and one day after the date of grant of such
Option, equal to the Spread multiplied by the number of shares of Stock
granted under the Stock Option or Director Stock Option. For purposes of
this paragraph only, the date of grant of any Stock Option or Director
Stock Option approved by the Committee prior to the date on which the
Plan is approved by the Company's shareholders shall be deemed to be the
date on which the Plan is approved by the Company's shareholders.
(c) Definition of Change in Control. For purposes of the Plan, a "Change in
Control" shall mean the happening of any of the following events:
(i) An acquisition by any individual, entity or group within the meaning
of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person")
resulting in beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of either (x) the
then outstanding shares of Common Stock of the Company (the
"Outstanding Company Common Stock") or (y) the combined voting power
of the then outstanding voting securities of the Company entitled to
vote generally in the election of directors (the "Outstanding
Company Voting Securities"); excluding, however, the following
acquisitions of Outstanding Company Common Stock and Outstanding
Company Voting Securities: (1) any acquisition directly from the
Company (other than an acquisition pursuant to the exercise of a
conversion privilege), (2) any acquisition by the Company, (3) any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation or other
entity controlled by the Company or (4) any acquisition by any
person pursuant to a reorganization, merger or consolidation if,
following such reorganization, merger or consolidation, the
conditions described in clauses (1), (2) and (3) of subsection (iii)
of this section are satisfied, or
(ii) Individuals who, as of the effective date of the Plan, constitute
the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however,
that any individual who becomes a member of the Board subsequent to
such effective date, whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a
majority of directors then comprising the Incumbent Board, shall be
considered as though such individual were a member of the incumbent
Board; but, provided further, that any such individual whose
initial assumption of office occurs as a result of either an actual
or threatened election contest (as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act) or
other actual or threatened solicitation of proxies or consents by
or on behalf of a person other than the Board shall not be so
considered as a member of the Incumbent Board; or
A-10
(iii) Approval by the shareholders of the Company of a reorganization,
merger or consolidation or sale or other disposition of all or
substantially all of the assets of the Company ("Business
Combination"); excluding, however, such a Business Combination
pursuant to which (1) all or substantially all of the individuals
and entities who are the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination own,
directly or indirectly, more than 60% of, respectively, the
outstanding shares of common stock, and the combined voting power
of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the
corporation or other entity resulting from such Business
Combination (including, without limitation, a corporation which as
a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business
Combination, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (2) no
person (other than the Company, any employee benefit plan or
related trust sponsored or maintained by the Company or any
corporation or other entity controlled by the Company or such
corporation resulting from such Business Combination and any person
beneficially owning, immediately prior to such Business
Combination, directly or indirectly, 20% or more of the Outstanding
Company Common Stock or Outstanding Company Voting Securities, as
the case may be) will beneficially own, directly or indirectly, 20%
or more of, respectively, the outstanding shares of common stock of
the corporation or other entity resulting from such Business
Combination or the combined voting power of the outstanding voting
securities of such corporation or other entity entitled to vote
generally in the election of directors and (3) at least a majority
of the members of the board of directors of the corporation or
other entity resulting from such Business Combination were members
of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such
Business Combination; or
(iv) The approval by the shareholders of the Company of a plan of
partial or complete liquidation or dissolution of the Company.
(d) Change in Control Price. For purposes of the Plan, "Change in Control
Price" means the higher of (i) the highest reported sales price, regular
way, of a share of Stock in any transaction reported on the NASDAQ
National Market or other national securities exchange on which such
shares are listed, as applicable, during the 60-day period prior to and
including the date of a Change in Control and (ii) if the Change in
Control is the result of a tender or exchange offer or a Business
Combination, the highest price per share of Stock paid in such tender or
exchange offer or Business Combination; provided, however, that in the
case of a Stock Option which (A) is held by an optionee who is an officer
or director of the Company and is subject to Section 16(b) of the
Exchange Act and (B) was granted within 240 days of the Change in
Control, then the Change in Control Price for such Stock Option shall be
the Fair Market Value of the Stock on the date such Stock Option is
exercised, cancelled or cashed out pursuant to the terms of the Plan. To
the extent that the consideration paid in any such transaction described
above consists all or in part of securities or other non-cash
consideration, the value of such securities or other non-cash
consideration shall be determined in the sole discretion of the Board.
20. Amendment of Incentive.
The Committee may amend, modify or terminate any outstanding Incentive,
including substituting therefor another Incentive of the same or a different
type, changing the date of exercise or realization and converting an Incentive
Stock Option to a Nonstatutory Stock Option, provided that the holder's consent
to such action shall be required unless the Committee determines that the
action, taking into account any related action, would not materially and
adversely affect the Employee and provided further that under no circumstances,
except as provided in Section 4 hereof, shall the exercise price of outstanding
stock options issued under the Plan be reduced.
A-11
21. Amendment to Prior Plan.
No grants shall be made under the Company's 1996 Incentive Stock Plan on or
after shareholder approval of the Plan.
22. Effective Date and Term.
This Plan shall be effective upon adoption by the shareholders of the
Company at its 2002 Annual Meeting to be held on May 7, 2002. The Plan shall
continue in effect until May 6, 2012, when it shall terminate. Upon termination,
any balances of shares reserved for issuance under the Plan shall be cancelled,
and no Incentives shall be granted under the Plan thereafter. The Plan shall
continue in effect, however, insofar as is necessary to complete all of the
Company's obligations under outstanding Incentives to conclude the
administration of the Plan.
23. Termination and Amendment of Plan.
The Plan may be terminated at any time by the Board of Directors except with
respect to any Stock Options, Director Stock Options, Restricted Stock
Incentives, Stock Appreciation Rights or Performance Share Incentives then
outstanding. Also, the Board may, from time to time, amend the Plan as it may
deem proper and in the best interests of the Company or as may be necessary to
comply with any applicable laws or regulations, provided that no such amendment
shall, without approval of the holders of a majority of the outstanding shares
of Common stock, (i) increase the total number of shares which may be issued
under the Plan, (ii) reduce the minimum purchase price or otherwise materially
increase the benefits under the Plan, (iii) change the basis for valuing Stock
Appreciation Rights, (iv) impair any outstanding Incentives without the consent
of the holder, (v) alter the class of employees eligible to receive Incentives,
or (vi) withdraw the administration of the Plan from the Committee.
24. Construction of Plan.
The place of administration of the Plan shall be in the State of New York,
and the validity, construction, interpretation, administration and effect of the
Plan and of its rules and regulations, and rights relating to the Plan, shall be
determined solely in accordance with the laws, but not the laws pertaining to
choice of laws, of the State of New York.
25. Other Laws.
The Committee may refuse to issue or transfer any shares or other
consideration under a grant if, acting in its sole discretion, it determines
that the issuance or transfer of such shares or such other consideration might
violate any applicable law or regulation or entitle the Company to recover the
same under Section 16(b) of the Exchange Act, and any payment tendered to the
Company by a Participant, other holder or beneficiary in connection with the
exercise of such grant shall be promptly refunded to the relevant Participant,
holder, or beneficiary. Without limiting the generality of the foregoing, no
grant granted hereunder shall be construed as an offer to sell securities of the
Company, and no such offer shall be outstanding, unless and until the Committee
in its sole discretion has determined that any such offer, if made, would be in
compliance with all applicable requirements of the U.S. federal securities laws
and any other laws to which such offer, if made, would be subject.
A-12
[HARDINGE LOGO]
THIS IS YOUR PROXY BALLOT FOR THE ANNUAL MEETING
YOUR VOTE IS IMPORTANT
PLEASE COMPLETE AND RETURN THIS BALLOT
HARDINGE INC.
Proxy Solicited on Behalf of the Board of Directors of Hardinge Inc. for
the Annual Meeting May 7, 2002
The undersigned hereby constitutes and appoints J. Patrick Ervin, James L.
Flynn and E. Martin Gibson, and each of them, his or her true and lawful agents
and proxies with full power of substitution in each, to represent the
undersigned at the Annual Meeting of Stockholders of Hardinge Inc. (the
"Company") to be held at the Company's corporate headquarters, One Hardinge
Drive, Elmira, New York, on Tuesday, May 7, 2002 at 9:00 a.m., local time, and
at any adjournments or postponements thereof, with all powers the undersigned
would possess, if then and there personally present, on all matters properly
coming before said Annual Meeting, including but not limited to the matters set
forth below.
You are encouraged to specify your choices by marking the appropriate
boxes, but you need not mark any boxes if you wish to vote in accordance with
the Board of Directors' recommendations. Your proxy cannot be voted unless you
sign, date and return this card.
This Proxy when properly executed will be voted in the manner directed
herein and will be voted in the discretion of the proxies upon such other
matters as may properly come before the Annual Meeting. If no direction is made,
this proxy will be voted FOR proposals 1, 2 and 3.
The Board of Directors recommends a vote FOR Proposals 1, 2 and 3. /X/ Please mark your votes as in this example.
1. Proposal for election of Directors.
NOMINEES: Class II Directors--Daniel J. Burke, J. Philip Hunter and Albert W. Moore
/ / FOR ALL NOMINEES / / WITHHELD FROM ALL NOMINEES
/ / ________________________________________________________________________________________________________________________
FOR, except authority to vote WITHHELD from the above nominee(s) (write name(s) on line)
2. Proposal to adopt the Hardinge Inc. 2002 Incentive Stock Plan.
/ / FOR / / AGAINST / / ABSTAIN
3. Proposal to ratify the appointment of Ernst & Young LLP as the Company's independent auditors for 2002.
/ / FOR / / AGAINST / / ABSTAIN
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
HARDINGE INC.
C/O CORPORATE TRUST SERVICES
MAIL DROP 10AT66--4129
38 FOUNTAIN SQUARE PLAZA
CINCINNATI, OH 45202
NAME APPEARS
FOLD AND DETACH HERE
---------------------------------------------------------------------------------------------------------------------------------
PLEASE DATE, SIGN, AND MAIL THIS PROXY TODAY IN THE ENCLOSED ENVELOPE TO: Corporate Election Services, P.O. Box 535800,
Pittsburgh, PA 15253.
IF NO BOXES ARE MARKED, THIS PROXY WILL BE VOTED IN THE MANNER DESCRIBED ON THE REVERSE SIDE.
/ / MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW.
NOTE: Please sign exactly as name appears herein. Joint
owners should each sign. When signing as attorney, execu-
tor, administrator, trustee or guardian, please give full title
as such.
NAME APPEARS
--------------------------- -------------
Signature Date
--------------------------- -------------
Signature Date
[HARDINGE LOGO]
THIS IS YOUR PROXY BALLOT FOR THE ANNUAL MEETING
IT REPRESENTS THE HARDINGE INC. SHARES YOU OWN
IN THE HARDINGE INC. SAVINGS PLAN
YOUR VOTE IS IMPORTANT
PLEASE COMPLETE AND RETURN THIS BALLOT
HARDINGE INC.
Proxy Solicited on Behalf of the Board of Directors of Hardinge Inc. for
the Annual Meeting May 7, 2002
HARDINGE INC. SAVINGS PLAN
The undersigned hereby constitutes and appoints State Street Bank and Trust
Company, as Trustee under the Hardinge Inc. Savings Plan, his or her true and
lawful agent and proxy with full power of substitution for all shares of Common
Stock the undersigned has the power to direct the vote under said Plan, to
represent the undersigned at the Annual Meeting of Stockholders of Hardinge Inc.
(the "Company") to be held at the Company's corporate headquarters, One Hardinge
Drive, Elmira, New York, on Tuesday, May 7, 2002 at 9:00 a.m., local time, and
at any adjournments or postponements thereof, with all powers the undersigned
would possess, if then and there personally present, on all matters properly
coming before said Annual Meeting, including but not limited to the matters set
forth below.
The undersigned hereby directs State Street Bank and Trust Company as
Trustee of the Plan to vote all shares of Common Stock in the undersigned's
accounts under said Plan in accordance with the instructions given herein.
Pursuant to the terms of the Plan, the Trustee of the Plan will vote all shares
of Common Stock held in the undersigned's name for which voting instructions
have not been received prior to May 3, 2002 in the same proportion as those
respective Plan shares for which it has received instructions.
You are encouraged to specify your choices by marking the appropriate
boxes, but you need not mark any boxes if you wish to vote in accordance with
the Board of Directors' recommendations.
This proxy when properly executed will be voted in the manner directed
herein and will be voted in the discretion of the Plan Trustee upon such other
matters as may properly come before the Annual Meeting. If no direction is made,
this proxy will be voted FOR proposals 1, 2 and 3.
The Board of Directors recommends a vote FOR Proposals 1, 2 and 3. /X/ Please mark your votes as in this example.
1. Proposal for election of Directors.
NOMINEES: Class II Directors--Daniel J. Burke, J. Philip Hunter and Albert W. Moore
/ / FOR ALL NOMINEES / / WITHHELD FROM ALL NOMINEES
/ / __________________________________________________________________________________________________________________________
FOR, except authority to vote WITHHELD from the above nominee(s) (write name(s) on line)
2. Proposal to adopt the Hardinge Inc. 2002 Incentive Stock Plan.
/ / FOR / / AGAINST / / ABSTAIN
3. Proposal to ratify the appointment of Ernst & Young LLP as the Company's independent auditors for 2002.
/ / FOR / / AGAINST / / ABSTAIN
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
HARDINGE INC.
C/O CORPORATE TRUST SERVICES
MAIL DROP 10AT66--4129
38 FOUNTAIN SQUARE PLAZA
CINCINNATI, OH 45202
NAME APPEARS
FOLD AND DETACH HERE
---------------------------------------------------------------------------------------------------------------------------------
PLEASE DATE, SIGN, AND MAIL THIS PROXY TODAY IN THE ENCLOSED ENVELOPE TO: Corporate Election Services, P.O. Box 535800,
Pittsburgh, PA 15253.
IF NO BOXES ARE MARKED, THIS PROXY WILL BE VOTED IN THE MANNER DESCRIBED ON THE REVERSE SIDE.
/ / MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW.
NOTE: Please sign exactly as name appears herein. Joint
owners should each sign. When signing as attorney, execu-
tor, administrator, trustee or guardian, please give full title
as such.
NAME APPEARS
--------------------------- -------------
Signature Date
--------------------------- -------------
Signature Date