SCHEDULE 14A INFORMATION
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Hillenbrand Industries, Inc.
(Name of Registrant as Specified in Its Charter)
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HILLENBRAND INDUSTRIES
NOTICE OF ANNUAL MEETING
TO BE HELD FEBRUARY 13, 2003
The annual meeting of shareholders of Hillenbrand Industries, Inc., an
Indiana corporation, 700 State Route 46 East, Batesville, Indiana 47006-8835,
will be held at the Sherman House, 35 South Main Street, Batesville, Indiana
47006-0067, on Thursday, February 13, 2003, at 10:00 a.m., local time (Eastern
Standard Time), for the following purposes:
(1) To elect four members to the Board of Directors;
(2) To ratify the appointment of PricewaterhouseCoopers LLP as
independent auditors of Hillenbrand Industries, Inc.; and
(3) To transact such other business as may properly come before
the meeting and any adjournment of the meeting.
The Board of Directors has fixed the close of business on December 17,
2002, as the record date for determining which shareholders are entitled to
notice of and to vote at the meeting.
By Order of the Board of Directors
Patrick D. de Maynadier
Secretary
January 13, 2003
TABLE OF CONTENTS
PAGE
VOTING........................................................................1
ELECTION OF DIRECTORS.........................................................2
ABOUT THE BOARD OF DIRECTORS (INCLUDING DIRECTOR COMPENSATION)................6
EXECUTIVE COMPENSATION.......................................................14
EQUITY COMPENSATION PLAN INFORMATION.........................................19
COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE'S REPORT...................19
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION..................23
COMPANY STOCK PERFORMANCE....................................................23
AUDIT COMMITTEE'S REPORT.....................................................24
RATIFICATION OF APPOINTMENT OF AUDITORS......................................25
COST OF SOLICITATION.........................................................26
SHAREHOLDER PROPOSALS........................................................26
INCORPORATION BY REFERENCE...................................................27
HILLENBRAND INDUSTRIES, INC. CORPORATE GOVERNANCE STANDARDS FOR
BOARD OF DIRECTORS..........................................................A-1
HILLENBRAND INDUSTRIES, INC. AUDIT COMMITTEE CHARTER........................B-1
-i-
HILLENBRAND INDUSTRIES
PROXY STATEMENT
This proxy statement relates to the solicitation by the Board of
Directors of Hillenbrand Industries, Inc. (the "Company"), 700 State Route 46
East, Batesville, Indiana 47006-8835, telephone (812) 934-7000, of proxies for
use at the annual meeting of the Company's shareholders to be held at the
Sherman House, 35 South Main Street, Batesville, Indiana 47006-0067, on
Thursday, February 13, 2003, at 10:00 a.m., local time (Eastern Standard Time),
and at any adjournments of the meeting. This proxy statement and the enclosed
form of proxy were mailed initially to shareholders on or about January 13,
2003. All shares represented by these proxies will be voted at this meeting in
accordance with instructions given by shareholders. Where no instructions are
given the shares will be voted (1) in favor of the election of the Board of
Directors' nominees for four directors; (2) in favor of the ratification of the
appointment of PricewaterhouseCoopers LLP as independent auditors of the
Company; and (3) in the discretion of the proxy holder upon such other business
as may properly come before the meeting.
The purpose of the annual meeting is to vote upon the matters set forth
above. The Board of Directors is not aware of any other business that may come
before the meeting.
VOTING
The close of business on December 17, 2002, has been fixed as the
record date for determining which shareholders are entitled to notice of and to
vote at the annual meeting. On December 17, 2002, there were 61,703,410 shares
of the Company's common stock issued and outstanding. Each share of common stock
is entitled to one vote with respect to every matter submitted to a vote at the
meeting. Votes cast by proxy, whether by proxy card, telephone or the internet,
or in person at the annual meeting will be tabulated by the election inspectors
appointed for the meeting. If you submit your proxy by telephone or via the
internet, you should not return your proxy card. Instructions for submitting
proxies by telephone or the internet are set forth on the enclosed proxy card.
If you choose to submit your proxy by mail, please sign, date and return the
proxy card in the envelope provided. A proxy may be revoked at any time before
it is voted at the meeting by submitting written notice of revocation to the
Secretary of the Company or by submitting another timely proxy by telephone,
internet or mail. If you hold shares through a broker or other custodian, please
check the voting instructions used by that broker or custodian.
VOTES NECESSARY TO ADOPT PROPOSALS. Directors are elected by a
plurality of the votes cast by shareholders entitled to vote at a meeting at
which a quorum is present. Ratification of the appointment of the auditors and
any other matter that comes before the meeting will be approved if the votes
cast favoring the action exceed the votes cast opposing the action.
A majority of the shares issued and outstanding constitutes a
quorum. Under Indiana law, once a share is represented for any purpose at a
meeting it is deemed present for quorum purposes for the remainder of the
meeting. Abstentions, broker non-votes and instructions on a proxy to withhold
authority to vote for one or more of the director nominees will result in fewer
votes being cast with respect to a particular issue or nominee. A broker
non-vote occurs when a broker holding shares for a beneficial owner does not
vote on a particular matter because the broker does not have discretionary
voting power for that matter and has not received instructions from the
beneficial owner. In the absence of such instructions, brokers have
discretionary voting power for matters such as the election of directors and the
ratification of auditors but not for certain other matters.
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ELECTION OF DIRECTORS
The Articles of Incorporation and the Code of By-laws of the Company
provide that members of the Board of Directors shall be classified with respect
to the terms that they shall serve by dividing them into three classes. Each
class consists of three members. At the upcoming annual meeting, one member of
the Board of Directors in Class II shall be elected for a one-year term expiring
at the 2004 annual meeting, and three members in Class I shall be elected for
three-year terms expiring at the 2006 annual meeting, or until their successors
are duly elected and qualified. The remaining two directors in Class II and
three directors in Class III were each previously elected to three-year terms
expiring at the 2004 and 2005 annual meetings, respectively. On May 16, 2002,
Peter F. Coffaro, Edward S. Davis and Leonard Granoff announced their
resignations from the Board of Directors of the Company. Following the
announcement of these resignations, the Code of By-laws of the Company was
amended to reduce the number of Class I members from four to three and to
increase the number of Class II members from two to three. On May 17, 2002, Rolf
A. Classon and Charles E. Golden were elected by the Board of Directors to fill
the two vacant positions in Class I, and Peter H. Soderberg was elected by the
Board of Directors to fill the vacancy in Class II.
Unless authority is withheld, all shares represented by proxies
submitted pursuant to this solicitation will be voted in favor of electing as
directors the nominees listed for the terms indicated. If any of these nominees
should be unable to serve, shares represented by proxies may be voted for a
substitute nominee selected by the Board of Directors, or the Board of Directors
may amend the Code of By-laws of the Company to reduce the number of directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
ELECTION TO THE BOARD OF DIRECTORS OF EACH OF THE NOMINEES NAMED BELOW.
NOMINEES:
CLASS I
Nominees to be elected to serve three-year terms expiring at the 2006 annual
meeting:
SHARES(1)
SERVED AS A BENEFICIALLY OWNED AS OF PERCENT OF TOTAL
NAME AGE PRINCIPAL OCCUPATION DIRECTOR SINCE DECEMBER 17, 2002 SHARES OUTSTANDING
---- --- ---------------------------------- -------------- ------------------------ ------------------
Rolf A. Classon 57 Chairman of Bayer HealthCare AG 2002 0 0%
Charles E. Golden 56 Executive Vice President and Chief 2002 0 0%
Financial Officer of Eli Lilly and
Company
W August Hillenbrand 62 Retired Chief Executive Officer 1972 3,790,530(3)(4)(5) 6.1%
of the Company
CLASS II
Nominee to be elected to serve a one-year term expiring at the 2004 annual
meeting:
SHARES(1)
SERVED AS A BENEFICIALLY OWNED AS OF PERCENT OF TOTAL
NAME AGE PRINCIPAL OCCUPATION DIRECTOR SINCE DECEMBER 17, 2002 SHARES OUTSTANDING
---- --- ----------------------------- -------------- ------------------------ ------------------
Peter H. Soderberg 56 President and Chief Executive 2002 500 (2)
Officer of Welch Allyn, Inc.
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CONTINUING DIRECTORS:
CLASS II
Serving three-year terms expiring at the 2004 annual meeting:
SHARES(1)
SERVED AS A BENEFICIALLY OWNED AS OF PERCENT OF TOTAL
NAME AGE PRINCIPAL OCCUPATION DIRECTOR SINCE DECEMBER 17, 2002 SHARES OUTSTANDING
---- --- ------------------------------ -------------- ------------------------ ------------------
Daniel A. Hillenbrand 79 Chairman Emeritus of the Board 1969 1,842,499 (4)(6) 3.0%
of the Company
Ray J. Hillenbrand 68 Chairman of the Board of the 1970 2,035,092 (4)(7) 3.3%
Company
CLASS III
Serving three-year terms expiring at the 2005 annual meeting.
SHARES(1)
SERVED AS A BENEFICIALLY OWNED AS OF PERCENT OF TOTAL
NAME AGE PRINCIPAL OCCUPATION DIRECTOR SINCE DECEMBER 17, 2002 SHARES OUTSTANDING
---- --- ----------------------------- -------------- ------------------------ ------------------
John C. Hancock 73 Consultant 1980 44,621(3) (2)
John A. Hillenbrand II 71 Personal Investments 1981(8) 3,076,837(4)(9) 5.0%
Frederick W. Rockwood 55 President and Chief Executive 1999 229,620(3) (2)
Officer of the Company
STOCK OWNERSHIP OF OTHER NAMED EXECUTIVE OFFICERS:
SHARES(1)
BENEFICIALLY OWNED AS OF PERCENT OF TOTAL
NAME AGE PRINCIPAL OCCUPATION DECEMBER 17, 2002 SHARES OUTSTANDING
---- --- -------------------- ------------------------ ------------------
Scott K. Sorensen 41 Vice President and Chief Financial Officer(10) 45,001 (2)
David L. Robertson 57 Vice President, Administration(11) 71,665(3) (2)
Kenneth A. Camp 57 President and Chief Executive Officer, 60,195 (2)
Batesville Casket Company, Inc.(12)
R. Ernest Waaser 46 President and Chief Executive Officer, 16,740(3) (2)
Hill-Rom Company, Inc.(13)
All directors and executive officers of the Company as a group, consisting of 11,244,784(3)(5)(6)(7)(9) 18.0%
18 persons.
(1) The Company's only class of equity securities outstanding is common
stock without par value. The Company is not aware of any person, other
than members of the Hillenbrand family as indicated herein,
beneficially owning more than five percent (5%) of the Company's common
stock. These share figures include the following shares that may be
purchased pursuant to stock options that are exercisable within 60 days
of December 17, 2002: W August Hillenbrand, 214,000 shares; John C.
Hancock, 16,000 shares; John A. Hillenbrand II, 16,000 shares;
Frederick W. Rockwood, 175,000 shares; Daniel A. Hillenbrand, 16,000
shares; Ray J. Hillenbrand, 16,000 shares; Scott K. Sorensen, 45,001
shares; David L. Robertson, 52,667 shares; Kenneth A. Camp, 53,001
shares; R. Ernest Waaser, 11,667 shares; and all directors and
executive officers as a group, 644,370 shares. Except as otherwise
indicated in these footnotes, the persons named have sole voting and
investment power with respect to all shares shown as beneficially owned
by them.
(2) Ownership of less than one percent (1%) of the total shares
outstanding.
(3) These share figures include vested deferred fees and/or compensation in
the form of deferred or restricted shares of common stock held on the
books and records of the Company in the following amounts: W August
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Hillenbrand, 165,669 shares; John C. Hancock, 15,621 shares; Frederick
W. Rockwood, 21,195 shares; David L. Robertson, 11,564 shares; R.
Ernest Waaser, 2,818 shares; and all directors and executive officers
as a group, 216,867 shares.
(4) John A. Hillenbrand II and Ray J. Hillenbrand are brothers, and they
are cousins of W August Hillenbrand. John A., Ray J. and W August are
nephews of Daniel A. Hillenbrand.
(5) Includes 217,174 shares owned of record and beneficially by W August
Hillenbrand's wife, Nancy K. Hillenbrand; 2,046,404 shares owned of
record by trusts, of which W August Hillenbrand is trustee or
co-trustee; 688,716 shares owned of record by a family partnership for
the benefit of members of W August Hillenbrand's family; 49,776 shares
held of record by a charitable trust, of which Mr. Hillenbrand is a
co-trustee; and 302,575 shares held by a limited partnership, of which
Mr. Hillenbrand is a limited partner. Mr. Hillenbrand disclaims
beneficial ownership of these shares. Mr. Hillenbrand's address is the
address of the Company's principal executive offices.
(6) Includes 10,400 shares owned of record and beneficially by Daniel A.
Hillenbrand's wife, Mary H. Hillenbrand. Mr. Hillenbrand disclaims
beneficial ownership of these shares.
(7) Includes 800,000 shares held of record by a trust, of which Ray J.
Hillenbrand is trustee; 68,975 shares held of record by a charitable
foundation, of which Mr. Hillenbrand is a trustee; and 1,007,792 shares
held of record by family partnerships for the benefit of other members
of his immediate family. Mr. Hillenbrand disclaims beneficial ownership
of these shares.
(8) John A. Hillenbrand II previously served as a Director of the Company
from 1972 to 1979. Mr. Hillenbrand's address is the address of the
Company's principal executive offices.
(9) Includes 17,240 shares held of record by John A. Hillenbrand II's wife,
Joan L. Hillenbrand; and an aggregate of 2,581,642 shares held of
record by trusts for the benefit of his children and grandchildren, by
a family partnership and by a family corporation. Mr. Hillenbrand
disclaims beneficial ownership of these shares.
(10) Mr. Sorensen was elected Vice President and Chief Financial Officer of
the Company on March 1, 2001.
(11) Mr. Robertson was elected Vice President, Administration on May 1,
2001. Prior to that he had been Vice President, Executive Leadership
Development since June 26, 2000, Vice President, Administration from
December 6, 1999 to June 26, 2000, and Vice President, Human Resources
since March 23, 1998.
(12) Mr. Camp was elected President and Chief Executive Officer of
Batesville Casket Company, Inc., a subsidiary of the Company, on May 1,
2001. He was also elected as a Vice President of the Company on October
8, 2001. Prior to his election to these positions, Mr. Camp has held
various other positions within Hillenbrand Industries, Inc. and its
subsidiary Batesville Casket Company, Inc.
(13) Mr. Waaser was elected President and Chief Executive Officer of
Hill-Rom Company, Inc., a subsidiary of the Company, on January 22,
2001. He was also elected as a Vice President of the Company on October
8, 2001.
Rolf A. Classon has been Chairman of Bayer HealthCare AG, a subsidiary
of Bayer AG, since October 2002. Previously, he had been president of Bayer's
Diagnostic Division and head of Bayer's Worldwide Business Group - Diagnostics
since 1995. Bayer is an international research-based company active in life
sciences, polymers and chemicals. A native of Sweden, Mr. Classon joined Bayer's
Miles Diagnostics business in 1991 as executive vice president, worldwide
marketing, sales and service. He also served as senior vice president, sales and
service for Diagnostics with Miles Inc. beginning in 1992. During his career,
Mr. Classon has held management positions with Pharmacia AB, Sweden; Swedish
Match Group; and Asbjorn Habberstad AB. Prior to joining Bayer, he was president
and chief operating officer of Pharmacia Biosystems
4
AB. Mr. Classon currently serves on the board of Enzon Inc. and is a member of
the Advanced Medical Technology Association (AdvaMed).
Charles E. Golden is Executive Vice President and Chief Financial
Officer for Eli Lilly and Company, Indianapolis, Indiana, a global provider of
pharmaceutical products and health care information. He joined Eli Lilly in his
current position and as a member of its board of directors in 1996. Prior to
joining Eli Lilly, Mr. Golden served as a corporate vice president of General
Motors and chairman of General Motors' vehicle operations in the United Kingdom
from 1993 to 1996. He joined General Motors as part of its treasurer's office in
1970 and subsequently held positions in domestic and international operations,
ultimately becoming treasurer of GM. He is a member of the National Advisory
Board of J.P. Morgan Chase & Co., and The Council of Financial Executives of the
Conference Board. He also serves on the boards of directors of Clarian Health
Partners (as vice chairman), Crossroads of America Council (Boy Scouts of
America), and the Indiana Chamber of Commerce.
W August Hillenbrand served as Chief Executive Officer of the Company
from 1989 until 2000. Mr. Hillenbrand also served as President of the Company
from 1981 until 1999. Prior to his retirement in December 2000, Mr. Hillenbrand
had been employed by the Company throughout his business career. Mr. Hillenbrand
is the Chief Executive Officer of Hillenbrand Capital Partners, an unaffiliated
family investment partnership. He is also a director of DPL Inc. of Dayton,
Ohio, Minster Machine Company of Minster, Ohio, and Pella Corporation of Pella,
Iowa.
Peter H. Soderberg is President and Chief Executive Officer of Welch
Allyn, Inc., Skaneateles Falls, N.Y. Welch Allyn, Inc. is a privately held
global technology company with units that manufacture innovative medical
diagnostic equipment, patient monitoring systems and miniature precision lamps.
Appointed to his current position in 2000, Mr. Soderberg was previously group
vice president and chief operating officer. His prior experience includes 23
years at Johnson & Johnson where he served in a variety of operations, marketing
and management positions in four of its over-the-counter and professional
product companies. Most recently, he was president of Johnson & Johnson Health
Management, a Johnson & Johnson portfolio company. His career also includes
roles as president and chief executive officer of an industrial technology
company and the founder and president of a venture capital business. He is on
the board of directors of Wilson Greatbatch Technologies, Inc., the Advanced
Medical Technology Association (AdvaMed) and the Health Industry Distributors
Association Foundation and vice chairman of the board of the Syracuse Symphony
Orchestra.
Daniel A. Hillenbrand had been Chairman of the Board of the Company
since 1972. He retired from that position effective January 17, 2001, and was
named Chairman Emertius. Mr. Hillenbrand served as President of the Company from
1972 to 1981, and as Chief Executive Officer from 1972 to 1989. Mr. Hillenbrand
had been employed by the Company throughout his business career until his
retirement in 1989.
Ray J. Hillenbrand was named as Chairman of the Board of the Company on
January 17, 2001. He has been engaged in the management of personal and family
investments for much of his career. Mr. Hillenbrand was employed by and active
in the management of the Company prior to his resignation as an officer in 1977.
Dr. John C. Hancock, who holds a Ph.D. in Electrical Engineering, is a
consultant. Until 1988, he was Executive Vice President for Corporate
Development and Technology of United Telecommunications, Inc. (Sprint).
John A. Hillenbrand II has managed personal and family investments
since 1979. He is also Chairman of Able Body Corporation and Nambe Mills, Inc.,
and Vice Chairman of Pri-Pak, Inc. Mr. Hillenbrand was employed by and active in
the management of the Company prior to his resignation as an officer in 1979.
5
Frederick W. Rockwood was elected Chief Executive Officer and President
of the Company on December 3, 2000 after being President since December 6, 1999.
He has been employed by the Company since 1977. Previous positions held within
the Company include President and Chief Executive Officer of Hillenbrand Funeral
Services Group, Inc. from 1997 to 1999, President and Chief Executive Officer of
Forethought Financial Services, Inc. from 1985 to 1997, and Senior Vice
President of Corporate Planning and Director of Corporate Strategy. He has also
been a management consultant with Bain and Company and Boston Consulting Group.
He is a member of the Board of Directors of the Advanced Medical Technology
Association (AdvaMed).
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Securities Exchange Act of 1934, the
Company's directors, its executive officers and any person holding more than ten
percent of the Company's common stock are required to file with the Securities
and Exchange Commission initial reports of ownership and reports of changes in
-ownership of common stock of the Company. The Company is required to report in
this proxy statement any failure to file or late filing occurring during the
ten-month period ended September 30, 2002. Based solely on a review of filings
furnished to the Company and other information from reporting persons, the
Company believes that all of these filing requirements were satisfied by its
directors, executive officers and ten percent beneficial owners except that John
A. Hillenbrand II filed one late report for one transaction and W August
Hillenbrand filed three late reports for six transactions.
ABOUT THE BOARD OF DIRECTORS
(INCLUDING DIRECTOR COMPENSATION)
CORPORATE GOVERNANCE MATTERS
Both the Board of Directors and management at the Company firmly
embrace good and accountable corporate governance and believe that an attentive,
performing Board is a tangible competitive advantage. With that commitment, the
Company began its efforts to improve the operation and processes of its Board of
Directors significantly in advance of recent corporate governance developments.
Director compensation has always comprised cash and stock based compensation. A
non-Chief Executive Officer director has held the position of Chairman of the
Board since April 1989. In early 2001, efforts to modify the composition of the
Board began, with an emphasis on independence and the mix of characteristics,
experiences and diverse perspectives and skills most appropriate for the
Company. In April 2002, the Board established position specifications, including
performance criteria, for itself, the Chairman of the Board and the Chief
Executive Officer and in May 2002, as part of the planned transition of the
membership of our Board, the Company welcomed to the board three independent
directors who are proven leaders with significant experience in the health care
industry. Non-Hillenbrand family directors now outnumber family members on the
Board for the first time in Company history. Moreover, in September 2002, the
Board of Directors of the Company approved additional measures to ensure
continued high standards for corporate governance. Specifically, the Board took
the following actions, among others:
o The Board approved Corporate Governance Standards for the
Board of Directors. Among other matters, these Standards:
o confirm that the Board of Directors has
established standing committees, each with a
charter approved by the Board, to address
certain key areas. These committees are the
Board's previously existing Audit Committee,
Finance Committee and Compensation and
Management Development Committee (formerly
named the
6
Compensation Committee) and a
Nominating/Corporate Governance Committee
formed at the time of the adoption of the
Corporate Governance Standards;
o provide that, within two years following SEC
approval of the independence requirements
contained in the New York Stock Exchange's
proposed new listing standards, at least a
majority of the directors of the Company
shall be independent;
o provide for an annual determination by the
Board of Directors regarding the
independence of each director;
o provide that the Audit Committee,
Nominating/Corporate Governance Committee
and Compensation and Management Development
Committee will consist entirely of
independent directors;
o provide for an annual assessment by the
Nominating/Corporate Governance Committee of
the Board's effectiveness as a whole as well
as the effectiveness of the individual
directors and the Board's various
Committees, including a review of the mix of
skills, core competencies and qualifications
of members of the Board, which should
reflect expertise in one or more of the
following areas: accounting and finance,
healthcare, international business, mergers
and acquisitions, leadership, business and
management, strategic planning, government
relations, investor relations, executive
leadership development and executive
compensation; and
o provide that the non-management directors
regularly shall conduct executive sessions
without participation by any employees of
the Company.
The full text of the Corporate Governance Standards approved
by the Board of Directors is attached to this proxy statement
as Appendix A.
o The Board made a determination of the independence of each of
the Company's directors based on the standards set forth in
the Corporate Governance Standards described above and elected
only independent directors as members of the Audit Committee,
Nominating/Corporate Governance Committee and Compensation and
Management Development Committee. See "--Determinations with
Respect to Independence of Directors" below.
o The Board created a Nominating/Corporate Governance Committee
and approved a written charter for this committee. o The Board
renamed the Compensation Committee as the Compensation and
Management Development Committee and approved a revised
written charter for this committee.
o The Board approved a revised written charter for the Audit
Committee, a copy of which is attached to this proxy statement
as Appendix B.
o The Board suspended operations of the Executive Committee of
the Board of Directors.
o The Board approved a revised Code of Ethical Business Conduct
covering, among other matters, conflicts of interest,
corporate opportunities, confidentiality, protection and
proper use of the Company's assets, fair dealing, compliance
with laws, including insider trading laws, accuracy and
reliability of the Company's books and records and reporting
of illegal or unethical behavior. This Code applies to all
directors, officers and other employees of the Company,
including the Company's principal executive officer, principal
financial officer and principal accounting officer. At such
time as the Securities and Exchange Commission adopts final
rules
7
implementing provisions of the Sarbanes-Oxley Act of 2002
requiring disclosures regarding whether companies maintain
"codes of ethics", the Board of Directors will review whether
the Company's Code of Ethical Business Conduct constitutes a
"code of ethics" within the meaning of those final rules and
make any appropriate amendments to the Code. All members of
the Board of Directors and all officers of the Company and its
subsidiaries have read and certified their compliance with the
Code without exception.
o The Board approved a policy mandating that the Company's
outside financial auditors not perform any non-audit business
consulting functions other than tax consulting.
Consistent with the Company's commitment to corporate governance, the
Board and management believe that the foregoing measures, and others that have
been taken, place the Company in compliance with existing as well as proposed
new listing requirements of the New York Stock Exchange, the Sarbanes-Oxley Act
of 2002 and related rules of the Securities and Exchange Commission. Copies of
the Company's Corporate Governance Standards, Code of Ethical Business Conduct
and Board committee charters are filed as exhibits to the Company's Transition
Report on Form 10-K for the period from December 2, 2001 to September 30, 2002
and are available on the Company's website at www.hillenbrand.com. Also
available on the Company's website are position specifications adopted by the
Board in April 2002 for the positions of Chief Executive Officer, Chairman of
the Board of Directors and other members of the Board of Directors.
DETERMINATIONS WITH RESPECT TO INDEPENDENCE OF DIRECTORS
As noted above, the Corporate Governance Standards adopted by the Board
of Directors require the Board of Directors to make an annual determination
regarding the independence of each of the Company's directors and provide
standards for making these determinations which are consistent with the proposed
listing standards of the New York Stock Exchange. The Board made these
determinations for each member of the Board in September 2002.
As set forth in the Company's Corporate Governance Standards, a
director will be independent only if the Board of Directors determines, based on
a consideration of all relevant facts and circumstances, that the director has
no material relationship with the Company (either directly or as a partner,
shareholder or officer of an organization that has a relationship with the
Company) that represents a potential conflict of interest or otherwise
interferes with a director's exercise of his or her independent judgment from
management and the Company. In assessing the materiality of a director's
relationship with the Company and each director's independence, the Board must
consider the issue of materiality not only from the standpoint of the director
but also from that of the persons or organizations with which the director has
an affiliation. Material relationships can include, among others, commercial,
industrial, banking, consulting, legal, accounting, charitable and familial
relationships. In assessing a director's independence, the Board shall also
consider the director's ownership, or affiliation with the owner, of less than a
controlling amount of voting securities of the Company. The Board cannot
conclude that a director is independent if he or she falls into one of the
following categories:
o the director is, or within the last five years has been,
employed by the Company or any of its subsidiaries;
o the director is, or within the past five years has been,
affiliated with or employed by a present or former auditor of
the Company (or an affiliate);
o the director is, or within the past five years has been, part
of an interlocking directorate in which an executive officer
of the Company serves on the compensation committee of another
company that employs such director;
8
o the director has a spouse, parent, child, sibling,
mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, sister-in-law or other person who shares his
or her home (collectively, an "immediate family member") that
falls into one of the foregoing three categories; provided,
however, that the disqualification of one director from being
independent pursuant to this provision shall not automatically
disqualify any other director on the Board who is an immediate
family member of such disqualified director but the
disqualification of an immediate family member shall be one of
the facts and circumstances considered by the Board in
assessing such other director's independence; or
o the director owns, or is affiliated with the owner, of a
controlling amount of voting stock of the Company.
To assist in the Board's determinations, each director completed
materials designed to identify any relationships that could affect the
director's independence. On the basis of these materials and the standards
described above, the Board determined that each of Ray J. Hillenbrand, Rolf A.
Classon, Charles E. Golden and Peter H. Soderberg are independent. With respect
to each of Messrs. Classon, Golden and Soderberg, the Board determined that they
were independent because no relationship was identified that would automatically
bar them from being characterized as independent, no other relationship between
any of them and the Company or any of its subsidiaries, whether or not material,
was identified and none of them beneficially owns more than 1% of the Company's
outstanding common stock. With respect to Ray J. Hillenbrand, the Board examined
the following relationships involving Mr. Hillenbrand, which constituted all of
the relationships involving Mr. Hillenbrand that were identified to the Board:
o Mr. Hillenbrand's past use, as described below, of Company
aircraft without charge. In evaluating this relationship, the
Board considered that, in 2002, Mr. Hillenbrand reimbursed the
Company for his use of Company aircraft in 2001 and agreed to
reimburse the Company for such costs in future periods. Based
on these cost reimbursements, the Board determined that the
use of the aircraft was not material to either Mr. Hillenbrand
or the Company.
o Mr. Hillenbrand's service as an officer and trustee of the
John A. Hillenbrand Foundation, a charitable foundation to
which the Company contributed $150,000 in 2001 and $500,000 in
2002. In evaluating this relationship, the Board considered
that, in August 2002, Mr. Hillenbrand resigned from all
positions with this foundation. On this basis, the Board
determined that this relationship was not material to either
Mr. Hillenbrand or the Company.
o Mr. Hillenbrand's beneficial ownership of approximately 3.3%
of the Company's outstanding Common Stock. The Board
determined that this ownership did not constitute a
controlling interest in the Company.
o The fact that the Board determined that Mr. Hillenbrand's
brother, John A. Hillenbrand II, who is also a Board member,
is not independent under the standards described above. The
Board determined that Mr. Hillenbrand had exercised in the
past and could be expected to exercise in the future business
judgment independent from John A. Hillenbrand II.
The Board concluded that, based on all of the relevant facts and
circumstances, none of these relationships constituted a material relationship
with the Company that represents a potential conflict of interest or otherwise
interferes with Mr. Hillenbrand's exercise of his independent judgment from
management and the Company.
9
Also on the basis of the standards described above and the materials
submitted by the directors, the Board determined that none of Frederick W.
Rockwood, Daniel A. Hillenbrand, John A. Hillenbrand II, W August Hillenbrand
and John C. Hancock meets the standards for independence. Accordingly, none of
these non-independent directors serves on the Audit, Compensation and Management
Development or Nominating/Corporate Governance Committees of the Board of
Directors.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
As of December 17, 2002, and since September 4, 2002, the Board of
Directors has the following standing committees: a Compensation and Management
Development Committee, a Finance Committee, an Audit Committee and a
Nominating/Corporate Governance Committee. Prior to September 4, 2002, it had an
Executive Committee, a Finance Committee, an Audit Committee and a Compensation
Committee. During the ten-month period ended September 30, 2002, the Board of
Directors of the Company held five meetings. During this period, no member of
the Board of Directors attended fewer than 75% of the aggregate of the number of
meetings of the full Board of Directors and the number of meetings of the
committees on which he served, in each case during the time of his service,
except that Rolf A. Classon attended one of the two meetings of each of the full
Board of Directors, the Audit Committee and the Compensation and Management
Development Committee held during the period from his election to September 30,
2002.
On September 4, 2002, the operations of the Executive Committee were
suspended. Prior to that date, the Committee consisted of John C. Hancock, Ray
J. Hillenbrand (Chairman) and Frederick W. Rockwood. This Committee advised the
Chief Executive Officer on business decisions of significant impact and on the
business in general. Subject to limitations provided by law or the Code of
By-laws, the Executive Committee exercised the power and authority of the Board
of Directors as was necessary during the intervals between meetings of the
Board. The Executive Committee did not meet during the ten-month period ended
September 30, 2002.
As of December 17, 2002, and since September 4, 2002, the Finance
Committee of the Board of Directors consists of Daniel A. Hillenbrand, Charles
E. Golden, W August Hillenbrand, Frederick W. Rockwood and John A. Hillenbrand
II (Chairman). From May 17, 2002 until September 4, 2002, the Finance Committee
consisted of Daniel A. Hillenbrand, Charles E. Golden, W August Hillenbrand and
Ray J. Hillenbrand (Chairman). Prior to May 17, 2002, the Committee consisted of
Daniel A. Hillenbrand, John A. Hillenbrand II, W August Hillenbrand, Ray J.
Hillenbrand (Chairman) and Frederick W. Rockwood. The Finance Committee assists
the Board of Directors in matters related to the capital structure of the
Company and is responsible for overseeing the investment of the Company's assets
pending utilization in the Company's operations. During the ten-month period
ended September 30, 2002, the Finance Committee held three meetings.
As of December 17, 2002, and since September 4, 2002, the Audit
Committee consists of Charles E. Golden (Chairman), Rolf A. Classon, Ray J.
Hillenbrand and Peter H. Soderberg. From May 17, 2002 until September 4, 2002,
the Committee consisted of Rolf A. Classon, Charles E. Golden, John C. Hancock
(Chairman), John A. Hillenbrand II, Ray J. Hillenbrand and Peter H. Soderberg.
Until May 17, 2002, the Committee consisted of Peter F. Coffaro, Leonard
Granoff, John C. Hancock (Chairman), John A. Hillenbrand II and Ray J.
Hillenbrand. The Audit Committee has general oversight responsibilities with
respect to the Company's financial reporting and financial controls. It annually
reviews the Company's financial reporting process, its system of internal
controls regarding accounting, legal and regulatory compliance and ethics that
management or the Board has established and the internal and external audit
processes of the Company. During the ten-month period ended September 30, 2002,
the Audit Committee held six meetings.
10
On September 4, 2002, the Board of Directors renamed its Compensation
Committee as the Compensation and Management Development Committee. As of
December 17, 2002, and since September 4, 2002, the Compensation and Management
Development Committee consists of Rolf A. Classon (Chairman), Ray J. Hillenbrand
and Peter H. Soderberg. From May 17, 2002 until September 4, 2002, the Committee
consisted of Rolf A. Classon, John C. Hancock (Chairman), John A. Hillenbrand II
and Peter H. Soderberg. Prior to May 17, 2002, the Committee consisted of Peter
F. Coffaro, Leonard Granoff, John C. Hancock (Chairman) and Ray J. Hillenbrand.
The Compensation and Management Development Committee assists the Board in
ensuring that the officers and key management of the Company are effectively
compensated in terms of salaries, supplemental compensation and other benefits
that are internally equitable and externally competitive. The Committee is also
responsible for assessing annually the adequacy and suitability of the
compensation package for members of the Board of Directors and for reviewing and
assessing the talent development and succession management actions concerning
the officers and key employees of the Company. During the ten-month period ended
September 30, 2002, the Compensation and Management Development Committee held
six meetings.
On September 4, 2002, the Board of Directors established the
Nominating/Corporate Governance Committee, which consists of Rolf A. Classon,
Charles E. Golden, Ray J. Hillenbrand (Chairman) and Peter H. Soderberg. The
Nominating/Corporate Governance Committee assists the Board of Directors in
ensuring that the Company is operated in accordance with prudent and practical
corporate governance standards, ensuring that the Board achieves its objective
of having a majority of its members be independent as soon as practicable and
from time to time in accordance with New York Stock Exchange and other
regulations and assessing the effectiveness of and identifying candidates for
the Board of Directors. The Nominating/Corporate Governance Committee did not
hold any meetings during the ten-month period ended September 30, 2002. However,
the nominees for director at the annual meeting of shareholders have been
recommended to the Board of Directors and shareholders by the
Nominating/Corporate Governance Committee, with director nominees on the
Committee abstaining from the discussion and vote on their respective
nominations. Procedures for nomination by shareholders of persons for election
to the Board of Directors are set forth in the Company's Code of By-laws.
COMPENSATION OF DIRECTORS
During the ten-month period ended September 30, 2002, with the
exception of the Chairman, each director who was not a salaried officer or
employee of the Company received an annual retainer of $25,000 and a fee of
$3,500 for each Board of Directors meeting attended. Effective September 4,
2002, the retainer for the Chairman was increased from $100,000 to $150,000
annually. Directors who are not salaried officers or employees who were members
of the Executive, Finance, Audit or Compensation and Management Development
Committee received $1,500 for each committee meeting attended. Additionally, the
chairman of each of the committees received an additional annual retainer of
$5,000. Directors were reimbursed for expenses incurred as a result of
attendance at Board or committee meetings. Directors of the Company may defer
receipt of directors' fees otherwise payable to them by the Company and invest
these fees in common stock of the Company under the Hillenbrand Industries
Directors' Deferred Compensation Plan. Under the Company's Stock Incentive Plan,
each non-employee director receives a non-qualified stock option to purchase
4,000 shares of common stock each year, all of which vest twelve months after
the grant date and expire in ten years. Additionally, Ray J. Hillenbrand, in his
capacity as the Chairman of the Board and lead director, will receive an
additional non-qualified stock option to purchase 6,000 shares of common stock
each year. Non-employee directors are also eligible to participate in the
Company's group term life insurance program in which premiums are paid by the
Company. Death benefits, which are age related, range from $45,000 to $150,000.
On July 10, 2001, Peter F. Coffaro, Edward S. Davis, Leonard Granoff
and John C. Hancock were each awarded 4,112 phantom shares of common stock under
the Company's Director Phantom Stock Plan. One-half
11
of the phantom shares vested immediately and one-half vested on December 31,
2001. The phantom shares are an unsecured obligation of the Company and are
payable in common stock of the Company following the resignation of these
directors from the Board. Dividends paid on the Company's common stock are
deemed to have been paid on the director's phantom shares and are deemed to be
reinvested in phantom stock. On May 16, 2002, Peter F. Coffaro, Edward S. Davis
and Leonard Granoff were paid 4,166 shares each under this Plan following their
resignation from the Board.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company owns and operates jet aircraft in connection with its
business. The Company generally limits usage of these aircraft to former and
current Chairmen of the Board and Chief Executive Officers of the Company for
personal purposes to the extent they are not being utilized for Company
business. During the ten-month period ended September 30, 2002, the Company's
average cost of operating these aircraft was $2,609 per hour. While the Company
does not charge for the use of its aircraft for personal purposes, it does
report as taxable income to the Internal Revenue Service the value of the
transportation services rendered based upon Internal Revenue Service formulas.
Effective for fiscal year 2003, the Compensation and Management Development
Committee of the Board has provided for use of Company aircraft for personal
purposes only by the Chief Executive Officer, and not by other executive
officers, and the Chief Executive Officer's personal use is limited to fifty
hours per year. The table below sets forth certain information regarding the use
of the Company's aircraft by directors and executive officers for personal
purposes during the ten-month period ended September 30, 2002:
NUMBER OF COST TO THE COMPANY AT
NAME POSITION HOURS USED $2,609 PER HOUR
--------------------- ------------------------------------- ---------- ----------------------
W August Hillenbrand Director 31.40 $ 81,923
Daniel A. Hillenbrand Director 39.80 $ 103,838
Ray J. Hillenbrand Chairman of the Board 39.85 $ 103,969(1)
Frederick W. Rockwood President and Chief Executive Officer 28.35 $ 73,965
(1) This amount was reimbursed to the company.
As previously disclosed, Daniel A. Hillenbrand, a former Chairman of
the Board of the Company, had a ten-year Consulting Agreement with the Company
that expired by its stated terms on May 31, 1999. Pursuant to a memorandum
agreement between Mr. Hillenbrand and a former Chief Executive Officer of the
Company, the Company confirmed that Mr. Hillenbrand's compensation payments
under the consulting Agreement would cease as of May 31, 1999 but that certain
benefits thereunder would continue for the remainder of his life. As a result,
the Company continues to pay premiums on a $5 million joint life insurance
policy, pay health insurance premiums on a policy covering Mr. Hillenbrand and
his wife, reimburse Mr. Hillenbrand for medical expenses that are not covered by
insurance, provide an office, a secretary and an automobile to Mr. Hillenbrand,
together with payment of related miscellaneous expenses, make supplemental
pension fund benefit payments and permit Mr. Hillenbrand to use the Company's
corporate aircraft for personal purposes. During the ten-month period ended
September 30, 2002, these benefits aggregated approximately $230,700 (excluding
amounts attributable to use of the Company's aircraft for personal purposes as
disclosed above).
As previously disclosed, during 2000, W August Hillenbrand and the
Company entered into an agreement relating to Mr. Hillenbrand's retirement as
Chief Executive Officer of the Company on December 2, 2000. Under that
agreement, Mr. Hillenbrand agreed to render consulting services to, and refrain
from competing with, the Company through September 18, 2005. In addition to his
annual consulting fee of approximately $907,700, which resulted in payments of
approximately $733,100 during the ten-month period ended September 30, 2002, Mr.
Hillenbrand is also entitled to receive a package of benefits similar to those
12
afforded to Daniel A. Hillenbrand. Mr. Hillenbrand's permitted use of the
Company's corporate aircraft for individual personal purposes is on the same
basis as the Company's executive officers' personal use. Because the
Compensation and Management Development Committee of the Board has provided for
use of Company aircraft for personal purposes only by the Chief Executive
Officer, and not by other executive officers, and the Chief Executive Officer's
personal use is limited to fifty hours per year, Mr. Hillenbrand's personal use
of Company aircraft will be limited to fifty hours per year. During the
ten-month period ended September 30, 2002, these benefits aggregated
approximately $230,700 (excluding amounts attributable to use of the Company's
aircraft for personal purposes as disclosed above).
In addition, Messrs. Daniel A. Hillenbrand and W August Hillenbrand
rely upon Company personnel to handle the payroll and related tax filings for
their household employees. They also purchase various goods and services through
the Company from certain of the Company's local vendors. Advances made by the
Company in connection with these matters were repaid as the expenses were
incurred. The Company no longer makes advances for these expenses, but instead
the funds to cover the expenses are drawn from accounts pre-funded by these
directors. While neither Hillenbrand reimburses the Company for the time spent
by Company personnel on his personal matters, the fully absorbed costs of such
services during the ten-month period ended September 30, 2002 were nominal.
Various members of the Hillenbrand extended family, including those who
are members of the Company's Board of Directors, other than Ray J. Hillenbrand,
rent the Company's corporate retreat facilities, which formerly were part of the
Hillenbrand family farm, for an aggregate of approximately two weeks during the
summer vacation period and at several other times during the year. During the
ten-month period ended September 30, 2002, the extended Hillenbrand family
reimbursed the Company approximately $54,400 for such usage based upon the fully
absorbed costs of the facility. In addition, members of the Hillenbrand extended
family, including those who are members of the Company's Board of Directors,
other than Ray J. Hillenbrand, occasionally used the family farm on a cost-free
basis. The Company estimates that the fully absorbed cost of such additional
usage did not exceed $2,800 during the ten-month period ended September 30,
2002.
During the ten-month period ended September 30, 2002, the Company
contributed $500,000 to The John A. Hillenbrand Foundation, a public charitable
foundation formed in 1950 to promote religious, educational and/or charitable
activities in the City of Batesville and the County of Ripley, Indiana. W August
Hillenbrand, John A. Hillenbrand II and Daniel A. Hillenbrand, directors of the
Company, are officers and directors of the foundation. Ray J. Hillenbrand
resigned from all positions held with the Foundation on August 1, 2002.
13
EXECUTIVE COMPENSATION
The following tabulation and notes set forth the compensation paid or
accrued by the Company during the ten-month period ended September 30, 2002, and
the two fiscal years ended December 1, 2001 and December 2, 2000 to the Chief
Executive Officer and each of the other four most highly compensated executive
officers.
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
--------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------- ------------------------- -----------
RESTRICTED
PERIOD OTHER ANNUAL STOCK SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION AND COMPENSATION AWARD UNDERLYING PAYOUTS COMPENSATION
(AS OF SEPTEMBER 30, 2002) YEAR SALARY($) BONUS($) ($)(1) (s)($)(2) OPTIONS(#)(3) ($)(4) ($)(5)
--------------------------- ------ --------- ---------- ------------ ---------- ------------- ----------- ------------
Frederick W. Rockwood(6) 2002* $ 782,314 $1,548,169 (7) $ 0 25,000 $ 0 $ 77,297
President and Chief 2001 $ 913,327 $1,428,570 $ 217,692 $ 0 135,000 $ 1,420,126 $ 94,537
Executive Officer 2000 $ 596,162 $ 845,863 (7) $ 0 30,000 $ 133,991 $ 25,212
-----------------------------------------------------------------------------------------------------------------------------------
Scott K. Sorensen(8) 2002* $335,945 $ 604,385 (7) $ 0 10,000 $ 0 $ 12,702
Vice President and Chief 2001 $ 293,888 $ 465,000 $ 170,924 $ 497,550 75,000 $ 179,600 $ 11,670
Financial Officer 2000 N/A N/A N/A N/A N/A N/A N/A
-----------------------------------------------------------------------------------------------------------------------------------
David L. Robertson(9) 2002* $ 271,896 $ 326,100 (7) $ 0 5,000 $ 0 $ 12,591
Vice President, 2001 $ 316,346 $ 254,000 $ 15,034 $ 66,563 25,000 $ 333,465 $ 12,206
Administration 2000 $306,154 $ 276,364 $ 25,895 $ 0 15,000 $ 0 $ 13,832
-----------------------------------------------------------------------------------------------------------------------------------
Kenneth A. Camp(10) 2002* $ 284,805 $ 350,267 (7) $ 0 9,000 $ 0 $ 13,104
President and Chief 2001 $ 301,923 $ 241,346 (7) $ 66,563 35,000 $ 425,504 $ 12,632
Executive Officer, 2000 $ 222,272 $ 139,662 (7) $ 0 10,000 $ 71,915 $ 14,337
Batesville Casket
Company, Inc.
-----------------------------------------------------------------------------------------------------------------------------------
R. Ernest Waaser(11) 2002* $ 294,825 $ 574,613 (7) $ 0 9,000 $ 0 $ 15,742
President and Chief 2001 $ 289,904 $ 523,875 (7) $ 76,275 35,000 $ 182,513 $ 15,594
Executive Officer, Hill-Rom 2000 N/A N/A N/A N/A N/A N/A N/A
Company, Inc.
-----------------------------------------------------------------------------------------------------------------------------------
* Represents the ten-month period ended September 30, 2002.
(1) Consists of above market interest earned on deferred compensation, the cost
of perquisites and other personal benefits provided by the Company.
(2) These amounts represent awards of deferred stock, which will be issued in
shares of common stock of the Company upon satisfaction of certain vesting
conditions. As of September 30, 2002 the number of shares and value of
deferred stock held are as follows:
DEFERRED STOCK
NAME SHARES(#) VALUE($)
---- --------- ----------
Frederick W. Rockwood 21,195 $1,150,889
Scott K. Sorensen 5,129 $ 278,505
David L. Robertson 6,844 $ 371,629
Kenneth A. Camp 1,545 $ 83,894
R. Ernest Waaser 1,539 $ 83,568
Frederick W. Rockwood was awarded 20,000 deferred stock shares on
October 5, 1999, which vested on October 5, 2002. Scott K. Sorensen was
awarded 10,000 deferred stock shares on March 1, 2001, 5,000 of which
vested January 1, 2002 and 5,000 of which vested on January 1, 2003.
David L. Robertson was awarded 5,000 deferred stock shares on October
5, 1999, which vested on October 5, 2002, and he was awarded 1,500
deferred stock shares on January 17, 2001, which will vest on January
17, 2004. Kenneth A. Camp was awarded 1,500 deferred
14
stock shares on January 17, 2001, which will vest on January 17, 2004.
R. Ernest Waaser was awarded 1,500 deferred stock shares on March 8,
2001, which vested on January 1, 2003. Dividends paid on the Company
common stock will be deemed to have been paid with regard to the
deferred stock shares awarded and deemed to be reinvested in Company
common stock at the market value on the date of such dividend, and will
be paid in additional shares on the vesting date of the underlying
award.
(3) Options were granted pursuant to the Company's Stock Incentive Plan
during the ten-month period ended September 30, 2002. Options granted
in the fiscal years ended December 1, 2001 and December 2, 2000 were
granted pursuant to the Company's 1996 Stock Option Plan.
(4) The amounts appearing in this column are the values for the ten-month
period ending September 30, 2002, and fiscal years ended December 1,
2001 and December 2, 2000 of the performance shares earned under the
Senior Executive Compensation Program for the 2000-2002, 1999-2001 and
1998-2000 performance cycles, respectively. During 2001, the Company
decided to cease awards under this component of the Program and offered
executives the opportunity to receive a prorated payment in Company
shares in exchange for termination of outstanding awards. The December
1, 2001 values include the following prorated amounts paid in
connection with termination of the 2000-2002 and 2001-2003 cycles: Mr.
Rockwood, $1,332,295; Mr. Sorensen, $179,600; Mr. Robertson, $333,465;
Mr. Camp, $327,261; and Mr. Waaser, $182,513.
(5) All Other Compensation earned or allocated in the ten-month period
ended September 30, 2002 is as follows:
401(k) SPLIT DOLLAR LIFE
NAME CONTRIBUTIONS INSURANCE BENEFITS
---- ------------- ------------------
Frederick W. Rockwood $6,000 $ 71,297
Scott K. Sorensen $6,000 $ 6,702
David L. Robertson $5,814 $ 6,777
Kenneth A. Camp $6,000 $ 7,104
R. Ernest Waaser $6,000 $ 9,742
The value of the Split Dollar Life Insurance Benefits is calculated as
the corporate premium paid less the present value of that amount at
rollout.
(6) On December 3, 2000, Mr. Rockwood was elected as President and Chief
Executive Officer of the Company. He has served as President of the
Company since December 6, 1999.
(7) Amounts do not exceed disclosure thresholds established under SEC
rules.
(8) On March 1, 2001, Mr. Sorensen was elected Vice President and Chief
Financial Officer of the Company. Prior to that date he was not
employed by the Company.
(9) Mr. Robertson was elected Vice President, Administration on May 1, 2001
and was Vice President, Executive Leadership Development from June 26,
2000 to May 1, 2001. Prior to that he served as Vice President,
Administration since December 6, 1999, and Vice President, Human
Resources since March 23, 1998.
(10) Mr. Camp was elected President and Chief Executive Officer of
Batesville Casket Company, Inc. on May 1, 2001. He was also elected as
a Vice President of the Company on October 8, 2001. Prior to his
election to these positions, Mr. Camp has held various other positions
within Hillenbrand Industries, Inc. and Batesville Casket Company, Inc.
(11) Mr. Waaser was elected President and Chief Executive Officer of
Hill-Rom Company, Inc. on January 22, 2001. He was also elected as a
Vice President of the Company on October 8, 2001. Prior to that, he was
not employed by the Company or its subsidiaries.
15
OPTION GRANTS IN LAST FISCAL YEAR
(FOR TEN-MONTH PERIOD ENDED SEPTEMBER 30, 2002)
The following table sets forth certain information concerning stock
option grants to the named executive officers during the ten-month period ended
September 30, 2002.
INDIVIDUAL GRANTS
--------------------------------------------------------------------------------------------
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS GRANTED TO GRANT DATE
UNDERLYING OPTIONS EMPLOYEES IN EXERCISE OR EXPIRATION PRESENT VALUE
NAME GRANTED(#)(1) FISCAL YEAR BASE PRICE ($/SHARE) DATE ($)(2)
--------------------- ------------------ ------------------ -------------------- ---------- -------------
Frederick W. Rockwood 25,000 11.39% $ 61.49 4/9/2012 $ 454,648
Scott K. Sorensen 10,000 4.56% $ 61.49 4/9/2012 $ 181,859
David L. Robertson 5,000 2.28% $ 61.49 4/9/2012 $ 90,930
Kenneth A. Camp 9,000 4.10% $ 61.49 4/9/2012 $ 163,673
R. Ernest Waaser 9,000 4.10% $ 61.49 4/9/2012 $ 163,673
(1) All options were granted pursuant to the Company's Stock Incentive
Plan. The options were granted at an exercise price equal to the fair
market value of the Company's common stock on the date of grant. The
options were granted for terms of ten years, and vest one-third on each
of the first three anniversaries of the date of grant. In the event of
a change of control of the Company, the unvested portions of the
options will be subject to accelerated vesting.
(2) Option values were calculated on the basis of the Black-Scholes option
pricing model. Options were assumed to be exercised 6.00 years after
the date of grant. Other assumptions used for the valuations are a
risk-free interest rate of 4.70%, stock price volatility of .2637 and
annual dividend yield of 1.55%. The actual value realized by an officer
from exercise of the options will depend on the market value of the
Company's common stock on the dates the options are exercised.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
(FOR TEN-MONTH PERIOD ENDED SEPTEMBER 30, 2002)
The following table sets forth certain information concerning option
exercises during the ten-month period ended September 30, 2002 by the named
executive officers and unexercised options held by such officers as of September
30, 2002:
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR-END FISCAL YEAR-END
SHARES ACQUIRED --------------------------- ---------------------------
NAME ON EXERCISE VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---------------------- --------------- -------------- ----------- ------------- ----------- -------------
Frederick W. Rockwood 0 $ 0 120,000 150,000 $1,121,625 $ 852,375
Scott K. Sorensen 0 $ 0 21,667 63,333 $ 122,635 $ 265,115
David L. Robertson 0 $ 0 39,334 31,666 $ 470,198 $ 212,490
Kenneth A. Camp 0 $ 0 41,335 40,665 $ 466,241 $ 220,234
R. Ernest Waaser 0 $ 0 5,000 39,000 $ 28,300 $ 140,400
SPLIT DOLLAR LIFE INSURANCE PLAN
The Hillenbrand Industries Split Dollar Life Insurance Plan covers key
employees and retirees of the company and provides split dollar pre- and
post-retirement coverage. Under this plan pre-retirement employee death benefits
range from $600,000 to $5,000,000. At retirement the coverage is scheduled to be
reduced by 50%. Each covered participant owns an individual policy and the
premium is a shared responsibility between
16
the participant and the Company. The Company pays the majority of the premiums
subject to a collateral assignment agreement with the participant owner of the
policy. The policy matures at age 65 or after the participant has been in the
plan for 15 years, whichever is later. At policy maturity or termination the
Company's cash value share, up to its cumulative premium payments on the policy,
is transferred from the policy back to the Company. The remaining cash value is
controlled by the participant owner of the policy. The Hillenbrand Industries
Split Dollar Life Insurance Plan and related premium payment schedule were in
place prior to the effective date of the Sarbanes-Oxley Act of 2002, and no
material modifications to the plan or premium payments have been made since the
Act's effective date. The Company is currently assessing the implications for
the plan of the Sarbanes-Oxley Act.
AGREEMENTS WITH EXECUTIVE OFFICERS
During 2001, the Company entered into Change in Control Agreements (the
"Agreements") with certain officers, including Frederick W. Rockwood, Scott K.
Sorensen, David L. Robertson, Kenneth A. Camp and R. Ernest Waaser. The
Agreements are intended to encourage continued employment by the Company of its
key management personnel and to allow such personnel to be in a position to
provide assessment and advice to the Board of Directors regarding any proposed
Change in Control without concern that such personnel might be unduly distracted
by the uncertainties and risks created by a proposed Change in Control.
The Agreements provide for payment of specified benefits upon the
Company's termination of the executive's employment (other than on account of
death, disability, retirement or "cause") in anticipation of or within two years
(three years in the case of Mr. Rockwood) after a Change in Control, or upon the
executive's termination of employment for "good reason" within two years (three
years in the case of Mr. Rockwood) after a Change in Control. Mr. Rockwood's
Agreement also provides for the payment of the specified benefits in the event
he terminates employment for any reason during the 30-day period following the
first anniversary of the Change in Control. The benefits to be provided by the
Company upon a Change in Control under any of the above circumstances are: (i) a
lump sum payment in cash equal to two times (three times in the case of Mr.
Rockwood) the executive's annual base salary; (ii) continued health and medical
insurance for the executive and his dependents and continued life insurance
coverage for the executive for 24 months (36 months in the case of Mr.
Rockwood), with the right to purchase continued medical insurance (at COBRA
rates) from the end of this period until the executive reaches retirement age;
(iii) a cash payment in lieu of certain perquisites; and (iv) an increase to the
monthly pension benefit otherwise payable to the executive calculated by giving
him credit for two additional years of age and service (or, in the case of Mr.
Rockwood, the years of age and service he would have earned had he continued in
employment through December 31, 2005, if greater). In addition, upon a Change in
Control, whether or not the executive's employment is terminated, all
outstanding stock options, restricted stock and deferred stock awards will
become fully vested and the executive will be deemed to have earned all
outstanding short-term incentive compensation and performance share compensation
awards to the extent such awards would have been earned if all performance
targets for the relevant period were achieved 100%. Mr. Rockwood's Agreement
provides that if he receives payments that would be subject to the excise tax on
excess parachute payments imposed by Section 4999 of the Internal Revenue Code,
he will be entitled to receive an additional "gross-up" payment in an amount
necessary to put him in the same after-tax position as if such excise tax had
not been imposed. The Agreements for the other named executive officers provide
for a similar "gross-up" payment, except that if the value of all "parachute
payments" to an executive does not exceed 120% of the maximum "parachute
payment" that could be paid to him without giving rise to the excise tax, the
payments otherwise called for by the Agreement will be reduced to the maximum
amount which would not give rise to the excise tax. Assuming a Change in Control
had occurred on September 30, 2002, the named executive officers would have
received cash lump sum payments upon a termination of employment covered by the
Agreements in approximately the following amounts: Frederick W. Rockwood -
$4,114,000; Scott K. Sorensen - $1,248,000; David L. Robertson - $918,000;
Kenneth A. Camp - $1,070,000 and R. Ernest Waaser -
17
$1,103,000. The preceding amounts do not take into account the "gross-up"
payments, enhanced pension benefits, insurance benefits, and the vesting of
stock option, restricted stock and deferred stock awards.
Under the Agreements, a "Change in Control" is defined generally as (i)
the acquisition of beneficial ownership of 35% or more of the voting power of
all Company voting securities by a person or group at a time when such ownership
is greater than that of the members of the Hillenbrand Family; (ii) the
consummation of certain mergers or consolidations; (iii) the failure of a
majority of the members of the Company's Board of Directors to consist of
Current Directors (defined as any director on the date of the Agreements and any
director whose election was approved by a majority of the then-Current
Directors); (iv) the consummation of a sale of substantially all of the assets
of the Company; or (v) the date of approval by the shareholders of the Company
of a plan of complete liquidation of the Company.
PENSION PLAN
The Hillenbrand Industries, Inc. Pension Plan (the "Pension Plan") and
a supplemental pension plan cover officers of the Company and other employees.
Directors of the Company who are not employees of the Company or one of its
subsidiaries are not eligible to participate in these plans. Contributions to
the Pension Plan by the Company are made on an actuarial basis, and no specific
contributions are determined or set aside for any individual. The Company does
not make contributions to the supplemental plan.
Employees, including officers of the Company, who retire under the
Pension Plan receive fixed benefits calculated by means of a formula that takes
into account the highest average annual calendar year base salary earned over
five consecutive years and the employee's years of service. The following table
shows approximate representative pension benefits under the Pension Plan and the
supplemental plan based on a single life annuity commencing at age 65 for the
compensation and years of service indicated:
APPROXIMATE ANNUAL PENSION UPON RETIREMENT AT AGE 65
HIGHEST AVERAGE BASE
SALARY FOR ANY PERIOD OF 5 YEARS 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS 40 YEARS
5 CONSECUTIVE YEARS OF SERVICE OF SERVICE OF SERVICE OF SERVICE OF SERVICE OF SERVICE OF SERVICE OF SERVICE
------------------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
$ 100,000 $ 6,000 $ 11,000 $ 17,000 $ 22,000 $ 28,000 $ 33,000 $ 39,000 $ 44,000
$ 200,000 $ 14,000 $ 27,000 $ 41,000 $ 54,000 $ 68,000 $ 81,000 $ 95,000 $108,000
$ 300,000 $ 22,000 $ 43,000 $ 65,000 $ 86,000 $108,000 $129,000 $151,000 $172,000
$ 400,000 $ 30,000 $ 59,000 $ 89,000 $118,000 $148,000 $177,000 $207,000 $236,000
$ 500,000 $ 38,000 $ 75,000 $113,000 $150,000 $188,000 $225,000 $263,000 $300,000
$ 600,000 $ 46,000 $ 91,000 $137,000 $182,000 $228,000 $273,000 $319,000 $364,000
$ 700,000 $ 54,000 $107,000 $161,000 $214,000 $268,000 $321,000 $375,000 $428,000
$ 800,000 $ 62,000 $123,000 $185,000 $246,000 $308,000 $369,000 $431,000 $492,000
$ 900,000 $ 70,000 $139,000 $209,000 $278,000 $348,000 $417,000 $487,000 $556,000
$1,000,000 $ 78,000 $155,000 $233,000 $310,000 $388,000 $465,000 $543,000 $620,000
The credited years of service under the Pension Plan and the
supplemental pension plan as of December 31, 2002 for the officers named in the
table are as follows: Frederick W. Rockwood - 25 years; Scott K. Sorensen - 7
years; David L. Robertson - 21 years; Kenneth A. Camp - 22 years; and R. Ernest
Waaser - 2 years.
The Internal Revenue Code limits the amount of benefits which may be
paid under a qualified pension plan, such as the Company's Pension Plan. The
supplemental pension plan is a non-qualified, unfunded pension plan for senior
executives through which the Company pays the amounts which could not otherwise
be paid under the Pension Plan because of the limitations established by the
Internal Revenue Code. Benefits under the Pension Plan and supplemental plan are
not subject to deductions for Social Security or other offset amounts.
18
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information concerning the Company's
equity compensation plans as of September 30, 2002:
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES TO WEIGHTED-AVERAGE EXERCISE ISSUANCE UNDER EQUITY
BE ISSUED UPON EXERCISE PRICE OF OUTSTANDING COMPENSATION PLANS
OF OUTSTANDING OPTIONS, OPTIONS, WARRANTS AND (EXCLUDING SECURITIES
WARRANTS AND RIGHTS RIGHTS ($) REFLECTED IN COLUMN (a))
PLAN CATEGORY (a) (b) (c)
------------- ----------------------- ------------------------- ------------------------
Equity compensation plans 2,528,036 $ 42.40 5,075,111
approved by security holders
Equity compensation plans
not approved by security
holders(1)(2)(3) 94,256 $ 0.00 0
--------- --------- ---------
Total 2,622,292 $ 40.88 5,075,111
(1) Under the Hillenbrand Industries Stock Award Program, which has not
been approved by security holders, shares of common stock have been
granted to certain key employees. All shares granted under this program
are contingent upon continued employment over specified terms. During
1999, 45,000 shares were granted under this program, 20,000 of which
were canceled for lack of continued employment. During 2001, an
additional 56,500 shares were granted under this program, 6,000 of
which have been canceled. Dividends, payable in stock accrue on the
grants and are subject to the same specified terms as the original
grants. Shares granted in 1999 had a fair value of $27.75 per share and
those in 2001 had a range of fair values from $44.38 to $50.85. Of
these grants, 5,000 shares became vested on January 1, 2002, with an
additional 25,000 shares scheduled to vest on October 5, 2002, 6,500
shares on January 1, 2003 and 39,000 shares on January 17, 2004.
Accrued dividends related to the grants will also vest accordingly.
(2) Non-Hillenbrand family members of the Board of Directors were awarded
16,448 phantom shares of common stock in 2001 with a fair value of
$57.44 per share under the Hillenbrand Director Phantom Stock Plan
which has not been approved by security holders. One half of these
shares vested on July 10, 2001 and the other half vested on December
31, 2001. Dividends accrued under the plan, payable in stock, vested
under these same provisions. As of September 30, 2002 there were 4,201
shares vested and payable.
(3) Members of the Board of Directors may elect to defer fees earned and
invest them in common stock of the Company under the Hillenbrand
Industries Directors' Deferred Compensation Plan, which has not been
approved by security holders. A total of 16,728 deferred shares are
payable as of September 30, 2002 under this program.
COMPENSATION AND MANAGEMENT
DEVELOPMENT COMMITTEE'S REPORT
The Compensation and Management Development Committee of the Board of
Directors has prepared the following report for inclusion in this proxy
statement. This report sets forth the compensation policies applicable to the
Company's executive officers and the relationship of corporate performance to
executive compensation.
COMPENSATION PHILOSOPHY
The Company's compensation programs reflect a long-standing and
strongly held belief in performance-oriented compensation. The elements that are
integral to the design and operation of the Company's compensation
administration and plan designs include:
19
o creating long term shareholder value as the cornerstone of the
Company's compensation philosophy;
o linking compensation programs to the achievement of business
strategies in each subsidiary;
o having financial objectives at the subsidiary level that
reflect the performance expectations of the Company for that
entity; and
o emphasizing variable pay rather than fixed compensation.
Performance expectations reflect the Company's commitment to achieve
goals. When expectations are met or exceeded, variable compensation should be
paid; when expectations are not met, variable compensation should not be paid.
Through the end of 2001, the compensation package for the senior
executives of the Company was comprised of base salary, an annual cash incentive
opportunity, a three-year performance share opportunity, perquisites, stock
options, and other benefits that are generally available in companies of similar
size. At the end of 2001, the Committee discontinued the performance share
element of the compensation program.
During 2002, the Committee engaged a nationally recognized independent
compensation and benefits consulting firm to evaluate the effectiveness of the
Company's compensation and benefit programs and to provide the Committee with
additional expertise in the evaluation of the Company's compensation practices.
The compensation consulting firm evaluates proposals made by the Company to the
Committee to assure independence in the review, approval or rejection of
compensation changes recommended by the Company. This firm works directly for
the Committee and performs no services to the Company other than those directed
by the Committee.
COMPENSATION ELEMENTS
1. BASE SALARY
At the senior executive level, base salaries are conservative when
compared with companies of similar size and financial performance. Emphasis in
the Company's compensation programs is placed on variable or "at risk"
compensation rather than on base salary. The Committee reviews the base salaries
of the executive officers on an annual basis. Adjustments to base salaries
result from an assessment of the performance contributions of each executive in
relationship to that executive's scope of responsibility. The Committee also
examines the overall competitive position of the base salaries of its executive
officers in relation to companies of similar size and financial performance. The
Committee maintains an appropriate balance of other compensation elements, i.e.,
short-term incentive compensation, perquisite compensation, long-term incentive
compensation, and other benefit programs including life insurance and pension
benefits. The Company rewards the creation of sustainable long-term shareholder
value.
The 2002 salary of Frederick W. Rockwood reflects his promotion to
President and Chief Executive Officer of the Company at the beginning of fiscal
2001. Effective July 1, 2002 the Board of Directors acted on the recommendation
of the Committee to increase the base salary of Mr. Rockwood by 5.0%. Prior to
making the adjustment the Committee reviewed the year to date performance of
each of the subsidiaries, the financial performance of the Company, and the
performance contributions of Mr. Rockwood in relationship to performance
objectives, such as achievement of shareholder value targets, and made an
assessment of the degree to which he was contributing to the creation of long
term shareholder value. The Committee also reviewed competitive compensation
information provided by the Committee's independent compensation consulting firm
prior to recommending to the Board of Directors the adjustment to Mr. Rockwood's
base salary.
20
The Committee's independent compensation consulting firm provided
marketplace competitive information regarding base salaries of other executive
officers. The base salaries of executive officers of the Company were compared
with those of other diversified manufacturing firms, and with base salary
practices of companies who have generated total shareholder returns similar to
those of the Company. Other executive officers were granted adjustments to their
base salaries at the same time based both upon their performance contributions,
such as attainment of continuous improvement in their areas of responsibility
and management of cash flow during the preceding twelve months, and upon
marketplace comparisons. Adjustments to the base salaries of the other executive
officers were also determined by the Committee. Executive officers may elect to
defer all or a portion of their base salary to be paid at the end of the
deferral period in cash with interest accrued at the prime rate.
2. PERQUISITES
Executive officers of the Company are eligible for perquisite
compensation in an amount equal to 10% of the participant's base salary (or such
other limits as may be imposed by the Committee). Perquisite compensation may be
used to pay for supplemental health care, insurance benefits, financial planning
assistance, club membership fees or Company common stock. All or a portion of
perquisite compensation may be deferred to be paid in cash at the end of the
deferral period.
3. INCENTIVE COMPENSATION
a. SHORT TERM INCENTIVE COMPENSATION
Under the terms of the Senior Executive Compensation Program, the
Committee establishes specific financial objectives, and may establish
non-financial objectives, for each subsidiary and for the Company overall. Each
subsidiary is measured and rewarded based upon its performance contributions,
and the Company is measured and rewarded based upon the performance of the
Company and its subsidiaries overall. Short-term financial performance
objectives are established annually at levels which generally represent
significant improvement over prior years' earnings and cash flow results. The
Committee established these objectives to maintain the appropriate balance
between the short and long term performance expectations of shareholders.
The amount of short-term incentive compensation is determined by first
establishing a performance base ("Performance Base") that must be achieved
before any short-term incentive compensation is available and a target
("Target") for the Company and each subsidiary. The Performance Base and Target
for each company are directly related to net income and, to a lesser extent,
cash flow of that company.
Under the terms of the Program, short term incentive compensation
opportunity is equal to 60% of base salary for the Chief Executive Officer and
President of the Company; 50% of base salary in the case of the Chief Financial
Officer of the Company and chief executive officers of the subsidiaries; 40% of
base salary for most other corporate or subsidiary senior executives; and 30%
for all other executive participants. For executive officers of the Company
during the ten-month period ended September 30, 2002, the plan provided for
short term incentive compensation ranging from 0% of the above scale upon
achievement of the Performance Base, 100% of the above scale upon achievement of
the Target and up to 300% of the above scale for surpassing the Target,
according to a formula recommended by the Chief Executive Officer of the Company
and approved by the Committee. The amounts of short-term incentive compensation
paid to the Company's Chief Executive Officer and Vice Presidents and chief
executive officers of the subsidiaries are recommended by the Chief Executive
Officer of the Company and approved by the Committee. The amounts of short-term
incentive compensation paid to other participants who are employees of the
Company are established and approved by the Chief Executive Officer of the
Company and the amounts of short-term incentive compensation paid to
participants who are employees of subsidiaries of the Company are established by
the chief executive officer of such subsidiary.
21
Short-term incentive compensation is calculated for each senior
executive participant at the end of each fiscal year. Short-term incentive
compensation is payable in cash after forty days, but within seventy-five days,
after the end of the fiscal year. All or a portion of short term incentive
compensation may be deferred by the employee and invested either in cash or
common stock to be paid at the end of the deferral period.
Executive officers of the Company were awarded cash bonuses in December
2002 based upon the achievement of net income and cash flow objectives
established by the Committee at the beginning of the ten-month period ended
September 30, 2002. Because the Target performance of the Company was exceeded,
Frederick W. Rockwood earned the maximum short-term incentive compensation
payment, under the Program. In addition, based on the results of the Company and
his personal performance, the Committee approved an additional discretionary
bonus in the amount of $140,004 to Mr. Rockwood.
b. LONG TERM INCENTIVE COMPENSATION
At the end of 2001, the Compensation Committee reviewed the
compensation programs for executives of the Company and its subsidiaries and
determined to cease future awards under the long-term, three-year cycle
component of the Senior Executive Compensation Program, and it authorized the
payout of all existing awards by offering executives the opportunity to receive
a prorated payment through the end of 2001 in exchange for termination of all
outstanding awards under the long-term component of the Program. The
Compensation Committee will continue to review whether adjustments are advisable
to the other components of the compensation packages for senior executives,
adjusting the level of stock option grants and short-term incentive
compensation, or adopting alternative long-term incentives.
c. STOCK OPTIONS AND DEFERRED STOCK
The Company's Stock Incentive Plan, which was approved by the Company's
shareholders in 2002, provides for the opportunity to grant stock options to
officers, other key employees and non-employee directors to help align those
individuals' interests with those of shareholders, to motivate executives to
make strategic long-term decisions, and to better enable the Company to attract
and retain capable directors and executive personnel.
Officers and other key employees were granted stock options during the
ten-month period ended September 30, 2002. These options vest over a three year
period. In connection with its evaluation of the Stock Incentive Plan, the
Committee utilized the services of an independent consulting compensation firm
to provide marketplace competitive information as well as the practices of
companies who have generated similar total shareholder returns.
From time to time, the Company has made deferred stock awards to
executives of the company for various reasons, as presented in footnote 2 of the
Summary Compensation Table.
* * *
Section 162(m) of the Internal Revenue Code limits tax deductibility of
certain executive compensation in excess of $1 million per year unless certain
requirements are met. The Senior Executive Compensation Program, and the Stock
Incentive Plan are designed to meet these requirements. The Stock Incentive Plan
will enable the Committee to grant awards, which satisfy the Section 162(m)
requirements as well as those which do not. The policy of the Committee related
to these requirements is to maintain a compensation program, which maximizes the
creation of long-term shareholder value. The Committee's intention is to comply
with the requirements of Section 162(m) except in those limited cases where the
Committee believes shareholder interests are best served by another approach.
The grants of certain deferred stock awards in 2001 did not satisfy the
requirements of Section 162(m).
22
Respectfully submitted to the Company's shareholders by the
Compensation and Management Development Committee of the Board of Directors.
BY: COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE
Rolf A. Classon (Chairman)
Ray J. Hillenbrand
Peter H. Soderberg
(Each of whom the Board of Directors has determined is an independent director
under applicable standards)
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
From May 17, 2002 until September 4, 2002, the Compensation Committee
consisted of Messrs. Rolf A. Classon, John C. Hancock (Chairman), John A.
Hillenbrand II and Peter H. Soderberg. Prior to May 17, 2002, the Committee
consisted of Peter F. Coffaro, Leonard Granoff, John C. Hancock (Chairman) and
Ray J. Hillenbrand. Effective September 4, 2002, the Committee was renamed as
the Compensation and Management Development Committee. This Committee now
consists of Rolf A. Classon (Chairman), Ray J. Hillenbrand, and Peter H.
Soderberg. Daniel A. Hillenbrand was Chief Executive Officer of the Company
until April 11, 1989, and Chairman of the Board of the Company until January 17,
2001. Ray J. Hillenbrand has served as Chairman of the Board of the Company
since January 17, 2001. W August Hillenbrand was Chief Executive Officer of the
Company until December 2, 2000. For a discussion regarding certain relationships
and related transactions involving certain of the directors who were members of
this committee during the ten-month period ended September 30, 2002, see "About
the Board of Directors (Including Director Compensation - Certain Relationships
and Related Transactions."
COMPANY STOCK PERFORMANCE
The following graph for the fiscal years ended on the Saturday closest
to November 30 of 1997 through 2001 and the ten-month period ended September 30,
2002 compares the cumulative total return for common stock of the Company with
the S & P 500 and S&P 500 Health Care Equipment Index. In prior years, the
Company used the S&P 500 Manufacturing (Diversified Industrial) Index rather
than the S&P 500 Health Care Equipment Index. During 2002, S&P discontinued
publishing the Manufacturing (Diversified Industrial) Index and now includes the
Company in its Health Care Equipment classification, which the Company considers
a more appropriate classification given the nature of the Company's business.
Accordingly, the Company has elected to use the S&P 500 Health Care Equipment
Index this year and going forward. For comparison, the Company has included in
the graph below the total return of the group of companies that formerly
comprised the S&P 500 Manufacturing (Diversified Industrial) Index: 3M Company,
Crane Company, Danaher Corp., Eaton Corp., Honeywell International Inc.,
Illinois Tool Works, ITT Industries, Inc., Johnson Controls, Inc.,
Parker-Hannifin Corp., Textron Inc., Thermo Electron Corp., Tyco International
Ltd., and United Technologies Corp.
23
COMPARISON OF CUMULATIVE TOTAL RETURN
FOR FISCAL YEARS ENDED NOVEMBER 1997 THRU 2001 AND 10-MONTH
PERIOD ENDED SEPTEMBER 2002
AMONG HILLENBRAND INDUSTRIES, S&P 500 INDEX,
S&P 500 HEALTH CARE EQUIPMENT INDEX AND MANUFACTURING
GROUP
BASE = NOVEMBER 1997
NOV 1997 1998 1999 2000 2001 2002
-------- ---- ---- ---- ---- ----
Hillenbrand 100 129 79 121 127 133
S&P 500 100 124 150 143 126 91
S&P HC Equip 100 135 140 184 179 152
Mfg. Group 100 113 131 145 147 92
FISCAL YEARS ENDED NOVEMBER 1997 THRU 2001
AND 10-MONTH PERIOD ENDED SEPTEMBER 2002
The graph assumes $100 invested in November 1997. Total return assumes that all
dividends are reinvested when received.
AUDIT COMMITTEE'S REPORT
The Audit Committee of the Board of Directors (the "Committee") is
composed of four directors, each of whom satisfies the definition of independent
director as established in the New York Stock Exchange existing and proposed new
Listing Standards. The Committee operates under a written charter adopted by the
Board of Directors which was reviewed and revised during the ten-month period
ended September 30, 2002 and is attached as Appendix B to this Proxy Statement.
Management is responsible for the Company's internal controls,
financial reporting process and compliance with laws and regulations and ethical
business standards. The independent auditors are responsible for performing an
independent audit of the Company's consolidated financial statements in
accordance with generally accepted auditing standards and the issuance of a
report thereon. The Audit Committee's responsibility is to monitor and oversee
these processes.
In this context, the Committee has reviewed and discussed the
consolidated financial statements with management and PricewaterhouseCoopers LLP
("PwC"), the Company's independent auditors. Management represented to the
Committee that the Company's consolidated financial statements were prepared in
24
accordance with generally accepted accounting principles. PwC discussed with the
Committee matters required to be discussed by Statement on Auditing Standards
No. 61 (Communication with Audit Committees).
PwC also provided to the Committee the letter required by Independence
Standards Board Standard No. 1 (Independence Discussions with Audit Committees).
PwC informed the Audit Committee that it was independent with respect to the
Company within the meaning of the securities acts administered by the Securities
and Exchange Commission and the requirements of the Independence Standards
Board, and PwC discussed with the Committee that firm's independence with
respect to the Company.
Based upon the Committee's discussions with management and PwC and the
Committee's review of the representation of management and the report of PwC to
the Committee, the Committee recommended that the Board of Directors include the
audited consolidated financial statements in the Company's Transition Report on
Form 10-K for the transition period from December 2, 2001 to September 30, 2002.
In addition, the Committee has discussed with the Chief Executive
Officer and the Chief Financial Officer of the Company the certifications
required to be given by such officers in connection with the Company's
Transition Report on Form 10-K pursuant to the Sarbanes-Oxley Act of 2002 and
Securities and Exchange Commission rules adopted thereunder, including the
subject matter of such certifications and the procedures followed by such
officers and other management in connection with the giving of such
certifications.
BY: AUDIT COMMITTEE
Charles E. Golden (Chairman)
Rolf A. Classon
Ray J. Hillenbrand
Peter H. Soderberg
(Each of whom the Board of Directors has determined is an independent director
under applicable standards)
RATIFICATION OF APPOINTMENT OF AUDITORS
Subject to shareholder ratification, the Audit Committee of the Board
of Directors of the Company has appointed the firm of PricewaterhouseCoopers LLP
("PwC"), certified public accountants, as independent auditors to make an
examination of the consolidated financial statements of the Company for its
fiscal year ending September 30, 2003. PwC served as the independent auditors of
the Company for the ten-month period ended September 30, 2002. A representative
of PwC will be present at the annual meeting with an opportunity to make a
statement, if he so desires, and will be available to respond to appropriate
questions.
AUDIT FEES
In aggregate, PwC fees billed for professional services rendered in the
audit of the Company's annual consolidated financial statements for the
ten-month period ended September 30, 2002 and in reviewing interim consolidated
financial statements, as included in quarterly reports on Form 10-Q for that
ten-month period, were $1,180,227.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
During the ten-month period ended September 30, 2002, PwC did not
render any information technology services to the Company relating to financial
information systems design and implementation.
25
ALL OTHER FEES
In aggregate, PwC billed the Company $2,228,448 in fees for all
non-audit and non-financial information systems design and implementation
services rendered by PwC for the ten-month period ended September 30, 2002.
These services included a variety of federal, state and international tax
consulting projects, statutory audits of a number of the Company's insurance
operations, employee benefit plan audits, transaction services consulting,
routine consulting on various financial reporting matters and various other
consultations. The Audit Committee considered whether the non-audit services
provided by PwC to the Company are compatible with PwC's independence.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT
AUDITORS OF THE COMPANY.
COST OF SOLICITATION
The entire cost of solicitation of proxies by the Board of Directors
will be borne by the Company. In addition to the use of the mails, proxies may
be solicited by personal interview, facsimile, telephone, electronic
communication and telegram by directors, officers and employees of the Company.
The Company expects to reimburse brokers or other persons for their reasonable
out-of-pocket expenses in forwarding proxy material to beneficial owners.
SHAREHOLDER PROPOSALS
In order for shareholder proposals submitted pursuant to Rule 14a-8
under the Securities Exchange Act of 1934 to be presented at the Company's 2004
annual meeting of shareholders and included in the Company's proxy statement and
form of proxy relating to that meeting, such proposals must be submitted to the
Secretary of the Company at the Company's principal offices in Batesville,
Indiana not later than September 9, 2003.
In addition, the Company's Code of Bylaws provides that for business to
be brought before a shareholders' meeting by a shareholder or for nominations to
the Board of Directors to be made by a shareholder for consideration at a
shareholders' meeting, notice thereof must be received by the Secretary of the
Company at the Company's principal offices not later than 100 days prior to the
anniversary of the immediately preceding annual meeting, or not later than
November 5, 2003 for the 2004 annual meeting of shareholders. The notice must
also provide certain information set forth in the Code of Bylaws.
26
INCORPORATION BY REFERENCE
Notwithstanding anything to the contrary set forth in any of the
Company's previous or future filings under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended, that incorporates
this proxy statement by reference, the Audit Committee's Report and its Charter,
the Compensation and Management Development Committee's Report and the graph
Comparison of Five Year Cumulative Total Return shall not be incorporated by
reference into any such filings.
Patrick D. de Maynadier
Secretary
January 13, 2003
27
APPENDIX A
HILLENBRAND INDUSTRIES, INC.
(the "COMPANY")
CORPORATE GOVERNANCE STANDARDS
FOR
BOARD OF DIRECTORS
(As approved by Board of Directors on September 4, 2002)
The following corporate governance standards established by the Board of
Directors provide a structure within which directors and management can
effectively pursue the Company's objectives for the benefit of its shareholders
and other constituencies. The Company's business is managed under the direction
of the Board, but the conduct of the Company's business has been delegated by
the Board to the Company's senior management team.
1. The Board will consider all major decisions of the Company. However,
the Board has established the following standing Committees so that
certain important areas can be addressed in more depth than may be
possible in a full Board meeting: Audit Committee, Nominating/Corporate
Governance Committee, Compensation and Management Development Committee
and Finance Committee. Each standing Committee has a specific charter
that has been approved by the Board.
2. Within two years following the approval by the Securities and Exchange
Commission of the independence requirements for directors that have
been proposed by the New York Stock Exchange, at least a majority of
the directors of the Company shall be independent, as determined
pursuant to numbered paragraph 3 below.
3. The Board must affirmatively determine annually, based on a
consideration of all relevant facts and circumstances, whether each
director has any material relationship with the Company (either
directly or as a partner, shareholder or officer of an organization
that has a relationship with the Company) that represents a potential
conflict of interest or otherwise interferes with a director's exercise
of his or her independent judgment from management and the Company. If
so, such director cannot be considered independent. In assessing the
materiality of a director's relationship with the Company and each
director's independence, the Board shall consider the issue of
materiality not only from the standpoint of the director but also from
that of the persons or organizations with which the director has an
affiliation. Material relationships can include, among others,
commercial, industrial, banking, consulting, legal, accounting,
charitable and familial relationships. In assessing a director's
independence, the Board shall also consider the director's ownership,
or affiliation with the owner, of less than a controlling amount of
voting securities of the Company. The basis for the Board's
determination that a relationship is not material shall be disclosed in
the Company's annual proxy statement. The Board cannot conclude that a
director is independent if he or she falls into one of the following
categories:
o the director is, or within the last five years has been,
employed by the Company or any of its subsidiaries;
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o the director is, or within the past five years has been,
affiliated with or employed by a present or former auditor of
the Company (or an affiliate);
o the director is, or within the past five years has been, part
of an interlocking directorate in which an executive officer
of the Company serves on the compensation committee of another
company that employs such director;
o the director has a spouse, parent, child, sibling,
mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, sister-in-law or other person who shares his
or her home (collectively, an "immediate family member") that
falls into one of the foregoing three categories; provided,
however, that the disqualification of one director from being
independent pursuant to this provision shall not automatically
disqualify any other director on the Board who is an immediate
family member of such disqualified director but the
disqualification of an immediate family member shall be one of
the facts and circumstances considered by the Board in
assessing such other director's independence; or
o the director owns, or is affiliated with the owner, of a
controlling amount of voting stock of the Company.
Moreover, the Board discourages the following types of transactions with or on
behalf of non-officer directors:
o the making of substantial charitable contributions to any
organization in which a director is affiliated;
o the entering into of consulting contracts with (or providing
other indirect forms of compensation to) directors; or
o the entering into of other compensatory arrangements with
directors that may raise questions about their independence.
4. The Audit Committee, the Nominating/Corporate Governance Committee and
the Compensation and Management Development Committee of the Board will
consist entirely of independent directors.
5. Each member of the Board will act in accordance with the criteria for
selection and discharge the responsibilities set forth in the Position
Specifications(1) for a director of the Company.
6. In addition to evaluations to be performed by the Compensation and
Management Development Committee, the Board will evaluate the
performance of the Company's Chief Executive Officer and certain other
senior management positions at least annually in meetings of
independent directors that are not attended by the Chief Executive
Officer. As a general rule, the Chief Executive Officer should not also
hold the position of Chairman of the Board. However, if, with the
Board's approval, the Chief Executive Officer also holds the position
of Chairman of the Board, the Board will elect a non-executive Vice
Chairman (or a non-executive director who is the Lead Director). The
Vice Chairman or Lead Director will preside at meetings to evaluate the
performance of the Chief Executive Officer.
7. Every year the Board will engage management in a discussion of the
Company's strategic direction and, based on that discussion, set the
Company's strategic direction and review and approve a three-year
strategic framework and a one-year business plan.
----------
(1) See Position Specification for Member of Board of Directors of Hillenbrand
Industries, Inc.
A-2
8. On an ongoing basis during each year, the Board will monitor the
Company's performance against its annual business plan and against the
performance of its peers. In this connection, the Board will assess the
impact of emerging political, regulatory and economic trends and
developments on the Company. The Board will hold periodic meetings
devoted primarily to the review of the Company's strategic plan and
business plan and its performance against them.
9. The Nominating/Corporate Governance Committee will annually assess the
Board's effectiveness as a whole as well as the effectiveness of the
individual directors and the Board's various Committees, including a
review of the mix of skills, core competencies and qualifications of
members of the Board, which should reflect expertise in one or more of
the following areas: accounting and finance, healthcare, international
business, mergers and acquisitions, leadership, business and
management, strategic planning, government relations, investor
relations, executive leadership development, and executive
compensation. In order to make these assessments, the
Nominating/Corporate Governance Committee shall solicit annually the
opinions of each director regarding the foregoing matters. Ineffective
directors shall be replaced as promptly as practicable and inefficient
Committees of the Board shall be restructured or eliminated promptly.
10. Directors are expected to own shares of common stock of the Company.
The Board of Directors may from time to time adopt, revise or terminate
director stock ownership guidelines.
Directors are encouraged to limit the number of directorships that they
hold in public companies so that they can devote sufficient time to the
discharge of their responsibilities to each public company for which
they serve as a director, including the Company. The members of the
several Board committees shall be elected by the Board at the annual
meeting of the Board to serve until the next annual meeting of the
Board or until their successors shall be duly elected and qualified.
Unless the Chair of any Committee is elected by the Board, the members
of the Committee may designate a Chair by majority vote of the
Committee membership. The several Committee Chairs will periodically
report the Committee's findings and conclusions to the Board. Upon
termination of or significant change in a member of the Board's
principal employment, he or she shall notify the Chairman of the Board
and tender his or her resignation from the Board, which may be rejected
by the Board if the change in status is satisfactory and the Board
believes that the director will continue to be a valuable contributor
to the Board.
11. Succession planning and management development will be reviewed
annually by the Chief Executive Officer with the Board.
12. All executive officers are expected to own shares of the Company's
common stock, in addition to their shares of restricted stock and
options to purchase common stock.
13. Incentive compensation plans will link executive compensation directly
and objectively to measured financial and non-financial goals set in
advance by the Compensation and Management Development Committee.
14. Shareholders of the Company will be given an opportunity to vote on the
adoption and amendment of all equity-compensation plans. Brokers may
not vote a customer's shares on any equity compensation plan unless the
broker has received that customer's instructions to do so.
15. Subject to limited exceptions permitted by law, the Company will not
directly or indirectly grant loans to executive officers or directors
of the Company that are not available to outsiders.
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16. Stock options will not be repriced, that is, the exercise price for
options will not be lowered even if the current fair market value of
the underlying shares is below their exercise price.
17. Analyses and empirical data that are important to the directors'
understanding of the business to be conducted at a meeting of the Board
or any Committee will be distributed, to the extent practicable, in
writing to all members in advance of the meeting. Management will make
every reasonable effort to assure that this material is both concise
and in sufficient detail to provide a reasonable basis upon which
directors may make an informed business decision. In many cases,
significant items requiring Board or Committee approval may be reviewed
in one or more meetings, with the intervening time being used for
clarification and discussion of relevant issues. Outside directors
shall be encouraged to provide input into the development of Board and
Committee meeting agenda.
18. Directors shall have complete access to the Company's management. It is
assumed that directors will exercise reasonable judgment to assure that
contact of this sort is not distracting to the business operations of
the Company and that any such contact, if in writing, will be copied to
the Chief Executive Officer and the Chairman of the Board. Furthermore,
the Board encourages the Chief Executive Officer to bring managers into
Board meetings from time to time who: (a) can provide additional
insight into the items being discussed because of personal involvement
in these areas, and/or (b) represent potential members of future senior
management that the Chief Executive Officer believes should be given
exposure to the Board.
19. The Chief Executive Officer or other appointed members of the senior
management team shall report to the Compensation and Management
Development Committee once a year regarding the adequacy and
suitability of the Company's Board compensation package in relation to
other comparable U.S. companies. Changes in Board compensation, if any,
should be suggested by the Compensation and Management Development
Committee and approved only after a full discussion among the members
of the Board.
20. The Board is responsible for the enactment and approval of changes in
the Company's Code of Business Conduct and Ethics ("Policy Statement").
The Board's Audit Committee has responsibility for the oversight of the
implementation and administration of the Policy Statement, the review
and assessment at least annually of the effectiveness of the Policy
Statement and the recommendation to the Board of suggested changes in
the Policy Statement.
21. While the Board will review from time to time its compensatory
arrangements with its non-officer, non-employee directors, the Board
believes that the form and amount of the Company's current compensatory
arrangements with its non-officer, non-employee directors summarized
below are both customary and appropriate:
o Annual retainer of $150,000, payable quarterly, to the
Chairman and Lead Director of the Board;
o Annual retainer of $25,000, payable quarterly to all other
non-officer, non-employee;
o $3,500 fee for attending in person each meeting of the Board
and $1,000 fee for each additional day spent at a Board
meeting, in each case payable at the conclusion of the
meeting;
o Annual retainer of $5,000 for serving as chairperson of the
Board's Nominating/Corporate Governance, Audit, Finance and
Compensation and Management Development Committees, payable
quarterly;
A-4
o $1,500 fee for attending in person each meeting of the
Nominating/Corporate Governance, Finance, Audit and
Compensation and Management Development Committees, payable at
the conclusion of the meeting;
o $1,500 fee for attending in person any other ad hoc committee
of the Board, other than one held before, during or after a
Board meeting, payable at the conclusion of the meeting;
o 50% of usual meeting fee for attending a Board or committee
meeting by telephone, payable at the conclusion of the
meeting;
o Reimbursement for reasonable costs and expenses in attending
Board and committee meetings; and
o Automatic annual grant of options to purchase 4,000 shares of
the Company's common stock at fair market value on the date of
grant pursuant to the Company's Stock Incentive Plan, with
such number of shares subject to options being 10,000 for the
Chairman and Lead Director of the Board .
22. The Board's Compensation and Management Development Committee shall
from time to time review and propose adoption by the Board of revisions
to the Company's current compensatory arrangements with its non-officer
directors and members of the Board's various committees.
23. The Board will consider from time to time its optimum size and will
increase or decrease from time to time, as appropriate, the number of
its members.
24. The Board is committed to the continuing orientation and training of
new and incumbent directors at the Board and Committee levels.
25. The non-management directors regularly shall conduct executive sessions
without participation by any employees of the Company and shall
designate and publicly disclose the name of a director who will preside
at regularly scheduled meetings of the non-management directors.
26. While the information needed for the Board's decision making generally
will be found within the Company, from time to time the Board may seek
legal or other expert advise from sources independent of management.
Generally such advice will be sought with the knowledge and concurrence
of the Chief Executive Officer. Accordingly, the Board shall have the
sole authority to engage, compensate, oversee and terminate external
independent consultants, counsel and other advisors as it determines
necessary to carry out its responsibilities. The Company shall provide
appropriate funding (as determined by each committee) for payment of
compensation to advisors engaged by the Board.
27. Likewise, each committee of the Board shall have the sole authority to
engage, compensate, oversee and terminate external independent
consultants, counsel and other advisors as it determines necessary to
carry out its duties, including the resolution of any disagreements
between management and the auditor regarding financial reporting. The
Company shall provide appropriate funding (as determined by each
committee) for payment of compensation to advisors engaged by the
committees.
28. These Corporate Governance Standards have been developed and approved
by the Board. The Board will review at least annually the practices
incorporated into these Corporate Governance Standards by comparing
them to the standards identified by leading governance authorities and
the evolving needs of the Company and determine whether these Corporate
Governance Standards should be updated. These
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Corporate Governance Standards shall be published in the Company's
Proxy Statement or Annual Report to shareholders.
A-6
Appendix B
HILLENBRAND INDUSTRIES, INC. (THE "COMPANY")
AUDIT COMMITTEE CHARTER
(As approved by Board of Directors on September 4, 2002)
MISSION STATEMENT
The Audit Committee ("Committee") shall assist the Board of Directors of the
Company ("Board") in fulfilling its oversight responsibilities regarding
financial reports and financial controls of the Company. In discharging that
role, the Committee shall review the Company's financial reporting process, its
system of internal controls regarding accounting, legal and regulatory
compliance and ethics that management or the Board, as the case may be, have
established and the internal and external audit processes of the Company. The
Committee will endeavor to maintain effective working relationships with the
Board, management, and the internal and external auditors. Each Committee member
will maintain an understanding of the requirements of membership which are
necessary to meet and fulfill Committee responsibilities.
ORGANIZATION
The Board shall arrange that:
1. The Committee shall be comprised of at least three members of the
Board, each of whom must meet the independence criteria set forth in
the Company's Corporate Governance Standards for the Board of Directors
at all times during his or her tenure on the Committee. A director who
meets the independence criteria mandated for Committee members, but who
also holds 20% or more of the Company's stock (or who is a general
partner, controlling shareholder or officer of any such holder) cannot
chair, or be a voting member of, the Committee. No member of the
Committee may (a) accept, other than in his or her capacity as a member
of the Committee, the Board or any other committee of the Board, any
consulting, advisory or other compensatory fee from the Company or (b)
be an affiliated person(1) of the Company or any of its subsidiaries.
2. All members of the Committee should possess, at a minimum, basic
financial literacy, as such qualification is interpreted by the Board,
or acquire such literacy within a reasonable period of time from
joining the Committee. At the present time, the Board interprets
"financial literacy" to mean the ability to read and understand audited
and unaudited consolidated financial statements (including the related
notes) and monthly operating statements of the sort released or
prepared by the Company, as the case may be, in the normal course of
its business.
3. The Chair shall be available, capable, qualified and competent in
dealing with financial and related issues and shall have accounting or
related financial management expertise. At least one member of the
Committee shall be a financial expert who shall have, through education
and experience as a public accountant or auditor or a principal
financial officer, comptroller or principal accounting officer (or
other position involving the performance of similar functions) of a
public reporting company,
----------
(1) To be defined by the Securities and Exchange Commission; however,
compliance with the independence requirements of the New York Stock
Exchange should satisfy this requirement.
B-1
o an understanding of generally accepted accounting principles
and financial statements;
o experience in (i) the preparation of or auditing of financial
statements of a generally comparable public reporting company
and (ii) the application of generally accepted accounting
principles in connection with the accounting for estimates,
accruals and reserves;
o experience with internal accounting controls;
o an understanding of the audit committee function; and
o such other experience as may be required to meet any
additional requirements promulgated by the Securities and
Exchange Commission pursuant to Section 407 of the
Sarbanes-Oxley Act of 2002.
4. No director shall be appointed to the Committee who is currently
serving on the audit committees of three or more other public companies
unless the Board determines that such simultaneous service would not
impair the ability of such member to serve on the Committee and such
determination is disclosed in the Company's annual proxy statement.
5. The members of the Committee shall be designated by the Board at the
annual meeting of the Board to serve until the next annual meeting of
the Board or until their successors shall be duly elected and
qualified. Unless a Chair is designated by the Board, the members of
the Committee may designate a Chairman by majority vote of the
Committee membership.
6. Committee meetings shall be held not less than quarterly, usually in
conjunction with the Company's regular quarterly Board meetings. The
Committee may choose to meet more frequently, if needed.
ROLES AND RESPONSIBILITIES
The Committee's responsibility is oversight, and it and the Board recognize that
the Company's management is responsible for preparing the Company's financial
statements. Additionally, the Committee recognizes that financial management,
the internal audit staff, and the external auditors, have more knowledge and
more detailed information about the Company than do the members of the
Committee. Consequently, in carrying out its oversight responsibilities the
Committee is not providing any expert or special assurance as to the Company's
financial statements or any professional certification of the financial
statements prepared by management or the audit work performed by the internal or
external auditors.
In this regard, the following functions shall be the common recurring activities
of the Committee in carrying out its oversight function. These functions are set
forth as a guide with the understanding that the Committee may diverge from this
guide as appropriate under any particular set of circumstances.
FINANCIAL REPORTING
The Committee shall:
1. Review with management and the external auditors any financial
statement issues and the results of the audit.
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2. Review management's disposition of proposed significant audit
adjustments as identified by the external auditors.
3. Inquire into the fairness of the statements and disclosures by
requesting explanations from management and from the internal and
external auditors on whether:
o Generally accepted accounting principles have been
consistently applied.
o There are any significant or unusual events or transactions.
o The Company's financial and operating controls are functioning
effectively.
o The Company's financial statements contain adequate and
appropriate disclosures.
4. Review with the external auditors their views as to the quality of the
Company's accounting principles and financial reporting practices.
5. Review and discuss with management and the external auditors the
Company's annual audited financial statements and recommend to the
Board the inclusion of the Company's audited financial statements in
its Annual Report on Form 10-K.
6. Prior to the Company's filing of each Annual Report on Form 10-K and
Quarterly Report on Form 10-Q, review and discuss with management and
the external auditors the content of such filing, including the
disclosures under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and review any exceptions to the
certifications required of the Chief Executive Officer and Chief
Financial Officer in connection with such filings. The Committee shall
also discuss with the external auditors the matters required to be
brought to the Committee's attention by Statement on Auditing Standards
No. 61, as well as other matters that should be communicated to the
Committee by the external auditors.
7. Discuss with management, prior to their dissemination, earnings press
releases, as well as financial information and earnings guidance
provided to analysts and rating agencies, provided that, if it is not
otherwise practicable for the entire Committee to review revisions to
earnings guidance, such review may be performed by the Chairman of the
Committee.
INTERNAL CONTROL
The Committee shall:
1. Review with management, as well as internal and external auditors, the
Company's business risk management process, including the adequacy of
the Company's overall control environment and controls in selected
areas representing significant financial and business risk.
2. Require that the internal and external auditors and management keep the
Committee informed about any significant fraud, illegal acts, or
deficiencies in internal control, and similar significant matters.
3. Create an opportunity that significant findings and recommendations
made by the internal and external auditors can be received and
discussed on a timely basis.
B-3
4. Gain an understanding of whether internal control recommendations made
by internal and external auditors have been implemented by management.
5. Inquire as to the extent to which internal and external auditors review
computer systems and applications and the security of such systems and
applications.
INTERNAL AUDIT
1. The Committee shall review as often as it deems necessary but at least
annually:
o The annual audit plan, activities and organizational structure
of the internal audit function.
o The qualifications of the internal audit function and, when
necessary, participate in the appointment, replacement,
reassignment, or dismissal of the Director of Internal Audit.
o The effectiveness of the internal audit function.
2. The Committee shall also review periodically as it deems appropriate
the reports prepared by the internal audit staff and management's
responses to such reports.
EXTERNAL AUDIT
1. The Committee shall review:
o The external auditors' proposed audit scope and approach.
o The performance of the external auditors.
2. The Committee shall have the direct responsibility for and the sole
authority to engage, compensate, oversee and terminate the Company's
external auditors (subject, where applicable, to shareholder
ratification), including the resolution of any disagreements between
management and the Company's external auditors regarding financial
reporting. The Company shall provide appropriate funding (as determined
by the Committee) for payment of compensation to the Company's external
auditors.
3. The Committee must approve in advance any non-audit services performed
by the Company's external auditors, including tax services.
Notwithstanding the foregoing, the Company's external auditors may not
provide the following services to the Company: bookkeeping or other
services related to the accounting records or financial statements of
the Company; financial information systems design and implementation;
appraisal or valuation services, fairness opinions or
contribution-in-kind reports; actuarial services; internal audit
outsourcing services; management functions or human resources; broker
or dealer, or investment adviser or investment banking services; legal
services and expert services unrelated to the audit; and any other
service that the applicable federal oversight regulatory authority
determines, by regulation, is impermissible. Any non-audit service
approved by the Committee and performed by the Company's external
auditors must be disclosed to investors in the Company's reports on
Form 10-K and Form 10-Q.
4. The lead (or coordinating) audit partner and the audit review partner
associated with the Company's external auditors must be changed at
least every five years.
5. The Committee cannot engage external auditors to perform audit services
for the Company if the Company's Chief Executive Officer, Chief
Financial Officer, Chief Accounting Officer or any person in
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an equivalent position was employed by such external auditors within
one year preceding the initiation of the audit.
6. The Committee shall, at least annually, use its best efforts to obtain
and review a report from the external auditors addressing: (a) the
auditors internal quality-control procedures; (b) any material issues
raised by the most recent internal quality-control review, or peer
review, of the external auditors; (c) any inquiry or investigation by
governmental or professional authorities, within the preceding five
years, respecting one or more independent audits carried out by the
external auditors and any steps taken to deal with such issues; and (d)
the independence of the external auditors, including a discussion of
any relationships or services that may impact their objectivity and
independence.
OTHER RESPONSIBILITIES
The Committee shall:
1. Meet at least quarterly, with the external auditors, Director of
Internal Audit, and management in separate executive sessions to
discuss any matters that the Committee or these groups believe should
be discussed privately.
2. Update the Board about Committee activities and make appropriate
recommendations, as often as the Board deems appropriate.
3. Annually review and assess the continuing adequacy of this Charter and
the performance of the members of the Committee and, if appropriate,
recommend changes for the approval of the Board.
4. Prepare a report to shareholders to be included in the Company's proxy
statements as required by the Securities and Exchange Commission.
5. Perform any other activities consistent with this Charter, the
Company's Code of By-laws and governing law, as the Committee or the
Board deems necessary, appropriate or desirable.
6. As appropriate, obtain advice and assistance from outside legal,
accounting or other advisors without the necessity for prior
authorization by the Board.
7. Establish policies for the hiring by the Company of present or former
employees of the Company's external auditors.
ETHICAL, LEGAL AND REGULATORY COMPLIANCE
The Committee shall:
1. Review and assess at least annually the Company's Code of Business
Conduct and Ethics (the "Policy Statement"), recommend changes in the
Policy Statement as conditions warrant and confirm that management has
established a system to monitor compliance with the Policy Statement by
officers and relevant employees of the Company.
2. Review management's monitoring of the Company's compliance with the
Policy Statement, and confirm that management has a review system in
place to maximize the likelihood that the Company's financial
statements, reports and other financial information disseminated to
governmental organizations and the public satisfy applicable legal
requirements.
3. Review, with the Company's counsel, legal and regulatory compliance
matters including corporate securities trading policies.
B-5
4. Review, with the Company's counsel, any legal or regulatory matter that
could have a significant impact on the Company's financial statements.
5. The Committee shall establish procedures for (a) the receipt, retention
and treatment of complaints received by the Company regarding
accounting, internal accounting controls or auditing matters and (b)
the confidential, anonymous submission by employees of the Company
regarding questionable accounting or auditing matters.
OPERATIONS
The Committee shall conduct its operations in accordance with the procedures set
forth in Article 4 of the Company's Code of By-Laws applicable to the operations
of the Board, except to the extent that such procedures are modified on
superseded by the terms of this Charter. The Committee shall have the authority
to adopt such additional procedures for the conduct of its business as are not
inconsistent with those referred to in the preceding sentence. Except as
otherwise expressly provided herein, the Committee shall have no authority to
delegate its responsibilities to any subcommittee.
GENERAL LIMITATIONS
The Board recognizes that the members of the Committee will discharge the
foregoing oversight responsibilities by evaluating (a) reports given to them,
(b) presentations made to the them and (c) other significant financial reporting
decisions which are reported to them by management, internal auditors and
external auditors. Within the bounds of sound business judgment and assessment,
and to the extent permitted by the Indiana Business Corporation Law, each member
of the Committee shall be entitled to rely on the integrity of the individuals
and organizations from whom they receive such information. In discharging his or
her duties as a member of the Committee, each member is entitled to rely on
information, opinions, reports or statements, including financial statements and
other financial data, that is prepared and presented by either (i) one or more
officers or employees of the Company who the member reasonably believes to be
reliable and competent in the matters presented or (ii) legal counsel, external
independent auditors or other persons as to the matters the member reasonably
believes are within the person's professional or expert competence. The
Committee may also retain independent counsel, accountants or others, as it
deems appropriate. Furthermore, in fulfilling their responsibilities hereunder,
it is recognized that members of the Committee are not full-time employees of
the Company and are not, and do not hold themselves out to be, accountants or
auditors by profession or experts in the fields of accounting or auditing.
B-6
000000 0000000000 0 0000
HILLENBRAND INDUSTRIES, INC.
000000000.000 ext
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MR A SAMPLE 000000000.000 ext
DESIGNATION (IF ANY) 000000000.000 ext
ADD 1 000000000.000 ext
ADD 2 000000000.000 ext
ADD 3
ADD 4 HOLDER ACCOUNT NUMBER
ADD 5
ADD 6 C 1234567890 J N T
[BARCODE]
[BARCODE]
[ ] Mark this box with an X if
you have made changes to
your name or address
details above.
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ANNUAL MEETING PROXY CARD
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A ELECTION OF DIRECTORS PLEASE REFER TO THE REVERSE SIDE FOR INTERNET AND TELEPHONE VOTING INSTRUCTIONS.
1. The Board of Directors recommends a vote FOR the election of director nominees:
To serve three-year terms as directors: To serve a one-year term as director:
FOR WITHHOLD FOR WITHHOLD
01 - Rolf A. Classon [ ] [ ] 04 - Peter H. Soderberg [ ] [ ]
02 - Charles E. Golden [ ] [ ]
03 - W August Hillenbrand [ ] [ ]
B RATIFICATION OF APPOINTMENT OF AUDITORS
2. The Board of Directors recommends a vote FOR the following proposal.
FOR AGAINST ABSTAIN
Ratification of the appointment of
PricewaterhouseCoopers LLP as [ ] [ ] [ ]
independent auditors.
C AUTHORIZED SIGNATURES - SIGN HERE - THIS SECTION MUST BE COMPLETED FOR
YOUR INSTRUCTIONS TO BE EXECUTED.
Please sign name and title exactly as shown on label on this proxy card.
Signature 1 - Please keep signature within the box Signature 2 - Please keep signature within the box Date (mm/dd/yyyy)
-------------------------------------------------- -------------------------------------------------- -----------------
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PROXY - HILLENBRAND INDUSTRIES, INC.
--------------------------------------------------------------------------------
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD FEBRUARY 13, 2003
The undersigned appoints Ray J. Hillenbrand and Frederick W. Rockwood, or either
of them, with full power of substitution, as proxies to vote all the shares of
the undersigned at the Annual Meeting of Shareholders of Hillenbrand Industries,
Inc. (the "Company") to be held at the Sherman House, 35 South Main Street,
Batesville, Indiana 47006-0067, on February 13, 2003 10:00 a.m., local time, and
at any adjournments of the meeting, on the matters listed on the reverse side
and on any other business that comes before the meeting.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS GIVEN, THE SHARES WILL BE VOTED FOR
ITEMS 1 AND 2. IF ANY DIRECTOR NOMINEE SHOULD BE UNABLE TO SERVE, THE SHARES
WILL BE VOTED FOR A SUBSTITUTE NOMINEE SELECTED BY THE BOARD OF DIRECTORS. IF
ANY OTHER BUSINESS COMES BEFORE THE MEETING, THE SHARES REPRESENTED BY THIS
PROXY WILL BE VOTED IN THE DISCRETION OF THE PROXY HOLDERS.
IMPORTANT: THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. PLEASE
MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE. WHEN
SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE, PARTNER, OFFICER OR
GUARDIAN, PLEASE GIVE YOUR FULL TITLE. IF SHARES ARE HELD JOINTLY, ALL HOLDERS
MUST SIGN THE PROXY. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
THIS PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS EXERCISED.
(continued and to be signed on reverse side)
INTERNET AND TELEPHONE VOTING INSTRUCTIONS
YOU CAN SUBMIT YOUR PROXY BY TELEPHONE OR INTERNET! AVAILABLE 24 HOURS A DAY 7
DAYS A WEEK!
Instead of mailing your proxy, you may choose one of the two methods outlined
below to submit your proxy. Have this proxy card in hand when you call.
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To submit your proxy using the Telephone (within the U.S. and Canada) To submit your proxy using the Internet
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o Call toll free 1-866-222-5651 in the United States or Canada any time o Go to the following web site:
on a touch tone telephone. There is NO CHARGE to you for the call. WWW.COMPUTERSHARE.COM/US/PROXY
o Enter the HOLDER ACCOUNT NUMBER (EXCLUDING THE LETTER "C") and o Enter the information requested on your
PROXY ACCESS NUMBER located below. computer screen and follow the simple
instructions.
o Follow the simple recorded instructions.
Option 1: To vote as the Board of Directors recommends on ALL proposals:
Press 1.
When asked, please confirm your vote by pressing 1.
Option 2: If you choose to vote on EACH proposal separately, press 0
and follow the simple recorded instructions.
HOLDER ACCOUNT NUMBER C0123456789 PROXY ACCESS NUMBER 12345
IF YOU SUBMIT YOUR PROXY BY TELEPHONE OR THE INTERNET, PLEASE DO NOT MAIL BACK THIS PROXY CARD.
PROXIES SUBMITTED BY TELEPHONE OR THE INTERNET MUST BE RECEIVED BY 12:00 MIDNIGHT, CENTRAL TIME, ON FEBRUARY 12, 2003.
THANK YOU FOR VOTING