SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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COMMERCIAL METALS COMPANY
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COMMERCIAL METALS COMPANY
7800 STEMMONS FREEWAY
DALLAS, TEXAS 75247
TELEPHONE (214) 689-4300
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 24, 2002
The Annual Meeting of Stockholders of Commercial Metals Company, a Delaware
corporation ("Commercial Metals"), will be held in the Thompson Auditorium,
Cityplace Center, 2711 North Haskell Avenue, Dallas, Texas, on January 24, 2002,
at 10:00 a.m., Central Standard Time. If you are planning to attend the meeting
in person, please check the appropriate space on the enclosed proxy card. A map
is included on the back cover of the attached Proxy Statement. The meeting will
be held for the following purposes:
(1) To elect three persons to serve as directors until the 2005 annual
meeting of stockholders and until their successors are elected;
(2) To consider and act upon a proposal to amend the Company's 1996
Long-Term Incentive Plan to increase by 500,000 the number of shares
available for issuance pursuant to the Plan;
(3) To approve the appointment of Deloitte & Touche LLP as independent
auditors for the fiscal year ending August 31, 2002; and
(4) To transact such other business as may properly come before the
meeting or any adjournments of the meeting.
Only stockholders of record on November 26, 2001, are entitled to notice of
and to vote at the meeting or any adjournment or adjournments of the meeting.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO
FILL OUT, SIGN AND MAIL PROMPTLY THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE
ON WHICH NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. PROXIES
FORWARDED BY OR FOR BROKERS OR FIDUCIARIES SHOULD BE RETURNED AS REQUESTED BY
THEM. THE PROMPT RETURN OF PROXIES WILL SAVE THE EXPENSE INVOLVED IN FURTHER
COMMUNICATION.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ DAVID M. SUDBURY
DAVID M. SUDBURY
Vice President, Secretary
and General Counsel
Dallas, Texas
December 10, 2001
COMMERCIAL METALS COMPANY
7800 STEMMONS FREEWAY
DALLAS, TEXAS 75247
TELEPHONE (214) 689-4300
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 24, 2002
This proxy statement is furnished in connection with the solicitation of
proxies by the board of directors of Commercial Metals Company ("Commercial
Metals") for use at the annual meeting of stockholders of Commercial Metals to
be held on January 24, 2002, and at any and all adjournments of the meeting. The
approximate date on which this proxy statement and accompanying proxy card are
first being sent or given to stockholders is December 10, 2001.
Shares represented by each proxy, if properly executed and returned to
Commercial Metals prior to the meeting, will be voted as directed, but if not
otherwise specified, will be voted for the election of three directors, for
approval of the proposal to amend the Company's 1996 Long-Term Incentive Plan to
increase by 500,000 the maximum number of shares available for issuance pursuant
to the Plan and to ratify the appointment of Deloitte & Touche LLP as
independent auditors, all as recommended by the board of directors. A
stockholder executing the proxy may revoke it at any time before it is voted by
giving written notice to the Secretary of Commercial Metals, by subsequently
executing and delivering a proxy or by voting in person at the meeting (although
attending the meeting without executing a ballot or executing a subsequent proxy
will not constitute revocation of a proxy).
OUTSTANDING VOTING SECURITIES
On November 26, 2001, the record date for determining stockholders entitled
to vote at the annual meeting, there were outstanding 13,128,135 shares of
common stock, par value $5.00 per share, not including 3,004,448 treasury
shares. Each share of common stock is entitled to one vote for each director to
be elected and upon all other matters to be brought to a vote. There were no
shares of preferred stock outstanding at November 26, 2001.
The presence of a majority of the outstanding common stock represented in
person or by proxy at the meeting will constitute a quorum. Shares represented
by proxies that are marked "abstain" will be counted as shares present for
purposes of determining the presence of a quorum. Proxies relating to "street
name" shares that are voted by brokers on some matters will be treated as shares
present for purposes of determining the presence of a quorum, but will not be
treated as shares entitled to vote at the annual meeting on those matters as to
which authority to vote is withheld by the broker ("broker non-votes").
The three nominees receiving the highest vote totals will be elected as
directors of Commercial Metals. Accordingly, abstentions and broker non-votes
will not affect the outcome of the election of directors.
All other matters to be voted on will be decided by the affirmative vote of
a majority of the shares present or represented at the meeting and entitled to
vote. On any such matter, an abstention will have the same effect as a negative
vote. A broker non-vote will not be counted as an affirmative vote or a negative
vote because shares held by brokers will not be considered entitled to vote on
matters as to which the brokers withhold authority.
PRINCIPAL STOCKHOLDERS
As of the record date the only person, or groups of persons, known to
Commercial Metals' management believed to own beneficially 5% or more of
Commercial Metals' outstanding common stock was:
TYPE OF OWNED PERCENT
NAME AND ADDRESS OWNERSHIP SHARES OF CLASS
---------------- --------- -------- --------
Moses Feldman Beneficially 1,150,090(1) 8.8%
P.O. Box 931
Doylestown, PA 18901
Dimensional Fund Advisors Beneficially 963,329(2) 7.3%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
---------------
(1) Based on filings with the Securities and Exchange Commission, which indicate
the reporting person has sole voting power over 106,399 shares, sole
dispositive power over 106,399 shares and shared dispositive and voting
power over 1,043,691 shares.
(2) Based on a Schedule 13G report filed February 2, 2001.
PROPOSAL I
ELECTION OF DIRECTORS
Commercial Metals' restated certificate of incorporation divides the board
of directors into three classes. The term of office of the Class I directors
expires at this annual meeting of stockholders. The two Class II directors will
serve until the 2003 annual meeting of stockholders. The terms of the four Class
III directors end at the 2004 annual meeting of stockholders. Nominees A. Leo
Howell and Dorothy G. Owen were previously elected by the stockholders. Nominee
Robert R. Womack was elected to the board by the directors in May, 1999. Each of
the three Class I nominees currently serves as a director and stands for
election to a three year term of office expiring at the 2005 annual meeting and
until a successor is duly elected. Proxies cannot be voted for the election of
more than three persons to the board at the meeting.
The proxies named in the accompanying form of proxy have been designated by
management. Each nominee has consented to being named in this proxy statement
and to serve if elected. If any nominee becomes unavailable for any reason, the
shares represented by the proxies will be voted for the person, if any, as may
be designated by the board of directors. However, management has no reason to
believe that any nominee will be unavailable.
2
The following table sets forth information about the directors. All
directors have been employed in substantially the same positions set forth for
at least the past five years except for Messrs. Massaro, Rabin and Womack. Mr.
Massaro was elected Chairman of Lincoln Electric Holdings, Inc. in May 1997,
having been President and Chief Executive Officer since November 1996. Mr. Rabin
was elected to the additional position of Chairman in March 1999. Mr. Womack was
Chairman and Chief Executive Officer of Zurn Industries, Inc. prior to its
merger in 1998 with U.S. Industries. Mr. Womack retired as Chairman and Chief
Executive Officer of Zurn Industries, Inc. and Chief Executive of U.S.
Industries Bath and Plumbing Products Group in January, 2000.
NOMINEES
NUMBER OF SHARES
OF COMMON STOCK
BENEFICIALLY OWNED PERCENT OF
SERVED AS DIRECTLY OR OUTSTANDING
NAME, PRINCIPAL DIRECTOR INDIRECTLY AS OF COMMON
OCCUPATION AND BUSINESS AGE SINCE NOVEMBER 26, 2001 STOCK
----------------------- --- --------- ------------------ -----------
CLASS I -- TERM TO EXPIRE IN 2005
A. Leo Howell 80 1977 104,764(1) *
Vice President, Commercial Metals Company;
President, Howell Metal Company;
Dorothy G. Owen 66 1995 228,530(2) 1.7%
Retired - Former Chairman of the Board, Owen Steel
Company, Inc.; Investments
Robert R. Womack 64 1999 9,029(2) *
Retired - Former Chairman and Chief Executive Officer,
Zurn Industries, Inc. and Chief Executive of U.S.
Industries Bath and Plumbing Products Group
DIRECTORS CONTINUING IN OFFICE
CLASS II -- TERM TO EXPIRE IN 2003
Anthony A. Massaro 57 1999 6,029(2) *
Chairman and Chief Executive Officer
Lincoln Electric Holdings, Inc.
Robert D. Neary 68 2001 2,000 *
Retired - Former Co-Chairman of Ernst & Young
CLASS III -- TERM TO EXPIRE IN 2004
Moses Feldman 61 1976 225,949(2)(3) 1.7%
President, AeroMed, Inc.
Ralph E. Loewenberg 62 1971 5,029(2)(4) *
President, R. E. Loewenberg Capital
Management Corporation
Stanley A. Rabin 63 1979 306,767(1) 2.3%
Chairman, President and Chief Executive Officer,
Commercial Metals Company
Marvin Selig 78 1964 159,841(1) 1.2%
CMC Steel Group - Chairman and Chief Executive Officer
---------------
* Less than one percent.
(1) Includes shares subject to options exercisable within sixty days by Mr.
Rabin of 130,200 shares, Mr. Selig of 87,007 shares and Mr. Howell of 48,175
shares.
3
(2) Includes for directors Loewenberg, Massaro, Owen and Womack 5,029 shares and
for Feldman 750 shares subject to options exercisable within sixty (60) days
which represent options granted pursuant to the Non-Employee Director Stock
Option Plan.
(3) Excluding 631,107 shares owned of record by the Feldman Foundation, of which
Moses Feldman is one of three voting trustees, 643,691 shares owned by the
Marital Trust under the Jacob Feldman Revocable Trust Indenture of which
Moses Feldman is one of four trustees and 281,200 of 400,000 shares owned by
the Feldman Family Limited Partnership of which Moses Feldman is managing
partner. Mr. Feldman disclaims beneficial ownership as to all shares held by
the Feldman Foundation, the Marital Trust and 281,200 shares held by the
Feldman Family Limited Partnership. See "Principal Stockholders" at page 2
for information concerning Mr. Feldman's ownership of common stock.
(4) Ralph E. Loewenberg is one of four trustees of the Marital Trust under the
Jacob Feldman Revocable Trust Indenture which owns 643,691 shares. Ralph E.
Loewenberg disclaims any beneficial interest as to such shares.
As of November 26, 2001, all directors and executive officers as a group
beneficially own 1,554,777 shares or 11.8% of outstanding common stock including
545,846 shares subject to options exercisable within sixty days but excluding
shares owned by the Feldman Foundation, Marital Trust and 281,200 of the 400,000
shares owned by the Feldman Family Limited Partnership discussed in footnotes 3
and 4 above.
Marvin Selig is the brother of Clyde P. Selig, an executive officer. There
are no other family relationships among the directors, nominees and executive
officers.
Mr. Massaro is a director of Lincoln Electric Holdings, Inc. and Thomas
Industries, Inc. Mr. Neary is a director of Cold Metal Products, Inc., Strategic
Distribution, Inc. and is Chairman of the Board of Trustees of Armada Funds. Mr.
Womack is a director of Covanta Energy, Inc., Precision Partners, Inc. and U.S.
Industries, Inc.
ADDITIONAL INFORMATION RELATING TO THE BOARD OF DIRECTORS
Audit Committee. The board of directors has a standing audit committee
which performs the activities more fully described in the Audit Committee Report
on page 18. The members of the audit committee during fiscal 2001 were directors
Womack (Chairman), Feldman, Neary and Owen. Prior to his retirement as a
director in March, 2001, Albert A. Eisenstat served as Chairman of the audit
committee. During the fiscal year ended August 31, 2001, the audit committee met
six times.
Compensation Committee. The board of directors has a standing compensation
committee that provides recommendations to the board regarding compensation for
executive officers including issuance of stock options. During 2001 the
compensation committee consisted of directors Loewenberg (Chairman), Feldman,
Neary and Massaro. Prior to his retirement as a director in March, 2001, Albert
A. Eisenstat served as a member of the compensation committee. The compensation
committee met five times during the fiscal year ended August 31, 2001, to
establish salaries and bonuses for executive officers, to review compensation
policies and approve the issuance of stock options.
Executive and Nominating Committee. The executive and nominating committee
consists of directors Massaro (Chairman), Feldman, Loewenberg, Neary, Owen and
Womack. Under Commercial Metals' bylaws, the committee is endowed, during the
intervals between the meetings of the directors, with all of the powers of the
directors in the management and control of the business. The executive and
nominating committee met three times during the fiscal year ended August 31,
2001 to consider board structure, candidates for directors, executive officer
succession and company strategy.
During the fiscal year ended August 31, 2001, the entire board of directors
met twelve times, of which six were regularly scheduled meetings and six were
special meetings. All incumbent directors attended at least seventy-five percent
or more of the meetings of the board of directors and of the committees of the
board on which they served.
4
Compensation of Non-employee Directors. No employees of Commercial Metals
receive additional compensation for serving as a director. Directors Feldman,
Loewenberg, Massaro, Neary, Owen and Womack were paid an annual retainer fee of
$27,000 per year and $1,200 for each board meeting or $600 for each committee
meeting they attended during the 2001 fiscal year. Chairmen of the audit,
compensation and executive committees receive an additional payment of $1,500
per year. The directors are also reimbursed for expenses of attending meetings.
The Non-Employee Director Stock Option Plan approved at the 2000 Annual
Meeting of Stockholders provides that each non-employee director receive on the
date of each annual meeting of stockholders an option to acquire 1,500 shares.
Directors elected to fill vacancies between annual meetings receive a grant for
a pro rata amount based on their period of service before the next annual
meeting. Each non-employee director except Robert D. Neary received on January
25, 2001, an option to acquire 1,500 shares of common stock at $21.97. Mr. Neary
received an option to acquire 1,306 shares at $26.45 upon his election as a
director on March 12, 2001. In addition, each non-employee director may make an
irrevocable election prior to January 1 of each year, to accept an additional
option grant in lieu of all or part of the annual cash retainer to be paid for
that year. The number of shares subject to option as a result of this election
will be determined by dividing the amount of the annual retainer by the
Black-Scholes value for one share as of the grant date. The grant date shall be
the date of the annual meeting of stockholders following the calendar year
covered by the election. Directors Loewenberg, Massaro, Owen and Womack each
received an option to acquire 4,279 shares of common stock at $21.97 on January
25, 2001 in lieu of receipt of the annual cash retainer for calendar year 2000.
Feldman, Loewenberg, Massaro, Owen and Womack have elected to accept options for
a number of shares to be determined and granted January 24, 2002, in lieu of
their retainer fee for the calendar year 2001.
The exercise price for all options granted non-employee directors shall be
the fair market value on the day of grant. One-half of the number of the shares
covered by each 1,500 share option vests on the first anniversary of the date of
grant with the remaining one-half vesting on the second anniversary or
immediately upon a change in control of Commercial Metals. All options received
as a result of a non-employee director's election to receive an option in lieu
of the cash retainer are fully vested on the date of grant. All non-employee
director options terminate on the earliest of (i) the seventh anniversary of the
date of grant; (ii) one year after termination of service by reason of death or
disability; (iii) two years after termination of service by reason of retirement
after age sixty-two or; (iv) thirty days following termination of service for
any other reason. These options are "non-qualified" options under sec.422A of
the Internal Revenue Code.
SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
directors, executive officers and beneficial owners of more than 10% of
Commercial Metals' common stock to file with the SEC initial reports of
ownership and reports of changes in ownership of common stock and other equity
securities of Commercial Metals. Based solely upon its review of the copies of
such forms received by it or written representations that no Form 5's were
required from reporting persons, Commercial Metals believes that all such
reports were submitted on a timely basis during the year ended August 31, 2001.
5
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation paid
during each of the last three fiscal years to the Chief Executive Officer and
the four remaining most highly compensated executive officers of Commercial
Metals Company, based on salary and bonus earned during fiscal year 2001.
SUMMARY COMPENSATION TABLE
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
----------------- ------------------
FISCAL SALARY BONUS AWARDS OF STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) ($) OPTION/SARS(#)(1) COMPENSATION($)(2)
--------------------------------------- ------ ------- ------- ------------------ ------------------
Stanley A. Rabin....................... 2001 475,000 295,000 19,000 39,087
Chairman, President and 2000 430,000 650,000 14,000 95,679
Chief Executive Officer 1999 420,000 490,000 0 78,639
Marvin Selig........................... 2001 390,000 250,000 0 37,547
CMC Steel Group - 2000 380,000 500,000 11,000 79,886
Chairman and Chief Executive Officer 1999 370,000 433,589 0 67,926
A. Leo Howell.......................... 2001 340,000 350,000 0 39,659
Vice President; President - 2000 330,000 610,000 8,500 82,807
Howell Metal Company 1999 320,000 485,000 0 79,766
Clyde P. Selig(3)...................... 2001 320,000 241,000 0 28,929
Vice President; CMC Steel Group - 2000 312,100 347,000 7,900 59,158
President and Chief Operating Officer 1999 305,934 301,066 0 70,469
Hugh M. Ghormley(4).................... 2001 315,000 200,000 0 31,598
Vice President; CMC Steel Group - 2000 308,100 314,000 8,100 56,081
President - Fabrication Plants 1999 299,040 272,660 0 57,409
---------------
(1) These awards were granted under the 1996 Long-Term Incentive Plan. The
exercise price is the fair market value of such share on the date granted.
Although the Plan provides for the granting of stock appreciation rights,
performance awards and incentive stock options qualified under sec.422A of
the Internal Revenue Code, none have been made and each of the awards shown
represent stock options which do not qualify under sec.422A. The options
are exercisable one half at one year from grant date and the second half
two years from grant date and expire seven years from grant date. All
options may vest earlier upon a change in control of Commercial Metals as
defined in the plan.
(2) The compensation reported represents contributions to and forfeitures
allocated to the account of the recipient under the Commercial Metals
Companies Profit Sharing and 401(k) Plan or, in the case of Marvin Selig
and Clyde P. Selig, the Structural Metals, Inc. Profit Sharing and 401(k)
Plan and contributions to the account of the recipient pursuant to the
Benefit Restoration Plan, a non-qualified plan for certain executives. All
of the amounts reported are fully vested in the recipient. The compensation
for the named executive officers for fiscal year 2001 include a credit to
the account of each under the Benefit Restoration Plan in the following
amounts: Mr. Rabin - $30,483; Mr. Marvin Selig - $28,807; Mr.
Howell - $31,054; Mr. Clyde Selig - $22,739; and Mr. Ghormley - $22,994.
(3) Mr. Clyde P. Selig is the beneficial owner of 116,571 shares of common stock
including 77,863 subject to options exercisable within sixty days, or less
than 1% of the outstanding common stock.
(4) Mr. Ghormley is the beneficial owner of 171,722 shares of common stock
including 52,530 subject to options exercisable within sixty days, or 1.3%
of the outstanding common stock.
6
The following table provides information on the option granted Stanley A.
Rabin in fiscal 2001. There were no option grants to the other executive
officers included in the Summary Compensation Table.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
VALUE AT
% OF TOTAL ASSUMED ANNUAL RATES
OPTIONS/SARS OF STOCK PRICE
GRANTED TO EXERCISE APPRECIATION FOR
EMPLOYEES OR BASE OPTION TERM($)(3)
OPTIONS/SARS IN FISCAL PRICE EXPIRATION ---------------------
NAME GRANTED(#)(1) YEAR ($/SH)(2) DATE 5% 10%
---- ------------- ------------ --------- ---------- --------- ---------
Stanley A. Rabin............. 19,000 5.3 23.525 2/2/08 $181,964 $424,053
Potential Future Commercial Metals Company Stock Price.............................. $ 33.11 $ 45.85
---------------
(1) This option becomes exercisable in two equal installments, one-half February
2, 2002, and one-half February 2, 2003 or earlier upon a change of control
of the Company as defined in the 1996 Long-Term Incentive Plan.
(2) The exercise price is the fair market value (mean of high and low sales
price) on the date of grant.
(3) The dollar amounts in the last two columns are the result of calculations at
the 5% or 10% compound annual rates set by the SEC and are not intended to
forecast future appreciation of Commercial Metals Company Stock.
The following table provides information concerning the exercise of options
during fiscal 2001 and unexercised options held as of August 31, 2001, for the
executive officers included in the summary compensation table.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS AT
SHARES AT FY-END(#)(1) FY-END($)(1)(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
Stanley A. Rabin............ 0 0 123,200 41,000 $745,678 $220,763
Marvin Selig................ 0 0 81,507 5,500 522,778 3,713
A. Leo Howell............... 10,000 98,019 43,925 4,250 167,010 2,869
Clyde P. Selig.............. 0 0 73,913 3,950 470,450 2,666
Hugh M. Ghormley............ 20,893 106,585 48,480 4,050 183,416 2,734
---------------
(1) Amounts set forth in the table reflect the number and value of shares and
options only as no stock appreciation rights (SARs) have been awarded.
(2) The amounts shown represent the difference between the market value of
Commercial Metals common stock on August 31, 2001, of $31.55, and the
exercise price of such options.
7
RETIREMENT BENEFITS
Substantially all employees of Commercial Metals and its domestic
subsidiaries, participate in one of three profit sharing and 401(k) plans, all
defined contribution plans. Commercial Metals has no defined benefit pension
plan. As a result of changes in benefit levels and termination of the Structural
Metals, Inc. defined benefit plan in 1998, the compensation committee approved
an additional non-qualified retirement benefit for Marvin Selig. The sum of
$1,000,000 plus interest at a rate equal to the three year U.S. Treasury Note
accrued and compounded monthly from November 1, 1999, will be paid to Marvin
Selig fifteen days following his retirement on or before December 31, 2004. At
August 31, 2001 the benefit had increased $106,932 for accrued interest.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This report is submitted by the compensation committee concerning
compensation policies applicable to Commercial Metals' eleven executive officers
and the basis for Mr. Rabin's compensation as Chief Executive Officer, for
fiscal year ended August 31, 2001. The compensation committee is comprised of
non-employee directors, Ralph E. Loewenberg (Chairman), Moses Feldman, Anthony
Massaro and since March 2001, Robert Neary. Mr. Neary replaced Albert A.
Eisenstat who retired as a director in March 2001.
OVERALL OBJECTIVES AND STRATEGY
In determining the total compensation levels for executive officers, the
compensation committee evaluates financial results (including profit before
taxes, return on net assets and cash flow), the potential for future earnings
growth, individual performance contributions and group and division operating
performance. The committee has engaged a compensation consultant to review
compensation policies with the intent of implementing changes to certain
compensation policies during fiscal year 2002 but the committee did not rely on
that review for its determinations with regard to fiscal 2001 compensation. The
committee last engaged a compensation consultant five years ago to review and
report on levels and practices at comparable companies. The companies reviewed
at that time included the S & P Steel Industry Group as well as approximately 10
additional companies in the steel minimill or metals industry.
In 1980 Commercial Metals adopted an executive total compensation strategy
that places a significant portion of annual cash compensation at risk. This
strategy combines competitive base salaries, the opportunity for above average
annual cash bonuses, and moderate long-term equity incentive opportunities. The
number of shares subject to options granted to executive officers has been
limited and is less than levels at the comparable companies described above. The
annual focus of the executive compensation strategy is consistent with the
highly cyclical nature of Commercial Metals' businesses, which is characterized
by wide periodic swings in steel and metal prices. The compensation committee
reviewed information prepared or compiled by employees of Commercial Metals,
conferred with independent executive compensation consultants when it considered
necessary and made decisions based on the business experience of each
compensation committee member.
CASH COMPENSATION
Base Salary. Executive officers are compensated within salary ranges that
generally are competitive with ranges for similar positions in companies of
comparable size and complexity to Commercial Metals. The actual salary of each
officer is based on individual contribution and is in keeping with Commercial
Metals' total compensation strategy described above.
Bonus. The compensation committee recommends to the board of directors
annual cash bonuses for executive officers, based upon the compensation strategy
described above. Fiscal 2001 was a disappointing year. Net earnings decreased
47%. Difficult markets for almost all metals related companies caused many
competitors to report losses for the same period. While the committee was of the
opinion that results were considered satisfactory to superior in view of the
difficulties reported by several competitors and challenging metal market
conditions overall, it also determined that bonus amounts should be
substantially reduced
8
consistent with the decrease in earnings. As a result the aggregate bonus paid
the eleven executive officers for 2001 performance decreased approximately 49%
compared to 2000 levels which had represented an increase of approximately 25%
from the prior year. The committee believes these bonus levels have been
consistent with its evaluation of overall results compared to the prior year
including an earnings per share decrease of 43%, net sales decrease of 8%, a
decrease in operating cash flow of 18% and an increase in shareholder's equity
per share of 4%.
LONG-TERM COMPENSATION
Equity-Based. Stock option grants were issued to six of the eleven
executive officers during fiscal 2001 together with 227 other employees. The
number of shares subject to grants to executive officers has been substantially
below levels of comparable companies described above. During fiscal 2001
executive officers in aggregate received option grants for 44,025 of the 359,200
shares subject to options grants to employees during the year. Periodic grants
are made based on an evaluation of each executive's responsibilities and ability
to influence long-term growth and profitability. The compensation committee
believes equity-based incentives align stockholder interest with compensation
levels and will continue periodic grants, usually each year, as considered
appropriate and subject to stockholder approval of additional shares for future
grants.
Retirement Benefits. Commercial Metals has no defined benefit pension
plans. The only long-term compensation retirement plans for employees in the
United States are defined contribution profit sharing and 401(k) plans. As a
result of concern about limitations mandated by federal tax law and regulations
which have limited defined contribution plan retirement benefits of more highly
compensated employees, including executive officers, the board of directors in
1996 approved the Benefit Restoration Plan, a non-qualified plan for certain
executives subject to reduced benefits. Following each year-end, Commercial
Metals credits to each executive's account under the Benefit Restoration Plan an
amount equal to the additional contribution which the participant would have
received under the profit sharing and 401(k) plan had the executive's benefit
not been reduced. Benefits accrued under the Benefit Restoration Plan vest under
the same terms and conditions as the relevant profit sharing and 401(k) plan.
The compensation committee believes this means of restoring a reasonable level
of retirement benefits for key employees is an important element in the
long-term compensation program. The committee has previously authorized the
additional non-qualified retirement benefit for Marvin Selig described under
Retirement Benefits on page 8.
CEO COMPENSATION
Mr. Rabin's salary is set annually by the compensation committee and is
based on similar positions in the comparable companies described above. Mr.
Rabin's annual bonus is based on the same factors considered for other members
of the executive officer group. Mr. Rabin's salary for fiscal 2001 was set at
$475,000, an increase of $45,000 from the 2000 level. Mr. Rabin's cash bonus for
fiscal 2001 was set at $295,000, a decrease of $355,000 or approximately 55%
from the 2000 bonus for a total cash compensation reduction of $310,000 or 29%
compared to 2000. The cash bonus reflected the committee's determination that as
Chief Executive Officer Mr. Rabin had been instrumental in achievement of the
Company's strategy and objectives despite difficult market conditions in most
metals related businesses. The compensation committee determined that due to the
continuing uncertainty in metals markets, Mr. Rabin's salary for fiscal year
2002 and the salary of nine of the eleven executive officers, including those
listed in the summary compensation table, will not be changed. Mr. Rabin
received a stock option grant for 19,000 shares during 2001 compared with his
last option grant of 14,000 in 2000. The increase reflects the committee's
determination that equity based compensation levels for executive officers and
particularly the chief executive officer are substantially less than those at
comparable companies.
9
CONCLUSION
The compensation committee believes that current total compensation
arrangements are reasonable and competitive and is implementing changes in
policies to further align executive officer compensation with stockholder value.
The compensation committee believes fiscal year 2001 compensation for executive
officers is consistent with current compensation philosophy and reflects
corporate performance. The compensation committee will continue to monitor the
anticipated federal tax treatment to Commercial Metals and its executive
officers of various payments and benefits and in particular the limitations on
deductibility of compensation payments under Section 162(m) of the Internal
Revenue Code. This limitation has not had a significant impact to date on the
deductibility of compensation paid by Commercial Metals. The committee may not
in all circumstances limit executive compensation to that which is deductible
under Section 162(m) of the Internal Revenue Code. The compensation committee
shall continue to monitor and administer compensation programs for executive
officers and will consider recommendations from the on-going compensation review
in modifying existing or establishing new compensation policies.
COMPENSATION COMMITTEE
Ralph E. Loewenberg (Chairman)
Moses Feldman
Anthony A. Massaro
Robert D. Neary
10
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A series of three loans was made by Commercial Metals commencing in July,
2000 to Murray R. McClean, President of the marketing and trading segment of
Commercial Metals, for the purpose of assisting with expenses, including the
purchase of a home, in connection with his relocation from Australia to the
Company's headquarters in Dallas. The loans are evidenced by three notes. Two
unsecured notes in the original aggregate principal amount of $330,000 bear
interest at a variable rate fixed annually each September 1 equal to U.S.
Treasury Securities adjusted to a constant maturity of one year for the
preceding month of July plus one percent. As of September 1, 2001 the applicable
rate of interest on the unpaid balance of $330,000 on these two notes was 4.62%.
The interest rate for fiscal year 2001 was 7.08%. The third note in the original
principal amount of $385,000 is secured by a second lien on a residence
purchased by Mr. McClean and does not bear interest. As of September 1, 2001,
the unpaid balance on this note was $385,000. The maximum amount aggregate
outstanding under all three notes during fiscal year 2001 was $715,000.
Commercial Metals has historically made charitable contributions of a
portion of consolidated earnings, generally totalling 5% or less to various
charitable entities, including the Feldman Foundation, a private charitable
foundation exempt from federal income tax under Internal Revenue Code
sec.501(c)(3). The Feldman Foundation is the record and beneficial owner of
631,107 shares of the Commercial Metals' common stock. Director Moses Feldman
and brothers, Robert L. Feldman and Dr. Daniel E. Feldman, are trustees of the
Feldman Foundation.
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total return of Commercial
Metals' common stock during the five year period beginning August 31, 1996, and
ending August 31, 2001, with the Standard & Poor's 500 Composite Stock Price
Index also known as the "S&P 500" and the Standard & Poor's Steel Industry Group
Index also known as the "S&P Steel Group". Each index assumes $100 invested at
the close of trading August 31, 1996, and reinvestment of dividends.
(Performance Graph)
-------------------------------------------------------------------------------------------
1996 1997 1998 1999 2000 2001
-------------------------------------------------------------------------------------------
Commercial Metals
Company $100.00 $103.88 $83.68 $107.39 $99.70 $114.37
S&P 500 $100.00 $140.65 $152.03 $212.58 $247.27 $186.97
S&P Steel Group $100.00 $128.39 $79.14 $99.71 $69.92 $ 82.07
11
PROPOSAL II
PROPOSAL TO AMEND TO THE 1996 LONG-TERM INCENTIVE PLAN TO INCREASE BY
500,000 THE NUMBER OF SHARES RESERVED FOR ISSUANCE UNDER THE PLAN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
The board of directors adopted and the stockholders approved at the 1997
Annual Meeting of Stockholders the 1996 Long-Term Incentive Plan (the "Plan").
For the reasons set forth below the board of directors recommends approval of
this amendment to the Plan. The amendment and provisions of the Plan are
summarized below.
DESCRIPTION OF AMENDMENT
The amendment would increase by 500,000 the number of shares of Company
common stock subject to the Plan. As originally approved, the Plan reserved
750,000 shares for issuance. At the January 1999 Annual Meeting of Stockholders
an additional 725,000 shares were approved for issuance. The number of shares
authorized for issuance is also subject to adjustment as provided in the Plan
for stock splits, stock dividends and similar events affecting the common stock,
increases resulting from surrender of stock upon exercise as payment of the
purchase price and repurchases of common stock by the Company to the extent of
cash proceeds received from option exercises. See "Awards" below. As a result of
the surrender of stock on exercise and stock repurchases with cash proceeds from
exercise, the total number of shares available for issuance has been increased
by 85,221 to 1,553,692 as of November 26, 2001. As of November 26, 2001, the
Company has issued options for 1,510,127 shares of which options for 103,288
shares have been forfeited, leaving 153,382 shares presently available for
grant. The board of directors is submitting this amendment for stockholder
approval as required by the terms of the Plan to enable the Company to continue
to offer options, stock appreciation rights and performance awards under the
Plan and to comply with certain tax and stock exchange requirements described
below. Based on the Company's practice with regard to option grants in recent
years it is anticipated that, if the 500,000 share increase is approved, the
total number of shares available for future option grants will be sufficient to
continue grants through fiscal year 2003. If this amendment is not approved by
stockholders, the Plan will otherwise remain in effect.
GENERAL
The amendment is being submitted for stockholder approval for three
reasons. First, under Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), stockholder approval is necessary in order for performance
payments under the Plan to certain executive officers to be deductible by the
Company for federal income tax purposes. Section 162(m) imposes a $1,000,000
limit on the deductibility of compensation paid to certain executive officers.
Stockholder approval of the amendment will enable awards made under the Plan to
be excluded in calculating the $1,000,000 limit. Second, stockholder approval is
required under Section 422 of the Code for the inclusion of incentive stock
options. Finally, New York Stock Exchange rules require that listed companies
obtain stockholder approval of equity compensation plan amendments such as the
proposed amendment.
The provisions of the Plan are summarized below. All such statements are
qualified in their entirety by reference to the full text of the Plan.
The Plan is not subject to the provisions of the Employee Retirement Income
Security Act of 1974 ("ERISA"). The Plan is not a "qualified plan" within the
meaning of Section 401 of the Code. The Plan will terminate on December 9, 2006,
and thereafter no incentive stock options, non-qualified stock options, stock
appreciation rights or restricted stock awards (collectively, "awards") may be
granted thereunder. The board of directors may amend or discontinue the Plan
without the approval of the stockholders, subject to certain limitations. See
"Amendment of the Plan" below.
Nothing in the Plan or in any award granted pursuant to the Plan confers
upon any employee any right to continue in the employ of the Company or to
interfere in any way with the right of the Company to terminate the employment
of any person at any time.
12
The proceeds from the sale of common stock pursuant to the exercise of or
payment for awards under the Plan will be added to the general funds of the
Company and used for general corporate purposes. The holder of an award granted
pursuant to the Plan other than restricted stock does not have any of the rights
or privileges of a stockholder, except with respect to shares that have been
actually issued. Holders of restricted stock have all the rights of a
stockholder of the Company, except for the right to transfer the restricted
stock. Holders of restricted stock will also forfeit the restricted stock upon
the occurrence of certain events. See "Termination and Forfeiture" below.
PURPOSE AND ELIGIBILITY
The purposes of the Plan are to attract and retain the services of key
employees and to encourage performance by providing such persons with a
proprietary interest in the Company through the granting of awards. The Plan is
designed to help achieve those purposes through the use of compensation
strategies that will attract and retain those employees who are important to the
long-term success of the Company.
Any employee of the Company or a subsidiary (including officers or
directors who are employees) is eligible to receive awards under the Plan at the
discretion of the committee of the board of directors that administers the Plan.
See "Administration of the Plan" below.
The Company had approximately 8,000 employees at November 30, 2001, all of
whom are eligible to participate in the Plan.
ADMINISTRATION OF THE PLAN
The Plan is administered by the compensation committee appointed by the
Company's board of directors. The current members of the compensation committee
are Ralph E. Loewenberg, Moses Feldman, Anthony A. Massaro and Robert D. Neary.
Members of the compensation committee serve at the will of the board and may be
removed, with or without cause, from the compensation committee at any time at
the board's discretion.
The compensation committee has full discretion to grant awards under the
Plan, to interpret the Plan, to make such rules as it deems advisable in the
administration of the Plan and to take all other actions advisable to administer
the Plan. The compensation committee shall determine the eligible persons to
whom awards will be granted and will set forth the terms of the awards in award
agreements, so long as those terms are not inconsistent with the Plan.
AWARDS
The compensation committee may grant or award incentive stock options,
non-qualified stock options, stock appreciation rights and restricted stock.
Awards may be granted singly, in combination or in tandem with other awards. A
tandem award dictates that the exercise of one type of award terminates the
award granted in tandem with the other award. For example, in the event a stock
appreciation right is granted in tandem with a stock option, the exercise of the
stock appreciation right will result in the termination of the related stock
option and vice versa.
Stock options which are intended to qualify for special tax treatment under
particular provisions of the Code, are considered "incentive stock options," and
options which are not intended to so qualify are considered "non-qualified stock
options." See "Certain Federal Income Tax Aspects" below.
Stock appreciation rights ("SARs") entitle the holder to receive cash or
common stock having a value equal to the appreciation in the market price of the
Common Stock underlying the SAR from the date of grant to the date of exercise.
Restricted stock awards give the recipient the right to receive a specified
number of shares of common stock, subject to such terms, conditions and
restrictions as the compensation committee deems appropriate. Restrictions may
include limitations on the right to transfer or pledge the restricted stock
until the expiration
13
of a specified period of time and forfeiture of the restricted stock upon the
occurrence of certain events such as termination of employment prior to the
expiration of a specified period of time. See "Restrictions" below.
If the requirements of the Code, the securities laws or other laws
applicable to the Plan are changed and the Plan contains restrictions based on
those legal requirements, the compensation committee has the authority to grant
awards that are not subject to those restrictions and to waive any such
restrictions with respect to outstanding awards made under the Plan.
The maximum number of shares of common stock presently authorized for
issuance under the Plan is 1,553,692 and will be 2,053,692 if the proposed
amendment is approved, subject to adjustment for stock splits and similar events
affecting the common stock. See "Adjustments; Change of Control" below. The
number of shares of common stock that may be issued under the Plan will be
increased by (i) the number of shares of common stock surrendered in payment of
the exercise price of stock options, and (ii) the number of shares of common
stock otherwise repurchased by the Company during the term of the Plan, to the
extent that the aggregate repurchase price for such common stock is not greater
than the total amount of cash proceeds received by the Company from the sale of
common stock under the Plan. Shares to be issued may be made available from
authorized but unissued common stock, common stock held by the Company in its
treasury, or common stock purchased by the Company on the open market or
otherwise. Shares of common stock previously subject to awards that are expired,
terminated, forfeited, settled in cash in lieu of common stock or exchanged for
awards that do not involve common stock are available for further grants of
awards under the Plan.
AWARD AGREEMENTS
Each award granted under the Plan is required to be evidenced by an award
agreement, which designates the type of award (or combination of awards) being
granted and sets forth the number of shares or the total cash amount subject to
each award (if applicable), the award or exercise price (if applicable), the
maximum term of the award, any rules related to forfeiture, the vesting or
restriction schedule or criteria (if applicable), the date of grant, and any
other terms, provisions, limitations and performance requirements of the award.
The exercise period for an award may not extend longer than ten years from
the date the award is granted and, in the case of incentive stock options, is
limited to five years from the date of grant for certain employees owning more
than 10% of the outstanding shares of common stock.
If the compensation committee establishes a purchase price for an award,
the participant must accept the award within a period of 30 days (or such
shorter period as the compensation committee may specify) after the date of
grant by executing an award agreement and paying the purchase price, if any.
EXERCISE OF AWARDS
The exercise price for a stock option and the SAR price for any share of
common stock subject to an SAR will be at least 100% (or at least 110% in the
case of incentive stock options granted to certain employees owning more than
10% of the outstanding shares of common stock) of the fair market value of the
common stock on the date of grant.
On the date that the participant desires to exercise a stock option (the
"Exercise Date"), the participant must pay the total exercise price of the
shares to be purchased by delivering to the Company cash or a check, bank draft,
or money order in the amount of the exercise price, by delivering to the Company
shares of common stock (including restricted stock), with a fair market value
equal to the exercise price, or by delivering any other form of payment which is
acceptable to the compensation committee. If shares of restricted stock are
tendered to exercise a stock option, that number of shares of common stock
issued upon the exercise of the option equal to the number of shares of
restricted stock used as consideration to exercise the option will be subject to
the same restrictions as the restricted stock so tendered. If the participant
fails to pay the exercise price on the Exercise Date or fails to accept delivery
of the common stock to be issued upon exercise, the participant's option may be
terminated by the Company.
14
On the date that the participant desires to exercise a SAR (the "SAR
Exercise Date"), the participant will receive from the Company cash in an amount
equal to the appreciation in the market price of the common stock attributable
to the portion of the SAR being exercised from the date of grant to the SAR
Exercise Date. The committee may deliver shares of common stock in lieu of any
portion of the cash payment to be made to the participant, based on the fair
market value of the common stock on the SAR Exercise Date.
RESTRICTIONS
Under the Plan, the compensation committee determines the vesting schedule,
restrictions or conditions, if any, applicable to any award granted. Once
vested, awards may be exercised at any time during the award period. Restricted
stock may be subject to certain restrictions and conditions which may include
length of continuous service, achievement of specific business objectives,
increases in specified indices, attainment of specified growth rates or other
comparable measurements of Company performance. The compensation committee may,
in its discretion and in accordance with the terms of the Plan, accelerate any
vesting schedule or otherwise remove any restrictions or conditions applicable
to an award.
No participant may receive during any fiscal year awards covering an
aggregate of more than 100,000 shares of common stock under the Plan.
The grant of incentive stock options to each participant is subject to a
$100,000 calendar year limit. This limitation prohibits the grant of an
incentive stock option that would entitle the recipient to purchase, thereunder
and together with other incentive options, securities worth more than $100,000
(based upon the aggregate fair market value of the securities underlying such
options on the date of grant) in the year in which such options first become
exercisable. See "Certain Federal Income Tax Aspects" for additional limitations
on incentive stock options.
Incentive stock options may not be transferred or assigned other than by
will or the laws of descent and distribution and may be exercised during the
lifetime of the participant only by the participant or the participant's legally
authorized representative. The compensation committee may waive or modify this
limitation if it is not required for compliance with Section 422 of the Code.
Non-qualified stock options generally are subject to the same restrictions
on transfer as are incentive stock options. The compensation committee, however,
is entitled to allow all or a portion of a non-qualified stock option or SAR to
be transferable to the spouse, children or grandchildren of a participant, to
trusts for the benefit of such family members and partnerships owned by such
family members, and to certain charities, charitable trusts and charitable
foundations. Transfers of this nature are required to be subject to the
following conditions: (i) no consideration may be furnished for any such
transfer, and (ii) subsequent transfers of transferred non-qualified stock
options or SARs by the transferee cannot be made except by will or the laws of
descent and distribution or pursuant to a qualified domestic relations order as
defined in the Code. Following transfer, non-qualified stock options and SARs
shall continue to be subject to the same terms and conditions as were applicable
immediately prior to the transfer.
The Company is not required to sell or issue shares of common stock under
any award if the issuance of common stock would violate any provisions of any
law or regulation of any governmental authority or any national securities
exchange or other forum on which shares of common stock are traded.
TERMINATION AND FORFEITURE
Upon termination of the participant's employment with the Company and its
subsidiaries, a participant's awards will be exercisable as specified in the
award agreement. If a participant forfeits non-vested shares of restricted stock
and has paid consideration to the Company for such forfeited restricted stock,
the Company is required to repay such consideration to the participant.
ADJUSTMENTS; CHANGE OF CONTROL
The Plan provides that the maximum number of shares issuable under the Plan
as a whole and to each participant individually, the number of shares issuable
upon exercise of outstanding stock options and SARs,
15
the exercise prices of such awards and the number of shares subject to
restricted stock awards are subject to such adjustments as are appropriate to
reflect any stock dividend, stock split, share combination, exchange of shares,
recapitalization or increase or decrease in shares of common stock without
receipt of consideration of or by the Company.
If the Company merges or consolidates, transfers all or substantially all
of its assets to another entity or dissolves or liquidates, then under certain
circumstances a holder of an award will be entitled to purchase the equivalent
number of shares of stock, other securities, cash or property that the award
holder would have been entitled to receive had he or she exercised his or her
award immediately prior to such event. Notwithstanding these adjustment
provisions, all awards granted under the Plan may be canceled by the Company
upon a merger or consolidation of the Company in which the Company is not the
surviving or resulting corporation, or the reorganization, dissolution or
liquidation of the Company, subject to each participant's right to exercise his
or her award as to the shares of common stock covered by that award for a period
of 30 days immediately preceding the effective date of such event.
The Plan provides that in the event of a "Change of Control" of the
Company, all unmatured installments of awards will become fully accelerated and
exercisable in full. "Change of Control" is defined as the occurrence of the
following events: (i) a consolidation, merger or share exchange in which the
Company does not survive or in which shares of common stock would be converted
into cash, securities or other property, unless the Company's stockholders
retain the same proportionate common stock ownership in the surviving company
after such transaction, (ii) a sale, lease, exchange or other transfer of all or
substantially all of the Company's assets, (iii) the approval by the Company's
stockholders of a plan to dissolve or liquidate the Company, (iv) the
termination of control of the Company by directors in office as of the effective
date of the Plan and their successors approved in accordance with the terms of
the Plan, by virtue of their ceasing to constitute a majority of the entire
board of directors, (v) the acquisition of beneficial ownership of 20% of the
voting power of the Company's outstanding voting securities by any person or
group who beneficially owned less than 15% of such voting power on the date the
Plan was approved by the board of directors or the acquisition of beneficial
ownership of an additional 5% of the voting power of the Company's outstanding
voting securities by any person or group who beneficially owned at least 15% of
such voting power as of such date, in each case subject to certain exceptions,
or (vi) the appointment of a trustee in a bankruptcy proceeding involving the
Company.
If the Company makes a partial distribution of its assets in the nature of
a partial liquidation (except for certain cash dividends) then the prices then
in effect with respect to each outstanding award will be reduced in proportion
to the percentage reduction in the tangible book value of the shares of the
Company's common stock as a result of such distribution.
Stock options, SARs and restricted stock may also be granted under the Plan
in substitution for similar instruments held by employees of a corporation who
become management employees of the Company or a subsidiary as a result of a
merger, consolidation or stock acquisition.
AMENDMENT OF THE PLAN
The Plan provides that the board of directors may from time to time
discontinue or amend the Plan without the consent of the participants or
stockholders, unless stockholder approval is required by Section 162(m) of the
Code. Subject to certain conditions, if an amendment to the Plan would adversely
affect an outstanding award, the consent of the participant holding that award
must be obtained.
CERTAIN FEDERAL INCOME TAX ASPECTS
Withholding. Withholding of federal taxes at applicable rates will be
required in connection with any ordinary income realized by a participant by
reason of the exercise of awards granted pursuant to the Plan. In the event of a
participant's assignment of a non-qualified stock option or SAR, the participant
who assigns the non-qualified stock option or SAR will remain subject to
withholding taxes upon exercise of the non-qualified stock option or SAR by the
transferee to the extent required by the Code.
16
Non-qualified Stock Options. The granting of a non-qualified stock option
will not result in federal income tax consequences to either the Company or the
optionee. Upon exercise of a non-qualified stock option, the optionee will
recognize ordinary income in an amount equal to the difference between the fair
market value of the shares on the date of exercise and the exercise price, and
the Company will be entitled to a corresponding deduction.
For purposes of determining gain or loss realized upon a subsequent sale or
exchange of such shares, the optionee's tax basis will be the sum of the
exercise price paid and the amount of ordinary income, if any, recognized by the
optionee upon exercise of the option. Any gain or loss realized by an optionee
on disposition of such shares generally will be a long-term capital gain or loss
(if the shares are held as a capital asset for at least one year) and will not
result in any tax deduction to the Company. The holding period commences upon
exercise of the non-qualified stock option. The exercise of a non-qualified
stock option will not trigger the alternative minimum tax consequences described
below that are applicable to incentive stock options.
Incentive Stock Options. In general, no income will be recognized by an
optionee and no deduction will be allowed to the Company at the time of the
grant or exercise of an incentive stock option granted under the Plan. When the
stock received on exercise of the option is sold, provided that the stock is
held for more than two years from the date of grant of the option and more than
one year from the date of exercise, the optionee will recognize long-term
capital gain or loss equal to the difference between the amount realized and the
exercise price of the option related to such stock, and the Company will not be
entitled to take a corresponding deduction.
If these holding period requirements under the Code are not satisfied, the
sale of stock received upon exercise of an incentive stock option is treated as
a "disqualifying disposition", and the optionee must notify the Company in
writing of the date and terms of the disqualifying disposition. In general, the
optionee will recognize at the time of a disqualifying disposition ordinary
income in an amount equal to the amount by which the lesser of (i) the fair
market value of the common stock on the date the incentive stock option is
exercised or (ii) the amount realized on such disqualifying disposition, exceeds
the exercise price. The optionee will also recognize capital gain to the extent
of any excess of the amount realized on such disqualifying disposition over the
fair market value of the common stock on the date the incentive stock option is
exercised (or capital loss to the extent of any excess of the exercise price
over the amount realized on disposition). Any capital gain or loss recognized by
the optionee will be long-term or short-term depending upon the holding period
for the stock sold. The Company may claim a deduction at the time of the
disqualifying disposition equal to the amount of the ordinary income the
optionee recognizes. Certain special rules apply if an incentive stock option is
exercised by tendering stock.
Although an optionee will not realize ordinary income upon the exercise of
an incentive stock option, the excess of the fair market value of the shares
acquired at the time of exercise over the option price is included in
"alternative minimum taxable income" for purposes of calculating the optionee's
alternative minimum tax, if any, pursuant to Section 55 of the Code.
Stock Appreciation Rights. A participant who is granted an SAR will not
recognize any taxable income for Federal income tax purposes upon receipt of the
award. At the time of exercise, however, the participant will recognize
compensation income equal to any cash received and the fair market value on the
date of exercise of any common stock received. The Company will not receive a
deduction upon the grant of an SAR, but generally will be entitled to a
compensation deduction for the amount of compensation income the participant
recognizes upon the participant's exercise of the SAR. The participant's tax
basis in any shares of common stock received will be the fair market value on
the date of exercise and, if the shares received are held for more than one
year, the participant will recognize long-term capital gain or loss upon
disposition.
Restricted Stock. A participant who receives a grant of restricted stock
will not recognize any taxable income for federal income tax purposes in the
year of the award, provided the shares are subject to restrictions (that is,
they are nontransferable and subject to a substantial risk of forfeiture). A
participant's rights in restricted stock awarded under the Plan are subject to a
substantial risk of forfeiture if the rights to full enjoyment of the shares are
conditioned, directly or indirectly, upon the future performance of substantial
services by the participant. However, the participant may elect under Section
83(b) of the Code to recognize
17
compensation income in the year of the award in an amount equal to the fair
market value of the shares on the date of the award, determined without regard
to the restrictions. If the participant does not make a Section 83(b) election,
the fair market value of the shares on the date the restrictions lapse, less any
amount paid by the participant for such shares, will be treated as compensation
income to the participant and will be taxable in the year the restrictions
lapse. The Company or one of its subsidiaries generally will be entitled to a
compensation deduction for the amount of compensation income the participant
recognizes.
The amount of taxable gain arising from a participant's sale of shares of
restricted stock acquired pursuant to the Plan is equal to the excess of the
amount realized on such sale over the sum of the amount paid, if any, for the
stock and the compensation element included by the participant in taxable
income. For stock held for more than one year, the participant will realize
long-term capital gain or loss upon disposition.
Other Tax Matters. If unmatured installments of awards are accelerated as a
result of a Change of Control (see "Adjustments; Change of Control" above), any
amounts received from the exercise by a participant of a stock option or SAR,
the lapse of restrictions on restricted stock or the deemed satisfaction of
conditions of performance awards may be included in determining whether or not a
participant has received an "excess parachute payment" under Section 280G of the
Code, which could result in (i) the imposition of a 20% Federal excise tax (in
addition to Federal income tax) payable by the participant on certain payments
of common stock or cash resulting from such exercise or deemed satisfaction of
conditions of performance awards or, in the case of restricted stock, on all or
a portion of the fair market value of the shares on the date the restrictions
lapse and (ii) the loss by the Company of a compensation deduction.
VOTE REQUIRED
The affirmative vote of a majority of the shares present in person or
represented by proxy at the meeting and entitled to vote on the subject matter
is required to adopt the amendment to the Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO AMEND THE
PLAN.
AUDIT COMMITTEE REPORT
For many years the board of directors has included a standing audit
committee. Members of the audit committee are selected annually by the board of
directors. Four non-employee directors, Robert R. Womack (Chairman), Moses
Feldman, Robert D. Neary and Dorothy G. Owen are presently members of the
committee. Albert A. Eisenstat was chairman of the audit committee until his
retirement as a director in March, 2001, at which time Mr. Womack was elected
chairman and Mr. Neary elected a member. Each member of the audit committee is
qualified to serve. The audit committee satisfies all applicable financial
literacy requirements and each member is independent as "independence" is
defined by the applicable listing standards of the New York Stock Exchange. The
duties and responsibilities of the audit committee are set forth in the Audit
Committee Charter which the board of directors adopted on March 17, 2000. A copy
of the Charter was attached as Appendix "A" to the proxy statement dated
December 11, 2000 for the Annual Meeting of Stockholders held January 25, 2001.
During the fiscal year ended August 31, 2001, the audit committee met six times.
The audit committee among other activities, makes recommendations to the board
of directors as to whether the audited financial statements should be included
in Commercial Metals' Annual Report on Form 10-K, the selection of independent
auditors, reviews quarterly financial statements with management and independent
auditors and reviews with internal audit staff and independent auditors
Commercial Metals' financial controls and procedures.
The audit committee has reviewed and discussed the audited financial
statements for the fiscal year ended August 31, 2001, with management and with
the independent auditors. Those discussions included the matters required to be
disclosed by Statement on Auditing Standards No. 61 (Communication with Audit
Committees). The audit committee has received the written disclosures and letter
from the independent accountants as required by Independence Standards Board
Standard No. 1 concerning independence discussions with audit committees. The
audit committee has discussed with the independent accountants their
independence under such standards and has determined that the services provided
by Deloitte & Touche LLP are compatible with maintaining their independence.
Based on discussion and review with management and
18
the independent auditors, the audit committee recommended to the board of
directors that the audited financial statements for the fiscal year ended August
31, 2001, be included in Commercial Metals' Annual Report on Form 10-K as filed
November 21, 2001 with the Securities and Exchange Commission.
AUDIT COMMITTEE
Robert R. Womack (Chairman)
Moses Feldman
Robert D. Neary
Dorothy G. Owen
PROPOSAL III
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL.
The board of directors has appointed Deloitte & Touche LLP as the
independent auditors for the fiscal year ending August 31, 2002, subject to
stockholder ratification. Deloitte & Touche LLP or its predecessors have
conducted the audits of Commercial Metals financial statements for over forty
years. Fees billed by Deloitte & Touche LLP to the Company for services during
the fiscal year ended August 31, 2001 were:
Audit Fees. Deloitte & Touche LLP billed the Company an aggregate of
$693,712 for professional services rendered in connection with the audit of the
Company's fiscal 2001 annual financial statements and review of the Company's
quarterly statements during fiscal 2001.
Financial Information Systems Design and Implementation Fees. Deloitte &
Touche LLP billed the Company an aggregate of $232,851 for information
technology services during fiscal 2001.
All Other Fees. Deloitte & Touche LLP billed the Company an aggregate of
$161,951 for all other services during fiscal 2001.
Representatives of Deloitte & Touche LLP will be present at the meeting,
will have the opportunity to make a statement if they so desire and will be
available to respond to appropriate questions. The board of directors requests
that stockholders ratify the appointment of Deloitte & Touche LLP as independent
auditors to conduct the 2002 audit of Commercial Metals' financial statements.
GENERAL
The annual report to stockholders covering fiscal year 2001 has been mailed
to stockholders with this mailing or previously. The annual report does not form
any part of the material for the solicitation of proxies.
Pursuant to the rules of the Securities and Exchange Commission, a proposal
to be presented by a stockholder at the 2003 annual meeting must be received by
Commercial Metals at its principal executive offices no later than August 12,
2002.
The expense of solicitation of proxies will be borne by Commercial Metals.
In addition to solicitation by mail, directors, officers and employees of
Commercial Metals may solicit proxies personally or by telephone or facsimile.
Commercial Metals will request brokers, dealers or other nominees to send proxy
material to and obtain proxies from their principals and will, upon request,
reimburse such persons for their reasonable expenses.
19
OTHER BUSINESS
Management knows of no other matter that will come before the meeting.
However, if other matters do come before the meeting, the proxy holders will
vote in accordance with their best judgment.
By Order of the Board of
Directors,
/s/ DAVID M. SUDBURY
DAVID M. SUDBURY
Vice President, Secretary
and General Counsel
December 10, 2001
20
[Map for Annual Meeting]
PROXY
COMMERCIAL METALS COMPANY
7800 STEMMONS FREEWAY
DALLAS, TEXAS 75247
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned Shareholder(s) of Commercial Metals Company hereby appoint(s) A.
Leo Howell, Stanley A. Rabin and Marvin Selig, or any of them as Proxies, each
with the power to appoint his substitute, and hereby authorizes them to
represent and to vote and act for the undersigned at the 2002 Annual Meeting of
Stockholders of Commercial Metals Company to be held on Thursday, January 24,
2002 at 10:00 a.m., Central Standard Time in the Thompson Auditorium, Cityplace
Center, 2711 North Haskell Avenue, Dallas, Texas, and any adjournment,
continuation, or postponement of the meeting, according to the number of votes
which the undersigned is now, or may then be, entitled to cast, hereby revoking
any proxies previously executed by the undersigned for the meeting.
All powers may be exercised by a majority of said proxy holders or substitutes
voting or acting or, if only one votes and acts, then by that one. The
undersigned instructs such proxy holders or their substitutes to vote as
specified below on the proposals set forth in the Proxy Statement.
PLEASE MARK, DATE AND SIGN THIS PROXY ON REVERSE SIDE
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o FOLD AND DETACH HERE o
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER PLEASE MARK
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO YOUR VOTES
DIRECTION IS MADE, THE PROXY WILL BE VOTED FOR PROPOSALS 1, AS INDICATED [X]
2 AND 3. IN THIS EXAMPLE
1.ELECTION OF DIRECTORS
FOR all nominees WITHHOLD
listed except as AUTHORITY
marked to the to vote for all
contrary nominees listed
[ ] [ ]
NOMINEES: 01 A. LEO HOWELL, 02 DOROTHY G. OWEN, 03 ROBERT R. WOMACK
INSTRUCTION:To withhold authority to vote for any individual nominee, write that
nominee's name in the space provided below.
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FOR AGAINST ABSTAIN
2. AMENDMENT TO THE 1996 LONG-TERM INCENTIVE PLAN TO [ ] [ ] [ ]
INCREASE BY 500,000 THE NUMBER OF SHARES AVAILABLE FOR
ISSUANCE PURSUANT TO THE PLAN
3. RATIFICATION OF APPOINTMENT OF DELOITTE & TOUCHE LLP AS FOR AGAINST ABSTAIN
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING AUGUST [ ] [ ] [ ]
31, 2002.
4. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE
UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
MEETING.
I PLAN TO ATTEND THE MEETING. [ ]
Dated:
-------------------------
--------------------------------
Signature
--------------------------------
Secured Signature if held Jointly
When shares are held by joint
tenants, both should sign. When
signing as attorney, executor,
administrator, trustee, or
guardian, please give full title
as such. If a corporation, please
sign in full corporate name by
President or other authorized
officer. If a partnership, please
sign in the partnership name by
authorized person.
PLEASE MARK, DATE AND RETURN
PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
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o FOLD AND DETACH HERE o