-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QXQvJWyEcyRX3uUVvGvxws1tikbC4W3mHB3i+8Y+31tUFyW/EupasHtHxGVZ5jBt fNSu97/m7VuQ+Lm3zo2qzA== 0000719547-02-000019.txt : 20020925 0000719547-02-000019.hdr.sgml : 20020925 20020925091253 ACCESSION NUMBER: 0000719547-02-000019 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020925 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CLAYTON HOMES INC CENTRAL INDEX KEY: 0000719547 STANDARD INDUSTRIAL CLASSIFICATION: MOBILE HOMES [2451] IRS NUMBER: 621671360 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: 1934 Act SEC FILE NUMBER: 001-08824 FILM NUMBER: 02771574 BUSINESS ADDRESS: STREET 1: 5000 CLAYTON ROAD CITY: MARYVILLE STATE: TN ZIP: 37804 BUSINESS PHONE: 8653803000 MAIL ADDRESS: STREET 1: 5000 CLAYTON ROAD CITY: MARYVILLE STATE: TN ZIP: 37804 DEF 14A 1 doc1.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 Filed by the Registrant [X] Filed by party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12 ------------------------ CLAYTON HOMES, INC. (Name of Registrant as Specified In Its Charter) ------------------------ Payment of Filing Fee (Check the appropriate box): [X] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. 1 Title of each class of securities to which transaction applies: ----------------------------------- 2 Aggregate number of securities to which transaction applies: ----------------------------------- 3 Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): ----------------------------------- 4 Proposed maximum aggregate value of transaction: ----------------------------------- 5 Total fee paid: ----------------------------------- [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 1 Amount Previously Paid: ----------------------------------- 2 Form, Schedule or Registration Statement No.: ----------------------------------- 3 Filing Party: ----------------------------------- 4 Date Filed: ----------------------------------- CLAYTON HOMES, INC. "WE BUILD DREAMS" NOTICE OF ANNUAL MEETING OF STOCKHOLDERS Time: 10:30 a.m. EST, on Wednesday, October 30, 2002 Place: Clayton Homes Headquarters 5000 Clayton Road Maryville, TN 37804 Items of Business: 1. To elect seven directors. 2. To consider and act upon one stockholder proposal, regarding stock option expensing accounting. 3. To transact any other business properly brought before the annual meeting. Who Can Vote: You can vote if you were a stockholder of record on August 15, 2002. Annual Report: A copy of our 2002 Annual Report is enclosed. Date of Mailing: This notice and the proxy statement are first being mailed to our stockholders on or about September 21, 2002. By Order of the Board of Directors Thomas D. Hodges, Secretary ABOUT THE MEETING WHAT AM I VOTING ON? You will be voting to elect seven directors and to either approve or reject a proposed stockholder resolution. WHO IS ENTITLED TO VOTE? You may vote if you owned stock as of the close of business on August 15, 2002. Each share of common stock is entitled to one vote. As of August 15, 2002, we had 136,129,338 shares of common stock outstanding. HOW DO I VOTE BEFORE THE MEETING? You have two voting options: 1. By mail by completing, signing and returning the enclosed proxy card, or 2. By telephone through calling the number shown on your proxy card. If you hold your shares in the name of a bank or broker, whether you can vote by telephone depends on their voting processes. Please follow the directions on your proxy card carefully. CAN I VOTE AT THE MEETING? You may vote your shares at the meeting if you attend in person. Even if you plan to attend the meeting, we encourage you to vote your shares by proxy. You may vote by proxy through the mail or by telephone. CAN I CHANGE MY MIND AFTER I VOTE? You may change your vote at any time before the polls close at the meeting. However, you may only do this by (1) signing another proxy with a later date and returning it to the address on the proxy card before the meeting, (2) voting again by telephone before 10:30 a.m. on October 30, 2002, or (3) voting in person at the meeting. WHAT IF I RETURN MY PROXY CARD BUT DO NOT PROVIDE VOTING INSTRUCTIONS? Proxies that are signed and returned but do not contain instructions will be voted by the person named in the enclosed proxy card "FOR" the election of the nominee directors and, as discussed on page 6, unless otherwise specified, "AGAINST" the stockholder proposal. HOW DO I VOTE IF I PARTICIPATE IN THE CLAYTON HOMES, INC. 401(K) RETIREMENT PLAN FOR CLAYTON HOMES, INC. TEAM MEMBERS? Shares credited to your Clayton Homes, Inc. 401(k) Retirement Plan are identified on your proxy card. You may vote your shares by mail or by telephone as described on the enclosed proxy card. If you also own stock in your name or through a broker, you will receive another card for those shares. HOW DO I VOTE IF I PARTICIPATE IN THE DIVIDEND REINVESTMENT PLAN? The proxy card you have received includes your dividend reinvestment plan shares. You may vote your shares by mail, by telephone as described on the enclosed proxy card or at the meeting. WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD? It means that you have multiple accounts with brokers and/or our transfer agent. Please vote all of these shares. We recommend that you contact your broker and/or our transfer agent to consolidate as many accounts as possible under the same name and address. Our transfer agent is American Stock Transfer and Trust Company and may be reached by phone at 1-800-937-5449. HOW CAN I ATTEND THE MEETING? The annual meeting is open to all holders of Clayton Homes, Inc. common stock. For directions to the meeting, please call our Investor Relations department at 865-380-3000. We look forward to having you at the meeting! MAY STOCKHOLDERS ASK QUESTIONS AT THE MEETING? Yes. Representatives of the Company will answer stockholders' questions of general interest at the end of the meeting. 2 ABOUT THE MEETING HOW MANY VOTES MUST BE PRESENT TO HOLD THE MEETING? Your shares are counted as present at the meeting if you attend the meeting and vote in person or if you properly return a proxy by mail or telephone. In order for us to conduct the meeting, a majority of our outstanding shares of common stock of record as of August 15, 2002, must be present in person or by proxy at the meeting. This is referred to as a quorum. HOW MANY VOTES ARE NEEDED TO ELECT DIRECTORS? The seven nominees receiving the highest number of "Yes" votes will be elected as directors. This number is called a plurality. Shares not voted, whether by marking "Abstain" on your proxy card, by broker non-vote (which is described below), or otherwise, will have no impact on the election of directors. Unless a properly executed proxy card is marked "Withhold Authority," the proxy given will be voted "FOR" each of the seven nominees for director. HOW MANY VOTES ARE NEEDED TO APPROVE THE STOCKHOLDER PROPOSAL? To approve the stockholder proposal, the votes cast for the proposal must exceed the votes cast against it. ARE DISSENTERS' RIGHTS APPLICABLE TO ANY OF THE PROPOSALS? No, dissenters' rights do not apply to any of the proposals. WILL MY SHARES BE VOTED IF I DO NOT PROVIDE MY PROXY? Your shares may be voted under certain circumstances if they are held in the name of a brokerage firm. Brokerage firms have the authority under the New York Stock Exchange rules to vote customers' unvoted shares, which are referred to as "broker non-votes," on certain "routine" matters, including the election of directors. Shares represented by broker non-votes are counted for purposes of establishing a quorum. At the meeting, shares represented by broker non-votes will be counted by the brokerage firm in the election of directors, but will not be counted on any other matters that are voted on because these other matters are not considered "routine" under the applicable rules. If you hold your shares directly in your own name, they will not be voted if you do not provide a proxy or attend the meeting and vote the shares yourself. CAN MY SHARES BE VOTED ON MATTERS OTHER THAN THOSE DESCRIBED IN THIS PROXY? Yes. The Company has not received proper notice of, and is not aware of, any business to be transacted at the meeting other than as indicated in this proxy statement. If any other item or proposal properly comes before the meeting, the proxies received will be voted in accordance with the discretion of the proxy holders. 3 PROPOSAL ONE: ELECTION OF DIRECTORS AND DIRECTOR BIOGRAPHIES WHO ARE THIS YEAR'S NOMINEES? JAMES L. CLAYTON, 68, Director since 1967 - - Founder and Chairman of the Board of Clayton Homes, Inc. since its inception in 1967 - - Chief Legal Officer of Clayton Homes, Inc. - - Retired as Chief Executive Officer of Clayton Homes, Inc. in 1999 - - Chairman of the Board of FSB Bancshares, Inc. - - Member of the Boards of: - Dollar General Corporation - Branch Banking & Trust Co. of North Carolina B. JOE CLAYTON, 66, Director since 1967 - - Chief Executive Officer of Clayton Automotive Group since its inception in 1961 - - Member of the Regional Board of First Tennessee Bank KEVIN T. CLAYTON, 39, Director since 1998 - - Chief Executive Officer of Clayton Homes, Inc. since 1999 - - President of Clayton Homes, Inc. since 1997 - - President of Clayton Homes, Inc., Financial Services since 1995 - - Other Clayton Homes, Inc. management positions from 1986 to 1995 (1) DAN W. EVINS, 66, Director since 1991 - - Co-founder and Chairman of the Board, CBRL Group, Inc. since its inception in 1970 WILMA H. JORDAN, 54, Director since 1994 - - Co-founder and Chief Executive Officer, Jordan Edminston Group, Inc. since its inception in 1988 - - Member of the Board of LIN TN Corp. THOMAS N. MCADAMS, 49, Director since 1997 - - Partner, Bernstein, Stair & McAdams LLP since 1982 - - Member of the Board of Rafferty's, Inc. C. WARREN NEEL, 65, Director since 1993 - - Commissioner, Finance and Administration, State of Tennessee since 2000 - - Dean of the College of Business Administration of the University of Tennessee from 1977 to 2000 - - Member of the Board of: - Sak's, Inc. - American Healthways, Inc. __________________________________________ (1) Son of James L. Clayton and nephew of B. Joe Clayton. WE RECOMMEND THAT YOU VOTE FOR THE ELECTION OF THE DIRECTORS LISTED ABOVE. --- 4 BOARD OF DIRECTORS INFORMATION WHAT IS THE MAKEUP OF THE BOARD OF DIRECTORS? The Company's bylaws allow for a maximum of eight directors. The current number of directors is seven. In the event that a nominee is unable to serve, the person designated as proxyholder for the Company will vote for the remaining nominees and for such other person as the Board of Directors may nominate. HOW LONG WILL THIS YEAR'S NOMINEES SERVE? Each nominee will hold office until the 2003 annual meeting of stockholders and until their successors have been duly elected and qualified. All nominees are currently directors and have consented to serve if elected. HOW ARE THE DIRECTORS COMPENSATED? Each director not employed by the Company receives an annual retainer of $18,000; $2,500 for each Board meeting attended and $1,000 for each committee meeting attended; $1,000 for each telephonic meeting; reimbursement for travel expenses to meetings; and may receive annual options to purchase 1,200 shares of common stock. In addition, the Chairperson of each Board committee receives an additional $1,000 per year, per committee, an extra $500 for each committee meeting attended, and an extra $500 for each telephonic meeting. HOW OFTEN DID THE BOARD MEET IN FISCAL 2002? The Board of Directors met four times during the last fiscal year. Each of the directors attended at least 75% of the meetings of the Board and the pertinent committees thereof. WHAT ARE THE COMMITTEES OF THE BOARD? AUDIT: - ------ Number of Meetings in Fiscal Year 2002: 2 Members (all members are non-management directors): - - Dr. Warren Neel, Chairperson - - Dan W. Evins - - Wilma H. Jordan Responsibilities: - - Reviews and recommends to the Board of Directors the firm to be engaged as independent auditors. - - Reviews with the selected accounting firm the prospective audit scope, external audit fees, and such other matters pertaining to such audit as the Committee may deem appropriate. - - Inquires as to the adequacy of the Company's internal control procedures and makes recommendations to the Board. - - Chairperson reviews with management and outside auditors the annual and quarterly financial statements prior to filing with the Securities and Exchange Commission. - - Reviews the non-audit services performed by the independent auditors. - - Reviews the scope and results of the Company's procedures for internal auditing. COMPENSATION: - ------------- Number of Meetings in Fiscal 2002: 2 Members (all members are non-management directors): - - Wilma H. Jordan, Chairperson - - Dr. Warren Neel - - Thomas N. McAdams Responsibilities: - - Reviews and recommends grants of stock awards pursuant to stock incentive plans. - - Reviews and recommends compensation of directors and executive officers. - - Emphasizes the relationship between pay and performance by placing a significant portion of executive compensation at risk and subject to achievement of financial goals and other critical objectives. PROPOSAL TWO: STOCKHOLDER PROPOSAL REGARDING STOCK OPTION EXPENSING A stockholder, Central Laborers' Pension, Welfare & Annuity Funds, has notified the Company of its intention to propose the following item of business at the Annual Meeting. Proxy regulations require the Company to present the proposal and the supporting statement. Following the stockholder's proposal and supporting statement is the response of the Company's Board of Directors. While the stockholder recommends you vote for this proposal, the Company's Board of Directors unanimously recommends you vote AGAINST this proposal. The text of the proposal is as follows: PROPOSED RESOLUTION BY CENTRAL LABORERS' PENSION FUND Resolved, that the stockholders of Clayton Homes Inc. ("Company") hereby request that the Company forego the use of any form of executive compensation, including executive stock options, unless the cost of such compensation is reflected as an expense on the Company's annual income statement. 5 PROPOSAL TWO (CONTINUED): STATEMENT OF SUPPORT BY CENTRAL LABORER'S PENSION FUND: Stock options are an important component of our Company's overall executive compensation program. The grant of stock options is designed to provide positive incentives for executives to focus on the creation of long-term corporate value. The increasing use of stock options at a time of growing investor skepticism of the accuracy and transparency of corporate financial reporting has prompted an intense public debate on the appropriate accounting treatment for stock options. Current accounting rules give companies the choice of reporting stock option expenses annually in the company income statement or as a footnote in the annual report (See: Financial Accounting Standards Board Statement 123). Nearly all companies, including our Company, opt to report the calculated cost of company stock options as a footnote in the corporate annual report. Thus, the option costs are not included in the determination of the companies' operating income. We believe that including the estimated costs of stock option grants in company income statements would more accurately reflect a company's operational earnings. A Standard & Poor's ("S&P") recent report entitled "Measures of Corporate Earnings" (Revised May 14, 2002) sets out a new formula for more accurately calculating the after-tax earnings generated from a corporation's principal business or businesses. S&P's call for a more accurate "core earnings" calculation of corporate operational earnings was prompted in large measure by investor concerns about the transparency, accuracy and reliability of corporate financial reporting. One of the key reporting items that the S&P's report examined was the accounting treatment of stock option grants. The compelling logic advanced by S&P's for including stock option costs in earnings statements is that these stock grants are components of executive compensation plans, and like other compensation components, such as salaries, cash bonuses and other employee benefits, should be included as expenses in the calculation of operational earnings. We believe the failure to treat stock option grant costs as expenses on corporate income statements can misrepresent the level of profits at a company. We believe that the failure to expense executive stock option costs can result in a "no-cost" executive compensation mentality that can promote the excessive use of stock options. We believe that expensing of stock option costs would help promote more modest and appropriate use of stock options in executive compensation plans. Like S&P and many other investors, we believe that investors are entitled to and need an accurate picture of company operational earnings and the true cost of executive compensation programs. We urge your support of this important reform designed to improve corporate financial reporting. BOARD OF DIRECTORS' RESPONSE: The Board of Directors has long considered the encouragement of broad team member ownership of Company common stock to be in the interest of all shareholders as a means of promoting focus on the long-term increase in shareholder value. Options at market prices have been granted to 1,192 people at all levels of the Company-not just senior executives. Rank and file team members received 73% of the option grants in the last three years; senior management received only 27%. The Board will continue to study this issue, but the Board believes stock options align the interests of all team members with those of shareholders. Option grants are a key element of the Company's continuing drive to attract and retain the sales, operational, and managerial talent that is critical to Clayton's success across all business operations. Moreover, stock option grants at Clayton Homes have always been conservative; during the past three years, stock option grants have diluted earnings by only 2%. Conceptually, earnings are not affected by options; only the division of the earnings is affected. For years, options have been clearly stated on the income statement as diluted earnings per share and presented in more detail in the footnotes of the annual report. Booking stock options as expenses is a policy the Board does not support because it is too imprecise and would distort the income statement. Among other problems, there is no consensus methodology; no guarantee of price increases; and no guarantee that the options will be exercised. This proposal would discourage stock option grants by treating them as an expense. The Board believes it is essential for the Compensation Committee to retain the current ability to develop and implement a balanced approach to compensation and the promotion of shareholder interests through a carefully designed program of stock option grants. For these reasons, the Board believes that this proposal is not in the Company's best interests. ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "AGAINST" THIS PROPOSAL, AND YOUR PROXY WILL BE SO VOTED, IF THE PROPOSAL IS PRESENTED, UNLESS YOU SPECIFY OTHERWISE. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" THIS PROPOSAL. 6 EXECUTIVE COMPENSATION The following tables set forth the compensation earned by our Chief Executive Officer and our four other most highly compensated executive officers during the fiscal years 2002, 2001, and 2000:
COMPENSATION OF MANAGEMENT ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS ----------------------- ----------------------------------- FISCAL OPTIONS OTHER ANNUAL NAME AND POSITION YEAR SALARY BONUS (# OF SHARES) COMPENSATION (1) ------ -------- ------------- ----------------- ----------------- Kevin T. Clayton 2002 $330,000 $1,670,000 60,000 $13,121 Chief Executive Officer 2001 $300,000 $ 325,000 50,000 $8,399 and President 2000 $260,000 $ 250,000 50,000 $7,531 David M. Booth 2002 $300,000 $1,518,000 60,000 $13,253 Executive Vice President 2001 $275,000 $ 325,000 50,000 $8,424 President, Retail 2000 $260,000 $ 250,000 50,000 $7,498 Richard D. Strachan 2002 $300,000 $1,518,000 60,000 $13,163 Executive Vice President 2001 $275,000 $ 325,000 50,000 $8,364 President, Manufacturing 2000 $260,000 $ 225,000 50,000 $5,889 John J. Kalec 2002 $156,500 $ 253,000 80,000 $10,697 Executive Vice President, 2001 - - - - Chief Financial Officer 2000 - - - - Allen Morgan 2002 $158,000 $ 194,000 15,000 $11,497 Vice President and General 2001 $150,000 $ 25,000 15,000 $6,921 Manager, Communities 2000 $135,000 $ 15,000 15,000 $5,122
(1) Represents Company contributions and reallocated forfeitures in the Company's 401(k) Plan, health, life and disability insurance premiums.
OPTION GRANTS IN LAST FISCAL YEAR POTENTIAL REALIZABLE VALUE AT ASSUMED NUMBER OF ANNUAL RATES OF STOCK SECURITIES PERCENT OF TOTAL PRICE APPRECIATION FOR UNDERLYING OPTIONS GRANTED TO EXERCISE OR OPTION TERM (10 YEARS)* OPTIONS EMPLOYEES BASE PRICE EXPIRATION NAME GRANTED IN FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($) - ----------------------------------------------------------------------------------------------------------------------- Kevin T. Clayton 60,000 5.20% $13.55 10/31/2011 $731,192 $1,645,868 David M. Booth 60,000 5.20% $13.55 10/31/2011 $731,192 $1,645,868 Richard D. Strachan 60,000 5.20% $13.55 10/31/2011 $731,192 $1,645,868 John J. Kalec 80,000 6.94% $13.55 10/31/2011 $974,923 $2,194,490 Allen Morgan 40,000 3.47% $13.55 10/31/2011 $487,461 $1,097,245
* All such options were granted on October 30, 2001. These amounts represent assumed rates of appreciation only. Actual gains, if any, on stock option exercises are dependent on future performance of our stock. There can be no assurance that the amounts reflected in these columns will be achieved or, if achieved, will exist at the time of any option exercise. We believe that placing a current value on outstanding options is highly speculative and may not represent the true benefit, if any that may be realized by the grantee.
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES NUMBER OF SECURITIES SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED ACQUIRED OPTIONS AT FISCAL IN-THE-MONEY OPTIONS ON VALUE YEAR END AT FISCAL YEAR END (1) EXERCISE REALIZED NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - -------------------------------------------------------------------------------------------------------------------- Kevin T. Clayton 3,813 $ 33,336 213,459 347,500 $1,149,920 $1,208,975 David M. Booth --- --- 295,467 347,500 $1,844,016 $1,208,975 Richard D. Strachan 62,241 $392,379 52,500 347,500 $ 183,750 $1,208,975 John J. Kalec 2,900 $ 14,640 --- 80,000 --- $ 180,000 Allen Morgan --- --- 16,500 66,000 $ 82,270 $ 245,205 - --------------------------------------------------------------------------------------------------------------------
(1) Market value of underlying securities at June 30, 2002 minus exercise price. 7 COMPENSATION COMMITTEE REPORT WHO SERVES ON THE COMPENSATION COMMITTEE? Compensation Committee members: - - Wilma H. Jordan, Chairperson - - Dr. Warren Neel - - Thomas N. McAdams WHO HAS PREPARED THIS REPORT? This report has been furnished by the members of the Compensation Committee. WHAT IS THE PHILOSOPHY OF EXECUTIVE COMPENSATION? The philosophy is to structure and administer executive compensation in a way that individual compensation is largely dependent on the Company's performance. The compensation plan for executives incorporates three elements: - - Annual Base Salary - - Performance based annual bonus - - Long-term stock incentive compensation The variable components of the compensation programs are designed to attract and motivate results-oriented people to achieve higher levels of performance while focusing on the goals of the Company and its shareholders. HOW ARE THE BASE SALARY AMOUNTS DECIDED? Company executives, including the Chief Executive Officer, receive base salaries, which are intended to support minimal managerial lifestyles. HOW ARE STOCK OPTIONS GRANTED? Stock options are granted to executive officers and other employees at the fair market value of the Common Stock on the date of grant and become vested over a specified period of employment. The number of shares granted is based upon the Company's performance based on the overall industry and economic environment, the achievement of Earnings Per Share (EPS) growth targets and individual performance in the previous year. HOW ARE THE BONUS AMOUNTS DECIDED? The key components in determining bonus amounts include the financial performance of the Company based on the overall industry and economic environment, and the percentage increase in EPS over the prior year. Adjustments to the bonus program to reflect individual performance are made annually. The fact that a significant portion of the compensation paid to the Company's executive officers is based upon increases in EPS helps ensure that the Chief Executive Officer and other members of management are sensitized to the needs and desires of stockholders. AUDIT COMMITTEE REPORT AND AUDIT FEES WHO SERVES ON THE AUDIT COMMITTEE? Audit Committee members: - - Dr. Warren Neel, Chairperson - - Dan W. Evins - - Wilma H. Jordan WHO HAS PREPARED THIS REPORT? This report has been furnished by the members of the Audit Committee. WHAT DOCUMENT GOVERNS THE ACTIVITY OF THE AUDIT COMMITTEE? The Audit Committee acts under a written charter, which sets forth its responsibilities and duties, as well as requirements for the committee's composition and meetings. AUDIT FEES PwC's fees for the fiscal year 2002 audit, including reviews of financial statements included in Forms 10-Q, totaled approximately $186,500. There were no fees incurred related to financial information systems design and implementation. All other fees of PwC, principally securitization, tax planning and other services, totaled approximately $174,528. The Company's Audit Committee determined that PwC's provision of services for all non-audit fees in 2002 was compatible with maintaining PwC's independence. 8 AUDIT COMMITTEE REPORT AND AUDIT FEES CONTINUED WHAT ACTION HAS THE AUDIT COMMITTEE TAKEN? The Audit Committee has: - - Reviewed and discussed the audited financial statements with the Company's management. - - Discussed with PricewaterhouseCoopers LLP (PwC), independent accountants for the Company, the matters required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit Committees, as amended. - - Received from PwC the written disclosures and the letter required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees, and the committee has discussed with PwC that firm's independence. - - Recommended to the Board of Directors of the Company that the audited consolidated financial statements for the Company be included in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2002, for filing with the SEC. - - Reviewed the programs and results of the Company's internal audit department. STOCK OWNERSHIP These tables depict how much of the Company's common stock is owned by directors, executive officers and owners of more than 5% of the Company's common stock as of August 15, 2002:
SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS NAME OF NUMBER OF SHARES RIGHT TO PERCENT BENEFICIAL OWNER BENEFICIALLY OWNED (1) ACQUIRE (2) OF CLASS - --------------------------------------------------------------------------------------- James L. Clayton (3) 37,044,611 184,302 27.3% B. Joe Clayton 130,989 15,931 * Kevin T. Clayton (4) 661,296 213,459 * Dan W. Evins 69,520 15,931 * Wilma H. Jordan 13,882 30,277 * John J. Kalec 4,978 - * Thomas N. McAdams 3,481 6,350 * C. Warren Neel 4,587 38,820 * David M. Booth 8,709 295,467 * Richard D. Strachan 5,239 52,500 * Allen Morgan 1,482 16,500 * All Directors and Executive Officers as a Group (13 persons) 37,952,131 895,097 28.5% - ---------------------------------------------------------------------------------------
*Less than 1% (1) These amounts include shares for which the named person has sole voting and investment power or shares such powers with his or her spouse. They also include shares credited to the named person's account under the 401(k) Plan, in the following amounts: - James L. Clayton - 12,797 - David Booth - 7,459 - Kevin T. Clayton - 7,295 - Richard D. Strachan - 3,826 - Allen Morgan - 1,357 - All executive officers as a group (7)- 23,757 (2) These amounts reflect shares that could be purchased on exercise of stock options as of August 15, 2002 under stock incentive plans. (3) Includes 1,175,411 shares held by the Clayton Family Foundation, a non-profit corporation, of which James L. Clayton is director and president. (4) Includes 400,923 shares held in trust in which Kevin T. Clayton is a trustee, but not a beneficiary; includes 6,100 shares held in trust of which Kevin T. Clayton is a trustee and beneficiary; does not include 1,175,411 shares held by the Clayton Family Foundation of which Kevin T. Clayton is a director. 9
PRINCIPAL STOCKHOLDERS NAME AND ADDRESS OF AMOUNT OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS - ------------------------------------ --------------------- ----------------- James L. Clayton P.O. Box 15169 37,044,611 (1) 27.3% Knoxville, TN 37901 Janus Capital Management LLC 100 Fillmore Street 9,232,640 (2) 6.8% Denver, CO 80206 FMR Corp. (Fidelity Management) 1 Federal St 8,790,676 (3) 6.5% Boston, MA. 02110 Citigroup Inc. 399 Park Avenue 8,654,377 (4) 6.4% New York, NY 10043 Pioneer Global Asset Management S.P.A. Galleria San Carlo 6 8,184,000 (5) 6.0% 20122 Milan, Italy
(1) See table "Security Ownership of Directors and Officers." (2) Holdings as of June 30, 2002, per Janus Capital Management LLC. (2) As reported in Schedule 13F filed February 14, 2002. (3) As reported in Schedule 13F filed January 24, 2002. (4) As reported in Schedule 13G filed December 17, 2001. STOCK PERFORMANCE GRAPH This graph compares our total stockholder returns (assuming reinvestment of dividends) with Standard & Poor's Midcap 400 composite stock price index, and a "peer group" comprised of the following companies: Cavalier Homes, Inc., Champion Enterprises, Inc., Fleetwood Enterprises, Inc., Liberty Homes, Inc., Oakwood Homes Corporation, and Skyline Corporation. [GRAPHIC OMITED]
1997 1998 1999 2000 2001 2002 ------ ------ ------ ------ ------ ------ Clayton Homes 100.00 132.73 100.39 70.73 139.72 140.95 S&P MIDCAP 400 100.00 127.15 148.99 174.28 189.75 180.79 Peer Group 100.00 145.01 88.31 33.40 45.10 32.50
10 GENERAL COMPENSATION COMMITTEE INSIDER PARTICIPATION None of the members of the Compensation Committee were officers or employees of the Company or had any relationship with the Company requiring disclosure under applicable SEC regulations during fiscal year 2002. INSIDER TRANSACTIONS The Company maintains an agreement to purchase certain installment contract receivables from a business venture in which the Company has a 50% equity interest, and Kevin T. Clayton is a director. The remaining 50% equity interest is owned by unrelated parties. The Company's primary counsel is Bernstein, Stair & McAdams LLP, of which one of our directors, Thomas N. McAdams, is a partner. During fiscal year 2002, payments to Bernstein, Stair & McAdams LLP for legal services rendered were approximately $155,000. In addition, the Company's primary insurance carrier made payments to Bernstein, Stair & McAdams of approximately $194,000. COMPLIANCE WITH SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING REQUIREMENTS Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers ("reporting persons") to file initial reports of ownership of common stock and reports of changes in ownership with the SEC. The Company assists its executive officers and directors in completing and filing those reports. The Company believes that during the last fiscal year all filing requirements applicable to its executive officers and directors were met. INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS PwC was our auditor during fiscal 2002. Representatives from the firm will be present at our annual meeting and will be available to respond to appropriate questions. AVAILABILITY OF FORM 10-K AND ANNUAL REPORT TO STOCKHOLDERS The Company will provide without charge, at the written request of any stockholder of record on August 15, 2002, a copy of the Company's Annual Report on Form 10-K, including the financial statements and financial statement schedules, as filed with the SEC, except exhibits thereto. The Company will provide copies of the exhibits, should they be requested by eligible stockholders, and the Company may impose a reasonable fee for providing such exhibits. Requests for copies of the Company's Annual Report on Form 10-K should be mailed to: CLAYTON HOMES, INC. Box 15169 Knoxville, Tennessee 37901 Attention: Investor Relations STOCKHOLDER PROPOSALS Any stockholder proposals intended to be presented at the Company's 2003 Annual Meeting of Stockholders must be received by the Company at its corporate offices no later than May 31, 2003, in order to be considered by the Board of Directors for inclusion in the Proxy Statement and form of proxy relating to such meeting. OTHER MATTERS The Board of Directors knows of no other matters to be brought before our annual meeting. However, if any other matter properly comes before the meeting or any adjournment thereof, it is intended that the person named in the enclosed proxy will vote such proxy on such matter in accordance with his best judgement. SOLICITATION BY BOARD; EXPENSES OF SOLICITATION Our Board of Directors has sent you this proxy. Proxies may be solicited by directors, officers, or employees of the Company who will receive no additional compensation thereof. The cost of soliciting proxies, including preparation, printing, and mailing of the Proxy Statement, will be borne by the Company. The Company will reimburse brokers, custodians, and other nominees to send proxies and proxy materials to our stockholders so they can vote their shares. 11 CLAYTON HOMES, INC. BOX 15169, Knoxville, TN 37901 TEL 865.380.3000 FAX 865.380.3750 Internet:www.clayton.net e-mail:info@clayton.net Human resources:careers@clayton.net Appendix A CLAYTON HOMES, INC. PROXY THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of Shareholders on October 30, 2002, and related Proxy Statement, and appoints Greg A. Hamilton the true and lawful agent and proxy of the undersigned (the "Proxy"), having full power of substitution, to represent the undersigned and to vote all shares of Clayton Homes, Inc., owned and held by the undersigned, or which the undersigned would be entitled to vote if personally present at the Annual Meeting of Shareholders of Clayton Homes, Inc., to be held at the Clayton Homes Headquarters, 5000 Clayton Road, Maryville, TN 37804 at 10:30 a.m. EST, October 30, 2002 or any adjournment thereof. (CONTINUED AND TO BE SIGNED ON REVERSE SIDE.) [SEE REVERSE SIDE] [X] Please mark your votes as in this example
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR ITEMS ONE AND THREE BUT AGAINST ITEM TWO. TO VOTE AS THE BOARD OF DIRECTORS RECOMMENDS FOR ALL NOMINEES AND ON ALL PROPOSALS SIGN AND DATE BELOW. IF YOU CHOOSE TO VOTE ON EACH ITEM SEPARATELY, YOU MUST FILL OUT THE REMAINDER OF THIS CARD. WITHHOLD FOR AUTHORITY FOR AGAINST ABSTAIN (1) Election of [ ] [ ] Nominees: James L. Clayton (2) Shareholder proposal [ ] [ ] [ ] Directors B. Joe Clayton regarding stock option Kevin T. Clayton expensing accounting FOR, except vote withheld from the Dan W. Evins methods. following nominees Wilma H. Jordan Thomas N. McAdams (3) In his discretion, the [ ] [ ] [ ] ------------------------------------------ C. Warren Neel Proxy is authorized to vote upon such other business as may properly come before the meeting. Please check box if you plan [ ] to attend the annual meeting in person.
This proxy, when properly executed, will be voted in the manner herein directed by the undersigned shareholder. If no proposal is made, the share(s) represented by this proxy will be voted for proposals 1 and 3, but against proposal 2. Signature(s) ___________________________________ Dated: _____________, 2002 NOTE: Please sign exactly as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee, guardian, authorized corporate officer or partner, please give your full title as such. -----END PRIVACY-ENHANCED MESSAGE-----