<PAGE>
SCHEDULE 14A
(RULE 14A-101)
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
GENERAL INSTRUMENT CORPORATION
(FORMERLY, "NEXTLEVEL SYSTEMS, INC.")
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on the 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:
- --------------------------------------------------------------------------------
<PAGE>
[LOGO]
April 7, 1998
Dear Stockholder:
You are cordially invited to attend the first Annual Meeting of Stockholders
(the "Meeting") of General Instrument Corporation, a Delaware corporation (the
"Company"), to be held on Wednesday, May 27, 1998 at 9:30 a.m., local time, at
the Wyndham Franklin Plaza Hotel, 17th and Race Street, Philadelphia,
Pennsylvania.
This is an exciting time for the Company. At the Meeting, we will review the
Company's recent activities, as well as the outlook for 1998. The Notice of the
Meeting and the Proxy Statement appear on the following pages and describe in
detail the matters to be acted upon at the Meeting.
It is important that your shares be represented at the Meeting, whether or
not you are able to attend personally. You are therefore urged to complete,
sign, date and return the enclosed proxy card promptly in the accompanying
envelope, which requires no postage if mailed in the United States.
You are, of course, welcome to attend the Meeting and vote in person, even
if you have previously returned your proxy card.
Sincerely,
/s/ EDWARD D. BREEN
Edward D. Breen
Chairman of the Board and
Chief Executive Officer
<PAGE>
GENERAL INSTRUMENT CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The Annual Meeting of Stockholders (the "Meeting") of General Instrument
Corporation (the "Company") will be held on Wednesday, May 27, 1998, at 9:30
a.m. local time, at the Wyndham Franklin Plaza Hotel, 17th and Race Street,
Philadelphia, Pennsylvania.
The Meeting will be conducted:
1. To consider and to act upon the following proposals, which are described
in the accompanying Proxy Statement:
PROPOSAL ONE: To elect two Class I directors for terms ending at the 2001
Annual Meeting of Stockholders;
PROPOSAL TWO: To approve the Company's Amended and Restated 1997 Long-Term
Incentive Plan;
PROPOSAL THREE: To approve the Company's Annual Incentive Plan; and
PROPOSAL FOUR: To ratify the appointment by the Board of Directors of the
Company of Deloitte & Touche LLP as independent auditor for the Company for the
1998 fiscal year.
2. To transact such other business as may properly come before the Meeting.
Stockholders of record at the close of business on March 30, 1998 will be
entitled to notice of and to vote at the Meeting.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ ROBERT A. SCOTT
ROBERT A. SCOTT
SECRETARY
April 7, 1998
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND
DATE THE ENCLOSED PROXY AND PROMPTLY RETURN IT IN THE ACCOMPANYING ENVELOPE
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. YOU MAY REVOKE YOUR
PROXY AT ANY TIME BEFORE IT IS VOTED BY DELIVERY TO THE COMPANY OF A
SUBSEQUENTLY EXECUTED PROXY OR A WRITTEN NOTICE OF REVOCATION OR BY VOTING IN
PERSON AT THE MEETING.
<PAGE>
GENERAL INSTRUMENT CORPORATION
101 TOURNAMENT DRIVE, HORSHAM, PA 19044
------------------------
PROXY STATEMENT
------------------------
This Proxy Statement (the "Proxy Statement") is being furnished to the
stockholders of General Instrument Corporation, a Delaware corporation (the
"Company"), in connection with the solicitation of proxies by the Board of
Directors of the Company for use at the Annual Meeting of Stockholders (the
"Meeting") of the Company to be held on Wednesday, May 27, 1998 at 9:30 a.m.,
local time, at the Wyndham Franklin Plaza Hotel, 17th and Race Street,
Philadelphia, Pennsylvania, and at any adjournment or postponement thereof.
At the Meeting, stockholders will be asked to consider and vote upon the
following proposals: PROPOSAL ONE: To elect two Class I Directors for terms
ending at the 2001 Annual Meeting of Stockholders; PROPOSAL TWO: To approve the
Company's Amended and Restated 1997 Long-Term Incentive Plan (the "Long-Term
Incentive Plan"); PROPOSAL THREE: To approve the Company's Annual Incentive Plan
(the "Annual Incentive Plan"); and PROPOSAL FOUR: To ratify the appointment by
the Board of Directors of the Company of Deloitte & Touche LLP as independent
auditor for the Company for the 1998 fiscal year (collectively, the
"Proposals").
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR APPROVAL OF EACH
OF THE PROPOSALS.
The Board of Directors of the Company has fixed the close of business on
March 30, 1998 (the "Meeting Record Date") as the record date for determining
the holders of outstanding shares of Common Stock, par value $0.01 per share, of
the Company ("Common Stock"), entitled to receive notice of, and to vote at, the
Meeting. On that date, there were 150,287,245 shares of Common Stock issued and
outstanding and entitled to vote at the Meeting. Each stockholder of record as
of the Meeting Record Date is entitled to one vote for each share of Common
Stock held. The Notice of Annual Meeting of Stockholders, this Proxy Statement
and the form of proxy are first being mailed to each stockholder entitled to
vote at the Meeting on or about April 7, 1998.
On July 25, 1997, the Company was spun-off (the "Spin-off") from its former
parent company, General Instrument Corporation (the "Distributing Company"),
under the name "NextLevel Systems, Inc.," through a distribution of the
Company's shares to the then stockholders of the Distributing Company. Upon the
Spin-off, the Distributing Company changed its corporate name to "General
Semiconductor, Inc." Effective February 2, 1998, the Company changed its
corporate name to General Instrument Corporation.
VOTING AND REVOCATION RIGHTS
Only holders of record of shares of Common Stock as of the close of business
on the Meeting Record Date will be entitled to notice of and to vote at the
Meeting or any adjournment or postponement thereof. The presence, either in
person or by properly executed proxy, of the holders of a majority of the
outstanding shares of Common Stock is necessary to constitute a quorum at the
Meeting and to permit action to be taken by the stockholders at the Meeting.
The affirmative vote of a plurality of shares of Common Stock entitled to
vote thereon, present in person or represented by proxy, at the Meeting is
required to elect the directors nominated pursuant to Proposal One. The
affirmative vote of a majority of the votes cast on each of Proposals Two and
Three is required to approve such proposals, provided that the total votes cast
on each such proposal represents a majority of the shares entitled to vote on
such proposals. The affirmative vote of a majority of the shares of Common Stock
entitled to vote thereon, present in person or represented by proxy, is required
to approve Proposal Four.
For purposes of determining the number of votes cast with respect to any
voting matter, only those cast "for" or "against" are included; abstentions and
broker non-votes are excluded. For purposes of
<PAGE>
determining whether the affirmative vote of a majority of the shares entitled to
vote on a proposal and present at the Meeting has been obtained, abstentions
will be included in, and broker non-votes will be excluded from, the number of
shares present and entitled to vote. Accordingly, abstentions will have the
effect of a vote "against" the matter (except for the election of directors) and
broker non-votes will have the effect of reducing the number of affirmative
votes required to achieve the requisite vote.
All shares of Common Stock that are represented at the Meeting by properly
executed proxies received prior to or at the Meeting and not revoked will be
voted at the Meeting in accordance with the instructions indicated in such
proxies. If no instructions are indicated for a particular proposal on a proxy,
such proxy will be voted in accordance with the Board of Directors'
recommendations as set forth herein with respect to such proposal(s).
In the event that a quorum is not present at the time the Meeting is
convened, or if for any other reason the Company believes that additional time
should be allowed for the solicitation of proxies, the stockholders entitled to
vote at the Meeting, present in person or represented by proxy, will have the
power to adjourn the Meeting from time to time, without notice other than
announcement at the Meeting. If the Company proposes to adjourn the Meeting by a
vote of the stockholders, the persons named in the enclosed form of proxy will
vote all shares of Common Stock for which they have voting authority in favor of
such adjournment.
Any stockholder who executes and returns a proxy may revoke it at any time
prior to the voting of the proxies by giving written notice to the Secretary of
the Company, by executing a later-day proxy, or by attending the Meeting in
person and giving oral advice to the Secretary of the Company.
2
<PAGE>
PROPOSAL ONE: ELECTION OF DIRECTORS
The Company's Board of Directors consists of three classes with members of
each class holding office for staggered three-year terms and until their
successors are duly elected and qualified. There are currently: two Class I
Directors, whose terms expire at the Meeting; three Class II Directors, whose
terms expire at the 1999 Annual Meeting of Stockholders; and two Class III
Directors, whose terms expire at the 2000 Annual Meeting of Stockholders (in all
cases subject to the election and qualification of their successors and to their
earlier death, resignation or removal).
If any one or more of the nominees is unable to serve for any reason or
withdraws from nomination, proxies will be voted for the substitute nominee or
nominees, if any, proposed by the Board of Directors. The Board of Directors has
no knowledge that any nominee will or may be unable to serve or will or may
withdraw from nomination. Each of the following nominees is presently serving as
a director of the Company. Information concerning the nominees for Directors is
set forth below.
NOMINEES FOR TERMS ENDING AT THE 2001 ANNUAL MEETING OF STOCKHOLDERS
EDWARD D. BREEN, age 42. Mr. Breen became Chairman of the Board and Chief
Executive Officer of the Company in December 1997, after having served as Acting
Chief Executive Officer and President since October 1997. He was President of
the Distributing Company's Broadband Networks Group from February 1996 and Vice
President of the Distributing Company from November 1994 until July 1997. He
continued in such positions for the Company through October 1997. He was
Executive Vice President, Terrestrial Systems of the Distributing Company, from
October 1994 to January 1996 and Senior Vice President of Sales of the
Distributing Company from June 1988 to October 1994. He is a director of
CommScope, Inc. ("CommScope").
ALEX J. MANDL, age 54. Mr. Mandl has served as a director of the Company
since the Spin-off and was a director of the Distributing Company from December
1996 until July 1997. He is Chairman and Chief Executive Officer of Teligent,
Inc. ("Teligent"). He was Chairman and Chief Executive Officer of Associated
Communications, LLC ("Associated Communications"), the predecessor of Teligent
from September 1996 until June 1997. Mr. Mandl served with AT&T Corporation
("AT&T"), as President and Chief Operating Officer from January 1996 to August
1996; from 1993-1995, as Executive Vice President of AT&T and Chief Executive
Officer of AT&T Communications Services Group; and from 1991-1993, as Chief
Financial Officer and Group Executive of AT&T. He is a director of
Warner-Lambert Company, Carnegie Hall and WETA-TV-FM Washington.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR PROPOSAL ONE TO
ELECT EACH OF THE FOREGOING NOMINEES AS A DIRECTOR OF THE COMPANY. PROXIES WILL
BE VOTED FOR EACH OF THE FOREGOING NOMINEES AS A DIRECTOR OF THE COMPANY UNLESS
OTHERWISE SPECIFIED IN THE PROXY.
3
<PAGE>
MANAGEMENT OF THE COMPANY
BOARD OF DIRECTORS OF THE COMPANY
The following table sets forth names, in alphabetical order, and information
as to the persons who currently serve as directors of the Company, each of whom
(unless otherwise noted) has served since the Spin-off. Mr. Roel Pieper, a Class
I Director since the Spin-off, resigned effective March 23, 1998.
<TABLE>
<CAPTION>
NAME, AGE AND CURRENT TERM
PRINCIPAL OCCUPATION EXPIRES INFORMATION
- ------------------------------ ----------- ------------------------------------------------------------------------
<S> <C> <C>
Edward D. Breen, 42 1998 Edward D. Breen became Chairman of the Board and Chief Executive Officer
Chairman of the Board and of the Company in December 1997, after having served as Acting Chief
Chief Executive Officer of Executive Officer and President since October 1997. He was President of
the Company the Distributing Company's Broadband Networks Group from February 1996
and Vice President of the Distributing Company from November 1994 until
July 1997. He continued in such positions for the Company through
October 1997. He was Executive Vice President, Terrestrial Systems of
the Distributing Company from October 1994 to January 1996 and Senior
Vice President of Sales of the Distributing Company from June 1988 to
October 1994. He is a director of CommScope.
John Seely Brown, 57 1999 John Seely Brown was a director of the Distributing Company from July
Chief Scientist and 1993 to July 1997. He has been Chief Scientist of Xerox Corporation
Corporate Vice President, ("Xerox") since 1992 and Corporate Vice President of Xerox since 1990.
Xerox Corporation He is also the director of the Xerox Palo Alto Research Center. He is a
Fellow of the American Association for Artificial Intelligence and a
member of the National Academy of Education. He is a director of
Corning, Inc. and Varian Associates, Inc.
Frank M. Drendel, 53 1999 Frank M. Drendel was a director of the Distributing Company from March
Chairman and Chief Executive 1992 until July 1997 and was a director of General Instrument
Officer, CommScope, Inc. Corporation of Delaware, Inc. ("GI Delaware"), a subsidiary of the
Distributing Company, and its predecessors from 1987 to March 1992. He
has served as Chairman and Chief Executive Officer of CommScope since
July 1997, Chairman and President of CommScope, Inc. of North Carolina
("CommScope NC") from 1986 to July 1997, and Chief Executive Officer of
CommScope NC since 1976.
Lynn Forester, 43 1999 Lynn Forester was a director of the Distributing Company from February
President and Chief 1995 until July 1997. She has been President and Chief Executive Officer
Executive Officer, FirstMark of FirstMark Holdings, Inc. since 1984. From 1989 to December 1994, she
Holdings, Inc. was Chairman and Chief Executive Officer of TPI Communications
International, Inc., a radio common carrier and paging company. She is a
director of Gulfstream Aerospace Corporation and Vice Chairman of the
Corporate Commission on Educational Technology.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE AND CURRENT TERM
PRINCIPAL OCCUPATION EXPIRES INFORMATION
- ------------------------------ ----------- ------------------------------------------------------------------------
<S> <C> <C>
Theodore J. Forstmann, 58 2000 Theodore J. Forstmann was a director of GI Delaware from August 1990 to
General Partner, Forstmann March 1992, and was a director of the Distributing Company from March
Little & Co. 1992 until July 1997. He has been a General Partner of FLC Partnership,
L.P., the General Partner of Forstmann Little & Co. ("Forstmann
Little"), since he co-founded Forstmann Little in 1978. He is Chairman
of the Board of Gulfstream Aerospace Corporation.
Alex J. Mandl, 54 1998 Alex J. Mandl was a director of the Distributing Company from December
Chairman and Chief Executive 1996 until July 1997. Mr. Mandl is Chairman and Chief Executive Officer
Officer, Teligent, Inc. of Teligent. He was Chairman and Chief Executive Officer of Associated
Communications, the predecessor of Teligent, from September 1996 until
June 1997; Mr. Mandl served with AT&T, as President and Chief Operating
Officer from January 1996 to August 1996; from 1993-1995, as Executive
Vice President of AT&T and Chief Executive Officer of AT&T
Communications Services Group; and from 1991-1993, as Chief Financial
Officer and Group Executive of AT&T. He is a director of Warner-Lambert
Company, Carnegie Hall and WETA-TV-FM Washington.
J. Tracy O'Rourke, 63 2000 J. Tracy O'Rourke was a director of GI Delaware from September 1990 to
Chairman and Chief Executive March 1992, and was a director of the Distributing Company from March
Officer, Varian Associates, 1992 until July 1997. He has been Chairman and Chief Executive Officer
Inc. of Varian Associates, Inc., a manufacturer of health care systems,
semiconductor manufacturing equipment and analytical instruments, since
1990. He is a director of National Semiconductor Corp.
</TABLE>
COMPENSATION OF DIRECTORS
Employee directors (and non-employee directors who are general partners in
partnerships affiliated with Forstmann Little) do not receive additional
compensation for serving on the Company's Board of Directors. Non-employee
directors receive an annual retainer of $25,000, and committee chairmen receive
an additional $5,000 annual retainer. The non-employee directors' remuneration
is paid annually, unless payment is deferred. In addition, each non-employee
director, upon initial election to the Company's Board of Directors, receives
1,000 shares of Common Stock that vest immediately and is granted an option
under the Long-Term Incentive Plan to purchase 20,000 shares of Common Stock at
an exercise price per share equal to the Fair Market Value (as defined in the
Long-Term Incentive Plan) on the date of grant, which option becomes exercisable
with respect to one-third of the underlying shares on each of the first three
anniversaries of the grant date. If a non-employee director remains in office, a
similar option is granted every three years.
COMMITTEES OF THE BOARD OF DIRECTORS--BOARD MEETINGS
The Board of Directors of the Company held four meetings in 1997 following
the Spin-off. Each incumbent director attended 75% or more of the aggregate of
(i) meetings of the Board of Directors held during the period for which he or
she served as a director and (ii) meetings of all committees held during the
period for which he or she served on those committees, other than J. Tracy
O'Rourke and Roel Pieper. Average attendance at all such meetings of the Board
of Directors and committees was approximately 81%.
5
<PAGE>
The Company has Audit, Compensation and Executive Committees of the Board of
Directors. Members of the Audit and Compensation Committees are not employees of
the Company.
AUDIT COMMITTEE. The Audit Committee's principal functions are to review
the scope of the annual audit of the Company by its independent auditors, review
the annual financial statements of the Company and the related audit report of
the independent auditors, recommend the selection of independent auditors each
year and review any non-audit fees paid to the independent auditors. The members
of the Audit Committee are the following non-employee directors: John Seely
Brown and Alex J. Mandl. The Audit Committee held one meeting in 1997.
COMPENSATION COMMITTEE. The Compensation Committee administers the stock
option and incentive plans of the Company, and in this capacity it makes or
recommends option grants or awards under these plans. In addition, the
Compensation Committee makes recommendations to the Company's Board of Directors
with respect to the compensation of the Chief Executive Officer and determines
the compensation of the other senior executives. The Compensation Committee also
recommends the establishment of policies dealing with various compensation and
employee benefit plans for the Company. The members of the Compensation
Committee are the following non-employee directors: Lynn Forester and J. Tracy
O'Rourke. The Compensation Committee did not meet in 1997.
EXECUTIVE COMMITTEE. The Executive Committee has the authority to exercise
all powers and authority of the Company's Board of Directors that may be
lawfully delegated to it under Delaware law. It meets between regularly
scheduled meetings of the Company's Board of Directors to take such action as is
necessary for the efficient operation of the Company. The members of the
Executive Committee are: Edward D. Breen, Theodore J. Forstmann, J. Tracy
O'Rourke and Frank M. Drendel. The Executive Committee did not meet in 1997.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
An affiliate of Forstmann Little provides aircraft maintenance services to
the Company and charged the Company $2.0 million for services in 1997. The
Company believes that the terms of these transactions were no less favorable to
the Company than the terms which could be obtained from an unrelated third
party.
CERTAIN LEGAL PROCEEDINGS
A securities class action is presently pending in the United States District
Court for the Northern District of Illinois, Eastern Division, IN RE GENERAL
INSTRUMENT CORPORATION SECURITIES LITIGATION. This action, which consolidates
numerous class action complaints filed in various courts between October 10 and
October 27, 1995, is brought by plaintiffs, on their own behalf and as
representatives of a class of purchasers of the Distributing Company's common
stock during the period March 21, 1995 through October 18, 1995. The complaint
alleges that the Distributing Company and certain of its officers and directors,
as well as Forstmann Little and certain related entities, violated the federal
securities laws, namely, Sections 10(b) and 20(a) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), prior to the Spin-off, by allegedly
making false and misleading statements and failing to disclose material facts
about the Distributing Company's planned shipments in 1995 of its CFT 2200 and
DigiCipher-Registered Trademark- products. Also pending in the same court, under
the same name, is a derivative action brought on behalf of the Distributing
Company. The derivative action alleges that, prior to the Spin-off, the members
of the Distributing Company's Board of Directors, several of its officers and
Forstmann Little and related entities have breached their fiduciary duties by
reason of the matter complained of in the class action and the defendants'
alleged use of material non-public information to sell shares of the
Distributing Company's stock for personal gain. The court had granted the
defendants' motions to dismiss the original complaints in both of these actions,
but allowed the plaintiffs in each action an opportunity to file amended
complaints. Amended complaints were filed on November 7, 1997. The defendants
have answered the
6
<PAGE>
amended consolidated complaint in the class actions, denying liability, and have
filed a renewed motion to dismiss the derivative action. In connection with the
Spin-off, the Company has agreed to indemnify the Distributing Company in
respect of its obligations, if any, arising out of or in connection with these
actions. The Company intends to vigorously contest these actions.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers and beneficial owners of more than 10% of the Common Stock to
file with the Securities and Exchange Commission (the "Commission") reports of
ownership and changes in ownership of Common Stock and other equity securities
of the Company on Forms 3, 4 and 5. The Company undertakes to make such filings
on behalf of certain of its directors and officers. Based on written
representations of reporting persons and a review of those reports, the Company
believes that during the year ended December 31, 1997, its officers and
directors and the beneficial owners of more than 10% of the Common Stock
complied with all applicable Section 16(a) filing requirements.
EXECUTIVE OFFICERS
Set forth below is certain information with respect to the persons who
currently serve as executive officers of the Company.
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE PRIOR TO BECOMING
NAME AND TITLE AGE AN EXECUTIVE OFFICER OF THE COMPANY
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Edward D. Breen 42 Edward D. Breen became Chairman of the Board and
Chairman of the Board and Chief Executive Officer Chief Executive Officer of the Company in December
1997, after having served as Acting Chief Executive
Officer and President since October 1997. He was
President of the Distributing Company's Broadband
Networks Group from February 1996 and Vice President
of the Distributing Company from November 1994 until
July 1997. He continued in such positions for the
Company through October 1997. He was Executive Vice
President, Terrestrial Systems of the Distributing
Company from October 1994 to January 1996 and Senior
Vice President of Sales of the Distributing Company
from June 1988 to October 1994. He is a director of
CommScope.
Richard D. Badler 47 Richard D. Badler became Vice President, Corporate
Vice President, Corporate Communications Communications of the Company in July 1997. He was
Vice President, Corporate Communications of the
Distributing Company from February 1996 to July 1997.
He was an Executive Vice President and Account
Director for Golin/Harris Communications from
September 1993 to February 1996 and Director of
Public Affairs for Kraft General Foods from May 1990
to September 1993.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE PRIOR TO BECOMING
NAME AND TITLE AGE AN EXECUTIVE OFFICER OF THE COMPANY
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Paul J. Berzenski 45 Paul J. Berzenski became Vice President and
Vice President and Controller Controller of the Company in July 1997. He was
Controller of the Distributing Company from January
1994 until July 1997 and Vice President of the
Distributing Company from November 1994 until July
1997. He was Assistant Controller of GI Delaware,
from January 1991 to January 1994.
Scott A. Crum 41 Scott A. Crum became Vice President, Administration
Vice President, Administration and Employee and Employee Resources of the Company in December
Resources 1997. He became Vice President of Administration and
Employee Resources of the Distributing Company's
Broadband Networks Group in July 1996 and continued
in this position for the Company after the Spin-off
until December 1997. He was Vice President of Human
Resources for the Distributing Company's
Communications Division from July 1995 to July 1996.
From May 1995 to July 1995, Mr. Crum was Director,
Human Resources and Administration, Dallas Sites, for
Northrop Grumman Corporation's ("Northrop Grumman")
Commercial Aircraft Division. He was Director,
Continuous Improvement Systems for Northrop Grumman's
Commercial Aircraft Division from November 1992 to
May 1995.
Eric M. Pillmore 44 Eric M. Pillmore became Acting Chief Financial
Vice President, Finance and Acting Chief Financial Officer and Vice President, Finance of the Company in
Officer December 1997. He was Vice President, Finance &
Information Technology of the Broadband Networks
Group of the Distributing Company from November 1996
and continued in that position with the Company after
the Spin-off until December 1997. From March 1996 to
November 1996, Mr. Pillmore was Vice President,
Finance of the Communications Division of the
Distributing Company. From January 1994 to February
1996, he was Manager, Finance of the Plastics
Americas Division of General Electric Company. He was
Manager, Finance of GE Medical Systems Asia, Ltd.
from March 1992 to February 1994 and Director,
Finance of GE/Yokogawa Medical Systems, Ltd. from
June 1991 to February 1994.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE PRIOR TO BECOMING
NAME AND TITLE AGE AN EXECUTIVE OFFICER OF THE COMPANY
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Geoffrey S. Roman 45 Geoffrey S. Roman became Vice President of the
Vice President Company in July 1997. He was Vice President of the
Distributing Company from August 1996 until the
Spin-off. From October 1996 until July 1997, he was
Senior Vice President and General Manager, Telecom
Systems of the Distributing Company. He was Senior
Vice President and Special Assistant to the Chief
Executive Officer of the Distributing Company from
December 1995 to August 1996. From October 1994 to
December 1995, he was Senior Vice President,
Technology of GI Delaware and from January 1991 to
October 1994, he was Vice President, Technology and
Business Development of GI Delaware.
Robert A. Scott 47 Robert A. Scott became Vice President, Legal and
Vice President, Legal and Secretary Secretary of the Company in December 1997. He became
Vice President and General Counsel of the
Distributing Company's Broadband Networks Group in
February 1996 and continued in that position with the
Company after the Spin-off until December 1997. He
was General Counsel, Communications Division of the
Distributing Company from November 1992 to February
1996.
Richard C. Smith 53 Richard C. Smith became Vice President, Business
Vice President, Business Development and Treasurer Development and Treasurer of the Company in July
1997. He was Vice President of GI Delaware from March
1989 to July 1997 and Treasurer of GI Delaware from
September 1991 to July 1997. Mr. Smith had been Vice
President and Assistant Secretary of the Distributing
Company from May 1991 until July 1997 and had been
Treasurer of the Distributing Company from March 1992
until July 1997. From June 1986 to November 1994, he
was Director of Taxes for GI Delaware and from May
1991 to November 1994, he was Director of Taxes of
the Distributing Company.
Keith A. Zar 43 Keith A. Zar became Vice President and General
Vice President and General Counsel Counsel of the Company in July 1997. He was Assistant
General Counsel of the Distributing Company from July
1993 until July 1997. From 1986 until June 1993, he
was an associate in the law firm of Fried, Frank,
Harris, Shriver & Jacobson.
</TABLE>
9
<PAGE>
EXECUTIVE OFFICER COMPENSATION
The table below sets forth a summary of the compensation paid by the Company
for the last three fiscal years to the Chief Executive Officer of the Company,
the former Chief Executive Officer of the Company and the five additional highly
compensated executive officers (including two former executive officers) of the
Company (based, for the period prior to July 25, 1997, on their historical
compensation from the Distributing Company).
SUMMARY COMPENSATION
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------------- AWARDS
OTHER -------------------------
ANNUAL SECURITIES ALL OTHER
COMPEN- UNDERLYING COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(i) SATION(j) OPTIONS(#)(m) SATION
- ----------------------------------------------- --------- --------- ----------- ----------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Edward D. Breen................................ 1997(a) $ 354,753 $ 234,599 $ -- 1,037,647 $ 4,288(n)
Chairman of the Board and Chief Executive 1996 300,000 62,820 -- 60,000 4,568
Officer 1995 227,872 25,339 -- 16,000 3,618
Richard C. Smith............................... 1997 $ 248,750 $ 78,905 $ -- 145,394 $ 5,724(n)
Vice President, Business 1996 225,000 -- -- 16,000 5,310
Development and Treasurer 1995 215,000 47,902 -- 20,000 5,274
Geoffrey S. Roman.............................. 1997 $ 260,679 $ 136,931 $ 57,817(k) 162,480 $ 5,744(n)
Vice President 1996 219,646 69,366 45,551(k) 44,028 5,056
1995(b) -- -- -- -- --
Eric M. Pillmore............................... 1997 $ 213,440 $ 109,892 $ -- 150,002 $ 3,779(n)
Vice President, Finance and 1996(c) -- -- -- -- --
Acting Chief Financial Officer 1995(d) -- -- -- -- --
Thomas A. Dumit................................ 1997(e) $ 345,000 $ 130,151 $ -- 165,836 $ 5,838(n)
Former Vice President 1996 345,000 -- -- 42,000 5,460
1995 320,000 89,120 -- 24,000 5,460
Richard S. Friedland........................... 1997(f) $ 682,692 $ -- $ -- 1,408,867 $1,018,338(o)
Former Chairman and Chief 1996 750,000 -- -- 250,000 5,460
Executive Officer 1995(g) 589,583 214,445 -- 560,000 5,460
Charles T. Dickson............................. 1997(h) $ 276,417 $ -- $ -- 139,420 $ 83,198(n)
Former Vice President 1996 297,333 -- -- 24,000 5,460
and Chief Financial 1995 265,000 73,803 76,384(l) 24,000 5,454
Officer
</TABLE>
- ------------------------
(a) Reflects compensation for the full year 1997. Effective December 1997, Mr.
Breen was promoted to Chairman of the Board and Chief Executive Officer of
the Company. He became Acting Chief Executive Officer and President of the
Company in October 1997.
(b) Mr. Roman was not an executive officer of the Distributing Company in 1995.
(c) Mr. Pillmore was not an executive officer of the Distributing Company in
1996.
(d) Mr. Pillmore was not an employee of the Distributing Company in 1995.
(e) Mr. Dumit retired as Vice President of the Company in January 1998.
(f) Mr. Friedland resigned as Chairman and Chief Executive Officer of the
Company in October 1997.
(g) Reflects compensation of Mr. Friedland for the full year 1995. Effective
August 1995, Mr. Friedland was promoted to Chief Executive Officer of the
Distributing Company. Prior to that date Mr. Friedland was President and
Chief Operating Officer of the Distributing Company. In December 1995, Mr.
Friedland also became Chairman of the Distributing Company.
(h) Mr. Dickson resigned as Vice President and Chief Financial Officer of the
Company in December 1997.
10
<PAGE>
(i) Amounts reported for 1997 reflect cash bonus awards paid in 1998 pursuant to
the Annual Incentive Plan with respect to performance in 1997. Amounts
reported for 1996 reflect cash bonus awards paid in 1997 pursuant to the
Distributing Company's Annual Incentive Plan with respect to performance in
1996. Amounts reported for 1995 reflect cash bonus awards paid in 1996
pursuant to the Distributing Company's Annual Incentive Plan with respect to
performance in 1995.
(j) Unless otherwise indicated, with respect to any individual named in the
above table, the aggregate amount of perquisites and other personal
benefits, securities or property was less than the lesser of $50,000 or 10%
of the total annual salary and bonus reported for the named executive
officer.
(k) Reflects payments to Mr. Roman in 1997 and 1996 for relocation costs.
(l) Reflects payments by the Distributing Company to Mr. Dickson in the amounts
of $56,304 and $20,080, respectively, for relocation costs and personal use
of the Distributing Company's aircraft.
(m) Reflects the number of shares of Common Stock underlying options granted. A
portion of these options were originally granted under the Distributing
Company's 1993 Long-Term Incentive Plan and were replaced with options for
Common Stock in connection with the Spin-off. The exercise price and number
of shares subject to the replacement options were determined under a formula
intended to preserve the economic value of the canceled Distributing Company
options. (See the table below, "Option Grants in Last Fiscal Year.")
(n) Reflects payment in 1997 (i) prior to the Spin-off by the Distributing
Company and following the Spin-off by the Company of (x) premiums for term
life insurance of $1,088, $974, $994, $837, $1,088 and $948 on behalf of
each of Messrs. Breen, Smith, Roman, Pillmore, Dumit and Dickson,
respectively, and (y) the matching contribution for 1997 under the Company's
Savings Plan (the "Savings Plan") in the amount of $3,200, $4,750, $4,750,
$2,942, $4,750 and $4,750 for each of Messrs. Breen, Smith, Roman, Pillmore,
Dumit and Dickson, respectively, and (ii) of $77,500 paid by the Company to
Mr. Dickson, in lieu of any payments due under the Annual Incentive Plan.
(o) Reflects payment by the Company in 1997 of (i) pursuant to Mr. Friedland's
separation agreement (see description below under the caption "Severance
Protection and Separation Agreements") (x) $750,000 (representing 12 months
of base salary) and (y) $262,500 (in lieu of any payments due under the
Annual Incentive Plan), (ii) $1,088 as premiums for term life insurance and
(iii) $4,750 as the Company's matching contribution under the Savings Plan.
STOCK OPTIONS
GRANT OF OPTIONS. The table below sets forth information with respect to
grants of options to purchase Common Stock during the year ended December 31,
1997 to the executives listed in the Summary Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------------- VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF
NUMBER OF TOTAL OPTIONS STOCK
SECURITIES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM (g)
OPTIONS IN FISCAL PRICE EXPIRATION --------------------
NAME GRANTED YEAR (%) ($/SHARE) DATE 5%($) 10%($)
- --------------------------------------- ----------- ----------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Edward D. Breen........................ 199,592(a) 1.9(e) $ 15.7574 1/10/07 $1,977,906 $5,012,401
88,055(b) 0.9(e) 15.7574 1/10/07 872,603 2,211,346
750,000(c) 24.4(f) 14.5625 11/3/07 6,868,709 17,406,656
Richard C. Smith....................... 52,834(a) 0.5(e) 15.7574 1/10/07 523,571 1,326,833
42,560(b) 0.4(e) 15.7574 1/10/07 421,759 1,068,819
50,000(c) 1.6(f) 14.5625 11/3/07 457,914 1,160,444
Geoffrey S. Roman...................... 67,510(a) 0.7(e) 15.7574 1/10/07 669,007 1,695,395
63,399(b) 0.6(e) 15.7574 1/10/07 628,268 1,592,154
31,571(c) 1.0(f) 14.5625 11/3/07 289,136 732,727
Eric M. Pillmore....................... 36,690(a) 0.4(e) 15.7574 1/10/07 363,589 921,405
44,028(b) 0.4(e) 15.7574 1/10/07 436,306 1,105,686
14,500(d) 0.5(f) 20.8750 7/29/07 190,359 482,406
54,784(c) 1.8(f) 14.5625 11/3/07 501,727 1,271,475
Thomas A. Dumit........................ 96,860(a) 0.9(e) 15.7574 2/14/98 55,327 111,078
68,976(b) 0.7(e) 15.7574 2/14/98 19,700 39,550
Richard S. Friedland................... 1,188,731(a) 11.7(e) 15.7574 2/13/98 339,505 681,612
220,136(b) 2.2(e) 15.7574 2/13/98 0 0
Charles T. Dickson..................... 70,444(a) 0.7(e) 15.7574 12/19/97 0 0
68,976(b) 0.7(e) 15.7574 12/19/97 0 0
</TABLE>
(SEE THE NOTES ON THE FOLLOWING PAGE)
11
<PAGE>
- ------------------------------
(a) Represents options originally granted under the Distributing Company's 1993
Long-Term Incentive Plan and repriced by the Distributing Company as of
January 10, 1997 ("repriced options"). The number of shares and prices
reported here reflect options to purchase Common Stock which replaced the
repriced options as of the Spin-off. The exercise price and number of shares
subject to the replacement options were determined under a formula intended
to preserve the economic value of the canceled Distributing Company options.
As of December 31, 1997, one-third of the options held by Messrs. Breen,
Smith, Pillmore and Roman were exercisable, one-third became exercisable on
January 10, 1998 and the remaining one-third become exercisable on January
10, 1999. One-third of the options held by Mr. Dumit and two-thirds of the
options held by Mr. Friedland were unexercisable at the time of their
respective terminations of employment and were canceled in connection
therewith; their remaining outstanding options expired on February 14, 1998
and February 13, 1998, respectively. All of Mr. Dickson's options were
canceled in connection with his termination of employment.
(b) Reflects the number of shares of Common Stock underlying options granted.
These options were originally granted under the Distributing Company's 1993
Long-Term Incentive Plan and were replaced with options for Common Stock in
connection with the Spin-off. The exercise price and number of shares
subject to the replacement options were determined under a formula intended
to preserve the economic value of the canceled Distributing Company options.
One-third of the options held by Messrs. Breen, Smith, Pillmore, and Roman
became exercisable on January 10, 1998 and the remaining options will become
exercisable with respect to one-third of the shares covered thereby on
January 10, 1999 and 2000. Two-thirds of the options held by Mr. Dumit were
unexercisable at the time of his retirement and were canceled in connection
therewith; his remaining outstanding options expired on February 14, 1998.
The options granted to Messrs. Friedland and Dickson, all of which were
unexercisable, were canceled in connection with their respective
terminations of employment.
(c) The options will become exercisable with respect to one-third of the shares
covered thereby on November 3, 1998, 1999 and 2000.
(d) The options will become exercisable with respect to one-third of the shares
covered thereby on July 29, 1998, 1999 and 2000.
(e) Percentages are based on a total of 10,130,036 options granted (including
repriced options) by the Distributing Company to the employees of the
Company during 1997 prior to the Spin-off.
(f) Percentages are based on a total of 3,069,017 options granted by the Company
to employees of the Company during 1997 after the Spin-off.
(g) The assumed 5% and 10% annual rates of appreciation are over the term of the
options outstanding as of December 31, 1997 (which for Messrs. Friedland and
Dumit include only those options not canceled in connection with their
respective terminations of employment) which is ten years from the date of
grant (except for Messrs. Friedland and Dumit whose outstanding options
expired on February 13, 1998 and February 14, 1998, respectively, and Mr.
Dickson whose options were canceled on December 19, 1997) and such assumed
rates are set forth in accordance with rules and regulations adopted by the
Commission and do not represent the Company's estimate of stock price
appreciation.
AGGREGATED OPTION EXERCISES AND YEAR-END VALUE. The following table sets
forth, as of December 31, 1997, for each of the executives listed in the Summary
Compensation Table (i) the total number of unexercised options for Common Stock
(exercisable and unexercisable) held and (ii) the value of such options that
were in-the-money at December 31, 1997 (based on the difference between the
closing price of Common Stock at December 31, 1997 and the exercise price of the
option on such date).
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED IN-
UNEXERCISED STOCK THE-MONEY
OPTIONS AT FISCAL STOCK OPTIONS
YEAR-END AT FISCAL YEAR-
SHARES (#)(a) END ($)(b)
ACQUIRED ON VALUE -------------------------- --------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------- ------------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Edward D. Breen......................... 0 $ 0 124,992 971,115 $ 280,309 $ 2,952,608
Richard C. Smith........................ 0 0 77,783 127,782 238,465 330,336
Geoffrey S. Roman....................... 0 0 72,846 177,154 150,931 418,366
Eric M. Pillmore........................ 0 0 12,230 137,772 25,898 326,502
Thomas A. Dumit(c)...................... 0 0 146,759 133,549 429,282 282,803
Richard S. Friedland(d)................. 52,833 220,990 792,489 0 1,121,293 0
Charles T. Dickson(e)................... 23,482 47,661 0 0 0 0
</TABLE>
12
<PAGE>
- ------------------------
(a) Reflects the number of shares of Common Stock underlying options granted. A
portion of these options were originally granted under the Distributing
Company's 1993 Long-Term Incentive Plan and were replaced with options for
Common Stock in connection with the Spin-off. The exercise price and number
of shares subject to the replacement options were determined under a formula
intended to preserve the economic value of the canceled Distributing Company
options (see the table above, "Option Grants in Last Fiscal Year").
(b) Based on the difference between the closing price of $17.875 per share at
December 31, 1997, as reported on the New York Stock Exchange ("NYSE")
Composite Tape, and the exercise prices of the options on such date.
(c) The unexercisable options held by Mr. Dumit were canceled in January 1998 in
connection with his retirement.
(d) The unexercisable options held by Mr. Friedland were canceled in October
1997 in connection with his termination of employment.
(e) The options held by Mr. Dickson were canceled in December 1997 in connection
with his termination of employment.
PENSION PLAN AND SERP
The following table shows, as of December 31, 1997, estimated aggregate
annual benefits payable upon retirement at age 65 under the Company's Pension
Plan (the "Pension Plan"), and the Supplemental Executive Retirement Plan (the
"SERP").
PENSION PLAN TABLE
<TABLE>
<CAPTION>
ESTIMATED ANNUAL BENEFITS
AVERAGE ANNUAL BASIC UPON RETIREMENT, WITH
REMUNERATION DURING YEARS OF SERVICE INDICATED
SIXTY CONSECUTIVE ---------------------------------------------------------------
CALENDAR MONTHS PRIOR 20 25 30 35
TO RETIREMENT 15 YEARS YEARS YEARS YEARS YEARS
- --------------------------------------------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$125,000....................................................... $ 25,927 $ 34,570 $ 43,212 $ 51,854 $ 51,854
150,000....................................................... 31,552 42,070 52,587 63,104 63,104
175,000....................................................... 37,177 49,570 61,962 74,354 74,354
200,000....................................................... 42,802 57,070 71,337 85,604 85,604
225,000....................................................... 48,427 64,570 80,712 96,854 96,854
250,000....................................................... 54,052 72,070 90,087 108,105 108,105
260,000....................................................... 56,302 75,070 93,837 112,604 112,604
300,000....................................................... 56,302 75,070 93,837 112,604 112,604
500,000....................................................... 56,302 75,070 93,837 112,604 112,604
</TABLE>
The compensation covered by the Pension Plan and the SERP is substantially
that described under the "Salary" column of the Summary Compensation Table.
However, pursuant to Section 401(a)(17) of the Internal Revenue Code of 1986, as
amended (the "Code"), the maximum amount of compensation that can be considered
in computing benefits under the Pension Plan for 1997 was $160,000. Under the
SERP, compensation for 1997 in excess of $160,000, but not exceeding $260,000,
is considered in computing benefits. Accordingly, the total compensation covered
by the Pension Plan and the SERP for the calendar year 1997 for each of Messrs.
Friedland, Breen, Dumit, Roman and Dickson was $260,000, for Mr. Smith was
$248,750 and for Mr. Pillmore was $213,440. Credited years of service under both
the Pension Plan and the SERP as of December 31, 1997 are as follows: Mr.
Friedland, 19 years; Mr. Breen, 19 years; Mr. Roman, 15 years; Mr. Smith, 14
years; Mr. Dumit, 6 years; Mr. Dickson, 3 years; and Mr. Pillmore, 1 year. Mr.
Dickson's employment was terminated in December 1997 and his benefits were not
vested upon such termination. Mr. Friedland's and Mr. Dumit's benefits were
vested at the time of their respective terminations. Estimated benefits set
forth in the Pension Plan Table were calculated on the basis of a single
13
<PAGE>
life annuity and Social Security covered compensation as in effect during 1997.
Such estimated benefits are not subject to any deduction for Social Security or
other offset amounts.
SEVERANCE PROTECTION AND SEPARATION AGREEMENTS
The Company has entered into severance protection agreements (the "Severance
Agreements") with its Chief Executive Officer and its other executive officers.
These agreements have a two-year term which is automatically extended for one
year upon the first anniversary of the agreement and every anniversary
thereafter unless notification is given to either the Company or the executive.
The Severance Agreements provide severance pay and other benefits in the
event of a termination of employment within 24 months of a "Change of Control"
(as defined in the Severance Agreements) of the Company if such termination is
(i) for any reason other than by the Company for cause or disability, (ii) by
reason of the executive's death or (iii) by the executive for "Good Reason" (as
defined in the Severance Agreements). Such severance pay will be in an amount
equal to two times the sum of the executive's base salary and the highest bonus
that would have been payable to the executive in the year of termination in the
case of the Chief Executive Officer and one and one-half times such sum in the
case of all other executive officers; provided that such amount may be increased
by up to one-half times such sum if an executive officer has not become employed
within 24 months following such termination, in the case of the Chief Executive
Officer, or 18 months following such termination, in the case of any other
executive officer. The executive's benefits will be continued for either 24
months, in the case of the Chief Executive Officer, or 18 months in the case of
all other executive officers. The executive will also receive a PRO RATA bonus
(calculated up to the executive's termination date), reimbursement for
outplacement, tax and financial planning assistance and reimbursement for
relocation under certain circumstances. If the executive's employment is
terminated without cause (i) within six months prior to a Change in Control or
(ii) prior to the date of a Change in Control but (A) at the request of a third
party who effectuates a Change in Control or (B) otherwise in connection with,
or in anticipation of, a threatened Change in Control which actually occurs,
such termination shall be deemed to have occurred after the Change in Control.
In the case of a termination by the Company for disability or due to the
executive's death following a Change of Control, the executive or his estate, as
the case may be, will receive a PRO RATA bonus in addition to accrued
compensation.
The Severance Agreements provide for a gross-up payment by the Company in
the event that the total payments the executive receives under the agreement or
otherwise are subject to the excise tax under Section 4999 of the Code. In such
an event, the Company will pay an additional amount so that the executive is
made whole on an after-tax basis from the effect of the excise tax.
In connection with Mr. Friedland's resignation as Chairman and Chief
Executive Officer of the Company in October 1997, he entered into a separation
agreement with the Company. The principal terms of such agreement are as
follows: (i) the Company paid to Mr. Friedland the amount of $750,000
(representing 12 months of base salary) and the amount of $262,500 (in lieu of
any payments due under the Annual Incentive Plan); (ii) the Company agreed to
reimburse Mr. Friedland for the cost of reasonable outplacement services, in an
aggregate amount not to exceed $75,000; and (iii) Mr. Friedland's severance
protection agreement remains in effect until April 15, 1998 but if a Change in
Control occurs on or before April 15, 1998, a lump sum cash payment of
$1,200,000 will be paid to him in lieu of all compensation and benefits provided
in his severance protection agreement.
In addition to the Severance Agreements described above, the Company's
Long-Term Incentive Plan, Annual Incentive Plan, SERP and Deferred Compensation
Plan contain Change of Control provisions (see descriptions below under the
captions "Proposal Two: Approval of the Long-Term Incentive Plan" and "Proposal
Three: Approval of the Annual Incentive Plan"). In the event of a Change of
Control (as defined in the Long-Term Incentive Plan) participants in the SERP
become entitled to receive the present
14
<PAGE>
value actuarial equivalent of their supplemental benefit in a lump sum and
participants in the Deferred Compensation Plan become entitled to receive their
entire account balance in a lump sum. Moreover, the Deferred Compensation Plan
will terminate upon a Change of Control.
COMPENSATION COMMITTEE REPORT ON COMPENSATION OF EXECUTIVE OFFICERS
The Compensation Committee of the Board of Directors is comprised entirely
of non-employee directors. The Compensation Committee considers and recommends
to the Board of Directors the base salary to be paid to the Chief Executive
Officer, determines the base salary for all other executive officers, makes
recommendations to the Board of Directors with respect to the Company's overall
compensation policies, administers and grants awards under the Long-Term
Incentive Plan and administers and grants awards under the Annual Incentive Plan
with respect to executive officers and performs such duties as the Board of
Directors may from time to time request.
In establishing and administering the Company's compensation policies and
programs, the Compensation Committee considered the compensation plans and
arrangements of the Distributing Company prior to the Spin-off, including the
levels of individual compensation and the recommendations and commitments made
by the Distributing Company and its Board of Directors with respect to the
Company, as set forth in the proxy statement distributed in connection with the
Spin-off, as well as factors specifically relevant to the Company. The basic
objective of the Compensation Committee is to formulate compensation policies
and programs intended to attract, retain, and motivate highly qualified key
employees, including executive officers. Compensation of executive officers and
other key employees, including the Chief Executive Officer, is comprised of
three principal elements: (i) stock ownership, (ii) base salary and (iii) annual
bonuses.
STOCK OWNERSHIP. The Compensation Committee believes that executive officers
and other significant employees, who are in a position to make a substantial
contribution to the long-term success of the Company and to build stockholder
value, should have a significant stake in the Company's on-going success. This
focuses attention on managing the Company as an owner with an equity position in
the business and seeks to align these employees' interests with the long-term
interests of stockholders. Accordingly, one of the Company's principal methods
to motivate executive officers and other significant employees is through a
broad and deep stock option program.
The Long-Term Incentive Plan was adopted by the Company's Board of
Directors, and GI Delaware as sole stockholder of the Company, prior to the
Spin-off. Effective upon the Spin-off, all of the outstanding options for
Distributing Company common stock held by employees of the Company were replaced
with substitute options for Common Stock in a manner designed to preserve the
economic value of such options, and to retain the existing vesting and
expiration dates. Subsequent to the Spin-off, during 1997 the Company awarded
options to purchase an aggregate of approximately 1,058,260 (not including
substitute options) shares of Common Stock to 12 executive officers (including
executive officers named in the Summary Compensation Table). The exercise price
of each of these options as of the date of grant was the closing market price
per share of Common Stock on the date of grant.
Management recommends to the Compensation Committee those executive officers
and other significant employees to whom options should be granted and the number
of options to be granted to them. The recommendations are based on a review of
each employee's individual performance, position and level of responsibility in
the Company, long-term potential contribution to the Company and the number of
options previously granted to the employee. Neither management nor the
Compensation Committee assigned specific weights to these factors, although the
executive's position and a subjective evaluation of his performance were
considered most important. Generally, the number of options granted to an
executive reflects his or her level of responsibility and position in the
Company.
To encourage key employees to remain in the employ of the Company, options
generally vest and become exercisable over a three- or four-year period and are
not exercisable until one year after the date
15
<PAGE>
of grant. It is expected that future awards under the Long-Term Incentive Plan
will be made periodically in furtherance of goals described above.
BASE SALARY. The Compensation Committee believes that it is important to pay
reasonable and competitive salaries. Salaries paid to executive officers are
based on the Chief Executive Officer's recommendations to the Compensation
Committee, which is responsible for reviewing and approving or disapproving
those recommendations. Generally, an executive's base salary reflects his level
of responsibility and position in the Company.
From the Spin-off through December 31, 1997, four executive officers
received base salary increases in connection with their new positions and
increased responsibilities with the Company.
ANNUAL INCENTIVE BONUS. The Annual Incentive Plan is intended to provide a
means of annually rewarding certain key employees, including the executives
listed in the Summary Compensation Table, based on the performance of the
Company and, in 1997, the operating divisions of the Distributing Company. This
approach allows management to focus on key business objectives in the
short-term, and to support the long-term performance orientation of stock
ownership.
Under the Annual Incentive Plan, in 1997 management recommended, and the
Compensation Committee established, for each officer a target bonus percentage
of the officer's salary. That percentage was based on the officer's position in
the Company and was the percentage of the officer's salary that would be paid if
all performance targets were met. The target award percentage for executive
officers for 1997 ranged from 35% to 70% for the Chief Executive Officer. In
1997, all executive officers of the Company participated in the Annual Incentive
Plan. Those executive officers who were elected to their positions with the
Company during 1997 received their bonuses based on the target percentages
established for them while employed at an operating division of the Distributing
Company.
Bonuses for officers, other than those who were employed at an operating
division of the Distributing Company, were based on a function of the Company's
achievement of its earnings per share target (which constituted 33.4% of the
bonus payment determination), its consolidated operating income target (which
constituted 33.3% of the bonus payment determination), and its consolidated net
capital employed target (which is a measure of the use of cash and which
constituted the remaining 33.3% of the bonus payment determination). The 1997
bonus for Mr. Breen, who was President of the Company's Broadband Networks Group
prior to his promotion to Acting Chief Executive Officer of the Company, was
based on a function of the Company's achievement of its earnings per share
target (20%) and his operating division's achievement of its operating income
and net capital employed targets (40% each). For those executive officers who
were employed at the operating division level, bonuses were based on the
division's achievement of its operating income and net capital employed targets
(50% each).
Under the Annual Incentive Plan for 1997, if a financial target was
exceeded, the portion of the bonus based on that target was increased above the
target level, but could not exceed 225% of the target level. In addition, the
Committee had the option to adjust the executive's bonus (between 80% and 120%)
based upon the executive's overall personal performance. In 1997, Mr. Breen's
bonus was 131.5% of his bonus target level and the bonuses for other executive
officers ranged from 75.5% to 125.7% of their bonus target levels.
CHIEF EXECUTIVE OFFICER COMPENSATION. Richard S. Friedland served as
Chairman and Chief Executive Officer of the Distributing Company until the
Spin-off, and served as Chairman and Chief Executive Officer of the Company from
the Spin-off through October 1997. Mr. Friedland's annual salary in 1997 was
$750,000 and his target bonus percentage under the Annual Incentive Plan was
70%. Mr. Friedland's annual salary and target bonus percentage was unchanged
from 1996. On January 10, 1997, the Board of Directors of the Distributing
Company (i) granted to Mr. Friedland an option to purchase 150,000 shares of the
Distributing Company's common stock (pre-Spin-off), at an exercise price of
$23.125 per share, the closing market price of the Distributing Company's common
stock on that date, to become exercisable in
16
<PAGE>
one-third increments on each of January 10, 1998, 1999 and 2000 and (ii)
authorized an offer to Mr. Friedland to have options for an aggregate of 810,000
shares of the Distributing Company's common stock (pre-Spin-off) canceled as of
such date and a new option in respect of the same number of shares granted as of
such date with an exercise price of $23.125 per share, the closing market price
per share of the Distributing Company's common stock on that date, to become
exercisable in one-third increments on July 10, 1997, January 10, 1998 and
January 10, 1999. Also at that meeting, the Board of Directors of the
Distributing Company instructed the Distributing Company to enter into a
severance protection agreement with Mr. Friedland, specifying that it would not
be triggered by the Spin-off and Mr. Friedland's move to the Company. In
connection with Mr. Friedland's resignation from the Company in October 1997, he
entered into a separation agreement with the Company. (See "Management of the
Company -- Severance Protection and Separation Agreements.")
In connection with Edward D. Breen's promotion to Acting Chief Executive
Officer and President of the Company in October 1997 his compensation was
increased from $315,000 to $500,000. Mr. Breen's target bonus percentage under
the Annual Incentive Plan remained at 50% for 1997 but was adjusted to 70% for
1998. Mr. Breen was also granted an option to purchase 750,000 shares of Common
Stock with a per share exercise price of $14.5625, the market price of Common
Stock on the date of the grant.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M). Section 162(m) of the
Code ("Section 162(m)"), which was enacted in 1993, generally disallows a
federal income tax deduction to any publicly held corporation for compensation
paid in excess of $1 million in any taxable year to the chief executive officer
or any of the four other most highly compensated executive officers who are
employed by the Company on the last day of the taxable year. Section 162(m),
however, does not disallow a federal income tax deduction for qualified
"performance-based compensation," the material terms of which are disclosed to
and approved by stockholders.
The Compensation Committee has considered the tax deductibility of
compensation awarded under the Long-Term Incentive Plan and the Annual Incentive
Plan in light of Section 162(m). A transition rule currently applies so that the
compensation attributable to options and stock appreciation rights granted, and
other compensation paid to the Chief Executive Officer, pursuant to the
Long-Term Incentive Plan and awards paid pursuant to the Annual Incentive Plan
prior to the Annual Meeting of Stockholders in 1999 will qualify as
"performance-based compensation." The Company structured and intends to
administer the stock option and stock appreciation right portions of the
Long-Term Incentive Plan with the intention that the resulting compensation
payable thereafter can qualify as "performance-based compensation" and would be
deductible. The Company has structured the Annual Incentive Plan with the
intention that awards payable thereafter to the Chief Executive Officer would
qualify as "performance-based compensation" and, if so qualified, would be
deductible. The Long-Term Incentive Plan and the Annual Incentive Plan are being
submitted to the Company's stockholders for approval at the Meeting. No
executive officer's compensation in 1997 exceeded $1 million. It is not expected
that any executive officer's compensation will be non-deductible in 1998 by
reason of the application of Section 162(m).
Respectfully submitted,
COMPENSATION COMMITTEE
Lynn Forester
J. Tracy O'Rourke
17
<PAGE>
PERFORMANCE GRAPH
The following graph compares the cumulative total return on $100 invested on
July 24, 1997 (the date the Common Stock was first publicly traded) in the
Common Stock, and on June 30, 1997 in the Standard and Poor's 500 Index and the
Standard & Poor's Communications Equipment Index. The return of the Standard &
Poor's indices is calculated assuming reinvestment of dividends. The Company has
not paid any dividends. The stock price performance shown on the graph below is
not necessarily indicative of future price performance.
COMPARISON OF FIVE MONTH CUMULATIVE TOTAL RETURN*
AMONG GENERAL INSTRUMENT CORPORATION, THE S&P 500
INDEX AND THE S&P COMMUNICATIONS EQUIPMENT INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DOLLARS
<S> <C> <C> <C>
GENERAL INSTRUMENT CORPORATION S&P 500 Index S&P COMMUNICATIONS EQUIPMENT Index
7/24/1997* 100 100 100
7/97 102 108 112
8/97 103 102 104
9/97 86 107 105
10/97 69 104 98
11/97 68 109 97
12/97 92 111 95
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN ($)
--------------------------------------------
<S> <C> <C> <C> <C> <C>
7/24/97* 7/97 8/97 9/97
----------- --- --- ---
GENERAL INSTRUMENT CORPORATION.................................. GIC 100 102 103 86
S&P 500 INDEX................................................... 1500 100 108 102 107
S&P COMMUNICATIONS EQUIPMENT INDEX.............................. ICME 100 112 104 105
<CAPTION>
<S> <C> <C> <C>
10/97 11/97 12/97
----- ----- -----
GENERAL INSTRUMENT CORPORATION.................................. 69 68 92
S&P 500 INDEX................................................... 104 109 111
S&P COMMUNICATIONS EQUIPMENT INDEX.............................. 98 97 95
</TABLE>
* $100 INVESTED ON 7/24/97 IN COMMON STOCK OR ON 6/30/97
IN THE INDICES, INCLUDING REINVESTMENT OF DIVIDENDS.
18
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
The table below sets forth information as to the beneficial ownership of
Common Stock as of the Meeting Record Date (except as otherwise noted) by all
directors and the persons listed in the Summary Compensation Table as well as by
directors and executive officers of the Company as a group and, to the best
knowledge of the Company's management, beneficial owners of 5% or more of the
outstanding Common Stock.
<TABLE>
<CAPTION>
SHARES OF COMMON % OF SHARES
STOCK OUTSTANDING (NET OF
BENEFICIALLY TREASURY SHARES)
NAME OWNED(1) BENEFICIALLY OWNED
- --------------------------------------------------------------------------- ---------------- ---------------------
<S> <C> <C>
Forstmann Little & Co. Subordinated Debt and Equity Management Buyout
Partnership--IV (2)...................................................... 10,161,657 6.8
Instrument Partners (2).................................................... 11,547,008 7.7
Brinson Partners, Inc. (3)................................................. 13,600,660 9.0
J.P. Morgan & Co. Incorporated (4)......................................... 7,950,102 5.3
Vanguard/Windsor Funds, Inc. (5)........................................... 14,570,000 9.7
Wellington Management Company, LLP (5)(6).................................. 14,571,200 9.7
Oppenheimer Capital (7).................................................... 13,437,513 8.9
Edward D. Breen (8)(18).................................................... 223,617 *
John Seely Brown (9)....................................................... 57,768 *
Charles T. Dickson (18).................................................... 9,936 *
Frank M. Drendel (10)...................................................... 256,707 *
Thomas A. Dumit (11)....................................................... 27,556 *
Lynn Forester (12)......................................................... 80,272 *
Nicholas C. Forstmann (2).................................................. 21,708,665 14.4
Theodore J. Forstmann (2).................................................. 21,708,665 14.4
Richard S. Friedland....................................................... -- --
Winston W. Hutchins (2).................................................... 21,708,665 14.4
Steven B. Klinsky (2)...................................................... 21,708,665 14.4
Wm. Brian Little (2)....................................................... 11,547,008 7.7
Alex J. Mandl (13)......................................................... 40,136 *
Eric M. Pillmore (14)(18).................................................. 39,991 *
Geoffrey S. Roman (15)(18)................................................. 133,194 *
J. Tracy O'Rourke (16)..................................................... 32,660 *
Richard C. Smith (17)(18).................................................. 143,859 *
John A. Sprague (2)........................................................ 11,547,008 7.7
All current directors and officers of the Company as a group
(15 persons) (2)(19)..................................................... 22,947,801 15.3
</TABLE>
- ------------------------
* The percentage of shares of Common Stock beneficially owned does not exceed
one percent of the outstanding shares of Common Stock.
(1) For purposes of this table, a person or group of persons is deemed to have
"beneficial ownership" of any shares of Common Stock which such person has
the right to acquire within 60 days following March 30, 1998. For purposes
of computing the percentage of outstanding shares of Common Stock held by
each person or group of persons named above, any security which such person
or persons has or have the right to acquire within 60 days following March
30, 1998 is deemed to be outstanding, but is not deemed to be outstanding
for the purpose of computing the percentage ownership of any other person.
The table does not include shares of Common Stock subject to options to be
awarded in the future under the Long-Term Incentive Plan.
19
<PAGE>
(2) The general partner of Instrument Partners, a New York limited partnership
("Instrument Partners"), is FLC XXII Partnership, a general partnership of
which Messrs. Wm. Brian Little, Nicholas C. Forstmann, John A. Sprague,
Steven B. Klinsky and Winston W. Hutchins, and TJ/JA L.P., a Delaware
limited partnership ("TJ/JA L.P."), are general partners. The general
partner of TJ/JA L.P. is Theodore J. Forstmann. The general partner of
Forstmann Little & Co. Subordinated Debt and Equity Management Buyout
Partnership--IV, a New York limited partnership ("MBO-IV"), is FLC
Partnership, L.P., a New York limited partnership of which Messrs. Theodore
J. Forstmann, Nicholas C. Forstmann, Steven B. Klinsky, Winston W. Hutchins,
Ms. Sandra J. Horbach and Mr. Thomas H. Lister are general partners.
Accordingly, each of such individuals and partnerships (other than Ms.
Horbach and Mr. Lister, for the reasons described below) may be deemed the
beneficial owners of shares owned by MBO-IV and Instrument Partners in which
such individual or partnership is a general partner and, for purposes of
this table, such beneficial ownership is included. Ms. Horbach and Mr.
Lister do not have any voting or investment power with respect to, or any
economic interest in, the shares of Common Stock held by MBO-IV; and,
accordingly Ms. Horbach and Mr. Lister are not deemed to be beneficial
owners thereof. Theodore J. Forstmann and Nicholas C. Forstmann are
brothers. Mr. Little is a special limited partner in FLC Partnership, L.P.
and each of FLC Partnership, L.P. and FLC XXII Partnership is a limited
partner of Instrument Partners. None of the other limited partners in each
of MBO-IV and Instrument Partners is otherwise affiliated with the Company,
GI Delaware or Forstmann Little. The address of MBO-IV and Instrument
Partners is c/o Forstmann Little & Co., 767 Fifth Avenue, New York, New York
10153.
(3) This information is obtained from a Schedule 13G, dated February 11, 1998,
filed with the Commission by Brinson Partners, Inc. ("BPI") on behalf of
itself, Brinson Holdings, Inc. ("BHI"), SBC Holding (USA), Inc. ("SBUSA")
and Swiss Bank Corporation ("SBC"). The Schedule 13G states that BPI is a
registered investment adviser and each of BHI, SBUSA and SBC is a parent
holding company. BPI reports beneficial ownership of 13,539,962 shares of
Common Stock and claims shared voting power and shared dispositive power
with respect to all of such shares. BHI reports beneficial ownership of
13,539,962 shares of Common Stock and claims shared voting power and shared
dispositive power with respect to all of such shares. SBUSA reports
beneficial ownership of 13,600,660 shares of Common Stock and claims shared
voting power and shared dispositive power with respect to all of such
shares. SBC reports beneficial ownership of 13,600,660 shares of Common
Stock and claims shared voting power and shared dispositive power with
respect to all of such shares. Each of BPI and BHI's principal business
office is located at 209 South LaSalle, Chicago, Illinois 60604-1295.
SBUSA's principal business office is located at 222 Broadway, New York, New
York 10038. SBC's principal business office is located at Aeschenplatz 6,
CH-4002, Basel, Switzerland.
(4) This information is obtained from a Schedule 13G, filed with the Commission
on February 17, 1998 by J.P. Morgan & Co., Incorporated ("J.P. Morgan").
J.P. Morgan reports beneficial ownership of 7,950,102 shares of Common Stock
and claims sole voting power with respect to 6,301,967 shares, shared voting
power with respect to 1,300 shares, sole dispositive power with respect to
7,917,702 shares and shared dispositive power with respect to 32,300 shares.
J.P. Morgan's principal business office is located at 60 Wall Street, New
York, New York 10260.
(5) This information is obtained from a Schedule 13G, dated February 9, 1998,
filed with the Commission by Vanguard/Windsor Funds, Inc. -- Windsor Fund
("Vanguard"), in its capacity as an investment company registered under
Section 8 of the Investment Company Act of 1940, as amended. Vanguard
reports beneficial ownership of 14,570,000 shares of Common Stock and claims
sole voting power and shared dispositive power with respect to all of such
shares. Vanguard's principal business office is located at 100 Vanguard
Building, P.O. Box 2600, Malvern, Pennsylvania 19355.
(6) This information is obtained from a Schedule 13G, dated January 14, 1998,
filed with the Commission by Wellington Management Company, LLP
("Wellington"), in its capacity as an investment adviser registered under
Section 203 of the Investment Advisers Act of 1940, as amended (the
"Investment
20
<PAGE>
Advisers Act"). Wellington reports beneficial ownership of 14,571,200 shares
of Common Stock and claims shared voting power with respect to 1,200 shares
of Common Stock and shared dispositive power with respect to 14,571,200
shares of Common Stock owned by clients of Wellington, including Vanguard.
Wellington's principal business office is located at 75 State Street,
Boston, Massachusetts 02109.
(7) This information is obtained from a Schedule 13G, dated February 27, 1998,
filed with the Commission by Oppenheimer Capital ("Oppenheimer"), in its
capacity as an investment adviser registered under Section 203 of the
Investment Advisers Act. Oppenheimer reports beneficial ownership of
13,437,513 shares of Common Stock and claims shared voting power and shared
dispositive power with respect to all of such shares. The Schedule 13G
states that Oppenheimer has the sole power to dispose of the shares and to
vote the shares under its written guidelines established by its Management
Board. Oppenheimer's principal business office is located at Oppenheimer
Tower, World Financial Center, New York, New York 10281.
(8) Includes 220,876 shares subject to options which are exercisable for Common
Stock currently or within 60 days of March 30, 1998.
(9) Includes 55,768 shares subject to options which are exercisable for Common
Stock currently or within 60 days of March 30, 1998.
(10) Includes 669 shares of Common Stock which were held by the trustee of the
CommScope Savings Plan and were allocated to the account of Frank M. Drendel
under the CommScope Savings Plan as of March 20, 1998.
(11) Represents shares of Common Stock held by Barbara K. Dumit, the spouse of
Thomas A. Dumit, as to which shares Mr. Dumit disclaims beneficial
ownership.
(12) Includes 78,272 shares subject to options which are exercisable for Common
Stock currently or within 60 days of March 30, 1998.
(13) Includes 39,136 shares subject to options which are exercisable for Common
Stock currently or within 60 days of March 30, 1998.
(14) Includes 39,136 shares subject to options which are exercisable for Common
Stock currently or within 60 days of March 30, 1998.
(15) Includes 131,159 shares subject to options which are exercisable for Common
Stock currently or within 60 days of March 30, 1998.
(16) Includes 29,660 shares subject to options which are exercisable for Common
Stock currently or within 60 days of March 30, 1998.
(17) Includes 109,582 shares subject to options which are exercisable for Common
Stock currently or within 60 days of March 30, 1998.
(18) Includes the number of shares of Common Stock which were held by the
trustee of the Savings Plan and were allocated to the individual's
respective account under the Savings Plan as of March 20, 1998 as follows:
Edward D. Breen, 2,741 shares; Charles T. Dickson, 1,736 shares; Eric M.
Pillmore, 855 shares; Geoffrey S. Roman, 1,035 shares; and Richard C. Smith,
4,277 shares.
(19) Includes 915,671 shares subject to options which are exercisable for Common
Stock currently or within 60 days of March 30, 1998. Includes an aggregate
of 27,358 shares of Common Stock which were held by the trustee of the
Savings Plan and were allocated to the current officers' respective accounts
under the Savings Plan as of March 20, 1998. Also includes 669 shares of
Common Stock which were held by the trustee of the CommScope Savings Plan
and were allocated to the account of Frank M. Drendel under the CommScope
Savings Plan as of March 20, 1998.
21
<PAGE>
PROPOSAL TWO: APPROVAL OF LONG-TERM INCENTIVE PLAN
GENERAL
The Long-Term Incentive Plan was approved by the Company's Board of
Directors, and GI Delaware, as sole stockholder of the Company, prior to the
Spin-off. It was subsequently amended and restated to reflect the change in the
Company's corporate name to General Instrument Corporation. The Long-Term
Incentive Plan provides for the granting of options, stock appreciation rights,
restricted stock, performance units, performance shares and phantom stock to
employees of the Company and its subsidiaries and granting of options and shares
of Common Stock to non-employee directors of the Company.
The Board of Directors is submitting the Long-Term Incentive Plan for
stockholder approval. Stockholder approval is being sought so that the
compensation attributable to options and certain other awards granted may
qualify as "performance-based compensation" for purposes of Section 162(m). (See
"Certain Federal Income Tax Consequences Relating to Awards Under the Long-Term
Incentive Plan," below.)
Following is a description of the terms which are subject to stockholder
approval and a summary of the material terms of the Long-Term Incentive Plan.
This summary, however, does not purport to be complete and is qualified in its
entirety by reference to the Long-Term Incentive Plan which has been included as
Annex A to this Proxy Statement. All capitalized terms used below, and not
otherwise defined herein, have the meanings set forth in the Long-Term Incentive
Plan, unless otherwise indicated.
PURPOSE OF THE LONG-TERM INCENTIVE PLAN
The Company's Board of Directors believes that the Awards provide a means by
which key employees and directors of the Company and its Subsidiaries can
acquire and maintain stock ownership, thereby strengthening their commitment to
the success of the Company and its Subsidiaries and their desire to remain
employed by the Company and its Subsidiaries, focusing their attention on
managing the Company as an equity owner, and aligning their interests with those
of the Company's stockholders. The Long-Term Incentive Plan also is intended to
attract and retain key employees and to provide those employees with additional
incentive and reward opportunities designed to encourage them to enhance the
profitable growth of the Company and its Subsidiaries.
DESCRIPTION OF THE LONG-TERM INCENTIVE PLAN
ADMINISTRATION. The Long-Term Incentive Plan is administered by a Committee
consisting of at least two directors of the Company who are "non-employee
directors" within the meaning of Rule 16b-3 promulgated under Section 16(b) of
the Exchange Act, but the number of directors on the Committee may be changed in
accordance with law. In addition, with respect to Awards to be granted to
participants who are not subject to Section 16 of the Exchange Act, the
authority of the Committee may be exercised by the full Board of Directors or by
a committee, consisting of at least one individual, appointed by the Board of
Directors. The Committee (i) selects those employees to whom Awards will be
granted, and (ii) determines the type, size and terms and conditions of Awards,
including the per share purchase price of restricted stock and options, the
vesting provisions of restricted stock, phantom stock and options, and the
restrictions or performance criteria relating to restricted stock, phantom
stock, performance units and performance shares. The Committee also construes
and interprets the Long-Term Incentive Plan. The Committee has the authority to
cancel outstanding Awards and make adjustments to outstanding Awards with the
consent of the Grantee and to accelerate the exercisability of Awards or to
waive the restrictions and conditions applicable to Awards.
SHARES. The maximum number of shares of Common Stock that may be made the
subject of Awards granted under the Long-Term Incentive Plan is 6,500,000 plus
the shares covered by Substitute Options or Spin-off Options. In the event of
any Change in Capitalization, however, the Committee may adjust the
22
<PAGE>
maximum number and class of shares with respect to which Awards may be granted,
the number and class of shares which are subject to outstanding Awards and the
purchase price therefor. In addition, if any Award expires or terminates without
having been exercised, the shares of Common Stock subject to the Award again
become available for grant under the Long-Term Incentive Plan. The maximum
number of shares of Common Stock with respect to which options and stock
appreciation rights may be granted to any individual over the term of the plan
is 1,300,000, in addition to any shares covered by Substitute Options held by
the individual. Of the total number of shares allotted under the Long-Term
Incentive Plan, not more than one-third may be used for restricted stock and
phantom stock Awards.
ELIGIBILITY. Any of the Company's and its Subsidiaries' approximately 7,350
employees and any of the Company's non-employee directors is eligible to
participate in the Long-Term Incentive Plan.
OPTIONS. Pursuant to the Long-Term Incentive Plan, the Committee will grant
to each non-employee director of the Company (other than a director who is a
general partner of any of the Forstmann Little Companies) Nonqualified Stock
Options ("NSOs") to purchase 20,000 shares of Common Stock in connection with
his or her initial election to the Board of Directors. The Long-Term Incentive
Plan also provides for additional awards of options in respect of 20,000 shares
of Common Stock on each third anniversary of each non-employee director's first
appointment to the Board of Directors, if such non-employee director is still
serving on the Board of Directors ("Automatic Director Options"). The per share
exercise price of the Automatic Director Options is equal to 100% of the Fair
Market Value of the shares of Common Stock on the Grant Date. Each Automatic
Director Option is exercisable with respect to one-third of the underlying
shares on each of the first, second and third anniversaries of the Grant Date.
If a director ceases to serve as a director of the Company for any reason, the
Automatic Director Option is exercisable, during its remaining term, to the
extent that it was exercisable on the date the director ceased to serve as a
director.
In addition, the Committee may grant NSOs and Incentive Stock Options
("ISOs") to any eligible employee of the Company or its Subsidiaries. The per
share exercise price of the options is fixed by the Committee when the options
are granted and must be at least 100% of the Fair Market Value of the Common
Stock on the Option Grant Date (110% in the case of an ISO granted to a 10%
Owner).
Each option (other than Automatic Director Options) will be exercisable at
the times and in the installments determined by the Committee, commencing not
earlier than the first anniversary of the Option Grant Date. All outstanding
options will become fully exercisable upon a Change of Control. A "Change of
Control" under the Long-Term Incentive Plan means, generally: (i) the
acquisition by any person, other than the Forstmann Little Companies, of (A)
beneficial ownership of voting securities resulting in such person beneficially
owning 33% or more of the combined voting power of the Company's then
outstanding voting securities, and (B) a number of voting securities greater
than the aggregate number then beneficially owned by the Forstmann Little
Companies; (ii) the individuals who, as of the adoption of the Long-Term
Incentive Plan, are members of the Board of Directors (the "Incumbent Board")
cease for any reason to constitute at least two-thirds of the Board; or (iii)
approval by stockholders of the Company of: (A) a merger, consolidation or
reorganization involving the Company unless: (1) the stockholders of the
Company, immediately before such merger, consolidation or reorganization own,
following such merger, consolidation or reorganization, at least a majority of
the combined voting power of the outstanding voting securities of the
corporation resulting from such merger, consolidation or reorganization in
substantially the same proportion as before the merger, consolidation or
reorganization; and (2) the members of the Incumbent Board immediately prior to
the merger, consolidation or reorganization constitute at least a majority of
the Board of the surviving corporation; and (3) no person has beneficial
ownership of 33% or more of the combined voting power of the surviving
corporation's then outstanding voting securities; (B) a complete liquidation or
dissolution of the Company; or (C) the disposition of all or substantially all
of the assets of the Company.
23
<PAGE>
In addition, the Committee reserves the authority to accelerate the
exercisability of any option (other than Automatic Director Options). Each
option (other than Automatic Director Options) terminates at the time determined
by the Committee, except that the term of each option may not exceed, and in the
case of options granted to non-employee directors is, ten years (five years in
the case of an ISO granted to a 10% Owner). Options are not transferable by the
Grantee except by will or the laws of descent and distribution or, in the case
of an option other than an ISO, pursuant to a domestic relations order (within
the meaning of Rule 16a-12 promulgated under the Exchange Act) and may be
exercised during the Grantee's lifetime only by the Grantee or the Grantee's
guardian or legal representative. In the discretion of the Committee, the
purchase price for shares acquired pursuant to the exercise of an option may be
paid (i) in cash, (ii) by transferring shares of restricted or unrestricted
Common Stock to the Company, or (iii) by a combination of the foregoing.
STOCK APPRECIATION RIGHTS. The Long-Term Incentive Plan permits the
granting of stock appreciation rights to employees of the Company or a
Subsidiary in connection with an option or other Award or as a freestanding
right. A stock appreciation right permits the Grantee to receive, upon exercise
of the stock appreciation right, cash and/or shares, at the discretion of the
Committee, equal in value to the excess, if any, of the then per share Fair
Market Value over the per share Fair Market Value on the Grant Date of the stock
appreciation right, multiplied by the number of shares as to which the stock
appreciation right is being exercised. When a stock appreciation right is
granted, however, the Committee may establish a limit on the maximum amount the
Grantee may receive upon exercise of the stock appreciation right. The Committee
will decide, when each stock appreciation right is granted, the time or times
when the stock appreciation right will be exercisable, commencing not earlier
than the first anniversary of the Grant Date. However, the Committee reserves
the authority to thereafter accelerate the exercisability of any stock
appreciation right.
RESTRICTED STOCK. The Committee will determine, when each restricted stock
Award is made, the terms of the restricted stock Award, including the price, if
any, to be paid by the Grantee for the restricted stock, the restrictions placed
on the shares and the time or times when the restrictions will lapse. In
addition, when the restricted stock is granted under the Long-Term Incentive
Plan, the Committee may, in its discretion, decide: (i) whether dividends paid
on the restricted stock will be remitted to the Grantee or deferred until the
restrictions on the restricted stock Award lapse, (ii) whether any deferred
dividends will be invested in additional shares of Common Stock, (iii) whether
interest will be accrued on any dividends not reinvested in additional shares of
restricted stock, (iv) whether any stock dividends paid on the restricted stock
Award will be subject to the restrictions applicable to the restricted stock
Award, and (v) whether, and to what extent, the restrictions on the restricted
stock shall lapse upon a Change of Control.
PERFORMANCE UNITS AND PERFORMANCE SHARES. Performance units and performance
shares will be awarded as the Committee may determine, and the vesting of
performance units and performance shares will be based upon the Company's
attainment of specified performance objectives within the Measuring Period.
Performance objectives and the length of the Measuring Period for performance
units and performance shares will be determined by the Committee when the Award
is made, but no Measuring Period will be less than one year nor more than five
years. In establishing performance goals, the Committee may consider such
performance factor or factors as it deems appropriate, including, without
limitation, net income, growth in net income, earnings per share, growth of
earnings per share, return on equity or return on capital. Prior to the end of a
Measuring Period, the Committee, in its discretion, may adjust the performance
objectives to reflect any Change in Capitalization or other event which may
materially affect the performance of the Company or any Subsidiary. The
agreements evidencing Awards of performance units and performance shares will
set forth the terms and conditions of the Awards, including those applicable in
the event of the Grantee's Termination of Employment or a Change of Control.
Performance units may be denominated in dollars or in shares of Common Stock,
and payments in respect of vested performance units will be made in cash or
shares of Common Stock or any
24
<PAGE>
combination of the foregoing, as determined by the Committee. Performance shares
are initially denominated in shares of Common Stock, but the Committee may
ultimately settle performance share Awards in cash, shares of Common Stock or a
combination thereof, at its discretion.
PHANTOM STOCK. The Committee may grant phantom stock to employees employed
outside the United States, subject to the terms and conditions established by
the Committee. Upon the vesting of a phantom stock Award, the Grantee will be
entitled to receive a cash payment in respect of each share of phantom stock
equal to the Fair Market Value of a share of Common Stock as of the date the
phantom stock Award was granted or such other date as determined by the
Committee when the phantom stock Award was granted. The Committee may, when a
phantom stock Award is granted, provide a limitation on the amount payable in
respect of each share of phantom stock.
TANDEM AWARDS. The Long-Term Incentive Plan provides that the Committee may
grant any Award in tandem with another Award. Unless otherwise provided by the
Committee, upon the exercise, payment or forfeiture of one tandem Award, the
related tandem Award will be canceled to the extent of the number of shares as
to which the tandem Award is so exercised, paid or forfeited.
AMENDMENT AND TERMINATION. The Long-Term Incentive Plan will terminate on
the tenth anniversary of its adoption, in 2007. However, the Board of Directors
may sooner terminate or amend the Long-Term Incentive Plan at any time without
stockholder approval, except where stockholder approval is required to retain
the favorable tax treatment of ISOs under the Code, to qualify the shares
offered under the Long-Term Incentive Plan for listing on any securities
exchange, or is otherwise required by law. The termination of the Long-Term
Incentive Plan will not affect then outstanding Awards.
SUBSTITUTE OPTIONS AND SPIN-OFF OPTIONS UNDER THE LONG-TERM INCENTIVE
PLAN. On August 1, 1997, Substitute Options were issued under the Long-Term
Incentive Plan to officers, key employees and non-employee directors of the
Company to replace options awarded under the Distributing Company's 1993
Long-Term Incentive Plan. In addition, certain retired directors of the
Distributing Company also received Spin-off Options under the Long-Term
Incentive Plan.
The terms and conditions of each Substitute Option and Spin-off Option
issued under the Long-Term Incentive Plan, including, without limitation, the
time or times when, and the manner in which each shall be exercisable, the
duration of the exercise period, the permitted method of exercise, settlement
and payment, and the rules that shall apply in the event of the termination of
employment, are the same as those of the surrendered Distributing Company
option; provided, however, that the number of shares covered thereby and the
exercise price thereof were adjusted so as to preserve the economic value of the
related Substitute Options.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES RELATING TO AWARDS UNDER THE LONG-TERM
INCENTIVE PLAN
INCENTIVE STOCK OPTION. In general, a Grantee will not recognize taxable
income upon the grant or exercise of an ISO, and the Company and its
Subsidiaries will not be entitled to any business expense deduction with respect
to the grant or exercise of an ISO. (However, upon the exercise of an ISO, the
excess of the Fair Market Value on the date of exercise of the shares received
over the exercise price of the option will be treated as an adjustment to
alternative minimum taxable income.) In order for the exercise of an ISO to
qualify as an ISO, a Grantee generally must be an employee of the Company or a
Subsidiary (within the meaning of Section 422 of the Code) from the date the ISO
is granted through the date three months before the date of exercise (one year
preceding the date of exercise in the case of a Grantee whose employment is
terminated due to disability). The employment requirement does not apply where a
Grantee's employment is terminated due to his or her death.
If a Grantee has held the shares acquired upon exercise of an ISO for at
least two years after the date of grant and for at least one year after the date
of exercise, when the Grantee disposes of the shares, the difference, if any,
between the sales price of the shares and the exercise price of the option will
be treated
25
<PAGE>
as long-term capital gain or loss subject to reduced rates of tax, provided that
any gain will be subject to further reduced rates of tax if shares are held for
more than eighteen months after the date of exercise. If a Grantee disposes of
the shares prior to satisfying these holding period requirements (a
"Disqualifying Disposition"), the Grantee will recognize ordinary income
(treated as compensation) at the time of the Disqualifying Disposition,
generally in an amount equal to the excess of the Fair Market Value of the
shares at the time the option was exercised over the exercise price of the
option. The balance of the gain realized, if any, will be short-term or
long-term capital gain, depending upon whether the shares have been held for at
least twelve months after the date of exercise, with the lowest capital gain
rates available if shares are held for more than eighteen months after the date
of exercise. If the Grantee sells the shares in a Disqualifying Disposition at a
price below the Fair Market Value of the shares at the time the option was
exercised, the amount of ordinary income (treated as compensation) will be
limited to the amount realized on the sale over the exercise price of the
option. In general, if a company and its subsidiaries comply with applicable
income reporting requirements, the company and its subsidiaries will be allowed
a business expense deduction to the extent a Grantee recognizes ordinary income.
NONQUALIFIED STOCK OPTION. In general, a Grantee who receives an NSO will
recognize no income at the time of the grant of the option. In general, upon
exercise of an NSO, a Grantee will recognize ordinary income (treated as
compensation) in an amount equal to the excess of the Fair Market Value of the
shares on the date of exercise over the exercise price of the option. The basis
in shares acquired upon exercise of an NSO will equal the Fair Market Value of
such shares at the time of exercise, and the holding period of the shares (for
capital gain purposes) will begin on the date of exercise. In general, if the
Company and its Subsidiaries comply with applicable income reporting
requirements, they will be entitled to a business expense deduction in the same
amount and at the same time as the Grantee recognizes ordinary income. In the
event of a sale of the shares received upon the exercise of an NSO, any
appreciation or depreciation after the exercise date generally will be taxed as
capital gain or loss, provided that any gain will be subject to reduced rates of
tax if the shares were held for more than twelve months and will be subject to
further reduced rates if the shares were held for more than eighteen months.
Special rules may apply with respect to persons who may be subject to Section
16(b) of the Exchange Act.
EXCISE TAXES. Under certain circumstances, the accelerated vesting or
exercise of options in connection with a Change of Control might be deemed an
"excess parachute payment" for purposes of the golden parachute tax provisions
of Section 280G of the Code. To the extent it is so considered, a Grantee may be
subject to a 20% excise tax and the Company and its Subsidiaries may be denied a
tax deduction.
SECTION 162(M). Section 162(m) generally disallows a federal income tax
deduction to any publicly-held corporation for compensation paid in excess of $1
million in any taxable year to the chief executive officer or any of the four
other most highly compensated executive officers who are employed by the Company
on the last day of the taxable year, but does not disallow a deduction for
qualified "performance-based compensation," the material terms of which are
disclosed to and approved by stockholders. A transition rule currently applies
so that the compensation attributable to options, stock appreciation rights
granted, and other compensation paid, pursuant to the Long-Term Incentive Plan
prior to the Annual Meeting of Stockholders in 1999 will qualify as
"performance-based compensation." The Company has structured the Long-Term
Incentive Plan with the intention that compensation resulting from awards of
options, and stock appreciation rights granted can qualify as "performance-based
compensation" and, if so qualified, would be deductible. To qualify, the Company
is seeking stockholder approval of the Long-Term Incentive Plan.
The Long-Term Incentive Plan requires approval by the affirmative vote of a
majority of the votes cast at the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL TWO TO APPROVE THE
LONG-TERM INCENTIVE PLAN. PROXIES WILL BE VOTED FOR APPROVAL OF THE LONG-TERM
INCENTIVE PLAN UNLESS OTHERWISE SPECIFIED IN THE PROXY.
26
<PAGE>
PROPOSAL THREE: APPROVAL OF THE ANNUAL INCENTIVE PLAN
GENERAL
The Annual Incentive Plan was approved by the Company's Board of Directors
on February 18, 1998. The Annual Incentive Plan is intended to provide a means
of annually rewarding certain employees based on the performance of the Company.
The Annual Incentive Plan is designed to qualify the compensation payable to
the Chief Executive Officer under the Annual Incentive Plan as
"performance-based compensation," eligible for exclusion from the tax deduction
limitation of Section 162(m). (See "Certain Federal Income Tax Consequences,"
below.) To qualify for this exclusion, the Company is disclosing to stockholders
the material terms of the performance goals under the Annual Incentive Plan and
is seeking their approval. Certification by the Compensation Committee that the
performance goals and other material terms were in fact satisfied, will be a
condition to the payment of compensation to the Chief Executive Officer pursuant
to the Annual Incentive Plan.
The principal provisions of the Annual Incentive Plan are summarized below.
This summary, however, does not purport to be complete and is qualified in its
entirety by reference to the Annual Incentive Plan which has been included as
Annex B to this Proxy Statement. All capitalized terms used below, and not
otherwise defined herein, have the meanings set forth in the Annual Incentive
Plan, unless otherwise indicated.
ELIGIBILITY
Any of the Company's and its Subsidiaries' (provided the Board of Directors
approves each Subsidiary's participation) approximately 7,350 full-time
employees is eligible to participate in the Annual Incentive Plan. To be
eligible to receive an Award with respect to any Performance Period (generally
the Company's fiscal year) an employee must have had at least three months
active service during such Performance Period and (subject to limited
exceptions) be actively employed by the Company on the Award payment date.
PURPOSE
The purpose of the Annual Incentive Plan is to enhance the Company's ability
to attract, reward and retain employees, to strengthen employee commitment to
the success of the Company and to align their interests with those of the
Company's stockholders by providing additional variable compensation based on
the achievement of performance objectives to employees who do not participate in
a sales incentive plan or other similar plan of the Company. To this end, the
Annual Incentive Plan provides a means of annually rewarding Participants based
on the performance of the Company and its Business Units and, where appropriate,
on their own personal performance.
ADMINISTRATION
The Annual Incentive Plan will be administered by the Compensation Committee
with respect to Officers (including the Chief Executive Officer) who participate
in the Annual Incentive Plan and by the Chief Executive Officer with respect to
all other Participants. The Compensation Committee or the Chief Executive
Officer, as the case may be, has full authority to establish the rules and
regulations relating to the Annual Incentive Plan, to interpret the Annual
Incentive Plan and those rules and regulations, to select Participants in the
Annual Incentive Plan, to determine each Participant's Target Award Percentage,
to approve all the Awards, to decide the facts in any case arising under the
Annual Incentive Plan and to make all other determinations and to take all other
actions necessary or appropriate for the proper administration of the Annual
Incentive Plan, including the delegation of such authority or power, where
27
<PAGE>
appropriate. Only the Compensation Committee, however, has authority to amend or
terminate the Annual Incentive Plan.
DETERMINATION OF AWARDS
Prior to, or as soon as practicable following the beginning of the
Performance Period (in accordance with the applicable regulations under Section
162(m)), the Committee with respect to the Officers and the Chief Executive
Officer with respect to all other Employees shall determine the Officers and
Employees who shall be Participants during that Performance Period and determine
each Participant's Target Award Percentage. The Operational Targets of the Chief
Executive Officer for each Performance Period shall satisfy the requirements for
"qualified performance-based compensation" under Section 162(m).
Generally, a Participant earns an Award for a Performance Period based on
the Company's and his or her Business Unit's achievement of Operational Targets.
Operational Targets, for any Performance Period, shall mean the financial
performance of the Company or a Business Unit, as specified by the Committee or
the Chief Executive Officer, as applicable, as to stock price, earnings per
share, net earnings, operating income, return on assets, net capital employed,
shareholder return, return on equity, growth in assets, unit volume, sales,
market share, or strategic business criteria consisting of one or more Company
or Business Units' objectives based on meeting specified revenue goals, market
penetration goals, geographic business expansion goals, cost targets, customer
satisfaction goals, product development goals, or goals relating to acquisitions
or divestitures. The portion of Awards based on Company or Business Unit
performance, as applicable, will only be earned if the Company or Business Unit
achieves at least the minimum percentage of the Operational Target set for that
Performance Period. The Awards for any Performance Period may also be increased
above the Target Award Percentage for achievement in excess of the Operational
Targets for that Performance Period. The Awards of each Participant (other than
the Chief Executive Officer) may be adjusted by the Chief Executive Officer, or
with respect to Officers, by the Committee, (upward or downward) based upon the
Chief Executive Officer's or the Committee's, as applicable, determination of a
Participant's Personal Performance Percentage for that Performance Period. The
Committee is authorized to reduce the amount of the Award payable to the Chief
Executive Officer (but not by more than one-third) for any Performance Period
based upon its assessment of personal performance but not to increase the Award
beyond that yielded by the Operational Target Award earned for the Chief
Executive Officer.
The maximum Award any Participant (other than the Chief Executive Officer)
may receive for any Performance Period is 150% of the Participant's Base Salary
for that Performance Period. The maximum award the Chief Executive Officer may
receive for any Performance Period is $1.5 million.
CHANGES TO THE TARGET
The Chief Executive Officer, with respect to all Participants who are not
Officers, may at any time prior to the final determination of Awards change the
Target Award Percentage of any Participant or assign a different Target Award
Percentage to a Participant to reflect any change in the Participant's
responsibility level or position during the course of the Performance Period. In
addition, the Chief Executive Officer, with respect to all Participants who are
not Officers, and the Committee, with respect to Officers, but, with respect to
the Chief Executive Officer, only to the extent consistent with the requirements
of Section 162(m) permitting a federal income tax deduction for Awards to the
Chief Executive Officer, may at any time prior to the financial determination of
Awards change the performance measures or Operational Targets to reflect a
change in corporate capitalization, or a corporate transaction, or to equitably
reflect the occurrence of any extraordinary event or any change in applicable
accounting rules, the Company's method of accounting, the applicable law or any
change due to any changes in the Company's corporate structure or shares, or any
other change of a similar nature.
28
<PAGE>
PAYMENT OF AWARDS
The Committee shall certify and announce the Awards that will be paid to
each Officer as soon as practicable following the final determination of the
Company's financial results for the relevant Performance Period and payment will
normally be made, in a single lump sum cash payment within 120 days after the
close of the Performance Period. In the case of all other Participants, as soon
as practicable after the close of a Performance Period, the Chief Executive
Officer shall review the Business Units' financial performance against the
Operational Targets for that Performance Period and, generally each Award to the
extent earned will be paid in a single lump sum cash payment no later than March
31 following the close of the Performance Period.
CHANGE OF CONTROL
If a Change of Control (which definition is the same as that under the
Long-Term Incentive Plan) occurs prior to the end of a Performance Period, the
Company will, within 60 days thereafter, pay to each Participant in the Annual
Incentive Plan immediately prior to the Change of Control an Award which is
calculated assuming that the Operational Targets were achieved at the 100% level
(without regard to any other factors such as personal performance) and such
Award shall be based on Base Salary earned to the date of the Change of Control.
LIMITATION ON RIGHTS TO PAYMENT OF AWARDS
Except in connection with a Change of Control, in order to receive payment
of an Award, the Participant must remain in the employ of the Company through
the payment date of the Award. However, if the Participant has active service
with the Company for at least three months during any Performance Period, but,
prior to payment of the Award for such Performance Period, a Participant's
employment with the Company terminates due to the Participant's death,
disability or retirement, the Participant (or, in the event of the Participant's
death, the Participant's estate, beneficiary or beneficiaries) will remain
eligible to receive a prorated portion of any earned Award, based on the number
of days that the Participant was actively employed and performed services during
the Performance Period.
AMENDMENT AND TERMINATION
The Compensation Committee may at any time amend (in whole or in part) the
Annual Incentive Plan unless the amendment adversely affects any Participant's
rights to or interest in an Award earned prior to the date of the amendment. The
Compensation Committee may terminate the Annual Incentive Plan (in whole or in
part) at any time.
NON-TRANSFERABILITY
Except in connection with the death of a Participant, a Participant's right
and interest under the Annual Incentive Plan may not be assigned or transferred.
Any attempted assignment or transfer will be null and void and will extinguish,
in the Company's sole discretion, the Company's obligation under the Annual
Incentive Plan to pay Awards with respect to the Participant.
UNFUNDED STATUS
The Annual Incentive Plan will be unfunded. The Company will not be required
to establish any special or separate fund, or to make any other segregation of
assets, to assure payment of Awards.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The amount of an Award under the Annual Incentive Plan generally will be
includible in income by the recipient and deductible by the Company (subject to
any deduction limitation under Section 162(m)).
29
<PAGE>
The Company has structured the annual cash bonus to the Chief Executive Officer
pursuant to the Annual Incentive Plan with the intention that compensation
resulting therefrom (other than in connection with a Change of Control of the
Company) would be qualified "performance-based compensation" under Section
162(m) and would be deductible. To qualify, the Company is seeking stockholder
approval of the Annual Incentive Plan.
Under certain circumstances, the payment of an Award under the Annual
Incentive Plan in connection with a Change of Control of the Company might be
deemed an "excess parachute payment" for purposes of the golden parachute tax
provisions of Section 280G of the Code. To the extent it is so considered, the
Participant may be subject to a 20% excise tax and the Company may be denied a
tax deduction.
The Annual Incentive Plan requires approval by the affirmative vote of a
majority of the votes cast at the Meeting.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR PROPOSAL THREE.
PROXIES WILL BE VOTED FOR APPROVAL OF THE ANNUAL INCENTIVE PLAN UNLESS OTHERWISE
SPECIFIED IN THE PROXY.
AWARDS MADE UNDER THE LONG-TERM INCENTIVE PLAN
AND THE ANNUAL INCENTIVE PLAN
Grants under the Long-Term Incentive Plan are made at the discretion of the
Compensation Committee; and, accordingly, future grants under the Long-Term
Incentive Plan are not yet determinable. Future Awards under the Annual
Incentive Plan are not determinable because they depend upon certain unknown
factors, including the extent to which the Operational Targets (as defined in
the plan) for any Performance Period are achieved. The following table sets
forth information concerning (i) options granted under the Long-Term Incentive
Plan as of the date of this Proxy Statement and (ii) the amounts that would be
paid pursuant to the Annual Incentive Plan with respect to performance in 1998,
assuming the Operational Targets are achieved at the 100% level (without regard
to any other factors such as personal performance).
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
SHARES SUBJECT
TO OPTIONS ASSUMED
GRANTED UNDER AWARD
LONG-TERM UNDER ANNUAL
INCENTIVE PLAN INCENTIVE
NAME AND POSITION (#)(a) PLAN ($)
- ----------------------------------------------------------------------------------- -------------- -------------
<S> <C> <C>
Edward D. Breen.................................................................... 750,000 $ 350,000
Chairman of the Board and Chief Executive Officer
Richard C. Smith................................................................... 50,000 137,000
Vice President, Business Development and Treasurer
Geoffrey S. Roman.................................................................. 31,571 150,000
Vice President
Eric M. Pillmore................................................................... 69,284 112,500
Vice President, Finance and
Acting Chief Financial Officer
Thomas S. Dumit(b)................................................................. -- --
Former Vice President
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
SHARES SUBJECT
TO OPTIONS ASSUMED
GRANTED UNDER AWARD
LONG-TERM UNDER ANNUAL
INCENTIVE PLAN INCENTIVE
NAME AND POSITION (#)(a) PLAN ($)
- ----------------------------------------------------------------------------------- -------------- -------------
<S> <C> <C>
Richard S. Friedland(b)............................................................ -- --
Former Chairman and
Chief Executive Officer
Charles T. Dickson(b).............................................................. -- --
Former Vice President and
Chief Financial Officer
All current executive officers as a group (includes nine persons with respect to 1,078,260 1,167,750
the Annual Incentive Plan and nine persons with respect to the Long-Term
Incentive Plan, in each case, including the four current executive officers named
above)
All current directors (including nominees for director) who are not executive 100,000 --
officers as a group (six persons)
All employees (other than current executive officers) as a group who may be awarded 1,873,642 13,032,428
bonuses under the Annual Incentive Plan (approximately 7,200 persons) or were
granted options under the Long-Term Incentive Plan (approximately 1,902 persons)
</TABLE>
- ------------------------
(a) Represents options granted under the Long-Term Incentive Plan subsequent to
the Spin-off, which does not include Substitute Options or Spin-off Options.
(b) Messrs. Dumit, Friedland and Dickson are not eligible to receive any awards
under the Long-Term Incentive Plan or the Annual Incentive Plan because they
are no longer employed by the Company.
31
<PAGE>
PROPOSAL FOUR: RATIFICATION AND APPROVAL OF APPOINTMENT OF AUDITOR
The Board of Directors, based on the recommendation of the Audit Committee,
appointed the firm of Deloitte & Touche LLP as independent auditor to examine
the consolidated financial statements of the Company and its subsidiaries for
the 1998 fiscal year. The Board of Directors is asking the stockholders to
ratify and approve this action. Deloitte & Touche LLP has been the Company's
independent auditor since July 1997, and was the independent auditor of the
Distributing Company from 1990 until the Spin-off. Representatives of the
auditing firm will be present at the Meeting and will be afforded the
opportunity, if they so desire, to make a statement or respond to appropriate
questions that may come before the Meeting.
Although such ratification is not required by law, the Board of Directors
believes that stockholders should be given the opportunity to express their
views on the subject. While not binding on the Board of Directors, the failure
of the stockholders to ratify the appointment of Deloitte & Touche LLP as the
Company's independent auditor would be considered by the Board of Directors in
determining whether to continue with the services of Deloitte & Touche LLP.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR PROPOSAL FOUR TO
RATIFY THE APPOINTMENT BY THE BOARD OF DIRECTORS OF THE COMPANY OF DELOITTE &
TOUCHE LLP AS INDEPENDENT AUDITOR FOR THE COMPANY FOR THE 1998 FISCAL YEAR.
PROXIES WILL BE VOTED FOR PROPOSAL FOUR UNLESS OTHERWISE SPECIFIED IN THE PROXY.
STOCKHOLDER PROPOSALS FOR THE COMPANY'S
1999 ANNUAL MEETING OF STOCKHOLDERS
Stockholders who intend to present proposals at the 1999 Annual Meeting of
Stockholders, and who wish to have such proposals included in the proxy
statement for such meeting, must submit such proposals in writing by notice
delivered or mailed by first-class United States mail, postage prepaid, to the
Secretary, General Instrument Corporation, 101 Tournament Drive, Horsham,
Pennsylvania 19044, and such notice must be received no later than December 8,
1998. Such proposals must meet the requirements set forth in the rules and
regulations of the Commission in order to be eligible for inclusion in the
Company's proxy statement for its 1999 Annual Meeting of Stockholders.
SOLICITATION OF PROXIES
Proxies will be solicited by mail, telephone, or other means of
communication. Solicitation of proxies also may be made by directors, officers
and regular employees of the Company. The Company has retained Morrow & Co. to
assist in the solicitation of proxies from stockholders for a fee of $6,500 plus
reimbursement of certain out-of-pocket expenses. The Company will reimburse
brokerage firms, custodians, nominees and fiduciaries, in accordance with the
rules of the NYSE, for reasonable expenses incurred by them in forwarding
materials to the beneficial owners of shares. The entire cost of solicitations
will be borne by the Company.
32
<PAGE>
OTHER MATTERS
The Company knows of no other matter to be brought before the Meeting. If
any other matter requiring a vote of the shares should come before the Meeting,
it is the intention of the persons named in the proxy to vote with respect to
any such matter in accordance with their best judgment.
The Company will furnish, without charge, to each person whose proxy is
being solicited upon written request, a copy of its Annual Report on Form 10-K
for the fiscal year ended December 31, 1997, as filed with the Commission
(excluding exhibits). Copies of any exhibits thereto also will be furnished upon
the payment of a reasonable duplicating charge. Requests in writing for copies
of any such materials should be directed to: Secretary, General Instrument
Corporation, 101 Tournament Drive, Horsham, PA 19044.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ ROBERT A. SCOTT
ROBERT A. SCOTT
SECRETARY
Horsham, Pennsylvania
April 7, 1998
33
<PAGE>
ANNEX A
GENERAL INSTRUMENT CORPORATION
AMENDED AND RESTATED
1997 LONG-TERM INCENTIVE PLAN
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<C> <S> <C>
1. Establishment, Purpose and Effective Date........................................................... A-3
(a) Establishment................................................................................... A-3
(b) Purpose......................................................................................... A-3
(c) Effective Date.................................................................................. A-3
2. Definitions......................................................................................... A-3
3. Scope of the Plan................................................................................... A-6
(a) Number of Shares Available Under the Plan....................................................... A-6
(b) Reduction in the Available Shares in Connection with Award Grants............................... A-7
(c) Effect of the Expiration or Termination of Awards............................................... A-7
(d) Maximum Number of Options and Stock Appreciation Rights to any Individual Grantee............... A-7
4. Administration...................................................................................... A-7
(a) Committee Administration........................................................................ A-7
(b) Board Reservation and Delegation................................................................ A-8
(c) Committee Authority............................................................................. A-8
(d) Committee Determinations Final.................................................................. A-8
5. Eligibility......................................................................................... A-9
6. Conditions to Grants................................................................................ A-9
(a) General Conditions.............................................................................. A-9
(b) Grant of Options and Option Price............................................................... A-9
(c) Grant of Incentive Stock Options................................................................ A-9
(d) Grant of Shares of Restricted Stock............................................................. A-10
(e) Grant of Stock Appreciation Rights.............................................................. A-12
(f) Grant of Performance Units and Performance Shares............................................... A-12
(g) Grant of Phantom Stock.......................................................................... A-12
(h) Grant of Director's Shares...................................................................... A-13
(i) Tandem Awards................................................................................... A-13
7. Non-transferability................................................................................. A-13
8. Exercise............................................................................................ A-13
(a) Exercise of Options............................................................................. A-13
(b) Exercise of Stock Appreciation Rights........................................................... A-14
(c) Exercise of Performance Units................................................................... A-14
(d) Payment of Performance Shares................................................................... A-15
(e) Payment of Phantom Stock Awards................................................................. A-15
(f) Exercise, Cancellation, Expiration or Forfeiture of Tandem Awards............................... A-15
9. Spin-off and Substitute Options..................................................................... A-16
10. Effect of Certain Transactions...................................................................... A-16
11. Mandatory Withholding Taxes......................................................................... A-16
12. Termination of Employment........................................................................... A-16
13. Securities Law Matters.............................................................................. A-16
14. No Funding Required................................................................................. A-17
15. No Employment Rights................................................................................ A-17
16. Rights as a Stockholder............................................................................. A-17
17. Nature of Payments.................................................................................. A-17
18. Non-Uniform Determinations.......................................................................... A-17
19. Adjustments......................................................................................... A-17
20. Amendment of the Plan............................................................................... A-18
21. Termination of the Plan............................................................................. A-18
22. No Illegal Transactions............................................................................. A-18
23. Governing Law....................................................................................... A-18
24. Severability........................................................................................ A-18
</TABLE>
A-2
<PAGE>
1. ESTABLISHMENT, PURPOSE AND EFFECTIVE DATE.
(A) ESTABLISHMENT. The Company hereby establishes the General Instrument
Corp. 1997 Long-Term Incentive Plan (as set forth herein and from time to time
amended, the "Plan").
(B) PURPOSE. The primary purpose of the Plan is to provide a means by which
key employees and directors of the Company and its Subsidiaries can acquire and
maintain stock ownership, thereby strengthening their commitment to the success
of the Company and its Subsidiaries and their desire to remain employed by the
Company and its Subsidiaries, focusing their attention on managing the Company
as an equity owner, and aligning their interests with those of the Company's
stockholders. The Plan also is intended to attract and retain key employees and
to provide such employees with additional incentive and reward opportunities
designed to encourage them to enhance the profitable growth of the Company and
its Subsidiaries.
(C) EFFECTIVE DATE. The Plan shall become effective upon its adoption by
the Board.
2. DEFINITIONS.
As used in the Plan, terms defined parenthetically immediately after their
use shall have the respective meanings provided by such definitions and the
terms set forth below shall have the following meanings (such meanings to be
equally applicable to both the singular and plural forms of the terms defined):
(a) "Award" means Options, shares of restricted Stock, stock appreciation
rights, performance units, performance shares or Director's Shares
granted under the Plan.
(b) "Award Agreement" means the written agreement by which an Award is
evidenced.
(c) "Beneficial Owner," "Beneficially Owned" and "Beneficially Owning" shall
have the meanings applicable under Rule 13d-3 promulgated under the 1934
Act.
(d) "Board" means the board of directors of the Company.
(e) "Change in Capitalization" means any increase or reduction in the number
of shares of Stock, or any change in the shares of Stock or exchange of
shares of Stock for a different number or kind of shares or other
securities by reason of a stock dividend, extraordinary dividend, stock
split, reverse stock split, share combination, reclassification,
recapitalization, merger, consolidation, spin-off, split-up,
reorganization, issuance of warrants or rights, liquidation, exchange of
shares, repurchase of shares, change in corporate structure, or similar
event, of or by the Company.
(f) "Change of Control" means, any of the following:
(i) the acquisition by any Person other than Instrument Partners or
Forstmann Little & Co. Subordinated Debt and Equity Management Buyout
Partnership-IV or any of their affiliates (collectively, the
"Forstmann Little Companies") of Beneficial Ownership of Voting
Securities which, when added to the Voting Securities then
Beneficially Owned by such Person, would result in such Person
Beneficially Owning (A) 33% or more of the combined Voting Power of
the Company's then outstanding Voting Securities and (B) a number of
Voting Securities greater than the aggregate number of Voting
Securities then Beneficially Owned by the Forstmann Little Companies;
PROVIDED, HOWEVER, that for purposes of this paragraph (i), a Person
shall not be deemed to have made an acquisition of Voting Securities
if such Person: (1) acquires Voting Securities as a result of a stock
split, stock dividend or other corporate restructuring in which all
stockholders of the class of such Voting Securities are treated on a
pro rata basis; (2) acquires the Voting Securities directly from the
Company; (3) becomes the Beneficial Owner of 33% or more of the
combined Voting Power of the Company's then outstanding Voting
Securities solely as a result of the acquisition of Voting Securities
by the Company or any Subsidiary which, by reducing the number of
Voting
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Securities outstanding, increases the proportional number of shares
Beneficially Owned by such Person, provided that if (x) a Person
would own at least such percentage as a result of the acquisition by
the Company or any Subsidiary and (y) after such acquisition by the
Company or any Subsidiary, such Person acquires Voting Securities,
then an acquisition of Voting Securities shall have occurred; (4) is
the Company or any corporation or other Person of which a majority of
its voting power or its equity securities or equity interest is owned
directly or indirectly by the Company (a "Controlled Entity"); or (5)
acquires Voting Securities in connection with a "Non-Control
Transaction" (as defined in paragraph (iii) below); or
(ii) the individuals who, as of the Effective Date, are members of the
Board (the "Incumbent Board") cease for any reason to constitute at
least two-thirds of the Board; PROVIDED, HOWEVER, that if either the
election of any new director or the nomination for election of any
new director by the Company's stockholders was approved by a vote of
at least two-thirds of the Incumbent Board prior to such election or
nomination, such new director shall be considered as a member of the
Incumbent Board; PROVIDED FURTHER, HOWEVER, that no individual shall
be considered a member of the Incumbent Board if such individual
initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11
promulgated under the 1934 Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other
than the Board (a "Proxy Contest") including by reason of any
agreement intended to avoid or settle any Election Contest or Proxy
Contest; or
(iii) approval by stockholders of the Company of:
(A) a merger, consolidation or reorganization involving the Company
(a "Business Combination"), unless
(1) the stockholders of the Company, immediately before the
Business Combination, own, directly or indirectly immediately
following the Business Combination, at least a majority of
the combined voting power of the outstanding voting
securities of the corporation resulting from the Business
Combination (the "Surviving Corporation") in substantially
the same proportion as their ownership of the Voting
Securities immediately before the Business Combination, and
(2) the individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement providing
for the Business Combination constitute at least a majority
of the members of the Board of Directors of the Surviving
Corporation, and
(3) no Person (other than the Company or any Controlled Entity, a
trustee or other fiduciary holding securities under one or
more employee benefit plans or arrangements (or any trust
forming a part thereof) maintained by the Company, the
Surviving Corporation or any Controlled Entity, or any Person
who, immediately prior to the Business Combination, had
Beneficial Ownership of 33% or more of the then outstanding
Voting Securities) has Beneficial Ownership of 33% or more of
the combined voting power of the Surviving Corporation's then
outstanding voting securities (a Business Combination
satisfying the conditions of clauses (1), (2) and (3) of this
subparagraph (A) shall be referred to as a "Non-Control
Transaction");
(B) a complete liquidation or dissolution of the Company; or
(C) the sale or other disposition of all or substantially all of the
assets of the Company (other than a transfer to a Controlled
Entity).
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Notwithstanding the foregoing, a Change of Control shall not be deemed to
occur solely because 33% or more of the then outstanding Voting Securities is
Beneficially Owned by (x) a trustee or other fiduciary holding securities under
one or more employee benefit plans or arrangements (or any trust forming a part
thereof) maintained by the Company or any Controlled Entity or (y) any
corporation which, immediately prior to its acquisition of such interest, is
owned directly or indirectly by the stockholders of the Company in the same
proportion as their ownership of stock in the Company immediately prior to such
acquisition.
(g) "Committee" means the committee of the Board appointed pursuant to
Article 4.
(h) "Company" means General Instrument Corp., a Delaware corporation.
(i) "Director's Shares" means the shares of Stock awarded to a nonemployee
director of the Company pursuant to Article 6(h).
(j) "Disability" means a mental or physical condition which, in the opinion
of the Committee, renders a Grantee unable or incompetent to carry out
the job responsibilities which such Grantee held or the duties to which
such Grantee was assigned at the time the disability was incurred, and
which is expected to be permanent or for an indefinite duration.
(k) "Effective Date" means the date that the Plan is adopted by the Board.
(l) "Fair Market Value" of any security of the Company or any other issuer
means, as of any applicable date:
(i) if the security is listed for trading on the New York Stock
Exchange, the closing price, regular way, of the security as
reported on the New York Stock Exchange Composite Tape, or if
no such reported sale of the security shall have occurred on
such date, on the next preceding date on which there was such
a reported sale, or
(ii) if the security is not so listed, but is listed on another
national securities exchange or authorized for quotation on
the National Association of Securities Dealers Inc.'s NASDAQ
National Market System ("NASDAQ/NMS"), the closing price,
regular way, of the security on such exchange or NASDAQ/NMS,
as the case may be, or if no such reported sale of the
security shall have occurred on such date, on the next
preceding date on which there was such a reported sale, or
(iii) if the security is not listed for trading on a national
securities exchange or authorized for quotation on
NASDAQ/NMS, the average of the closing bid and asked prices
as reported by the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") or, if no such prices
shall have been so reported for such date, on the next
preceding date for which such prices were so reported, or
(iv) if the security is not listed for trading on a national
securities exchange or is not authorized for quotation on
NASDAQ/NMS or NASDAQ, the fair market value of the security
as determined in good faith by the Committee.
(m) "Grant Date" means the date of grant of an Award determined in
accordance with Article 6.
(n) "Grantee" means an individual who has been granted an Award.
(o) "Incentive Stock Option" means an Option satisfying the requirements of
Section 422 of the Internal Revenue Code and designated by the Committee
as an Incentive Stock Option.
(p) "Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, and regulations and rulings thereunder. References to a
particular Section of the Internal Revenue Code shall include references
to successor provisions.
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(q) "Measuring Period" has the meaning specified in Article 6(f)(ii)(B).
(r) "Minimum Consideration" means the $.0l par value per share of Stock or
such larger amount determined pursuant to resolution of the Board to be
capital within the meaning of Section 154 of the Delaware General
Corporation Law.
(s) "1934 Act" means the Securities Exchange Act of 1934, as amended.
(t) "Nonqualified Stock Option" means an Option which is not an Incentive
Stock Option or other type of statutory stock option under the Internal
Revenue Code.
(u) "Option" means an option to purchase Stock granted under the Plan.
(v) "Option Price" means the per share purchase price of (i) Stock subject
to an Option or (ii) restricted Stock subject to an Option.
(w) "Performance Percentage" has the meaning specified in Article
6(f)(ii)(C).
(x) "Person" means a person within the meaning of Sections 13(d) and 14(d)
of the 1934 Act.
(y) "Plan" has the meaning set forth in Article 1(a).
(z) "SEC" means the Securities and Exchange Commission.
(aa) "Section 16 Grantee" means a person subject to potential liability with
respect to equity securities of the Company under Section 16(b) of the
1934 Act.
(bb) "Spin-off Option" means an Option that has been issued under this Plan
to certain named persons pursuant to the Employee Benefits Allocation
Agreement between General Semiconductor, Inc. ("GS"), CommScope, Inc. and
the Company, dated June 25, 1997, as amended, modified, or otherwise
supplemented (the "Benefits Agreement").
(cc) "Stock" means common stock, par value $.01 per share, of the Company.
(dd) "Subsidiary" means a corporation as defined in Section 424(f) of the
Internal Revenue Code, with the Company being treated as the employer
corporation for purposes of this definition.
(ee) "Substitute Option" means an Option that has been issued under this
Plan to certain persons pursuant to the Benefits Agreement.
(ff) "10% Owner" means a person who owns stock (including stock treated as
owned under Section 424(d) of the Internal Revenue Code) possessing more
than 10% of the Voting Power of the Company.
(gg) "Termination of Employment" occurs the first day on which an individual
is for any reason no longer employed by the Company or any of its
Subsidiaries, or with respect to an individual who is an employee of a
Subsidiary, the first day on which the Company no longer owns Voting
Securities possessing at least 50% of the Voting Power of such
Subsidiary.
(hh) "Voting Power" means the combined voting power of the then outstanding
Voting Securities.
(ii) "Voting Securities" means, with respect to the Company or any
Subsidiary, any securities issued by the Company or such Subsidiary,
respectively, which generally entitle the holder thereof to vote for the
election of directors of the Company.
3. SCOPE OF THE PLAN
(A) NUMBER OF SHARES AVAILABLE UNDER THE PLAN. The maximum number of shares
of Stock that may be made the subject of Awards granted under the Plan is
6,500,000 plus the number of shares of Stock that are covered by Substitute
Options and Spin-off Options (or the number and kind of shares of Stock or
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other securities to which such shares of Stock are adjusted upon a Change in
Capitalization pursuant to Article 18); PROVIDED, HOWEVER, that, in the
aggregate, not more than one-third of the number of allotted shares may be made
the subject of restricted Stock and phantom stock Awards under the Plan. The
Company shall reserve for the purpose of the Plan, out of its authorized but
unissued shares of Stock or out of shares held in the Company's treasury, or
partly out of each, such number of shares as shall be determined by the Board.
The Board shall have the authority to cause the Company to purchase from time to
time shares of Stock to be held as treasury shares and used for or in connection
with Awards. The issuance of Substitute Options and Spin-off Options shall not
reduce the shares available for grants under the Plan or to a Grantee in any
calendar year.
(B) REDUCTION IN THE AVAILABLE SHARES IN CONNECTION WITH AWARD GRANTS. Upon
the grant of an Award, the number of shares of Stock available under Article
3(a) for the granting of further Awards shall be reduced as follows:
(i) PERFORMANCE UNITS DENOMINATED IN DOLLARS. In connection with the
granting of each performance unit denominated in dollars, the number of
shares of Stock available under Article 3(a) for the granting of further
Awards shall be reduced by the quotient of (x) the dollar amount represented
by the performance unit divided by (y) the Fair Market Value of a share of
Stock on the date immediately preceding the Grant Date of the performance
unit.
(ii) OTHER AWARDS. In connection with the granting of each Award, other
than a performance unit denominated in dollars, the number of shares of
Stock available under Article 3(a) for the granting of further Awards shall
be reduced by a number of shares equal to the number of shares of Stock in
respect of which the Award is granted or denominated.
Notwithstanding the foregoing, where two or more Awards are granted with
respect to the same shares of Stock, such shares shall be taken into account
only once for purposes of this Article 3(b).
(C) EFFECT OF THE EXPIRATION OR TERMINATION OF AWARDS. If and to the extent
an Award (other than a Substitute Option or a Spin-off Option) expires,
terminates or is canceled or forfeited for any reason without having been
exercised in full (including, without limitation, a cancellation of an Option
pursuant to Article 4(c)(vi)), the shares of Stock associated with the expired,
terminated, canceled or forfeited portion of the Award (to the extent the number
of shares available for the granting of Awards was reduced pursuant to Article
3(b)) shall again become available for Awards under the Plan.
Notwithstanding anything contained in this Article 3, the number of shares
of Stock available for Awards at any time under the Plan shall be reduced to
such lesser amount as may be required pursuant to the methods of calculation
necessary so that the exemptions provided pursuant to Rule 16b-3 under the 1934
Act will continue to be available for transactions involving all current and
future Awards. In addition, during the period that any Awards remain outstanding
under the Plan, the Committee may make good faith adjustments with respect to
the number of shares of Stock attributable to such Awards for purposes of
calculating the maximum number of shares available for the granting of future
Awards under the Plan, provided that following such adjustments the exemptions
provided pursuant to Rule 16b-3 under the 1934 Act will continue to be available
for transactions involving all current and future Awards.
(D) MAXIMUM NUMBER OF OPTIONS AND STOCK APPRECIATION RIGHTS TO ANY
INDIVIDUAL GRANTEE. No individual Grantee may be granted Options and stock
appreciation rights in respect of more than one-fifth of the maximum number of
shares of Stock that may be made the subject of Awards under the Plan as set
forth in Article 3(a); PROVIDED, HOWEVER, that for this purpose the maximum
number of shares of Stock shall not include any shares of Stock that are the
subject of Substitute Options and Spin-off Options.
4. ADMINISTRATION.
(A) COMMITTEE ADMINISTRATION. Subject to Article 4(b), the Plan shall be
administered by the Committee, which shall consist of not less than two
"non-employee directors" within the meaning of Rule 16b-3,
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and to the extent necessary for any Award intended to qualify as
performance-based compensation under Section 162(m) of the Internal Revenue Code
to so qualify, each member of the Committee shall be an "outside director"
within the meaning of Section 162(m) of the Internal Revenue Code.
(B) BOARD RESERVATION AND DELEGATION. The Board may, in its discretion,
reserve to itself or exercise any or all of the authority and responsibility of
the Committee hereunder. It may also delegate to another committee of the Board
any or all of the authority and responsibility of the Committee with respect to
Awards to Grantees who are not Section 16 Grantees at the time any such
delegated authority or responsibility is exercised. Such other committee may
consist of one or more directors who may, but need not be, officers or employees
of the Company or of any of its Subsidiaries. To the extent that the Board has
reserved to itself, or exercised the authority and responsibility of the
Committee, or delegated the authority and responsibility of the Committee to
such other committee, all references to the Committee in the Plan shall be to
the Board or to such other committee.
(C) COMMITTEE AUTHORITY. The Committee shall have full and final authority,
in its discretion, but subject to the express provisions of the Plan, as
follows:
(i) to grant Awards,
(ii) to determine (A) when Awards may be granted, and (B) whether or not
specific Awards shall be identified with other specific Awards, and if so,
whether they shall be exercisable cumulatively with, or alternatively to,
such other specific Awards,
(iii) to issue Substitute Options and Spin-off Options,
(iv) to interpret the Plan and to make all determinations necessary or
advisable for the administration of the Plan,
(v) to prescribe, amend, and rescind rules and regulations relating to
the Plan, including, without limitation, rules with respect to the
exercisability and nonforfeitability of Awards upon the Termination of
Employment of a Grantee,
(vi) to determine the terms and provisions of the Award Agreements,
which need not be identical and, with the consent of the Grantee, to modify
any such Award Agreement at any time,
(vii) to cancel, with the consent of the Grantee, outstanding Awards,
(viii) to accelerate the exercisability of, and to accelerate or waive any
or all of the restrictions and conditions applicable to, any Award,
(ix) to make such adjustments or modifications to Awards to Grantees
working outside the United States as are necessary and advisable to fulfill
the purposes of the Plan,
(x) to authorize any action of or make any determination by the Company
as the Committee shall deem necessary or advisable for carrying out the
purposes of the Plan, and
(xi) to impose such additional conditions, restrictions, and limitations
upon the grant, exercise or retention of Awards as the Committee may, before
or concurrently with the grant thereof, deem appropriate, including, without
limitation, requiring simultaneous exercise of related identified Awards,
and limiting the percentage of Awards which may from time to time be
exercised by a Grantee.
(D) COMMITTEE DETERMINATIONS FINAL. The determination of the Committee on
all matters relating to the Plan or any Award Agreement shall be conclusive and
final. No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Award.
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5. ELIGIBILITY
Awards may be granted to any employee of the Company or any of its
Subsidiaries. In selecting the individuals to whom Awards may be granted, as
well as in determining the number of shares of Stock subject to, and the other
terms and conditions applicable to, each Award, the Committee shall take into
consideration such factors as it deems relevant in promoting the purposes of the
Plan. In addition, Nonqualified Stock Options will be granted to nonemployee
directors of the Company, as set forth in Article 6(b)(ii), and Director's
Shares will be issued to nonemployee directors of the Company pursuant to
Article 6(h).
6. CONDITIONS TO GRANTS
(A) GENERAL CONDITIONS
(i) The Grant Date of an Award shall be the date on which the Committee
grants the Award or such later date as specified in advance by the
Committee.
(ii) The term of each Award (subject to Article 6(c) with respect to
Incentive Stock Options) shall be a period of not more than ten years from
the Grant Date, and shall be subject to earlier termination as provided
herein or in the applicable Award Agreement.
(iii) A Grantee may, if otherwise eligible, be granted additional Awards
in any combination.
(iv) The Committee may grant Awards with terms and conditions which
differ among the Grantees thereof. To the extent not set forth in the Plan,
the terms and conditions of each Award shall be set forth in an Award
Agreement.
(B) GRANT OF OPTIONS AND OPTION PRICE. The Committee may, in its discretion,
and shall as provided in Article 6(b)(ii), grant Options as follows:
(i) EMPLOYEE OPTIONS. Options to acquire unrestricted Stock or
restricted Stock may be granted to any employee eligible under Article 5 to
receive Awards. No later than the Grant Date of any Option, the Committee
shall determine the Option Price which shall not be less than 100% of the
Fair Market Value of the Stock on the Grant Date.
(ii) NONEMPLOYEE DIRECTOR OPTIONS. Nonqualified Stock Options with
respect to 20,000 shares of unrestricted Stock shall be granted to each
nonemployee director of the Company (other than a nonemployee director who
is a general partner of any of the Forstmann Little Companies or any of
their affiliates) upon his or her initial election to the Board and every
three years thereafter on the anniversary of such nonemployee director's
initial election to the Board as long as such nonemployee director is then
still serving on the Board, at an Option Price equal to 100% of the Fair
Market Value of the Stock on the Grant Date; PROVIDED, HOWEVER, that the
Grant Date of the first grants of Nonqualified Stock Options to nonemployee
directors under this Plan shall be the fifth trading day after the NextLevel
Systems Distribution Date (as defined in the Benefits Agreement). Each
Nonqualified Stock Option granted to a nonemployee director will become
exercisable with respect to one-third of the underlying shares on each of
the first, second and third anniversaries of the Grant Date, and will have a
term of ten years. If a nonemployee director ceases to serve as a director
of the Company for any reason, any Nonqualified Stock Option granted to such
nonemployee director shall be exercisable during its remaining term, to the
extent that such Nonqualified Stock Option was exercisable on the date such
nonemployee director ceased to be a director.
(C) GRANT OF INCENTIVE STOCK OPTIONS. At the time of the grant of any
Option, the Committee may designate that such Option shall be an Incentive Stock
Option. Any Option designated as an Incentive Stock Option:
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(i) shall have an Option Price of (A) not less than 100% of the Fair
Market Value of the Stock on the Grant Date or (B) in the case of a 10%
Owner, not less than 110% of the Fair Market Value of the Stock on the Grant
Date;
(ii) shall have a term of not more than ten years (five years, in the
case of a 10% Owner) from the Grant Date, and shall be subject to earlier
termination as provided herein or in the applicable Award Agreement;
(iii) shall not have an aggregate Fair Market Value (determined for each
Incentive Stock Option at its Grant Date) of Stock with respect to which
Incentive Stock Options are exercisable for the first time by such Grantee
during any calendar year (under the Plan and any other employee stock option
plan of the Grantee's employer or any parent or subsidiary thereof ("Other
Plans")), determined in accordance with the provisions of Section 422 of the
Internal Revenue Code, which exceeds $100,000 (the "$100,000 Limit");
(iv) shall, if, with respect to any grant, the aggregate Fair Market
Value of Stock (determined on the Grant Date) of all Incentive Stock Options
previously granted under the Plan and any Other Plans ("Prior Grants") and
any Incentive Stock Options under such grant (the "Current Grant") which are
exercisable for the first time during any calendar year would exceed the
$100,000 Limit, be exercisable as follows:
(A) the portion of the Current Grant exercisable for the first time
by the Grantee during any calendar year which would be, when added to any
portions of any Prior Grants exercisable for the first time by the
Grantee during such calendar year with respect to Stock which would have
an aggregate Fair Market Value (determined as of the respective Grant
Date for such Options) in excess of the $100,000 Limit shall,
notwithstanding the terms of the Current Grant, be exercisable for the
first time by the Grantee in the first subsequent calendar year or years
in which it could be exercisable for the first time by the Grantee when
added to all Prior Grants without exceeding the $100,000 Limit; and
(B) if, viewed as of the date of the Current Grant, any portion of a
Current Grant could not be exercised under the provisions of Article
6(c)(iv)(A) during any calendar year commencing with the calendar year in
which it is first exercisable through and including the last calendar
year in which it may by its terms be exercised, such portion of the
Current Grant shall not be an Incentive Stock Option, but shall be
exercisable as a separate Nonqualified Stock Option at such date or dates
as are provided in the Current Grant;
(v) shall be granted within ten years from the earlier of the date the
Plan is adopted by the Board or the date the Plan is approved by the
stockholders of the Company; and
(vi) shall require the Grantee to notify the Committee of any
disposition of any Stock issued pursuant to the exercise of the Incentive
Stock Option under the circumstances described in Section 421(b) of the
Internal Revenue Code (relating to certain disqualifying dispositions),
within ten days of such disposition.
(D) GRANT OF SHARES OF RESTRICTED STOCK
(i) The Committee may, in its discretion, grant shares of restricted
Stock to any employee eligible under Article 5 to receive Awards.
(ii) Before the grant of any shares of restricted Stock, the Committee
shall determine, in its discretion:
(A) whether the certificates for such shares shall be delivered to
the Grantee or held (together with a stock power executed in blank by the
Grantee) in escrow by the Secretary of the Company until such shares
become nonforfeitable or are forfeited,
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(B) the per share purchase price of such shares, which may be zero,
PROVIDED, HOWEVER, that the per share purchase price of all such shares
(other than treasury shares) shall not be less than the Minimum
Consideration for each such share;
(C) the restrictions applicable to such grant; and
(D) whether the payment to the Grantee of dividends, or a specified
portion thereof, declared or paid on such shares by the Company shall be
deferred until the lapsing of the restrictions imposed upon such shares
and shall be held by the Company for the account of the Grantee, whether
such dividends shall be reinvested in additional shares of restricted
Stock (to the extent shares are available under Article 3) subject to the
same restrictions and other terms as apply to the shares with respect to
which such dividends are issued or otherwise reinvested in Stock or held
in escrow, whether interest will be credited to the account of the
Grantee with respect to any dividends which are not reinvested in
restricted or unrestricted Stock, and whether any Stock dividends issued
with respect to the restricted Stock to be granted shall be treated as
additional shares of restricted Stock.
(iii) Payment of the purchase price (if greater than zero) for shares of
restricted Stock shall be made in full by the Grantee before the delivery of
such shares and, in any event, no later than ten days after the Grant Date
for such shares. Such payment may be made, as determined by the Committee in
its discretion, in any one or any combination of the following:
(A) cash, or
(B) with the prior approval of the Committee, shares of restricted or
unrestricted Stock owned by the Grantee prior to such grant and valued at
its Fair Market Value on the business day immediately preceding the date
of payment;
PROVIDED, HOWEVER, that, in the case of payment in shares of restricted
or unrestricted Stock, if the purchase price for restricted Stock ("New
Restricted Stock") is paid with shares of restricted Stock ("Old
Restricted Stock"), the restrictions applicable to the New Restricted
Stock shall be the same as if the Grantee had paid for the New Restricted
Stock in cash unless, in the judgment of the Committee, the Old
Restricted Stock was subject to a greater risk of forfeiture, in which
case a number of shares of New Restricted Stock equal to the number of
shares of Old Restricted Stock tendered in payment for New Restricted
Stock shall be subject to the same restrictions as the Old Restricted
Stock, determined immediately before such payment.
(iv) The Committee may, but need not, provide that all or any portion of
a Grantee's Award of restricted Stock shall be forfeited
(A) except as otherwise specified in the Award Agreement, upon the
Grantee's Termination of Employment within a specified time period after
the Grant Date, or
(B) if the Company or the Grantee does not achieve specified
performance goals within a specified time period after the Grant Date and
before the Grantee's Termination of Employment, or
(C) upon failure to satisfy such other restrictions as the Committee
may specify in the Award Agreement.
(v) If a share of restricted Stock is forfeited, then
(A) the Grantee shall be deemed to have resold such share of
restricted Stock to the Company at the lesser of (1) the purchase price
paid by the Grantee (such purchase price shall be deemed to be zero
dollars ($0) if no purchase price was paid) or (2) the Fair Market Value
of a share of Stock on the date of such forfeiture;
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(B) the Company shall pay to the Grantee the amount determined under
clause (A) of this sentence, if not zero, as soon as is administratively
practicable, but in any case within 90 days after forfeiture; and
(C) such share of restricted Stock shall cease to be outstanding, and
shall no longer confer on the Grantee thereof any rights as a stockholder
of the Company, from and after the date of the Company's tender of the
payment specified in clause (B) of this sentence, whether or not such
tender is accepted by the Grantee, or the date the restricted Stock is
forfeited if no purchase price was paid for the restricted Stock.
(vi) Any share of restricted Stock shall bear an appropriate legend
specifying that such share is non-transferable and subject to the
restrictions set forth in the Plan and the Award Agreement. If any shares of
restricted Stock become nonforfeitable, the Company shall cause certificates
for such shares to be issued or reissued without such legend and delivered
to the Grantee or, at the request of the Grantee, shall cause such shares to
be credited to a brokerage account specified by the Grantee.
(E) GRANT OF STOCK APPRECIATION RIGHTS. The Committee may grant stock
appreciation rights to any employee eligible under Article 5 to receive Awards.
When granted, stock appreciation rights may, but need not, be identified with
shares of Stock subject to a specific Option awarded to the Grantee (including
any Option granted on or before the Grant Date of the stock appreciation rights)
in a number equal to or different from the number of stock appreciation rights
so granted. If stock appreciation rights are identified with shares of Stock
subject to an Option then, unless otherwise provided in the applicable Award
Agreement, the Grantee's associated stock appreciation rights shall terminate
upon the exercise, expiration, termination, forfeiture, or cancellation of such
Option.
(F) GRANT OF PERFORMANCE UNITS AND PERFORMANCE SHARES.
(i) The Committee may, in its discretion, grant performance units or
performance shares to any employee eligible under Article 5 to receive
Awards.
(ii) Before the grant of any performance unit or performance share, the
Committee shall:
(A) determine performance goals applicable to such grant,
(B) designate a period, of not less than one year nor more than five
years, for the measurement of the extent to which performance goals are
attained (the "Measuring Period"), and
(C) assign a "Performance Percentage" to each level of attainment of
performance goals during the Measuring Period, with the percentage
applicable to minimum attainment being zero percent (0%) and the
percentage applicable to optimum attainment to be determined by the
Committee from time to time.
(iii) In establishing performance goals, the Committee may consider such
performance factor or factors as it deems appropriate, including, without
limitation, net income, growth in net income, earnings per share, growth of
earnings per share, return on equity, or return on capital. The Committee
may, at any time, in its discretion, modify performance goals in order to
facilitate their attainment for any reason, including, but not limited to,
recognition of unusual or nonrecurring events affecting the Company or a
Subsidiary, or changes in applicable laws, regulations or accounting
principles. If a Grantee is promoted, demoted or transferred to a different
business unit of the Company during a performance period, the Committee may
adjust or eliminate the performance goals as it deems appropriate.
(G) GRANT OF PHANTOM STOCK. The Committee may, in its discretion, grant
shares of phantom stock to any employee who is eligible under Article 5 to
receive Awards and is employed outside the United States.
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Such phantom stock shall be subject to the terms and conditions established by
the Committee and set forth in the applicable Award Agreement.
(H) GRANT OF DIRECTOR'S SHARES. There shall be granted Director's Shares
with respect to 1,000 shares of Stock to each nonemployee director of the
Company (other than a nonemployee director who is a general partner of any of
the Forstmann Little Companies or any of their affiliates) upon his or her
initial election to the Board. Director's Shares shall be fully vested and
transferable upon issuance.
(I) TANDEM AWARDS. The Committee may grant and identify any Award with any
other Award granted under the Plan ("Tandem Award"), other than a Substitute
Option or a Spin-off Option, on terms and conditions determined by the
Committee.
7. NON-TRANSFERABILITY
Unless set forth in the applicable Award Agreement, no Award (other than an
Award of restricted Stock) granted hereunder shall by its terms be assignable or
transferable except by will or the laws of descent and distribution or, in the
case of an Option other than an ISO, pursuant to a domestic relations order
(within the meaning of Rule 16a-12 promulgated under the Exchange Act). An
Option may be exercised during the lifetime of a Grantee only by the Grantee or
his or her guardian or legal representatives. The terms of an Award shall be
final, binding and conclusive upon the beneficiaries, executors, administrators,
heirs and successors of the Grantee. Each share of restricted Stock shall be
non-transferable until such share becomes nonforfeitable.
8. EXERCISE.
(A) EXERCISE OF OPTIONS. Subject to Articles 4(c)(vii), 12 and 13 and such
terms and conditions as the Committee may impose, each Option shall be
exercisable in one or more installments commencing not earlier than the first
anniversary of the Grant Date of such Option; PROVIDED, HOWEVER, that all
Options held by each Grantee shall become fully (100%) exercisable upon the
occurrence of a Change of Control regardless of whether the acceleration of the
exercisability of such Options would cause such Options to lose their
eligibility for treatment as Incentive Stock Options. Notwithstanding the
foregoing, Options may not be exercised by a Grantee for twelve months following
a hardship distribution to the Grantee, to the extent such exercise is
prohibited under Treasury Regulation Section1.401(k)-1(d)(2)(iv)(B)(4). Each
Option shall be exercised by delivery to the Company of written notice of intent
to purchase a specific number of shares of Stock or restricted Stock subject to
the Option. The Option Price of any shares of Stock or restricted Stock as to
which an Option shall be exercised shall be paid in full at the time of the
exercise. Payment may be made, as determined by the Committee in its discretion
with respect to Options granted to eligible employees and in all cases with
respect to Options granted to nonemployee directors pursuant to Article
6(b)(ii), in any one or any combination of the following:
(i) cash,
(ii) shares of restricted or unrestricted Stock owned by the Grantee
prior to the exercise of the Option and valued at its Fair Market Value on
the last business day immediately preceding the date of exercise, or
(iii) through simultaneous sale through a broker of shares of
unrestricted Stock acquired on exercise, as permitted under Regulation T of
the Federal Reserve Board.
If restricted Stock ("Tendered Restricted Stock") is used to pay the Option
Price for Stock, then a number of shares of Stock acquired on exercise of the
Option equal to the number of shares of Tendered Restricted Stock shall be
subject to the same restrictions as the Tendered Restricted Stock, determined as
of the date of exercise of the Option. If the Option Price for restricted Stock
is paid with Tendered Restricted Stock, and if the Committee determines that the
restricted Stock acquired on exercise of the
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Option shall be subject to restrictions ("Greater Restrictions") that cause it
to have a greater risk of forfeiture than the Tendered Restricted Stock, then
notwithstanding the preceding sentence, all the restricted Stock acquired on
exercise of the Option shall be subject to such Greater Restrictions.
Shares of unrestricted Stock acquired by a Grantee on exercise of an Option
shall be delivered to the Grantee or, at the request of the Grantee, shall be
credited directly to a brokerage account specified by the Grantee.
(B) EXERCISE OF STOCK APPRECIATION RIGHTS. Subject to Articles 4(c)(vii), 12
and 13 and such terms and conditions as the Committee may impose, each stock
appreciation right shall be exercisable not earlier than the first anniversary
of the Grant Date of such stock appreciation right and, if such stock
appreciation right is identified with an Option, to the extent such Option may
be exercised, unless otherwise provided by the Committee. Stock appreciation
rights shall be exercised by delivery to the Company of written notice of intent
to exercise a specific number of stock appreciation rights.
Unless otherwise provided in the applicable Award Agreement, the exercise of
stock appreciation rights which are identified with shares subject to an Option
shall result in the forfeiture of such Option to the extent of such exercise.
The benefit for each stock appreciation right exercised shall be equal to
the excess, if any, of
(i) the Fair Market Value of a share of Stock on the date of such
exercise, over
(ii) an amount equal to
(A) in the case of a stock appreciation right identified with a share
of Stock subject to an Option, the Option Price of such Option, unless
the Committee in the grant of the stock appreciation right specified a
higher amount, or
(B) in the case of any other stock appreciation right, the Fair
Market Value of a share of Stock on the Grant Date of such stock
appreciation right, unless the Committee in the grant of the stock
appreciation right specified a higher amount;
provided that the Committee, in its discretion, may provide that the benefit for
any stock appreciation right shall not exceed a maximum amount (I.E., a cap) set
by Committee, which cap may be expressed as (i) a percentage of the excess
amount described above (not to exceed 100%), (ii) a percentage of the Fair
Market Value of a share of Stock on the Grant Date of the stock appreciation
right, or (iii) a fixed dollar amount. The benefit upon the exercise of a stock
appreciation right shall be payable in cash, except that the Committee, with
respect to any particular exercise, may, in its discretion, pay benefits wholly
or partly in Stock delivered to the Grantee or credited to a brokerage account
specified by the Grantee.
(C) EXERCISE OF PERFORMANCE UNITS.
(i) Subject to Articles 4(c)(vii), 12 and 13 and such terms and
conditions as the Committee may impose, and unless otherwise provided in the
applicable Award Agreement, if, with respect to any performance unit, the
minimum performance goals have been achieved during the applicable Measuring
Period, then such performance unit shall be deemed exercised on the date on
which it first becomes exercisable.
(ii) The benefit for each performance unit exercised shall be an amount
equal to the product of
(A) the Unit Value (as defined below), multiplied by
(B) the Performance Percentage attained during the Measuring Period
for such performance unit.
(iii) The Unit Value shall be, as specified by the Committee,
(A) a dollar amount,
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(B) an amount equal to the Fair Market Value of a share of Stock on
the Grant Date,
(C) an amount equal to the Fair Market Value of a share of Stock on
the exercise date of the performance unit, plus, if so provided in the
Award Agreement, an amount ("Dividend Equivalent Amount") equal to the
Fair Market Value of the number of shares of Stock that would have been
purchased if each dividend paid on a share of Stock on or after the Grant
Date and on or before the exercise date were invested in shares of Stock
at a purchase price equal to its Fair Market Value on the respective
dividend payment date, or
(D) an amount equal to the Fair Market Value of a share of Stock on
the exercise date of the performance unit (plus, if so specified in the
Award Agreement, a Dividend Equivalent Amount), reduced by the Fair
Market Value of a share of Stock on the Grant Date of the performance
unit.
(iv) The benefit upon the exercise of a performance unit shall be
payable as soon as is administratively practicable (but in any event within
90 days) after the later of (A) the date the Grantee is deemed to exercise
such performance unit, or (B) the date (or dates in the event of installment
payments) as provided in the applicable Award Agreement. Such benefit shall
be payable in cash, except that the Committee, with respect to any
particular exercise, may, in its discretion, pay benefits wholly or partly
in Stock delivered to the Grantee or credited to a brokerage account
specified by the Grantee. The number of shares of Stock payable in lieu of
cash shall be determined by valuing the Stock at its Fair Market Value on
the business day next preceding the date such benefit is to be paid.
(D) PAYMENT OF PERFORMANCE SHARES. Subject to Articles 4(c)(vii), 12 and 13
and such terms and conditions as the Committee may impose, and unless otherwise
provided in the applicable Award Agreement, if the minimum performance goals
specified by the Committee with respect to an Award of performance shares have
been achieved during the applicable Measuring Period, then the Company shall pay
to the Grantee of such Award (or, at the request of the Grantee, deliver to a
brokerage account specified by the Grantee) shares of Stock equal in number to
the product of the number of performance shares specified in the applicable
Award Agreement multiplied by the Performance Percentage achieved during such
Measuring Period, except to the extent that the Committee in its discretion
determines that cash be paid in lieu of some or all of such shares of Stock. The
amount of cash payable in lieu of a share of Stock shall be determined by
valuing such share at its Fair Market Value on the business day next preceding
the date such cash is to be paid. Payments pursuant to this Article 8(d) shall
be made as soon as administratively practicable (but in any event within 90
days) after the end of the applicable Measuring Period. Any performance shares
with respect to which the performance goals have not been achieved by the end of
the applicable Measuring Period shall expire.
(E) PAYMENT OF PHANTOM STOCK AWARDS. Upon the vesting of a phantom stock
Award, the Grantee shall be entitled to receive a cash payment in respect of
each share of phantom stock which shall be equal to the Fair Market Value of a
share of Stock as of the date the phantom stock Award was granted, or such other
date as determined by the Committee at the time the phantom stock Award was
granted. The Committee may, at the time a phantom stock Award is granted,
provide a limitation on the amount payable in respect of each share of phantom
stock.
(F) EXERCISE, CANCELLATION, EXPIRATION OR FORFEITURE OF TANDEM AWARDS. Upon
the exercise, cancellation, expiration, forfeiture or payment in respect of any
Award which is identified with any Tandem Award pursuant to Article 6(i), the
Tandem Award shall automatically terminate to the extent of the number of shares
in respect of which the Award is so exercised, canceled, expired, forfeited or
paid, unless otherwise provided by the Committee at the time of grant of the
Tandem Award or thereafter.
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9. SPIN-OFF AND SUBSTITUTE OPTIONS
Spin-off Options and Substitute Options shall be issued under this Plan
pursuant to and in accordance with the terms of the Benefits Agreement. Spin-off
Options and Substitute Options shall be governed by the terms of the Plan to the
extent that the terms of the Plan do not conflict with the terms of the
agreements evidencing the Spin-off Options and Substitute Options.
10. EFFECT OF CERTAIN TRANSACTIONS
With respect to any Award which relates to Stock, in the event of (i) the
liquidation or dissolution of the Company or (ii) a merger or consolidation of
the Company (a "Transaction"), the Plan and the Awards issued hereunder shall
continue in effect in accordance with their respective terms and each Grantee
shall be entitled to receive in respect of each share of Stock subject to any
outstanding Awards, upon the vesting, payment or exercise of the Award (as the
case may be), the same number and kind of stock, securities, cash, property, or
other consideration that each holder of a share of Stock was entitled to receive
in the Transaction in respect of a share of Stock.
11. MANDATORY WITHHOLDING TAXES
The Company shall have the right to deduct from any distribution of cash to
any Grantee an amount equal to the federal, state and local income taxes and
other amounts as may be required by law to be withheld (the "Withholding Taxes")
with respect to any Award. If a Grantee is to experience a taxable event in
connection with the receipt of shares pursuant to an Option exercise or the
vesting or payment of another type of Award (a "Taxable Event"), the Grantee
shall pay the Withholding Taxes to the Company prior to the issuance, or release
from escrow, of such shares or payment of such Award. Payment of the applicable
Withholding Taxes may be made, as determined by the Committee in its discretion,
in any one or any combination of (i) cash, (ii) shares of restricted or
unrestricted Stock owned by the Grantee prior to the Taxable Event and valued at
its Fair Market Value on the business day immediately preceding the date of
exercise, or (iii) by making a Tax Election (as described below). For purposes
of this Article 11, a Grantee may make a written election, which may be accepted
or rejected at the discretion of the Committee (the "Tax Election"), to have
withheld a portion of the shares then issuable to him or her having an aggregate
Fair Market Value, on the date preceding the date of such issuance, equal to the
Withholding Taxes.
12. TERMINATION OF EMPLOYMENT
The Award Agreement pertaining to each Award (other than Options granted to
nonemployee directors pursuant to Article 6(b)(ii)) shall set forth the terms
and conditions applicable to such Award upon a Termination of Employment of the
Grantee by the Company, a Subsidiary or an operating division or unit, as the
Committee may, in its discretion, determine at the time the Award is granted or
thereafter.
13. SECURITIES LAW MATTERS
(A) If the Committee deems it necessary to comply with the Securities Act of
1933, the Committee may require a written investment intent representation
by the Grantee and may require that a restrictive legend be affixed to
certificates for shares of Stock.
(B) If, based upon the opinion of counsel for the Company, the Committee
determines that the exercise or nonforfeitability of, or delivery of
benefits pursuant to, any Award would violate any applicable provision of
(i) federal or state securities law or (ii) the listing requirements of any
national securities exchange on which are listed any of the Company's equity
securities, then the Committee may postpone any such exercise,
nonforfeitability or delivery, as the case may be, but the Company shall
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use its best efforts to cause such exercise, nonforfeitability or delivery
to comply with all such provisions at the earliest practicable date.
(C) Notwithstanding any provision of the Plan or any Award Agreement to the
contrary, no shares of Stock shall be issued to any Grantee in respect of
any Award prior to the time a registration statement under the Securities
Act of 1933 is effective with respect to such shares.
14. NO FUNDING REQUIRED
Benefits payable under the Plan to any person shall be paid directly by the
Company. The Company shall not be required to fund, or otherwise segregate
assets to be used for payment of, benefits under the Plan.
15. NO EMPLOYMENT RIGHTS
Neither the establishment of the Plan, nor the granting of any Award shall
be construed to (a) give any Grantee the right to remain employed by the Company
or any of its Subsidiaries or to any benefits not specifically provided by the
Plan or (b) in any manner modify the right of the Company or any of its
Subsidiaries to modify, amend, or terminate any of its employee benefit plans.
16. RIGHTS AS A STOCKHOLDER
A Grantee shall not, by reason of any Award (other than restricted Stock),
have any right as a stockholder of the Company with respect to the shares of
Stock which may be deliverable upon exercise or payment of such Award until such
shares have been delivered to him. Shares of restricted Stock held by a Grantee
or held in escrow by the Secretary of the Company shall confer on the Grantee
all rights of a stockholder of the Company, except as otherwise provided in the
Plan.
17. NATURE OF PAYMENTS
Any and all grants, payments of cash, or deliveries of shares of Stock
hereunder shall constitute special incentive payments to the Grantee and shall
not be taken into account in computing the amount of salary or compensation of
the Grantee for the purposes of determining any pension, retirement, death or
other benefits under (a) any pension, retirement, profit-sharing, bonus, life
insurance or other employee benefit plan of the Company or any of its
Subsidiaries or (b) any agreement between the Company or any Subsidiary, on the
one hand, and the Grantee, on the other hand, except as such plan or agreement
shall otherwise expressly provide.
18. NON-UNIFORM DETERMINATIONS
Neither the Committee's nor the Board's determinations under the Plan need
be uniform and may be made by the Committee or the Board selectively among
persons who receive, or are eligible to receive, Awards (whether or not such
persons are similarly situated). Without limiting the generality of the
foregoing, the Committee shall be entitled, among other things, to make
non-uniform and selective determinations, to enter into non-uniform and
selective Award Agreements as to (a) the identity of the Grantees, (b) the terms
and provisions of Awards, and (c) the treatment of Terminations of Employment.
19. ADJUSTMENTS
In the event of Change in Capitalization, the Committee shall, in its sole
discretion, make equitable adjustment of
(A) the aggregate number and class of shares of Stock or other stock or
securities available under Article 3,
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(B) the number and class of shares of Stock or other stock or securities
covered by an Award and to be covered by Options granted to nonemployee
directors pursuant to Article 6(b)(ii),
(C) the Option Price applicable to outstanding Options,
(D) the terms of performance unit and performance share grants, and
(E) the Fair Market Value of Stock to be used to determine the amount of the
benefit payable upon exercise of stock appreciation rights, performance
units, performance shares or phantom stock.
20. AMENDMENT OF THE PLAN
The Board may from time to time in its discretion amend or modify the Plan
without the approval of the stockholders of the Company, except as such
stockholder approval may be required (a) to retain Incentive Stock Option
treatment under Section 422 of the Internal Revenue Code, (b) to permit
transactions in Stock pursuant to the Plan to be exempt from potential liability
under Section 16(b) of the 1934 Act or (c) under the listing requirements of any
securities exchange on which any of the Company's equity securities are listed;
PROVIDED, HOWEVER, that the provisions of Article 6(b)(ii) may not be amended
more than once every six months if any such amendment would cause the Options
granted or to be granted thereunder to be deemed not to be granted under a
"formula plan" for purposes of Rule 16b-3.
21. TERMINATION OF THE PLAN
The Plan shall terminate on the tenth (10th) anniversary of the Effective
Date or at such earlier time as the Board may determine. Any termination,
whether in whole or in part, shall not affect any Award then outstanding under
the Plan.
22. NO ILLEGAL TRANSACTIONS
The Plan and all Awards granted pursuant to it are subject to all laws and
regulations of any governmental authority which may be applicable thereto; and
notwithstanding any provision of the Plan or any Award, Grantees shall not be
entitled to exercise Awards or receive the benefits thereof and the Company
shall not be obligated to deliver any Stock or pay any benefits to a Grantee if
such exercise, delivery, receipt or payment of benefits would constitute a
violation by the Grantee or the Company of any provision of any such law or
regulation.
23. GOVERNING LAW
Except where preempted by federal law, the law of the State of Delaware
shall be controlling in all matters relating to the Plan, without giving effect
to the conflicts of law principles thereof.
24. SEVERABILITY
If all or any part of the Plan is declared by any court or governmental
authority to be unlawful or invalid, such unlawfulness or invalidity shall not
serve to invalidate any portion of the Plan not declared to be unlawful or
invalid. Any Article or part of an Article so declared to be unlawful or invalid
shall, if possible, be construed in a manner which will give effect to the terms
of such Article or part of an Article to the fullest extent possible while
remaining lawful and valid.
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ANNEX B
GENERAL INSTRUMENT CORPORATION
ANNUAL INCENTIVE PLAN
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GENERAL INSTRUMENT CORPORATION
ANNUAL INCENTIVE PLAN
1. PURPOSE
The purpose of the Annual Incentive Plan (the "Plan") is to enhance General
Instrument Corporation's ability to attract, reward, and retain employees, to
strengthen employee commitment to the success of the Company and to align their
interests with those of the Company's stockholders by providing additional
variable compensation, based on the achievement of performance objectives, to
employees who do not participate in a sales incentive plan or other similar plan
of the Company. To this end, the Plan provides a means of annually rewarding
participants based on the performance of the Company and its Business Units and,
where appropriate, on their own personal performance.
2. DEFINITIONS
"Award" shall mean the incentive award earned by a Participant under the
Plan for any Performance Period.
"Base Salary" shall mean the Participant's base salary earned in a
Performance Period. Base Salary does not include Awards under this Plan or any
other short term or long term incentive plan; imputed income from such programs
as group-term life insurance; or non-recurring earnings, such as moving
expenses, and is based on salary earnings before reductions for such items as
deferrals under Company-sponsored deferred compensation plans, contributions
under Section 401(k) of the Code, and contributions to flexible spending
accounts under Section 125 of the Code.
"Beneficial Owner," "Beneficially Owned" and "Beneficially Owning" shall
have the meanings applicable under Rule 13d-3 promulgated under the 1934 Act.
"Business Unit" shall mean either the Company, a strategic business unit,
central function, regional group or other unit of classification, as specified
by the Committee or the CEO, as applicable.
"CEO" shall mean the Chief Executive Officer of the Company.
"Change of Control" means, any of the following:
(i) the acquisition by any Person other than Instrument Partners or
Forstmann Little & Co. Subordinated Debt and Equity Management Buyout
Partnership-IV or any of their affiliates (collectively, the "Forstmann Little
Companies") of Beneficial Ownership of Voting Securities which, when added to
the Voting Securities then Beneficially Owned by such Person, would result in
such Person Beneficially Owning (A) 33% or more of the combined Voting Power of
General Instrument's then outstanding Voting Securities and (B) a number of
Voting Securities greater than the aggregate number of Voting Securities then
Beneficially Owned by the Forstmann Little Companies; PROVIDED, HOWEVER, that
for purposes of this paragraph (i), a Person shall not be deemed to have made an
acquisition of Voting Securities if such Person: (1) acquires Voting Securities
as a result of a stock split, stock dividend or other corporate restructuring in
which all stockholders of the class of such Voting Securities are treated on a
pro rata basis; (2) acquires the Voting Securities directly from General
Instrument; (3) becomes the Beneficial Owner of 33% or more of the combined
Voting Power of General Instrument's then outstanding Voting Securities solely
as a result of the acquisition of Voting Securities by General Instrument or any
Subsidiary which, by reducing the number of Voting Securities outstanding,
increases the proportional number of shares Beneficially Owned by such Person,
provided that if (x) a Person would own at least such percentage as a result of
the acquisition by General Instrument or any Subsidiary and (y) after such
acquisition by General Instrument or any Subsidiary, such Person acquires Voting
Securities, then an acquisition of Voting Securities shall have occurred; (4) is
General Instrument or any corporation or other Person of which a
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majority of its voting power or its equity securities or equity interest is
owned directly or indirectly by General Instrument (a "Controlled Entity"); or
(5) acquires Voting Securities in connection with a "Non-Control Transaction"
(as defined in paragraph (iii) below); or
(ii) the individuals who, as of the Effective Date, are members of the Board
(the "Incumbent Board") ceasing for any reason to constitute at least two-thirds
of the Board; PROVIDED, HOWEVER, that if either the election of any new director
or the nomination for election of any new director by General Instrument's
stockholders was approved by a vote of at least two-thirds of the Incumbent
Board prior to such election or nomination, such new director shall be
considered as a member of the Incumbent Board; PROVIDED FURTHER, HOWEVER, that
no individual shall be considered a member of the Incumbent Board if such
individual initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11 promulgated under the
1934 Act) or other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board (a "Proxy Contest") including by
reason of any agreement intended to avoid or settle any Election Contest or
Proxy Contest; or
(iii) approval by stockholders of General Instrument of:
(A) a merger, consolidation or reorganization involving General
Instrument (a "Business Combination"), unless:
(1) the stockholders of General Instrument, immediately before the
Business Combination, own, directly or indirectly immediately following
the Business Combination, at least a majority of the combined voting
power of the outstanding voting securities of the corporation resulting
from the Business Combination (the "Surviving Corporation") in
substantially the same proportion as their ownership of the Voting
Securities immediately before the Business Combination, and
(2) the individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement providing for the
Business Combination constitute at least a majority of the members of the
Board of Directors of the Surviving Corporation, and
(3) no Person (other than General Instrument or any Controlled
Entity, a trustee or other fiduciary holding securities under one or more
employee benefit plans or arrangements (or any trust forming a part
thereof) maintained by General Instrument, the Surviving Corporation or
any Controlled Entity, or any Person who, immediately prior to the
Business Combination, had Beneficial Ownership of 33% or more of the then
outstanding Voting Securities) has Beneficial Ownership of 33% or more of
the combined voting power of the Surviving Corporation's then outstanding
voting securities (a Business Combination satisfying the conditions of
clauses (1), (2) and (3) of this subparagraph (A) shall be referred to as
a "Non-Control Transaction");
(B) a complete liquidation or dissolution of General Instrument; or
(C) the sale or other disposition of all or substantially all of the
assets of General Instrument (other than a transfer to a Controlled Entity).
Notwithstanding the foregoing, a Change of Control shall not be deemed to
occur solely because 33% or more of the then outstanding Voting Securities is
Beneficially Owned by (x) a trustee or other fiduciary holding securities under
one or more employee benefit plans or arrangements (or any trust forming a part
thereof) maintained by General Instrument or any Controlled Entity or (y) any
corporation which, immediately prior to its acquisition of such interest, is
owned directly or indirectly by the stockholders of General Instrument in the
same proportion as their ownership of stock in General Instrument immediately
prior to such acquisition.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
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"Committee" shall mean the Compensation Committee of the Board. The
Committee shall consist of two or more persons appointed by the Board, all of
whom shall be "outside directors" as defined under Section 162(m) of the Code
and related Treasury regulations.
"Company" shall mean General Instrument and any Subsidiary which is
authorized by the Board to adopt the Plan and cover its Employees and whose
designation as such has become effective upon acceptance of such status by the
board of directors of the Subsidiary. A Subsidiary, with the permission of the
Committee, may alter the manner in which Awards are determined under the Plan by
so specifying the modifications in its acceptance of the terms of the Plan and
may revoke its acceptance of such designation at any time, but until such
acceptance has been revoked, all the provisions of the Plan and amendments
thereto (except to the extent modified as specified above) shall apply to the
Employees of the Subsidiary. In the event the designation is revoked by the
board of directors of the Subsidiary, the Plan shall be deemed terminated only
with respect to such Subsidiary.
"Disability" shall mean total disability, as provided in the Company's
long-term disability plan.
"Effective Date" shall mean February 18, 1998.
"Employee" shall mean any individual employed by the Company or any of its
Subsidiaries on a regular full-time (regular schedule equal to or greater than
32 hours per week) basis, other than an individual employed by the Company
pursuant to a collective bargaining agreement unless such agreement specifically
provides for participation in the Plan. Individuals employed by the Company in a
casual or temporary capacity (i.e., those hired for a specific job of limited
duration), individuals characterized as "leased employees," within the meaning
of Section 414 of the Code, or individuals characterized by the Company as
"independent contractors" with whom the Company has entered into a contract, no
matter how characterized by the Internal Revenue Service, other governmental
agency or a court, shall not be considered "Employees" for the purposes of the
Plan. Any change of characterization of an individual shall take effect on the
actual date of such change without regard to any retroactive recharacterization.
"General Instrument" shall mean General Instrument Corporation, a Delaware
corporation, and its successors and assigns.
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended.
"Officer" shall mean an officer of the Company elected by the Board.
"Operational Target Award Earned," for any Performance Period, shall mean
the percentage based on the achievement of the Operational Targets as determined
in accordance with Section 5 of the Plan.
"Operational Targets," for any Performance Period, shall mean the financial
performance of the Company or a Business Unit, as specified by the Committee or
the CEO, as applicable, as to stock price, earnings per share, net earnings,
operating income, return on assets, net capital employed, shareholder return,
return on equity, growth in assets, unit volume, sales, market share, or
strategic business criteria consisting of one or more Company or Business Units
objectives based on meeting specified revenue goals, market penetration goals,
geographic business expansion goals, cost targets, customer satisfaction goals,
product development goals, or goals relating to acquisitions or divestitures. In
setting the Operational Targets pursuant to Section 5, the Committee or the CEO
shall use objectively determinable Operational Targets based on the foregoing
criteria. To the extent applicable, any such Operational Target shall be
determined in accordance with generally accepted accounting principles and
reported upon by the Company's independent accountants. The Operational Targets
established by the Committee or the CEO may be (but need not be) different each
Performance Period and different Operational Targets may be applicable to
different Participants.
"Participant," for any Performance Period, shall mean an Employee who
satisfies the requirements for eligibility in Section 3 of the Plan.
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"Performance Period" shall mean the fiscal year of the Company or any other
period designated by the CEO or the Committee, as applicable, with respect to
which an Award is earned.
"Person" shall mean a person within the meaning of Sections 13(d) and 14(d)
of the 1934 Act.
"Personal Performance Percentage," with respect to Participants other than
the CEO for any Performance Period, shall mean the percentage, between 80% and
120%, based on the Employees' overall personal performance during that
Performance Period, as determined in accordance with Section 5 of the Plan.
"Plan" shall mean this General Instrument Corporation Annual Incentive Plan,
as from time to time amended and in effect.
"Retirement" shall mean retirement at or after the early retirement age set
forth in the primary retirement plan covering the Participant. In the event a
Participant participates in more than one retirement plan, the CEO shall
designate one such plan as the Participant's primary retirement plan.
"Subsidiary" shall mean a corporation as defined in Section 424(f) of the
Code, with General Instrument being treated as the employer corporation for
purposes of this definition.
"Target Award Percentage" for any Participant with respect to any
Performance Period, shall mean the percentage of the Participant's Base Salary
(determined at the beginning of the Performance Period for the CEO) that the
Participant would earn as an Award for that Performance Period if each of the
Operational Target Award Earned and Personal Performance Percentage (if
applicable) for that Performance Period is 100%, and shall be determined by the
Committee with respect to Officers who are Participants and the CEO with respect
to all other Participants, based on the Participant's responsibility level or
the position or positions held during the Performance Period; PROVIDED, HOWEVER,
that if any Participant other than an Officer held more than one position during
the Performance Period, then the CEO may designate different Target Award
Percentages with respect to each position and the Award will be pro-rated to
reflect (to the nearest semi-monthly increment) the period during which such
Participant had each Target Award Percentage.
"Voting Power" shall mean the combined voting power of the then outstanding
Voting Securities.
"Voting Securities" shall mean, with respect to General Instrument, any
securities issued by General Instrument which generally entitle the holder
thereof to vote for the election of members of the Board.
3. ELIGIBILITY
Subject to the limitations contained in this Section 3, all Employees of the
Company are eligible to participate in the Plan. To be eligible to receive an
Award with respect to any Performance Period, an Employee shall have had at
least three months active service during such Performance Period and (except as
provided in Sections 7 and 8) be actively employed by the Company on the Award
payment date.
Employees shall participate in only one annual incentive plan or sales
incentive plan for any specific period in time. An individual may participate in
this Plan and another plan sequentially during any Performance Period because of
promotion or reassignment, provided that participation in each such plan is
prorated to reflect (to the nearest semi-monthly increment) the period during
which he or she participated in each plan.
4. ADMINISTRATION
The administration of the Plan shall be consistent with the purpose and the
terms of the Plan. The Plan shall be administered by the Committee with respect
to Officers who are Participants and by the CEO with respect to all other
Participants. The Committee and the CEO, as the case may be, shall have full
authority to establish the rules and regulations relating to the Plan, to
interpret the Plan and those
B-5
<PAGE>
rules and regulations, to select Participants in the Plan, to determine each
Participant's Target Award Percentage, to approve all of the Awards, to decide
the facts in any case arising under the Plan and to make all other
determinations, including factual determinations, and to take all other actions
necessary or appropriate for the proper administration of the Plan, including
the delegation of such authority or power, where appropriate; PROVIDED, HOWEVER,
that only the Committee shall have authority to amend or terminate the Plan and
the Committee shall not be authorized to increase the amount of the Award
payable to the CEO that would otherwise be payable pursuant to the terms of the
Plan. All powers of the Committee or the CEO, as applicable, shall be executed
in its or his or her sole discretion, in the best interest of the Company, not
as a fiduciary, and in keeping with the objectives of the Plan and need not be
uniform as to similarly situated individuals. The Committee's and the CEO's
administration of the Plan, including all such rules and regulations,
interpretations, selections, determinations, approvals, decisions, delegations,
amendments, terminations and other actions, shall be final and binding on the
Company and all employees of the Company, including, the Participants and their
respective beneficiaries.
5. DETERMINATION OF AWARDS
Prior to, or as soon as practicable following but in any event no later than
the earlier of (i) 90 days after the beginning of the Performance Period or (ii)
the date on which 25% of the Performance Period has been completed, or, with
respect to the CEO, such other date as may be required or permitted under
applicable regulations under Section 162(m) of the Code, the Committee with
respect to the Officers and the CEO with respect to all other Employees shall
determine the Officers and Employees who shall be Participants during that
Performance Period and determine each Participant's Target Award Percentage each
of which shall be listed on a schedule attached to the Plan as Exhibit A. The
Operational Targets of the CEO for each Performance Period shall satisfy the
requirements for "qualified performance-based compensation" under Section 162(m)
of the Code, including the requirement that the achievement of the Operational
Targets be substantially uncertain at the time they are established and that the
Operational Targets be established in such a way that a third party with
knowledge of the relevant facts could determine whether and to what extent the
Operational Targets Goals have been met. The Company, on the basis of the
decisions of the Committee and the CEO, as applicable, shall prepare the
schedules, which will be treated as part of the Plan for that Performance
Period, setting forth (x) the Participants during that Performance Period (which
may be amended during the Performance Period for new Participants), (y) each
Participant's Target Award Percentage for that Performance Period, and (z) the
Operational Targets (and the allocations among the Operational Targets) for that
Performance Period. The Company shall notify each Participant of his or her
Target Award Percentage and the applicable Operational Targets for the
Performance Period.
Generally, a Participant earns an Award for a Performance Period based on
the Company's and his or her Business Unit's achievement of Operational Targets.
The portion of Awards based on Company or Business Unit, as applicable,
performance will only be earned if the Company or Business Unit, as applicable,
achieves at least the minimum percentage specified by the Committee or CEO, as
applicable, of the Operational Target set for that Performance Period. The
Awards for any Performance Period may also be increased above the Target Award
Percentage for achievement in excess of the Operational Targets for that
Performance Period, as specified by the Committee or CEO, as applicable, at the
time the Operational Targets and the Target Award Percentages are set by the
Committee or CEO, as applicable, for that Performance Period. The Awards of each
Participant (other than the CEO) may be adjusted by the CEO, or with respect to
Officers by the Committee, (upward or downward) based upon the CEO's or the
Committee's, as applicable, determination of a Participant's Personal
Performance Percentage for that Performance Period. The Committee is authorized
to reduce the amount of the Award payable to the CEO (but not by more than
one-third) for any Performance Period based upon its assessment of personal
performance but not to increase the Award beyond that yielded by the Operational
Target Award Earned for the CEO.
B-6
<PAGE>
The maximum Award any Participant (other than the CEO) may receive for any
Performance Period is 150% of the Participant's Base Salary for that Performance
Period. The maximum award the CEO may receive for any Performance Period is $1.5
million.
6. CHANGES TO THE TARGET
The CEO, with respect to all Participants who are not Officers, may at any
time prior to the final determination of Awards change the Target Award
Percentage of any Participant or assign a different Target Award Percentage to a
Participant to reflect any change in the Participant's responsibility level or
position during the course of the Performance Period. In addition, the CEO, with
respect to all Participants who are not Officers, and the Committee, with
respect to Officers but, with respect to the CEO, only to the extent consistent
with the requirements of Section 162(m) of the Code permitting a federal income
tax deduction for Awards to the CEO, may at any time prior to the financial
determination of Awards change the performance measures or Operational Targets
to reflect a change in corporate capitalization, such as a stock split or stock
dividend, or a corporate transaction, such as a merger, consolidation,
separation, reorganization or partial or complete liquidation, or to equitably
reflect the occurrence of any extraordinary event, any change in applicable
accounting rules or principles, any change in the Company's method of
accounting, any change in applicable law, any change due to any merger,
consolidation, acquisition, reorganization, stock split, stock dividend,
combination of shares or other changes in the Company's corporate structure or
shares, or any other change of a similar nature.
7. PAYMENT OF AWARDS
The Committee shall certify and announce the Awards that will be paid by the
Company to each Officer as soon as practicable following the final determination
of the Company's financial results for the relevant Performance Period. Subject
to the provisions of Section 8, payment of the Awards certified by the Committee
shall normally be made, in a single lump sum cash payment as soon as practicable
following the close of such Performance Period but in any event within 120 days
after the close of the Performance Period. In the case of all other
Participants, as soon as practicable after the close of a Performance Period,
the CEO shall review the Business Units' financial performance against the
Operational Targets for that Performance Period and, subject to the provisions
of Section 8 of the Plan, each Award to the extent earned shall be paid in a
single lump sum cash payment as soon as practicable after the close of the
Performance Period, but no later than March 31 following the close of the
Performance Period. Participants in the Plan who are eligible to participate in
the General Instrument Corporation Savings Plan (the "Savings Plan") and who are
not a "highly compensated employee" within the meaning of Section 414(q) of the
Code may, in lieu of receiving payment of the Award in cash, elect to contribute
50% or 100% of any Award to the Savings Plan for the Performance year in which
the Award is earned as a pre-tax non-matched contribution, to the extent such
contribution is permitted in accordance with the terms of such plan.
Participants in the Plan who are eligible to participate in the General
Instrument Corporation Deferred Compensation Plan shall be permitted to forego
all or a portion of their respective Awards to the extent deferrals are
permitted in accordance with the terms of such plan.
If a Change of Control occurs prior to the end of a Performance Period, the
Company shall, within 60 days thereafter, pay to each Participant in the Plan
immediately prior to the Change of Control (regardless of whether the
Participant remains employed after the Change of Control) an Award which is
calculated assuming that the Operational Targets were achieved at the 100% level
(without regard to any other factors such as personal performance) and such
Award shall be based on Base Salary earned to the date of the Change of Control.
8. LIMITATIONS ON RIGHTS TO PAYMENT OF AWARDS
No Participant shall have any right to receive payment of an Award under the
Plan for a Performance Period unless the Participant remains in the employ of
the Company through the payment date of the
B-7
<PAGE>
Award for such Performance Period, except as provided in the last paragraph of
Section 7 of the Plan. However, if the Participant has active service with the
Company for at least three months during any Performance Period but, prior to
payment of the Award for such Performance Period, a Participant's employment
with the Company terminates due to the Participant's death, Disability or
Retirement, such Participant (or, in the event of the Participant's death, the
Participant's estate, beneficiary or beneficiaries as determined under Section 9
of the Plan) shall remain eligible to receive a prorated portion of any earned
Award, based on the number of days that the Participant was actively employed
and performed services during such Performance Period.
9. DESIGNATION OF BENEFICIARY
A Participant may designate a beneficiary or beneficiaries who, in the event
of the Participant's death
prior to full payment of any Award hereunder, shall receive payment of any Award
due under the Plan. Such designation shall be made by the Participant on a form
prescribed by the CEO. The Participant may, at any time, change or revoke such
designation. A beneficiary designation, or revocation of a prior beneficiary
designation, will be effective only if it is made in writing on a form provided
by the Company, signed by the Participant and received by the Company. If the
Participant does not designate a beneficiary or the beneficiary dies prior to
receiving any payment of an Award, Awards payable under the Plan shall be paid
to the Participant's estate.
10. AMENDMENTS
The Committee may at any time amend (in whole or in part) this Plan;
PROVIDED, HOWEVER, that the Committee shall not amend the Plan without
stockholder approval if such approval is required by Section 162(m) of the Code.
No such amendment which adversely affects any Participant's rights to or
interest in an Award earned prior to the date of the amendment shall be
effective unless the Participant shall have agreed thereto.
11. TERMINATION
The Committee may terminate this Plan (in whole or in part) at any time. In
the case of such termination of the Plan, the following provisions of this
Section 11 shall apply notwithstanding any other provisions of the Plan to the
contrary:
(i) The Committee shall promulgate administrative rules applicable to Plan
termination, pursuant to which each affected Participant (other than an Officer)
shall receive, with respect to each Performance Period which has commenced on or
prior to the effective date of the Plan termination (the "Termination Date") and
for which the Award has not yet been paid, the amount described in such rules
and each Officer shall receive an amount equal to the amount the Award would
have been had the Plan not been terminated (prorated for the Performance Period
in which the Termination Date occurred), subject to reduction in the discretion
of the Committee.
(ii) Each Award payable under this Section 11 shall be paid as soon as
practicable, but in no event later than 120 days after the Termination Date.
12. MISCELLANEOUS PROVISIONS
(a) This Plan is not a contract between the Company and the Employees or the
Participants. Neither the establishment of this Plan, nor any action taken
hereunder, shall be construed as giving any Employee or any Participant any
right to be retained in the employ of the Company or any of its Subsidiaries.
The Company is under no obligation to continue the Plan.
(b) A Participant's right and interest under the Plan may not be assigned or
transferred, except as provided in Section 8 of the Plan, and any attempted
assignment or transfer shall be null and void and shall
B-8
<PAGE>
extinguish, in the Company's sole discretion, the Company's obligation under the
Plan to pay Awards with respect to the Participant.
(c) The Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund, or to make any other segregation of
assets, to assure payment of Awards.
(d) The Company shall have the right to deduct from Awards paid any taxes or
other amounts required by law to be withheld.
(e) Nothing contained in the Plan shall limit or affect in any manner or
degree the normal and usual powers of management, exercised by the officers and
the Board of Directors or committees thereof, to change the duties or the
character of employment of any employee of the Company or to remove the
individual from the employment of the Company at any time, all of which rights
and powers are expressly reserved.
(f) It is the intent of the Company that the Plan and Awards under the Plan
for the CEO comply with the applicable provisions of Section 162(m) of the Code.
To the extent that any legal requirement of Section 162(m) of the Code as set
forth in the Plan ceases to be required under Section 162(m) of the Code, that
Plan provision shall cease to apply.
(g) The validity, construction, interpretation and effect of the Plan shall
exclusively be governed by and determined in accordance with the law of the
Commonwealth of Pennsylvania.
B-9
<PAGE>
GENERAL INSTRUMENT CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 27, 1998
The undersigned hereby authorizes and directs State Street Bank and
Trust, as Special Fiduciary (the "Special Fiduciary") of the NextLevel
Systems (Puerto Rico), Inc. Savings Plan (the "Plan") to direct Banco
Santander Puerto Rico, as Trustee (the "Trustee") of the Plan, to vote
as Proxy for the undersigned as herein stated at the Annual Meeting of
Stockholders of General Instrument Corporation (the "Company") to be held
at the Wyndham Franklin Plaza Hotel, 17th and Race Street, Philadelphia,
Pennsylvania, on May 27, 1998 at 9:30 a.m., local time, and at any
adjournment thereof, all shares of Common Stock of the Company allocated
to the account of the undersigned under such Plan, on the proposals set
forth below and in accordance with the discretion of the Special Fiduciary
on any other matters that may properly come before the meeting or any
adjournments thereof. The undersigned hereby acknowledges receipt of the
Notice and Proxy Statement, dated April 7, 1998.
THE SHARES COVERED BY THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, THE PROXY WILL BE VOTED BY THE TRUSTEE, AS DIRECTED
BY THE SPECIAL FIDUCIARY, IN THE BEST INTEREST OF THE PLAN PARTICIPANTS AND
BENEFICIARIES.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE. ------------
|See Reverse|
(IMPORTANT -- TO BE SIGNED AND DATED ON REVERSE SIDE) | Side |
-------------
<PAGE>
Please mark -----
your votes as | X |
indicated in -----
this example
The Board of Directors recommends that stockholders vote
FOR Proposals One, Two, Three and Four.
For all WITHHOLD
nominees AUTHORITY
listed below to vote for all
(except as nominees
marked to the listed below
contrary)
PROPOSAL ONE To elect two Class I directors / / / /
for terms expiring at the 2001 Annual Meeting
of Stockholders.
NOMINEES: EDWARD D. BREEN AND ALEX J. MANDL.
(INSTRUCTION: TO WITHHOLD YOUR VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE
THROUGH THE NOMINEE'S NAME.)
FOR AGAINST ABSTAIN
PROPOSAL TWO: To approve the Company's 1997 / / / / / /
Amended and Restated Long-Term Incentive Plan.
FOR AGAINST ABSTAIN
PROPOSAL THREE: To approve the Company's / / / / / /
Annual Incentive Plan.
FOR AGAINST ABSTAIN
PROPOSAL FOUR: To ratify the appointment by the / / / / / /
Board of Directors of the Company of Deloitte &
Touche LLP as independent auditor for the Company
for the 1998 fiscal year.
Signature(s):_____________________________________ Dated:_________, 1998
Note: Please sign as name appears hereon. Joint owners should each sign. When
acting as attorney, executor, administrator, trustee or guardian, please give
full title as such.
<PAGE>
GENERAL INSTRUMENT CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 27, 1998
The undersigned hereby authorizes and directs State Street Bank and Trust,
as Special Fiduciary (the "Special Fiduciary") of the General Instrument
Corporation Savings Plan (the "Plan"), to direct Vanguard Fiduciary Trust
Company, as Trustee (the "Trustee") of the Plan, to vote as Proxy for the
undersigned as herein stated at the Annual Meeting of Stockholders of General
Instrument Corporation (the "Company") to be held at the Wyndham Franklin Plaza
Hotel, 17th and Race Street, Philadelphia, Pennsylvania, on May 27, 1998 at
9:30 a.m., local time, and at any adjournment thereof, all shares of Common
Stock of the Company allocated to the account of the undersigned under such
Plan, on the proposals set forth below and in accordance with the discretion
of the Special Fiduciary on any other matters that may properly come before
the meeting or any adjournments thereof. The undersigned hereby acknowledges
receipt of the Notice and Proxy Statement, dated April 7, 1998.
THE SHARES COVERED BY THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, THE PROXY WILL BE VOTED BY THE TRUSTEE, AS DIRECTED BY
THE SPECIAL FIDUCIARY, IN THE BEST INTEREST OF THE PLAN PARTICIPANTS AND
BENEFICIARIES.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
(IMPORTANT -- TO BE SIGNED AND DATED ON REVERSE SIDE)
See Reverse
Side
<PAGE>
Please mark
your votes as X
indicated in
this example
The Board of Directors recommends that stockholders
vote FOR Proposals One, Two, Three and Four.
For all WITHHOLD
nominees AUTHORITY
listed below to vote for
(except as all nominees
marked to the listed below.
contrary)
PROPOSAL ONE: To elect two Class I
directors for terms expiring at the 2001 / / / /
Annual Meeting of Stockholders.
NOMINEES: EDWARD D. BREEN AND ALEX J. MANDL.
(INSTRUCTION: TO WITHHOLD YOUR VOTE FOR ANY
INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH THE
NOMINEE'S NAME.)
PROPOSAL TWO: To approve the Company's 1997 FOR AGAINST ABSTAIN
Amended and Restated Long-Term Incentive Plan. / / / / / /
PROPOSAL THREE: To approve the Company's FOR AGAINST ABSTAIN
Annual Incentive Plan. / / / / / /
PROPOSAL FOUR: To ratify the appointment by
the Board of Directors of the Company of FOR AGAINST ABSTAIN
Deloitte & Touche LLP as independent auditor / / / / / /
for the Company for the 1998 fiscal year.
Signature(s):_______________________________________ Dated:_________, 1998
NOTE: Please sign as name appears hereon. Joint owners should each sign.
When acting as attorney, executor, administrator, trustee or guardian, please
give full title as such.
<PAGE>
GENERAL INSTRUMENT CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 27, 1998
The undersigned hereby appoints Keith A. Zar and Richard C. Smith and
each or either of them his attorneys and agents, with full power of
substitution to vote as Proxy for the undersigned as herein stated at the
Annual Meeting of Stockholders of General Instrument Corporation (the
"Company") to be held at the the Wyndham Franklin Plaza Hotel, 17th and
Race Street, Philadelphia, Pennsylvania, on May 27, 1998 at 9:30 a.m.,
local time, and at any adjournment thereof, according to the number of
votes the undersigned would be entitled to vote if personally present,
on the proposals set forth below and in accordance with their discretion
on any other matters that may properly come before the meeting or any
adjournments thereof. The undersigned hereby acknowledges receipt of
the Notice and Proxy Statement, dated April 7, 1998.
If this proxy is returned without direction being given, this proxy will be
voted FOR Proposals One, Two, Three and Four.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
(IMPORTANT -- TO BE SIGNED AND DATED ON REVERSE SIDE)
See Reverse Side
<PAGE>
Please mark
your votes as /X/
indicated in
this example
The Board of Directors recommends that stockholders
vote FOR Proposals One, Two, Three and Four.
For all WITHHOLD
nominees AUTHORITY
listed below to vote for
(except as all nominees
marked to the listed below.
contrary)
PROPOSAL ONE: To elect two Class I
directors for terms ending at the 2001 / / / /
Annual Meeting of Stockholders.
NOMINEES: EDWARD D. BREEN AND ALEX J. MANDL.
(INSTRUCTION: TO WITHHOLD YOUR VOTE FOR ANY
INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH THE
NOMINEE'S NAME.)
PROPOSAL TWO: To approve the Company's 1997 FOR AGAINST ABSTAIN
Amended And Restated Long-Term Incentive Plan. / / / / / /
PROPOSAL THREE: To approve the Company's FOR AGAINST ABSTAIN
Annual Incentive Plan. / / / / / /
PROPOSAL FOUR: To ratify the appointment by
the Board of Directors of the Company of FOR AGAINST ABSTAIN
Deloitte & Touche LLP as independent auditor / / / / / /
for the Company for the 1998 fiscal year.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
Please sign exactly as your name appears. If acting as attorney, executor,
administrator, trustee, guardian, etc., you should so indicate when signing.
If a corporation, please sign the full corporate name by President or other
duly authorized officer. If a partnership, please sign in full partnership
name by authorized person. If shares are held jointly, both parties must
sign and date.
Signature(s):_______________________________________ Dated:_________, 1998
Signature(s):_______________________________________ Dated:_________, 1998
