<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
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<S> <C>
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
</TABLE>
GENERAL INSTRUMENT CORPORATION
- --------------------------------------------------------------------------------
(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):
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<S> <C> <C>
/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:
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(2) Aggregate number of securities to which transaction applies:
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(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:
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(5) Total fee paid:
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/ / 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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</TABLE>
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[LOGO]
General Instrument Corporation
101 Tournament Drive
Horsham, Pennsylvania 19044
Tel 215 323 1000 / 800 523 6678
Internet www.gi.com
April 14, 1999
Dear Stockholder:
You are cordially invited to attend the 1999 Annual Meeting of Stockholders
(the "Meeting") of General Instrument Corporation, a Delaware corporation (the
"Company"), to be held on Tuesday, May 25, 1999 at 9:30 a.m., local time, at the
Wyndham Franklin Plaza Hotel, 17th and Race Street, Philadelphia, Pennsylvania.
At the Meeting, we will review the Company's recent activities, as well as
the outlook for 1999. 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 Tuesday, May 25, 1999, 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 three Class II directors for terms ending at the
2002 Annual Meeting of Stockholders;
PROPOSAL TWO: To approve the Company's 1999 Long-Term Incentive Plan;
and
PROPOSAL THREE: To ratify the appointment by the Board of Directors of
the Company of Deloitte & Touche LLP as independent auditor for the Company
for the 1999 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 31, 1999 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 14, 1999
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 Tuesday, May 25, 1999 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 three Class II Directors for terms
ending at the 2002 Annual Meeting of Stockholders; PROPOSAL TWO: To approve the
Company's 1999 Long-Term Incentive Plan (the "1999 Long-Term Incentive Plan");
and PROPOSAL THREE: To ratify the appointment by the Board of Directors of the
Company of Deloitte & Touche LLP as independent auditor for the Company for the
1999 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 31, 1999 (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 177,164,257 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 14, 1999.
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 Proposal Two is required to
approve such proposal, provided that the total votes cast on such proposal
represent a majority of the shares entitled to vote on such proposal. 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 Three.
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 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,
<PAGE>
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 dated proxy, or by attending the Meeting in
person and giving oral advice to the Secretary of the Company.
COMPANY BACKGROUND
On July 25, 1997, the Company was spun-off (the "Distribution") 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 Distribution, 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.
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<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 2001 Annual Meeting; three Class II
Directors, whose terms expire at the Meeting; and one Class III Director (with
one Class III director vacancy), whose term expires 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 2002 ANNUAL MEETING OF STOCKHOLDERS
JOHN SEELY BROWN, age 59. Dr. Seely Brown was a director of the Distributing
Company from July 1993 to July 1997 and has been a director of the Company since
the Distribution. He has been Chief Scientist of Xerox Corporation ("Xerox")
since 1992 and Corporate Vice President of Xerox since 1990. 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, age 54. Mr. Drendel was a director of the Distributing
Company from 1992 until 1997 and has been a director of the Company since the
Distribution. He was a director of General Instrument Corporation of Delaware
("GI Delaware"), a subsidiary of the Distributing Company, and its predecessors
from 1987 to 1992. He has served as Chairman and Chief Executive Officer of
CommScope, Inc. ("CommScope") since 1997, Chairman and President of CommScope,
Inc. of North Carolina ("CommScope NC") from 1986 to 1997, and Chief Executive
Officer of CommScope NC since 1976. He is a director of CommScope, Nextel
Communications, Inc., C-SPAN, and the National Cable Television Association.
LYNN FORESTER, age 44. Ms. Forester was a director of the Distributing
Company from February 1995 until July 1997 and has been a director of the
Company since the Distribution. She has been President and Chief Executive
Officer of FirstMark Holdings, Inc. since 1984 and since June 1998 has served as
Co-Chief Executive Officer of FirstMark Communications International, LLC, a
telecommunications company. From 1989 to December 1994, she 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.
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.
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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
(except Dan Schafer) has served since the Distribution. Mr. J. Tracy O'Rourke, a
Class III Director since the Distribution, resigned effective November 2, 1998,
and Mr. Theodore J. Forstmann, a Class III Director since the Distribution,
resigned effective April 5, 1999.
<TABLE>
<CAPTION>
NAME, AGE AND CURRENT TERM
PRINCIPAL OCCUPATION EXPIRES INFORMATION
- ---------------------------------- ----------- ------------------------------------------------
<S> <C> <C>
Edward D. Breen, 43 2001 Edward D. Breen became Chairman of the Board,
Chairman of the Board and President and Chief Executive Officer of the
Chief Executive Officer of the Company in December 1997, after having served as
Company 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.
John Seely Brown, 59 1999 John Seely Brown was a director of the
Chief Scientist and Corporate Distributing Company from July 1993 to July
Vice President, Xerox 1997. He has been Chief Scientist of Xerox since
Corporation 1992 and Corporate Vice President of Xerox since
1990. 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, 54 1999 Frank M. Drendel was a director of the
Chairman and Chief Executive Distributing Company from 1992 until 1997 and
Officer, CommScope, Inc. was a director of GI Delaware, a subsidiary of
the Distributing Company, and its predecessors
from 1987 to 1992. He has served as Chairman and
Chief Executive Officer of CommScope since 1997,
Chairman and President of CommScope NC from 1986
to 1997, and Chief Executive Officer of
CommScope NC since 1976. He is a director of
CommScope, Nextel Communications, Inc., C-SPAN,
and the National Cable Television Association.
Lynn Forester, 44 1999 Lynn Forester was a director of the Distributing
Co-Chief Executive Officer, Company from February 1995 until July 1997. She
FirstMark Communications has been President and Chief Executive Officer
International, LLC. of FirstMark Holdings, Inc. since 1984 and since
June 1998 has served as Co-Chief Executive
Officer of FirstMark Communications
International, LLC, a
</TABLE>
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<TABLE>
<CAPTION>
NAME, AGE AND CURRENT TERM
PRINCIPAL OCCUPATION EXPIRES INFORMATION
- ---------------------------------- ----------- ------------------------------------------------
<S> <C> <C>
telecommunications company. From 1989 to
December 1994, she 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.
Alex J. Mandl, 55 2001 Alex J. Mandl was a director of the Distributing
Chairman and Chief Executive Company from December 1996 until July 1997.
Officer, Teligent, Inc. Since June 1997, Mr. Mandl has served as
Chairman and Chief Executive Officer of
Teligent, Inc. ("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. He is a
director of Warner-Lambert Company, Dell
Computer Company, the Museum of Television and
Radio, the Walter A. Haas School of Business at
the University of California at Berkeley and
Williamette University.
Dan Schaefer, 63 2000 Dan Schaefer became a director of the Company on
Former U.S. Congressman January 27, 1999. He was a Congressman serving
in the United States House of Representatives,
representing the 6th District of Colorado from
1983 to 1998. As a Congressman he served on the
House Commerce Committee and the House Veterans'
Affairs Committee. He is a director of "Family
Tree" and "Families First".
</TABLE>
COMPENSATION OF DIRECTORS
Employee directors 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 quarterly. In addition, each
non-employee director, upon initial election to the Company's Board of
Directors, received 1,000 shares of Common Stock that vest immediately and has
been granted an option under the Amended and Restated 1997 Long-Term Incentive
Plan (the "1997 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 1997 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 the 1999 Long-Term Incentive
Plan is approved, no further options will be granted under the 1997 Long-Term
Incentive Plan. Under the 1999 Long-Term Incentive Plan, the Board of Directors
and the Compensation Committee have discretion with respect to grants of options
to non-employee directors. The Board of Directors has determined by resolution
to grant: (i) 20,000 options to non-employee directors upon their initial
election and every three years thereafter on the anniversary of their initial
election, with the shares being fully vested upon grant, but will be exercisable
with respect to one-third of the underlying shares on
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each of the first three anniversaries of the grant date; and (ii) 1,000 shares
of unrestricted Common Stock upon initial election, with the shares being fully
vested and transferable upon issuance.
COMMITTEES OF THE BOARD OF DIRECTORS--BOARD MEETINGS
The Board of Directors of the Company held five meetings in 1998. Each
incumbent director attended 75% or more of the aggregate of (i) the total number
of meetings of the Board of Directors held during the period for which he or she
served as a director and (ii) the total number of meetings of all committees
held during the period for which he or she served on those committees, other
than Theodore J. Forstmann and Alex J. Mandl. Average attendance at all such
meetings of the Board of Directors and committees was approximately 86%.
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 Dan Schaefer. The Audit Committee held two meetings in 1998.
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 Alex J.
Mandl. The Compensation Committee held one meeting in 1998.
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 and Frank M. Drendel. The Executive
Committee held one meeting in 1998.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On April 5, 1999, Instrument Partners and Forstmann Little & Co.
Subordinated Debt and Equity Management Buyout Partnership-IV ("MBO-IV",
together with Instrument Partners, the "Partnerships") sold 2,819,111 shares and
2,480,889 shares respectively, of Common Stock to the Company at a purchase
price of $28.00 per share (the "Company Sales") pursuant to the Stock
Disposition Agreement, dated as of April 2, 1999 among the Company, Instrument
Partners and MBO-IV (the "Company Agreement"). Concurrently with that
transaction, the Partnerships sold an aggregate of 10 million shares of Common
Stock to Liberty Media Corporation ("Liberty"), as discussed below, and an
aggregate of 4.27 million shares of Common Stock to Goldman, Sachs & Co.,
reducing their holdings to an aggregate of 2.1 million shares of Common Stock,
representing approximately 1% of the Common Stock, and reported that they intend
to dispose of these shares. In addition, Theodore J. Forstmann resigned from the
Board of Directors.
Pursuant to the Company Agreement, the Partnerships gave the Company
irrevocable proxies to vote at the Meeting the 9.57 million shares of Common
Stock purchased by the Company and Goldman, Sachs & Co. from the Partnerships.
6
<PAGE>
An affiliate of Forstmann Little & Co. provides aircraft maintenance
services to the Company and charged the Company $3.2 million for services in
1998.
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.
National Digital Television Center, Inc. ("NDTC"), formerly a wholly owned
subsidiary of Tele-Communications, Inc. ("TCI"), entered into a Digital Terminal
Purchase Agreement dated as of December 16, 1997 with the Company to purchase up
to 11,800,000 advanced digital set-top terminals over the three to five years
immediately following such date. In connection with the Digital Terminal
Purchase Agreement, the Company also entered into a Warrant Issuance Agreement
dated as of December 16, 1997 with NDTC pursuant to which it issued to NDTC
warrants for 4,676,000 shares of Common Stock (the "Common Stock Warrants") and
warrants for 1,668,000 shares of the Company's Preferred Stock (the "Preferred
Stock Warrants"). As permitted by the Warrant Issuance Agreement, the Company
exercised its right to convert each Preferred Stock Warrant into a Common Stock
Warrant for a number of shares of Common Stock equal to 10 times the number of
shares of Preferred Stock covered by the Preferred Stock Warrants. NDTC held
warrants for 21,356,000 shares of Common Stock. Warrants for 4,928,000
unregistered shares of Common Stock vested on December 31, 1998, and the
remaining warrants issued to NDTC will vest in two installments on December 31,
1999 and 2000, to the extent that in each of those years NDTC fulfills its
obligation to purchase a threshold number of digital set-top terminals from the
Company. In connection with certain restructuring activities in advance of the
merger (the "Merger") of Italy Merger Corp., a wholly owned subsidiary of AT&T
Corp. ("AT&T"), with and into TCI, Liberty, a wholly owned subsidiary of TCI,
purchased all such warrants from NDTC for approximately $176 million. Each
warrant is exercisable for a period of 18 months after it vests at an exercise
price of $14.25 for each share of Common Stock. If, in any year, the Company
fails to deliver the threshold number of digital terminals for such year,
through no fault of NDTC, the total number of Liberty's warrants will vest for
that year.
On June 17, 1998, the Company entered into an Asset Purchase Agreement (the
"Agreement") with two affiliates of Tele-Communications, Inc., TCIVG-GIC, Inc.
("TCIVG") and NDTC Technology, Inc. ("NDTC Technology" and, collectively with
TCIVG, "TCI") pursuant to which the Company agreed to acquire from TCIVG, in
exchange for 21.4 million unregistered shares of the Company's Common Stock,
certain assets, a license to certain intellectual property from NDTC Technology
which will enable the Company to conduct authorization services and future cash
consideration as discussed below. Following the Merger, Liberty became the
beneficial owner of such 21.4 million unregistered shares of the Company's
Common Stock. The shares issued to TCI, and currently held by Liberty, are
restricted in that they are not registered and are not transferable to any
unrelated party other than in the event of a change of control of the Company
for a period of three years following their date of issuance. The Company's
provision of services under the aforementioned license is intended to provide
the cable industry with a secure access control platform to support widespread
deployment of digital terminals and related systems and applications. On July
17, 1998 the transaction was consummated. The Agreement provides the Company
with minimum revenue guarantees from TCI over the first nine years from the date
of closing. The Company has contracted with NDTC Technology for certain support
services during the first nine years following the date of closing, with
renewable one-year terms. The Agreement gives the Company the right to license
the technology for a period of 20 years. As mentioned above, the Agreement
contains a provision for TCIVG to pay the Company $50 million over the first
five years from the date of closing in equal monthly installments which
represents a reduction of purchase price. The present value of the $50 million
note receivable was recorded as a reduction of stockholders' equity. The net
purchase price of $400 million was allocated to the license and the assets
acquired based on their respective estimated fair values. The fair value of
assets acquired includes property, plant and equipment of $2 million, deferred
tax liabilities of $30 million and a license of $428 million. The Company
computed the purchase price by multiplying the number of shares issued by the
per share trading price of the stock reduced by a 10%
7
<PAGE>
discount to reflect the restrictions associated with the shares, and adjusted
such resulting amount to reflect the $50 million reduction in purchase price
discussed above.
On April 5, 1999, Instrument Partners and MBO-IV sold 5,319,078 shares and
4,680,922 shares, respectively, of Common Stock to Liberty, at a purchase price
of $28.00 per share, pursuant to the Stock Purchase Agreement, dated as of April
2, 1999 among MBO-IV, Instrument Partners and Liberty (the "Stock Purchase
Agreement"). Also, Instrument Partners and MBO-IV, pursuant to the Stock
Purchase Agreement, assigned certain rights under a registration rights
agreement to Liberty, which rights entitle Liberty to demand that the Company
register the shares of Common Stock purchased by Liberty from the Partnerships
under certain circumstances. As part of the sale, the Partnerships gave
irrevocable proxies to Liberty to vote at the Meeting, the shares of Common
Stock purchased by it from the Partnerships.
The Company is a party to several other agreements with TCI affiliates,
including several "turnkey agreements" relating to the construction and/or
rebuild of broadband distribution networks and supply contracts for broadband
and satellite equipment on an as-ordered basis. In addition, the Company is a
party to license agreements with TCI licensing a digital compression system and
an access control and encryption system.
Sales to TCI and its affiliates represented 31% of total Company sales for
the year ended December 31, 1998.
The Company believes that the transactions with TCI and its affiliates are
at arms length and are under terms 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 & Co. 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
Distribution, by allegedly making false and misleading statements and failing to
disclose material facts about the Distributing Company's planned shipments in
1995 of its CFT2200 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
Distribution, the members of the Distributing Company's Board of Directors,
several of its officers and Forstmann Little & Co. 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. Both
actions seek unspecified damages and attorneys' fees and costs. The court
granted the defendants' motion 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 answered the amended consolidated complaint in the class actions,
denying liability, and filed a renewed motion to dismiss the derivative action.
On September 22, 1998, defendants' motion to dismiss the derivative action was
denied. In November 1998, the defendants filed an answer to the derivative
action, denying liability. On January 21, 1999, the plaintiffs in the class
actions filed their motion for class certification, including the defendants'
opposition. In connection with the Distribution, 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.
8
<PAGE>
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, 1998, 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>
NAME AND TITLE AGE BUSINESS EXPERIENCE
- ---------------------------------- ----------- ------------------------------------------------
<S> <C> <C>
Edward D. Breen 43 Edward D. Breen became Chairman of the Board,
Chairman of the Board and Chief President and Chief Executive Officer of the
Executive Officer 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.
Robert D. Cromack 55 Robert D. Cromack became Senior Vice President,
Senior Vice President, Manufacturing and Procurement of the Company in
Manufacturing and Procurement October 1997 and was elected as an executive
officer in such position in April 1998.
Beginning in February 1996, he was Senior Vice
President, Manufacturing of the Distributing
Company's Communications Division, and he
continued in that position with the Company
after the Distribution until October 1997. From
January 1991 to February 1996, he served as Vice
President, Manufacturing for the Distributing
Company's Jerrold Communications Division. He
has held various positions with the Company and
the Distributing Company since 1966.
Scott A. Crum 42 Scott A. Crum became Senior Vice President,
Senior Vice President, Administration and Employee Resources of the
Administration Company in April 1998, and from December 1997 to
and Employee Resources April 1998 he was Vice President, Administration
and Employee Resources of the Company. He became
Vice President of Administration and
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
NAME AND TITLE AGE BUSINESS EXPERIENCE
- ---------------------------------- ----------- ------------------------------------------------
<S> <C> <C>
Employee Resources of the Distributing Company's
Broadband Networks Group in July 1996 and
continued in this position for the Company after
the Distribution 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 Commercial
Aircraft Division. He was Director, Continuous
Improvement Systems for Northrop Grumman
Corporation's Commercial Aircraft Division from
November 1992 to May 1995.
Thomas J. Lynch 44 Thomas J. Lynch became Senior Vice President and
Senior Vice President and General Manager, Satellite and Broadcast Network
General Systems of the Company in April 1998. He was
Manager, Satellite and Broadcast Vice President and General Manager, Satellite
Network Systems Data Networks Systems of the Company from
October 1997 to April 1998. Between April 1994
and October 1997, he was Vice President and
General Manager, Transmission Network Systems
for the Distributing Company and, after the
Distribution, the Company. Prior to that, Mr.
Lynch held the position of Vice President,
Finance with the Distributing Company's Jerrold
Communications Division. He has held various
positions with the Company and the Distributing
Company since 1982.
Daniel M. Moloney 39 Daniel M. Moloney became Senior Vice President
Senior Vice President and and General Manager, Advanced Network and
General Telecom Systems of the Company in April 1998. He
Manager, Advanced Network and became Vice President and General Manager,
Telecom Systems Advanced Network Systems of the Distributing
Company's Advanced Network Systems business unit
in August 1995 and continued in that position
with the Company after the Distribution until
April 1998. Prior to that, Mr. Moloney served as
Vice President of Addressable Systems with the
Distributing Company. He has held various
positions with the Company and the Distributing
Company since 1983.
Eric M. Pillmore 45 Eric M. Pillmore became Senior Vice President,
Senior Vice President, Finance Finance and Chief Financial Officer of the
and Company in April 1998, and from December 1997 to
Chief Financial Officer April 1998 he was Acting Chief Financial Officer
and Vice President, Finance of the Company. 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
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
NAME AND TITLE AGE BUSINESS EXPERIENCE
- ---------------------------------- ----------- ------------------------------------------------
<S> <C> <C>
Company after the Distribution 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.
G. Bickley Remmey, III 39 G. Bickley Remmey, III became Senior Vice
Senior Vice President and President and General Manager, Transmission
General Network Systems of the Company in April 1998. He
Manager, Transmission Network was Vice President and General Manager of the
Systems Transmission Network Systems business unit of
the Company from October 1997 to April 1998.
From July 1997 to October 1997, he was Vice
President, Marketing for the Company's
Transmission Network Systems business unit.
Beginning in November 1994 and until July 1997,
Mr. Remmey held the position of Vice President,
National Accounts with the Distributing Company.
Prior to that, Mr. Remmey was Director, National
Accounts for the Distributing Company from May
1993 until November 1994. He has held various
positions with the Company and the Distributing
Company since 1987.
David E. Robinson 39 David E. Robinson became Senior Vice President
Senior Vice President and and General Manager, Digital Network Systems of
General the Company in April 1998. He became Vice
Manager, Digital Network Systems President and General Manager, Digital Network
Systems of the Distributing Company's Digital
Network Systems business unit in November 1995
and continued in that position with the Company
after the Distribution until April 1998. He was
Director, Cable TV Products of the Network
Systems Division of AT&T from October 1993 to
October 1995. Prior to that he held various
positions with the Distributing Company since
1983.
Geoffrey S. Roman 46 Geoffrey S. Roman became Executive Vice
Executive Vice President President of the Company in April 1998, and from
July 1997 to April 1998 he was Vice President of
the Company. He was Vice President of the
Distributing Company from August 1996 until the
Distribution. 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
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
NAME AND TITLE AGE BUSINESS EXPERIENCE
- ---------------------------------- ----------- ------------------------------------------------
<S> <C> <C>
from January 1991 to October 1994, he was Vice
President, Technology and Business Development
of GI Delaware. Prior to that he held various
positions with the Distributing Company since
1982.
Marc E. Rothman 34 Marc E. Rothman became Vice President, Financial
Vice President, Financial Planning and Controller of the Company in
Planning January 1999, and from July 1998 until January
and Controller 1999 he was Vice President and Controller of the
Company. Prior to that he was Deputy Corporate
Controller from the time he joined the
Distributing Company in February 1995 and
continued in that position with the Company
after the Distribution until July 1998. From
1987 to February 1995 he held various positions
at Deloitte & Touche LLP.
Robert A. Scott 48 Robert A. Scott became Senior Vice President,
Senior Vice President, General General Counsel and Secretary in October 1998,
Counsel and Secretary and from April 1998 to October 1998 he was
Senior Vice President, Legal and Secretary of
the Company. From December 1997 to April 1998 he
was Vice President, Legal and Secretary of the
Company. 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
Distribution until December 1997. He was General
Counsel, Communications Division of the
Distributing Company from November 1992 to
February 1996.
Richard C. Smith 54 Richard C. Smith became Executive Vice President
Executive Vice President and and Treasurer of the Company in April 1998, and
Treasurer from July 1997 to April 1998 he was Vice
President, Business Development and Treasurer of
the Company. 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.
Prior to that he held various positions with the
Distributing Company since 1983.
</TABLE>
12
<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
and the four other most highly compensated 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
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------ -------------
OTHER ANNUAL SECURITIES ALL OTHER
COMPEN- UNDERLYING COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(A) SATION(B) OPTIONS(#)(C) SATION
- -------------------------------------------------- ---- -------- -------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Edward D. Breen................................... 1998 $504,167 $570,454 $ 5,024(d) 300,000 $6,744(e)
Chairman of the Board and Chief Executive 1997 354,753 234,599 -- 1,037,647 4,288
Officer 1996 300,000 62,820 -- 60,000 4,568
Robert D. Cromack................................. 1998 $298,248 $156,241 $ 1,583(d) 63,000 $6,728(e)
Senior Vice President, Manufacturing and 1997(f) -- -- -- -- --
Procurement 1996(f) -- -- -- -- --
Eric M. Pillmore.................................. 1998 $251,042 $182,603 $ 1,088(d) 63,000 $5,913(e)
Senior Vice President, Finance and Chief 1997 213,440 109,892 -- 150,002 3,779
Financial Officer 1996(g) -- -- -- -- --
Geoffrey S. Roman................................. 1998 $300,833 $243,133 $ 3,969(d) 63,000 $7,161(e)
Executive Vice President 1997 260,679 136,931 57,817(h) 162,480 5,744
1996 219,646 69,366 45,551(h) 44,028 5,056
Richard C. Smith.................................. 1998 $289,375 $194,894 $88,185(i) 63,000 $6,556(e)
Executive Vice President and Treasurer 1997 248,750 78,905 -- 145,394 5,724
1996 225,000 -- -- 16,000 5,310
</TABLE>
- ------------------------
(a) Amounts reported for 1998 reflect cash bonus awards paid in 1999 pursuant to
the Annual Incentive Plan with respect to performance in 1998. Amounts
reported for 1997 reflect cash bonus awards paid in 1998 pursuant to the
Distributing Company's 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.
(b) 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.
(c) Reflects the number of shares of Common Stock underlying options granted.
(See the table below, "Option Grants in Last Fiscal Year.")
(d) Reflects amounts reimbursed during the fiscal year for the payment of taxes.
(e) Includes payment in 1998 of premiums for term life insurance of $2,361,
$2,177, $1,976, $2,361 and $2,169 on behalf of each of Messrs. Breen,
Cromack, Pillmore, Roman and Smith, respectively, and the matching
contribution for 1998 under the Company's Savings Plan (the "Savings Plan")
in the amount of $4,383, $4,551, $3,937, $4,800 and $4,387 for each of
Messrs. Breen, Cromack, Pillmore, Roman and Smith, respectively.
(f) Mr. Cromack was not an executive officer of the Company in 1997 or of the
Distributing Company in 1996.
(g) Mr. Pillmore was not an executive officer of the Distributing Company in
1996.
(h) Reflects payments to Mr. Roman in 1997 and 1996 for relocation costs.
(i) Includes payments of $68,041 for relocation costs (including amounts
reimbursed for the payment of taxes in connection with such relocation
costs) and $9,719 reimbursed during the fiscal year for the payment of other
taxes.
13
<PAGE>
STOCK OPTIONS
GRANT OF OPTIONS. The table below sets forth information with respect to
grants of options to purchase Common Stock during the year ended December 31,
1998 to the executives listed in the Summary Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
---------------------------------------------------- ANNUAL RATES OF STOCK
NUMBER OF PERCENT OF PRICE APPRECIATION
SECURITIES TOTAL OPTIONS FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(B)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED(A) FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
- ------------------------------ ----------- ------------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Edward D. Breen............... 300,000 8.55% $ 21.75 10/13/08 $4,103,508 $10,399,170
Robert D. Cromack............. 63,000 1.80% 21.75 10/13/08 861,737 2,183,826
Eric M. Pillmore.............. 63,000 1.80% 21.75 10/13/08 861,737 2,183,826
Geoffrey S. Roman............. 63,000 1.80% 21.75 10/13/08 861,737 2,183,826
Richard C. Smith.............. 63,000 1.80% 21.75 10/13/08 861,737 2,183,826
</TABLE>
- ------------------------
(a) The options will become exercisable with respect to one-third of the shares
covered thereby on October 13, 1999, 2000, 2001. In the event of a change in
control (as defined in the Long-Term Incentive Plan) all such options shall
become immediately and fully exercisable.
(b) The assumed 5% and 10% annual rates of appreciation are over the term of the
options outstanding as of December 31, 1998 which is ten years from the date
of grant and such assumed rates are set forth in accordance with rules and
regulations adopted by the Commission and do not represent the Company's
estimate of stock price appreciation.
AGGREGATED OPTION EXERCISES AND YEAR-END VALUE. The following table sets
forth, as of December 31, 1998, for each of the executives listed in the Summary
Compensation Table (i) the number of shares of Common Stock acquired upon
exercise of options during 1998 and the aggregate dollar value realized upon the
exercise of such options; (ii) the total number of unexercised options of Common
Stock (exercisable and unexercisable) held; and (iii) the value of such options
that were in-the-money at December 31, 1998 (based on the difference between the
closing price of Common Stock at December 31, 1998 and the exercise price of the
option on such date).
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-
SHARES UNEXERCISED STOCK OPTIONS MONEY STOCK OPTIONS AT
ACQUIRED ON AT FISCAL YEAR-END (#) FISCAL YEAR-END ($)(A)
EXERCISE VALUE -------------------------- ---------------------------
NAME (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------- ----------- ------------ ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Edward D. Breen.................... 278,466 $ 3,218,430 192,410 925,231 $ 3,527,148 $ 15,620,462
Robert D. Cromack.................. 0 0 153,212 119,788 2,701,660 1,818,799
Eric M. Pillmore................... 39,136 400,369 23,096 150,770 416,970 2,357,653
Geoffrey S. Roman.................. 56,311 681,549 93,198 163,491 1,651,881 2,628,648
Richard C. Smith................... 61,184 777,443 65,065 142,316 1,133,387 2,249,615
</TABLE>
- ------------------------
(a) Based on the difference between the closing price of $33.9375 per share at
December 31, 1998, as reported on the New York Stock Exchange Composite
Tape, and the exercise prices of the options on such date.
PENSION PLAN AND SERP
The following table shows, as of December 31, 1998, 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").
14
<PAGE>
PENSION PLAN TABLE
<TABLE>
<CAPTION>
ESTIMATED ANNUAL BENEFITS UPON RETIREMENT,
AVERAGE ANNUAL BASIC WITH YEARS OF SERVICE INDICATED
REMUNERATION DURING SIXTY -------------------------------------------------------
CONSECUTIVE CALENDAR 15 20 25 30 35
MONTHS PRIOR TO RETIREMENT YEARS YEARS YEARS YEARS YEARS
- -------------------------------------------------------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$125,000................................................ $ 25,790 $ 34,387 $ 42,984 $ 51,581 $ 51,581
150,000................................................ 31,415 41,887 52,359 62,831 62,831
175,000................................................ 37,040 49,387 61,734 74,081 74,081
200,000................................................ 42,665 56,887 71,109 85,331 85,331
225,000................................................ 48,290 64,387 80,484 96,581 96,581
250,000................................................ 53,915 71,887 89,859 107,831 107,831
260,000................................................ 56,165 74,887 93,609 112,331 112,331
300,000................................................ 56,165 74,887 93,609 112,331 112,331
500,000................................................ 56,165 74,887 93,609 112,331 112,331
</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 1998 was $160,000. Under the
SERP, compensation for 1998 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 1998 for each of Messrs.
Breen, Cromack, Roman and Smith was $260,000, and for Mr. Pillmore was $251,042.
Credited years of service under both the Pension Plan and the SERP as of
December 31, 1998 are as follows: Mr. Breen, 20 years; Mr. Roman, 16 years; Mr.
Smith, 15 years; Mr. Cromack, 30 years; and Mr. Pillmore, 2 years.
SEVERANCE PROTECTION AGREEMENTS
The Company has entered into severance protection agreements (the "Severance
Agreements") with its executive officers, other than its Chief Executive
Officer. During 1998, the Company had a Severance Agreement in effect with its
Chief Executive Officer, but the Company has replaced that agreement with the
new Employment Agreement described under "Employment Agreement" below. The
Severance 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 one and one-half 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, provided that such amount may be increased by up to one-half times
such sum if an executive officer has not become employed within 18 months
following such termination. The executive's benefits will be continued for 18
months. The former Severance Agreement of the Chief Executive Officer (which has
been replaced by his new Employment Agreement) provided for severance pay in an
amount equal to two times the sum of his base salary and the highest bonus that
would have been payable to him in the year of termination, provided that such
amount could be increased by up to one-half times such sum if the Chief
Executive Officer had not become employed within 24 months following such
termination, and benefits were to be continued for 24 months following
termination.
15
<PAGE>
Under the Severance Agreements, 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 addition to the Severance Agreements described above, and the Employment
Agreement described below, the Company's 1997 and 1999 Long-Term Incentive Plans
(see description below under the caption "Proposal Two: Approval of the 1999
Long-Term Incentive Plan"), Annual Incentive Plan, SERP and Deferred
Compensation Plan contain Change of Control provisions. In the event of a Change
of Control (as defined in the 1997 Long-Term Incentive Plan) participants in the
SERP become entitled to receive the present 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. Under the terms of the Annual Incentive Plan, in the event of a Change
in Control (as defined in the 1997 Long-Term Incentive Plan), within 60 days
thereafter, the Company will pay to each participant in the plan immediately
prior to such Change in Control (regardless of whether such participant remains
in the employ of the Company following the Change in Control) a pro-rata portion
of his or her bonus award assuming that all performance percentages are 100%.
EMPLOYMENT AGREEMENT
In April 1999, the Company entered into a new employment agreement (the
"Employment Agreement") with its Chief Executive Officer, Edward D. Breen, which
replaced his existing Severance Agreement (see "Severance Protection Agreements"
above). Mr. Breen's Employment Agreement extends for a three year period. The
term is automatically extended daily, so that at all times the Employment
Agreement has a three year term.
During the term of the Employment Agreement, Mr. Breen will serve as Chief
Executive Officer of the Company, and his base compensation will be at least
$600,000 per year. Mr. Breen will participate in short term and long-term
incentive plans at levels commensurate with the benefits provided to other
senior executives, with adjustments appropriate for the Chief Executive Officer.
Mr. Breen's target annual bonus will be at least 84% of salary. Mr. Breen will
participate in the Company's welfare and retirement plans, and he will be
provided with at least $7,500,000 of life insurance coverage.
If the Company terminates Mr. Breen's employment without cause during the
term of the Employment Agreement, or in the event of his termination for good
reason, Mr. Breen will receive severance compensation upon his execution of a
release of the Company as to all matters arising in connection with his
employment (other than accrued benefits under benefit plans). The severance
compensation will consist of continued salary and target bonus for a period of
three years after termination and continued coverage (or cash in lieu of
coverage) in retirement and welfare plans for three years. If a termination
occurs after a Change of Control of the Company, the severance compensation will
be paid in a lump sum. If Mr. Breen's termination occurs during the first three
years of the Employment Agreement and before a
16
<PAGE>
Change of Control, Mr. Breen will receive a supplemental severance payment of
$9,000,000. Mr. Breen will receive outplacement assistance and $15,000 annually
for tax and financial planning services. For purposes of the Employment
Agreement, the term "Change of Control" has the same meaning as described below
under "Proposal Two: Approval of 1999 Long-Term Incentive Plan."
Stock options granted to Mr. Breen after the date of the Employment
Agreement will provide for full vesting if Mr. Breen's employment is terminated
by the Company other than for cause or if he terminates for good reason, death
or disability. These stock options will also provide for continuation of the
exercise period for at least one year after termination of employment (but not
after expiration of the option term) if Mr. Breen's employment terminates for
any reason other than cause. Outstanding stock options will become fully vested
upon a Change of Control pursuant to the applicable Long-Term Incentive Plan.
If Mr. Breen becomes disabled, he will receive severance compensation
consisting of continued salary and target bonus for a period of three years,
reduced by disability benefits under the Company's plans, and continued coverage
(or cash in lieu of coverage) in retirement and welfare plans for three years,
as well as, if applicable, the supplemental payment described above.
The Employment Agreement provides for a gross-up payment by the Company in
the event that the total payments to Mr. Breen under the Employment Agreement or
otherwise are subject to the excise tax under Section 4999 of the Code. In such
event, the Company will pay an additional amount so that Mr. Breen is made whole
on an after-tax basis from the effect of the excise tax.
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 determines the base salary
to be paid to the Chief Executive Officer and 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 Company's
Long-Term Incentive Plans, 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's basic objective 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 employees is through
a stock option program.
During 1998, the Company awarded options to purchase an aggregate of
approximately 972,000 shares of Common Stock to 12 executive officers (including
executive officers named in the Summary Compensation Table) under the Company's
1997 Long-Term Incentive Plan. The exercise price of each of these options 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 employees to whom options should be granted and the number of options
to be granted. The recommendations are based on a review of each employee's
position and level of responsibility in the Company, current and long-term
potential contribution to the Company and individual performance. Neither
management nor the Compensation Committee assigned specific weights to these
factors, although the
17
<PAGE>
executive's position and a subjective evaluation of his or her contribution to
the Company were considered most important. Generally the number of options
granted to any 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 of grant. Assuming approval by the
Company's stockholders of the Company's 1999 Long-Term Incentive Plan, no
further options will be granted under the 1997 Long-Term Incentive Plan;
however, it is expected that future awards under the 1999 Long-Term Incentive
Plan will be made periodically in furtherance of the 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 or her
level of responsibility and position in the Company, taking into account
competitive industry salaries. All executive officers received base salary
increases during December 1998.
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. 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 1998, 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 achieved at the 100% level. The target award percentage
for executive officers for 1998 ranged from 35% to 70% for the Chief Executive
Officer. In 1998, 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 1998 received their bonuses based on the
target percentages established for them prior to their election or were set by
the Compensation Committee concurrently with their election.
Bonuses for all officers 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).
Under the Annual Incentive Plan for 1998, if a financial target was
exceeded, the portion of the bonus based on that target was increased above the
target level according to a formula adopted at the beginning of the performance
period, but could not exceed 225% of the target level. In addition, for 1998 the
Committee had the option to adjust the executive's bonus (between 80% and 120%)
based on the executive's overall personal performance. In 1998, Mr. Breen's
bonus was 161.6% of his bonus target level and the bonuses for other executive
officers ranged from 107.8% to 161.6% of their bonus target levels. Under the
Annual Incentive Plan no bonus payment can exceed 150% of an executive's base
salary, except for the CEO, whose bonus may not exceed $1.5 million.
CHIEF EXECUTIVE OFFICER COMPENSATION. Edward D. Breen has served as
Chairman and Chief Executive Officer of the Company since December 1997, after
having served as Acting Chief Executive Officer and President of the Company
since October 1997. Mr. Breen's annual salary, established in October 1997, was
$500,000 for most of 1998, and was increased by the Compensation Committee in
December 1998 to $600,000. During 1998, the Compensation Committee granted Mr.
Breen an option to purchase 300,000
18
<PAGE>
shares of Common Stock with a per share exercise price of $21.75, the closing
market price on the date of the grant.
Mr. Breen's target bonus percentage under the Annual Incentive Plan for 1998
was 70%, and the Committee pre-established Mr. Breen's personal performance
percentage at 120% (subject to reduction at the end of the performance period).
For 1998, the Compensation Committee kept Mr. Breen's personal performance
percentage at 120% in recognition of Mr. Breen's substantial accomplishments
since his election as Chief Executive Officer. Among the factors considered by
the Compensation Committee in certifying Mr. Breen's Annual Incentive Plan bonus
for 1998, as well as establishing his compensation for 1999, were: (i) a 90%
increase in the Company's stock price during 1998; (ii) significant
profitability improvement, including a significant increase in the Company's
operating margin; (iii) improved cash management; (iv) completion of several
strategic initiatives; (v) creation of a new Internet Protocol (IP) networks
business; and (vi) success of the Company's digital deployment.
For 1999, Mr. Breen's target bonus percentage under the Annual Incentive
Plan has been adjusted to 84%, and his personal performance percentage has been
set at 100% (subject to reduction at the end of the performance period).
In April 1999, the Compensation Committee and the Board approved a new
Employment Agreement for Mr. Breen, as described above under "Employment
Agreement," to replace his Severance Agreement. The Compensation Committee
sought advice from an independent compensation consulting firm, which advised
the Committee that the terms of the Employment Agreement are reasonable compared
to similar agreements for chief executive officers of comparable companies.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M). Section 162(m) of the
Internal Revenue 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, exempts qualified "performance-based compensation," the
material terms of which are disclosed to and approved by stockholders.
The Company structured and intends to administer the stock option and stock
appreciation right portions of the 1997 Long-Term Incentive Plan and the stock
option and the stock appreciation right portions of the 1999 Long-Term Incentive
Plan (which is being submitted to the Company's stockholders for approval at the
Meeting) 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 to the Chief Executive Officer would qualify as "performance-based
compensation" and, if so qualified, would be deductible.
The Compensation Committee reserves the authority to award non-deductible
compensation in circumstances that it deems appropriate. Further, because of
ambiguities and uncertainties as to the application and interpretation of
Section 162(m) and the regulations issued thereunder, no assurance can be given,
notwithstanding the Company's efforts, that compensation intended by the Company
to satisfy the requirements for deductibility under Section 162(m) does in fact
do so.
Respectfully submitted,
COMPENSATION COMMITTEE
Alex J. Mandl, Chairman
Lynn Forester
19
<PAGE>
PERFORMANCE GRAPH
The following graph compares the cumulative total return on $100 invested on
July 24, 1997 (the date the Common Stock was first publicly traded) in the
Common Stock, and on June 30, 1997 in the Standard and Poor's 500 Index and the
Standard & Poor's Communications Equipment Index. The return of the Standard &
Poor's indices is calculated assuming reinvestment of dividends. The Company has
not paid any dividends. The stock price performance shown on the graph below is
not necessarily indicative of future price performance.
COMPARISON OF 17 MONTH CUMULATIVE TOTAL RETURN*
AMONG GENERAL INSTRUMENT CORPORATION, THE S&P 500 INDEX
AND THE S&P COMMUNICATIONS EQUIPMENT INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DOLLARS
GENERAL INSTRUMENT CORPORATION S&P 500 S&P COMMUNICATIONS EQUIPMENT
<S> <C> <C> <C>
7/24/97* 100 100 100
9/97 86 107 105
12/97 92 111 95
3/98 107 126 128
6/98 139 130 142
9/98 111 117 107
12/98 174 142 167
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN ($)
----------------------------------------------------
7/24/97* 9/97 12/97 3/98 6/98 9/98 12/98
-------- ---- ----- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GENERAL INSTRUMENT CORPORATION......................................... GIC 100 86 92 107 139 111 174
S & P 500.............................................................. 1500 100 107 111 126 130 117 142
S & P COMMUNICATIONS EQUIPMENT......................................... ICME 100 105 95 128 142 107 167
</TABLE>
- ------------------------------
* $100 INVESTED ON 7/24/97 IN STOCK OR ON 6/30/97 IN INDICES, INCLUDING
REINVESTMENT OF DIVIDENDS.
20
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
The table below sets forth information as to the beneficial ownership of
Common Stock as of April 5, 1999 (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
STOCK % OF SHARES OUTSTANDING
BENEFICIALLY (NET OF TREASURY SHARES)
NAME OWNED(1) BENEFICIALLY OWNED
- ----------------------------------------------------------------------- ---------------- -------------------------
<S> <C> <C>
Liberty Media Corporation (2).......................................... 36,284,000 20.5
Brinson Partners, Inc. (3)............................................. 12,913,558 7.7
Vanguard/Windsor Funds, Inc. (4)....................................... 9,423,400 5.6
Wellington Management Company, LLP (4)(5).............................. 9,573,400 6.3
Edward D. Breen (6).................................................... 291,214 *
John Seely Brown (7)................................................... 44,435 *
Robert D. Cromack (8).................................................. 186,277 *
Frank M. Drendel (9)................................................... 262,705 *
Lynn Forester (10)..................................................... 126,073 *
Alex J. Mandl (11)..................................................... 85,939 *
Eric M. Pillmore (12).................................................. 51,001 *
Geoffrey S. Roman (13)................................................. 153,727 *
Dan Schaefer........................................................... 1,000 *
Richard C. Smith (14).................................................. 129,191 *
All current directors and executive officers of the Company as a group
(17 persons) (15).................................................... 1,651,701 *
</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 April 5, 1999. 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 April 5,
1999 is deemed to be outstanding, but is not deemed to be outstanding for
the purpose of computing the percentage ownership of any other person.
(2) This information is obtained from a Schedule 13D dated March 29, 1999 and a
Schedule 13D/A dated April 6, 1999, both filed with the Commission by
Liberty. Liberty reports beneficial ownership of 36,284,000 shares of Common
Stock and claims sole voting power and sole dispositive power with respect
to all of such shares. Includes 4,928,000 shares of Common Stock issuable
upon exercise of warrants beneficially owned by Liberty, which warrants
vested on December 31, 1998, and 10,000,000 shares of Common Stock purchased
from Instrument Partners and MBO-IV, discussed below. Does not include
16,428,000 shares of Common Stock issuable upon exercise of additional
warrants beneficially owned by Liberty. Subject to certain conditions,
warrants for 5,750,000 shares of Common Stock will vest on December 31,
1999, and warrants for 10,678,000 shares of Common Stock will vest on
December 31, 2000. NDTC sold its warrants for the purchase of 21,356,000
shares of Common Stock to Liberty, a wholly owned subsidiary of TCI. Liberty
succeeded to the beneficial ownership of the shares of Common Stock as a
result of the Merger of Italy Merger Corp., a wholly owned subsidiary of
AT&T, with and into TCI. TCI had previously filed a Report on Schedule 13D
reporting beneficial ownership of the shares of Common Stock, which at that
time were attributed to the TCI
21
<PAGE>
Ventures Group of TCI. In the Merger TCI became a wholly owned subsidiary of
AT&T. The Board of Directors and the management of Liberty manage the
business and affairs of Liberty, including, but not limited to, making
determinations regarding the disposition and voting of the shares of Common
Stock. Although Liberty is a wholly owned subsidiary of AT&T, a majority of
Liberty's Board of Directors consists of individuals designated by TCI prior
to the Merger. If these individuals or their designated successors cease to
constitute a majority of Liberty's Board, Liberty will transfer all of its
assets and businesses to a new entity. Although this new entity would be
owned substantially by AT&T, it would continue to be managed (including with
respect to the voting and disposition of the shares of Common Stock) by the
management of Liberty prior to such transfer of assets. As a result, Liberty
through its Board of Directors and management, will have the power to
determine how the shares of Common Stock will be voted and, subject to the
limitations of the Delaware General Corporation Law, will have the power to
dispose of the shares of Common Stock, and thus is considered the beneficial
owner of the shares of Common Stock for purposes of Section 13(d) of the
Exchange Act. On April 5, 1999, Instrument Partners and MBO-IV sold
5,319,078 shares and 4,680,922 shares, respectively, of Common Stock to
Liberty, at a purchase price of $28.00 per share pursuant to the Stock
Purchase Agreement. As part of the sale, the Partnerships gave irrevocable
proxies to Liberty to vote at the Meeting the shares of Common Stock
purchased by it from the Partnerships.
(3) This information is obtained from a Schedule 13G, dated February 3, 1999,
filed with the Commission by Brinson Partners, Inc. ("BPI") on behalf of
itself, and UBS AG. The Schedule 13G states that BPI is a registered
investment adviser and an indirect wholly-owned subsidiary of UBS AG, and
that UBS AG is reporting indirect beneficial ownership of holdings by reason
of its ownership of BPI and UBS (USA) Inc., a parent holding Company of BPI.
BPI reports beneficial ownership of 12,913,558 shares of Common Stock and
claims shared voting power and shared dispositive power with respect to all
of such shares. UBS AG reports beneficial ownership of 12,913,558 shares of
Common Stock and claims shared voting power and shared dispositive power
with respect to all of such shares. Both BPI and UBS AG disclaim beneficial
ownership of such shares. BPI's principal business office is located at 209
South LaSalle, Chicago, Illinois 60604-1295. UBS AG's principal business
office is located at Bahnhofstrasse 45, 8021 Zurich, Switzerland.
(4) This information is obtained from a Schedule 13G, dated February 11, 1999,
filed with the Commission by Vanguard Windsor Funds--Vanguard 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 9,423,400 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.
(5) This information is obtained from a Schedule 13G, dated December 31, 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. Wellington
reports beneficial ownership of 9,573,400 shares of Common Stock and claims
shared voting power with respect to 150,000 shares of Common Stock and
shared dispositive power with respect to 9,573,400 shares of Common Stock
owned by clients of Wellington, including Vanguard. Wellington, in its
capacity as investment adviser, may be deemed to beneficially own the shares
which are held of record by the clients of Wellington. With the exception of
Vanguard, no such client is known to have the right to receive, or the power
to direct the receipt of dividends from, or the proceeds from the sale of,
shares representing more than 5% of the outstanding Common Stock.
Wellington's principal business office is located at 75 State Street,
Boston, Massachusetts 02109.
(6) Includes 288,290 shares subject to options which are exercisable for Common
Stock currently or within 60 days of April 5, 1999.
22
<PAGE>
(7) Includes 42,435 shares subject to options which are exercisable for Common
Stock currently or within 60 days of April 5, 1999.
(8) Includes 185,010 shares subject to options which are exercisable for Common
Stock currently or within 60 days of April 5, 1999.
(9) Includes 6,667 shares subject to options which are exercisable for Common
Stock currently or within 60 days of April 5, 1999.
(10) Includes 124,073 shares subject to options which are exercisable for Common
Stock currently or within 60 days of April 5, 1999.
(11) Includes 84,939 shares subject to options which are exercisable for Common
Stock currently or within 60 days of April 5, 1999.
(12) Includes 50,002 shares subject to options which are exercisable for Common
Stock currently or within 60 days of April 5, 1999.
(13) Includes 151,509 shares subject to options which are exercisable for Common
Stock currently or within 60 days of April 5, 1999.
(14) Includes 96,862 shares subject to options which are exercisable for Common
Stock currently or within 60 days of April 5, 1999.
(15) Includes 1,335,475 shares subject to options which are exercisable for
Common Stock currently or within 60 days of April 5, 1999. Includes an
aggregate of 23,788 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 31, 1999.
23
<PAGE>
PROPOSAL TWO: APPROVAL OF 1999 LONG-TERM INCENTIVE PLAN
GENERAL
The 1999 Long-Term Incentive Plan provides for the grant of stock options,
stock awards and other stock-based grants to employees of the Company and its
subsidiaries and non-employee directors of the Company.
The Company's Board of Directors (the "Board") has approved the 1999
Long-Term Incentive Plan and is submitting the 1999 Long-Term Incentive Plan for
stockholder approval. Stockholder approval is being sought (i) so that the
compensation attributable to options and stock appreciation rights granted under
the 1999 Long-Term Incentive Plan may qualify as "performance-based
compensation" for purposes of section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"), (ii) in order for incentive stock options to meet
the requirements of the Code and (iii) in order to meet New York Stock Exchange
requirements.
The following is a summary of the material terms of the 1999 Long-Term
Incentive Plan. This summary does not purport to be complete and is qualified in
its entirety by reference to the 1999 Long-Term Incentive Plan, which has been
included as Annex A to this Proxy Statement.
PURPOSE OF THE 1999 LONG-TERM INCENTIVE PLAN
The Company's Board believes that the 1999 Long-Term Incentive Plan will
provide a means by which 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. The 1999
Long-Term Incentive Plan will provide an incentive for employees and directors
to focus their attention on managing the Company as equity owners and will align
their interests with those of the Company's stockholders. The 1999 Long-Term
Incentive Plan is intended to attract and retain employees and to provide
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 1999 LONG-TERM INCENTIVE PLAN
ADMINISTRATION. The 1999 Long-Term Incentive Plan generally will be
administered by the Compensation Committee of the Board. However, the Board may
exercise any or all of the authority and responsibility of the Compensation
Committee with respect to the 1999 Long-Term Incentive Plan, except that the
Board may not make grants that are intended to qualify as "performance-based
compensation" under section 162(m) of the Code. The Board may also delegate to
another committee of the Board, consisting of at least one individual, any or
all of the authority and responsibility of the Compensation Committee with
respect to grants to employees who are not corporate officers. The Compensation
Committee has broad authority to administer and interpret the 1999 Long-Term
Incentive Plan, provided that it may not reprice outstanding options.
SHARES. The maximum number of shares of Common Stock that may be issued
under the 1999 Long-Term Incentive Plan is 15,000,000 plus any shares that are
currently authorized for issuance, but are not issued or transferred, under the
1997 Long-Term Incentive Plan. If the stockholders approve the 1999 Long-Term
Incentive Plan, no additional grants will be made under the 1997 Long-Term
Incentive Plan. The following limits also apply:
The maximum number of shares that may be issued during the term of the
1999 Long-Term Incentive Plan pursuant to Stock Awards and Stock-Based
Grants (as defined below) under the 1999 Long-Term Incentive Plan is 500,000
shares.
24
<PAGE>
The maximum number of shares with respect to which grants may be made
under the 1999 Long-Term Incentive Plan to any employee during any
three-year period is 3,000,000 shares.
The maximum number of shares that may be issued pursuant to grants made
under the 1999 Long-Term Incentive Plan to non-employee directors during the
term of the 1999 Long-Term Incentive Plan is 500,000 shares.
If any grant expires or terminates without having been exercised, the shares
subject to the grant will again become available for grant under the 1999
Long-Term Incentive Plan.
ELIGIBILITY. All employees of the Company and its subsidiaries and the
non-employee directors of the Company are eligible to participate in the 1999
Long-Term Incentive Plan. Approximately 7,800 employees are currently eligible
to participate in the 1999 Long-Term Incentive Plan, and five non-employee
directors are currently eligible to participate in the 1999 Long-Term Incentive
Plan.
OPTIONS. The Committee shall determine the number of shares of stock that
will be subject to each grant of stock options ("Options") to employees and
non-employee directors. The Committee may grant nonqualified stock options
("NSOs") or incentive stock options ("ISOs"). The per share exercise price of
the Options will be fixed by the Committee when the Options are granted and must
be at least 100% of the fair market value of the stock on the Option grant date
(110% in the case of an ISO granted to a 10% owner). The term of an Option may
not exceed ten years (five years in the case of an ISO granted to a 10% owner).
The Committee may establish such vesting and other conditions with respect to
Options as it deems appropriate.
STOCK AWARDS. Stock awards ("Stock Awards") may be granted to an employee
or non-employee director for consideration or for no consideration (subject to
any requirements of applicable state law), and Stock Awards may be granted
subject to restrictions or no restrictions, as determined by the Committee. The
Committee may establish conditions under which restrictions on Stock Awards
shall lapse over a period of time or according to such other criteria as the
Committee deems appropriate. Unless the Committee determines otherwise, Stock
Awards that are granted subject to vesting restrictions shall vest over at least
three years, subject to acceleration as determined by the Committee in the event
of death, disability, retirement, change of control or other appropriate
circumstances.
STOCK-BASED GRANTS. The Committee may make stock-based grants, such as
stock appreciation rights, phantom stock and performance units ("Stock-Based
Grants"), to any employee or non-employee director. The Committee may make
Stock-Based Grants with such performance requirements, vesting requirements,
employment or service requirements or other terms as the Committee deems
appropriate. Stock-Based Grants shall be paid in the form of cash or shares of
Common Stock as the Committee deems appropriate.
DIVIDEND EQUIVALENTS. The Committee may grant dividend equivalents in
connection with grants under the 1999 Long-Term Incentive Plan. Dividend
equivalents may be paid currently or accrued as contingent cash obligations and
may be payable in cash or shares of Common Stock, as determined by the
Committee.
EMPLOYEES SUBJECT TO TAXATION OUTSIDE THE UNITED STATES. The Committee may
make grants on terms different from those specified in the 1999 Long-Term
Incentive Plan with respect to employees or directors who are subject to
taxation outside the Untied States.
DEFERRALS. The Committee may permit or require a grantee to defer receipt
of cash or shares that would otherwise be due to the grantee in connection with
any grant.
GRANTS TO NON-EMPLOYEE DIRECTORS. Grants may, but are not required to, be
made to non-employee directors in accordance with a pre-established formula. The
Board has determined that, unless it decides otherwise, each non-employee
director will receive the following grants:
25
<PAGE>
Each such director will receive a NSO to purchase 20,000 shares of Common
Stock when the director is first elected to the Board. Each such director will
also receive, on each third anniversary of the director's first appointment to
the Board, an additional award of NSOs for 20,000 shares of Common Stock, if the
director is still serving on the Board. The exercise price of these Options will
be equal to 100% of the fair market value of the shares on the grant date. The
Options will be fully vested on the date of grant, but they will not be
exercisable at that time. The Options 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. If a director ceases to serve as a director of
the Company for any reason, the Options will continue to become exercisable and
will remain exercisable during their remaining term. The Options will have a
ten-year term.
Each such director will also receive a fully vested Stock Award for 1,000
shares when the director is first elected to the Board.
WITHHOLDING OF TAXES. All grants under the 1999 Long-Term Incentive Plan
shall be subject to applicable tax withholding requirements. The Company shall
have the right to deduct from all grants and from all wages and other amounts
payable to the grantee any taxes required by law to be withheld with respect to
grants, and the Company may require or allow a grantee to have the tax
withholding obligations satisfied by having shares withheld.
TRANSFERABILITY OF GRANTS. Grants are not transferable by the grantee
except by will or the laws of descent or, in the case of an NSO, with Committee
consent, pursuant to a domestic relations order or pursuant to a transfer to
family members, one or more trusts for the benefit of family members, or one or
more partnerships of which family members are the only partners.
CHANGE OF CONTROL OF THE COMPANY. A "Change of Control" under the 1999
Long-Term Incentive Plan means, generally: (i) the acquisition by any person of
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; or (ii) the individuals who, as of the adoption
of the 1999 Long-Term Incentive Plan, are members of the Board (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.
CONSEQUENCES OF A CHANGE OF CONTROL. Upon a Change of Control, all
outstanding Options and Stock-Based Grants shall automatically accelerate and
become fully vested and exercisable, and any restrictions on outstanding Stock
Awards and Stock-Based Grants will immediately lapse. Upon a Change of Control
where the Company is not the surviving corporation, unless the Committee
determines otherwise, all outstanding Options that are not exercised shall be
assumed by, or replaced with comparable options by, the surviving corporation,
and other outstanding grants shall be converted to similar grants of the
surviving corporation. In addition, in the event of a Change of Control, the
Committee may require that grantees surrender their outstanding Options in
exchange for payment of the amount by which the then fair market value of the
stock exceeds the option price, or the Committee may terminate outstanding
Options. Similar actions may be taken with respect to Stock-Based Grants.
26
<PAGE>
AMENDMENT AND TERMINATION OF THE PLAN. The 1999 Long-Term Incentive Plan
will terminate on the day immediately preceding the tenth anniversary of its
effective date in 2009. However, the Board may sooner terminate or amend the
1999 Long-Term Incentive Plan at any time without stockholder approval, except
where stockholder approval is required to retain favorable tax treatment of ISOs
under the Code, is required to exempt compensation from the deduction limit
under Section 162(m) of the Code, or is required to qualify the shares offered
under the 1999 Long-Term Incentive Plan for listing on any securities exchange.
The termination of the 1999 Long-Term Incentive Plan will not affect then
outstanding grants.
ACCOUNTING TREATMENT. Grants of Options to employees at an option price at
least equal to the fair market value of the Common Stock on the date of grant
generally will not result in a compensation expense to the Company for financial
accounting purposes. However, as a result of changes recently proposed by the
Financial Accounting Standards Board, Option grants to non-employee directors
will result in a compensation expense when the Options vest, if the changes are
adopted as proposed. Grants of Stock Awards and Stock-Based Compensation to
employees and non-employee directors will result in compensation expense. The
Committee will take into account the accounting consequences of employee and
non-employee director compensation when structuring grants under the 1999
Long-Term Incentive Plan.
FEDERAL INCOME TAX CONSEQUENCES RELATING TO AWARDS UNDER THE 1999 LONG-TERM
INCENTIVE PLAN
The following description of the federal income tax consequences of grants
under the 1999 Long-Term Incentive Plan is a general summary. State, local and
other taxes may also be imposed in connection with grants.
INCENTIVE STOCK OPTIONS. 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 of the shares received on the date of exercise
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 permanent disability as defined in the Code). 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 sale price of the shares and the exercise price of the Option will
be treated as long-term capital gain or loss subject to reduced rates of tax. If
a grantee disposes of the shares prior to satisfying these holding period
requirements (a "Disqualifying Disposition"), the grantee will recognize
ordinary income 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. 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 will be limited to the
amount realized on the sale over the exercise price of the option. In general,
the Company and its subsidiaries will be allowed a business expense deduction to
the extent a grantee recognizes ordinary income.
NONQUALIFIED STOCK OPTIONS. In general, a grantee who receives an NSO will
recognize no income at the time of the grant of the Option. Upon exercise of an
NSO, a grantee will recognize ordinary income 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
27
<PAGE>
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, the Company and its subsidiaries will be entitled to a business expense
deduction in the same amount and at the same time as the grantee recognizes
ordinary income. If the grantee sells shares received upon the exercise of an
NSO after the exercise date, any appreciation or depreciation after the exercise
date generally will be taxed as capital gain or loss.
STOCK AWARDS. A grantee who receives a Stock Award generally will not
recognize taxable income until the Common Stock is transferable by the grantee
or no longer subject to a substantial risk of forfeiture for federal tax
purposes, whichever occurs first. When the Common Stock is either transferable
or is no longer subject to a substantial risk of forfeiture, the grantee will
recognize ordinary income in an amount equal to the fair market value of the
shares (less any amounts paid for the shares) at that time. The Company and its
subsidiaries generally will be entitled to a business expense deduction in the
same amount.
A grantee may elect to recognize ordinary income when a restricted Stock
Award is granted in an amount equal to the fair market value of the shares (less
any amount paid for the shares) at the date of grant, determined without regard
to the restrictions. The Company and its subsidiaries generally will be entitled
to a corresponding business expense deduction in the same year.
STOCK-BASED GRANTS AND DIVIDEND EQUIVALENTS. There are generally no federal
income tax consequences to a grantee upon the grant of a Stock-Based Grant such
as stock appreciation rights, phantom stock or performance units. Instead, when
payments are made to the grantee, the grantee will recognize ordinary income in
an amount equal to the cash received and the fair market value of any shares
received. Dividend equivalents are taxed to grantees as ordinary income when
they are paid to the grantees. The Company and its subsidiaries generally will
be entitled to a corresponding business expense deduction when the grantees
recognize ordinary income.
EXCISE TAXES. Under certain circumstances, the accelerated vesting of grants
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) of the Code 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 the stockholders. The Company has
structured the 1999 Long-Term Incentive Plan with the intention that
compensation resulting from awards of Options and stock appreciation rights can
qualify as "performance-based compensation" and, if so qualified, will be
deductible. To qualify, the Company is seeking stockholder approval of the 1999
Long-Term Incentive Plan.
The 1999 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
1999 LONG-TERM INCENTIVE PLAN. PROXIES WILL BE VOTED FOR APPROVAL OF THE 1999
LONG-TERM INCENTIVE PLAN UNLESS OTHERWISE SPECIFIED IN THE PROXY.
28
<PAGE>
OPTIONS TO BE GRANTED TO CERTAIN INDIVIDUALS AND GROUPS
As of the date of this Proxy Statement, no grants have been made under the
1999 Long-Term Incentive Plan and, other than formula grants to non-employee
directors as described below, the Compensation Committee has no immediate
intention or plans to make any grant. Presently there are approximately 7,800
Employees and five Non-Employee Directors who qualify to participate in the 1999
Long-Term Incentive Plan. On February 26, 1999, the Board of Directors approved,
subject to stockholder approval of the 1999 Long-Term Incentive Plan, the
granting of (i) nonqualified stock options with respect to 20,000 shares of
Company common stock to each non-employee director of the Company (x) upon his
or her initial election to the Board and (y) every three years thereafter on the
anniversary of such non-employee director's initial election to the Board, so
long as the director is still serving on the Board, and (ii) a stock award for
1,000 shares of stock upon his or her initial election to the Board. Because
adoption of the 1999 Long-Term Incentive Plan is subject to stockholder approval
and because the granting of options and awards will be entirely within the
discretion of the Compensation Committee, it is not otherwise possible to
determine the employees and non-employee directors to whom options or awards
will be granted under the 1999 Long-Term Incentive Plan or the number of shares
or value of dollar-denominated grants to be covered by such options and stock
awards and stock-based grants.
29
<PAGE>
PROPOSAL THREE: 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 1999 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 Distribution. 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 THREE
TO RATIFY THE APPOINTMENT BY THE BOARD OF DIRECTORS OF THE COMPANY OF DELOITTE &
TOUCHE LLP AS INDEPENDENT AUDITOR FOR THE COMPANY FOR THE 1999 FISCAL YEAR.
PROXIES WILL BE VOTED FOR PROPOSAL THREE UNLESS OTHERWISE SPECIFIED IN THE
PROXY.
STOCKHOLDER PROPOSALS FOR THE COMPANY'S 2000 ANNUAL MEETING
OF STOCKHOLDERS
Stockholders who intend to present proposals at the 2000 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 15,
1999. 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 2000 Annual Meeting of Stockholders.
In addition, under the Company's By-laws, stockholders must comply with
specified procedures to nominate directors or introduce an item of business at
the Annual Meeting. Nominations or an item of business to be introduced at an
annual meeting must be submitted in writing and received by the Company
generally not less than 60 days nor more than 90 days in advance of an annual
meeting. To be in proper written form, a stockholder's notice must contain the
specific information required by the Company's By-laws. A copy of the Company's
By-laws which describes the advance notice procedures can be obtained from the
Secretary of the Company.
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.
30
<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, 1998, 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 14, 1999
31
<PAGE>
ANNEX A
GENERAL INSTRUMENT CORPORATION
1999 LONG-TERM INCENTIVE PLAN
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<C> <S> <C>
1. Administration...................................................................................... A-3
(a) Committee....................................................................................... A-3
(b) Board Reservation and Delegation................................................................ A-3
(c) Committee Authority............................................................................. A-3
(d) Committee Determinations........................................................................ A-3
2. Grants.............................................................................................. A-3
3. Shares Subject to the Plan.......................................................................... A-4
(a) Shares Authorized............................................................................... A-4
(b) Adjustments..................................................................................... A-4
4. Eligibility for Participation....................................................................... A-5
(a) Eligible Persons................................................................................ A-5
(b) Selection of Grantees........................................................................... A-5
5. Granting of Options................................................................................. A-5
(a) Number of Shares................................................................................ A-5
(b) Type of Option and Price........................................................................ A-5
(c) Option Term..................................................................................... A-6
(d) Vesting and Exercisability of Options........................................................... A-6
(e) Termination of Employment....................................................................... A-6
(f) Exercise of Options............................................................................. A-6
(g) Limits on Incentive Stock Options............................................................... A-6
6. Stock Awards........................................................................................ A-6
(a) Awards.......................................................................................... A-6
(b) Forfeiture...................................................................................... A-7
(c) Restrictions on Transfer and Legend on Stock Certificate........................................ A-7
(d) Right to Vote and to Receive Dividends.......................................................... A-7
(e) Lapse of Restrictions........................................................................... A-7
7. Stock-Based Grants.................................................................................. A-7
8. Dividend Equivalents................................................................................ A-7
9. Employees Subject to Taxation Outside the United States............................................. A-7
10. Deferrals........................................................................................... A-7
11. Withholding of Taxes................................................................................ A-8
(a) Required Withholding............................................................................ A-8
(b) Election to Withhold Shares..................................................................... A-8
12. Transferability of Grants........................................................................... A-8
(a) Nontransferability.............................................................................. A-8
(b) Transfer of Nonqualified Stock Options.......................................................... A-8
13. Change of Control of the Company.................................................................... A-8
14. Consequences of a Change of Control................................................................. A-10
(a) Notice and Acceleration......................................................................... A-10
(b) Assumption...................................................................................... A-10
(c) Other Alternatives.............................................................................. A-10
(d) Limitations..................................................................................... A-10
15. Amendment and Termination of the Plan............................................................... A-10
(a) Amendment....................................................................................... A-10
(b) Termination of Plan............................................................................. A-10
(c) Termination and Amendment of Outstanding Grants................................................. A-10
(d) Governing Document.............................................................................. A-11
16. Funding of the Plan................................................................................. A-11
17. Rights of Participants.............................................................................. A-11
18. No Fractional Shares................................................................................ A-11
19. Headings............................................................................................ A-11
20. Effective Date of the Plan.......................................................................... A-11
21. Grants in Connection with Corporate Transactions and Otherwise...................................... A-11
22. Securities Law Matters.............................................................................. A-12
23. Rights as a Stockholder............................................................................. A-12
24. Nature of Payments.................................................................................. A-12
25. Compliance with Law................................................................................. A-12
26. Governing Law....................................................................................... A-13
</TABLE>
A-2
<PAGE>
GENERAL INSTRUMENT CORPORATION
1999 LONG-TERM INCENTIVE PLAN
The purpose of the General Instrument Corporation 1999 Long-Term Incentive
Plan (the "Plan") is to provide a means by which employees and directors of
General Instrument Corporation (the "Company") and its Subsidiaries (as defined
below) 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 equity owners, and aligning their interests with
those of the Company's stockholders. The Plan also is intended to attract and
retain 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.
1. ADMINISTRATION
(a) COMMITTEE. Except as provided in subsection (b) below, the Plan shall be
administered and interpreted by the Board or by a committee appointed by the
Board (the "Committee"), which may consist of two or more persons who are
"outside directors" as defined under section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code"), and related Treasury regulations and
"non-employee directors" as defined under Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
(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; provided that the Board may not make grants that are
intended to qualify as "qualified performance-based compensation" under Section
162(m) of the Code. The Board may delegate to another committee of the Board any
or all of the authority and responsibility of the Committee with respect to
grants to employees who are not corporate officers 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 the sole authority to (i)
determine the individuals to whom grants shall be made under the Plan, (ii)
determine the type, size and terms of the grants to be made to each such
individual, (iii) determine the time when the grants will be made and the
duration of any applicable vesting, exercise or restriction period, including
the criteria for vesting or exercisability and the acceleration of vesting and
exercisability, (iv) amend the terms of any previously issued grant, provided
that the Committee may not reprice outstanding options, and (v) deal with any
other matters arising under the Plan.
(d) COMMITTEE DETERMINATIONS. The Committee shall have full power and
authority to administer and interpret the Plan, to make factual determinations
and to adopt or amend such rules, regulations, agreements and instruments for
implementing the Plan and for the conduct of its business as it deems necessary
or advisable, in its sole discretion. The Committee's interpretations of the
Plan and all determinations made by the Committee pursuant to the powers vested
in it hereunder shall be conclusive and binding on all persons having any
interest in the Plan or in any awards granted hereunder. All powers of the
Committee shall be executed in its 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.
2. GRANTS
Awards under the Plan may consist of grants of incentive stock options as
described in Section 5 ("Incentive Stock Options"), nonqualified stock options
as described in Section 5 ("Nonqualified Stock
A-3
<PAGE>
Options") (Incentive Stock Options and Nonqualified Stock Options are
collectively referred to as "Options"), stock awards as described in Section 6
("Stock Awards") and other stock-based grants as described in Section 7
("Stock-Based Grants") (hereinafter collectively referred to as "Grants"). All
Grants shall be subject to the terms and conditions set forth herein and to such
other terms and conditions consistent with this Plan as the Committee deems
appropriate and as are specified in writing by the Committee to the individual
in a grant instrument or an amendment to the grant instrument (the "Grant
Instrument"). The Committee shall approve the form and provisions of each Grant
Instrument. Grants under a particular Section of the Plan need not be uniform as
among the grantees.
3. SHARES SUBJECT TO THE PLAN
(a) SHARES AUTHORIZED. The aggregate total number of shares of common stock,
par value $0.01 per share, of the Company ("Company Stock") that may be issued
or transferred under the Plan is (i) 15,000,000 shares, plus (ii) any shares of
Company Stock that are authorized for issuance or transfer under the Company's
Amended and Restated 1997 Long-Term Incentive Plan (the "1997 Plan") as of the
effective date of this Plan but are not issued or transferred under the 1997
Plan (including, without limitation, any shares not issued or transferred as a
result of a termination, expiration, cancellation, forfeiture, exchange,
surrender or net exercise of grants under the 1997 Plan). In addition, the
following limits shall apply to Grants under the Plan:
(i) The maximum aggregate number of shares of Company Stock that may be
issued or transferred during the term of the Plan pursuant to Stock Awards
and Stock-Based Grants under the Plan is 500,000 shares.
(ii) The maximum aggregate number of shares of Company Stock with
respect to which Grants may be made under the Plan to any employee during
any three-year period shall be 3,000,000 shares.
(iii) The maximum aggregate number of shares of Company Stock that may
be issued or transferred pursuant to Grants made under the Plan to
non-employee directors during the term of the Plan is 500,000 shares.
All of the foregoing limits shall be subject to adjustment as described in
subsection (b) below. The shares may be authorized but unissued shares of
Company Stock or reacquired shares of Company Stock, including shares purchased
by the Company on the open market for purposes of the Plan. If and to the extent
Grants under the Plan terminate, expire, or are canceled, forfeited, exchanged
or surrendered without having been exercised, the shares subject to such Grants
shall again be available for purposes of the Plan. If shares of Company Stock
are used to pay the exercise price of an Option or are withheld to pay any tax
withholding amounts, or if Grants are settled in cash, only the net number of
shares received by the grantee shall be considered to have been issued or
transferred under the Plan, and the remaining number of shares subject to the
Grant shall again be available for purposes of the Plan.
(b) ADJUSTMENTS. If there is any change in the number or kind of shares of
Company Stock outstanding (i) by reason of a stock dividend, spin-off,
recapitalization, stock split, or combination or exchange of shares, (ii) by
reason of a merger, reorganization or consolidation in which the Company is the
surviving corporation, (iii) by reason of a reclassification or change in par
value, or (iv) by reason of any other extraordinary or unusual event affecting
the outstanding Company Stock as a class without the Company's receipt of
consideration, or if the value of outstanding shares of Company Stock is
substantially reduced as a result of a spin-off or the Company's payment of an
extraordinary dividend or distribution, the maximum number of shares of Company
Stock available for Grants, the maximum number of shares of Company Stock that
any individual participating in the Plan may be granted in any three-year
period, the number of shares covered by outstanding Grants, the maximum number
of shares of Company Stock that may be issued or transferred to non-employee
directors pursuant to Grants during the term of the Plan, the kind of shares
issued under the Plan, and the price per share or the applicable market value of
such Grants may be appropriately adjusted by the Committee to reflect any
increase or decrease in the number
A-4
<PAGE>
of, or change in the kind or value of, issued shares of Company Stock to
preclude, to the extent practicable, the enlargement or dilution of rights and
benefits under such Grants; provided, however, that any fractional shares
resulting from such adjustment shall be eliminated. Any adjustments determined
by the Committee shall be final, binding and conclusive.
4. ELIGIBILITY FOR PARTICIPATION
(a) ELIGIBLE PERSONS. All employees of the Company and its Subsidiaries
("Employees"), including Employees who are officers or members of the Board, and
members of the Board who are not Employees ("Non-Employee Directors") shall be
eligible to participate in the Plan. The term "Subsidiary" shall have the
following meanings: (i) except as provided in subsection (ii) below, the term
"Subsidiary" shall mean a corporation as defined in Section 424(f) of the Code,
with the Company being treated as the employer corporation for purposes of this
definition; and (ii) as the term "Subsidiary" relates to eligibility to receive
Grants other than Incentive Stock Options and continued employment for purposes
of Grants (unless the Committee determines otherwise), the term "Subsidiary"
shall mean any entity, whether or not incorporated, in which the Company or any
such Subsidiary owns 50% or more of the outstanding equity or other ownership
interests.
(b) SELECTION OF GRANTEES. The Committee shall select the Employees and
Non-Employee Directors to receive Grants and shall determine the number of
shares of Company Stock subject to a particular Grant in such manner as the
Committee determines. Employees and Non-Employee Directors who receive Grants
under this Plan shall hereinafter be referred to as "Grantees".
5. GRANTING OF OPTIONS
(a) NUMBER OF SHARES. The Committee shall determine the number of shares of
Company Stock that will be subject to each Grant of Options to Employees and
Non-Employee Directors. Without limiting the foregoing, the Committee may
determine that Options will be granted to Non-Employee Directors in accordance
with a formula established by the Board.
(b) TYPE OF OPTION AND PRICE.
(i) The Committee may grant Incentive Stock Options that are intended to
qualify as "incentive stock options" within the meaning of section 422 of the
Code or Nonqualified Stock Options that are not intended so to qualify or any
combination of Incentive Stock Options and Nonqualified Stock Options, all in
accordance with the terms and conditions set forth herein. Incentive Stock
Options may be granted only to Employees. Nonqualified Stock Options may be
granted to Employees and Non-Employee Directors.
(ii) The purchase price (the "Exercise Price") of Company Stock subject to
an Option shall be determined by the Committee and shall not be less than the
Fair Market Value (as defined below) of a share of Company Stock on the date the
Option is granted; provided, however, that an Incentive Stock Option may not be
granted to an Employee who, at the time of grant, owns stock possessing more
than 10 percent of the total combined voting power of all classes of stock of
the Company or any Parent (as defined in Section 424(e) of the Code) or
Subsidiary of the Company, unless the Exercise Price per share is not less than
110% of the Fair Market Value of Company Stock on the date of grant.
(iii) If the Company Stock is publicly traded, then the Fair Market Value per
share shall be determined as follows: (x) if the principal trading market for
the Company Stock is a national securities exchange or the Nasdaq National
Market, the last reported sale price thereof on the relevant date or (if there
were no trades on that date) the latest preceding date upon which a sale was
reported, or (y) if the Company Stock is not principally traded on such exchange
or market, the mean between the last reported "bid" and "asked" prices of
Company Stock on the relevant date, as reported on Nasdaq or, if not so
reported, as reported by the National Daily Quotation Bureau, Inc. or as
reported in a customary financial reporting service, as applicable and as the
Committee determines. If the Company Stock is not publicly
A-5
<PAGE>
traded or, if publicly traded, is not subject to reported transactions or "bid"
or "asked" quotations as set forth above, the Fair Market Value per share shall
be as determined by the Committee.
(c) OPTION TERM. The Committee shall determine the term of each Option. The
term of any Option shall not exceed ten years from the date of grant. However,
an Incentive Stock Option that is granted to an Employee who, at the time of
grant, owns stock possessing more than 10 percent of the total combined voting
power of all classes of stock of the Company, or any Parent or Subsidiary of the
Company, may not have a term that exceeds five years from the date of grant.
(d) VESTING AND EXERCISABILITY OF OPTIONS. Options shall become vested and
exercisable in accordance with such terms and conditions, consistent with the
Plan, as may be determined by the Committee and specified in the Grant
Instrument. The Committee may accelerate the vesting and exercisability of any
or all outstanding Options at any time for any reason.
(e) TERMINATION OF EMPLOYMENT. The Committee shall establish in the Grant
Instrument the circumstances under which an Option may be exercised after a
Grantee's employment or service with the Company and its Subsidiaries
terminates.
(f) EXERCISE OF OPTIONS. A Grantee may exercise an Option that has become
exercisable, in whole or in part, by delivering a notice of exercise to the
Company with payment of the Exercise Price. The Grantee shall pay the Exercise
Price for an Option as specified by the Committee (x) in cash, (y) with the
approval of the Committee, by delivering shares of Company Stock owned by the
Grantee (subject to such restrictions as the Committee deems appropriate) and
having a Fair Market Value on the date of exercise equal to the Exercise Price
or by attestation (on a form prescribed by the Committee) to ownership of shares
of Company Stock having a Fair Market Value on the date of exercise equal to the
Exercise Price, or (z) by such other method as the Committee may approve,
including payment through a broker in accordance with procedures permitted by
Regulation T of the Federal Reserve Board. Shares of Company Stock used to
exercise an Option shall have been held by the Grantee for the requisite period
of time to avoid adverse accounting consequences to the Company with respect to
the Option. The Grantee shall pay the Exercise Price and the amount of any
withholding tax due at the time of exercise.
(g) LIMITS ON INCENTIVE STOCK OPTIONS. Each Incentive Stock Option shall
provide that, if the aggregate Fair Market Value of the stock on the date of the
grant with respect to which Incentive Stock Options are exercisable for the
first time by a Grantee during any calendar year, under the Plan or any other
stock option plan of the Company or a Parent or Subsidiary, exceeds $100,000,
then the Option, as to the excess, shall be treated as a Nonqualified Stock
Option.
6. STOCK AWARDS
The Committee may issue or transfer shares of Company Stock to an Employee
or Non-Employee Director under a Stock Award, upon such terms as the Committee
deems appropriate. The following provisions are applicable to Stock Awards:
(a) AWARDS. Stock Awards may be granted for consideration or for no
consideration (subject to any requirements of applicable state law), and Stock
Awards may be granted subject to restrictions or no restrictions, as determined
by the Committee. The Committee may, but shall not be required to, establish
conditions under which restrictions on Stock Awards shall lapse over a period of
time or according to such other criteria as the Committee deems appropriate,
including, without limitation, restrictions based upon the achievement of
specific performance goals. Unless the Committee determines otherwise, Stock
Awards that are granted subject to vesting restrictions shall vest over at least
three years, subject to acceleration as determined by the Committee in the event
of death, disability, retirement, Change of Control or other appropriate
circumstances. The period of time during which the Stock Awards will remain
subject to restrictions will be designated in the Grant Instrument as the
"Restriction Period." The Committee shall determine the number of shares of
Company Stock to be issued or transferred pursuant to a Stock Award.
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(b) FORFEITURE. If the Grantee ceases to be employed by, or provide service
to, the Company or a Subsidiary during a period designated in the Grant
Instrument as the Restriction Period, or if other specified conditions are not
met, the Stock Award shall terminate as to all shares as to which the
restrictions have not lapsed, and those shares of Company Stock must be
immediately returned to the Company. The Committee may, however, provide for
complete or partial exceptions to this requirement as it deems appropriate.
(c) RESTRICTIONS ON TRANSFER AND LEGEND ON STOCK CERTIFICATE. During the
Restriction Period, a Grantee may not sell, assign, transfer, pledge or
otherwise dispose of the shares covered by the Stock Award except to a Successor
Grantee under Section 12(a). Each certificate for a share covered by a Stock
Award shall contain a legend giving appropriate notice of the restrictions in
the Grant. The Grantee shall be entitled to have the legend removed from the
stock certificate covering the shares subject to restrictions when all
restrictions on such shares have lapsed. The Committee may determine that the
Company will not issue certificates for shares covered by a Stock Award until
all restrictions on such shares have lapsed, or that the certificates for such
shares shall be held in escrow until all restrictions on such shares have
lapsed.
(d) RIGHT TO VOTE AND TO RECEIVE DIVIDENDS. Unless the Committee determines
otherwise, during the Restriction Period, the Grantee shall have the right to
vote shares covered by a Stock Award and to receive any dividends or other
distributions paid on such shares, subject to any restrictions deemed
appropriate by the Committee.
(e) LAPSE OF RESTRICTIONS. All restrictions imposed on Stock Awards shall
lapse upon the expiration of the applicable Restriction Period and the
satisfaction of all conditions imposed by the Committee. The Committee may
determine, as to any or all Stock Awards, that the restrictions shall lapse
without regard to any Restriction Period.
7. STOCK-BASED GRANTS
The Committee may make Stock-Based Grants, such as stock appreciation
rights, phantom stock and performance units, to any Employee or Non-Employee
Director. The Committee may make Stock-Based Grants with such performance
requirements, vesting requirements, employment or service requirements or other
terms as the Committee deems appropriate. Stock-Based Grants shall be paid in
the form of cash or shares of Company Stock as the Committee deems appropriate.
8. DIVIDEND EQUIVALENTS
The Committee may grant dividend equivalents in connection with Grants under
the Plan. Dividend equivalents may be paid currently or accrued as contingent
cash obligations and may be payable in cash or shares of Company Stock, and upon
such terms as the Committee may establish.
9. EMPLOYEES SUBJECT TO TAXATION OUTSIDE THE UNITED STATES
With respect to Employees or Non-Employee Directors who are subject to
taxation in countries other than the United States, the Committee may make
Grants on such terms and conditions different from those specified in this Plan
as may in the judgment of the Committee be necessary or desirable to foster and
promote achievement of the purposes of the Plan, and, in furtherance of such
purposes, the Committee may implement such modifications, amendments, procedures
and subplans as may be necessary or advisable to comply with the laws of
countries in which the Company or its Subsidiaries operate or have employees or
directors.
10. DEFERRALS
The Committee may permit or require a Grantee to defer receipt of the
payment of cash or the delivery of shares that would otherwise be due to such
Grantee in connection with any Grant. If any such deferral election is permitted
or required, the Committee shall establish rules and procedures for such
deferrals.
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11. WITHHOLDING OF TAXES
(a) REQUIRED WITHHOLDING. All Grants under the Plan shall be subject to
applicable tax withholding requirements. The Company shall have the right to
deduct from all Grants and from all wages and other amounts payable to the
Grantee any taxes required by law to be withheld with respect to Grants, or
the Company may require that the Grantee or other person receiving or
exercising Grants pay to the Company the amount of any taxes that the
Company is required to withhold with respect to such Grants.
(b) ELECTION TO WITHHOLD SHARES. The Committee may require or a Grantee
may elect to have the Company's income tax withholding obligation with
respect to a Grant satisfied by having shares withheld up to an amount that
does not exceed the Grantee's applicable withholding tax rate for federal
(including FICA), state and local tax liabilities. A Grantee's election must
be in a form and manner prescribed by the Committee and may be subject to
the prior approval of the Committee.
12. TRANSFERABILITY OF GRANTS
(a) NONTRANSFERABILITY OF GRANTS. Except as provided below, only the
Grantee may exercise rights under a Grant during the Grantee's lifetime, and
a Grantee may not transfer those rights except by will or by the laws of
descent and distribution or, in the case of Nonqualified Stock Option,
pursuant to a domestic relations order. When a Grantee dies, the personal
representative or other person entitled to succeed to the rights of the
Grantee ("Successor Grantee") may exercise such rights. A Successor Grantee
must furnish proof satisfactory to the Company of his or her right to
receive the Grant under the Grantee's will or under the applicable laws of
descent and distribution.
(b) TRANSFER OF NONQUALIFIED STOCK OPTIONS. Notwithstanding the
foregoing, the Committee may provide, in a Grant Instrument, that a Grantee
may transfer Nonqualified Stock Options to family members, one or more
trusts for the benefit of family members, or one or more partnerships of
which family members are the only partners, according to such terms as the
Committee may determine; provided that the transferred Option shall continue
to be subject to the same terms and conditions as were applicable to the
Option immediately before the transfer.
13. CHANGE OF CONTROL OF THE COMPANY
(a) As used herein, a "Change of Control" means any of the following:
(i) The acquisition by any Person 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 33% or
more of the combined Voting Power of the Company's then outstanding Voting
Securities; provided, however, that for purposes of this subsection (a), 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 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
subsection (iii) below); or
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(ii) The individuals who, as of the effective date of the Plan, 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 Exchange 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 subsection (iii)
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).
(iv) 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.
(b) "Beneficial Owner", "Beneficially Owned" and "Beneficially Owning" shall
have the meanings applicable under Rule 13-d promulgated under the Exchange Act.
(c) "Person" means a person within the meaning of sections 13(d) and 14(d)
of the Exchange Act.
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(d) "Subsidiary" shall have the meaning given that term in Section 4(a)(i)
above.
(e) "Voting Power" means the combined voting power of the then outstanding
Voting Securities.
(f) "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.
14. CONSEQUENCES OF A CHANGE OF CONTROL
(a) NOTICE AND ACCELERATION. Upon a Change of Control, (i) the Company shall
provide each Grantee with outstanding Grants written notice of such Change of
Control, (ii) all outstanding Options and Stock-Based Grants shall automatically
accelerate and become fully vested and exercisable and (iii) the restrictions
and conditions on all outstanding Stock Awards and Stock-Based Grants shall
immediately lapse.
(b) ASSUMPTION OF GRANTS. Upon a Change of Control where the Company is not
the surviving corporation (or survives only as a subsidiary of another
corporation), unless the Committee determines otherwise, all outstanding Options
that are not exercised shall be assumed by, or replaced with comparable options
by, the surviving corporation, and other outstanding Grants shall be converted
to similar grants of the surviving corporation.
(c) OTHER ALTERNATIVES. Notwithstanding the foregoing, subject to subsection
(d) below, in the event of a Change of Control, the Committee may take one or
both of the following actions with respect to any or all outstanding Options:
the Committee may (i) require that Grantees surrender their outstanding Options
in exchange for a payment by the Company, in cash or Company Stock as determined
by the Committee, in an amount equal to the amount by which the then Fair Market
Value of the shares of Company Stock subject to the Grantee's unexercised
Options exceeds the Exercise Price of the Options, or (ii) after giving Grantees
a reasonable opportunity to exercise their outstanding Options, terminate any or
all unexercised Options at such time as the Committee deems appropriate. Similar
actions may be taken with respect to Stock-Based Grants.
(d) LIMITATIONS. Notwithstanding anything in the Plan to the contrary, in
the event of a Change of Control, the Committee shall not have the right to take
any actions described in the Plan (including without limitation actions
described in Subsection (c) above) that would make the Change of Control
ineligible for pooling of interests accounting treatment or that would make the
Change of Control ineligible for desired tax treatment if, in the absence of
such right, the Change of Control would qualify for such treatment and the
Company intends to use such treatment with respect to the Change of Control.
15. AMENDMENT AND TERMINATION OF THE PLAN
(a) AMENDMENT. The Board may amend or terminate the Plan at any time;
provided, however, that the Board shall not amend the Plan without stockholder
approval if (i) such approval is required in order for Incentive Stock Options
granted or to be granted under the Plan to meet the requirements of section 422
of the Code, (ii) such approval is required in order to exempt compensation
under the Plan from the deduction limit under section 162(m) of the Code or
(iii) such approval is required in order to meet any applicable stock exchange
requirements.
(b) TERMINATION OF PLAN. The Plan shall terminate on the day immediately
preceding the tenth anniversary of its effective date, unless the Plan is
terminated earlier by the Board or is extended by the Board with the approval of
the stockholders.
(c) TERMINATION AND AMENDMENT OF OUTSTANDING GRANTS. A termination or
amendment of the Plan that occurs after a Grant is made shall not materially
impair the rights of a Grantee unless the Grantee consents or unless the
Committee acts under Section 25. The termination of the Plan shall not impair
the power and authority of the Committee with respect to an outstanding Grant.
Whether or not the Plan has
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terminated, an outstanding Grant may be terminated or amended under Section 25
or may be amended by agreement of the Company and the Grantee consistent with
the Plan.
(d) GOVERNING DOCUMENT. The Plan shall be the controlling document. No other
statements, representations, explanatory materials or examples, oral or written,
may amend the Plan in any manner. The Plan shall be binding upon and enforceable
against the Company and its successors and assigns.
16. FUNDING OF THE PLAN
This 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 the payment of any Grants under this Plan. In no event shall interest be
paid or accrued on any Grant, including unpaid installments of Grants.
17. RIGHTS OF PARTICIPANTS
Nothing in this Plan shall entitle any Employee, Non-Employee Director or
other person to any claim or right to be granted a Grant under this Plan.
Neither this Plan nor any action taken hereunder shall be construed as giving
any individual any rights to be retained by or in the employ of the Company or
any other employment rights.
18. NO FRACTIONAL SHARES
No fractional shares of Company Stock shall be issued or delivered pursuant
to the Plan or any Grant. The Committee shall determine whether cash, other
awards or other property shall be issued or paid in lieu of such fractional
shares or whether such fractional shares or any rights thereto shall be
forfeited or otherwise eliminated.
19. HEADINGS
Section headings are for reference only. In the event of a conflict between
a title and the content of a Section, the content of the Section shall control.
20. EFFECTIVE DATE OF THE PLAN
The Plan shall be effective upon approval by the Company's stockholders.
21. GRANTS IN CONNECTION WITH CORPORATE TRANSACTIONS AND OTHERWISE
Nothing contained in this Plan shall be construed to (i) limit the right of
the Committee to make Grants under this Plan in connection with the acquisition,
by purchase, lease, merger, consolidation or otherwise, of the business or
assets of any corporation, firm or association, including Grants to employees
thereof who become employees of the Company, or for other proper corporate
purposes, or (ii) limit the right of the Company to grant stock options or make
other awards outside of this Plan. Without limiting the foregoing, the Committee
may make a Grant to an employee of another corporation who becomes an employee
by reason of a corporate merger, consolidation, acquisition of stock or
property, reorganization or liquidation involving the Company or any of its
Subsidiaries in substitution for a stock option or restricted stock grant made
by such corporation. The terms and conditions of the substitute grants may vary
from the terms and conditions required by the Plan and from those of the
substituted stock incentives. The Committee shall prescribe the provisions of
the substitute grants. Shares issued or transferred pursuant to grants assumed
or replaced outside of this Plan in connection with a corporate transaction
shall not count against the share limits of this Plan.
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22. SECURITIES LAW MATTERS
(a) No Company Stock shall be issued or transferred in connection with any
Grant hereunder unless and until all legal requirements applicable to the
issuance or transfer of such Company Stock have been complied with to the
satisfaction of the Committee. The Committee shall have the right to condition
any Grant made to any Grantee hereunder on such Grantee's undertaking in writing
to comply with such restrictions on his or her subsequent disposition of such
shares of Company Stock as the Committee shall deem necessary or advisable, and
certificates representing such shares may be legended to reflect any such
restrictions. Certificates representing shares of Company Stock issued or
transferred under the Plan will be subject to such stop-transfer orders and
other restrictions as may be required by applicable laws, regulations and
interpretations, including any requirement that a legend be placed thereon.
(b) If the Committee deems it necessary in order to comply with the
Securities Act of 1933, as amended (the "Securities Act"), the Committee may
require a written investment intent representation by a Grantee and may require
that a restrictive legend be affixed to certificates for shares of Company
Stock.
(c) If, based on the opinion of counsel for the Company, the Committee
determines that the exercise or nonforfeitability of, or delivery of benefits
pursuant to, any Grant 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 use its best efforts to cause such exercise,
nonforfeitability or delivery to comply with all such provisions at the earliest
practicable date.
(d) Notwithstanding any provision of the Plan or any Grant Instrument to the
contrary, no shares of Company Stock shall be issued to any Grantee with respect
to any Grant before a registration statement under the Securities Act is
effective with respect to such shares.
23. RIGHTS AS A STOCKHOLDER
A Grantee shall not, by reason of any Grant (other than Stock Award), have
any right as a stockholder of the Company with respect to the shares of Company
Stock which may be deliverable upon exercise or payment of such Grant until such
shares have been delivered to him. Shares of a Stock Award held by a Grantee or
held in escrow shall confer on the Grantee all rights of a stockholder of the
Company, except as otherwise provided in the Plan.
24. NATURE OF PAYMENTS
Any and all Grants, payments of cash, or deliveries of shares of Company
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.
25. COMPLIANCE WITH LAW
(a) The Plan, the exercise of Options or other Grants and the obligations of
the Company to issue or transfer shares of Company Stock under Grants shall be
subject to all applicable laws and to approvals by any governmental or
regulatory agency as may be required. With respect to persons subject to section
16 of the Exchange Act, it is the intent of the Company that the Plan and all
transactions under the Plan comply with all applicable provisions of Rule 16b-3
or its successors under the Exchange Act. In addition, it is the intent of the
Company that Grants that are intended to be "qualified performance-based
compensation" under section 162(m) of the Code comply with the applicable
provisions of section 162(m), and it is the intent of the Company that Incentive
Stock Options comply with section 422 of the Code. To the extent
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that any legal requirement of section 16 of the Exchange Act or section 162(m)
or 422 of the Code as set forth in the Plan ceases to be required under section
16 of the Exchange Act or section 162(m) or 422 of the Code, that Plan provision
shall cease to apply. The Committee may revoke any Grant if it is contrary to
law or modify a Grant to bring it into compliance with any valid and mandatory
government regulation. The Committee may also adopt rules regarding the
withholding of taxes on payments to Grantees. The Committee may, in its sole
discretion, agree to limit its authority under this Section.
(b) The Plan and all Grants pursuant to it are subject to all laws and
regulations of any governmental authority which may be applicable thereto.
Notwithstanding any provision of the Plan or any Grant, Grantees shall not be
entitled to exercise Grants or receive the benefits thereof and the Company
shall not be obligated to deliver any Company 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.
26. GOVERNING LAW
The validity, construction, interpretation and effect of the Plan and Grant
Instruments issued under the Plan shall be governed and construed by and
determined in accordance with the laws of the State of Delaware, without giving
effect to the conflict of laws provisions thereof.
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