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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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 Section240.14a-11(c) or
Section240.14a-12
TRICON GLOBAL RESTAURANTS, INC.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on 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):
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(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(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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[LOGO]
TRICON GLOBAL RESTAURANTS, INC.
1441 Gardiner Lane
Louisville, Kentucky 40213
March 29, 1999
Dear Fellow Shareholders:
On behalf of your Board of Directors, we are pleased to invite you to attend
the 1999 Annual Meeting of Shareholders of TRICON Global Restaurants, Inc. The
meeting will be held on Thursday, May 20, 1999, at 9:00 a.m., local time, in the
Yum Center at 1900 Colonel Sanders Lane in Louisville, Kentucky.
At this meeting, you will be asked to elect four directors, approve the
Company's Long Term Incentive Plan including the performance goals, approve the
Company's Executive Incentive Compensation Plan including the performance goals
and to ratify the Board's selection of independent auditors to audit the
Company's financial statements for 1999. The enclosed notice and proxy statement
contain details about the business to be conducted at the meeting. To assure
that your shares are represented at the meeting, we urge you to mark your
choices on the enclosed proxy card, sign and date the card and return it
promptly in the envelope provided. If you are able to attend the meeting and
wish to vote your shares personally, you may do so at any time before the proxy
is voted at the meeting.
An admission ticket and directions to the meeting are attached to the
accompanying proxy card. Please retain the admission ticket and bring it with
you if you plan to attend the meeting.
Sincerely,
[SIG]
ANDRALL E. PEARSON
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
[SIG]
DAVID C. NOVAK
VICE CHAIRMAN AND PRESIDENT
<PAGE>
[LOGO]
TRICON GLOBAL RESTAURANTS, INC.
1441 Gardiner Lane
Louisville, Kentucky 40213
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
---------------------
To Our Shareholders:
The Annual Meeting of Shareholders of TRICON Global Restaurants, Inc. will
be held in the Yum Center at 1900 Colonel Sanders Lane, Louisville, Kentucky, on
Thursday, May 20, 1999 at 9:00 a.m., local time, for the following purposes:
(1) To elect four directors to serve until the 2002 annual meeting and until
their successors are elected and qualified;
(2) To approve the Company's Long Term Incentive Plan including the
performance goals for such plan;
(3) To approve the Company's Executive Incentive Compensation Plan including
the performance goals for such plan;
(4) To ratify the selection of KPMG LLP as the Company's independent
auditors for the fiscal year ending December 25, 1999; and
(5) To transact such other business as may properly come before the meeting.
Only shareholders of record at the close of business on March 22, 1999 are
entitled to notice of and to vote at the Annual Meeting.
By Order of the Board of Directors
[SIGNATURE]CHRISTIAN L. CAMPBELL
SECRETARY
March 29, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
GENERAL INFORMATION ABOUT THE MEETING...................................................................... 1
Quorum and Voting Requirements........................................................................... 1
Solicitation Expenses.................................................................................... 2
Admission to Annual Meeting.............................................................................. 2
ELECTION OF DIRECTORS...................................................................................... 2
Board of Directors....................................................................................... 2
Nominees for Class II Directors--Terms Expiring in 2002.................................................. 3
Class III Directors--Terms Expiring in 2000.............................................................. 4
Class I Directors--Terms Expiring in 2001................................................................ 5
Meetings of the Board of Directors....................................................................... 5
Committees of the Board of Directors..................................................................... 5
Compensation of Directors................................................................................ 6
Compensation Committee Interlocks and Insider Participation.............................................. 7
Section 16 Beneficial Ownership Reporting Compliance..................................................... 7
Stock Ownership of Certain Beneficial Owners and Management.............................................. 7
EXECUTIVE COMPENSATION..................................................................................... 10
Summary of Cash and Certain Other Compensation........................................................... 10
Stock Option Grants...................................................................................... 11
Stock Option Exercises and Holdings...................................................................... 12
Pension Plans............................................................................................ 12
Employment Agreements and Change in Control Agreements................................................... 13
Certain Transactions..................................................................................... 15
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION.................................................... 15
PERFORMANCE GRAPH.......................................................................................... 18
INCENTIVE PLAN PROPOSALS--BACKGROUND INFORMATION........................................................... 19
APPROVAL OF LONG TERM INCENTIVE PLAN....................................................................... 19
APPROVAL OF EXECUTIVE INCENTIVE COMPENSATION PLAN.......................................................... 25
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS.......................................................... 27
SHAREHOLDER PROPOSALS/DIRECTOR NOMINATIONS................................................................. 27
OTHER MATTERS.............................................................................................. 28
APPENDIX A................................................................................................. A-1
APPENDIX B................................................................................................. B-1
</TABLE>
i
<PAGE>
TRICON GLOBAL RESTAURANTS, INC.
1441 GARDINER LANE
LOUISVILLE, KENTUCKY 40213
------------------------
PROXY STATEMENT
FOR ANNUAL MEETING TO BE HELD ON
MAY 20, 1999
---------------------
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of TRICON Global Restaurants, Inc.,
a North Carolina corporation ("Tricon" or the "Company"), to be used at the
Annual Meeting of Shareholders of the Company to be held at 9:00 a.m. (Eastern
Daylight Savings Time), on Thursday, May 20, 1999, in the Yum Center, at 1900
Colonel Sanders Lane, Louisville, Kentucky, for the purposes set forth in the
accompanying Notice of the meeting. This Proxy Statement and the accompanying
form of proxy are being mailed to shareholders commencing on or about March 29,
1999.
The Company was formed in May 1997 as a wholly owned subsidiary of PepsiCo,
Inc. ("PepsiCo") as part of PepsiCo's plan to distribute its restaurant
businesses to its shareholders. Effective as of October 6, 1997, PepsiCo
disposed of its restaurant businesses by distributing all of the outstanding
shares of the Company on that date to PepsiCo shareholders (the "Spin-Off").
GENERAL INFORMATION ABOUT THE MEETING
QUORUM AND VOTING REQUIREMENTS
The presence in person or by proxy of shareholders holding a majority of the
outstanding shares of the Company's Common Stock will constitute a quorum for
the transaction of all business at the Annual Meeting. A shareholder voting for
the election of directors may withhold authority to vote for all or certain
nominees for directors. A shareholder may also abstain from voting on the other
matters presented for shareholder vote. Votes withheld from the election of any
nominee for director and abstentions from any other proposal will be treated as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum, but will not be counted in the number of votes cast on any
matter (except in the case of Item 2 on the Proxy card, in which case
abstentions will count as votes cast on the matter). If a broker does not
receive voting instructions from the beneficial owner of shares on a particular
matter and indicates on the proxy that it does not have discretionary authority
to vote on that matter ("broker non-votes"), those shares will be considered as
present and entitled to vote with respect to that matter, but will not be
counted in the number of votes cast "for" or "against" the matter.
Only shareholders of record at the close of business on March 22, 1999 are
entitled to vote at the Annual Meeting. As of March 22, 1999, there were
153,465,881 shares of the Company's Common Stock outstanding and entitled to
vote. Each share of Common Stock entitles the holder to one vote on all matters
presented at the Annual Meeting.
Shares represented by duly executed proxies in the accompanying form
received prior to the meeting and not revoked will be voted at the meeting or at
any adjournments in accordance with the choices specified on the proxy. If no
choices are specified, the shares represented by that proxy will be voted as
recommended by the Board of Directors. A proxy may be revoked by the person
executing it at any time before the authority thereby granted is exercised by
giving written notice to the Secretary of the Company, by delivery of a duly
executed proxy bearing a later date or by voting in person at the meeting.
Attendance
1
<PAGE>
at the meeting will not have the effect of revoking a proxy unless the
shareholder so attending so notifies the inspectors of election in writing prior
to voting of the proxy. Beneficial owners who intend to vote shares at the
meeting should obtain a legal proxy or power of attorney from their broker and
present it at the meeting to establish their right to vote such shares.
If you are a participant in the Capital Stock Purchase Program, shares of
Common Stock held in your account may be voted through the proxy card
accompanying this mailing. The administrator of this program, as the shareholder
of record, may only vote the shares for which it has received directions to vote
from participants.
If you are a participant in the Tricon Long Term Savings Program ("Plan"),
you may use the accompanying proxy card to direct the trustee of the Plan to
vote shares of Common Stock you beneficially own under the Plan. In accordance
with the Plan terms, if your proxy card for Plan shares is not returned, those
shares will not be voted.
SOLICITATION EXPENSES
The expenses of soliciting proxies for the Annual Meeting, including the
cost of preparing, assembling and mailing this proxy statement and the
accompanying form of proxy, will be borne by the Company. The Company has
retained MacKenzie Partners, Inc. to assist in the solicitation of proxies for a
fee of $14,000 plus expenses for these services. In addition to the solicitation
of proxies by mail, certain directors, officers and regular employees of the
Company, without additional compensation, may use their personal efforts, by
telephone or otherwise, to obtain proxies. The Company will also request
persons, firms and corporations holding shares in their names, or in the names
of their nominees, which shares are beneficially owned by others, to send this
proxy material to and obtain proxies from such beneficial owners, and will
reimburse such holders for their reasonable expenses in so doing.
ADMISSION TO ANNUAL MEETING
If you are a registered owner and plan to attend the meeting in person,
please detach and retain the admission ticket which is attached to your proxy
card and return the proxy card with the "Annual Meeting" box marked. A
beneficial owner who plans to attend the meeting may obtain an admission ticket
in advance by sending a written request, with proof of ownership, such as a bank
or brokerage firm account statement, to the Company's transfer agent,
BankBoston, N.A., P.O. Box 8038, Boston, Massachusetts 02266-8038. Admittance to
the annual meeting will be based upon availability of seating.
Shareholders who do not present admission tickets at the meeting will be
admitted upon verification of ownership at the admissions desk.
ELECTION OF DIRECTORS
(ITEM 1 ON PROXY CARD)
BOARD OF DIRECTORS
The Board of Directors is presently divided into three classes consisting of
four directors each. Each class is elected for a three-year term expiring in
successive years. The Board of Directors has nominated each of the following
individuals for reelection at the annual meeting:
JAMES DIMON
MASSIMO FERRAGAMO
ROBERT J. ULRICH
JEANETTE S. WAGNER
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL OF THE ABOVE-NAMED NOMINEES
FOR ELECTION AS DIRECTORS.
2
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If elected, the Company expects that Messrs. Dimon, Ferragamo and Ulrich and
Ms. Wagner will hold office until the annual meeting of shareholders in 2002 and
until their respective successors have been elected and qualified.
Shareholders voting at the Annual Meeting may not vote for more than the
number of nominees listed in this Proxy Statement. Directors will be elected by
a plurality of the total votes cast at the Annual Meeting. That is, the four
nominees receiving the greatest number of votes for Class II directors will be
deemed elected directors. Unless a shareholder specifies otherwise, the proxies
received in response to this solicitation will be voted in favor of the election
of the four nominees for Class II directors. Abstentions and broker non-votes
will not be taken into account in determining the outcome of the election of
directors. In the event that any of the nominees becomes unavailable (which is
not now anticipated by the Company), the persons named as proxies have
discretionary authority to vote for a substitute nominee designated by the
present Board of Directors. The Board of Directors has no reason to believe that
any of said nominees will be unwilling or unable to serve if elected.
The following pages contain certain information regarding each of the
nominees for election as directors at this year's annual meeting and each
continuing director. Stock ownership information for each nominee and continuing
director is presented on page 8.
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NOMINEES FOR CLASS II DIRECTORS--TERMS EXPIRING IN 2002
- - --------------------------------------------------------------------------------
JAMES DIMON is the former President of Citigroup Inc., having held that
position during October and November of 1998 following the merger of Travelers
Group Inc. and Citicorp. From September 1991 until October 1998, he was a
director of Travelers Group Inc. From June 1995 to November 1998, he was
President and Chief Operating Officer of Travelers Group Inc. He was the
Co-Chairman of the Board and Co-Chief Executive Officer of Salomon Smith Barney
Holdings Inc. ("Salomon Smith Barney"), the immediate parent company of Smith
Barney Inc. and Salomon Brothers Inc. Mr. Dimon was a director of Travelers
Property Casualty Corp. from 1996 to 1998. From May 1988 to June 1995 he was
Chief Financial Officer of Travelers Group Inc. He was from May 1988 to
September 1991, Executive Vice President of Travelers Group Inc. Mr. Dimon was
Chief Operating Officer of Smith Barney until January 1996 and was Senior
Executive Vice President and Chief Administrative Officer of Smith Barney from
1990 to 1991. From March 1994 to January 1996 he was Chief Operating Officer of
the predecessor to Salomon Smith Barney. Mr. Dimon is a trustee of New York
University Medical Center and a director of the Center on Addiction and
Substance Abuse, the National Association of Securities Dealers, Inc. and a
member of the Nominating Committee of the New York Stock Exchange, Inc. He was
elected a Director of Tricon effective October 7, 1997, and is a member of the
Executive/Finance Committee, Nominating Committee and Audit Committee. Age 43.
MASSIMO FERRAGAMO is President and Vice Chairman of Ferragamo USA, Inc., a
subsidiary of Salvatore Ferragamo Italia, which controls sales and distribution
of Ferragamo products in North America. Mr. Ferragamo has held this position
since 1985. He was elected a Director of Tricon effective October 7, 1997, and
is a member of the Audit Committee. Age 41.
ROBERT J. ULRICH is Chairman and Chief Executive Officer of Dayton Hudson
Corporation and Target Stores. He became President of Dayton Hudson Department
Store Company and President of Target Stores in 1984. He became Chairman and
Chief Executive Officer of Target Stores in 1987 and assumed his additional
present position with Dayton Hudson Corporation in 1994. Mr. Ulrich is also a
director of Dayton Hudson Corporation. He was elected a Director of Tricon
effective October 7, 1997, and is a member of the Compensation Committee. Age
55.
3
<PAGE>
JEANETTE S. WAGNER is Vice Chairman of the Estee Lauder Companies, Inc. and
has held this position since July 1, 1998. From 1986 until 1998, she was
President of Estee Lauder International, Inc., the largest subsidiary of The
Estee Lauder Companies, Inc. Ms. Wagner's career at Estee Lauder has included
marketing and general management assignments domestically and internationally.
She was elected a Director of Tricon effective October 7, 1997, and is a member
of the Compensation Committee. Age 69.
- - --------------------------------------------------------------------------------
CLASS III DIRECTORS--TERMS EXPIRING IN 2000
- - --------------------------------------------------------------------------------
D. RONALD DANIEL has been a director of McKinsey & Company since 1968. He
joined McKinsey & Company in 1957 and held various positions with the firm,
including Managing Director from 1976 to 1988. Mr. Daniel is a member of the
Harvard Corporation, the Harvard Board of Overseers, and is the Treasurer of
Harvard University. Mr. Daniel is also a member of the boards of WNET/Thirteen,
New York's public television station, the Brookings Institution, Rockefeller
University and the Markle Foundation. He was elected a Director of Tricon
effective October 7, 1997, and is a member of the Executive/Finance Committee,
Nominating Committee and the Compensation Committee. Age 69.
KENNETH G. LANGONE is the founder, and since 1974, has been Chairman of the
Board, Chief Executive Officer and President, of Invemed Associates, Inc., a New
York Stock Exchange firm engaged in investment banking and brokerage. He is a
founder of Home Depot, Inc. and has been a director since 1978. He is also a
director of DBT Online, Inc., General Electric Co., and Unifi, Inc. He was
elected a Director of Tricon effective October 7, 1997, and is a member of the
Compensation Committee. Age 63.
ANDRALL E. PEARSON became Chairman of the Board of Tricon effective August
15, 1997, and Chief Executive Officer of the Company effective October 21, 1997.
Mr. Pearson previously served as an operating partner of Clayton, Dubilier &
Rice, a leveraged buy-out firm, from 1993 to 1997. He was President and Chief
Operating Officer of PepsiCo, Inc. from 1971 through 1984 and served on
PepsiCo's Board of Directors for 26 years, retiring in April 1996. From 1985 to
1993 he was a tenured professor at Harvard Business School. Mr. Pearson is also
a director of DBT Online, Inc. and Citigroup Inc. He is also a trustee of the
New York University Medical Center and Good Samaritan Medical Center in Palm
Beach, Florida. He is a member and Chairperson of both the Tricon
Executive/Finance Committee and Nominating Committee. Age 73.
JOHN L. WEINBERG is Senior Chairman of Goldman, Sachs & Co., a position he
has held since 1990. Mr. Weinberg has served as an investment banker with
Goldman, Sachs & Co. since 1950. He became a Partner in 1956, Senior Partner and
Co-Chairman of the Management Committee in 1976, and was Senior Partner and
Chairman of the Management Committee from 1984 until 1990. He is also a director
of Knight-Ridder, Inc. and Providian Corporation. He became a Director of Tricon
effective October 7, 1997, and is a member of the Executive/Finance Committee,
Nominating Committee and the Compensation Committee, of which he is Chairperson.
Age 74.
4
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CLASS I DIRECTORS--TERMS EXPIRING IN 2001
- - --------------------------------------------------------------------------------
ROBERT HOLLAND, JR. is the owner and Chief Executive Officer of WorkPlace
Integrators, Michigan's largest Steelcase office furniture dealer. Prior to his
current position, he was President and Chief Executive Officer of Ben & Jerry's
Homemade, Inc. from 1995 through 1996. From 1981 to 1984 and from 1991 to 1995,
Mr. Holland served as Chairman and CEO of Rokher-J, Inc., which participates in
business development projects and provides strategy development assistance to
senior management of major corporations. From 1984 to 1987, he was Chairman and
Chief Executive Officer of City Marketing, a beverage distribution company in
Detroit, Michigan. From 1987 to 1990, he was Vice President, and from 1990 to
1991, he was Chairman of Gilreath Manufacturing, Inc., a full-service custom
plastic injection molding company. Mr. Holland is also a director of Mutual of
New York, TruMark Inc., Frontier Corporation, A C Nielsen Corporation, Olin
Corporation and Lexmark International, Inc. He was elected a Director of Tricon
effective October 7, 1997, and is a member of the Audit Committee. Age 57.
SIDNEY KOHL, along with other family members, developed Kohl's Food Stores,
Wisconsin's largest supermarket chain, and Kohl's Department Stores, now a
national (New York Stock Exchange) department store chain. He served as
President and then Chairman when the two entities were sold in 1972. Since 1980,
Mr. Kohl has been the president of the Sidney Kohl Company which develops, owns
and manages substantial commercial and residential property. Mr. Kohl also
serves on the Board of Kinko's, Inc. and Alliant FoodService, Inc. He was
elected a Director of Tricon effective October 7, 1997, and is a member and
Chairperson of the Audit Committee. Age 68.
DAVID C. NOVAK became Vice Chairman of the Board and President of Tricon on
October 21, 1997. He was elected a Director of Tricon effective October 7, 1997.
Mr. Novak previously served as Group President and Chief Executive Officer, KFC
and Pizza Hut from August 1996 to July 1997, at which time he became acting Vice
Chairman of Tricon. Mr. Novak joined Pizza Hut in 1986 as Senior Vice President,
Marketing. In 1990, he became Executive Vice President, Marketing and National
Sales, for Pepsi-Cola Company. In 1992 he became Chief Operating Officer,
Pepsi-Cola North America, and in 1994 he became President and Chief Executive
Officer of KFC North America. Mr. Novak is a member of the Tricon
Executive/Finance Committee and Nominating Committee. Age 46.
JACKIE TRUJILLO has been Chairman of the Board of Harman Management
Corporation, one of KFC's largest franchisees, since 1995. She joined the Harman
organization in 1953 and held various positions, becoming Executive Vice
President of Operations in 1983, with responsibility for operations of its
restaurants in Utah, Colorado, Washington and Northern California. From 1987 to
1995, she served as Executive Vice Chairman of Harman Management Corporation.
She was elected a Director of Tricon effective October 7, 1997, and is a member
of the Audit Committee. Age 63.
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MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors met six times and the Audit Committee and
Compensation Committee each met five times during fiscal 1998. All directors
attended at least 75% of all of the meetings of the Board and the committees of
which they were members during 1998 except Messrs. Langone and Ulrich who each
attended 67% of the Board meetings and 60% of the Compensation Committee
meetings.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has standing Audit, Compensation, Executive/Finance
and Nominating Committees. All members of the Audit and Compensation Committees
are non-employee directors.
5
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AUDIT COMMITTEE. The Audit Committee consists of James Dimon, Massimo
Ferragamo, Robert Holland, Jr., Jackie Trujillo and Sidney Kohl, who serves as
Chairperson. The Audit Committee's responsibilities include: (i) recommending to
the Board the selection, retention or termination of the Company's independent
auditors; (ii) approving the level of non-audit services provided by the
independent auditors; (iii) reviewing the scope and results of the work of the
Company's internal auditors; (iv) reviewing the scope and approving the
estimated cost of the annual audit; (v) reviewing the annual financial
statements and the results of the audit with management and the independent
auditors; (vi) reviewing with management, the Company's internal auditors and
the independent auditors the adequacy of the Company's system of internal
accounting controls; (vii) reviewing with management and the independent
auditors any significant recommendations made by the auditors with respect to
changes in accounting procedures and internal accounting controls; (viii)
ensuring that the Company has the appropriate systems and processes in place to
be sure that the Company is in compliance with all applicable laws and
regulations; and (ix) reporting to the Board on the results of its review and
making recommendations as it may deem appropriate. The Audit Committee met five
times during fiscal 1998.
COMPENSATION COMMITTEE. The Compensation Committee consists of D. Ronald
Daniel, Kenneth G. Langone, Robert J. Ulrich, Jeanette S. Wagner and John L.
Weinberg, who serves as Chairperson. The Compensation Committee's
responsibilities include: (i) reviewing and submitting to the Board of Directors
recommendations concerning the Company's compensation philosophy; (ii) oversight
of Tricon's Long Term Incentive Plan, Executive Incentive Compensation Plan and
other executive plans; (iii) approving, or referring to the Board of Directors
for approval, changes in such plans and the compensation programs to which they
relate; (iv) reviewing and approving the compensation of senior executives of
the Company; (v) appraising the performance of the chief executive officer and
other senior executives; (vi) reviewing management succession planning; and
(vii) reviewing periodically directors' compensation. The Compensation Committee
met five times in fiscal 1998.
EXECUTIVE/FINANCE COMMITTEE. The Executive/Finance Committee consists of D.
Ronald Daniel, James Dimon, David C. Novak, John L. Weinberg and Andrall E.
Pearson, who serves as Chairperson. The Executive/Finance Committee exercises
all of the powers of the Board of Directors in the management of the business
and affairs of the Company consistent with applicable law while the Board of
Directors is not in session. The Executive/Finance Committee did not meet during
fiscal 1998.
NOMINATING COMMITTEE. The Nominating Committee consists of D. Ronald
Daniel, James Dimon, David C. Novak, John L. Weinberg and Andrall E. Pearson,
who serves as Chairperson. The Nominating Committee: (i) identifies suitable
candidates for Board members; (ii) proposes to the Board a slate of directors
for election by the shareholders; and (iii) proposes candidates to fill
vacancies on the Board based on qualifications it determines to be appropriate.
The committee will consider those recommendations by shareholders which are
submitted, along with biographical and business experience information, to the
Chief Executive Officer. The Nominating Committee did not meet during fiscal
1998.
COMPENSATION OF DIRECTORS
Employee Directors do not receive additional compensation for serving on the
Board of Directors. Non-employee Directors receive an annual stock grant
retainer with a fair market value of $50,000 and an annual grant of options to
buy $50,000 worth of Tricon's Common Stock at a price equal to the fair market
value of Tricon Common Stock on the date of grant. Non-employee Directors also
receive a one-time stock grant with a fair market value of $25,000 on the date
of grant upon joining the Board, payment of which will be deferred until
termination from the Board. Directors may also defer payment of their retainers
pursuant to the Directors Deferred Compensation Plan. Deferrals may not be made
for less than one year. The Company also pays the premiums on directors' and
officers' liability and business travel accident insurance policies covering the
Directors.
6
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1998, members of the Compensation Committee were John L.
Weinberg, D. Ronald Daniel, Kenneth G. Langone, Jeanette S. Wagner and Robert J.
Ulrich. Mr. Weinberg is Senior Chairman of Goldman, Sachs & Co. During fiscal
1998, Goldman, Sachs & Co. provided investment banking and financial advisory
services to the Company. Andrall E. Pearson, Chairman of the Board and Chief
Executive Officer of the Company, was a director and member of the compensation
committee of Travelers Group Inc. and Citigroup Inc. James Dimon served as
President and a director of Travelers Group Inc. and President of Citigroup Inc.
during 1998. Mr. Dimon is a Director of the Company.
SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, certain officers and persons who own more than ten percent of the
outstanding Common Stock of the Company, to file with the Securities and
Exchange Commission reports of changes in ownership of the Common Stock of the
Company held by such persons. Officers, directors and greater-than-ten percent
shareholders are also required to furnish the Company with copies of all forms
they file under this regulation. To the Company's knowledge, based solely on a
review of the copies of such reports furnished to the Company and
representations that no other reports were required, all Section 16(a) filing
requirements applicable to all of its officers and directors were complied with
during fiscal 1998, except two filings covering two purchases by D. Ronald
Daniel and one filing covering two purchases by Mr. Kohl which were
inadvertently filed late.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Based on Schedule 13G filings, stockholders holding 5% or more of Tricon
Common Stock as of February 28, 1999, were:
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND ADDRESS OF TITLE OF BENEFICIALLY PERCENT OF
BENEFICIAL OWNER CLASS OWNED CLASS
- - ---------------------------------------------------------- ------------ ----------------- -------------
<S> <C> <C> <C>
BZW Barclays Global Investors NA Common 7,653,477(1) 5.0%
45 Fremont Street
San Francisco, California 94105
FMR Corp. Common 17,238,533(2) 11.3%
82 Devonshire Street
Boston, Massachusetts 02109
Tiger Management L.L.C., Common 13,067,000(3) 8.6%
Tiger Performance L.L.C.,
Julian H. Robertson, Jr.
101 Park Avenue
New York, New York 10178
</TABLE>
- - ------------------------
(1) BZW Barclay's Global ("Barclays") reported its beneficial ownership as of
December 31, 1998, on a Schedule 13G filed with the Securities and Exchange
Commission ("SEC"). The filing indicates that Barclays has sole voting power
for 6,949,301 shares, shared voting power for 23,072 shares, sole
dispositive power for 7,653,477 shares and shared dispositive power for 0
shares.
(2) FMR Corp. ("FMR") reported its beneficial ownership as of February 28, 1999,
on a Schedule 13G/A filed with the SEC. The filing indicates that FMR has
sole voting power for 528,927 shares, shared voting power for 0 shares, sole
dispositive power for 17,238,533 shares and shared dispositive power for 0
shares.
7
<PAGE>
(3) Tiger Management L.L.C. ("TMLLC"), Tiger Performance L.L.C. ("TPLLC") and
Julian H. Robertson, Jr., the ultimate controlling person of TMLLC and
TPLLC, reported their beneficial ownership as of December 31, 1998 on a
Schedule 13G/A filed with the SEC. The filing indicates that TMLLC has
shared voting and dispositive power of and beneficially owns 7,003,200
shares, and TPLLC has shared voting and dispositive power of and
beneficially owns 6,063,800 shares.
STOCK OWNERSHIP OF MANAGEMENT
The following table shows the beneficial ownership of Tricon's Common Stock
as of February 15, 1999 by (i) each of the Company's continuing directors and
nominees for election as directors, (ii) each of the executive officers of the
Company named in the summary compensation table, and (iii) all directors and
executive officers as a group. Except as otherwise noted, each of the following
persons and their family members has sole voting and investment power with
respect to the shares of Common Stock beneficially owned by him or her. None of
the following persons or group hold in excess of one percent of Tricon's Common
Stock. Tricon's internal stock ownership guidelines call for the Chairman to own
Tricon Common Stock (or deferral plan units) with a value equal to 7.5 times
current salary within five years and for other executive officers to own from 3
to 5 times current salary within five years.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY DEFERRAL
NAME OWNED PLANS(1) TOTAL
- - --------------------------------------------------------- ------------------------ ---------------- ----------
<S> <C> <C> <C>
Andrall E. Pearson....................................... 365,402(2) 131,905 497,306
David C. Novak........................................... 9,564(2)(3)(4) 145,175 154,739
D. Ronald Daniel......................................... 5,721(5) 3,332 9,053
James Dimon.............................................. 110,721(5)(6) 3,332 114,053
Massimo Ferragamo........................................ 17,721(5) 3,332 21,053
Robert Holland, Jr....................................... 2,721(5) 3,332 6,053
Sidney Kohl.............................................. 34,721(5)(7) 3,332 38,053
Kenneth G. Langone....................................... 155,263(5) 790 156,053
Jackie Trujillo.......................................... 7,318(5)(8) 3,332 10,650
Robert J. Ulrich......................................... 2,721(5) 3,332 6,053
Jeanette S. Wagner....................................... 2,721(5) 3,332 6,053
John L. Weinberg......................................... 54,701(5)(9) 3,332 58,033
Christian L. Campbell.................................... 3,321(10) 18,249 21,570
Robert L. Carleton....................................... 6,797(3) 40,208 47,005
Robert C. Lowes.......................................... 15,001 46,924 61,925
All Directors and Executive Officers as a Group (26
persons)............................................... 830,110(2)(3) 602,198 1,432,308
</TABLE>
- - ------------------------
(1) Units denominated as Common Stock equivalents held in deferred compensation
accounts under the Director Deferred Compensation Plan or the Executive
Incentive Deferral Plan. Amounts payable under these plans will be paid in
Common Stock of the Company. Also included with respect to each
non-employee director is 790 shares representing the $25,000 initial stock
grant payable to non-employee directors after they leave the Board.
(2) As set forth in the following table, for Messrs. Pearson, Novak and all
directors and executive officers as a group, the share amounts include
beneficial ownership of the following shares which may be
8
<PAGE>
acquired within 60 days pursuant to stock options awarded under
employee/director incentive compensation plan.
<TABLE>
<CAPTION>
ALL DIRECTORS AND
ANDRALL E. DAVID C. EXECUTIVE
PEARSON NOVAK OFFICERS AS A GROUP
----------- ----------- -------------------------
<S> <C> <C> <C>
Shares which may be acquired within 60 days pursuant to
stock options............................................. 350,000 2,268 386,984
</TABLE>
(3) Share amounts include any shares held pursuant to the Tricon Long Term
Savings Program which will be subject to the voting direction of such
persons at the Annual Meeting: Mr. Novak, 6,820 shares; Mr. Carleton, 4
shares; and all directors and executive officers as a group, 7,525 shares.
(4) Includes 110 shares held by Mr. Novak's spouse as custodian for their
daughter.
(5) Includes beneficial ownership of 2,721 shares which may be acquired within
60 days pursuant to stock options awarded under employee/director incentive
compensation plans.
(6) Includes 6,000 shares held by Mr. Dimon's spouse as custodian for their
minor children; and 2,000 shares owned by Mr. Dimon's spouse.
(7) Includes 16,000 shares held in a trust of which Mr. Kohl is trustee.
(8) Includes 480 shares held by the Harman Cafes Employee Profit Sharing Trust
and 4,000 shares owned by Harman Management Corp. of which Ms. Trujillo is
a trustee and of which Ms. Trujillo disclaims beneficial ownership.
(9) Includes 2,080 shares held by trusts of which Mr. Weinberg is trustee; and
2,800 shares held by Mr. Weinberg's spouse.
(10) Includes 20 shares held by Mr. Campbell's spouse.
9
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following tables provide information on compensation and stock-based
awards paid, earned or awarded for the years indicated by Tricon to its Chief
Executive Officer and four other most highly compensated executive officers as
of the end of the Company's 1998 fiscal year in accordance with the rules of the
Securities and Exchange Commission. These five individuals are referred to in
this proxy statement as the named executive officers. Amounts shown include
compensation paid or awarded to the named executive officers for periods prior
to the Spin-Off.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
--------------------
ANNUAL COMPENSATION SECURITIES
------------------------------------- UNDERLYING
NAME AND OTHER ANNUAL OPTIONS/SARS ALL OTHER
PRINCIPAL POSITION YEAR SALARY(1) BONUS(1) COMPENSATION (# SHARES)(2) COMPENSATION
- - ------------------------------- --------- ----------- --------- ------------- -------------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Andrall E. Pearson ............ 1998 $ 900,000 $2,700,000 $ 90,320(3) 0 $ 150,000(4)
Chairman of the Board and 1997 446,538 1,300,000 134,135(5) 1,050,000 1,283,333(6)
Chief Executive Officer
David C. Novak ................ 1998 700,000 2,100,000 69,669(7) 0 582,887(4)
Vice Chairman of the Board 1997 619,231 1,748,660 8,167 805,542 0
and President 1996 433,654 515,170 7,946 568,274(8) 0
Robert C. Lowes ............... 1998 600,000 1,125,000 84,213(9) 0 90,190(4)
Chief Financial Officer 1997 265,384 270,570 185,058(10) 158,064 0
Robert L. Carleton ............ 1998 400,000 1,100,000 97,715(9) 44,037 148,220(4)
Senior Vice President and 1997 371,626 444,660 10,845(10) 66,437 450,000(11)
Controller 1996 330,058 162,580 11,563 0 0
Christian L. Campbell ......... 1998 400,000 990,000 8,387(9) 0 6,667(4)
Senior Vice President, 1997 257,692 350,000 121,217(10) 110,645 0
General Counsel and Secretary
</TABLE>
- - ------------------------
(1) Amounts shown include compensation earned by the named executive officers
during 1998, including amounts deferred at the election of those officers.
Bonuses are generally paid in the year following the year in which they are
earned. The 1997 salary of Messrs. Pearson, Lowes and Campbell only reflect
a partial year since each was first employed during the second half of 1997.
For 1997, the bonus shown for Mr. Pearson represents a guaranteed bonus of
$450,000 and a one-time hiring bonus of $850,000 awarded pursuant to his
employment agreement with the Company. For 1997, the bonus shown for Mr.
Campbell represents a guaranteed bonus of $200,000 and a hiring bonus of
$150,000 awarded pursuant to his employment agreement with the Company. For
1998, the bonus shown for Messrs. Carleton and Campbell includes hiring
bonuses of $450,000 and $150,000, respectively. All other bonuses were
determined pursuant to the Company's Executive Incentive Compensation Plan.
(2) The stock options listed in this column were granted under Tricon's Long
Term Incentive Plan. No stock appreciation rights ("SARs") were granted in
1996 through 1998.
(3) This amount includes $38,487 for personal use of Company aircraft, $37,918
Company perquisites allowance and $13,915 for tax-related reimbursements.
(4) Represents preferential earnings on deferred compensation.
(5) This amount includes $65,152 for country club dues and $63,618 for
tax-related reimbursements.
(6) Included in this column for Mr. Pearson is a $1,000,000 retirement payment
to be made to him following his retirement which is expected to occur on
July 1, 2000. Under the terms of his employment agreement, Mr. Pearson will
not be entitled to any retirement benefits under Tricon's
10
<PAGE>
Salaried Employees Retirement Plan or Pension Equalization Plan. Also
included is $283,333 of preferential earnings on deferred compensation.
(7) This amount includes $41,532 for personal use of Company aircraft, $19,750
Company perquisites allowance and $8,387 for tax-related reimbursements.
(8) The 1996 option grant shown was originally made with respect to PepsiCo
Common Stock. The number shown for 1996 represents the replacement on
October 7, 1997 of outstanding unvested PepsiCo stock options under
PepsiCo's stock option plans with Tricon options, which was intended to
preserve the economic value of forfeited PepsiCo options at the time of the
Spin-Off. The number of Common Shares covered by the replacement option was
calculated by dividing the number of PepsiCo common shares under the
original option by a factor of 0.774283, and the exercise price of the
option was decreased by multiplying the original exercise price by the same
factor. The factor was determined based on the respective weighted average
market values of Tricon and PepsiCo Common Stock during the ten trading days
prior to the Spin-Off.
(9) For 1998, these amounts include reimbursement for moving and tax related
expenses, respectively, of $38,976 and $8,387 for Mr. Lowes, $76,583 and $0
for Mr. Carleton and $0 and $8,387 for Mr. Campbell.
(10) For 1997, these amounts include reimbursement for moving and tax-related
expenses, respectively, of $123,810 and $14,869 for Mr. Lowes, and $0 and
$10,845 for Mr. Carleton and $106,182 and $2,258 for Mr. Campbell.
(11) This amount represents the retirement payment which will be made to Mr.
Carleton following his retirement from Tricon; however, this amount will be
reduced by the lump-sum present value of any benefit Mr. Carleton earns
under the Tricon Salaried Employees Retirement Plan and Tricon Pension
Equalization Plan.
STOCK OPTION GRANTS
The following table presents information with respect to stock option grants
that were made during the fiscal year ended December 26, 1998 to each of the
named executive officers. All options granted by the Company in 1998 were
non-qualified stock options, and no stock appreciation rights ("SARs") were
granted in 1998. Except for Mr. Carleton, the named executive officers listed
below received stock option grants in 1997 that were intended to cover 1998.
Therefore, they did not receive 1998 grants. Except for Mr. Pearson (whose 1997
grant was intended to cover 1998 and 1999), the named executive officers
received stock option grants in 1999.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------
NUMBER OF
SECURITIES
UNDERLYING % OF TOTAL
OPTIONS OPTIONS EXERCISE GRANT DATE
GRANTED GRANTED PRICE EXPIRATION PRESENT
NAME (# SHARES)(1) TO EMPLOYEES ($/SHARE)(2) DATE VALUE(3)
- - ---------------------------------------------- ------------- ----------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Andrall E. Pearson............................ 0 0
David C. Novak................................ 0 0
Robert C. Lowes............................... 0 0
Robert L. Carleton............................ 44,037 .37 27.25 1/20/08 $ 475,600
Christian L. Campbell......................... 0 0
</TABLE>
- - ------------------------
(1) 1998 option grants become exercisable on January 20, 2002. The terms of each
option grant provide that if specified corporate control changes occur, all
outstanding stock options become exercisable immediately.
11
<PAGE>
(2) The exercise price shown is the average of the high and low sales price of
the Company's Common Stock on the date of grant.
(3) The grant date present values were determined using the Black-Scholes option
pricing model. The Black-Scholes present value per option was $10.80. The
assumptions used in calculating the Black-Scholes present value for the new
options were as follows: (a) options are assumed to be exercised at year
six; (b) volatility is 28.8% based on the daily closing stock prices from
October 7, 1997 to December 24, 1998 for Tricon, and the monthly closing
stock prices for the last four years for McDonald's Corporation and Wendy's
International, Inc.; (c) the risk-free rate of return is 5.43% based on the
five-year zero coupon treasury average yield for January 1998; and (d) the
dividend yield is 0%. No further discount to the option value calculated was
taken to give effect to the fact that the options are not freely
transferable or to the exercise or lapse of the options after the vesting
period, but prior to the end of the option term, or to the fact that the
Company has stock ownership guidelines.
STOCK OPTION EXERCISES AND HOLDINGS
The following table presents information with respect to stock options
exercised during the last fiscal year by the named executive officers, as well
as the status and current value of unexercised stock options held as of December
26, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
OPTIONS AT VALUE OF UNEXERCISED
SHARES DECEMBER 26, 1998 IN-THE-MONEY OPTIONS AT
ACQUIRED ON (# SHARES) DECEMBER 26, 1998
EXERCISE VALUE -------------------------- ----------------------------
NAME (# SHARES) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE(1)
- - -------------------------------- ----------------- --------------- ----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Andrall E. Pearson.............. 0 0 350,000 700,000 $ 5,597,270 $ 11,194,540
David C. Novak.................. 0 0 2,268 1,375,238 69,257 25,877,546
Robert C. Lowes................. 0 0 0 158,064 0 2,527,791
Robert L. Carleton.............. 0 0 0 110,474 0 2,025,170
Christian L. Campbell........... 0 0 0 110,645 0 1,769,457
</TABLE>
- - ------------------------
(1) The value of in-the-money options is based on the $47.625 per share closing
price of Tricon Common Stock on December 24, 1998 (the last trading day
prior to Tricon's fiscal year-end), less the exercise price of the options.
PENSION PLANS
The Company has adopted the Tricon Salaried Employees Retirement Plan and
Tricon Pension Equalization Plan. The annual benefits payable under these two
pension plans to employees with five or more years of service at age 65 are
equal to 3% of the employee's highest consecutive five-year average annual
earnings multiplied by years of credited service up to ten years of credited
service plus an additional 1% of the employee's highest consecutive five-year
average annual earnings for each additional year of credited service over ten
years, less .43% of final average earnings not to exceed Social Security covered
compensation multiplied by years of service (not to exceed 35 years).
12
<PAGE>
Under the Tricon plans, when an executive retires at the normal retirement
age (65), the approximate annual benefits payable after January 1, 1999 for the
following pay classifications and years of service are expected to be:
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------------------------------
REMUNERATION 15 20 25 30 35
- - ------------------------------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$ 250,000........................... $ 85,370 $ 97,160 $ 108,950 $ 120,740 $ 132,530
$ 500,000........................... 172,870 197,160 221,450 245,740 270,030
$ 750,000........................... 260,370 297,160 333,950 370,740 407,530
$1,000,000.......................... 347,870 397,160 446,450 495,740 545,030
$1,250,000.......................... 435,370 497,160 558,950 620,740 682,530
$1,500,000.......................... 522,870 597,160 671,450 745,740 820,030
</TABLE>
The years of credited service and covered compensation under the Salaried
Employees Retirement Plan and Pension Equalization Plan for the covered
executive officers named in the Summary Compensation Table are as follows:
<TABLE>
<CAPTION>
CHRISTIAN
ANDRALL E. DAVID C. ROBERT C. ROBERT L. L.
PEARSON NOVAK LOWES CARLETON CAMPBELL
------------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Years of Credited Service................... (1) 12 6(2) 1 1
Covered Compensation........................ (1) $ 1,095,757 $ 567,977 $ 551,176 $ 328,846
</TABLE>
- - ------------------------
(1) Under the terms of Mr. Pearson's employment agreement, he will not
participate in the Tricon pension plans.
(2) Mr. Lowes credited service includes the five years of additional credited
service granted to him pursuant to his employment agreement (described
below).
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL AGREEMENTS
EMPLOYMENT AGREEMENTS. The Company has entered into an employment agreement
with Andrall E. Pearson under which he will serve as Tricon's Chairman of the
Board and Chief Executive Officer until July 1, 2000. The agreement provides for
an annual salary of $900,000 and annual incentive compensation awards to be
determined by the Company's Board of Directors. However, the guaranteed bonus
for 1997 (payable in 1998) was $450,000. The Company also awarded Mr. Pearson a
one-time hiring bonus of $850,000 in 1997 which under the terms of the agreement
was deferred until the end of his employment and treated as if invested in
Tricon Common Stock at a discount under the Tricon Executive Income Deferral
Plan. In addition, the Company will make a $1,000,000 retirement payment to Mr.
Pearson at the end of his employment term. Mr. Pearson was granted options to
purchase 1,050,000 shares of the Company's Common Stock. The exercise price of
these options is $31.63 per share, which was the average of the closing prices
of Tricon stock for the fifth through the twentieth trading days following
October 6, 1997, but not less than the average of the high and low sales price
for Tricon's Common Stock on the grant date. One third of the options vested on
July 1, 1998, and one-third will vest on each of July 1, 1999 and July 1, 2000.
They will be exercisable for a period of ten years from the grant date.
The Company also entered into an employment agreement with Robert C. Lowes
in July of 1997, under which he will serve as Tricon's Chief Financial Officer.
The agreement provides for a starting salary of $600,000 per year and
participation in Tricon's annual incentive plan with a target annual incentive
compensation award of 75% of annual salary. In addition, the Company will add
five years of credited service to Mr. Lowes' benefit under the Tricon Salaried
Employees Pension Plan and Tricon Pension Equalization Plan. Mr. Lowes was
granted options to purchase 158,064 shares of Tricon Common Stock at an exercise
price of $31.63, which represents the average closing prices of Tricon Stock for
the fifth through twentieth day period following Tricon's October 6, 1997
spin-off from Pepsi Co., but not less than the average of the high and low sales
price for Tricon's Common Stock on the grant date. They will become
13
<PAGE>
exercisable five years from the grant date (provided Mr. Lowes remains employed
by Tricon) and must be exercised within ten years from the grant date or, if
earlier, termination of employment. In addition, Mr. Lowes will be entitled to a
severance payment equal to two times his salary plus target incentive if he is
terminated by the Company for any reason other than cause.
The Company has also entered into an employment agreement with Robert L.
Carleton under which he will serve as Tricon's Controller. The agreement
provides for a starting salary of $400,000 per year and participation in
Tricon's annual incentive plan with a target annual incentive compensation award
of 65% of annual salary. The Company also agreed to pay Mr. Carleton a $450,000
hiring bonus in February 1998 which was intended to partially offset the gain
attributable to unvested PepsiCo options forfeited by him at the Spin-Off. In
addition, the Company will make a $450,000 retirement payment to Mr. Carleton
when he retires from Tricon; however, the payment will be reduced by the lump
sum present value of any benefit he accrues under the Tricon Salaried Employees
Pension Plan and the Tricon Pension Equalization Plan. Mr. Carleton was granted
options to purchase 62,488 and 3,949 shares of the Company's Common Stock. The
exercise price of these options is $30.41 and $34.47, respectively, which was
the fair market value on the date of grant. These options will vest on February
1, 2000, and will be exercisable for a period of ten years from the grant dates.
The Company entered into an employment agreement with Christian L. Campbell
in September of 1997, under which he will serve as Tricon's Senior Vice
President, General Counsel and Secretary. The agreement provided for a starting
salary of $400,000 per year and participation in Tricon's annual incentive plan
with a target annual incentive compensation award of 65% (subsequently changed
to 75%) of annual salary. The Company also agreed to pay Mr. Campbell a $300,000
hiring bonus, 50% of which was payable upon starting with Tricon and the
remainder payable on his first anniversary. In addition, the Company agreed to
pay Mr. Campbell a guaranteed 1997 bonus, payable in 1998, of $200,000. Upon
achieving normal retirement age status (age 55 and at least 10 years of credited
service with Tricon), the Company will add five years of credited service to Mr.
Campbell's benefit under the Tricon Salaried Employees Pension Plan and Tricon
Pension Equalization Plan. Mr. Campbell was granted options to purchase 110,645
shares of Tricon Common Stock at an exercise price of $31.63, which represents
the average closing prices for Tricon stock for the fifth through twentieth day
period following Tricon's October 6, 1997 spin-off from PepsiCo, but not less
than the average of the high and low sales price for Tricon's Common Stock on
the grant date. They will become exercisable five years from the grant date
(provided Mr. Campbell remains employed by Tricon) and must be exercised within
ten years from the grant date or, if earlier, termination of employment.
CHANGE IN CONTROL AGREEMENTS. Change in control severance agreements are in
effect between the Company and certain key executives (including Messrs.
Pearson, Novak, Lowes, Carleton and Campbell). These executive change in control
agreements (the "Agreements") were effective as of July 21, 1998, have been
general obligations of the Company since that date, and provide, generally, that
if, within two years subsequent to a change in control of the Company (a "Change
in Control"), the employment of the executive ("Covered Executive") is
terminated (other than for cause, or for other limited reasons specified in the
Agreements), or if the Covered Executive terminates employment for Good Reason
(defined in the Agreements to include a diminution of duties and
responsibilities or benefits), the Covered Executive will be entitled to receive
a severance payment consisting of (a) the Covered Executive's base salary
through the date of termination, (b) a proportionate bonus assuming achievement
of target performance goals under the bonus plan or, if higher, assuming
continued achievement of such performance goals until date of termination, (c)
two times the sum of the Covered Executive's base salary and the target bonus
or, if higher, the actual bonus for the year preceding the Change in Control,
and (d) any unpaid compensation. In addition, Mr. Carleton's Agreement provides
that should he become entitled to payments under his Agreement prior to the time
he becomes entitled to the $450,000 retirement payment specified in his
employment agreement, the $450,000 will be paid under this Agreement. If
payments had been made at December 26, 1998, the total of such severance
payments under (c) above to each of Messrs. Pearson,
14
<PAGE>
Novak, Lowes, Carleton and Campbell would have been $4,400,000, $4,897,320,
$2,100,000, $1,689,320, and $1,500,000, respectively. A Covered Executive whose
employment is not terminated in a manner described in this paragraph will not be
entitled to receive any severance payments under the Agreements. In addition to
such severance payments, the Company will also provide the Covered Executive
with outplacement services for one year following such termination. In addition,
the Agreements provide that in the event a Covered Executive becomes entitled to
receive a severance payment and other severance benefits and such severance
payment and benefits are subject to an excise tax, the Covered Executive will
become entitled to receive an additional payment in an amount such that after
the payment of all income and excise taxes, the Covered Executive will be in the
same after-tax position as if no excise tax has been imposed. If a Change in
Control does not occur before December 31, 2000, the Agreements terminate.
CERTAIN TRANSACTIONS
During 1998, affiliates of Harman Management Company ("Harman") paid
royalties of approximately $9,316,305 to KFC Corporation, a subsidiary of
Tricon. Jackie Trujillo, Chairman of the Board of Harman, is a Director of
Tricon.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Committee") is responsible for assisting
the Board of Directors in monitoring the Company's compensation arrangements
with a view to ensuring that the Company continues to attract and retain highly
qualified management through competitive compensation programs, and encouraging
extraordinary results through incentive awards. The Committee establishes basic
principles related to the compensation programs of the Company and provides
oversight for compensation programs for senior executive officers. The
principles include building a strong relationship between shareholder return and
executive compensation. Particular emphasis is placed on share ownership for
senior executives and middle management. In addition, the Committee places a
high emphasis on incentive compensation, in particular long-term incentives, and
providing an overall level of remuneration which is competitive and reflective
of performance.
COMPENSATION PHILOSOPHY AND PROGRAMS
In administering senior executive officer compensation, the Committee has
established a compensation program tailored for the restaurant industry that is
designed to reward superior performance. The committee's objective is to
establish a program which aligns the interests of shareholders and executives.
As such, the Committee has established stock ownership guidelines for the 500
most senior executives and managers. The guidelines vary from 7.5 times salary
to 0.25 times salary and assume that affected employees will meet or exceed the
guidelines within five years of implementation. The Company's long-term stock
option program is focused on attracting, retaining and motivating the best
restaurant executives in the industry.
Senior People Resources management of the Company presents proposals and
recommendations on senior executive officer compensation to the Committee for
their review and evaluation. To establish compensation targets, the Committee
uses data provided by the Company which is obtained from independent
consultants. The data reflect compensation practices of 20 companies from the
restaurant, service, consumer goods and retail industries (the comparator group)
who participate in widely distributed surveys. The Committee believes that
targeting compensation at a level comparable to other large companies
appropriately reflects the labor market for Company executives. Base pay is
established at the median level for the comparator group. Annual incentive
compensation targets are set at the 75th percentile for the comparator group.
Long-term incentive targets are set at the 75th percentile for executives and
managers who are achieving their ownership guideline. Companies in the
comparator group may be included in the S&P Restaurants Index used in the
performance graph included in this Proxy Statement; however, the comparator
group is not made up exclusively of companies used in that index. As the Company
recruits senior executives from outside the restaurant industry and retains
these executives
15
<PAGE>
against offers from outside the restaurant industry, the Committee believes that
the broad-based comparator group is a more appropriate basis for comparison.
BASE SALARIES
The Committee approved the Company's executive compensation salary structure
for 1998. Base salaries were established around a targeted pay level for each
position within each career band. Each position's career band is established
based on the median level of base compensation for similar positions in the
survey data. The 1998 increases to base salaries were set within the prescribed
career band based on an assessment of factors including individual performance,
experience and responsibilities. This assessment is not subject to weightings or
formulas. Future individual salary increases are expected to reflect the
position against a targeted salary within the career band, the merit increase
budget established by the Company, and individual performance over the prior
performance period. Each merit increase budget is expected to be based on survey
information of salary increase budgets for the comparator group, Company
performance and an assessment of the Company's labor costs for management
employees.
ANNUAL CASH INCENTIVES
The Company has established the 1997 Executive Incentive Compensation Plan
("EICP") to motivate the attainment of annual performance objectives. The
performance requirement under the EICP is based upon attainment of a
pre-established earnings per share ("EPS") target (adjusted for nonrecurring
events). No payment is made if a minimum EPS target is not met. Once the EPS
target is achieved, the participant is eligible to receive an overall maximum
incentive award attributable to the level of EPS attained. The Committee has
discretion to decrease (but not increase) the amount payable. Pursuant to the
terms of the EICP, the Committee certified results against performance
objectives and approved annual incentive awards.
In exercising its discretion to determine the annual incentives of executive
officers (subject to the overall maximums), the Committee reviews actual
performance against consolidated or relevant operating company and individual
goals and objectives. These goals and objectives are used to establish a minimum
level, a target level, and a maximum level of performance. Operating company
goals and objectives for executive officers in 1998 included cash flow and
profit objectives. For each objective, no payment is made if performance fails
to meet the minimum level for that objective. Actual performance is measured
relative to these levels for each objective in order to determine a percentage.
This percentage is applied to each participant's predetermined target incentive
amount in determining a participant's actual incentive award which may not
exceed the overall maximum. Depending on actual performance, the percentage can
range from 0 to 300% of the target incentive amount. This same formula is
applied to determine incentive awards of eligible nonexecutive officers;
however, each operating company also has financial targets based on one or more
of the following measures: sales, profit, cash flow, and return on assets.
In keeping with the emphasis on stock ownership, executives have the
opportunity to defer all or a portion of their annual incentives into phantom
shares of Tricon Common Stock at a discount; however, to receive payment of
these shares, participating executives must continue employment with the Company
for two years following the deferral or meet certain retirement or disability
criteria.
LONG-TERM INCENTIVES
The Company provides long-term incentives through the Company's 1997 Long
Term Incentive Plan ("LTIP"). The Committee believes that stock ownership by
executive and middle management is essential for aligning management's interest
with that of shareholders.
Under the LTIP, the Committee provides long-term incentive awards in the
form of stock options and, from time to time, restricted shares. Stock options
are the primary long-term incentive of the Company. The number of options
granted to each executive officer is related to the market data for that job and
the performance of the executive. For executive officers these grants were based
on the individual's anticipated
16
<PAGE>
achievement of their stock ownership guidelines, responsibilities, performance,
and future potential. Each option was granted at not less than the fair market
value of the underlying Common Stock on the date of grant. Each regular grant of
an option becomes vested after four years and is for a term a ten years.
1998 COMPENSATION OF ANDRALL E. PEARSON
In 1997, Mr. Pearson entered into a three-year employment agreement with the
Company which was approved by PepsiCo (prior to spin-off of the Company by
PepsiCo), the major terms of which were ratified by the Board's non-employee
Directors. Under the Agreement, Mr. Pearson's annual salary was set at $900,000.
The amount was determined based on a comparison with other firms in the
comparator group. This salary is at the median for the survey group.
The Committee did not change Mr. Pearson's salary in 1998 since it was set
during the second half of 1997. Mr. Pearson did not receive a 1998 stock option
grant. His 1997 grant was designed to cover his responsibilities as Chairman and
Chief Executive Officer for 1998, 1999 and 2000.
Mr. Pearson was awarded an annual incentive of $2,700,000 for 1998. The
Committee certified Tricon's attainment of the Committee's pre-established EPS
target for 1998. Based on Tricon's 1998 EPS, the Committee could have awarded
Mr. Pearson an annual incentive of $3,000,000 under the EICP. The Committee,
however, exercised its discretion to award Mr. Pearson a lower incentive. The
determination of this amount was based on Mr. Pearson's target incentive (100%
of his salary) multiplied by two factors: Tricon's performance and Mr. Pearson's
individual performance. In exercising its discretion, the Committee reviewed
Tricon's attainment of pre-established cash flow and EPS objectives. Attainment
of these objectives resulted in a 200% factor for Tricon performance. In
reviewing Mr. Pearson's individual performance, the Committee considered several
criteria on a subjective basis including Tricon's above target 1998 EPS and cash
flow, improved store level margins, improved same store sales and increased
return on assets. The Committee determined that Mr. Pearson's personal
performance was at the maximum level, producing a 150% factor. Combining the
Tricon and personal performance factors resulted in a bonus equal to 300% of Mr.
Pearson's target incentive.
IMPACT OF INTERNAL REVENUE CODE SECTION 162(M)
Under the Omnibus Budget Reconciliation Act of 1993, provisions were added
to the Internal Revenue Code under Section 162(m) that limit the tax deduction
for compensation in excess of one million dollars paid to certain executive
officers. However, performance-based compensation can be excluded from the limit
so long as it meets certain requirements. The Committee believes the EICP and
LTIP satisfy the requirements for exemption under the Internal Revenue Code
Section 162(m). Payments made under these plans qualify as performance-based
compensation and constitute the majority of aggregate annual incentive payments
for the named executive officers.
For 1998, the annual salary paid to Mr. Pearson and the other named
executive officers were in each case less than one million dollars. The 1998
annual incentives were all paid pursuant to the EICP and will, therefore, be
deductible when paid. To the extent any of the named executive officers defer
their annual incentives into phantom shares of Tricon Common Stock at a
discount, the annual incentives are no longer qualified under Section 162(m);
however, it is expected that they will be deductible when paid, since they will
be paid after each executive's retirement or termination of employment or when
the executive is no longer a named executive officer. The stock option awards
made under the terms of the LTIP are exempt as performance-based compensation
for purposes of calculating the one million dollar limit. Due to the Company's
focus on performance-based compensation plans and continued deferral of
compensation by certain executive officers, the Committee expects to continue to
qualify most compensation paid to the group as tax deductible.
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<PAGE>
SUMMARY
The Compensation Committee believes that the compensation programs of the
Company are well structured to encourage attainment of objectives and foster a
shareholder perspective in management, in particular through employee share
ownership. The Committee feels that the awards made in 1998 were competitive and
appropriate, and serve shareholders' long-term interests.
Respectfully submitted,
The Compensation Committee
<TABLE>
<S> <C>
D. Ronald Daniel Kenneth G. Langone
Robert J. Ulrich Jeanette S. Wagner
John L. Weinberg
</TABLE>
PERFORMANCE GRAPH
The following performance graph compares the cumulative total return of the
Company's Common Stock to the S&P 500 Stock Index and to the S&P Restaurants
Index for the period from September 17, 1997, the day shares of Tricon's Common
Stock began trading on the New York Stock Exchange, to December 24, 1998, the
last trading day of the Company's fiscal year. The returns of each member of the
peer group are weighted according to each member's stock market capitalization
as of the beginning of the period measured. The graph assumes that the value of
the investment in the Company's Common Stock and each index was $100 at
September 17, 1997 and that all dividends were reinvested. The companies
included in the S&P Restaurants Index in addition to Tricon were as follows:
McDonald's Corporation, Wendy's International, Inc. and Darden Restaurants, Inc.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TRICON S&P 500 S&P RESTAURANTS
<S> <C> <C> <C>
9/17/97 100 100 100
12/26/97 97 99 96
12/24/98 164 130 157
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 17, DECEMBER 26, DECEMBER 24,
1997 1997 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
Tricon 100 97 164
S & P 500 100 99 130
S & P Restaurants 100 96 157
</TABLE>
18
<PAGE>
INCENTIVE PLAN PROPOSALS--BACKGROUND INFORMATION
The Company's incentive compensation policies for officers include both
long-term incentives and annual incentives. Incentives awarded by the Company in
1997, 1998 and 1999 were granted under the 1997 Long Term Incentive Plan and
1997 Executive Incentive Compensation Plan (the "Former Plans"). PepsiCo, as the
sole shareholder of the Company prior to the Spin-Off, approved and adopted the
Former Plans. Notwithstanding that the Former Plans were duly adopted by PepsiCo
and continue to be in full force and effect since the Spin-Off, Internal Revenue
Service regulations require that such plans or new plans be submitted for
shareholder approval at the first annual meeting of shareholders following the
first anniversary of the Spin-Off. Shareholder approval is required to qualify
incentive compensation awarded after the 1999 Annual Meeting of Shareholders as
"performance-based" compensation. "Performance-based compensation" is not
subject to the limitation on deductibility for income tax purposes of certain
executive compensation in excess of $1 million under Section 162(m) of the
Internal Revenue Code of 1986, as amended ("Section 162(m)").
Incentives under the Former Plans qualified as "performance-based
compensation" and thus, were not subject to any deductibility limitations. The
Board of Directors believes that it is important for the Company to take all
steps reasonably necessary to ensure that the Company will be able in the future
to take all available tax deductions with respect to long-term incentives and
annual incentives. Therefore, the Board of Directors, on the recommendation of
the Compensation Committee, adopted, subject to shareholder approval, the Tricon
Global Restaurants, Inc. Long Term Incentive Plan (the "Long Term Plan") and the
Tricon Global Restaurants, Inc. Executive Incentive Compensation Plan (the
"Incentive Plan").
In order for the Long Term Plan or Incentive Plan to be approved by
shareholders, each proposal must receive an affirmative vote of a majority of
shares voted on such proposal at the Annual Meeting. Abstentions from voting, as
well as broker non-votes, if any, are not treated as votes cast and, therefore,
will have no effect on the adoption of such proposal, except, however, in the
case of Item 2, abstentions will be treated as votes cast. No stock awards under
the Long Term Plan will be made unless shareholder approval is obtained.
Likewise, no payments will be made under the Incentive Plan unless shareholder
approval is obtained.
The following descriptions of the Long Term Plan and Incentive Plan are
qualified by reference to the full texts thereof, copies of which are attached
to this proxy.
APPROVAL OF
LONG TERM INCENTIVE PLAN
(ITEM 2 ON PROXY CARD)
INTRODUCTION. The Board of Directors recommends that stockholders approve
the Tricon Global Restaurants, Inc. Long Term Incentive Plan (the "Long Term
Plan") which was adopted by the Board on February 18, 1999, subject to
stockholder approval. If the Long Term Plan and the performance goals under the
plan are approved by stockholders, certain Awards made under the Plan will be
eligible to qualify as "performance-based compensation" that is exempt from the
$1 million deduction limit (as described below) imposed by Section 162(m) and
7,600,000 shares of Tricon Common Stock will be authorized and available for
Awards under the Long Term Plan. A summary of the material provisions of the
Long Term Plan is set forth below and is qualified in its entirety by reference
to the Long Term Plan as set forth in Exhibit A hereto. If the Long Term Plan is
not so approved, it will be cancelled.
PURPOSE. The purpose of the Long Term Plan is to (i) motivate Participants,
by means of appropriate incentives, to achieve long-range corporate goals; (ii)
attract and retain persons eligible to participate in the plan; (iii) provide
incentive compensation opportunities that are competitive with those of other
similar companies; and (iv) further align Participants' interests with those of
the Company's other shareholders through compensation that is based on the
Company's common stock ("Stock"); and thereby promote the long-term financial
interest of the Company and its subsidiaries, including the growth in value of
the Company's equity and enhancement of long-term stockholder return. To achieve
the foregoing
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<PAGE>
objectives, the Long Term Plan provides for the grant of non-qualified and
incentive stock options, stock appreciation rights ("SARs"), stock units,
restricted stock units, performance shares, performance units, and restricted
stock ("Awards").
ELIGIBILITY. Under the Long Term Plan, the Committee (defined below) may
grant one or more Awards to any employee of the Company or its subsidiaries, and
to any director of the Company (the "Participants"). As of December 26, 1998,
the Company and its subsidiaries had approximately 260,000 employees. The
specific employees who initially will be granted Awards under the Long Term Plan
and the type and amount of any such Awards will be determined by the Committee.
OPTIONS. The Committee may grant options under the Long Term Plan to
purchase Stock which may be either non-qualified stock options or incentive
stock options. The purchase price of a share of Stock under each option shall
not be less that the fair market value of a share of Stock on the date the
option is granted. The option shall be exercisable in accordance with the terms
established by the Committee. In general, the Committee intends that the option
terms will provide that options may not be exercised until four years after
grant and will require the Participant to be employed through the four year
period and up until the date of exercise. The full purchase price of each share
of Stock purchased upon the exercise of any option shall be paid at the time of
exercise. Except as otherwise determined by the Committee, the purchase price
shall be payable in cash or in Stock (valued at fair market value as of the day
of exercise), or in any combination thereof. The Committee may impose such
conditions, restrictions, and contingencies on Stock acquired pursuant to the
exercise of an option or SAR as the Committee determines to be desirable.
STOCK APPRECIATION RIGHTS. The Committee may grant a stock appreciation
right ("SAR") in connection with all or any portion of a previously or
contemporaneously granted option or independent of any option grant. An SAR
entitles the Participant to receive the amount by which the fair market value of
a specified number of shares on the exercise date exceeds an exercise price
established by the Committee, which shall not be less than 100% of the fair
market value of the Stock at the time the SAR is granted. Such excess amount
shall be payable in Stock, in cash, or in a combination thereof, as determined
by the Committee.
OTHER STOCK AWARDS. The Committee may grant stock units (a right to receive
Stock in the future), performance shares (a right to receive Stock or stock
units contingent upon achievement of performance or other objectives),
performance units (a right to receive a designated dollar amount of Stock
contingent on achievement of performance or other objectives) and restricted
stock and restricted stock units (a grant of Stock and the right to receive
Stock in the future, respectively, with such shares or rights subject to a risk
of forfeiture or other restrictions that lapse upon the achievement of one or
more goals relating to completion of service by the Participant or the
achievement of performance or other objectives, as determined by the Committee).
Any such Award shall be subject to such conditions, restrictions and
contingencies as the Committee determines.
The Company does not intend to utilize these awards in the near future or on
any regular basis; however, it does foresee use of these awards in certain
senior executive hiring or retention situations and will require a minimum three
year vesting or performance period. The Company does intend to award restricted
shares with a two year vesting period in the case of annual incentive deferrals
payable in restricted shares. These awards (described more fully at page 16) are
granted as a settlement of otherwise earned annual incentives and are designed
to encourage employee Stock ownership in Tricon. In addition, employees are
permitted to defer their salary or annual incentive into stock units payable at
a date elected by the employee. This feature is also designed to encourage
employee Stock ownership in Tricon.
PERFORMANCE-BASED COMPENSATION. A federal income tax deduction will
generally be unavailable for annual compensation in excess of $1 million paid to
any of the five most highly compensated officers of a public corporation.
However, amounts that constitute "performance-based compensation" are not
counted toward the $1 million limit. The Committee may designate any Award
described in the preceding paragraph as intended to be "performance-based
compensation." Any Awards so designated shall be
20
<PAGE>
conditioned on the achievement of one or more performance goals, as required by
Section 162(m). The performance goals that may be used by the Committee for such
Awards shall be based on any one or more of the following Company, subsidiary,
operating unit or division performance measures, as selected by the Committee:
cash flow; earnings; earnings per share; market value added or economic value
added; profits; return on assets; return on equity; return on investment;
revenues; stock price; or total shareholder return. Each goal may be expressed
on an absolute and/or relative basis, may be based on or otherwise employ
comparisons based on internal targets, the past performance of the Company
and/or the past or current performance of other companies, and in the case of
earnings-based measures, may use or employ comparisons relating to capital,
stockholders' equity and/or shares outstanding, investments or to assets or net
assets. To satisfy the requirements that apply to performance-based
compensation, these goals must be approved by the Company's stockholders, and
approval of the Plan will also constitute approval of the foregoing goals.
ADMINISTRATION. The Long Term Plan is administered by a committee (the
"Committee") selected by the Board and consisting solely of two or more members
of the Board. If the Committee does not exist, or for any other reason
determined by the Board, the Board may take any action under the Long Term Plan
that would otherwise be the responsibility of the Committee. The Committee will
have the authority and discretion to select from among the Eligible Individuals
those persons who shall receive Awards, to determine the time or times of
receipt, to determine the types of Awards and the number of shares covered by
the Awards, to establish the terms, conditions, performance criteria,
restrictions, and other provisions of such Awards, and subject to certain
limits, to cancel or suspend Awards. To the extent that the Committee determines
that the restrictions imposed by the Long Term Plan preclude the achievement of
the material purposes of the Awards in jurisdictions outside the United States,
the Committee will have the authority and discretion to modify those
restrictions as the Committee determines to be necessary or appropriate to
conform to applicable requirements or practices of jurisdictions outside of the
United States. The Committee will have the authority and discretion to interpret
the Long Term Plan, to establish, amend, and rescind any rules and regulations
relating to the Long Term Plan, to determine the terms and provisions of any
Award agreement made pursuant to the Long Term Plan, and to make all other
determinations that may be necessary or advisable for the administration of the
Long Term Plan. Any interpretation of the Long Term Plan by the Committee and
any decision made by it under the Long Term Plan is final and binding on all
persons. Except to the extent prohibited by applicable law or the applicable
rules of a stock exchange, the Committee may allocate all or any portion of its
responsibilities and powers to any one or more of its members and may delegate
all or any part of its responsibilities and powers to any person or persons
selected by it. Until action to the contrary is taken by the Committee, the
Committee's authority with respect to matters concerning participants below the
Executive Officer level is delegated to the Chief Executive Officer and Chief
People Officer of the Company.
LIMITS ON AWARDS. The maximum number of shares of Stock that may be
delivered to Participants and their beneficiaries under the Long Term Plan is
7,600,000 shares of Stock. To the extent any shares of Stock covered by an Award
are not delivered to a Participant or beneficiary because the Award is forfeited
or canceled, or the shares of Stock are not delivered because the Award is
settled in cash or used to satisfy the applicable tax withholding obligation,
such shares shall not be deemed to have been delivered for purposes of
determining the maximum number of shares of Stock available for delivery under
the Long Term Plan. If the exercise price of any stock option granted under the
Long Term Plan is satisfied by tendering shares of Stock to the Company (by
either actual delivery or by attestation), only the number of shares of Stock
issued net of the shares of Stock tendered shall be deemed delivered for
purposes of determining the maximum number of shares of Stock available for
delivery under the Long Term Plan.
The following additional limits shall apply to Awards under the Long Term
Plan: (i) no more than 2,000,000 shares of Stock may be issued for options and
SARs granted to any one individual in any five-calendar-year period; (ii) no
more than 300,000 shares of Stock may be issued for stock unit, restricted
stock, restricted stock unit, and performance share awards that are intended to
be "performance-based compensation" (as described below) granted to any one
individual during any five-calendar-year period;
21
<PAGE>
(iii) no more than 500,000 shares of stock may be issued for stock units,
restricted stock, and performance units awards (except that stock units,
restricted stock and restricted stock units granted with respect to the deferral
of salary or of annual cash incentive awards and in lieu of the receipt of such
awards will not count toward this maximum); and (iv) no more than $1,000,000 may
be covered by performance unit awards that are intended to be "performance-based
compensation" granted to any one individual during any one-calendar-year period.
The shares of Stock with respect to which Awards may be made under the Long Term
Plan shall be shares currently authorized but unissued or currently held or
subsequently acquired by the Company as treasury shares, including shares
purchased in the open market or in private transactions. At the discretion of
the Committee, an Award under the Long Term Plan may be settled in cash rather
than Stock. The closing price with respect to the Stock on December 24, 1998 was
$47.625 per share.
The Committee may use shares of Stock available under the Long Term Plan as
the form of payment for compensation, grants or rights earned or due under any
other compensation plans or arrangements of the Company or a subsidiary,
including the plans and arrangements of the Company or a subsidiary assumed in
business combinations.
In the event of a corporate transaction involving the Company (including,
without limitation, any stock dividend, stock split, extraordinary cash
dividend, recapitalization, reorganization, merger, consolidation, split-up,
spin-off, combination or exchange of shares), the Committee may adjust Awards to
preserve the benefits or potential benefits of the Awards. Action by the
Committee may include: (i) adjustment of the number and kind of shares which may
be delivered under the Long Term Plan; (ii) adjustment of the number and kind of
shares subject to outstanding Awards; (iii) adjustment of the exercise price of
outstanding options and SARs; and (iv) any other adjustments that the Committee
determines to be equitable.
The Company does not intend to request shareholders to approve the
authorization of additional shares under the Long Term Plan until after 2002.
Except as otherwise provided by the Committee, Awards under the Long Term
Plan are not transferable except as designated by the Participant by will or by
laws of descent and distribution.
CHANGE IN CONTROL. Generally, the Committee may provide under the terms of
any Award that upon a change in control, as defined in the Long Term Plan, all
outstanding options and SARs will become fully exercisable and all stock units,
restricted stock, restricted stock units and performance shares will become
fully vested. Any restricted shares attributable to deferrals under the
Company's deferral plan shall become fully vested upon a change of control.
AMENDMENT AND TERMINATION. The Board may, at any time, amend or terminate
the Long Term Plan, provided that no amendment or termination may, in the
absence of consent to the change by the affected Participant, adversely affect
the rights of any Participant or beneficiary under any Award granted under the
Long Term Plan prior to the date such amendment is adopted by the Board.
However, no amendment may increase the limits on shares, decrease the minimum
option or SAR exercise price, or modify the restrictions on repricing without
shareholder approval.
FEDERAL INCOME TAX CONSIDERATION. The following is a brief description of
the federal income tax treatment that will generally apply to Awards under the
Long Term Plan based on current federal income tax rules.
NON-QUALIFIED OPTIONS. The grant of a non-qualified option will not result
in taxable income to the Participant. Except as described below, the Participant
will realize ordinary income at the time of exercise in an amount equal to the
excess of the fair market value of the Stock acquired over the exercise price
for those shares and the Company will be entitled to a corresponding deduction.
Gains or losses realized by the Participant upon disposition of such shares will
be treated as capital gains and losses, with the basis in such Stock equal to
the fair market value of the shares at the time of exercise.
22
<PAGE>
INCENTIVE STOCK OPTIONS. The grant of an incentive stock option will not
result in taxable income to the Participant. The exercise of an incentive stock
option will not result in taxable income to the Participant provided that the
Participant was, without a break in service, an employee of the Company or a
subsidiary during the period beginning on the date of the grant of the option
and ending on the date three months prior to the date of exercise (one year
prior to the date of exercise if the Participant is disabled, as that term is
defined in the Code). The excess of the fair market value of the Stock at the
time of the exercise of an incentive stock option over the exercise price is an
adjustment that is included in the calculation of the Participant's alternative
minimum taxable income for the tax year in which the incentive stock option is
exercised.
If the Participant does not sell or otherwise dispose of the Stock within
two years from the date of the grant of the incentive stock option or within one
year after the transfer of such Stock to the Participant, then, upon disposition
of such Stock, any amount realized in excess of the exercise price will be taxed
to the Participant as capital gain and the Company will not be entitled to a
corresponding deduction. A capital loss will be recognized to the extent that
the amount realized is less than the exercise price. If the foregoing holding
period requirements are not met, the Participant will generally realize ordinary
income at the time of the disposition of the shares, in an amount equal to the
lesser of (i) the excess of the fair market value of the Stock on the date of
exercise over the exercise price, or (ii) the excess, if any, of the amount
realized upon disposition of the shares over the exercise price and the Company
will be entitled to a corresponding deduction. If the amount realized exceeds
the value of the shares on the date of exercise, any additional amount will be
capital gain. If the amount realized is less than the exercise price, the
Participant will recognize no income, and a capital loss will be recognized
equal to the excess of the exercise price over the amount realized upon the
disposition of the shares.
STOCK APPRECIATION RIGHTS. The grant of an SAR will not result in taxable
income to the Participant. Upon exercise of an SAR, the amount of cash or the
fair market value of Stock received will be taxable to the Participant as
ordinary income and the Company will be entitled to a corresponding deduction.
Gains and losses realized by the Participant upon disposition of any such shares
will be treated as capital gains and losses, with the basis in such shares equal
to the fair market value of the shares at the time of exercise.
PERFORMANCE SHARES AND PERFORMANCE UNITS. A Participant who has been
granted a performance share award or performance unit award will not realize
taxable income at the time of grant and the Company will not be entitled to a
corresponding deduction. The Participant will have compensation income at the
time of distribution equal to the amount of cash received and the then fair
market value of the distributed shares and the Company will be entitled to a
corresponding deduction.
RESTRICTED AND OTHER STOCK. A Participant who has been granted a restricted
stock award will not realize taxable income at the time of grant and the Company
will not be entitled to a corresponding deduction, assuming that the
restrictions constitute a "substantial risk of forfeiture" for federal income
tax purposes. Upon the vesting of Stock subject to an Award, the holder will
realize ordinary income in an amount equal to the then fair market value of
those shares, and the Company will be entitled to a corresponding deduction.
Gains or losses realized by the Participant upon disposition of such shares will
be treated as capital gains and losses, with the basis in such shares equal to
the fair market value of the shares at the time of vesting. Dividends paid to
the holder during the restriction period, if so provided, will also be
compensation income to the Participant and the Company will be entitled to a
corresponding deduction. A Participant may elect pursuant to section 83(b) of
the Code to have income recognized at the date of grant of a restricted stock
award and to have the applicable capital gain holding period commence as of that
date and the Company will be entitled to a corresponding deduction.
WITHHOLDING OF TAXES. The Company may withhold amounts from Participants to
satisfy withholding tax requirements. Subject to guidelines established by the
Committee, Participants may have Stock withheld from Awards or may tender Stock
to the Company to satisfy tax withholding requirements.
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<PAGE>
$1 MILLION LIMIT. Section 162(m) disallows a federal income tax deduction
for certain compensation in excess of $1 million per year paid to each of the
Company's chief executive officer and its four other most highly compensated
executive officers (collectively, the "Covered Employees"). Compensation that
qualifies as "performance-based compensation" is not subject to the $1 million
limit. The Long Term Plan has been structured to permit Awards and payments that
will satisfy the requirements applicable to performance-based compensation.
CHANGE IN CONTROL. Any acceleration of the vesting or payment of Awards
under the Long Term Plan in the event of a change in control in the Company may
cause part or all of the consideration involved to be treated as an "excess
parachute payment" under the Code, which may subject the Participant to a 20%
excise tax and preclude deduction by the Company.
TAX ADVICE. The preceding discussion is based on federal tax laws and
regulations presently in effect, which are subject to change, and the discussion
does not purport to be a complete description of the federal income tax aspects
of the Long Term Plan. A Participant may also be subject to state and local
taxes in connection with the grant of Awards under the Long Term Plan. The
Company suggests that Participants consult with their individual tax advisors to
determine the applicability of the tax rules to the Awards granted to them in
their personal circumstances.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE TRICON GLOBAL
RESTAURANTS, INC. LONG TERM INCENTIVE PLAN, INCLUDING THE PERFORMANCE GOALS FOR
THE PLAN.
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<PAGE>
APPROVAL OF
EXECUTIVE INCENTIVE COMPENSATION PLAN
(ITEM 3 ON PROXY CARD)
INTRODUCTION. The Board of Directors recommends that stockholders approve
the Tricon Global Restaurants, Inc. Executive Incentive Compensation Plan (the
"Incentive Plan") which was adopted by the Board on February 18, 1999, subject
to stockholder approval. If the Incentive Plan is approved by stockholders,
incentive payments made under the Plan will qualify as "performance-based
compensation" that is exempt from the $1 million deduction limit (as described
below) imposed by Section 162(m) of the Code. A summary of the material
provisions of the Incentive Plan is set forth below and is qualified in its
entirety by reference to the Incentive Plan as set forth in Exhibit B hereto. If
the Incentive Plan is not so approved, it will be cancelled.
PURPOSE. The purpose of the Incentive Plan is to promote the interests of
the Company and its stockholders by (i) motivating executives, by means of
performance-related incentives, to achieve financial goals; (ii) attracting and
retaining executives of outstanding ability; (iii) strengthening the Company's
capability to develop, maintain and direct a competent executive staff; (iv)
providing annual incentive compensation opportunities which are competitive with
those of other major corporations; and (v) enabling executives to participate in
the growth and financial success of the Company.
ELIGIBILITY AND GRANT OF AWARDS. Under the Incentive Plan, the Committee
(defined below) may grant cash incentives ("Awards") to those employees of the
Company or its subsidiaries designated by the Committee who are Executive
Officers or who otherwise are members of senior management of the Company
("Eligible Employees"). The recipient of an Award (a "Participant") will become
entitled to a cash payment if certain performance goals (described below) for
the Performance Period, as established by the Committee, are satisfied. For the
Award, the amount of the cash payment is to be based on the extent to which the
performance goals are achieved. At the time an Award is granted to a
Participant, the Committee shall establish, with respect to the Award, (i) a
target amount, expressed as a percentage of the Participant's base salary for
such Performance Period; (ii) the performance goal(s) for the Performance Period
with respect to the Award; (iii) the payments to be made with respect to various
levels of achievement of the performance goal(s) for the Performance Period; and
(iv) whether the Award is intended to satisfy the requirements for
performance-based compensation (as described below).
PERFORMANCE-BASED COMPENSATION. A federal income tax deduction will
generally be unavailable for annual compensation in excess of $1 million paid to
any of the five most highly compensated officers of a public corporation.
However, amounts that constitute "performance-based compensation" are not
counted toward the $1 million limit. The Committee may designate any Award under
the Plan as intended to be "performance-based compensation." Any Awards so
designated shall be conditioned on the achievement of one or more performance
goals, as required by Section 162(m). The performance goals that the Committee
may establish with respect to the grant of any Award will be based on any one or
more of the following Company, subsidiary, operating unit, or division
performance measures: cash flow, earnings per share, return on operating assets,
return on equity, operating profit, net income, revenue growth, shareholder
return, market value added or economic value added. To satisfy the requirements
that apply to performance-based compensation, these goals must be approved by
the Company's stockholders, and approval of the Plan will also constitute
approval of the foregoing goals.
PAYMENTS. A Participant's eligibility for payment with respect to an Award
for a Performance Period shall be determined by the Committee. Prior to the
payment with respect to any Award designated as intended to satisfy the
requirements for performance-based compensation, the Committee shall certify the
attainment of the performance goal(s) and any other material terms. The
Committee may adjust such Award for individual performance on the basis of such
quantitative and qualitative performance measures and evaluations as it deems
appropriate. The Committee may make such adjustments as it deems appropriate in
the case of any Participant whose position with the Company has changed during
the
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applicable Performance Period. The Committee shall have the discretion to adjust
performance goals and the methodology used to measure the determination of the
degree of attainment of such goals; provided, however, that, to the extent
required by the requirements applicable to performance-based compensation, any
Award designated as intended to satisfy the requirements for performance-based
compensation may not be adjusted to increase the value of such Award. Except as
otherwise provided by the Committee, the Committee shall retain the discretion
to adjust such Awards in a manner that does not increase such Awards. In no
event will a Participant become eligible for payment for an Award for any
calendar year in excess of $4,000,000.
WITHHOLDING TAXES. The Company shall have the right to deduct from all
payments under the Incentive Plan any taxes required to be withheld with respect
to such payments.
CHANGE IN CONTROL. In the event of a change in control of the Company, as
defined in the Incentive Plan, the Performance Period will be deemed to have
concluded on the date of the change of control and each Participant will receive
a pro rata amount (based on the number of days in such Performance Period
elapsed through the date of the change of control) equal to the greater of the
Participant's target amount or the amount the Participant would have earned for
the Performance Period assuming continued achievement of the relevant
performance goals at the rate achieved as of the date of the change of control.
ADMINISTRATION. The Incentive Plan is administered by a committee (the
"Committee") selected by the Board and consisting solely of two or more
non-employee members of the Board. The Committee will have the authority and
discretion to select from among the Eligible Employees those persons who shall
receive Awards, to determine the time or times of payment with respect to the
Awards, to establish the terms, conditions, performance goals, restrictions, and
other provisions of such Awards, and to cancel or suspend Awards. The Committee
will have the authority and discretion to interpret the Incentive Plan, to
establish, amend, and rescind any rules and regulations relating to the
Incentive Plan, to determine the terms and provisions of any Award made pursuant
to the Incentive Plan, and to make all other determinations that may be
necessary or advisable for the administration of the Incentive Plan. Any
interpretation of the Incentive Plan by the Committee and any decision made by
it under the Incentive Plan is final and binding on all persons. The Committee
may allocate all or any portion of its responsibilities and powers to any one or
more of its members and may delegate all or any part of its responsibilities and
powers to any person or persons selected by it. Until action to the contrary is
taken by the Committee, the Committee's authority with respect to matters
concerning Participants below the Executive Officer level is delegated to the
Chief Executive Officer or the Chief People Officer of the Company.
AMENDMENT OR TERMINATION. The Board may, at any time, amend or terminate
the Incentive Plan, provided that no amendment or termination may, in the
absence of consent to the change by the affected Participant, adversely affect
the rights of any Participant or beneficiary under any Award granted under the
Incentive Plan prior to the date such amendment is adopted by the Board.
MAXIMUM INCENTIVE PAYMENTS FOR 1999. Set forth in the table below is
information relating to the maximum incentive payments established by the
Committee which may be made to the named Participants for the Performance Period
beginning January 1, 1999, and ending December 31, 1999. This maximum amount is
a limitation and does not represent a target payment for the Participant.
Payments for the 1999 Performance Period will be based upon the extent to which
performance goals have been attained. For 1999, the Committee established the
Performance Goals based on (i) the Company's earnings per share for 1999, on an
absolute dollar basis, as adjusted for extraordinary charges, accounting
changes, currency fluctuations, facility actions, unusual charges and other
unplanned special charges as approved by the Committee and (ii) the Company's
cash flow for the year. In addition, the Committee has also set threshold levels
of performance for earnings per share which, if not met, will result in no
incentive payments under the Incentive Plan. The actual amount payable to any
Participant as an incentive payment for 1999 Performance Period will be
determined by the Committee but in no event will exceed the maximum amounts set
forth below.
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NEW PLAN BENEFITS
EXECUTIVE INCENTIVE COMPENSATION PLAN
<TABLE>
<CAPTION>
DOLLAR VALUE($)
NAME MAXIMUM AWARD(1)
- - ---------------------------------------------------------------------- ------------------
<S> <C>
1. Andrell E. Pearson................................................. $ 2,700,000
2. David C. Novak..................................................... $ 2,400,000
3. Robert C. Lowes.................................................... $ 1,350,000
4. Robert L. Carleton................................................. $ 780,000
5. Christian L. Campbell.............................................. $ 945,000
Executive Officer Group............................................... $ 15,046,950
Non-Executive Officer Employee Group.................................. $ 82,101,000
</TABLE>
- - ------------------------
(1) These amounts represent the maximum awards for 1999 and are provided for
purposes of illustration only as required by the rules of the Securities and
Exchange Commission. Actual awards will be determined based upon the
Company's performance and each Participant's individual performance.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE TRICON GLOBAL
RESTAURANTS, INC. EXECUTIVE INCENTIVE COMPENSATION PLAN INCLUDING THE
PERFORMANCE GOALS FOR THE PLAN.
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
(ITEM 4 ON PROXY CARD)
The Board of Directors, upon recommendation of the Audit Committee, has
selected KPMG LLP to audit the Company's financial statements for the fiscal
year ending December 25, 1999. This selection will be presented to shareholders
for ratification at the Annual Meeting. If the shareholders fail to ratify this
selection, the matter of the selection of independent auditors will be
reconsidered by the Board of Directors. Representatives of KPMG LLP will be
present at the Annual Meeting and will have the opportunity to make a statement
if they so desire and will be available to respond to appropriate questions.
The selection of KPMG LLP will be deemed ratified if the votes cast in favor
of the proposal exceed the votes cast against the proposal. Abstentions and
broker non-votes will not be counted as votes cast either for or against the
proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE SELECTION
OF KPMG LLP.
SHAREHOLDER PROPOSALS/DIRECTOR NOMINATIONS
Shareholders who intend to present proposals for consideration at the 2000
Annual Meeting of Shareholders, and who wish to have their proposals included in
the Company's proxy statement and proxy card for that meeting, must be certain
that their proposals are received by the Company at its principal executive
offices in Louisville, Kentucky on or before December 1, 1999. Proposals should
be sent to Secretary, Tricon Global Restaurants, Inc., 1441 Gardiner Lane,
Louisville, Kentucky 40213. All proposals must also comply with the applicable
requirements of the federal securities laws and the Company's Bylaws in order to
be included in the Company's proxy statement and proxy card for the 2000 Annual
Meeting. Similarly, in order for a stockholder proposal to be raised from the
floor during next year's annual meeting, written notice must be received by the
Company no later than February 21, 2000, and shall contain such information as
required under Tricon's Bylaws. Shareholders may propose director candidates for
consideration by Tricon's Nominating Committee. In addition, Company Bylaws
permit shareholders to nominate directors at a shareholder meeting. To make a
director nomination at the 2000 Annual Meeting, a shareholder must notify
Tricon's Secretary no later than February 21, 2000. The notice must meet all
other
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requirements contained in the Company's Bylaws. You may contact Tricon's
Secretary at the address mentioned above for a copy of the relevant Bylaw
provisions regarding the requirements for making shareholder proposals and
nominating director candidates.
OTHER MATTERS
As of the mailing date for this Proxy Statement, the Board of Directors
knows of no other business which will be presented for consideration at the
Annual Meeting. However, if any such other business should properly come before
the Annual Meeting, it is the intention of the persons named in the accompanying
form of proxy to vote the proxies in respect of any such business in accordance
with their best judgment.
March 29, 1999
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APPENDIX A
TRICON GLOBAL RESTAURANTS, INC.
LONG TERM INCENTIVE PLAN
SECTION 1
GENERAL
1.1. PURPOSE. The Tricon Global Restaurants, Inc. Long Term Incentive Plan
(the "Plan") has been established by Tricon Global Restaurants, Inc. (the
"Company" or "Tricon") to (i) attract and retain persons eligible to participate
in the Plan; (ii) motivate Participants, by means of appropriate incentives, to
achieve long-range goals; (iii) provide incentive compensation opportunities
that are competitive with those of other similar companies; and (iv) align the
interests of Participants with those of the Company's Shareholders.
1.2. PARTICIPATION. Subject to the terms and conditions of the Plan, the
Committee shall determine and designate, from time to time, from among the
Eligible Individuals, those persons who will be granted one or more Awards under
the Plan, and thereby become "Participants" in the Plan.
1.3. OPERATION, ADMINISTRATION, AND DEFINITIONS. The operation and
administration of the Plan, including the Awards made under the Plan, shall be
subject to the provisions of Section 4 (relating to operation and
administration). Capitalized terms in the Plan shall be defined as set forth in
the Plan (including the definition provisions of Section 7 of the Plan).
SECTION 2
OPTIONS AND SARS
2.1. DEFINITIONS.
(a) The grant of an "Option" entitles the Participant to purchase shares of
Stock at an Exercise Price and during a specified time established by the
Committee. Any Option granted under this Section 2 may be either a non-qualified
option (an "NQO") or an incentive stock option (an "ISO"), as determined in the
discretion of the Committee. An "NQO" is an Option that is not intended to be an
"incentive stock option" as that term is described in section 422(b) of the
Code. An "ISO" is an Option that is intended to satisfy the requirements
applicable to an "incentive stock option" described in section 422(b) of the
Code.
(b) A stock appreciation right (an "SAR") entitles the Participant to
receive, in cash or Stock (as determined in accordance with subsection 2.5),
value equal to (or otherwise based on) the excess of: (a) the Fair Market Value
of a specified number of shares of Stock at the time of exercise; over (b) an
Exercise Price established by the Committee.
2.2. EXERCISE PRICE. The "Exercise Price" of each Option and SAR granted under
this Section 2 shall be established by the Committee or shall be determined by a
method established by the Committee at the time the Option or SAR is granted;
except that the Exercise Price shall not be less than 100% of the Fair Market
Value of a share of Stock on the date of grant.
2.3. EXERCISE. An Option and an SAR shall be exercisable in accordance with
such terms and conditions and during such periods as may be established by the
Committee.
2.4. PAYMENT OF OPTION EXERCISE PRICE. The payment of the Exercise Price of an
Option granted under this Section 2 shall be subject to the following:
(a) Subject to the following provisions of this subsection 2.4, the full
Exercise Price for shares of Stock purchased upon the exercise of any Option
shall be paid at the time of such exercise (except that, in
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the case of an exercise arrangement approved by the Committee and described in
paragraph 2.4(c), payment may be made as soon as practicable after the
exercise).
(b) The Exercise Price shall be payable in cash or by tendering, by either
actual delivery of shares or by attestation, shares of Stock acceptable to the
Committee, and valued at Fair Market Value as of the day of exercise, or in any
combination thereof, as determined by the Committee.
(c) The Committee may permit a Participant to elect to pay the Exercise
Price upon the exercise of an Option by irrevocably authorizing a third party to
sell shares of Stock (or a sufficient portion of the shares) acquired upon
exercise of the Option and remit to the Company a sufficient portion of the sale
proceeds to pay the entire Exercise Price and any tax withholding resulting from
such exercise.
2.5. SETTLEMENT OF AWARD. Settlement of Options and SARs is subject to
subsection 4.7.
2.6. NO REPRICING, CANCELLATION, OR RE-GRANT OF OPTIONS. Except for
adjustments pursuant to subsection 4.2(f) (relating to adjustment of shares),
the Exercise Price for any outstanding Option granted under the Plan may not be
decreased after the date of grant nor may an outstanding Option granted under
the Plan be surrendered to the Company as consideration in exchange for the
grant of a new Option with a lower exercise price.
SECTION 3
OTHER STOCK AWARDS
3.1. DEFINITIONS.
(a) A "Stock Unit" Award is the grant of a right to receive shares of Stock
in the future.
(b) A "Performance Share" Award is a grant of a right to receive shares of
Stock or Stock Units which is contingent on the achievement of performance or
other objectives during a specified period.
(c) A "Performance Unit" Award is a grant of a right to receive a designated
dollar value amount of Stock which is contingent on the achievement of
performance or other objectives during a specified period.
(d) A "Restricted Stock" Award is a grant of shares of Stock, and a
"Restricted Stock Unit" Award is the grant of a right to receive shares of Stock
in the future, with such shares of Stock or right to future delivery of such
shares of Stock subject to a risk of forfeiture or other restrictions that will
lapse upon the achievement of one or more goals relating to completion of
service by the Participant, or achievement of performance or other objectives,
as determined by the Committee.
3.2. RESTRICTIONS ON AWARDS. Each Stock Unit Award, Restricted Stock Award,
Restricted Stock Unit Award, Performance Share Award, and Performance Unit Award
shall be subject to the following:
(a) Any such Award shall be subject to such conditions, restrictions and
contingencies as the Committee shall determine.
(b) Any Restricted Stock Award, Restricted Stock Unit Award, Performance
Share Award or Performance Unit Award granted shall provide, at a minimum, that
the restriction or performance period may not be less than three years except in
the case of retirement, death, disability, or termination without cause in which
case the restriction or performance period may be less than three years.
(c) The Committee may designate whether any such Award being granted to any
Participant is intended to be "performance-based compensation" as that term is
used in section 162(m) of the Code. Any such Awards designated as intended to be
"performance-based compensation" shall be conditioned on the achievement of one
or more Performance Measures, to the extent required by Code section 162(m). The
Performance Measures that may be used by the Committee for such Awards shall be
based on any one or more of the following Company, Subsidiary, operating unit or
division performance measures, as selected by the Committee: cash flow;
earnings; earnings per share; market value added or economic value added;
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profits; return on assets; return on equity; return on investment; revenues;
stock price; or total shareholder return. Each goal may be expressed on an
absolute and/or relative basis, may be based on or otherwise employ comparisons
based on internal targets, the past performance of the Company and/or the past
or current performance of other companies, and in the case of earnings-based
measures, may use or employ comparisons relating to capital, shareholders'
equity and/or shares outstanding, investments or to assets or net assets. For
Awards under this Section 3 intended to be "performance-based compensation," the
grant of the Awards and the establishment of the Performance Measures shall be
made during the period required under Code section 162(m).
SECTION 4
OPERATION AND ADMINISTRATION
4.1. EFFECTIVE DATE. Subject to the approval of the shareholders of the
Company at the Company's 1999 annual meeting of its shareholders, the Plan shall
be effective as of May 20, 1999 (the "Effective Date"). The Plan shall be
unlimited in duration and, in the event of Plan termination, shall remain in
effect as long as any Awards under it are outstanding; provided, however, that
no Awards may be granted under the Plan after the ten-year anniversary of the
Effective Date (except for Awards granted pursuant to commitments entered into
prior to such ten-year anniversary).
4.2 The shares of Stock for which Awards may be granted under the Plan shall be
subject to the following:
(a) The shares of Stock with respect to which Awards may be made under the
Plan shall be shares currently authorized but unissued or currently held or
subsequently acquired by the Company as treasury shares, including shares
purchased in the open market or in private transactions.
(b) Subject to the following provisions of this subsection 4.2, the maximum
number of shares of Stock that may be delivered to Participants and their
beneficiaries under the Plan shall be 7,600,000.
(c) To the extent provided by the Committee, any Award may be settled in
cash rather than Stock. To the extent any shares of Stock covered by an Award
are not delivered to a Participant or beneficiary because the Award is forfeited
or canceled, or the shares of Stock are not delivered because the Award is
settled in cash or used to satisfy the applicable tax withholding obligation,
such shares shall not be deemed to have been delivered for purposes of
determining the maximum number of shares of Stock available for delivery under
the Plan.
(d) If the exercise price of any stock option granted under the Plan is
satisfied by tendering shares of Stock to the Company (by either actual delivery
or by attestation), only the number of shares of Stock issued net of the shares
of Stock tendered shall be deemed delivered for purposes of determining the
maximum number of shares of Stock available for delivery under the Plan.
(e) Subject to paragraph 4.2(f), the following additional maximums are
imposed under the Plan.
(i) The maximum number of shares that may be covered by Awards granted
to any one individual pursuant to Section 2 (relating to Options and SARs)
shall be 2,000,000 shares during any five calendar-year period. If an Option
is in tandem with an SAR, such that the exercise of the Option or SAR with
respect to a share of Stock cancels the tandem SAR or Option right,
respectively, with respect to such share, the tandem Option and SAR rights
with respect to each share of Stock shall be counted as covering one share
of Stock for purposes of applying the limitations of this paragraph (ii).
(ii) For Stock Unit Awards, Restricted Stock Awards, Restricted Stock
Unit Awards and Performance Share Awards that are intended to be
"performance-based compensation" (as that term is used for purposes of Code
section 162(m)), no more than 300,000 shares of Stock may be subject to such
Awards granted to any one individual during any five-calendar-year period
(regardless of when such shares are deliverable). If, after shares have been
earned, the delivery is deferred, any additional shares attributable to
dividends during the deferred period shall be disregarded.
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(iii) The maximum number of shares of Stock that may be issued in
conjunction with Awards granted pursuant to Section 3 (relating to Other
Stock Awards) shall be 500,000 shares except that Stock Units or Restricted
Shares granted with respect to the deferral of annual cash incentive awards
under the Company's deferral plan will not count towards this maximum.
(iv) For Performance Unit Awards that are intended to be
"performance-based compensation" (as that term is used for purposes of Code
section 162(m)), no more than $1,000,000 may be subject to such Awards
granted to any one individual during any one-calendar-year period
(regardless of when such amounts are deliverable). If, after amounts have
been earned with respect to Performance Unit Awards, the delivery of such
amounts is deferred, any additional amounts attributable to earnings during
the deferral period shall be disregarded.
(v) Awards to non-employee directors are limited to (i) an annual Stock
grant retainer with a Fair Market Value of $50,000; (ii) an annual grant of
options to buy $50,000 worth of Tricon's Stock at a price equal to the Fair
Market Value of a share of Stock on the grant date; and (iii) a one-time
Stock grant with a Fair Market Value of $25,000 on the grant date upon
joining the Board, payment of which will be deferred until termination from
the Board. The Board may increase these awards by twenty-five percent (25%)
of the amounts described in the previous sentence if necessary to keep
compensation of directors within competitive practices.
(f) In the event of a corporate transaction involving the Company
(including, without limitation, any stock dividend, stock split, extraordinary
cash dividend, recapitalization, reorganization, merger, consolidation,
split-up, spin-off, combination or exchange of shares), the Committee may adjust
Awards to preserve the benefits or potential benefits of the Awards. Action by
the Committee may include: (i) adjustment of the number and kind of shares which
may be delivered under the Plan; (ii) adjustment of the number and kind of
shares subject to outstanding Awards; (iii) adjustment of the Exercise Price of
outstanding Options and SARs; and (iv) any other adjustments that the Committee
determines to be equitable.
4.3. GENERAL RESTRICTIONS. Delivery of shares of Stock or other amounts under
the Plan shall be subject to the following:
(a) Notwithstanding any other provision of the Plan, the Company shall have
no liability to deliver any shares of Stock under the Plan or make any other
distribution of benefits under the Plan unless such delivery or distribution
would comply with all applicable laws (including, without limitation, the
requirements of the Securities Act of 1933), and the applicable requirements of
any securities exchange or similar entity.
(b) To the extent that the Plan provides for issuance of stock certificates
to reflect the issuance of shares of Stock, the issuance may be effected on a
non-certificated basis, to the extent not prohibited by applicable law or the
applicable rules of any stock exchange.
4.4. TAX WITHHOLDING. All distributions under the Plan are subject to
withholding of all applicable taxes, and the Committee may condition the
delivery of any shares or other benefits under the Plan on satisfaction of the
applicable withholding obligations. The Committee, in its discretion, and
subject to such requirements as the Committee may impose prior to the occurrence
of such withholding, may permit such withholding obligations to be satisfied
through cash payment by the Participant, through the surrender of shares of
Stock which the Participant already owns, or through the surrender of shares of
Stock to which the Participant is otherwise entitled under the Plan.
4.5. GRANT AND USE OF AWARDS. In the discretion of the Committee, a
Participant may be granted any Award permitted under the provisions of the Plan,
and more than one Award may be granted to a Participant. Awards may be granted
as alternatives to or replacement of awards granted or outstanding under the
Plan, or any other plan or arrangement of the Company or a Subsidiary (including
a plan or arrangement of a business or entity, all or a portion of which is
acquired by the Company or a Subsidiary). Subject to the overall limitation on
the number of shares of Stock that may be delivered under the Plan, the
Committee may use available shares of Stock as the form of payment for
compensation, grants or
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rights earned or due under any other compensation plans or arrangements of the
Company or a Subsidiary, including the plans and arrangements of the Company or
a Subsidiary assumed in business combinations.
4.6. DIVIDENDS AND DIVIDEND EQUIVALENTS. An Award (including without
limitation an Option or SAR Award) may provide the Participant with the right to
receive dividend payments or dividend equivalent payments with respect to Stock
subject to the Award (both before and after the Stock subject to the Award is
earned, vested, or acquired), which payments may be either made currently or
credited to an account for the Participant, and may be settled in cash or Stock,
as determined by the Committee. Any such settlements, and any such crediting of
dividends or dividend equivalents or reinvestment in shares of Stock, may be
subject to such conditions, restrictions and contingencies as the Committee
shall establish, including the reinvestment of such credited amounts in Stock
equivalents.
4.7. SETTLEMENT AND PAYMENTS. Awards may be settled through cash payments, the
delivery of shares of Stock, the granting of replacement Awards, or combination
thereof as the Committee shall determine. Any Award settlement, including
payment deferrals, may be subject to such conditions, restrictions and
contingencies as the Committee shall determine. The Committee may permit or
require the deferral of any Award payment, subject to such rules and procedures
as it may establish, which may include provisions for the payment or crediting
of interest, or dividend equivalents, including converting such credits into
deferred Stock equivalents. Each Subsidiary shall be liable for payment of cash
due under the Plan with respect to any Participant to the extent that such
benefits are attributable to the services rendered for that Subsidiary by the
Participant. Any disputes relating to liability of a Subsidiary for cash
payments shall be resolved by the Committee.
4.8. TRANSFERABILITY. Except as otherwise provided by the Committee, Awards
under the Plan are not transferable except as designated by the Participant by
will or by the laws of descent and distribution.
4.9. FORM AND TIME OF ELECTIONS. Unless otherwise specified herein, each
election required or permitted to be made by any Participant or other person
entitled to benefits under the Plan, and any permitted modification, or
revocation thereof, shall be in writing filed with the Committee at such times,
in such form, and subject to such restrictions and limitations, not inconsistent
with the terms of the Plan, as the Committee shall require.
4.10. AGREEMENT WITH COMPANY. An Award under the Plan shall be subject to such
terms and conditions, not inconsistent with the Plan, as the Committee shall, in
its sole discretion, prescribe. The terms and conditions of any Award to any
Participant shall be reflected in such form of written document as is determined
by the Committee. A copy of such document shall be provided to the Participant,
and the Committee may, but need not require that the Participant sign a copy of
such document. Such document is referred to in the Plan as an "Award Agreement"
regardless of whether any Participant signature is required.
4.11. ACTION BY COMPANY OR SUBSIDIARY. Any action required or permitted to be
taken by the Company or any Subsidiary shall be by resolution of its board of
directors, or by action of one or more non-employee members of the board
(including a committee of the board) who are duly authorized to act for the
board, or (except to the extent prohibited by applicable law or applicable rules
of any stock exchange) by a duly authorized officer of such company, or by any
employee of the Company or any Subsidiary who is delegated by the board of
directors authority to take such action.
4.12. GENDER AND NUMBER. Where the context admits, words in any gender shall
include any other gender, words in the singular shall include the plural and the
plural shall include the singular.
4.13. LIMITATION OF IMPLIED RIGHTS.
(a) Neither a Participant nor any other person shall, by reason of
participation in the Plan, acquire any right in or title to any assets, funds or
property of the Company or any Subsidiary whatsoever, including, without
limitation, any specific funds, assets, or other property which the Company or
any
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Subsidiary, in its sole discretion, may set aside in anticipation of a liability
under the Plan. A Participant shall have only a contractual right to the Stock
or amounts, if any, payable under the Plan, unsecured by any assets of the
Company or any Subsidiary, and nothing contained in the Plan shall constitute a
guarantee that the assets of the Company or any Subsidiary shall be sufficient
to pay any benefits to any person.
(b) The Plan does not constitute a contract of employment, and selection as
a Participant will not give any participating employee or other individual the
right to be retained in the employ of the Company or any Subsidiary or the right
to continue to provide services to the Company or any Subsidiary, nor any right
or claim to any benefit under the Plan, unless such right or claim has
specifically accrued under the terms of the Plan. Except as otherwise provided
in the Plan, no Award under the Plan shall confer upon the holder thereof any
rights as a shareholder of the Company prior to the date on which the individual
fulfills all conditions for receipt of such rights.
4.14. EVIDENCE. Evidence required of anyone under the Plan may be by
certificate, affidavit, document or other information which the person acting on
it considers pertinent and reliable, and signed, made or presented by the proper
party or parties.
SECTION 5
CHANGE IN CONTROL
Subject to the provisions of paragraph 4.2(f) (relating to the adjustment of
shares), and except as otherwise provided in the Plan or the Award Agreement
reflecting the applicable Award, the Committee may provide under the terms of
any Award that upon the occurrence of a Change in Control:
(a) All outstanding Options (regardless of whether in tandem with SARs)
shall become fully exercisable.
(b) All outstanding SARs (regardless of whether in tandem with Options)
shall become fully exercisable.
(c) All Stock Units, Restricted Stock, Restricted Stock Units, and
Performance Shares (including any Award payable in Stock which is granted in
conjunction with a Company deferral program) shall become fully vested.
SECTION 6
COMMITTEE
6.1. ADMINISTRATION. The authority to control and manage the operation and
administration of the Plan shall be vested in a committee (the "Committee") in
accordance with this Section 6. The Committee shall be selected by the Board,
and shall consist solely of two or more non-employee members of the Board. If
the Committee does not exist, or for any other reason determined by the Board,
the Board may take any action under the Plan that would otherwise be the
responsibility of the Committee. As of the date this Plan is adopted, the
Committee shall mean the Compensation Committee of the Board of Directors.
6.2. POWERS OF COMMITTEE. The Committee's administration of the Plan shall be
subject to the following:
(a) Subject to the provisions of the Plan, the Committee will have the
authority and discretion to select from among the Eligible Individuals those
persons who shall receive Awards, to determine the time or times of receipt, to
determine the types of Awards and the number of shares covered by the Awards, to
establish the terms, conditions, performance criteria, restrictions, and other
provisions of such Awards, and (subject to the restrictions imposed by Section
7) to cancel or suspend Awards.
(b) To the extent that the Committee determines that the restrictions
imposed by the Plan preclude the achievement of the material purposes of the
Awards in jurisdictions outside the United States, the Committee will have the
authority and discretion to modify those restrictions as the Committee
determines
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to be necessary or appropriate to conform to applicable requirements or
practices of jurisdictions outside of the United States.
(c) The Committee will have the authority and discretion to interpret the
Plan, to establish, amend, and rescind any rules and regulations relating to the
Plan, to determine the terms and provisions of any Award Agreement made pursuant
to the Plan, and to make all other determinations that may be necessary or
advisable for the administration of the Plan.
(d) Any interpretation of the Plan by the Committee and any decision made by
it under the Plan is final and binding on all persons.
(e) In controlling and managing the operation and administration of the
Plan, the Committee shall take action in a manner that conforms to the articles
and by-laws of the Company, and applicable state corporate law.
6.3. DELEGATION BY COMMITTEE. Except to the extent prohibited by applicable
law or the applicable rules of a stock exchange, the Committee may allocate all
or any portion of its responsibilities and powers to any one or more of its
members and may delegate all or any part of its responsibilities and powers to
any person or persons selected by it. Any such allocation or delegation may be
revoked by the Committee at any time. Until action to the contrary is taken by
the Board or the Committee, the Committee's authority with respect to Awards and
other matters concerning Participants below the Partners Council or Executive
Officer level is delegated to the Chief Executive Officer or the Chief People
Officer of the Company.
6.4. INFORMATION TO BE FURNISHED TO COMMITTEE. The Company and Subsidiaries
shall furnish the Committee with such data and information as it determines may
be required for it to discharge its duties. The records of the Company and
Subsidiaries as to an employee's or Participant's employment (or other provision
of services), termination of employment (or cessation of the provision of
services), leave of absence, reemployment and compensation shall be conclusive
on all persons unless determined to be incorrect. Participants and other persons
entitled to benefits under the Plan must furnish the Committee such evidence,
data or information as the Committee considers desirable to carry out the terms
of the Plan.
6.5 MISCONDUCT. If the Committee determines that a present or former employee
has (i) used for profit or disclosed to unauthorized persons, confidential or
trade secrets of Tricon; (ii) breached any contract with or violated any
fiduciary obligation to Tricon; or (iii) engaged in any conduct which the
Committee determines is injurious to the Company, the Committee may cause that
employee to forfeit his or her outstanding awards under the Plan, provided,
however, that during the pendency of a Potential Change in Control and as of and
following the occurrence a Change in Control, no outstanding awards under the
Plan shall be subject to forfeiture pursuant to this Section 6.5. A "Potential
Change in Control" shall be deemed to have occurred if the event set forth in
any one of the following paragraphs shall have occurred:
A "Potential Change in Control" shall exist during any period in which the
circumstances described in items (i), (ii), (iii) or (iv), below, exist
(provided, however, that a Potential Change in Control shall cease to exist not
later than the occurrence of a Change in Control):
(i) The Company or any successor or assign thereof enters into an
agreement, the consummation of which would result in the occurrence of a
Change in Control; provided that a Potential Change in Control described in
this item (i) shall cease to exist upon the expiration or other termination
of all such agreements.
(ii) Any Person (including the Company) publicly announces an intention
to take or to consider taking actions which if consummated would constitute
a Change in Control; provided that a Potential Change in Control described
in this item (ii) shall cease to exist upon the withdrawal of such
intention, or upon a reasonable determination by the Board that there is no
reasonable chance that such actions would be consummated.
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(iii) Any Person becomes the Beneficial Owner, directly or indirectly,
of securities of the Company representing 15% or more of the combined voting
power of the Company's then outstanding securities (not including in the
securities beneficially owned by such Person any securities acquired
directly from the Company or any of its affiliates). However, a Potential
Change in Control shall not be deemed to exist by reason of ownership of
securities of the Company by any person, to the extent that such securities
of the Company are acquired pursuant to a reorganization, recapitalization,
spin-off or other similar transactions (including a series of prearranged
related transactions) to the extent that immediately after such transaction
or transactions, such securities are directly or indirectly owned in
substantially the same proportions as the proportions of ownership of the
Company's securities immediately prior to the transaction or transactions.
(iv) The Board adopts a resolution to the effect that, for purposes of
this Plan, a potential change in control exists; provided that a Potential
Change in Control described in this item (iv) shall cease to exist upon a
reasonable determination by the Board that the reasons that give rise to the
resolution providing for the existence of a Potential Change in Control have
expired or no longer exist."
SECTION 7
AMENDMENT AND TERMINATION
The Board may, at any time, amend or terminate the Plan, provided that (i)
no amendment or termination may, in the absence of written consent to the change
by the affected Participant (or, if the Participant is not then living, the
affected beneficiary), adversely affect the rights of any Participant or
beneficiary under any Award granted under the Plan prior to the date such
amendment is adopted by the Board; (ii) no amendments may increase the
limitations on the number of shares set forth in subsections 4.2(b) and 4.2(e)
or decrease the minimum Option or SAR Exercise Price set forth in subsection 2.2
unless any such amendment is approved by the Company's shareholders; (iii) the
provisions of subsection 2.6 (relating to Option repricing) may not be amended,
unless any such amendment is approved by the Company's shareholders; (iv) no
amendment may expand the definition of Eligible Individual in subsection 8(e),
unless any such amendment is approved by the Company's shareholders; (v) no
amendment may decrease the minimum restriction or performance period set forth
in subsection 3.2(c), unless any such amendment is approved by the Company's
shareholders; and (vi) adjustments pursuant to subsection 4.2(f) shall not be
subject to the foregoing limitations of this Section 7.
SECTION 8
DEFINED TERMS
In addition to the other definitions contained herein, the following
definitions shall apply:
(a) AWARD. The term "Award" shall mean any award or benefit granted under
the Plan, including, without limitation, the grant of Options, SARs, Stock Unit
Awards, Restricted Stock Awards, Restricted Stock Unit Awards, Performance Unit
Awards, and Performance Share Awards.
(b) BOARD. The term "Board" shall mean the Board of Directors of the
Company.
(c) CHANGE IN CONTROL. Except as otherwise provided by the Committee, a
"Change in Control" shall be deemed to have occurred if the event set forth in
any one of the following paragraphs shall have occurred:
(i) any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company (not including in the securities
beneficially owned by such Person any securities acquired directly from the
Company or its Affiliates) representing 20% or more of the combined voting
power of the Company's then outstanding securities, excluding any Person who
becomes such a Beneficial Owner in connection with a transaction described
in clause (I) of paragraph (iii) below; or
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(ii) the following individuals cease for any reason to constitute a
majority of the number of directors then serving; individuals who, on the
date hereof, constitute the Board and any new director (other than a
director whose initial assumption of office is in connection with an actual
or threatened election contest, including but not limited to a consent
solicitation, relating to the election of directors of the Company), whose
appointment or election by the Board or nomination for election by the
Company's stockholders was approved or recommended by a vote of at least
two-thirds (2/3) of the directors then still in office who either were
directors on the date hereof or whose appointment, election or nomination
for election was previously so approved or recommended; or
(iii) there is consummated a merger or consolidation of the Company or
any direct or indirect Subsidiary with any other corporation, other than (I)
a merger or consolidation immediately following which those individuals who
immediately prior to the consummation of such merger or consolidation,
constituted the Board, constitute a majority of the board of directors of
the Company or the surviving or resulting entity or any parent thereof, or
(II) a merger or consolidation effected to implement a recapitalization of
the Company (or similar transaction) in which no Person is or becomes the
Beneficial Owner, directly or indirectly, of securities of the Company (not
including in the securities beneficially owned by such Person any securities
acquired directly from the Company or its Affiliates) representing 20% or
more of the combined voting power of the Company's then outstanding
securities.
Notwithstanding the foregoing, a "Change in Control" shall not be deemed to
have occurred by virtue of the consummation of any transaction or series of
integrated transactions immediately following which the record holders of the
common stock of the Company immediately prior to such transaction or series of
transactions continue to have substantially the same proportionate ownership in
an entity which owns all or substantially all of the assets of the Company
immediately following such transaction or series of transactions.
"Affiliate" shall have the meaning set forth in Rule 12b-2 under Section 12
of the Exchange Act.
"Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the
Exchange Act, except that a Person shall not be deemed to be the Beneficial
Owner of any securities which are properly filed on a Form 13-G.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended
from time to time.
"Person" shall have the meaning given in Section 3(a)(9) of the Exchange
Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such
term shall not include (i) Tricon or any of its Affiliates; (ii) a trustee or
other fiduciary holding securities under an employee benefit plan of Tricon or
any of its subsidiaries; (iii) an underwriter temporarily holding securities
pursuant to an offering of such securities; or (iv) a corporation owned,
directly or indirectly, by the stockholders of Tricon in substantially the same
proportions as their ownership of stock of Tricon.
(d) CODE. The term "Code" means the Internal Revenue Code of 1986, as
amended. A reference to any provision of the Code shall include reference to any
successor provision of the Code.
(e) ELIGIBLE INDIVIDUAL. For purposes of the Plan, the term "Eligible
Individual" shall mean any employee of the Company or a Subsidiary, and any
director of the Company. An Award may be granted to an employee, in connection
with hiring, retention or otherwise, prior to the date the employee or service
provider first performs services for the Company or the Subsidiaries, provided
that such Awards shall not become vested prior to the date the employee or
service provider first performs such services.
(f) FAIR MARKET VALUE. For purposes of determining the "Fair Market Value"
of a share of Stock as of any date, Fair Market Value shall mean the average
between the lowest and highest reported sale prices of the Stock on that date on
the principal exchange on which the Stock is then listed or admitted to trading.
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If the day is not a business day, and as a result, paragraphs (i) and (ii) next
above are inapplicable, the Fair Market Value of the Stock shall be determined
as of the last preceding business day.
(g) SUBSIDIARIES. The term "Subsidiary" means any corporation,
partnership, joint venture or other entity during any period in which at least a
fifty percent voting or profits interest is owned, directly or indirectly, by
the Company (or by any entity that is a successor to the Company), and any other
business venture designated by the Committee in which the Company (or any entity
that is a successor to the Company) has a significant interest, as determined in
the discretion of the Committee.
(h) STOCK. The term "Stock" shall mean shares of common stock of the
Company.
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APPENDIX B
TRICON GLOBAL RESTAURANTS, INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
SECTION 1
GENERAL
1.1. PURPOSE. The purpose of the Tricon Global Restaurants, Inc. Executive
Incentive Plan (the "Plan") is to promote the interests of Tricon Global
Restaurants, Inc. (the "Company" or "Tricon") and its stockholders by (i)
motivating executives, by means of performance-related incentives, to achieve
financial goals; (ii) attracting and retaining executives of outstanding
ability; (iii) strengthening the Company's capability to develop, maintain and
direct a competent executive staff; (iv) providing annual incentive compensation
opportunities which are competitive with those of other major corporations; and
(v) enabling executives to participate in the growth and financial success of
the Company.
1.2. PARTICIPATION. Subject to the terms and conditions of the Plan, the
Committee shall determine and designate, from time to time, from among the
Eligible Employees, those persons who will be granted one or more Awards under
the Plan, and thereby become "Participants" in the Plan.
1.3. DEFINITIONS. Capitalized terms in the Plan shall be defined as set forth
in the Plan (including the definition provisions of Section 7 of the Plan).
SECTION 2
AWARDS
2.1. GRANT OF AWARDS.
(a) For any Performance Period, the Committee shall determine and designate
those Eligible Employees (if any) who shall be granted Awards for the period,
and shall establish, with respect to each Award, (i) a Target Amount, expressed
as a percentage of the recipient's base salary for such Performance Period; (ii)
the performance goal(s) for the Performance Period with respect to the Award;
(iii) the payments to be earned with respect to various levels of achievement of
the performance goal(s) for the Performance Period; and (iv) whether the Award
is intended to satisfy the requirements for Performance-Based Compensation. For
any Performance Period for which Awards are granted, the Committee shall create
the Award Schedule, and the determinations required for Awards intended to be
Performance-Compensation shall be made at the time necessary to comply with such
requirements. The grant of an Award to any Eligible Employee for any Performance
Period shall not bestow upon such Eligible Employee the right to receive an
Award for any other Performance Period.
(b) The performance goal(s) to be established with respect to the grant of
any Awards shall be based upon on any one or more of the following measures:
cash flow, earnings per share, return on operating assets, return on equity,
operating profit, net income, revenue growth, shareholder return, gross margin
management, market share improvement, market value added, or economic value
added. Such goals may be particular to a line of business, Subsidiary, or other
unit or may be based on the Company generally.
2.2. DETERMINATION OF AWARD AMOUNT.
Payment with respect to Awards for each Participant for a Performance Period
shall be determined in accordance with the Award Schedule established by the
Committee, subject to the following:
(a) Prior to the payment with respect to any Award designated as intended to
satisfy the requirements for Performance-Based Compensation, the Committee shall
certify the attainment of the performance goal(s) and any other material terms.
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(b) In the sole discretion of the Committee, the Award for each Participant
may be limited to the Participant's Target Amount multiplied by the Percent
Attainment (determined in accordance with the applicable Award Schedule),
subject to the following:
(i) Subject to Section 3 and the provisions of this subsection 2.2, the
Committee may adjust such Award for individual performance on the basis of
such quantitative and qualitative performance measures and evaluations as it
deems appropriate. The Committee may make such adjustments as it deems
appropriate in the case of any Participant whose position with the Company
has changed during the applicable Performance Period.
(ii) The Committee shall have the discretion to adjust performance goals
and the methodology used to measure the determination of the degree of
attainment of such goals; provided, however, that, to the extent required by
the requirements applicable to Performance-Based Compensation, any Award
designated as intended to satisfy the requirements for Performance-Based
Compensation may not be adjusted under this paragraph (b) or otherwise in a
manner that increases the value of such Award. Except as otherwise provided
by the Committee, the Committee shall retain the discretion to adjust such
Awards in a manner that does not increase such Awards.
(c) Notwithstanding any other provision of the Plan, in no event will a
Participant become eligible for payment for an Award for any calendar year in
excess of $4,000,000.
(d) No segregation of any moneys or the creation of any trust or the making
of any special deposit shall be required in connection with any Awards made or
to be made under the Plan.
2.3. PAYMENT OF AWARDS. The amount earned with respect to any Award shall be
paid in cash at such time as is determined by the Committee. If a Participant to
whom an Award has been made dies prior to the payment of the Award, such payment
shall be delivered to the Participant's legal representative or to such other
person or persons as shall be determined by the Committee. The Company shall
have the right to deduct from all amounts payable under the Plan any taxes
required by law to be withheld with respect thereto; provided, however, that to
the extent provided by the Committee, any payment under the Plan may be deferred
and to the extent deferred, may be credited with an interest or earnings factor
as determined by the Committee.
2.4. TERMINATION OF EMPLOYMENT. Except to the extent otherwise provided by the
Committee, if a Participant's Date of Termination with respect to any Award
occurs prior to the last day of the Performance Period for the Award, then,
except in the case of death, disability or normal retirement (determined in
accordance with the qualified retirement plans of the Company) or except as
provided in Section 3, the Participant shall forfeit the Award.
SECTION 3
CHANGE IN CONTROL
BENEFITS ON CHANGE IN CONTROL.
Within ten (10) business days following the occurrence of a Change in
Control (as defined in the Tricon Global Restaurants, Inc. Long Term Incentive
Plan), each individual who has been granted an annual incentive award pursuant
to the Plan shall be paid an amount equal to (I) to the greater of (A) the
participant's target award for the period in which the Change in Control occurs
and (B) the award the participant would have earned for such period, assuming
continued achievement of the relevant performance goals at the rate achieved as
of the date of the Change in Control, multiplied by (II) a fraction the
numerator of which is the number of days in the performance period which have
elapsed as of the Change in Control, and the denominator of which is the number
of days in the performance period. Any former participant in the Plan who was
granted an annual incentive award pursuant to the Plan for the period in which
the Change in Control occurs and whose employment with the Company was
involuntarily terminated (other than for cause) during a Potential Change in
Control (as defined in the Tricon Global
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Restaurants, Inc. Long Term Incentive Plan) and within one year preceding the
occurrence of a Change in Control shall likewise be paid the amount of such
annual incentive award as if Tricon had fully achieved the applicable
performance target(s) for the performance period in which the Change in Control
occurs.
SECTION 4
MISCELLANEOUS
4.1. TRANSFERABILITY. Any payment to which a Participant may be entitled under
the Plan shall be free from the control or interference of any creditor of such
Participant and shall not be subject to attachment or susceptible of
anticipation or alienation. The interest of a Participant shall not be
transferable except by will or the laws of descent and distribution.
4.2. NO RIGHT TO PARTICIPATE; EMPLOYMENT. Neither the adoption of the Plan nor
any action of the Committee shall be deemed to give any Eligible Employee any
right to be designated as a Participant under the Plan. Further, nothing
contained in the Plan, nor any action by the Committee or any other person
hereunder, shall be deemed to confer upon any Eligible Employee any right of
continued employment with the Company or any Subsidiary or Affiliate or to limit
or diminish in any way the right of the Company or any Subsidiary or Affiliate
to terminate his or her employment at any time with or without cause.
4.3. NONEXCLUSIVITY OF THE PLAN. This Plan is not intended to and shall not
preclude the Board from adopting, continuing, amending or terminating such
additional compensation arrangements as it deems desirable for Participants
under this Plan, including, without limitation, any thrift, savings, investment,
stock purchase, stock option, profit sharing, pension, retirement, insurance or
other incentive plan.
SECTION 5
COMMITTEE
5.1. ADMINISTRATION. The authority to control and manage the operation and
administration of the Plan shall be vested in a committee (the "Committee") in
accordance with this subsection 5.1. The Committee shall be selected by the
Board, and shall consist solely of two or more non-employee members of the
Board.
5.2. POWERS OF COMMITTEE. The Committee's administration of the Plan shall be
subject to the following:
(a) Subject to the provisions of the Plan, the Committee will have the
authority and discretion to select from among the Eligible Employees those
persons who shall receive Awards, to determine the time or times of payment with
respect to the Awards, to establish the terms, conditions, performance goals,
restrictions, and other provisions of such Awards, and (subject to the
restrictions imposed by Section 6) to cancel or suspend Awards.
(b) The Committee will have the authority and discretion to interpret the
Plan, to establish, amend, and rescind any rules and regulations relating to the
Plan, to determine the terms and provisions of any Award made pursuant to the
Plan, and to make all other determinations that may be necessary or advisable
for the administration of the Plan.
(c) Any interpretation of the Plan by the Committee and any decision made by
it under the Plan is final and binding on all persons.
(d) In controlling and managing the operation and administration of the
Plan, the Committee shall take action in a manner that conforms to the articles
and by-laws of the Company, and applicable state corporate law.
5.3. DELEGATION BY COMMITTEE. Except to the extent prohibited by applicable
law, the Committee may allocate all or any portion of its responsibilities and
powers to any one or more of its members and may
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delegate all or any part of its responsibilities and powers to any person or
persons selected by it. Any such allocation or delegation may be revoked by the
Committee at any time. Until action to the contrary is taken by the Board or
Committee, the Committee's authority with respect to matters concerning
Participants below the Partners Council or Executive Officer level is delegated
to the Chief Executive Officer and the Chief People Officer of the Company.
5.4. INFORMATION TO BE FURNISHED TO COMMITTEE. The Company, the Subsidiaries,
and the Affiliates shall furnish the Committee with such data and information as
it determines may be required for it to discharge its duties. The records of the
Company, the Subsidiaries, and the Affiliates as to an employee's or
Participant's employment, termination of employment, leave of absence,
reemployment and compensation shall be conclusive on all persons unless
determined to be incorrect. Participants and other persons entitled to benefits
under the Plan must furnish the Committee such evidence, data or information as
the Committee considers desirable to carry out the terms of the Plan.
SECTION 6
AMENDMENT AND TERMINATION
Except as otherwise provided in Section 3, the Board may, at any time, amend
or terminate the Plan, provided that no amendment or termination may, in the
absence of written consent to the change by the affected Participant (or, if the
Participant is not then living, the affected beneficiary), adversely affect the
rights of any Participant or beneficiary under any Award granted under the Plan
prior to the date such amendment is adopted by the Board.
SECTION 7
DEFINED TERMS
In addition to the other definitions contained herein, the following
definitions shall apply for purposes of the Plan:
(a) "Affiliate" means any corporation or other entity which is not a
Subsidiary but as to which the Company possesses a direct or indirect ownership
interest and has power to exercise management control.
(b) "Award" with respect to a Performance Period means a right to receive
cash payments that are contingent on the achievement of performance goals
determined in accordance with Section 2.
(c) "Award Schedule" means the schedule created by the Committee for any
Performance Period that sets forth the performance goals and the amounts (or the
formula for determining the amounts) of any payments earned pursuant to the
Awards granted for that period.
(d) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under
the Exchange Act of 1934, as amended from time to time, except that a Person
shall not be deemed to be the Beneficial Owner of any securities which are
properly filed on a Form 13-G.
(e) "Board" means the Board of Directors of the Company.
(f) A Participant's "Date of Termination" with respect to any Award shall be
the first day occurring on or after the Grant Date for the Award on which the
Participant is not employed by the Company, any Subsidiary, or any Affiliate,
regardless of the reason for the termination of employment; provided that a
termination of employment shall not be deemed to occur by reason of a transfer
of the Participant between the Company and a Subsidiary or an Affiliate, between
a Subsidiary and an Affiliate, or between two Subsidiaries or Affiliates; and
further provided that the Participant's employment shall not be considered
terminated while the Participant is on a leave of absence from the Company, a
Subsidiary, or an Affiliate approved by the Participant's employer. If, as a
result of a sale or other transaction, the Participant's employer ceases to be a
Subsidiary or Affiliate (and the Participant's employer is or becomes an entity
that is separate from the Company), and the Participant is not, at the end of
the 30-day period following the
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transaction, employed by the Company or an entity that is then a Subsidiary or
Affiliate, then the occurrence of such transaction shall be treated as the
Participant's Date of Termination caused by the Participant being discharged by
the employer.
(g) "Eligible Employee" means any member of the Partners Council or other
member of senior management of the Company.
(h) "Grant Date" with respect to any Award for any Participant means the
date on which the Award is granted to the Participant in accordance with
subsection 2.1.
(i) "Participant" means an Eligible Employee who is selected by the
Committee to receive one or more Awards under the Plan.
(j) "Performance-Based Compensation" means amounts satisfying the applicable
requirements imposed by section 162(m) of the Internal Revenue Code of 1986, as
amended, and the regulations thereunder, with respect to that term.
(k) "Performance Period" with respect to any Award means the period over
which achievement of performance goals is to be measured, as established by the
Committee at or prior to the Grant Date of the Award.
(l) "Person" shall have the meaning given in Section 3(a)(9) of the Exchange
Act of 1934, as amended, as modified and used in Section 13(d) and 14(d)
thereof, except that such term shall not include (i) the Company or any of its
Affiliates, (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its Subsidiaries, (iii) an
underwriter temporarily holding securities pursuant to an offering of such
securities , or (iv) a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company.
(m) "Subsidiary" means any corporation partnership, joint venture or other
entity during any period in which at least a fifty percent voting or profits
interest is owned, directly or indirectly, by the Company (or by any entity that
is a successor to the Company), and any other business venture designated by the
Committee in which the Company (or any entity that is a successor to the
Company) has a significant interest, as determined in the discretion of the
Committee.
(n) "Target Amount" means the percentage of a Participant's base salary for
a Performance Period as established by the Committee pursuant to subsection 2.1.
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[TRICON LOGO]
TRICON GLOBAL RESTAURANTS, INC.
1999 ANNUAL MEETING
THURSDAY, MAY 20, 1999
9:00 AM
TRICON GLOBAL RESTAURANTS, INC.
YUM CENTER
1900 COLONEL SANDERS LANE
LOUISVILLE, KENTUCKY 40213
A D M I S S I O N T I C K E T
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TRICON'S 1999 ANNUAL SHAREHOLDERS' MEETING WILL BE HELD AT 9:00 A.M. (EASTERN
DAYLIGHT SAVINGS TIME) ON THURSDAY, MAY 20,1999 AT THE YUM CENTER AT 1900
COLONEL SANDERS LANE IN LOUISVILLE, KENTUCKY. If you plan to attend the
Annual Shareholders' Meeting, please tear off and keep the upper portion of
this form as your ticket for admission to the meeting. YOUR VOTE IS
IMPORTANT. The proxy voting instruction card below covers the voting of all
shares of Common Stock of Tricon Global Restaurants, Inc. which you are
entitled to vote or to direct the voting of, including those shares in
Tricon's Capital Stock Purchase Program and Long Term Savings Program.
Please date and sign the proxy card and return it promptly in the enclosed
business reply envelope. If you do not sign and return a proxy or attend the
meeting and vote by ballot, your shares cannot be voted.
(Please detach proxy card at perforation)
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[TRICON LOGO]
TRICON GLOBAL RESTAURANTS, INC.
This Proxy is solicited on behalf of the Board of Directors
_______________________________________________________________________________
The undersigned hereby appoints Andrall E. Pearson, Christian L. Campbell and
Gregg R. Dedrick, and each of them, as Proxies with full power of
substitution, to vote, as designated on the reverse side, for director
substitutes if any nominee becomes unavailable, and in their discretion, on
matters properly brought before the Meeting and on matters incident to the
conduct of the Meeting, all of the shares of common stock of Tricon Global
Restaurants, Inc. which the undersigned has power to vote at the Annual
Meeting of Shareholders to be held on May 20, 1999 or any adjournment thereof.
NOMINEES FOR DIRECTOR:
Class II: James Dimon, Massimo Ferragamo, Robert J. Ulrich, Jeanette S. Wagner.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES FOR DIRECTOR, FOR
THE APPROVAL OF THE COMPANY'S LONG TERM INCENTIVE PLAN, FOR THE APPROVAL OF
THE COMPANY'S EXECUTIVE INCENTIVE COMPENSATION PLAN, AND FOR THE RATIFICATION
OF ELECTION OF KPMG LLP AS INDEPENDENT ACCOUNTANTS.
This Proxy when properly executed will be voted as directed; if no direction
is indicated, it will be voted as follows:
FOR the election of all nominees for director;
and the proxies will vote
FOR the approval of the Company's Long Term Incentive Plan;
FOR the approval of the Company's Executive Incentive Compensation Plan;
FOR the ratification of the election of independent accountants.
This card also provides voting instructions to the Administrator or Trustee
for shares beneficially owned under Tricon Global Restaurants, Inc. Capital
Stock Purchase Program and the Tricon Global Restaurants, Inc. Long Term
Savings Program.
(CONTINUED, and To Be Signed and Dated on the REVERSE SIDE)
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- SEE REVERSE SIDE -
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<PAGE>
[TRICON LOGO]
Tricon Global Restaurants, Inc.
c/o Proxy Services
P.O. Box 9380
Boston, MA 02205-9955
A D M I S S I O N T I C K E T
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[MAP TO YUM CENTER]
- - -------------------
DIRECTIONS
------------
TO YUM CENTER
1900 COLONEL SANDERS LANE
LOUISVILLE, KY 40213
Tricon has two buildings which are located directly across from the
US Post Office. Based on the following directions, the first entrance is for
the Yum Center.
FROM LOUISVILLE AIRPORT:
Approximately 3 miles - Exit the Airport to the East following
directions to East I-264 Watterson Expressway. Exit from the right lane onto
Poplar Level Road (Exit 14) and turn right at intersection. Get directly into
left lane. At the light turn left on Sanita Road. Follow Sanita Road around
until you see Tricon on your left. Sanita Road turns into Gardiner Lane.
Please follow posted signs from there.
FROM DOWNTOWN:
Take I-65 South to I-264 East, exit from the right lane onto Poplar
Level Road (Exit 14) and turn right at intersection. Get directly into left
lane. At the light turn left on Sanita Road. Follow Sanita Road around until
you see Tricon on your left. Sanita Road turns into Gardiner Lane. Please
follow posted signs from there.
FROM CINCINNATI:
Take I-71 South to I-264 West to the Poplar Level Road (Exit 14). At the
intersection light, take a left (South) on Poplar Level Road and stay in the
left hand lane. At next light turn left onto Sanita Road. Follow Sanita Road
around until you see Tricon on your left. Sanita Road turns into Gardiner
Lane. Please follow posted signs from there.
FROM LEXINGTON:
Take I-64 West to I-264 West to the Poplar Level Road (Exit 14). At the
intersection light, take a left (South) on Poplar Level Road and stay in the
left hand lane. At next light turn left onto Sanita Road. Follow Sanita Road
around until you see Tricon on your left. Sanita Road turns into Gardiner
Lane. Please follow posted signs from there.
(Please detach proxy card at perforation)
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- - ------- Please mark -------
- - - X - votes as in -
- - ------- this example. -
-
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, 3 AND 4.
- - -------------------------------------------------------------------------------
1. Election of Directors FOR WITHHOLD AUTHORITY
(01) James Dimon / / / /
(02) Massimo Ferragamo / / / /
(03) Robert J. Ulrich / / / /
(04) Jeanette S. Wagner / / / /
/ / ----------------------------------------------------------------------
To withhold authority to vote for any particular nominee(s) write
the name(s) above.
FOR AGAINST ABSTAIN
2. Approval of the Company's Long Term
Incentive Plan. / / / / / /
3. Approval of the Company's Executive
Incentive Compensation Plan / / / / / /
4. Ratification of Election of
Independent Accountants / / / / / /
If you receive more than one Annual
Report at the address set forth on
this proxy card and have no need for
the extra copy, please check the box / / / / / /
at the right. This will not affect
the distribution of dividends or
proxy statements.
- - -------------------------------------------------------------------------------
I plan to attend the Annual Meeting / /
I plan to bring a guest / /
When executed, promptly forward this card to: Proxy Services
--- --- Boston EquiServe
- - P.O. Box 9380
- - Boston, MA 02205-9955
Signature(s)__________________________________ Date _____________________
