<PAGE>
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 Section 240.14a-11(c) or Section 240.14a-12
Brown & Sharpe Manufacturing Company
- --------------------------------------------------------------------------------
(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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
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Notes:
<PAGE>
[LOGO OF BROWN & SHARPE APPEARS HERE]
March 26, 1999
To the Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders of
Brown & Sharpe Manufacturing Company to be held on Friday, April 30, 1999, at
10:00 a.m. at the Company's corporate offices, Precision Park, 200 Frenchtown
Road, North Kingstown, RI.
The accompanying formal Notice of Annual Meeting of Stockholders and Proxy
Statement contain the principal items of business to be considered and acted
upon at the meeting, including information about the Directors of the Company
continuing in office and the three nominees for election as Directors for
three-year terms. In addition to the foregoing, we will report on our
continuing efforts to improve the Company's performance and on our plans for
positioning the Company to meet the challenges ahead. We welcome the
opportunity to share our thoughts with our stockholders and look forward to
your questions and comments.
We hope you will be able to attend the meeting, but if you cannot do so, it
is important that your shares be represented. Accordingly, whether or not you
plan to personally attend the meeting, we urge you to mark, sign, date, and
promptly return the enclosed proxy card in the return envelope.
Sincerely yours,
/s/ Frank T. Curtin
Frank T. Curtin
Chairman of the Board, President and
Chief Executive Officer
<PAGE>
Brown & Sharpe Manufacturing Company
Precision Park
200 Frenchtown Road
North Kingstown, Rhode Island 02852-1700
Telephone (401) 886-2000
Facsimile (401) 886-2214
----------------
NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS
----------------
Notice is hereby given to the stockholders of Brown & Sharpe Manufacturing
Company that the Annual Meeting of stockholders will be held on Friday, April
30, 1999, at 10:00 a.m. at the Company's corporate offices, Precision Park,
200 Frenchtown Road, North Kingstown, Rhode Island, for the following
purposes:
1. To fix the number of Directors at nine and to elect a class of three
Directors, whose names are set forth in the accompanying Proxy Statement,
to succeed the class whose term expires with this Annual Meeting of
Stockholders, to serve until the year 2002 Annual Meeting of Stockholders
and until their successors shall be elected and qualified.
2. To consider and act on a proposal to approve the 1999 Equity Incentive
Plan and authorize the delivery of up to 1,800,000 shares of either Class A
common or Class B common stock from time to time thereunder, all as more
fully set forth in the accompanying Proxy Statement.
3. To ratify and approve the appointment by the Board of Directors of the
firm of Ernst & Young LLP as the Company's independent accountants for the
year 1999.
4. To transact such other business that may properly come before the
meeting, and any adjournments thereof.
The Board of Directors has fixed the close of business on Friday, March 12,
1999, as the record date for determining stockholders entitled to notice of
the meeting and to vote at the meeting, and any adjournments thereof. A copy
of the Company's Annual Report containing financial data and a summary of
operations for 1998 is being mailed to the stockholders with this Proxy
Statement.
In the event you cannot attend the Annual Meeting in person, please
complete, sign and date, and promptly return the enclosed Proxy in the
accompanying post-paid envelope so that your shares of Company stock may be
represented at the Meeting.
By Order of the Board of Directors,
/s/ James W. Hayes, III
James W. Hayes, III
Secretary
North Kingstown, Rhode Island
March 26, 1999
<PAGE>
Brown & Sharpe Manufacturing Company
Precision Park, 200 Frenchtown Road
North Kingstown, Rhode Island 02852-1700
Telephone (401) 886-2000
Facsimile (401) 886-2214
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 30, 1999
This Proxy Statement and the accompanying Proxy is furnished in connection
with the solicitation of proxies on behalf of the Board of Directors of Brown
& Sharpe Manufacturing Company (the "Company") for use at the Company's Annual
Meeting of stockholders (the "Annual Meeting") to be held at the Company's
corporate offices, Precision Park, 200 Frenchtown Road, North Kingstown, Rhode
Island, on Friday, April 30, 1999, at 10:00 a.m., and at any adjournments
thereof.
Stockholders of record at the close of business on Friday, March 12, 1999,
are entitled to receive notice of and to vote at the Annual Meeting. On that
date, the Company had 13,472,445 shares of common stock outstanding comprised
of 12,965,649 shares of Class A Common Stock, $1.00 par value (the "Class A
Stock") and 506,796 shares of Class B Common Stock, $1.00 par value (the
"Class B Stock"). The Company's Certificate of Incorporation provides that
each share of Class A Stock outstanding on the record date entitles the holder
thereof to one vote and each share of Class B Stock outstanding on the record
date entitles the holder thereof to ten votes except as otherwise provided by
law or by the Certificate of Incorporation. The holders of Class A Stock are
entitled to elect one Director at the Annual Meeting, and such holders voting
together with the holders of Class B Stock as a single class are entitled to
elect the remaining Directors to be elected at the Annual Meeting. Except for
the foregoing and as may otherwise be provided by law or the Certificate of
Incorporation, all other actions submitted to a vote of the stockholders at
the meeting will be voted on by the holders of Class A Stock and Class B Stock
voting together as a single class.
Proxies properly executed and returned will be voted at the Annual Meeting
in accordance with any directions noted thereon or, if no direction is
indicated, proxies will be voted FOR the election of the nominees for
Directors set forth herein and FOR the proposals to approve the adoption of
the 1999 Equity Incentive Plan and to ratify the selection of independent
accountants described in this Proxy Statement. Proxies will be voted in the
discretion of the holders of the proxy with respect to any other business that
may properly come before the Annual Meeting and all matters incidental to the
conduct of the Annual Meeting.
Any stockholder signing and delivering a proxy may revoke it at any time
before it is voted by delivering to the Secretary of the Company a written
revocation or a duly executed proxy bearing a date later than the date of the
proxy being revoked. Any stockholder personally attending the Annual Meeting
may also revoke his or her proxy and vote his or her shares of stock.
The approximate date this Proxy Statement is being mailed to stockholders is
March 26, 1999.
<PAGE>
ITEM 1.
ELECTION OF DIRECTORS
The Board of Directors proposes to fix the number of Directors at nine; to
designate a class of three Directors to serve until the year 2002 Annual
Meeting and until their successors have been duly elected and qualified (the
"2002 Class"); and to elect Messrs. John M. Nelson, Russell A. Boss, and Roger
E. Levien, all of whom are currently members of the Board and who have
consented to stand for election, to the 2002 Class. The Board has nominated
Mr. Levien for election by the holders of Class A Stock and Messrs. Nelson and
Boss for election by the holders of Class A Stock and Class B Stock, voting
together as a single class.
Information is furnished below with respect to the nominees for election to
the 2002 Class as well as the Directors continuing in office. Henry D. Sharpe,
III is the son of Henry D. Sharpe, Jr., a significant stockholder of the
Company (see Table on Page 5) and former Chairman of the Board of Directors
who retired from the Board on October 25, 1996.
The Board of Directors unanimously recommends a vote FOR the election of
Messrs. Nelson, Boss, and Levien.
<TABLE>
<CAPTION>
Name (Age) Year First
(Board Committee Elected a Principal Occupation During Last Five Years and
Membership) Director Directorships in Public Reporting and Other Companies
---------------- ---------- -----------------------------------------------------
<S> <C> <C>
Nominees for Election to Office
Terms Expiring in 2002
John M. Nelson (67) 1975 Chairman of the Board, The TJX Companies, Inc., an off
(Audit, Compensation and price specialty apparel retailer, since June 1995;
Nominating) Chairman of the Board, Wyman Gordon Company,
Worcester, MA, manufacturer of forgings and castings,
from May 1994 to October 1997 and Chairman and Chief
Executive Officer from May 1991 to May 1994; until
October 1990, Chairman of the Board and Chief
Executive Officer, Norton Company, manufacturer of
abrasives and ceramics; Director, Eaton Vance Corp.;
Director, Aquila Biopharmaceuticals, a biotechnology
firm; Director, Commerce Holdings Inc., a holding
company for a property and casualty insurance company;
and, Director, Stocker & Yale Manufacturing Company, a
specialty products company.
Russell A. Boss (60) 1990 President, Chief Executive Officer, and a Director, A.
(Executive, Compensation T. Cross Company, Lincoln, RI, manufacturer of fine
and Nominating) writing instruments; Trustee, Eastern Utilities
Association, Boston, MA.
Roger E. Levien (63) 1996 From May 1997 to present, Managing Partner, Levien
(Corporate Governance) Enterprises, a consulting business; July 1992 to April
1997, Vice President, Strategy and Innovation, Xerox
Corporation, Stamford, CT, manufacturer of document
and office technology equipment.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Name (Age) Year First
(Board Committee Elected a Principal Occupation During Last Five Years and
Membership) Director Directorships in Public Reporting and Other Companies
---------------- ---------- -----------------------------------------------------
<S> <C> <C>
Directors Continuing in Office
Terms Expiring in 2000
Frank T. Curtin (64) 1995 Chairman of the Board of Directors since October 1996
(Executive, Corporate and President and Chief Executive Officer since May 2,
Governance) 1995; from January 1992 to May 1995, Vice President,
National Center for Manufacturing Sciences, Ann Arbor,
MI, a research and development organization; from 1989
to May 1995, President, Curtin & Associates, Santa
Barbara, CA and Ann Arbor, MI, a software development
company.
Paul R. Tregurtha (63) 1984 Chairman of the Board and Chief Executive Officer,
(Executive, Compensation Mormac Marine Group, Inc., Stamford, CT, a marine
and Nominating, transportation company; Director, Fleet Financial
Corporate Governance) Group, Inc., a bank holding company; Director, FPL
Group, Inc., a utility company; Trustee, Teachers
Insurance and Annuity Assoc.; Director and Chairman,
Moran Enterprises Corporation; and Director and Vice
Chairman, Interlake Holding Company, Greenwich, CT,
both marine transportation companies; Director and
Vice Chairman, Meridian Aggregates Co.
Harry A. Hammerly (65) 1996 Employed by 3M Company from June 1955; former
(Audit) Executive Vice President and Executive Vice President,
International Operations from September 1991 until his
retirement in July 1995, 3M Company, a manufacturer of
industrial, consumer, and health care products;
Director, Apogee Enterprises, Inc., a fabricator and
distributor of glass; Director, BMC Industries, Inc.,
a manufacturer of precision etched products and vision
lenses; Director, Milacron, Inc., a plastic molding
technology and industrial products company; Director,
Red Wing Shoe Company, a privately held manufacturer
of shoes and boots.
For Terms Expiring in 2001
Howard K. Fuguet (61) 1990 Partner of the law firm of Ropes & Gray, Boston, MA.
(Audit, Corporate
Governance)
Henry D. Sharpe, III 1992 Co-founder and Technical Director, Design Lab, Inc.,
(44) Providence, RI, a multi-disciplinary product design
(Audit) firm specializing in research and design of new
products, re-design of existing products, and
engineering management services.
J. Robert Held (60) 1996 Currently a consultant to the computer industry; from
(Compensation and 1988 to 1995 President, Chief Executive Officer, and a
Nominating) Director of Chipcom Corporation, Southborough, MA, a
computer communications company; from 1984 to 1988
Vice President, Division General Manager and from 1980
to 1984 Vice President, Sales and Service, Genrad,
Inc., Concord, MA, a manufacturer of test equipment
for the electronics industry.
</TABLE>
3
<PAGE>
GENERAL INFORMATION
RELATING TO THE BOARD OF DIRECTORS
The Board of Directors, which held five regular meetings in 1998, maintains
a standing Executive Committee, composed of Messrs. Curtin, Boss, and
Tregurtha, which has substantially all of the powers and authority of the
Board of Directors when the full Board is not in session. The Executive
Committee met once in 1998. The Board of Directors also maintains standing
committees on audit ("Audit Committee"), corporate governance ("Corporate
Governance Committee"), and compensation and board membership nominations,
("Compensation and Nominating Committee") each of which, except for the
Corporate Governance Committee which includes Mr. Curtin, is composed
exclusively of non-employee Directors. Each of the Directors participated in
75% or more of the aggregate number of meetings of the Board and of the
committees on which he is a member.
The Audit Committee, whose members are Messrs. Hammerly, Fuguet, Sharpe III,
and Nelson, recommends to the Board of Directors, for approval by the
stockholders, the appointment of a firm of independent certified public
accountants to audit the Company's financial statements. The Audit Committee
also meets with the independent accountants and the Company's Chief Financial
Officer to review the scope and results of the audit, the scope of audit and
non-audit services, the range of audit and non-audit fees, any proposed
changes in accounting policies, practices, or procedures, including those
relating to the Company's internal accounting controls, and the Company's
financial statements to be included in the Company's Annual Report to
Stockholders and other related matters. The Audit Committee met two times in
1998.
The Corporate Governance Committee, whose members are Messrs. Curtin,
Fuguet, Tregurtha, and Levien, considers matters concerning the composition
and performance of the Board and its relationship to management and other
corporate governance matters, including those relating to the existence of the
Company as an independent company or which otherwise might affect the control
of the Company. The Corporate Governance Committee met two times in 1998.
The Compensation and Nominating Committee, whose members are Messrs. Boss,
Tregurtha, Nelson, and Held, performs a periodic review of the appropriate
salaries and compensation/benefit plans for the Executive Officers and other
key management personnel of the Company; and the Committee administers the
Amended Profit Incentive Plan, the 1989 Equity Incentive Plan, the Key
Employees' Long-Term Deferred Cash Incentive Plan, the Supplemental Executive
Retirement Plan, and the Senior Executive Supplemental Umbrella Retirement
Pension Plan. The Committee also recommends to the Board nominees who are
proposed for election as directors. The Compensation and Nominating Committee
met seven times in 1998. See "Compensation and Nominating Committee Report".
As compensation for services rendered during 1998, the Company paid each
non-employee Director an annual retainer of $10,000, a fee of $800 for each
Board meeting attended, a fee of $400 for each teleconference meeting which
lasted more than one-half hour in duration, and a fee of $500 for each
Committee meeting attended ($200 if held on the same day as a Board meeting).
Directors who are members of the Audit Committee also receive an additional
$1,000 in their annual retainer fee.
Mr. Tregurtha has elected to defer 50% of his Director's fees under a
deferred stock equivalent unit contract with the Company dated September 3,
1987 pursuant to which all fees earned after that date were to be converted
into deferred stock equivalent units based on the market value of the
Company's stock on each fee payment date. Under such contract dividend
equivalents in amounts and timing equal to any cash dividends paid on the
Company's outstanding stock are similarly converted into additional stock
equivalent units. The Company paid no cash dividends on its stock in 1998. Mr.
Tregurtha's contract matures on October 1, 2005 or the earlier date of death
or other termination of Mr. Tregurtha as a Director. The contract was amended
in 1992 to provide that fee amounts deferred after May 1, 1991 (including any
dividend equivalent amounts) shall be payable on maturity only in cash, with
amounts deferred prior to such date payable in cash or shares of Company Class
A Stock.
The law firm of Ropes & Gray, Boston, Massachusetts, of which Mr. Fuguet is
a partner, has provided legal services to the Company since 1957.
4
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
I. Security Ownership of Certain Beneficial Owners
Set forth below as of March 4, 1999 are the persons or groups known to the
Company who beneficially own, under the applicable rules and regulations of
the Securities and Exchange Commission, more than 5% of any class of the
Company's voting securities.
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Interest Percent of
Name and Address Title of Class --------------------------Percent Combined
of Beneficial Owner of Common Stock Direct Indirect of Class Voting Power
- ------------------- --------------- ------------- -------------------- ------------
<S> <C> <C> <C> <C> <C>
Fiduciary Trust
Company Class A 168,196 -- 1.3 4.0
International(1) Class B 56,064 -- 11.0
Two World Trade
Center
New York, NY
10048-0774
Henry D. Sharpe,
Jr.(2) Class A 476,766 7,200 3.7 11.6
Pojac Point, RFD
No. 2 Class B 158,920 2,400 31.8
North Kingstown,
RI 02852
Frank T.
Curtin(3) Class A 694,244 -- 5.3 13.0
c/o Brown &
Sharpe Class B 166,063 -- 32.7
Manufacturing
Company
200 Frenchtown
Road
Precision Park
N. Kingstown, RI 02852-1700
Edward D.
DiLuigi(3) Class A 535,954 -- 4.1 12.3
c/o Brown &
Sharpe Class B 169,262 -- 33.4
Manufacturing
Company
200 Frenchtown
Road
Precision Park
N. Kingstown, RI 02852-1700
Andrew C. Genor
(3) Class A 524,244 -- 4.0 12.1
c/o Brown &
Sharpe Class B 166,063 -- 32.8
Manufacturing
Company
200 Frenchtown
Road
Precision Park
N. Kingstown, RI 02852-1700
Putnam Fiduciary
Trust(4) Class A 228,664 -- 1.7 4.1
Company Class B 52,744 -- 10.4
859 Willard
Street
Quincy, MA 02169
David L.
Babson(5) Class A 1,460,400 -- 11.3 8.1
& Co. Inc. Class B --
One Memorial
Drive
Cambridge, MA
02142-1300
Merrill Lynch &
Co. Inc.(6) Class A 1,178,500 -- 9.0 6.5
On behalf of
Merrill Lynch Class B -- -- -- --
Asset Management
Group
World Financial
Center
North Tower
250 Vesey Street
New York, NY
10381
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Interest Percent of
Name and Address Title of Class -------------------------- Percent Combined
of Beneficial Owner of Common Stock Direct Indirect of Class Voting Power
- ------------------- --------------- ------------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C>
Merrill Lynch
Special Value Class A 788,900 -- 6.1 4.3
Fund, Inc.(6) Class B -- -- -- --
800 Scudders
Mill Road
Plainsboro, NJ
08536
Dimensional
Fund(7) Class A 798,107 6.1 4.4
Advisors Inc. Class B --
1299 Ocean
Avenue
11th Floor
Santa Monica,
CA 90401
</TABLE>
- --------
(1) Fiduciary Trust Company International, a bank, by virtue of various
investment management contracts and trust agreements with members of the
Sharpe family, including Henry D. Sharpe, III, a Director, holds the
shares of Class A and Class B Stock in the Table. See Footnote (2) below.
(2) Various members of Henry D. Sharpe, Jr.'s family beneficially own an
aggregate of 645,286 shares of common stock of the Company comprised of
483,966 shares of Class A Stock and 161,320 shares of Class B Stock of the
Company. These holdings amount to 3.7% and 31.8%, respectively, of each
class of stock and represent 11.6% of the combined voting power of the
Class A Stock and Class B Stock. The table includes (a) an aggregate of
168,076 shares of Class A Stock and 56,024 shares of Class B Stock held by
Henry D. Sharpe, Jr.'s wife and children, including Henry D. Sharpe, III,
a Director of the Company, and by trusts, of which they are beneficiaries
under agreements with Fiduciary Trust Company International and under
which they each have sole voting and dispositive power with respect to
their shares and with respect to which Mr. Sharpe, Jr. disclaims
beneficial ownership; (b) 120 shares of Class A Stock and 40 shares of
Class B Stock held by the Sharpe Family Foundation, a charitable
foundation, held by Fiduciary Trust Company International with whom Mr.
Sharpe, Jr. shares voting power and with respect to which beneficial
ownership is disclaimed; (c) 7,200 shares of Class A Stock and 2,400
shares of Class B Stock as to which Henry D. Sharpe, Jr. has neither
voting nor dispositive power but as to which he is a beneficiary under a
trust established under the will of Henry D. Sharpe, Sr.; and (d) 308,570
shares of Class A Stock and 102,856 shares of Class B Stock held by
Fiduciary Trust Company International as to which Henry D. Sharpe, Jr. has
sole voting and dispositive power.
(3) Messrs. Curtin, DiLuigi, and Genor, who commenced his employment with the
Company as Vice President and Chief Financial Officer on December 1, 1998,
are Executive Officers of the Company and serve as co-Trustees of the
Brown & Sharpe Employee Stock Ownership and Profit Participation Plan (the
"ESOP"). The Table includes (i) 524,244 shares of Class A Stock and
166,063 shares of Class B Stock, which are deemed to be beneficially owned
by each of the foregoing persons, but as to all of which ESOP shares
(except, with respect to their own respectively vested shares of Class A
Stock and Class B Stock in such plan) they disclaim beneficial ownership;
and (ii) shares of Class A Stock issuable upon exercise of stock options
held by such Executive Officers. (See II. Security Ownership of Management
Footnote (3) and Aggregated Options Table.).
(4) Putnam Fiduciary Trust Company acts as Trustee of the Brown & Sharpe
Savings and Retirement Plan and the Brown & Sharpe Savings and Retirement
Plan for Management Employees, substantially similar tax qualified 401-K
savings plans covering U.S. employees (together referred to as the
"SARP"), and in that capacity shares voting power with respect to the
shares of Class A Stock and Class B Stock with and subject to direction
from participants in the SARP as to all of which shares Putnam disclaims
beneficial ownership.
(5) David L. Babson & Co. Inc., an investment advisor, holds the reported
shares for the benefit of its clients and has sole voting and dispositive
power with respect to such shares.
(6) Merrill Lynch & Co. Inc. is a parent holding company and Merrill Lynch
Special Value Fund, Inc. is a subsidiary of such company, and such
companies, as registered investment advisors, share voting and dispositive
control over such shares with certain clients.
6
<PAGE>
(7) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, has sole voting and dispositive control over such shares and is
deemed to have beneficial ownership of the reported shares, all of which
shares are held in portfolios of DFA Investment Dimensions Group Inc., a
registered open-end investment company, or in series of the DFA Investment
Trust Company, a Delaware business trust, or the DFA Group Trust and DFA
Participation Group Trust, investment vehicles for qualified employee
benefit plans, as to all of which Dimensional Fund Advisors Inc. serves as
investment manager. Dimensional disclaims beneficial ownership of all such
shares.
II. Security Ownership of Management
The following table and accompanying footnotes set forth certain information
about the beneficial ownership of the Company's Class A Stock and Class B
Stock as of March 4, 1999 by the Directors and Nominees and the named
Executive Officers included in the Summary Compensation Table and all
Directors and Executive Officers as a group.
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Ownership Percent of
Name and Address Title of Class --------------------------Percent Combined
of Beneficial Owner of Common Stock Direct Indirect of Class Voting Power
- ------------------- --------------- ------------- -------------------- ------------
<S> <C> <C> <C> <C> <C>
Frank T.
Curtin(1) Class A 694,244 -- 5.3 13.0
Class B 166,063 -- 32.7
Henry D.
Sharpe,
III(2) Class A 55,145 2,400 * 1.3
Class B 18,381 800 3.7
John M. Nelson Class A 6,553 -- * *
Class B 151 -- *
Howard K.
Fuguet Class A 1,000 -- * *
Class B -- -- --
Russell A.
Boss Class A 3,000 -- * *
Class B -- -- --
Paul R.
Tregurtha Class A 705 -- * *
Class B 13 -- *
Harry A.
Hammerly Class A 5,000 -- * *
Class B -- --
J. Robert Held Class A 5,000 -- * *
Class B -- -- --
Roger E.
Levien Class A 2,000 -- -- *
Class B -- -- --
Charles A.
Junkunc Class A 87,350 -- * *
Class B 626 -- *
Philip James Class A 9,630 -- * *
Class B -- --
Antonio
Aparicio Class A 61,750 -- * *
Class B -- -- --
Edward D.
DiLuigi(1) Class A 535,954 -- 4.1 12.3
Class B 169,262 -- 33.4
All Directors,
Nominees and Class A 1,410,769 7,200 10.9 27.7
Executive
Officers as a
Group Class B 357,822 2,400 71.0
(18
persons)(3)
*Less than one
percent (1%).
</TABLE>
7
<PAGE>
- --------
(1) See Footnote (3) I. Security Ownership of Certain Beneficial Owners.
(2) See Footnote (2) I. Security Ownership of Certain Beneficial Owners.
(3) With respect to Executive Officers who are not Directors, includes (i)
72,630 shares of Class A Stock as to which certain of the Executive
Officers have sole voting and investment power; (ii) 28,332 shares of
Class B Stock held in the Company's pension plan covering its United
Kingdom employees as to which an executive officer has shared voting and
investment power; (iii) 16,322 vested shares of Class A Stock and 5,095
vested shares of Class B Stock as to which certain Executive Officers have
shared voting power as participants in the SARP and ESOP; and (iv) for
Messrs. Curtin, Junkunc, and Aparicio includes 150,000, 55,000, and 49,750
shares, respectively, of Class A Stock and for three other Executive
Officers 43,750 shares of Class A Stock, which are subject to stock
options presently exercisable or exercisable within sixty (60) days of the
expected March 26, 1999 date of mailing of this Proxy Statement, granted
to such Executive Officers pursuant to the Company's 1989 Equity Incentive
Plan. (See Options and SAR Table under the heading "Executive
Compensation".)
Section 16(a) Beneficial Ownership Reporting Compliance
As required by Securities and Exchange Commission rules, the Company notes
that Frank T. Curtin, a Director and Chief Executive Officer of the
Corporation, and Charles A. Junkunc, Brian Gaunt, and Antonio Aparicio, who
are Executive Officers of the Company, did not timely file Form 4 Statements
of Changes in Beneficial Ownership of Securities reports.
COMPENSATION AND NOMINATING COMMITTEE REPORT
Compensation Philosophy
The Compensation and Nominating Committee of the Board of Directors (the
"Committee") presents its report on executive compensation for the year 1998.
The Committee's guidelines for compensation decisions are guided by the
following principles:
. To provide a competitive total compensation package that enables the
Company to attract and retain the key executive talent needed to
accomplish its corporate goals.
. To integrate compensation programs with the Company's annual and long-
term business objectives and strategy in order to focus executive
behavior on the fulfillment of those objectives.
. To provide variable compensation opportunities that are directly linked
with the performance of the Company and that significantly align
executive remuneration with the interests of the stockholders.
In addition, the Committee also considers in implementing its decisions the
impact of Section 162(m) of the Internal Revenue Code of 1986 (the "Code"),
which in certain circumstances disallows annual compensation deductions in
excess of $1,000,000. This disallowance provision does not apply to
performance-based compensation, commissions, and certain other payments or
forms of compensation. The Committee has determined that the Corporation's
incentive awards that will be subject to 162(m) should be made, to the extent
practicable, on a basis that ensures that the Corporation will be entitled to
full deductibility under Section 162(m).
Compensation Program
The Committee, which is composed of outside Directors who have no
interlocking relationships within the meaning of regulations of the Securities
and Exchange Commission, is responsible for reviewing the Company's overall
executive compensation program, reviewing the compensation of the Executive
Officers, and administering the cash bonus, deferred cash award, and stock
based incentive plans and certain retirement plans to ensure that pay levels,
incentive opportunities, and projected retirement benefits are competitive
and, of equal importance, appropriately reflect the performance of the
Company. The components of the compensation program for executives are
described below.
8
<PAGE>
Base Salary. The factors considered in determining the appropriate salary
are level of responsibility, prior experience and accomplishments, and the
relative importance of the job in terms of achieving corporate objectives and
general salary ranges for comparable positions at similar size companies or
divisions within the industry. Each Executive Officer's salary is reviewed
annually. Adjustments may be recommended based upon individual performance,
inflationary and competitive factors, and overall corporate results. The
Committee made some adjustments to the base salaries of Executive Officers for
1998; and in late December 1998 and early 1999, the Committee reviewed, with
the assistance of a compensation consulting firm, and then increased the base
salaries of the Executive Officers for the year 1999 to be more in line with
the 50th percentile for comparable companies ("general industrial" companies
for executives in its measuring equipment business and select "high tech"
companies for executives associated with its software and sensors business),
as surveyed by the consulting firm. (See below for the Chief Executive
Officer).
Annual Incentive Compensation. Under the Company's Amended Profit Incentive
Plan ("PIP"), Executive officers are eligible to receive a planned annual cash
bonus of up to a specified percentage (generally 30% to 40% for Executive
Officers) of base salary. At the beginning of each fiscal year, the Committee
establishes for each executive a maximum aggregate percentage bonus
opportunity (generally 60% to 80% for Executive Officers), which is comprised
of separate bonus categories tied to the satisfaction of a specified, largely
quantitative formula of corporation goals (e.g., net income, cash flow, and
achievement of specific objectives). Actual bonuses paid may be above or below
the target amount planned depending on achievement of objectives but may not
exceed 200% of the planned bonus. In order to assure that the PIP would
effectively encourage and reward superior performance, the Committee in early
1996 had restructured the specific performance targets comprising the overall
formula for the Executive Officers to focus their content on promoting cross-
divisional and inter-Company cooperation and also focusing on net income and
various determinants of cash flow. In addition, up to 40% of certain Executive
Officers annual bonuses, including up to 40% for the Chief Executive Officer,
were independent of the target formula and instead were subject to award based
on achievement of specific objectives. Bonuses under the PIP for performance
in 1998 were made to a total of approximately 130 management executives,
including 10 Executive Officers, in the aggregate. (See information shown in
the Summary Compensation Table). For the named Executive Officers other than
the Chief Executive Officer (See Compensation of the Chief Executive Officer
below), 1998 performance exceeded established performance goals and,
accordingly, bonuses awarded with respect to such 1998 performance and
reported in the Bonus column in the Summary Compensation Table were at the
high end of the range.
Long-Term Incentive Awards
Stock Options. Stock options, restricted stock, and other stock based awards
granted under the Corporation's stock incentive plan for management, the 1989
Equity Incentive Plan (which has been approved by the stockholders), provide
incentive to executives by giving them a strong economic interest in
maximizing stock price appreciation, thereby better aligning their interests
with the Corporations' stockholders. Accordingly, each executive's total
compensation is significantly dependent upon stock performance. Option
exercise prices are set at 100% of fair market value on the date of grant and
the options expire after 10 years. The options granted by the Committee vest
over a period of years, typically 50% after one year and 50% the next year or
50% after the first two years and 25% per year for the following two years, in
order to encourage management continuity and better align compensation to
long-term stock value. In 1998 the Committee awarded options for an aggregate
of 463,500 shares to 55 executives, including options for an aggregate of
330,000 shares to a total of five named Executive Officers (as shown in the
Summary Compensation Table) and other Executive Officers.
Long-Term Deferred Cash Incentive Plan. This component of executive
compensation consists of the Key Employees' Long-Term Deferred Cash Incentive
Plan (the "LTDCIP"), which was amended by the Committee in 1998. Pursuant to
the Committee's recommendation under the amended Plan, the Company may make
annual deferred cash awards as a bonus based on earnings. Each participant has
credited to his account a percentage, established by the Committee from time
to time, of adjusted pre-tax profit (as defined). Accounts vest after three
years or, if earlier, upon retirement at or after age 65 with five years of
service or at or after age 60 with ten years of service. (If a participant
retires at or after age 55 with five years of service, the normal
9
<PAGE>
three-year vesting requirement is reduced to one year after retirement.) Full
vesting also occurs upon a Change in Control (as defined). Participants are
subject to a two-year post termination non-compete, except for terminations
after a change in control (as defined). Participant accounts are subject to
notional "investment" in one or more mutual fund alternatives and/or Brown &
Sharpe stock, except that credits are required to be "invested" in the Company
stock alternative if the participant is below the Company's share ownership
requirement for executives under the Executive Officer Stock Ownership Policy
adopted by the Board on recommendation by the Committee in 1998. Participant
vested accounts are distributable at termination of employment in a lump sum
or installments (up to three years). Certain larger accounts may be
distributed as an annuity. Awards were made to eight Executive Officers
participating in the LTDCIP for 1998 including those named in the Summary
Compensation Table.
Compensation of Chief Executive Officer
Mr. Curtin joined the Company in May of 1995. An Employment Agreement was
entered into on May 2, 1995 for a term of three years. Mr. Curtin's annual
salary for 1998 was increased by the Committee to $360,000. The Agreement was
most recently amended in 1999 to extend the term of employment for an
additional year ending April 30, 2000 and to increase his base compensation to
$425,272 for 1999, at a level believed to still be somewhat below the 50th
percentile per the general industry survey referred to above. The original
agreement provided for the grant of options for 200,000 shares of Class A
common stock at an exercise price equal to the fair market value on May 3,
1995. Options for 80,000 shares were granted to Mr. Curtin in 1998 at an
exercise price of $10.6875, the fair market value on the date of grant.
In early 1998 the Committee established Mr. Curtin's planned target annual
cash bonus under the PIP for 1998 at 40% of his salary. In early 1999 the
Compensation Committee awarded Mr. Curtin a cash bonus under the PIP of
$208,445 for 1998, representing approximately 58% of his salary, which was
towards the higher end of the range. In determining Mr. Curtin's 1998 annual
PIP bonus, the Committee reviewed the Corporation's performance and Mr.
Curtin's individual performance against a set of performance objectives which
were approved by the Committee in early 1998. Mr. Curtin received an award
credit under the LTDCIP for 1998 in the amount of $217,000.
In 1998, the Committee approved "change in control" management agreements
for Mr. Curtin and the other Executive Officers. These contracts provide for
payment and continuation of benefits upon a termination of employment, on the
terms specified, following a "change in control" (as defined) of the Company.
At the same time, the Committee also approved amendments to the Key Employee
Long-Term Deferred Cash Incentive Plan as described above. The Board also took
action, upon recommendation of the Committee, on two retirement plans in 1998
amending the Supplemental Executive Retirement Plan and establishing a Senior
Executive Supplemental Umbrella Pension Plan, which, together with the 1989
Equity Incentive Plan and the Amended Profit Incentive Plan, reset the
retirement and long-term incentive arrangements for senior executives. For
1998 the eligible participants in the newly established Senior Executive
Supplemental Umbrella Pension Plan include Mr. Curtin and three other named
Executive Officers. (See the description of the "change in control" management
agreements and the Senior Executive Supplemental Umbrella Pension Plan under
the heading "Employment, Severance, and Other Agreements")
Russell A. Boss, Chairman
John M. Nelson
Paul R. Tregurtha
J. Robert Held
10
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph sets forth information comparing the cumulative total
return to holders of the Company's Class A Stock over the Company's last five
fiscal years beginning at the market close on the last trading day before the
beginning of the Company's fifth preceding fiscal year (the "Measuring
Period") with (1) the cumulative total return of the Standard & Poor's 500
Stock Index, and (2) the cumulative total return of the Standard & Poor's
Machinery (Diversified) index. The graph assumes $100 invested in December 31,
1993 in Company Class A common stock and $100 invested at the same time in
each of the S&P indexes shown and assumes that all dividends are reinvested.
---------------------------------------------------------------------
Date BNS Class A S&P 500 S&P Machinery Index
---------------------------------------------------------------------
12/31/93 100 100 100
---------------------------------------------------------------------
12/30/94 86.89 101.27 95.56
---------------------------------------------------------------------
12/29/95 134.43 139.29 115.38
---------------------------------------------------------------------
12/31/96 183.61 171.31 141
---------------------------------------------------------------------
12/31/97 132.79 228.43 183.42
---------------------------------------------------------------------
12/31/98 104.92 293.7 149.88
---------------------------------------------------------------------
11
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation during
each of the Company's last three fiscal years for Mr. Frank T. Curtin, the
Company's Chairman of the Board, President, and Chief Executive Officer and
the four other highest-paid Executive Officers (as such term is defined under
rules promulgated under the Securities Exchange Act of 1934), who were serving
in such capacity as of the end of the Company's last completed fiscal year.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term Compensation Awards
--------------------------------------------
Annual Compensation Awards Pay-outs
------------------------------------ --------------------- -----------
(e) (f) (g)
Other Restricted Securities (i)
(a) Annual Stock Underlying (h) All Other
Name and (b) (c) (d) Compen- Award(s) Options/ LTIP Compen-
Principal Position Year Salary ($) Bonus ($) sation ($) ($)(6) SARs (#) Payouts ($) sation ($)
------------------ ---- ---------- --------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Frank T. Curtin(1)(7)... 1998 359,972 208,455 -- -- 80,000 -- 286,756
President and Chief 1997 345,651 209,009 -- -- -- -- 187,754
Executive Officer 1996 315,000 327,000 -- -- -- -- 160,364
Charles A.
Junkunc(2)(7).......... 1998 252,127 100,445 -- -- 50,000 -- 135,849
Executive Vice 1997 239,810 108,757 205,125 -- -- -- 120,914
President, Strategic 1996 218,500 181,100 -- -- -- -- 116,835
Development
Philip James(3)(7)...... 1998 254,846 107,785 -- -- 50,000 -- 116,917
Group Vice President, 1997 81,730 175,000 -- -- 50,000 -- 18,792
Measuring Systems 1996 -- -- -- -- -- -- --
Antonio Aparicio(4)(7).. 1998 233,594 63,149 -- -- 30,000 71,616
Vice President-- 1997 226,489 86,672 120,750 -- -- -- 122,598
Precision Measuring 1996 255,790 89,648 -- -- -- -- 133,831
Instruments
Edward D.
DiLuigi(5)(7).......... 1998 199,230 84,537 113,724 -- 25,000 -- 62,697
Vice President & 1997 90,865 105,625 63,269 -- 30,000 -- 20,892
General Manager, 1996 -- -- -- -- -- -- --
Measuring Systems--USA
</TABLE>
- --------
(1) Column (d) includes for 1996 a special bonus in the amount of $75,000 paid
in connection with successful completion of the Company's public stock
offering in 1996. Column (i) includes amounts of $54,092 for 1998; $63,053
for 1997; and $32,721 for 1996, including interest earnings, credited to a
Supplemental Executive Retirement Plan account (the "SERP"); and amounts
of $15,664; $15,759; and $14,742 representing the value of the 1998, 1997,
and 1996 year-end Company contributions, respectively, to the executives
SARP (4% plus Company matching contributions) and ESOP (2% in shares of
Class A Stock) and includes amounts referred to in Footnote 7.
(2) Column (d) includes for 1996 a special bonus in the amount of $50,000 paid
in connection with the successful completion of the public stock offering
in 1996. Column (e) for 1997 includes an amount of $137,125 representing
the value of income realized during the year as a result of the vesting of
restricted stock and an amount of $68,000 approved by the Compensation and
Nominating Committee paid in connection with the vesting of such
restricted stock to offset the income taxes incurred by Mr. Junkunc in
connection with the vesting of such stock. Column (i) includes the value
of the year-end Company contributions to the executives SARP and ESOP
retirement accounts in the amounts of $15,664, $15,759, and $14,742 for
1998, 1997, and 1996, respectively and amounts of $27,185, $28,925, and
$21,688 for 1998, 1997, and 1996, respectively including interest earned
credited to the executives SERP account and amounts referred to in
Footnote (7).
12
<PAGE>
(3) Mr. James commenced his employment in September of 1997, and the amount in
Column (c) reflects this short period of employment. Column (d) for 1997
includes a special signing bonus of $150,000 as compensation for
forfeiture of bonuses and other benefits from his previous employment and
an amount of $25,000 for a partial year 1997 PIP bonus. Column (i)
includes for 1998 an amount of $15,664 for the value of the year-end
Company contribution to the executives SARP and ESOP retirement account
and an amount of $8,253 credited to the executives SERP account and the
amounts referred to in Footnote (7).
(4) Mr. Aparicio is employed by Brown & Sharpe Tesa S.A., a Swiss corporation
("Tesa") and subsidiary of the Company. Amounts shown are converted from
Swiss Franc equivalent for 1998, 1997, and 1996 at the average U.S. dollar
exchange rates of $.6905, $.6930, and $.8100, respectively. Column (e) for
1997 reflects an amount representing the value of income realized as a
result of the vesting of shares of restricted stock. Column (i) includes
dollar value of contributions made to Brown & Sharpe Tesa S.A.'s
retirement plans for Mr. Aparicio's benefit for 1996, 1997, and 1998 in
the amounts of $41,587, $39,070, and $40,616, respectively (see Foreign
Retirement Plan, Page 16 and amounts referred to in Footnote (7).
(5) Mr. DiLuigi commenced his employment in June of 1997, and the amount in
Column (c) reflects the short period of employment. Column (d) includes a
special signing bonus of $75,000 and an amount of $30,625 for a partial
year 1997 PIP bonus. The amount in Column (e) for 1997 represents a
payment to Mr. DiLuigi to compensate him for the forfeiture of options
granted in connection with his previous employment. Column (i) includes
for 1998 an amount of $15,664 for the value of the year-end Company
contribution to the executives SARP and ESOP retirement account and an
amount of $8,033 credited to the executives SERP account and the amounts
referred to in Footnote (7).
(6) The table set forth below provides information relating to unvested
restricted stock held by the Executive Officers in the above table:
<TABLE>
<CAPTION>
Total Number Restricted Aggregate Market Value
Unvested Shares Held Restricted Unvested Shares
Name as of Fiscal Year-End* Held as at Fiscal Year-End
---- ----------------------- --------------------------
<S> <C> <C>
Charles A. Junkunc 3,000 $24,000
Antonio Aparicio 2,000 $16,000
</TABLE>
* The awards to Messrs. Junkunc and Aparicio of restricted Class A Stock
were made in 1994. Restrictions lapse ratably over five (5) years from
the date of award with 25% of the shares awarded vesting two years and
three years, respectively, after such date and the remaining 50% of the
shares vesting five (5) years after such date. In 1991 the Company
omitted and has not reinstated its dividend on its Class A Stock;
however, should it be reinstated, dividends would be paid on the
restricted stock reported. At December 31, 1998 the closing market price
of the Company's shares of Class A Stock was $8.00 per share.
(7) Column (i) includes amounts of $217,000, $93,000, $31,000, $93,000, and
$39,000 for 1998; amounts of $108,942, $76,230, $83,528, $18,792, and
$20,892 for 1997 for Messrs. Curtin, Junkunc, Aparicio, James, and
DiLuigi, respectively; and amounts of $112,901, $80,405, and $92,244 for
1996 for Messrs. Curtin, Junkunc, and Aparicio, respectively, credited to
memorandum accounts established for the executive under the Long-Term
Deferred Cash Incentive Plan. On February 23, 1996 the Board of Directors
approved, on recommendation of the Compensation and Nominating Committee,
the Brown & Sharpe Key Employees' Long-Term Deferred Cash Incentive Plan
("LTDCIP") with effect from January 1, 1995 (see discussion in
Compensation and Nominating Committee Report). The LTDCIP is intended to
be a non-qualified unfunded pension plan within the meaning of Section
3(2) of the Employee Retirement Income Security Act. Beginning with the
1995 year and for 1996 and 1997, award credits were made annually to
LTDCIP participants based on one year's financial performance of the
Company out of an award pool of 6% of adjusted pre-tax earnings pro rata
based on the salaries of participants. The LTDCIP was amended in 1998 to
provide that beginning in 1998 participant award opportunities are
individually determined by the Committee annually as a percentage of
adjusted pre-tax profit. Participants become vested in each accrued annual
award after three years subject to accelerated vesting upon a change of
control (as defined) and with payout of the credited vested amounts plus
interest accrued at a market rate deferred until retirement at or after
age 65, death or disability, or earlier upon termination of employment for
reasons other than cause. The amounts for 1997 include accrued interest
and a proportionate reallocation of unvested previously
13
<PAGE>
credited amounts for two Executive Officers who left the Company shortly
after the end of the 1996 fiscal year to 1996 participants' accounts which
include Messrs. Curtin, Junkunc, and Aparicio. Beginning after January 1,
1998, participants have the option under the Plan to convert all or a
portion of their account balances into phantom shares of the Company's
common stock in order to satisfy the requirements in the Company's
Executive Officer Stock Ownership Policy applicable to participants. (See
discussion under "Retirement Plans".)
Stock Option/SAR Grants
Under provisions of the Company's 1989 Equity Incentive Plan ("EIP"), a
variety of stock and stock based awards, performance cash awards and related
benefits, including stock options, both qualified incentive and non-qualified
options, and stock appreciation rights ("SARs"), may be awarded to Executive
Officers and other key employees of the Company and its subsidiaries. The EIP
by its terms expired on February 24, 1999, and no further awards may be made
under such Plan. Options were awarded under the EIP in 1998 to the Executive
Officers named in the Summary Compensation Table as set forth in the table
below:
Options/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term(2)
-------------------------------------------------------------------------- ---------------------------
(a) (b) (c) (d) (e) (f) (g)
% of Total
Options/SARs
Options/SARs Granted to Exercise
Granted(1) Employees in or Base Price Expiration
Name (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- ---- ------------ ------------ ------------- ---------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Frank T. Curtin......... 80,000 17.2 10.6875 7/27/08 537,704 1,362,600
Charles A. Junkunc...... 50,000 10.8 10.6875 7/27/08 336,065 851,625
Antonio Aparicio........ 30,000 6.5 10.6875 7/27/08 201,639 510,975
Philip James............ 50,000 10.8 10.6875 7/27/08 336,065 851,625
Edward D. DiLuigi....... 25,000 5.4 10.6875 7/27/08 168,033 425,813
</TABLE>
- --------
(1) There were no SARs granted to any of the Executive Officers named in the
table in 1998.
(2) The potential realizable value represents future opportunity and has not
been reduced to present value in 1998 dollars. The dollar amount included
in these columns are the result of calculations at assumed rates set by
rules of the Securities and Exchange Commission for illustrative purposes,
and such rates are not intended to be a forecast of the common stock price
and are not necessarily indicative of the values that may be realized by
the named Executive Officer. The potential realized value is based on
arbitrarily assumed annualized rates of stock price appreciation of five
and ten percent over the full ten-year term of the options. For example in
order for the person named in the table who received options with an
exercise price of $10.6875 per share to realize the potential values set
forth in columns (f) and (g), the price per share of the Company's Class A
Stock would have to be approximately $17.4088 and $27.72, respectively
14
<PAGE>
Aggregated Option Exercises and Fiscal Year-End Values
The following table summarizes options and SARs exercised during 1998 and
presents the value of unexercised options and SARs held by the named Executive
Officers at fiscal year-end:
Aggregated Options/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs at Options/SARs at
Fiscal Year-End (#) Fiscal Year-End ($)
----------------------- ---------------------
Shares
Acquired on Value Exercisable (E)/ Exercisable (E)/
Name Exercise(#) Realized ($) Unexercisable (U) Unexercisable (U)
- ---- ----------- ------------ ----------------------- ---------------------
(E) (U) (E) (U)
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Frank T. Curtin......... None -- 150,000 130,000 187,500 62,500
Charles A. Junkunc...... None -- 55,000 60,000 67,500 10,000
Antonio Aparicio........ None -- 49,750 38,250 62,250 8,250
Philip James............ None -- -- 100,000 -- --
Edward D. DiLuigi....... None -- -- 55,000 -- --
</TABLE>
Retirement Plans
Senior Executive Supplemental Umbrella Pension Plan. The Board of Directors
of the Company in May of 1998 ratified action taken by the Compensation and
Nominating Committee of the Board (the "Committee") on February 13, 1998,
approving the Senior Executive Supplemental Umbrella Pension Plan (the
"Umbrella SERP"). The Umbrella SERP is designed to provide key senior
executives selected by the Committee with retirement benefits which, together
with the annuitized value of their benefits under the Company's Employee Stock
Ownership and Profit Participation Plan ("ESOP"), Savings and Retirement Plan
("SARP") and Supplemental Executive Retirement Plan ("SERP"), plus Social
Security benefits, will deliver an annuity equal to a percentage (determined
by the Committee) of the executive's final average pay (as defined). The
portion of SARP benefits attributable to the executive's own savings or
deferrals (or matching contributions and credits) are disregarded in this
computation. For purposes of determining any offset for ESOP and SARP
benefits, the value of the executive's accounts in those two plans is assumed
to have grown from January 1, 1998 at a rate equal to the Merrill Lynch
Government Master Treasury Bond Index (Ten Plus Years) rate as from time to
time in effect.
Final average pay under the Umbrella SERP is defined as the aggregate of the
following amounts, in each case based on the highest three-year average for
such amount determined over the ten-year period preceding the determination
date: base salary, annual or special bonuses, employer contributions to SARP,
Company matching contributions to the SARP, allocations of contributions under
the ESOP, and retirement credits under SERP. Full benefits are payable upon
retirement at or after age 65 with at least five years of service or at or
after age 60 with at least ten years of service. Reduced benefits are payable
in the event of termination after age 55 with at least five years of service.
Benefits are also payable upon a change in control, with credit given for any
period of severance entitlement under a management change in control agreement
with the executive (whether or not the executive's employment has been
terminated) and without regard to whether the executive has five years of
service. In general, benefits under the Umbrella SERP are payable as an
annuity with survivor benefits to the executive's spouse or in any of the
following actuarially equivalent forms: a single life annuity, three annual
installments or a single lump sum. The participating executive may elect the
form of payment subject to certain advance-election requirements specified in
the Umbrella SERP. To date Messrs. Curtin, Junkunc, James, and DiLuigi have
been selected to participate in the Umbrella SERP and receive retirement
benefits at the following percentages of 60%, 55%, 55%, and 50%, respectively,
of their final average pay (as defined), which based on current actuarial
calculation and in accordance with the Plan provisions, would yield annual
lifetime post-retirement benefits at age 65 of approximately $318,048;
$201,360; $153,396; and $105,276, respectively.
15
<PAGE>
The Umbrella SERP was adopted in 1998 in conjunction with 1998 amendments to
the LTDCIP and the SERP and the adoption of an Executive Officer Stock
Ownership Policy. The Policy requires that senior executives of the Company
designated by the Committee, and including all participants in the Umbrella
SERP, own shares of stock of the Company (including shares deemed to be owned
under certain circumstances) having a market value equal, at the date of
calculation of accrued credits under the LTDCIP, to three times (for the CEO)
and two times (for other executives) the amount of their base salary. Until
such levels are achieved, the LTDCIP provides that any amounts annually
credited to such executives under the LTDCIP shall be notionally invested in
shares of stock of the Company as specified in the LTDCIP.
Supplemental Executive Retirement Plan. The Company maintains a non-
qualified Supplemental Executive Retirement Plan ("SERP") designed to permit
certain eligible employees to defer, on an elective basis, up to 50% of
salary, as well as automatic deferral of elective contribution amounts that
could have been saved under the Company's Savings and Retirement Plan but
which were reduced because of applicable tax limitations. In addition the SERP
provides for Company credits designed to make up for Company contributions
that would have been made to the Savings Plan or the ESOP but for such tax
limitations. Participant accounts are maintained on the books of the Company
on an unfunded basis, although the Plan permits the establishment of a grantor
trust or another funding medium to fund the future payment of benefits, and
reflect deferrals and credits including interest earned from market-based
investment alternatives available to Participants. Subject to such limitations
as the Board of Directors may impose, Participants may elect from several
options the manner in which their SERP accounts will be distributed, so long
as the election is made prior to the period for which the deferrals or other
Company credits are made. However, in the event of death or upon a change in
control (as defined) of the Company, a Participant's entire interest under
SERP becomes immediately due and payable in a lump sum. Mr. Curtin and five
other Executive Officers, including three other named Executive Officers,
participate in the SERP, and Company contributions made to their SERP accounts
in 1998 are referenced in the respective footnotes to the Summary Compensation
Table.
Foreign Retirement Plan. Brown & Sharpe Tesa S.A., a Swiss corporation
("Tesa"), one of the Company's principal foreign subsidiaries, maintains a
defined contribution retirement plan required by Swiss law, pursuant to which
benefits accrue on behalf of Mr. Aparicio annually in an amount equal to a
percentage (based on his age and salary) of annual compensation and under
which interest accrues on accrued benefit amounts at a compound annual rate of
4%. Mr. Aparicio has been a participant in this plan since 1972. Upon
retirement he is entitled to receive an annual pension in an amount equal to
7.2% of the total accrued benefits, and the estimated annual pension payable
upon retirement at normal retirement age (age 65) under such plan in an amount
equivalent to $104,473. In addition, Tesa sponsors a separate defined
contribution plan covering Mr. Aparicio and other key employees pursuant to
which Mr. Aparicio is eligible to receive a lump-sum payment upon retirement.
The estimated lump sum payable to Mr. Aparicio upon retirement under this
sponsored plan at normal retirement age is an amount equivalent to $372,682.
(U.S. Dollar amounts converted at the average monthly exchange rate for the
1998 year of $.6905 per Swiss Franc.)
Employment, Severance, and Other Agreements
Employment Agreements. Mr. Frank T. Curtin entered into an Employment
Agreement on May 2, 1995 with the Company providing for a three-year term of
employment in the capacity of President and Chief Executive Officer, which
Agreement was most recently amended in 1999 to extend the term of employment
for one additional year. The Agreement provides for (i) an annual base salary
of $425,272 for 1999 subject to increases at the discretion of the Board of
Directors; and (ii) annual cash incentive bonuses in an amount not to exceed
the maximum amount permitted under the PIP with all or a portion thereof to be
"earned out" and subject to achievement of objectives determined by the
Compensation and Nominating Committee of the Board (See Compensation and
Nominating Committee Report); and (iii) participation in other executive
employee benefits. Pursuant to the Agreement, Mr. Curtin also received an
award of incentive stock options disclosed in the Table on Page 14, and the
Company agreed to annually contribute an amount equal to 10% of his base
salary to a Supplemental Executive Retirement Plan account for his benefit.
The Agreement provides that the Company
16
<PAGE>
may terminate his employment for a reason other than death, disability, or for
cause (as defined in the Agreement) subject, however, to continuation of his
base salary and benefits for the unexpired term remaining under the Agreement,
but in any event not less than twelve months. No salary or benefits are
continued if the employment is terminated by the Company for cause or upon
death or disability. In addition Mr. Curtin has the right under the Agreement
to terminate his employment following a Change of Control of the Company (as
defined in the Agreement) in the event his position or job responsibilities
change or the compensation and benefits reserved to him in the Agreement are
not provided. In such event the Company would be required to continue to pay
him the base salary and benefits in effect at the time of such termination for
the unexpired term of the Employment Agreement.
The Company has an agreement with Charles A. Junkunc, Executive Vice
President, Strategic Development and formerly Vice President and Chief
Financial Officer, who joined the Company on May 4, 1992, to pay a one year
severance amount equal to his annual salary in effect at the time of
termination, plus an amount equal to the average of the annual bonus payments
received by him during the three calendar years prior to termination and to
continue his life and health insurance benefits for the one year severance
period in the event his employment with the Company is terminated for any
reason by the Company (except for cause) or by him. Mr. Junkunc has agreed to
provide consulting services to the Company during the one year severance
period as shall be reasonably agreed. Offsets against the severance payments
will be made by the Company for any income received by Mr. Junkunc from other
full time employment during the severance period.
The Company's Swiss subsidiary, Brown & Sharpe Tesa S.A., has an employment
agreement with Antonio Aparicio entered into in October 1995 which provides
payment of a severance amount to Mr. Aparicio upon termination of employment
equal to the salary paid to him during the twelve-month period prior to the
effective date of termination. The Company has agreements with Philip James,
Group Vice President, Measuring Systems Group, and Edward D. DiLuigi, Vice
President and General Manager, Measuring Systems, U.S. and Wetzlar, Germany,
which provide them with one year's base salary upon termination of their
employment by the Company, subject to a non-compete obligation and mitigation
offsets from income earned from subsequent employment
Change in Control Agreements. The Company also has a change in control
management agreement, dated February 17, 1998, with Mr. Curtin, which provides
for certain payments and benefits to Mr. Curtin upon termination of his
employment by the Company without cause or termination by Mr. Curtin for good
reason (as defined), in the event either such termination occurs after a
change in control in the Company (as defined). In general, Mr. Curtin would be
entitled to a severance payment of an amount equal to twice the sum of his
base salary and bonus at the highest levels during the five-year period then
preceding a change in control or termination, an additional severance payment
equal to the annual levels in effect prior to the change in control (or
termination), of the contributions, credits, and other benefits that Mr.
Curtin was receiving under the Company's various retirement and long-term
incentive plans and the continuation for a two-year period of the Company's
health and life insurance benefits at the levels in effect immediately prior
to the change in control or termination. These payments and benefits will be
reduced to the extent necessary to preserve their deductibility to the Company
for federal income tax purposes and to avoid imposition of any "excess
parachute payment" taxes under the Internal Revenue Code. Termination by Mr.
Curtin for good reason after a change in control includes a reduction by the
Company in Mr. Curtin's base salary or the Company's failure to continue the
compensation, retirement, and benefit plans at the levels at which Mr. Curtin
was participating immediately prior to the change in control, the assignment
of duties inconsistent with his status as a Chief Executive Officer, or other
adverse alteration in the nature or status of his responsibilities.
The Company has "change in control" management agreements providing for the
same level of benefits upon specified terminations of employment upon a change
in control of the Company for the other Executive Officers named in the
Summary Compensation Table.
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ITEM 2.
PROPOSAL TO ADOPT THE BROWN & SHARPE
1999 EQUITY INCENTIVE PLAN
General
The Company has for many years utilized stock options and other stock-based
awards as part of its overall management incentive compensation programs. The
current plan, the 1989 Equity Incentive Plan, as amended, was approved by
stockholders on April 28, 1989, and by its terms expired on February 24, 1999,
after which no further awards may be granted. On the date of expiration of the
1989 Equity Incentive Plan, there were unexercised options outstanding, some
of which are subject to vesting and not yet exercisable, for an aggregate of
1,252,750 shares of Class A Stock, representing 9.2% of the outstanding shares
of Class A and Class B Common Stock.
Need for Incentive Compensation Awards that Are Aligned with the Interests
of the Stockholders. The use of compensation awards that are aligned with the
interests of the stockholders is an important element of the philosophy of the
Compensation and Nominating Committee, which has been adopted by the Board of
Directors.
On February 12, 1999 the Board of Directors, on the recommendation of the
Compensation and Nominating Committee of the Board, adopted the 1999 Equity
Incentive Plan ("the Plan"), subject to approval by stockholders. The Plan
permits the granting of a variety of stock and stock-based awards and related
benefits including stock options, restricted and unrestricted stock, rights to
receive cash or shares on a deferred basis or based on performance, rights to
receive cash or shares with respect to increases in the value of the Common
Stock, cash payments sufficient to offset the Federal, State, and local
ordinary income taxes of participants resulting from transactions under the
Plan, and loans to participants in connection with awards, all as more fully
described below. The eligibility criteria are intended to encompass the
officers and other key employees of the Company and its subsidiaries as well
as certain other key persons, including consultants who are in a position to
make significant contributions to the success of the Company.
In keeping with current developments in this area, the Plan: (i) does not
permit the "repricing" of options, i.e., does not permit the grant of options
at a lower price in exchange for the cancellation of higher priced options;
(ii) does not permit the grant of options or restricted stock at exercise or
purchase prices less than the fair market value of the Common Stock on the
effective date of the grant or sale; and (iii) permits the award of
performance options with accelerated vesting triggered by the achievement of
certain Company stock price levels.
The Board of Directors believes that the proposed Plan will continue to
provide the Company with flexibility in designing and providing incentive
compensation for key employees in order to attract and retain employees who
are in a position to make significant contributions to the success of the
Company and its subsidiaries, to reward employees for such contributions, and
to encourage employees to take into account the long-term interests of the
Company through ownership of the Company's Common Stock. The Plan permits the
award of Class A Stock or Class B Stock, and all references to Common Stock in
the following description will refer to such Class A Stock or Class B Stock.
Subject to adjustment for stock splits and similar events, the total number of
shares of Common Stock that can be issued under the Plan is 1,800,000 shares.
If any award under the Plan which requires exercise by the participant for
delivery of Common Stock terminates without having been exercised in full, or
if any award payable in Common Stock or cash is satisfied in cash rather than
Common Stock, the number of shares of Common Stock as to which such award was
not exercised or for which cash was substituted, shares of restricted stock
that have been forfeited, shares held back in satisfaction of the exercise
price or tax withholding requirement, will be available for future grants. The
number of shares delivered under an award are determined net of any previously
acquired shares that are tendered by the participant in payment of the award.
The proceeds received by the Company from transactions under the Plan will
be used for general corporate purposes. Shares issued under the Plan may be
authorized but unissued shares or shares re-acquired by the Company. No
fractional shares of Common Stock will be delivered under the Plan.
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The Plan provides that no more than options for 350,000 shares may be issued
to any participant under the Plan in any one year period and that the maximum
amount of cash incentives payable to any participant in any calendar year
under the Plan will not exceed $500,000.
On March 4, 1999 the closing price of the Class A Common Stock on the NYSE
was $7.00.
Summary of the Plan
The Plan is set forth in Exhibit A to this Proxy Statement, and the
following description of major features of the Plan is qualified in its
entirety by this reference.
Administration; Eligible Participants; Share Limits. The Plan will be
administered by the Compensation and Nominating Committee of the Board (the
"Committee"), consisting of no fewer than two directors appointed by the Board
of Directors, all of the members of which Committee must be "disinterested
persons", as that term is defined under rules promulgated by the Securities
and Exchange Commission, and "outside directors", as defined in Section 162(m)
of the Internal Revenue Code (the "Code"). All members of the Committee serve
at the pleasure of the Board.
The Plan will become effective on the date it is approved by the
stockholders of the Company, and no awards may be granted under the Plan after
February 11, 2009, the date of expiration of the Plan.
The Committee has full power to select, from among the employees of the
Company and any subsidiary and other key persons eligible for awards, the
individuals to whom awards will be granted, to make any combination of awards
to any participants, to determine the specific terms of each grant, waive
compliance with any term or condition of a grant, and with the consent of the
employee, substitute one grant for another, subject to the provisions of the
Equity Incentive Plan. The Committee has the express power to award
performance options with accelerated vesting triggered by the achievement of
certain Company stock price levels.
The Committee may not, however, reduce the exercise price of any option
after the date of grant (i.e., no option "repricing") or grant options,
restricted stock, or other stock awards with an exercise price of less than
fair market value as of the effective date of the grant.
At March 4, 1999 approximately 200 persons, including one employee director,
ten executive officers, and two other elected officers of the Company, are
currently eligible to participate in awards under the Plan. Key persons who
are not employees may also be granted awards under the Plan.
Stock Options. The Equity Incentive Plan permits the granting of options
that qualify as incentive stock options under the Code ("incentive options" or
"ISOs") and stock options that do not so qualify ("non-statutory options").
The option exercise price of each option shall be determined by the Committee
but shall not be less than 100% of the fair market value of the shares on the
effective date of grant (110% in case of ISOs granted to a ten percent
stockholder).
The term of each option will be fixed by the Committee but may not exceed
ten years from the date of grant (five years in the case of an ISO granted to
a ten percent stockholder). The Committee will determine at what time or times
each option may be exercised. Options may be made exercisable in installments,
and the exercisability of options may be accelerated by the Committee. If
desired the Committee may provide for vesting prior to the date the option
becomes exercisable. The Committee may in its discretion provide that upon
exercise of an option, instead of receiving shares free from restrictions
under the Equity Incentive Plan, the participant will receive shares of
Restricted Stock or Deferred Stock awards. Also, if the market price of the
common stock subject to an option exceeds the exercise price of the option at
the time of exercise, the Committee may in its discretion and upon request by
an employee, cancel the option and pay to the employee an amount in cash equal
to the difference between the fair market value of the common stock which
would have been purchased pursuant to the exercise (determined on the date the
option is cancelled) and the aggregate exercise price which would
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have been paid. The Committee may provide that upon the exercise of an award
through the tender of previously owned shares of Common Stock, the participant
exercising the award will automatically receive a new Award of like kind
covering the number of shares of Common Stock tendered in payment of the
exercise price of the first award.
The exercise price of options granted under the Equity Incentive Plan must
be paid in full in cash or by check or other instrument acceptable to the
Committee or if the terms of the option permit (or for a nonstatutory option,
if the Committee permits at or after the grant of the option), by shares of
Common Stock, which have been held for at least six months (unless the
Committee approves in any instance a shorter period); by a promissory note
payable on terms acceptable to the Committee, by delivery of an unconditional
and irrevocable undertaking by a broker to deliver promptly to the Company
sufficient funds to pay the exercise price; or by any combination of the
foregoing, provided that the par value must be paid in cash, check, or other
instrument acceptable to the Committee.
In the event of termination of employment by reason of death or total or
permanent disability, all options then not exercisable shall accelerate and
vest at such date. If an optionee terminates employment for any reason other
than death or total or permanent disability, all options not then exercisable
shall terminate.
In the event of termination of employment by reason of retirement at or
after age 60 with the consent of the Company, or upon total and permanent
disability, or death, an option will thereafter be exercisable for one year
but not later than the date the option would have terminated if the
participant had remained an employee. If an optionee terminates employment by
reason of such retirement or total and permanent disability and thereafter
dies while the option is still exercisable, the option will be exercisable for
one year from that date but not later than the date on which the award of the
option would have terminated if the participant had remained an employee (or
earlier date established by the Committee). If an optionee terminates
employment for any reason other than such retirement, total and permanent
disability, or death, his or her options, to the extent then exercisable, will
remain exercisable for three months following termination or until the date on
which the award of the option would have terminated if the participant had
remained an employee, whichever is earlier.
If employment was terminated for cause, any options that were so exercisable
shall terminate.
Unless the Committee expressly provides otherwise, a Participant's
"employment or other service relationship with the company and its
Subsidiaries" will be deemed to have ceased, in the case of an employee
Participant, upon the termination of the Participant's employment with the
Company or its Subsidiaries (whether or not the Participant continues in the
service of the Company or its Subsidiaries in some capacity other than that of
an employee of the Company or its Subsidiaries), and in the case of any other
Participant, when the service relationship in respect of which the Award was
granted terminates (whether or not the Participant continues in the service of
the Company or its Subsidiaries in some other capacity).
To qualify as incentive options, options must meet additional Federal tax
requirements, including limits on the value of shares subject to incentive
options granted annually to any participant, a shorter exercise period after
termination in some cases, and higher minimum exercise price in the case of
certain large stockholders.
Stock Appreciation Rights. The Committee may also grant stock appreciation
rights, alone or in conjunction with options, entitling the holder upon
exercise to receive an amount in any combination of cash or shares of
unrestricted Common Stock, Restricted Stock, or Deferred Stock awards (as
determined by the Committee), not greater in value than the increase since the
date of grant in the value of the shares covered by such right. Stock
appreciation rights may be granted separately from or in tandem with the grant
of an option. In the case of stock appreciation rights granted in tandem with
options, each stock appreciation right will be exercisable only at such time
or times, and to the extent that the related option is exercisable and will
terminate upon the termination or exercise of any accompanying option. The
accompanying option will terminate upon the exercise of the related stock
appreciation right. The grant of stock appreciation rights under current
accounting rules is not likely.
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In the event of the termination of an employee holding a stock appreciation
right, the exercisability of such right will be treated in the same manner as
a nonstatutory option, such treatment being more fully described above.
Restricted Stock and Unrestricted Stock. The Committee may also award shares
of Common Stock subject to such conditions and restrictions as the Committee
may determine ("Restricted Stock"). The purchase price of shares of Restricted
Stock may not be less than the fair market value on the effective date of
grant.
Recipients of Restricted Stock must accept an award by written instrument
and tender full payment, if any, in order to have any rights with respect to
the Restricted Stock. The Committee may at any time accelerate the dates on
which the restrictions will lapse or waive the restrictions. Generally, shares
of Restricted Stock are non-transferable, and if a participant who holds
shares of Restricted Stock terminates employment for any reason except
retirement prior to the lapse or waiver of the restrictions, the employee must
resell to the Company the shares of Restricted Stock for the amount paid for
such shares, or forfeit them to the company if no cash was paid. Prior to the
lapse of restrictions on shares of Restricted Stock, the participant will have
all rights of a stockholder with respect to the shares, including voting and
dividend rights, subject only to the conditions and restrictions generally
applicable to Restricted Stock.
The Committee may also grant shares at not less than fair market value of
the Common Stock at the effective date of grant, which are free from any
restrictions ("Unrestricted Stock") in recognition of past services or in
other circumstances where the Committee determines the grant to be in the best
interests of the Company.
Deferred Stock. The Committee may also make deferred stock awards under the
Equity Incentive Plan ("Deferred Stock Awards"). These are awards entitling
the recipient to receive shares of Common Stock on one or more installments at
a future date or dates, and on such conditions as determined by the Committee.
Except as otherwise specified in the grant or agreed to by the Committee, all
such rights will terminate upon the participant's termination of employment.
The Committee may at any time accelerate the time at which delivery of all or
any part of the shares will take place.
Performance Awards. The Committee may also grant awards based on certain
performance criteria ("Performance Awards") entitling the recipient to
receive, without payment, shares of Common Stock or cash in such combinations
as the Committee may determine. Payment of the award may be conditioned on
achievement of individual, departmental, or any other category of performance
goals over a fixed or determinable period and such other conditions as the
Committee shall determine, including the achievement of certain specified
Company stock price levels. Except as otherwise specified in the grant or
agreed to by the Committee, rights under a Performance Award will terminate
upon a participant's termination of employment.
Any conditions in any award may be waived or modified by the Committee at
any time prior to termination of employment.
Loans. The Company may make a loan to a participant ("Loan"), either on the
date of or after the grant of any award to the participant. A Loan may be made
either in connection with the purchase (whether upon exercise of an option or
otherwise) of Common Stock under the award or with the payment of any Federal
income tax with respect to income recognized as a result of the award. The
Committee will have full authority to decide whether to make a Loan and to
determine the amount, terms, and conditions of the Loan, including the
interest rate, if any; whether the Loan is to be secured or unsecured or with
or without recourse against the borrower; the terms on which the Loan is to be
repaid; and the conditions, if any, under which it may be forgiven. However,
no Loan may have a term (including extensions) exceeding ten years in
duration.
Supplemental Grants. In connection with any award, the Committee may at the
time such award is made or at a later date, provide for and grant a cash award
to the participant ("Supplemental Grant") not to exceed an amount equal to (1)
the amount of any Federal, State, and local income tax on ordinary income for
which the participant will be liable with respect to the award, plus (2) an
additional amount on a grossed-up basis necessary
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to make the participant whole after tax, discharging all the participant's
income tax liabilities arising from all payments made in connection with
awards.
Dividends and Deferrals. Except as specifically provided by the Equity
Incentive Plan, the receipt of an award will not give a participant rights as
a stockholder; the participant will obtain such rights subject to any
limitations imposed by the Plan or the instrument evidencing the award, upon
the actual receipt of Common Stock. The Committee may permit the immediate
payment or the deferral or investment of benefits in an amount equal to cash
dividends which would have been paid if shares, subject to an award, had been
outstanding at the time of payment of such dividends. It may also permit
participants to make elections to defer receipt of benefits under the Equity
Incentive Plan.
Adjustments for Stock Dividends, Mergers, etc. The Committee is required to
make appropriate adjustments in connection with outstanding awards and the
maximum number of shares that may be delivered under the Plan to reflect stock
dividends, stock splits, and similar events. The Committee may also make such
adjustments to take into account material changes in law or in accounting
practices or principles, mergers, consolidations, acquisitions, dispositions,
or any similar corporate transactions or any other event if it is determined
by the Committee that adjustments are appropriate to avoid distortion in the
operation of the Plan, provided that no such adjustment shall be made to the
maximum share and cash limits intended to enable Awards to be for the
performance-based exception under 162(m) of the Code.
Nontransferability of Awards. No award (other than an award in the form of
an outright transfer of cash or unrestricted Stock) may be transferred other
than by will or by the laws of descent and distribution, and during an
employee's lifetime, an award requiring exercise may be exercised only by the
participant (or in the event of the participant's incapacity, the person or
persons legally appointed to act on the participant's behalf).
Stock Withholding. In the case of an award under which Common Stock may be
delivered, the Committee may permit the participant or other appropriate
person to elect to have the Company hold back from the shares to be delivered
or to deliver to the Company, shares of Common Stock.
Past Service as Consideration. Where a participant purchases Common Stock
under an award for a price equal to the par value of the Stock, the Committee
may determine that the price has been satisfied by past services rendered by
the participant.
Change in Control Provisions. The Equity Incentive Plan provides that in the
event of a "Change in Control" (as defined) (a) each outstanding option and
appreciation right will immediately become exercisable in full; (b) restricted
stock will immediately become free of all restrictions and conditions; (c)
conditions on other awards which relate solely to the passage of time and
continued employment will be removed, but other conditions will continue to
apply unless otherwise provided in the instrument evidencing the awards or by
agreement between the Company and the participant. The Committee may also
arrange to have the surviving or acquiring corporation assume outstanding
options or other awards or grant to the participant a replacement or
substitute option or other award on such terms as the Committee determines.
Discontinuance, Cancellation, Amendment, and Termination. Neither adoption
of the Plan nor the grant of awards to a participant will affect the Company's
right to grant to such participant awards that are not subject to the Plan, to
issue to such participant Common Stock as a bonus or otherwise, or to adopt
other plans or arrangements under which Common Stock may be issued to
employees.
The Committee may at any time discontinue granting awards under the Plan.
The Board may at any time or times amend the Plan or any outstanding award for
any purpose which may at the time be permitted by law, or may at any time
terminate the Plan as to any further grants of awards, provided that (except
to the extent expressly required or permitted by the Plan) no such amendment
will, without the approval of the shareholders of the Company, effectuate a
change for which stockholder approval is required in order for the Plan to
continue to qualify for the award of ISOs under the Note or have the award of
performance-based compensation under Section 162(m) of the Code, where the
compensation is intended by the Committee to so comply.
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Effective Date of Equity Incentive Plan. As of the date of this Proxy
Statement, the Committee has made no grants under the Plan but reserves the
right to do so at any time, subject to stockholder approval of the Plan.
Tax Aspects Under the U.S. Internal Revenue Code
Incentive Options. No taxable income is realized by the optionee upon the
grant or exercise of an ISO. However, the exercise of an ISO may result in
alternative minimum tax liability for the optionee. If disposition of shares
issued to an optionee, pursuant to the exercise of an ISO, is made by the
optionee within two years from the date of grant or within one year after the
transfer of such shares to the optionee, then upon sale of such shares, any
amount realized in excess of the option price (the amount paid for the share)
will be taxed to the optionee as long-term capital gain, and any loss sustained
will be a long-term capital loss, and no deduction will be allowed to the
Company for Federal income tax purposes.
If shares of Common Stock acquired upon the exercise of an ISO are disposed
of prior to the expiration of the two-year and one-year holding periods
described above (a "disqualifying disposition"), generally the optionee will
realize ordinary income in the year of disposition in an amount equal to the
excess (if any) of the fair market value of the shares at exercise (or, if
less, the amount realized on an arms-length sale of such shares) over the
option price thereof, and the Company will be entitled to deduct such amount.
Any further gain realized will be taxed as short-term or long-term capital gain
and will not result in any deduction by the Company.
If an ISO is exercised at a time when it no longer qualifies for the tax
treatment described above, the option is treated as a non-statutory stock
option. Generally, an ISO will not be eligible for the tax treatment described
above if it is exercised more than three months following termination of
employment (one year following termination by reason of permanent and total
disability), except in certain cases where the ISO is exercised after the death
of the optionee.
Non-statutory Options. With respect to non-statutory stock options under the
Plan, no income is realized by the optionee at the time the option is granted.
Generally, at exercise, ordinary income is realized by the optionee in an
amount equal to the difference between the option price and the fair market
value of the shares on the date of exercise, and the Company receives a tax
deduction for the same amount and at disposition, appreciation, or depreciation
after the date of exercise is treated as either short-term or long-term capital
gain or loss depending on how long the shares have been held.
Appreciation Rights; Discretionary Payments. No income will be realized by an
optionee in connection with the grant of an appreciation right. When the
appreciation right is exercised, or when an optionee receives payment in a
cancellation of an option, the optionee will generally be required to include
as taxable ordinary income in the year of such exercise or payment an amount
equal to the amount of cash received and the fair market value of any stock
received. The Company will generally be entitled to a deduction for Federal
income tax purposes at the same time equal to the amount includable as ordinary
income by such optionee.
Restricted Stock. A recipient of restricted stock generally will be subject
to tax at ordinary income rates on the fair market value of the stock at the
time the stock is either transferable or is no longer subject to forfeiture,
minus any amount paid for such stock. However, a recipient who so elects under
Section 83(b) within 30 days of the date of issuance of the restricted stock
will realize ordinary income on the date of issuance equal to the fair market
value of the shares of restricted stock at the time (measured as if the shares
were unrestricted and could be sold immediately), minus any amount paid for
such stock. If the shares subject to such election are forfeited, the recipient
will not be entitled to any deduction, refund, or loss for tax purposes with
respect to the forfeited shares. Upon sale of the shares after the forfeiture
period has expired, the holding period to determine whether the recipient has
long-term or short-term capital gain or loss begins when the restriction period
expires (or upon earlier issuance of the shares, if the recipient elected
immediate recognition of income under Section 83(b)).
If restricted stock is received in connection with another award under the
Plan (for example, upon exercise of an option), the income and the deduction,
if any, associated with such award may be deferred in accordance with the rules
described above for restricted stock.
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Deferred Stock. The recipient of a deferred stock award will generally be
subject to tax at ordinary income rates on the fair market value of the stock
on the date that the stock is distributed to the participant. The capital gain
or loss holding period for such stock will also commence on such date. The
Company generally will be entitled to a deduction equal to the amount treated
as compensation that is taxable as ordinary income to the employee.
If a right to deferred stock is received under another award (for example,
upon exercise of an option), the income and the deduction, if any, associated
with such award may be deferred in accordance with the rules described above
for deferred stock.
Performance Awards. The recipient of a performance award will generally be
subject to tax at ordinary income rates on any cash received and the fair
market value of any common Stock issued under the award, and the Company will
generally be entitled to a deduction equal to the amount of ordinary income
realized by the recipient. Any cash received under a performance award will be
included in income at time of receipt. The fair market value of any Common
Stock received will also generally be included in income (and a corresponding
deduction will generally be available to the Company) at time of receipt. The
capital gain or loss holding period for any Common Stock distributed under a
performance award will begin when the recipient recognizes ordinary income in
respect of that distribution.
Loans and Supplemental Grants. Generally speaking, bona fide loans made under
the Plan will not result in taxable income to the recipient or in a deduction
to the Company. However, any such loan made at a rate of interest lower than
certain rates specified under the Internal Revenue code may result in an amount
(measured, in general, by reference to the difference between the actual rate
and the specified rate) being included in the borrower's income and deductible
by the Company. Forgiveness of all or a portion of a loan will also result in
income to the borrower and a deduction for the Company. If outright cash grants
are given in order to facilitate the payment of award-related taxes, the grants
will be includable as ordinary income by the recipient at the time of receipt
and will in general be deductible by the Company.
Dividends. Dividends paid on Common Stock (including restricted stock), to
the extent includable in a participant's income under the Plan, will be taxed
at ordinary income rates. Generally, the Company will not be entitled to any
deduction for dividends. However, if dividends are paid with respect to shares
that are not transferable and are subject to a substantial risk of forfeiture,
and if the participant has not elected immediate recognition of income under
Section 83(b) with respect to those shares, the dividends will be treated as
additional compensation deductible by the Company at such time as the dividends
are included in the participant's income.
Payment in Respect of a Change in Control. The Plan provides for acceleration
or payment of awards in the event of a Change in Control as defined in the
Plan. Such acceleration or payment may cause the consideration involved to be
treated in whole or in part as "parachute payments" under the Internal Revenue
Code. Acceleration of benefits under other Company stock and benefit plans and
severance contracts with employees upon a Change in Control could also be
subject to being combined with Plan accelerations for "parachute payment"
purposes. Any such "parachute payments" which are determined to be "excess
parachute payments" will be non-deductible to the Company, and the recipient
will be subject to a 20% excise tax on all or part of such payments.
The foregoing is a summary of the principal current Federal income tax
consequences of transactions under the Plan. It does not describe all Federal
tax consequences under the Plan, nor does it describe State, local, or foreign
tax consequences.
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Vote Required for Approval of the Plan
Approval of the proposal to adopt the 1999 Equity Incentive Plan and
delivery of shares of Common Stock thereunder will require the affirmative
vote of the holders of shares of Class A Stock and Class B Stock, voting
together as a single class, representing a majority of the combined votes cast
on the proposal. The Plan would become effective on February 12, 1999 upon
approval by the stockholders.
Recommendation by the Board
The Board recommends a vote FOR the approval of the 1999 Equity Incentive
Plan. The Board views the adoption of the Plan as critical to the Company and
its achievement of objectives. See discussion under "General" above.
Proxies solicited by management will be voted in accordance with the
specifications made on the form of proxy. Where no specification is made,
proxies will be voted FOR the approval of the Plan.
ITEM 3.
RATIFICATION OF APPOINTMENT
OF
INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed Ernst & Young LLP, who has acted as the
Company's independent accountants since January 1, 1995, as the Company's
independent accountants for fiscal year 1999, subject to approval by the
stockholders. In the event the stockholders do not ratify the selection of
Ernst & Young LLP, the Board of Directors will consider the selection of
another accounting firm to serve as the Company's independent accountants.
Neither Ernst & Young nor any of its partners have any direct or indirect
financial interest in or any connection (other than as independent auditor)
with the Company or any subsidiary. Representatives of Ernst & Young LLP will
be present at the Annual Meeting with the opportunity to make a statement if
they desire to do so and to respond to appropriate questions from
stockholders.
The Board of Directors unanimously recommends a vote FOR the proposal to
appoint Ernst & Young LLP as the Company's independent accountants for the
1999 fiscal year.
25
<PAGE>
GENERAL INFORMATION
Voting of Proxies
Each valid proxy in the enclosed form that is received by the Company will
be voted by the persons named therein. All shares represented by the proxy
will be voted FOR the election of the Board's nominees named herein as
Directors unless the stockholder specifies otherwise or authority to vote for
the proposed slate of Directors or any individual Director has been withheld.
If for any reason any of such nominees should not be available as a candidate
for Director, the proxies will be voted for such other candidate or candidates
as may be nominated by the Board of Directors. With respect to the proposals
to approve the adoption by the Company of the 1999 Equity Incentive Plan and
ratify the appointment of Ernst & Young LLP as the Company's independent
accountants, all shares represented by a proxy will be voted FOR such
proposals, unless the proxy specifies that it should be voted against a
proposal or not voted at all. Management knows of no other business to come
before the meeting. If any other matter should come before the meeting, then
the persons named in the enclosed form of proxy will have discretionary
authority to vote all proxies with respect thereto in accordance with their
judgment.
Consistent with Delaware law and as provided under the Company's By-Laws,
the holders of shares entitled to cast a majority of the votes entitled to be
cast on a particular matter, present in person or represented by proxy,
constitutes a quorum as to such matter. Votes cast by proxy or in person at
the Annual Meeting will be tabulated by persons appointed by the Board of
Directors to act as Judges of Election for the meeting as provided by the
Company's By-Laws.
The three nominees for election as Directors at the Annual Meeting who
receive the greatest number of votes properly cast for the election of
Directors shall be elected Directors. A majority of the votes properly cast on
the matter is necessary to approve the action proposed in Item 2 and Item 3,
as well as any other matter which comes before the Annual Meeting, except
where applicable law or the Company's Certificate of Incorporation or By-Laws
require otherwise.
The Judges of Election will count the total number of votes cast FOR
approval of proposals, other than the election of Directors, for purposes of
determining whether sufficient affirmative votes have been cast. The Judges of
Election will count shares represented by proxies that withhold authority to
vote for a nominee for election as a Director or that reflect abstentions and
"broker non-votes" (i.e., shares represented at the Annual Meeting held by
brokers or nominees as to which (i) instructions have not been received from
the beneficial owners or persons entitled to vote and (ii) the broker or
nominee does not have the discretionary voting power on a particular matter)
only as shares that are present and entitled to vote on the matter for
purposes of determining the presence of a quorum, but neither abstentions nor
broker non-votes will have any effect on the outcome of voting on the matter.
Registered shareholders can vote their shares via (i) a toll-free telephone
call from the U.S. and Canada; (ii) the internet; or (iii) by mailing their
signed Proxy Card. The telephone and internet voting procedures are designed
to authenticate shareholders' identities, to allow shareholders to vote their
shares and to confirm that their instructions have been properly recorded.
Specific instructions to be followed by any registered shareholder interested
in voting via telephone or the internet are set forth on the enclosed Proxy
Card. Stockholders who hold their shares in street name will need to contact
their broker or other nominee to determine whether they will be able to vote
by telephone or electronically.
For SARP and ESOP Participants
For participants in the Brown & Sharpe Savings and Retirement Plan and the
Brown & Sharpe Savings and Retirement Plan for Management Employees (together
the "SARP"), the accompanying proxy card indicates the number of shares of
Class A Stock and Class B Stock held in your participant's account under the
symbols SPA and SPB, respectively. When a participant proxy card is returned
properly signed, Putnam Fiduciary Trust Company ("Putnam Trust"), the Trustee
of the shares of Class A and Class B Stock held in the SARP, will
26
<PAGE>
vote the participant's shares held in the SARP in the manner directed by the
participant, or if the participant makes no directions, Putnam Trust will vote
the participant's shares on those matters presented to the stockholders in
proportion to instructions received from all participants voting.
For participants in the Brown & Sharpe Employee Stock Ownership and Profit
Participation Plan (the "ESOP") the accompanying proxy card indicates the
number of shares of Class A Stock and Class B Stock held in the ESOP and
allocated to the participant's account under the symbols ESA and ESB,
respectively. When an ESOP participant's proxy card is returned properly
signed, Putnam Trust, the ESOP record keeper will tabulate and report the
aggregate voting instructions received to the ESOP Trustees, Messrs. Frank T.
Curtin, Andrew C. Genor, and Edward D. DiLuigi, (the "ESOP Trustees") who will
then vote the aggregate ESOP shares voted in the manner directed by ESOP
participants on the matters presented to the stockholders. The ESOP Trustees
will vote ESOP shares for which no instructions are received from ESOP
participants on the matters presented in proportion to instructions received
from ESOP participants voting. All individual voting instructions of
participants in the SARP and ESOP will be held in confidence.
Solicitation of Proxies
The entire expense of solicitation of proxies will be borne by the Company.
The Company has engaged the services of Corporate Investor Communications,
Inc., 111 Commerce Road, Carlstadt, New Jersey 07072 to assist in the
solicitation of proxies for a fee not to exceed $5,500 plus reasonable out-of-
pocket expenses. In addition to the solicitation of proxies by mail,
Directors, officers, and employees of the Company may solicit in person, by
telephone, facsimile, or telegram. The Company will reimburse persons holding
stock for others in their names or in nominee names for their reasonable
expenses in sending soliciting material to the beneficial owners of common
stock.
Stockholder Proposals for the Year 2000 Annual Meeting
All stockholder proposals intended to be submitted at the Company's 2000
Annual Meeting must be received by the Secretary of the Company on or before
November 19, 1999 in order to be considered for inclusion in the Company's
proxy materials for the year 2000 annual meeting.
In the absence of a by-law requiring advance notice for additional
nominations or proposals by stockholders for presentation at the year 2000
annual meeting, the persons named as proxies in the year 2000 form of proxy
will be entitled to vote in their discretion on all such matters that are not
received by the Company by March 14, 2000.
Important Notice
No matter how small your holdings, if you do not plan to attend the meeting
in person, you are respectfully requested to complete, sign, date, and return
the accompanying Proxy in the enclosed, post-paid envelope at your earliest
convenience.
By Order of the Board of Directors,
/s/ James W. Hayes, III
-------------------------------
James W. Hayes, III
Secretary
North Kingstown, Rhode Island 02852
March 26, 1999
27
<PAGE>
SKU # 0660-PS-99
<PAGE>
- -------------------------------------------------------------------------------
DETACH HERE
PROXY
BROWN & SHARPE MANUFACTURING COMPANY
PROXY FOR CLASS A COMMON STOCK AND CLASS B COMMON STOCK
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
APRIL 30, 1999
The undersigned appoints each of Frank T. Curtin, Howard K. Fuguet and
Henry D. Sharpe, III, proxies with power of substitution to vote for the
undersigned at the Annual Meeting of Stockholders called for Friday, April 30,
1999, at 10:00 A.M., at Precision Park, 200 Frenchtown Road, North Kingstown,
Rhode Island, and at any adjournments, all shares of stock which the undersigned
would be entitled to vote if present in accordance with their judgment upon any
matters that may properly come before said meeting and to vote as specified on
the reverse.
A majority of the proxies present and acting at the meeting in person or by
substitute (of if only one shall be so present, then that one) shall have and
may exercise all of the power and authority of said proxies hereunder. The
undersigned hereby revokes any proxy previously given and acknowledges receipt
of the Notice of Annual Meeting and Proxy Statement pertaining to the aforesaid
meeting and a copy of the Company's Annual Report for the year ended
December 31, 1998.
Your Shares of Class A Stock and Class B Stock, including those if a
Participant in the SARP and ESOP, on the reverse side are designated "CLA",
"CLB", "SPA", "SPB", and "ESA", "ESB" respectively.
To approve the Board of Directors' recommendations, simply sign and date
the back. You need not mark any boxes.
___________ ___________
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
___________ ___________
<PAGE>
- ----------------- -----------------
Vote by Telephone Vote by Internet
- ----------------- -----------------
It's fast, convenient, and immediate! It's fast, convenient, and
Call Toll-Free on a Touch-Tone Phone your vote is immediately confirmed
1-877-PRX-VOTE (1-877-779-8683) and posted.
- ------------------------------------ ------------------------------------
Follow these four easy steps: Follow these four easy steps:
1. Read the accompanying Proxy 1. Read the accompanying Proxy
Statement/Prospectus and Statement/Prospectus and
Proxy Card. Proxy Card.
2. Call the toll-free number 2. Go to the Website
1-877-PRX-VOTE (1-877-779-8683) http://www.eproxyvote.com/bns
3. Enter your 14-digit Control Number 3. Enter your 14-digit Control Number
located on your Proxy Card above located on your Proxy Card above
your name. your name.
4. Follow the recorded instructions. 4. Follow the instructions provided.
- ------------------------------------ ------------------------------------
Your vote is important! Your vote is important!
Call 1-877-PRX-VOTE (1-877-779-8683) Go to http://www.eproxyvote.com/bns
anytime! anytime!
Do not return your Proxy Card if you are voting by Telephone or Internet
- --------------------------------------------------------------------------------
DETACH HERE
[X] Please mark
votes as in
this example.
1. Election of Directors: To fix the number of Directors at nine and to
elect three Directors as set forth in the Proxy Statement. Class A Stock
may be voted for Messrs. Levien, Nelson and Boss and Class B Stock may be
voted only for Messrs. Nelson and Boss as indicated below. Holders of
Class A Stock and Class B Stock who wish to provide instructions should
vote such class of stock in the space indicated below.
Class A Stock Class B Stock
(01) Levien, (02) Nelson and (03) Boss (04) Nelson and (05) Boss
FOR WITHHELD FOR WITHHELD
ALL FROM ALL ALL FROM ALL
NOMINEES [_] NOMINEES [_] NOMINEES [_] NOMINEES [_]
For, except vote withheld from the For, except vote withheld from the
nominee(s) below: nominee(s) below:
[_] [_]
------------------------------- -------------------------------
FOR AGAINST ABSTAIN
2. To approve the 1999
Equity Incentive Plan. [_] [_] [_]
3. To ratify the appointment
of Ernst & Young LLP as
the Company's independent [_] [_] [_]
accountants for the
fiscal year ending
December 31, 1999.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [_]
This proxy when properly executed will be voted in
the manner directed herein. If no direction is made,
this proxy will be voted FOR the election of the
nominees indicated and FOR proposals 2 and 3.
Note: When signing as Executor, Administrator,
Trustee, Guardian, etc. add full title. (Sign
exactly as name appears on this card.)
Signature: Date:
------------------------------- -------------
Signature: Date:
------------------------------- -------------
<PAGE>
EXHIBIT A
BROWN & SHARPE MANUFACTURING COMPANY
1999 EQUITY INCENTIVE PLAN
1. PURPOSE
The purpose of this Equity Incentive Plan (the "Plan") is to advance the
interests of Brown & Sharpe Manufacturing Company (the "Company") and its
subsidiaries by enhancing their ability to attract and retain employees and
other individuals or entities who are in a position to make significant
contributions to the success of the Company and its subsidiaries through
awards based on the Company's common stock, either Class A Common Stock, $1
par value or Class B Common Stock, $1 par value ("Stock"), and cash
incentives.
The Plan is intended to accomplish these goals by enabling the Company to
grant awards ("Awards") in the form of Options, Stock Appreciation Rights,
Restricted Stock or Unrestricted Stock Awards, Deferred Stock Awards,
Performance Awards, Other Stock-Based Awards, or loans or supplemental grants,
or combinations thereof, all as more fully described below.
2. ADMINISTRATION
Unless otherwise determined by the Board of Directors of the Company (the
"Board"), the Plan will be administered by a committee of the Board designated
for such purpose (the "Committee"). The Committee shall consist of at least
two directors. A majority of the members of the Committee shall constitute a
quorum, and all determinations of the Committee shall be made by a majority of
its members. Any determination of the Committee under the Plan may be made
without notice or meeting of the Committee by a writing signed by a majority
of the Committee members. During such times as any Stock is registered under
the Securities Exchange Act of 1934 (the "1934 Act"), at least two members of
the Committee shall be "non-employee directors" within the meaning of Rule
16b-3 promulgated under the 1934 Act and "outside directors" within the
meaning of Section 162(m)(4)(C)(i) of the Internal Revenue Code of 1986, as
amended (the "Code") (the "Outside Directors"). If any member of the Committee
is not an Outside Director, or a non-employee director, a sub-committee (the
"Sub-Committee") consisting solely of the non-employee directors and Outside
Directors shall administer the Plan in connection with Awards to "officers" of
the Company within the meaning of Section 16(b) of the 1934 Act or with
respect to any Award intended to be exempt under Section 162(m)(3) of the
Code. Any references to the Committee in this Plan shall also mean the Sub-
Committee.
The Committee will have authority, not inconsistent with the express
provisions of the Plan and in addition to other authority granted under the
Plan, to (a) grant Awards at such time or times as it may choose; (b)
determine the size of each Award, including the number of shares of Stock
subject to the Award; (c) determine the type or types of each Award; (d)
determine the terms and conditions of each Award, including provisions for
accelerated vesting upon the achievement of Company stock price levels; (e)
waive compliance by a holder of an Award with any obligations to be performed
by such holder under the Award and waive any terms or conditions of an Award;
(f) subject to the provisions of Section 6.1(b), amend or cancel an existing
Award in whole or in part (and if an award is canceled, grant another Award in
its place on such terms and conditions as the Committee shall specify), except
that the Committee may not, without the consent of the holder of an Award,
take any action under this clause with respect to such Award if such action
would adversely affect the rights of such holder; (g) prescribe the form or
forms of any instruments to be used under the Plan, including any written
notices and elections required of Participants (as defined below), and change
such forms from time to time; (h) adopt, amend and rescind rules and
regulations for the administration of the Plan; and (i) interpret the Plan and
decide any questions and settle all controversies and disputes that may arise
in connection with the Plan. Such determinations and actions of the Committee,
and all other determinations and actions of the Committee made or taken under
authority granted by any provision of the Plan, will be conclusive and will
bind all parties. Nothing in this paragraph shall be construed as limiting the
power of the Committee to make adjustments under Section 7.3 or
A-1
<PAGE>
Section 8.6. In the case of any Award intended to be eligible for the
performance-based compensation exception under Section 162(m), the Committee
shall exercise its discretion consistent with qualifying the Award for such
exception.
3. EFFECTIVE DATE AND TERM OF PLAN
The Plan will become effective on the date on which it is approved by the
stockholders of the Company. Awards may be made prior to such stockholder
approval if made subject thereto. No Award may be granted under the Plan after
February 11, 2009 (the 10th anniversary of day before Board approval), but
Awards previously granted may extend beyond that date.
4. SHARES SUBJECT TO THE PLAN
(a) Number of Shares. Subject to adjustment as provided in Section 8.6, the
aggregate number of shares of Stock that may be delivered under the Plan will
be 1,800,000. If any Award requiring exercise by the Participant for delivery
of Stock terminates without having been exercised in full, or if any Award
payable in Stock or cash is satisfied in cash rather than Stock, the number of
shares of Stock as to which such Award was not exercised or for which cash was
substituted will be available for future grants. Shares of Restricted Stock
that have been forfeited in accordance with the terms of the applicable Award
and shares held back, in satisfaction of the exercise price or tax withholding
requirements, from shares that would otherwise have been delivered pursuant to
an Award shall also be available for future grants. The number of shares of
Stock delivered under an Award shall be determined net of any previously
acquired Shares tendered by the Participant in payment of the exercise price
or of withholding taxes.
(b) Special Limitations Applicable to Certain Awards. Subject to adjustment
as provided in Section 8.6(a) to the extent such adjustment is consistent with
the continued satisfaction with respect to Awards of the requirements of
Section 162(m)(4)(C) of the Code, the maximum number of shares of Stock for
which Options and Stock Appreciation Rights may be awarded under the Plan to
any participant during any one year period is in the case of each such form of
Award 350,000 shares. For maximum limits relating to Performance Awards, see
Section 6.5 below.
(c) Shares to be Delivered. Stock delivered under the Plan may be either
authorized but unissued Stock or previously issued Stock acquired and held by
the Company. No fractional shares of Stock will be delivered under the Plan.
5. ELIGIBILITY AND PARTICIPATION
Each key employee of the Company or any of its subsidiaries (an "Employee")
and each other individual or entity (other than employees of the Company or
any of its subsidiaries, but including without limitation directors of the
Company or a subsidiary of the Company) who, in the opinion of the Committee,
is in a position to make a significant contribution to the success of the
Company or its subsidiaries will be eligible to receive Awards under the Plan
(each such Employee, other individual or entity receiving an Award, "a
Participant"). Participants shall also include individuals who have accepted
an offer of employment from the Company and who the Company reasonably
believes will be key employees upon commencing employment with the Company (a
"New Hire"). For purposes of the Plan, a "subsidiary" is any corporation
(other than the employer corporation) in an unbroken chain of corporations
beginning with the employer corporation if, at the time of the granting of the
option, each of the corporations other than the last corporation in the
unbroken chain owns stock possessing 50 percent or more of the total combined
voting power of all classes of stock in or of the other corporation in such
chain. Eligibility for ISOs is further limited to those individuals whose
employment status would qualify them for the tax treatment described in
Sections 421 and 422 of the Code.
A-2
<PAGE>
6. TYPES OF AWARDS
6.1 Options.
(a) Nature of Options. An option ("Option") is an Award giving the recipient
the right on exercise thereof to purchase Stock.
Both "incentive stock options," as defined in Section 422(b) of the Code
(any Option intended to qualify as an incentive stock option being hereinafter
referred to as an "ISO"), and Options that are not ISOs, may be granted under
the Plan. ISOs shall be awarded only to Employees. An Option awarded under the
Plan shall be a non-ISO unless it is expressly designated as an ISO at time of
grant. Once an ISO has been granted, no action by the Committee that would
cause the Option to lose its status under the Code as an incentive stock
option will be effective without consent of the Option holder.
(b) Exercise Price. The exercise price of an Option will be determined by
the Committee subject to the following:
(1) The exercise price of an Option shall not be less than 100% of the
fair market value of the Stock subject to the Option, determined as of the
effective date of the Option.
(2) In no case may the exercise price paid for Stock which is part of an
original issue of authorized Stock be less than the par value per share of
the Stock.
(3) The Committee may not reduce the exercise price of an Option at any
time after the time of grant, with or without the consent of the Option
holder, thereby prohibiting the cancellation of higher prices and the
reissue of lower priced Options ("Repriced Options")
(c) Duration of Options. The latest date on which an Option may be exercised
will be the tenth anniversary of the day immediately preceding the date the
Option was granted, or such earlier date as may have been specified by the
Committee at the time the Option was granted.
(d) Exercise of Options. An Option will become exercisable at such time or
times, and on such conditions as the Committee may specify, including
provisions for acceleration of vesting upon the achievement of certain Company
stock price levels. The Committee may at any time and from time to time
accelerate the time at which all or any part of the Option may be exercised.
Except as otherwise determined by the Committee, any period during which a
Participant who is an Employee is on an unpaid leave of absence (or other
unpaid absence) from the Company shall toll the period of time over which an
option becomes exercisable. Any exercise of an Option must be in writing,
signed by the proper person and delivered or mailed to the Company,
accompanied by (1) any documents required by the Committee and (2) payment in
full in accordance with paragraph (e) below for the number of shares for which
the Option is exercised. If desired the Committee may provide for vesting
prior to the date the Option becomes exercisable.
(e) Payment for Stock. Stock purchased on exercise of an Option must be paid
for as follows: (1) in cash or by check (acceptable to the Company in
accordance with guidelines established for this purpose), bank draft or money
order payable to the order of the Company or (2) if so permitted by the
instrument evidencing his Option (or in the case of an Option which is not an
ISO, by the Committee at or after the grant of the Option), (i) through the
delivery of shares of Stock which have been held for at least six months
(unless the Committee approves a shorter period) and which have a fair market
value on the last business day preceding the date of exercise equal to the
exercise price, (ii) by delivery of a promissory note of the Participant to
the Company containing such terms as are specified by the Committee (provided
that if the Stock delivered upon exercise of the Option is an original issue
of authorized but unissued Stock, at least so much of the exercise price as
represents the par value of the Stock shall be paid in cash), (iii) by
delivery of an unconditional and irrevocable undertaking by a broker to
deliver promptly to the Company sufficient funds to pay the exercise price, or
(iv) by any combination of the foregoing permissible forms of payment.
(f) Discretionary Payments. If (i) the market price of shares of Stock
subject to an Option (other than an Option which is in tandem with a Stock
Appreciation Right as described in Section 6.2) exceeds the exercise
A-3
<PAGE>
price of the Option at the time of its exercise, and (ii) the person
exercising the Option so requests in writing, the Committee may in its sole
discretion cancel the Option and cause the Company to pay in cash or in shares
of Common Stock (valued at fair market value) to the person exercising the
Option an amount equal to the difference between the fair market value of the
Stock which would have been purchased pursuant to the exercise (determined on
the date the Option is canceled) and the aggregate exercise price which would
have been paid.
(g) Reload Awards. The Committee may provide that upon the exercise of an
Award through the tender of previously owned shares of Stock, the Participant
or other person exercising the award will automatically receive a new Award of
like kind covering a number of shares of Stock tendered in payment of the
exercise price of the first Award.
6.2 Stock Appreciation Rights.
(a) Nature of Stock Appreciation Rights. A Stock Appreciation Right ("Stock
Appreciation Right" or "SAR") is an Award entitling the holder on exercise to
receive an amount in cash or Stock or a combination thereof (such form to be
determined by the Committee) determined in whole or in part by reference to
appreciation, from and after the date of grant, in the fair market value of a
share of Stock. SARs may be based solely on appreciation in the fair market
value of Stock or on a comparison of such appreciation with some other measure
of market growth such as (but not limited) to appreciation in a recognized
market index. The date as of which such appreciation or other measure is
determined shall be the exercise date unless another date is specified by the
Committee.
(b) Grant of Stock Appreciation Rights. Stock Appreciation Rights may be
granted in tandem with, or independently of, Options granted under the Plan.
(1) Rules Applicable to Tandem Awards. When Stock Appreciation Rights are
granted in tandem with Options, (A) the Stock Appreciation Right will be
exercisable only at such time or times, and to the extent, that the related
Option is exercisable and will be exercisable in accordance with the
procedure required for exercise of the related Option and may be exercised
only when the market price of the Stock, subject to the Option, exceeds the
exercise price; (B) the Stock Appreciation Right will terminate and no
longer be exercisable upon the termination or exercise of the related
Option, except that a Stock Appreciation Right granted with respect to
fewer than the full number of shares covered by an Option will not be
reduced until the number of shares as to which the related Option has been
exercised or has terminated exceeds the number of shares not covered by the
Stock Appreciation Right; (C) the Option will terminate and no longer be
exercisable upon the exercise of the related Stock Appreciation Right; and
(D) the Stock Appreciation Right will be transferable only with the related
Option.
(2) Exercise of Independent Stock Appreciation Rights. A Stock
Appreciation Right not granted in tandem with an Option will become
exercisable at such time or times, and on such conditions, as the Committee
may specify. Except as otherwise determined by the Committee, any period
during which a Participant who is an Employee is on an unpaid leave of
absence (or other unpaid absence) from the Company shall toll the period of
time over which a Stock Appreciation Right becomes exercisable. The
Committee may at any time accelerate the time at which all or any part of
the Right may be exercised.
Any exercise of an independent Stock Appreciation Right must be in
writing, signed by the proper person and delivered or mailed to the
Company, accompanied by any other documents required by the Committee.
6.3 Restricted and Unrestricted Stock.
(a) Grant of Restricted Stock. Subject to the terms and provisions of the
Plan, the Committee may grant or sell shares of Stock in such amounts and upon
such terms and conditions as the Committee shall determine subject to the
restrictions described below ("Restricted Stock").
A-4
<PAGE>
(b) Restricted Stock Agreement. The Committee may require, as a condition to
an Award, that a recipient of a Restricted Stock Award enter into a Restricted
Stock Award Agreement, setting forth the terms and conditions of the Award and
making payment of the purchase price. In lieu of a Restricted Stock Award
Agreement, the Committee may provide the terms and conditions of an Award in a
notice to the Participant of the Award, in the resolution approving the Award,
or in such other manner as it deems appropriate. The stock certificate
representing the Restricted Stock shall be appropriately legended to reflect
the applicable restrictions.
(c) Transferability and Other Restrictions. Except as otherwise provided in
this Section 6.3, the shares of Restricted Stock granted herein may not be
sold, transferred, pledged, assigned, or otherwise alienated or hypothecated
until the end of the applicable period or periods established by the Committee
and the satisfaction of any other conditions or restrictions established by
the Committee (such period during which a share of Restricted Stock is subject
to such restrictions and conditions is referred to as the "Restricted
Period"). Except as the Committee may otherwise determine under Section 7.1 or
Section 7.2, if a Participant dies or suffers a Status Change (as defined at
Section 7.2(a)) for any reason during the Restricted Period, the Company may
purchase the shares of Restricted Stock subject to such restrictions and
conditions for the amount of cash paid by the Participant for such shares;
provided, that if no cash was paid by the Participant such shares of
Restricted Stock shall be automatically forfeited to the Company.
During the Restricted Period with respect to any shares of Restricted Stock,
the Company shall have the right to retain in the Company's possession the
certificate or certificates representing such shares.
(d) Removal of Restrictions. Except as otherwise provided in this Section
6.3, a share of Restricted Stock covered by a Restricted Stock grant shall
become free from restrictions under the Plan upon completion of the Restricted
Period, including the passage of any applicable period of time and
satisfaction of any conditions to vesting. Except as otherwise determined by
the Committee, any period during which a Participant who is an Employee is on
leave of absence (or other unpaid absence) from the Company shall, to the
extent the Restricted Period relates to the passage of time, toll such time
period. The Committee shall have the right at any time, in its sole
discretion, immediately to waive or accelerate all or any part of the
restrictions and conditions with regard to all or any part of the shares held
by any Participant.
(e) Notice of Election. Any Participant making an election under Section
83(b) of the Code with respect to Restricted Stock must give a copy of the
election to the Company within ten days after filing with the Internal Revenue
Service.
(f) Voting Rights, Dividends and Other Distributions. During the Restricted
Period, Participants holding shares of Restricted Stock granted hereunder may
exercise full voting rights and shall receive all regular cash dividends paid
with respect to such shares. Except as the Committee shall otherwise
determine, any other cash dividends and other distributions paid to
Participants with respect to shares of Restricted Stock, including any
dividends and distributions paid in shares, shall be subject to the same
restrictions and conditions as the shares of Restricted Stock with respect to
which they were paid.
(g) Other Awards Settled with Restricted Stock. The Committee may, at the
time any Award described in this Section 6 is granted, provide that any or all
of the Stock delivered pursuant to the Award will be Restricted Stock.
(h) Unrestricted Stock. Subject to the terms and provisions of the Plan, the
Committee may grant shares of Stock free of restrictions under the Plan in
such amounts and upon such terms and conditions as the Committee shall
determine.
6.4 Deferred Stock.
A Deferred Stock Award ("Deferred Stock Award") is an unfunded and unsecured
promise by the Company to deliver shares of Stock in the future ("Deferred
Stock"). Delivery of the Stock will take place at
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such time or times, and on such conditions, as the Committee may specify. The
Committee may at any time accelerate the time at which delivery of all or any
part of the Stock will take place. At the time any Award described in this
Section 6 is granted, the Committee may provide that any or all of the Stock
delivered pursuant to the Award will be Deferred Stock.
6.5 Performance Awards.
The Committee may, at the time an Award described in Sections 6.1, 6.2, 6.3,
6.4 or 6.7 is granted, impose the additional condition that performance goals
must be met prior to the Participant's realization of any vesting, payment or
benefit under the Award. In addition, the Committee may make awards entitling
the Participant to receive an amount in cash upon attainment of specified
performance goals (a "Cash Incentive"). Any Award or Cash Incentive made
subject to performance goals as described in the preceding two sentences shall
be a "Performance Award" subject to the provisions of this Section 6.5 in
addition to any other applicable provisions of the Plan or the Award.
Performance Awards may consist of Cash Incentives or Awards that are intended
to qualify for the performance-based compensation exception under Section
162(m) of the Code, other than Options or Stock Appreciation Rights intended
to qualify for such exception by reason of the special rules under Section
162(m) of the Code applicable to stock options and stock appreciation rights
granted at an exercise price not less than fair market value on the date of
grant ("Qualified Performance Awards") or Cash Incentives or Awards that
either are not intended so to qualify or are Options or Stock Appreciation
Rights intended to qualify for such exception by reason of the special rules
under Section 162(m) of the Code applicable to stock options and stock
appreciation rights granted at an exercise price not less than fair market
value on the date of grant ("Other Performance Awards"). The Committee will
determine the performance measures, the period or periods during which
performance is to be measured, and all other terms and conditions applicable
to the Performance Award. The performance measures to which a Performance
Award is subject may be related to personal performance, corporate
performance, departmental performance, or any other category of performance
established by the Committee, including the achievement of specified Company
stock price levels. In the case of a Qualified Performance Award, payment
under the Award or of the Cash Incentive must be conditioned on the
satisfaction of one or more "qualified performance measures" preestablished by
the Committee in accordance with the rules under Section 162(m) of the Code
and on certification (within the meaning of the rules under Section 162(m) of
the Code) by the Committee that such measure or measures have been met or
exceeded. For purposes of the preceding sentence, a qualified performance
measure is an objectively determinable measure of performance based on any one
or more of the following (on a consolidated, divisional, subsidiary, line of
business or geographical basis or in combinations thereof): (i) sales;
revenues; assets; expenses; earnings before or after deduction for all or any
portion of interest, taxes, depreciation or amortization, whether or not on a
continuing operations or an aggregate or per share basis; return on equity,
investment, capital or assets; inventory level or turns; one or more operating
ratios; borrowing levels, leverage ratios or credit rating; market share;
capital expenditures; cash flow; stock price; stockholder return; or any
combination of the foregoing; or (ii) acquisitions and divestitures (in whole
or in part); joint ventures and strategic alliances; spin-offs, split-ups and
the like; reorganizations; recapitalizations, restructurings, financings
(issuance of debt or equity) and refinancings; transactions that would
constitute a change of control; or any combination of the foregoing. A
qualified performance measure and targets with respect thereto determined by
the Committee need not be based upon an increase, a positive or improved
result or avoidance of loss. The maximum number of shares of Stock subject to
Performance Awards (other than Cash Incentives) awarded to any Participant in
any one year period shall be 350,000 shares. The maximum amount payable under
Cash Incentives to any Participant for any year shall be $500,000.
6.6 Loans and Supplemental Grants.
(a) Loans. The Company may make a loan to a Participant, either at the time
of or after the grant to him or her of any Award. Such a loan may be made in
connection with either the purchase of Stock under the Award or the payment of
any federal, state, and local income tax in respect of income recognized as a
result of the Award. The Committee will have full authority to decide whether
to make such a loan and to determine the amount, terms and conditions of the
loan, including the interest rate (which may be zero), whether the loan is to
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be secured or unsecured or with or without recourse against the borrower, the
terms on which the loan is to be repaid and the conditions, if any, under
which it may be forgiven. However, no loan may have a term (including
extensions) exceeding ten years in duration.
(b) Cash Grants. In connection with any Award, the Committee may at the time
such Award is made or at a later date provide for and make a cash payment to
the Participant not to exceed an amount equal to (a) the amount of any
federal, state and local income tax on ordinary income for which the
Participant will be liable with respect to the Award, plus (b) an additional
amount on a grossed-up basis necessary to make him or her whole after tax,
discharging all the Participant's income tax liabilities arising from all
payments under this Section 6, all based on such reasonable estimates of
applicable tax rates as the Committee may determine.
6.7 Other Stock-Based Awards.
(a) Nature of Awards. The Committee may grant other Awards under which Stock
is or may in the future be acquired ("Other Stock-Based Awards"). Such awards
may include, without limitation, debt securities convertible into or
exchangeable for shares of Stock upon such conditions, including attainment of
performance goals, as the Committee shall determine. Such convertible or
exchangeable securities may have such terms and conditions as the Committee
may determine at the time of grant. However, no convertible or exchangeable
debt shall be issued unless the Committee shall have provided (by Company
right of repurchase, right to require conversion or exchange, or other means
deemed appropriate by the Committee) a means of avoiding any right of the
holders of such debt to prevent a Company transaction by reason of covenants
in such debt.
(b) Purchase Price; Form of Payment. The Committee may determine the
consideration, if any, payable upon the issuance or exercise of an Other
Stock-Based Award. The Committee may permit payment by certified check or bank
check or other instrument acceptable to the Committee or by surrender of other
shares of Stock (excluding shares then subject to restrictions under the
Plan).
(c) Forfeiture of Awards; Repurchase of Stock; Acceleration or Waiver of
Restrictions. The Committee may determine the conditions under which an Other
Stock-Based Award shall be forfeited or, in the case of an Award involving a
payment by the recipient, the conditions under which the Company may or must
repurchase such Award or related Stock. At any time the Committee may in its
sole discretion accelerate, waive, or, amend any or all of the limitations or
conditions imposed under any Other Stock-Based Award.
7. EVENTS AFFECTING OUTSTANDING AWARDS
7.1 Death or Disability.
Except as the Committee may otherwise determine, if a Participant dies or
becomes permanently and totally disabled (as determined by the Committee), the
following will apply:
(a) All Options and Stock Appreciation Rights held by the Participant
immediately prior to death or such permanent and total disability, to the
extent then exercisable, may be exercised by the Participant's executor or
administrator or the person or persons to whom the Option or Right is
transferred by will or the applicable laws of descent and distribution or
the Participant's guardian, at any time within the one year period ending
with the first anniversary of the Participant's death or permanent and
total disability as the case may be (or such shorter or longer period as
the Committee may determine), and shall thereupon terminate, and if such a
participant thereafter dies while the option is still exercisable, the
option will be exercisable for one year from that date. In no event,
however, shall an Option or Stock Appreciation Right remain exercisable
beyond the latest date on which it could have been exercised without regard
to this Section 7. All Options and Stock Appreciation Rights held by a
Participant immediately prior to death or such permanent and total
disability that are not then exercisable shall accelerate and become vested
at death or such permanent and total disability.
(b) All Restricted Stock held by the Participant must be transferred to
the Company (and, in the event the certificates representing such
Restricted Stock are held by the Company, such Restricted Stock will be so
transferred without any further action by the Participant in accordance
with Section 6.3(c)).
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(c) Any payment or benefit under a Deferred Stock Award, Performance
Award, Supplemental Grant, or Other Stock-Based Award to which the
Participant was not irrevocably entitled prior to death or such permanent
and total disability will be forfeited and the Award canceled as of the
time of death or such permanent and total disability.
7.2 Termination of Service (Other Than By Death or Disability).
If (i) a Participant who is an Employee ceases to be an Employee for any
reason other than death or disability (as defined above), (ii) there is a
termination (other than by reason of death or disability or satisfactory
completion of the project or service as determined by the Committee) of the
consulting, service or similar relationship in respect of which a non-Employee
Participant was granted an Award hereunder or (iii) a New Hire's offer of
employment is terminated prior to the New Hire commencing employment with the
Company or the New Hire does not commence his or her employment with the
Company within two months after receipt of an Award hereunder (such
termination of the employment or other relationship being hereinafter referred
to as a "Status Change"), then, except as the Committee may otherwise
determine, the following will apply:
(a) All Options and Stock Appreciation Rights held by the Participant
that were not exercisable immediately prior to the Status Change shall
terminate at the time of the Status Change. Any Options or Rights that were
exercisable immediately prior to the Status Change will continue to be
exercisable for a period of three months (or one year in the case of
retirement at or after age 60 with the consent of the Company), and shall
thereupon terminate, unless the Award provides by its terms for immediate
termination in the event of a Status Change or unless the Status Change
results from a discharge for cause which in the opinion of the Committee
casts such discredit on the Participant as to justify immediate termination
of the Award. In no event, however, shall an Option or Stock Appreciation
Right remain exercisable beyond the latest date on which it could have been
exercised without regard to this Section 7. For purposes of this paragraph,
in the case of a Participant who is an Employee, a Status Change shall not
be deemed to have resulted by reason of (i) a sick leave or other bona fide
leave of absence approved for purposes of the Plan by the Committee, so
long as the Employee's right to reemployment is guaranteed either by
statute or by contract, or (ii) a transfer of employment between the
Company and a subsidiary or between subsidiaries, or to the employment of a
corporation (or a parent or subsidiary corporation of such corporation)
issuing or assuming an option in a transaction to which Section 424(a) of
the Code applies. A Status Change will be deemed to have occurred, in the
case of an employee Participant, upon termination of the Participant's
employment with the Company and its Subsidiaries (whether or not the
Participant continues in the service of the Company or its Subsidiaries in
some capacity other than that of an employee of the Company or its
Subsidiaries) and in the case of any other Participant, when the service
relationship in respect of which the Award was granted terminates (whether
or not the Participant continues in the service of the Company or its
Subsidiaries in some other capacity).
(b) All Restricted Stock held by the Participant at the time of the
Status Change must be transferred to the Company (and, in the event the
certificates representing such Restricted Stock are held by the Company,
such Restricted Stock will be so transferred without any further action by
the Participant) in accordance with Section 6.3(c) above.
(c) Any payment or benefit under a Deferred Stock Award, Performance
Award, Supplemental Grant, or Other Stock-Based Award to which the
Participant was not irrevocably entitled prior to the Status Change will be
forfeited and the Award canceled as of the date of such Status Change.
7.3.1 Change in Control Provision.
As used herein, a Change in Control and related definitions shall have the
meanings as set forth in Section 7.3.3 below.
Immediately prior to the occurrence of a Change in Control:
(a) Each Option and Stock Appreciation Right shall automatically
become fully exercisable unless the Committee shall otherwise expressly
provide at the time of grant.
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(b) Restrictions and conditions on Restricted Stock, Deferred Stock,
Performance Award, Supplemental Grant, and Other Stock-based Awards
shall automatically be deemed waived to the extent, if any, specified
(whether at or after time of grant) by the Committee.
In addition to the foregoing and Sections 6.1(d), 6.2(b), 6.3(d) and 6.4,
the Committee may at any time prior to or after a Change in Control accelerate
the exercisability of any Options and Stock Appreciation Rights and may waive
restrictions, limitations and conditions on Restricted Stock, Deferred Stock,
Performance Awards, Supplemental Grants, and Other Stock-based Awards to the
extent it shall in its sole discretion determine.
7.3.2 Certain Corporate Transactions.
(a) In the event of a consolidation or merger in which the Company is not
the surviving corporation or which results in the acquisition of substantially
all the Company's outstanding Stock by a single person or entity or by a group
of persons and/or entities acting in concert, or in the event of the complete
liquidation of the Company or the sale or transfer of substantially all of the
Company's assets (a "Covered Transaction"), all outstanding Options will
terminate as of the effective date of the Covered Transaction, provided that
at least twenty (20) days prior to the effective date of any such merger,
consolidation, liquidation or sale of assets, but subject to Paragraphs (c)
and (d) below, the Committee shall make all outstanding Options exercisable
immediately prior to consummation of such Covered Transaction (to the extent
that such Options are not exercisable immediately prior to the consummation of
the Covered Transaction pursuant to Section 7.3.1).
(b) Subject to Paragraphs (c) and (d) below, the Committee may, in its sole
discretion, prior to the effective date of the Covered Transaction, (1) remove
the restrictions from each outstanding share of Restricted Stock, (2) cause
the Company to make any payment and provide any benefit under each outstanding
Deferred Stock Award, Performance Award, and Supplemental Grant which would
have been made or provided with the passage of time had the transaction not
occurred and the Participant remained an employee, and (3) forgive all or any
portion of the principal of or interest on a loan.
(c) If an outstanding Option or Other Award is subject to performance or
other conditions (other than conditions relating the mere passage of time and
continued employment) which will not have been satisfied at the time of the
Covered Transaction, the Committee may, in its sole discretion, remove such
conditions. If it does not do so however, such Option or Other Award will
terminate, because the conditions have not been satisfied, as of the date of
the Covered Transaction notwithstanding Paragraph (a) and (b) above.
(d) With respect to an outstanding Option or Other Award held by the
participant who, following the Covered Transaction, will be employed by a
corporation which is a surviving or acquiring corporation in such transaction
or an affiliate of such a corporation, the Committee may, in lieu of the
action of the Committee described in Paragraphs (a) or (b) above or in
addition to any Option being exercisable immediately prior to consummation of
the Covered Transaction pursuant to Section 7.3.1 above, arrange to have such
surviving or acquiring corporation or affiliate assume the Option or Other
Award or grant to the Participant a replacement Option or other Award which,
in the judgment of the Committee, is substantially equivalent to the Option or
Other Award. In the case of an assumed or substitute Option intended to be an
Incentive Stock Option, the requirements of Section 424 (a) of the Code shall
be satisfied except as otherwise provided by the Committee.
7.3.3 Change in Control and Related Definitions.
A "Change in Control" shall be deemed to have occurred if the conditions set
forth in any one of the following paragraphs shall have been satisfied:
(a) any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company representing 30% or more of the
combined voting power of the Company's then outstanding securities; or
(b) during any period of not more than two consecutive years (not
including any period prior to January 1, 1997), individuals who at the
beginning of such period constitute the Board and any new director
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(other than a director designated by a Person who has entered into an
agreement with the Company to effect a transaction described in Clause (a),
(b), or (c) of Section 7.3.3) whose election by the Board or nomination for
election by the Company's stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination
for election was previously so approved, cease for any reason to constitute
a majority thereof; or
(c) the shareholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than
(1) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or being
converted into voting securities of the surviving entity) 65% or more
of the combined voting power of the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or
(2) a merger or consolidation effected to implement a re-
capitalization of the Company (or similar transaction) in which no
person acquires 30% or more of the combined voting power of the
Company's then outstanding securities; or
(d) the shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all the Company's assets; or
(e) the Company enters into an agreement, the consummation of which would
result in the occurrence of a Change in Control, provided, however, that if
such agreement requires approval by the Company's shareholders of the
agreement or transaction or the satisfaction of other conditions, a Change
in Control shall not be deemed to have taken place unless and until such
approval is secured and all conditions are satisfied (but upon any such
approval and the satisfaction of such conditions and the consummation of
the transaction, a Change in Control shall be deemed to have occurred on
the date of execution of such agreement); or
(f) the Company or any person publicly announces an intention to take or
to consider taking actions which, if consummated, would constitute a Change
in Control, provided that a Change in Control will not be deemed to have
taken place unless and until actions are taken that constitute a Change in
Control (but upon the taking of any such actions a Change in Control shall
be deemed to have occurred on the date of such announcement); or
(g) the Board adopts a resolution to the effect that, for purposes of
this Agreement, a Change in Control will occur upon the taking of certain
action provided that the Change in Control shall not be deemed to have
taken place unless and until such action is taken (but upon the taking of
such action, a Change in Control shall be deemed to have occurred on the
date of such resolution of the Board).
"Person" shall have the meaning given in Section 3(a)(9) of the Securities
Exchange Act of 1934, as modified and used in Sections 13(d) and 14(d)
thereof, and shall also include its Affiliates and Associates (as such terms
are used in Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934); however, a Person shall not include
(1) the Company, or any wholly owned or controlled subsidiary of the
Company,
(2) a trustee or other fiduciary holding securities under an employee
benefit plan of the Company or
(3) a corporation or other entity owned, directly or indirectly, by the
shareholders of the Company in substantially the same proportions as their
ownership of stock of the Company.
"Beneficial Owner" shall have the meaning defined in Rule 13d-3 under the
Securities Exchange Act of 1934 as amended from time to time.
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8. GENERAL PROVISIONS
8.1 Documentation of Awards.
Awards will be evidenced by such written instruments, if any, as may be
prescribed by the Committee from time to time. Such instruments may be in the
form of agreements to be executed by both the Participant and the Company, or
certificates, letters or similar instruments, which need not be executed by
the Participant but acceptance of which will evidence agreement to the terms
thereof.
8.2 Rights as a Stockholder, Dividend Equivalents.
Except as specifically provided by the Plan, the receipt of an Award will
not give a Participant rights as a stockholder; the Participant will obtain
such rights, subject to any limitations imposed by the Plan or the instrument
evidencing the Award, only upon the issuance of Stock. However, the Committee
may, on such conditions as it deems appropriate, provide that a Participant
will receive a benefit in lieu of cash dividends that would have been payable
on any or all Stock subject to the Participant's Award had such Stock been
outstanding. Without limitation, the Committee may provide for payment to the
Participant of amounts representing such dividends, either currently or in the
future, or for the investment of such amounts on behalf of the Participant.
8.3 Conditions on Delivery of Stock.
The Company will not be obligated to deliver any shares of Stock pursuant to
the Plan or to remove restriction from shares previously delivered under the
Plan (a) until all conditions of the Award have been satisfied or removed, (b)
until, in the opinion of the Company's counsel, all applicable federal and
state laws and regulation have been complied with, (c) if the outstanding
Stock is at the time listed on any stock exchange or The Nasdaq National
Market, until the shares to be delivered have been listed or authorized to be
listed on such exchange or market upon official notice of issuance, and (d)
until all other legal matters in connection with the issuance and delivery of
such shares have been approved by the Company's counsel. If the sale of Stock
has not been registered under the Securities Act of 1933, as amended, the
Company may require, as a condition to exercise of the Award, such
representations or agreements as counsel for the Company may consider
appropriate to avoid violation of such Act and may require that the
certificates evidencing such Stock bear an appropriate legend restricting
transfer.
If an Award is exercised by the Participant's legal representative, the
Company will be under no obligation to deliver Stock pursuant to such exercise
until the Company is satisfied as to the authority of such representative.
8.4 Tax Withholding.
The Company will withhold from any cash payment made pursuant to an Award an
amount sufficient to satisfy all federal, state and local withholding tax
requirements (the "withholding requirements").
In the case of an Award pursuant to which Stock may be delivered, the
Committee will have the right to require that the Participant or other
appropriate person remit to the Company an amount sufficient to satisfy the
withholding requirements, or make other arrangements satisfactory to the
Committee with regard to such requirements, prior to the delivery of any Stock
or removal of restrictions thereon. If and to the extent that such withholding
is required, the Committee may permit the Participant or such other person to
elect at such time and in such manner as the Committee provides to have the
Company hold back from the shares to be delivered, or to deliver to the
Company, Stock having a value calculated to satisfy the withholding
requirement. The Committee may make such share withholding mandatory with
respect to any Award at the time such Award is made to a Participant. The
Committee may also, but need not, permit a Participant to tender previously
owned shares of Stock in satisfaction of tax withholding requirements on any
Award.
If at the time an ISO is exercised the Committee determines that the Company
could be liable for withholding requirements with respect to the exercise or
with respect to a disposition of the Stock received upon
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exercise, the Committee may require as a condition of exercise that the person
exercising the ISO agree (a) to provide for withholding under the preceding
paragraph of this Section 8.4, if the Committee determines that a withholding
responsibility may arise in connection with the exercise, (b) to inform the
Company promptly of any disposition (within the meaning of section 424(c) of
the Code) of Stock received upon exercise, and (c) to give such security as
the Committee deems adequate to meet the potential liability of the Company
for other withholding requirements and to augment such security from time to
time in any amount reasonably deemed necessary by the Committee to preserve
the adequacy of such security.
8.5 Transferability of Awards.
Unless otherwise permitted by the Committee, no Award (other than an Award
in the form of an outright transfer of cash or Unrestricted Stock) may be
transferred other than by will or by the laws of descent and distribution, and
during a Participant's lifetime, an Award requiring exercise may be exercised
only by the Participant (or in the event of the Participant's incapacity, the
person or persons legally appointed to act on the Participant's behalf).
8.6 Adjustments in the Event of Certain Transactions.
(a) In the event of a stock dividend, stock split or combination of shares,
re-capitalization or other change in the Company's capitalization, or other
distribution to holders of Stock other than normal cash dividends, after the
effective date of the Plan, the Committee will make any appropriate
adjustments to the maximum number of shares that may be delivered under the
Plan under Section 4(a), Section 4(b), and Section 6.5.
(b) In any event referred to in paragraph (a), the Committee will also make
any appropriate adjustments to the number and kind of shares of Stock or
securities subject to Awards then outstanding or subsequently granted, any
exercise prices relating to Awards and any other provision of Awards affected
by such change. The Committee may also make such adjustments to take into
account material changes in law or in accounting practices or principles,
mergers, consolidations, acquisitions, dispositions or similar corporate
transactions, or any other event, if it is determined by the Committee that
adjustments are appropriate to avoid distortion in the operation of the Plan.
(c) In the case of ISOs or Awards intended to qualify for the "performance-
based compensation" exception under Section 162(m)(4)(C) of the Code, the
adjustments described in (a) and (b) will be made only to the extent
consistent with continued qualification of the Option or other Award under
Section 422 of the Code or Section 162(m) of the Code, as the case may be.
8.7 Employment or Other Rights, Etc.
Neither the adoption of the Plan nor the grant of Awards will confer upon
any person any right to continued retention by the Company or any subsidiary
as an Employee or otherwise, or affect in any way the right of the Company or
subsidiary to terminate an employment, service or similar relationship at any
time. Except as specifically provided by the Committee in any particular case,
the loss of existing or potential profit in Awards granted under the Plan will
not constitute an element of damages in the event of termination of an
employment, service or similar relationship even if the termination is in
violation of an obligation of the Company or any of its subsidiaries to the
Participant.
8.8 Deferral of Payments.
The Committee may agree at any time, upon request of the Participant, to
defer the date on which any payment under an Award will be made.
8.9 Past Services as Consideration.
Where a Participant purchases Stock under an Award for a price equal to the
par value of the Stock the Committee may determine that such price has been
satisfied by past services rendered by the Participant.
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9. EFFECT, AMENDMENT AND TERMINATION
Neither adoption of the Plan nor the grant of Awards to a Participant will
affect the Company's right to grant to such Participant awards that are not
subject to the Plan, to issue to such Participant Stock as a bonus or
otherwise, or to adopt other plans or arrangements under which Stock may be
issued to Employees or other persons.
The Committee may at any time or times amend the Plan or any outstanding
Award for any purpose which may at the time be permitted by law, or may at any
time terminate the Plan as to any further grants of Awards, provided that
(except to the extent expressly required or permitted by the Plan) no such
amendment will, without the approval of the stockholders of the Company,
effectuate a change for which stockholder approval is required in order for
the Plan to continue to qualify for the award of ISOs under Section 422 of the
Code or for the award of performance-based compensation under Section 162(m)
of the Code, where the compensation is intended by the Committee so to comply.
10. GOVERNING LAW
The Plan shall be construed in accordance with the General Corporation Law
of the State of Delaware.
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