<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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 sec. 240.14a-11(c) or sec. 240.14a-12
Browning-Ferris Industries, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[BROWNING-FERRIS INDUSTRIES, INC., LOGO]
P.O. BOX 3151
HOUSTON, TEXAS 77253
January 22, 1997
Dear BFI Shareholder:
Fiscal year 1996 was a year of significant change for BFI. The solid waste
business has continued to expand in sophistication, with customers requiring
comprehensive and integrated waste services delivered with a high degree of
expertise and at a competitive price. Our future success depends on how we
respond to an increasingly complex and regulated industry, intensely competitive
environment, and more discriminating and demanding customers.
STRATEGIC SHIFT/REORGANIZATION
Recognizing these challenges, we made several key changes in our business
strategy in order to improve our responsiveness, service quality, and
accountability for performance. BFI has shifted from a Company committed and
organized to generate significant growth largely from external sources, to a
Company committed and organized to generate a higher return on assets and more
modest growth, principally generated internally. This change will deliver more
value to shareholders in both the short- and long-term. We also designed and
implemented a radically changed organizational structure that is customer
oriented, marketing and sales driven and enables talented BFI people to focus on
their areas of expertise -- and yet maintains the geographic attention necessary
to support the local nature of our business.
INCENTIVE PLANS
Consistent with our strategies and structural changes, we significantly
changed our annual and long-term incentive plans (including the 1996 Stock
Incentive Plan, the Annual Management Incentive Plan and the Long-Term Incentive
Plan) so that they encourage greater management focus on shareholder value and
returns. As explained in the Proxy Statement, the Board of Directors has
approved the introduction of these plans in fiscal year 1997, subject to
approval by the Company's shareholders at the Annual Meeting.
To assist you in understanding this proposal, the Proxy Statement describes
in detail the philosophy behind our new compensation plans and how they will be
implemented. We view this as a significant undertaking that is critical to
ensuring accountability for achieving our long-term goals and aligning our
compensation programs with the creation of value for you, our shareholder.
<PAGE> 3
LONG-TERM INCENTIVE PLAN
Although I consider the introduction of each of the incentive plans to be
critical in driving management decisions that lead to increases in shareholder
value, the most dramatic change involves the new Long-Term Incentive Plan for
officers and key executives. Under this plan, participants will receive a
one-time grant of performance shares that replaces two-thirds of their annual
stock option grant participation over the next five years. These performance
shares will be earned (and converted into shares of the Company's common stock)
only if BFI's stock exceeds specific price targets and the Company generates
specified levels of Cash Value Added ("CVA" -- which is defined as operating
cash flow minus a charge for the Company's cost of capital). As a long-term
performance measure, we believe that CVA provides the clearest barometer of
whether our performance is creating value for shareholders by recognizing both
the cash flow generated by operations as well as the investment required to
produce those cash flows. This is a measure of value that is used by a variety
of successful companies that have consistently rewarded their shareholders.
The table below demonstrates the alignment between executives and
shareholders under the new Long-Term Incentive Plan. The stock price targets and
the cumulative CVA targets must be achieved before any performance shares are
earned.
<TABLE>
<CAPTION>
GAIN TO ALL % OF SHAREHOLDER
PERCENT OF SHAREHOLDERS GAIN SHARED
CUMULATIVE PERFORMANCE FROM $28 1/4 PER WITH
STOCK PRICE TARGET CVA TARGET SHARES EARNED SHARE PARTICIPANTS(1)
- ------------------ ---------------------- ------------- ------------------- ----------------
<S> <C> <C> <C> <C>
Less than $35 Less than $20 million 0% Up to $1.4 billion 0%
$35 $ 20 million 25% $1.4 billion 0.6%
$40 $130 million 50% $2.5 billion 0.8%
$45 $240 million 75% $3.6 billion 1.0%
$50 $350 million 100% $4.6 billion 1.1%
</TABLE>
- ---------------
(1) The gain to the 30 LTIP participants includes performance shares (converted
into an equivalent number of shares of the Company's common stock). The gain
to the participants does not include options granted.
Taken together, we anticipate that these changes in our business strategy
and structure, supported by the new incentive compensation plans, will motivate
aggressive business performance that will benefit all of our stakeholders,
including our shareholders. I look forward to reviewing these initiatives with
you at the Annual Meeting.
Sincerely,
/s/ Bruce E. Ranck
Bruce E. Ranck
President and Chief Executive
Officer
<PAGE> 4
[BROWNING-FERRIS INDUSTRIES, INC., LOGO]
P.O. BOX 3151
HOUSTON, TEXAS 77253
January 22, 1997
TO OUR SHAREHOLDERS:
You are cordially invited to attend the 1997 Annual Meeting of Shareholders of
Browning-Ferris Industries, Inc. on March 5, 1997, at 2:00 p.m., Houston time,
in the Company's auditorium located on the 14th floor of the corporate office at
757 N. Eldridge, Houston, Texas.
Whether or not you plan to be present, please sign and return your proxy as soon
as possible so that your vote will be recorded; a self-addressed envelope is
provided.
/s/ William D. Ruckelshaus
William D. Ruckelshaus
Chairman of the Board
of Directors
<PAGE> 5
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Holders of Common Stock:
Notice is hereby given that the Annual Meeting of Shareholders of
Browning-Ferris Industries, Inc., a Delaware corporation (the "Company"), will
be held on March 5, 1997, at 2:00 p.m., Houston time, in the Company's
auditorium located on the 14th floor of the corporate office at 757 N. Eldridge,
Houston, Texas for the following purposes:
(1) To elect four directors of the Company, each for a three-year term;
(2) To consider and vote upon the approval of the selection of Arthur
Andersen LLP as auditors for the Company's 1997 fiscal year;
(3) To consider and vote upon the approval of the Company's incentive
compensation program, consisting of the 1996 Stock Incentive Plan, the
Annual Management Incentive Plan and the Long-Term Incentive Plan; and
(4) To consider and act upon such other matters as may properly come before
the meeting or any adjournment thereof.
The Board of Directors has determined that only those persons who were
holders of record of Common Stock of the Company at the close of business on
January 6, 1997, the record date, will be entitled to notice of, and to vote at,
the meeting and any adjournment thereof.
By Order of the Board of
Directors,
/s/ Gerald K. Burger
Gerald K. Burger
Vice President and Secretary
Houston, Texas
January 22, 1997
PLEASE DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE AT
YOUR EARLIEST CONVENIENCE.
<PAGE> 6
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
MARCH 5, 1997
This Proxy Statement and the accompanying form of proxy are being furnished
to the shareholders of Browning-Ferris Industries, Inc., a Delaware corporation
(the "Company" or "BFI"), in connection with a solicitation of proxies by the
Board of Directors of the Company for use at the Annual Meeting of Shareholders
to be held on Wednesday, March 5, 1997, at 2:00 p.m., Houston time, in the
Company's auditorium located on the 14th floor of the Company's principal
executive offices at 757 N. Eldridge, Houston, Texas and at any adjournment
thereof (the "Meeting"). This Proxy Statement and the accompanying form of proxy
are being first sent or given to shareholders on or about January 22, 1997.
All shares represented by a properly executed proxy in the accompanying
form received in time for the Meeting, and not revoked, will be voted. Unless
the shareholder otherwise specifies therein, such shares will be voted by the
persons named as proxy holders:
FOR the election as directors of the Company of those four nominees
for director for three-year terms, as listed under the caption "Election of
Directors" herein;
FOR the approval of the selection by the Board of Directors of Arthur
Andersen LLP as auditors for the Company's 1997 fiscal year; and
FOR the approval of the Company's incentive compensation program,
consisting of the 1996 Stock Incentive Plan, the Annual Management
Incentive Plan and the Long-Term Incentive Plan.
The persons named as proxies on the accompanying form of proxy, William D.
Ruckelshaus, Chairman of the Board of Directors of the Company, and Gerald K.
Burger, Vice President and Secretary of the Company, were selected by the
Directors and Corporate Governance Committee of the Board of Directors of the
Company.
The accompanying form of proxy is for use at the Meeting if a shareholder
is unable to attend or does not desire to vote in person. A shareholder who
executes a proxy may revoke it at any time before the proxy is exercised by
giving written notice to the Secretary of the Company, by delivering a later
dated proxy, or by voting in person at the Meeting.
RECORD DATE AND VOTING AT THE MEETING
The holders of record on January 6, 1997, the record date, of Common Stock,
$.16 2/3 par value (the "Common Stock"), of the Company will be entitled to one
vote per share on each matter submitted for shareholder approval. At the close
of business on the record date, there were outstanding 212,374,572 shares of
Common Stock of which 201,672,055 shares are entitled to vote, and the holders
of a majority of the 201,672,055 total shares, whether present in person or
represented by proxy, will constitute a quorum for the transaction of business
at the Meeting. No
2
<PAGE> 7
other voting securities of the Company were outstanding at the close of business
on the record date.
The affirmative vote of the holders of a majority of the shares of Common
Stock present or represented by proxy and entitled to vote at the Meeting is
required for (a) the election of directors, (b) approval of the appointment of
independent auditors, (c) approval of the Company's incentive compensation
program, consisting of the 1996 Stock Incentive Plan, the Annual Management
Incentive Plan and the Long-Term Incentive Plan (collectively, the "Incentive
Plans") and (d) approval of such other matters as may properly come before the
Meeting or any adjournment thereof.
A shareholder entitled to vote for the election of directors can withhold
authority to vote for all nominees for director or can withhold authority to
vote for certain nominees for director. Under Delaware law, abstentions from the
proposals to approve the appointment of auditors or approve the Incentive Plans
have the same legal effect as a vote against the proposal. Broker non-votes on
the proposals to elect directors, approve the appointment of auditors or approve
the Incentive Plans are treated as shares as to which voting power has been
withheld by the beneficial holders of those shares and, therefore, are not
counted for purposes of determining whether a majority has been achieved.
ANNUAL REPORT
The Company's Annual Report to Shareholders for the fiscal year ended
September 30, 1996 has been or is being furnished to all shareholders entitled
to vote at the Meeting. The Annual Report to Shareholders does not constitute a
part of the proxy soliciting material.
3
<PAGE> 8
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of January 17, 1997, the amount of the
Company's Common Stock beneficially owned by each of its directors and nominees
for director, each executive officer named in the Summary Compensation Table,
and all directors, nominees for director and executive officers as a group:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
---------------------------------------------------
SOLE VOTING AND OPTIONS OTHER PERCENT
INVESTMENT EXERCISABLE BENEFICIAL OF
NAME POWER (2) WITHIN 60 DAYS OWNERSHIP CLASS
- ---------------------------------- --------------- -------------- ---------- -------
<S> <C> <C> <C> <C>
William D. Ruckelshaus............ 64,185 992,989 2,066(4) *
Bruce E. Ranck.................... 99,360 560,650 5,456(4) *
Norman A. Myers................... 311,136 310,625 4,289(4) *
Louis A. Waters................... 16,081 279,100 7,129(4) *
J. Gregory Muldoon................ 11,496 112,500 3,477(4) *
Rufus Wallingford................. 12,800 41,875 5,292(4) *
Gregory D. Brenneman (1).......... 7,400 N/A -0- *
William T. Butler................. 3,503 33,750 -0- *
C. Jackson Grayson, Jr. .......... 38,203 3,750 -0- *
Gerald Grinstein.................. 1,047 33,750 1,000(5) *
Ulrich Otto....................... -0- 75,000 4,815,075(6) 2.2%
Harry J. Phillips, Sr............. 471,930(3) 346,600 6,888(4)(7) *
Joseph L. Roberts, Jr............. 1,003 33,750 -0- *
Marc J. Shapiro................... 4,003 5,625 -0- *
Robert M. Teeter.................. 3,003 33,750 -0- *
Marina v.N. Whitman............... 3,003 33,750 -0- *
Peter S. Willmott................. 7,003 33,750 -0- *
All Executive Officers, Nominees
for Director and Directors as a
Group (22 persons).............. 1,120,091 3,359,289 4,857,288 4.3%
</TABLE>
- ---------------
* Less than one percent.
(1) New nominee for director.
(2) Includes restricted shares of the Company's Common Stock. The holder has
sole voting power and no investment power until such restricted shares vest.
After vesting, the holder has sole investment and voting powers.
(3) Includes 292,334 shares held by a limited partnership of which Mr. Phillips
is sole general partner.
(4) Represents shares allocated to the employee through participation in the
Company's Employee Stock Ownership and Savings Plan, according to the latest
statement for said plan. Such shares can be voted by each employee, and each
employee has investment authority over the shares held in the employee's
account in such plan, except for shares acquired with Company
4
<PAGE> 9
matching contributions. In the case of a tender offer, the trustee shall
tender or not tender shares as directed by each participant.
(5) Shares held jointly with spouse.
(6) Shares held by Otto Holding International B.V. ("OHI"). Mr. Otto has shared
voting power and shared investment power with respect to 50% of the
outstanding share capital of Otto Entsorgungsdienstleistungen GmbH, which is
owned 50% by the Company and 50% by OHI. Mr. Otto is President of OHI, and
Mr. Otto and members of his family own indirectly 100% of OHI.
(7) Includes 877 shares held by spouse in which Mr. Phillips claims an indirect
ownership.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information concerning each person
known by the Company to own beneficially more than five percent of the
outstanding voting shares of the Company's Common Stock:
<TABLE>
<CAPTION>
SHARES
NAME OF BENEFICIALLY PERCENT OF
BENEFICIAL OWNER OWNED CLASS
------------------------------------------------------------ ------------ ----------
<S> <C> <C>
Fidelity Management and Research Corporation................ 22,179,048(1) 11%
87 Devonshire Street
Boston, Massachusetts 02109-3605
Capital Research and Management Company..................... 14,325,800(2) 7%
333 South Hope Street
Los Angeles, California 90071-1447
</TABLE>
- ---------------
(1) Information is based on a Form 13-F dated September 30, 1996, and represents
a 11% voting authority of the outstanding shares of BFI Common Stock.
(2) Information is based on a Form 13-F dated September 30, 1996, and represents
a 7% sole or shared investment discretion; however, no voting authority is
held on these shares of BFI Common Stock.
5
<PAGE> 10
ELECTION OF DIRECTORS
NOMINEES
Four directors are to be elected at the Meeting. In accordance with the
Company's Restated Certificate of Incorporation, the Board of Directors is
divided into three classes, each of which serves for a three-year term. Gregory
D. Brenneman, Harry J. Phillips, Sr., Marc J. Shapiro and Robert M. Teeter are
being nominated to serve until the Company's 2000 Annual Meeting of Shareholders
and until their respective successors have been duly elected and qualified.
Messrs. Phillips, Shapiro and Teeter currently serve as directors of the
Company. The election of Mr. Brenneman would fill the vacancy created by Mr.
Willmott's decision not to seek reelection as a director at the end of his term
on March 5, 1997. In support of the Company's efforts to assure that a strong
majority of its directors are independent, outside directors, Norman A. Myers
and Ulrich Otto will resign as directors of the Company as of March 5, 1997, and
Louis A. Waters will not seek reelection as a director of the Company at the end
of his term on March 5, 1997. At the Company's request, Messrs. Myers and Waters
have agreed to serve as advisory directors for three-year terms. After the
Meeting and assuming the election of the nominees named above, the Company's
Board of Directors would consist of eight outside directors and three inside
directors.
Unless otherwise instructed, the persons named as proxies in the enclosed
form of proxy will vote in favor of the four nominees named above. Although the
Board of Directors does not contemplate that any of the nominees will become
unable to serve, if such a situation should occur before the Meeting, it is
expected either (a) that the persons named in the proxy will vote for another
nominee designated by the Board of Directors, or (b) that the authorized number
of directors will be reduced accordingly.
The following table contains certain information as of January 17, 1997,
with respect to the nominees and the directors who are currently serving terms
expiring in 1997, 1998 or 1999:
<TABLE>
<CAPTION>
EXPIRATION
POSITIONS AND OFFICES SERVED AS A OF PRESENT
NAME WITH THE COMPANY DIRECTOR SINCE AGE TERM
- --------------------------------- -------------------------- -------------- --- ----------
<S> <C> <C> <C> <C>
William D. Ruckelshaus........... Chairman of the Board and 1987 64 1999
Director(1)
Bruce E. Ranck................... President, Chief Executive 1990 48 1999
Officer and Director(1)
Norman A. Myers.................. Vice Chairman, Chief 1978 61 1999
Marketing Officer and
Director(1)
Louis A. Waters.................. Chairman and Chief 1969 58 1997
Executive Officer of BFI
International, Inc. and
Director(1)(2)
*Gregory D. Brenneman............ Nominee for Director N/A 35 N/A
</TABLE>
6
<PAGE> 11
<TABLE>
<CAPTION>
EXPIRATION
POSITIONS AND OFFICES SERVED AS A OF PRESENT
NAME WITH THE COMPANY DIRECTOR SINCE AGE TERM
- --------------------------------- -------------------------- -------------- --- ----------
<S> <C> <C> <C> <C>
William T. Butler................ Director(2)(4) 1990 64 1998
C. Jackson Grayson, Jr........... Director(3)(5) 1979 73 1998
Gerald Grinstein................. Director(4)(6) 1990 64 1999
Ulrich Otto...................... Director 1994 47 1998
*Harry J. Phillips, Sr........... Director(1)(2) 1970 66 1997
Joseph L. Roberts, Jr............ Director(3) 1991 61 1998
*Marc J. Shapiro................. Director(2) 1994 49 1997
*Robert M. Teeter................ Director(3)(6) 1989 57 1997
Marina v.N. Whitman.............. Director(4)(5) 1992 61 1998
Peter S. Willmott................ Director(5)(6) 1991 59 1997
</TABLE>
- ---------------
(1) Member of the Executive Committee
(2) Member of the Finance Committee
(3) Member of the Corporate Responsibility Committee
(4) Member of the Compensation Committee
(5) Member of the Audit Committee
(6) Member of the Directors and Corporate Governance Committee
* Indicates nominees for director for a three-year term expiring in 2000 and
until their respective successors have been duly elected and qualified.
BACKGROUND OF NOMINEES FOR DIRECTOR AND OTHER DIRECTORS
Mr. Ruckelshaus was elected a director in June 1987 and Chairman of the
Board and Chief Executive Officer in September 1988. As of October 1, 1995, he
stepped down as the Company's Chief Executive Officer but remains as Chairman of
the Board. Mr. Ruckelshaus also serves as a director of Cummins Engine Company,
Monsanto Company, Nordstrom, Inc. and Weyerhaeuser Company. He also serves as a
director or trustee of several educational and charitable organizations.
Mr. Ranck was elected President and Chief Executive Officer in October
1995, having served as President and Chief Operating Officer of the Company
since November 1991 and as Executive Vice President (Solid Waste
Operations -- North America) from October 1989 until November 1991. Prior to
that time, he served as a Regional Vice President in one of the Company's former
regions. Mr. Ranck has served as a director since March 1990. He also serves as
a director of Furon Co., as a member of the Advisory Board of the Houston Region
of Texas Commerce Bank National Association, and as a director or trustee of
several educational and charitable organizations.
7
<PAGE> 12
Mr. Myers was elected a Vice President of the Company in December 1970,
became an Executive Vice President in July 1976, a director in February 1978,
Chief Marketing Officer in March 1981 and Vice Chairman of the Board in December
1982. Mr. Myers is a director of My Friends, a foundation for children in
crisis. Mr. Myers will be resigning as a director of the Company as of March 5,
1997 in support of the Company's efforts to assure that a strong majority of its
directors are independent, outside directors.
Mr. Waters served as Chairman of the Board from August 1969 to September
1980 and served as Chairman of the Executive Committee from September 1980 until
September 1988. He has served as Chairman of the Finance Committee since
September 1988 and as Chairman and Chief Executive Officer of BFI International,
Inc. since May 1991. Also in support of the Company's efforts to assure that a
strong majority of its directors are independent, outside directors, Mr. Waters
will not be seeking reelection as a director at the end of his term that expires
on March 5, 1997.
Mr. Brenneman, a new nominee for director, is currently President and Chief
Operating Officer of Continental Airlines, Inc., a position he has held since
April 1995. He also serves as a director of Continental Airlines, Inc. and Vice
Chairman of Continental Micronesia and Continental Express. Prior to his joining
Continental Airlines, he was a partner in Bain & Company, Inc., a consulting
firm, where he specialized in corporate turnarounds. Mr. Brenneman is a director
and/or member of several civic organizations.
Dr. Butler serves as Chancellor of Baylor College of Medicine in Houston,
Texas, where he previously served as President and Chief Executive Officer from
1979 until January 1996. He is a director of C.R. Bard, Inc. and Lyondell
Petrochemical Company. Dr. Butler is the Past Chairman of the Association of
American Medical Colleges and serves as a director, officer and/or member of
several professional and civic organizations.
Dr. Grayson is the founder and Chairman of the Board of American
Productivity and Quality Center, a privately funded educational and research
center located in Houston, Texas, a position he has held with the Center since
its formation in 1975.
Mr. Grinstein served as Chairman and Chief Executive Officer and a director
of Burlington Northern Santa Fe Corporation (formerly Burlington Northern Inc.)
and Burlington Northern Railroad Company from 1989, until his resignation in
December 1995. He also served as the President of these companies from 1989
until 1991. Mr. Grinstein currently serves as a director of Delta Air Lines,
Inc., Sundstrand Corporation and Imperial Holly Corporation. Mr. Grinstein
serves as a director or trustee of several business, educational and charitable
organizations.
Mr. Otto is Managing Director of Otto Entsorgungsdienstleistungen GmbH, a
German waste company which is fifty percent owned by the Company and fifty
percent owned by Otto Holding International B.V., which Mr. Otto serves as
President. Mr. Otto is also Chairman of Gebr. Otto KG, a diversified provider of
environmental services and products to the waste industry and a manufacturer of
plastic waste containers and material handling products. Mr. Otto will be
resigning as a director of the Company as of March 5, 1997 in support of the
Company's efforts to assure that a strong majority of its directors are
independent, outside directors.
8
<PAGE> 13
Mr. Phillips served as Chairman of the Board and Chief Executive Officer of
the Company from September 1980 until September 1988, when he was elected
Chairman of the Executive Committee. Mr. Phillips is a director of RFS Hotel
Investors, Inc., Buckeye Cellulose Corporation, Buckman Laboratories, Inc. and
the National Commerce Bancorporation, Memphis, Tennessee, and is a director or
trustee of several other business and charitable organizations.
Dr. Roberts is Senior Pastor of the Ebenezer Baptist Church in Atlanta,
Georgia. He also serves as a member of the Board of Southerners for Economic
Justice and other civic organizations.
Mr. Shapiro has served as Chairman, President and Chief Executive Officer
of Texas Commerce Bank National Association since 1989. He also serves as an
Executive Officer of The Chase Manhattan Corporation. Mr. Shapiro also serves as
a director of Weingarten Realty Investors, Santa Fe Energy Resources and
Burlington Northern Santa Fe Corporation, and as a director or trustee of
several business, educational and charitable organizations.
Mr. Teeter has served as President of Coldwater Corporation, a strategic
planning and public affairs consulting firm since 1988. He is also a director of
United Parcel Service, Bank of Ann Arbor, Durakon Industries, Inc. and Optical
Imagine Systems, and a director or trustee of several business, educational and
charitable organizations.
Dr. Whitman has served as Professor of Business Administration and Public
Policy at the University of Michigan since 1992. Previously, she spent thirteen
years at General Motors Corporation, six years as Vice President and Chief
Economist and seven years as Vice President and Group Executive, Public Affairs
Staffs. She currently serves as a director of The Procter & Gamble Company, The
Chase Manhattan Corporation, Alcoa Corporation and UNOCAL Corporation, and is a
member, director or trustee of several educational and professional
organizations.
Mr. Willmott was elected, after serving as a director for over six years,
President and Chief Executive Officer of Zenith Electronics Corporation in
October 1996. As a result of his additional responsibilities with Zenith, Mr.
Willmott has decided not to seek reelection as a director of the Company at the
expiration of his current term on March 5, 1997. Mr. Willmott previously served
as Chairman and Chief Executive Officer of Willmott Services, Inc., a consulting
firm, since 1989. Mr. Willmott also serves as Chairman of the Board of
MacFrugal's Bargains and Close-outs, Inc. and is a director of Federal Express
Corporation (he served as its President and Chief Operating Officer from 1980 to
1983 and as its Chief Financial Officer from 1974 to 1980), as well as being a
director of various educational or charitable organizations.
COMMITTEES
The members of the Company's Executive, Audit, Compensation, Corporate
Responsibility, Directors and Corporate Governance and Finance Committees are
reflected in the preceding table.
The Executive Committee may exercise all the powers of the Board of
Directors between meetings of the Board of Directors, except as delegated by the
By-laws of the Company or the Board of Directors to another standing or special
committee, or as reserved by the Board of Directors, but the Executive Committee
does not have the power to elect or remove officers,
9
<PAGE> 14
approve a merger of the Company, recommend a sale of substantially all the
Company's assets, recommend a dissolution of the Company, amend the Company's
By-laws or Restated Certificate of Incorporation, declare dividends on the
Company's outstanding securities, or, except as expressly authorized by the
Board of Directors, issue any of the Company's Common Stock or Preferred Stock.
The Audit Committee recommends the selection of and confers with the
Company's independent accountants regarding the scope and adequacy of annual
audits; reviews reports from the independent accountants; and meets with the
independent accountants and with the Company's internal auditors and financial
personnel to review the adequacy of the Company's accounting principles,
financial controls and policies.
The Compensation Committee reviews the Company's compensation philosophy
and programs, and exercises authority with respect to the payment of direct
salaries and incentive compensation to directors and officers; loans to or
guarantees of obligations of such persons and some employee loans; and the
administration of the stock incentive plans of the Company.
The Corporate Responsibility Committee's responsibilities include the
surveying, monitoring and guiding of the Company's role in the fulfillment of
its social responsibilities toward its shareholders, employees and the general
public in the conduct of its normal business activities.
The Directors and Corporate Governance Committee is empowered to recommend
to the Board of Directors nominees for election as directors and persons to fill
director vacancies and newly created directorships; recruit potential director
candidates; recommend changes to the Board of Directors concerning the
responsibilities and composition of the Board of Directors and its committees;
select the members of the proxy committee charged with voting solicited proxies
at shareholder meetings; and review proxy comments received from shareholders
relating to the Board of Directors. In addition, the Directors and Corporate
Governance Committee will consider shareholders' suggestions of nominees for
director that are submitted in writing to the Committee, at the address of the
Company's principal executive offices, not less than 90 days in advance of the
date the Company's proxy statement was released to shareholders in connection
with the previous year's annual meeting of shareholders.
The Finance Committee oversees the long-term financial planning, capital
requirements and other financial needs of the Company; explores sources and
alternatives for meeting such requirements and needs; makes recommendations to
the Board of Directors or the Executive Committee regarding authorizing the
borrowing of funds or the issuance of debt or equity securities; and oversees
the administration and results of operations of the Company's retirement and
other benefit plans.
During the last fiscal year, the Executive Committee held seven meetings
and took numerous actions by unanimous written consent in lieu of meetings; the
Audit Committee held three meetings; the Compensation Committee held three
meetings and took numerous actions by unanimous written consent in lieu of
meetings; the Corporate Responsibility Committee held two meetings; the
Directors and Corporate Governance Committee held one meeting; the Finance
Committee held three meetings; and the Board of Directors held five meetings. No
incumbent director attended
10
<PAGE> 15
fewer than 75 percent of the aggregate number of board meetings and meetings of
committees on which he or she served; except for Mr. Otto who attended 60
percent of the board meetings.
DIRECTOR COMPENSATION
In fiscal 1996, non-employee members of the Board of Directors were paid an
annual retainer fee of $30,000, $20,000 of which was paid in cash and $10,000 of
which was paid in shares of the Company's restricted Common Stock. In addition,
non-employee directors may be compensated in varying annual amounts for
participation on committees. Employee-directors of the Company do not receive
any additional compensation from the Company for their service as directors. All
current members of the Executive Committee are employees of the Company. Members
of the Audit Committee receive $8,000 (Chairman receives $12,000); Compensation
Committee members receive $6,000 (Chairman receives $9,000); the non-employee
members of the Finance Committee receive $6,000 (Chairman is an
employee-director); and the Corporate Responsibility Committee and the Directors
and Corporate Governance Committee members receive $4,000 (Chairman of each
committee receives $6,000). In addition, non-employee directors are paid
attendance fees of $1,000 for each meeting of the Board of Directors and $500
for each committee meeting.
Under the Company's Non-Employee Director Stock Plan, each non-employee
director is granted a non-qualified option to purchase 5,000 shares of the
Company's Common Stock upon his or her initial election or appointment to the
Board of Directors. Thereafter, each non-employee director receives an annual
option grant for the purchase of 2,500 shares of the Company's Common Stock.
The Company also has a Deferred Compensation Plan for its directors.
Participating directors may elect to defer all or a portion of their director
fees that are paid in cash in an unfunded interest bearing account or in a BFI
phantom stock account that earns dividend equivalents. A director may elect to
receive cash distributions from his or her account either prior to or following
termination of service.
Mr. Teeter is the President of Coldwater Corporation, a strategic planning
and public affairs consulting firm. Since 1989, Coldwater Corporation has
advised the Company with respect to strategic planning, policy development,
public opinion analysis and public affairs, under an annual consulting
agreement. During fiscal 1996, the Company paid Mr. Teeter $37,500 under the
agreement. This consultant arrangement terminated during fiscal 1996.
As part of its corporate charitable giving program, the Company makes cash
contributions directly to various charitable organizations, including
organizations with which certain directors are affiliated. The Company does not
consider these contributions to be compensation to the directors who are
affiliated with such organizations. The Company's charitable giving program does
not include any "director legacy" donations.
11
<PAGE> 16
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's Compensation Committee (the "Committee") is pleased to
present its annual report on executive compensation. This Committee report
describes the components of the Company's executive officer compensation program
and explains the basis on which fiscal year 1996 compensation determinations
were made by the Committee with respect to the executive officers of the
Company, including the executive officers that are named in the compensation
tables.
During 1996, the Committee and senior management initiated a comprehensive
examination of the Company's executive compensation policies using the services
of an independent consulting firm to help oversee and guide the process. The
philosophy and new incentive program resulting from the study's rigorous
analysis are outlined below and were developed through the active involvement of
management, the independent consultant, and the Committee. Because this study
was completed at the end of fiscal year 1996, this report discusses material
changes to the Company's compensation plans for senior management that will be
fully implemented during fiscal year 1997.
COMPENSATION PHILOSOPHY AND OVERALL OBJECTIVES OF EXECUTIVE COMPENSATION
PROGRAMS
The Committee's overriding philosophy is to establish executive
compensation policies that are linked to the Company's mission and the sustained
creation of shareholder value. The Committee is responsible for approving the
design of, assessing the effectiveness of, and administering executive
compensation programs that support achievement of the Company's strategic
business objectives and core values. To ensure objectivity in the fulfillment of
its responsibilities, the Committee is composed entirely of independent,
non-employee directors who meet on a regular basis during the fiscal year.
The following objectives serve as the guiding principles for all
compensation decisions:
- Align variable compensation opportunities with shareholder interests,
such that the executive compensation program is highly sensitive to
Company performance, defined in terms of shareholder value creation;
- Focus management on achieving financial and operating objectives that
have been demonstrated to be primary, sustainable drivers of shareholder
value over the long-term;
- Provide a competitive total compensation opportunity, commensurate with
performance, that enables the Company to attract and retain key
executives; and
- Integrate all corporate and field pay programs with the Company's annual
and long-term business objectives, thereby encouraging teamwork in
implementing an organization driven towards customer service and
satisfaction.
12
<PAGE> 17
During fiscal year 1996, the Company announced new long-term financial
goals in order to better align performance objectives with the creation of
shareholder value. The revised long-term financial goals focus on improving both
returns on investment and operating cash flow as follows:
- Generate cash returns on gross assets in excess of the weighted average
cost of capital;
- Increase profits at a faster pace than the increase in revenues; and
- Maintain a strong credit rating appropriate for supporting business
operations.
To support the achievement of the Company's new financial goals, the
Committee undertook a comprehensive review of the Company's executive
compensation strategy. This review included an evaluation of the competitiveness
of the executive compensation program and the linkage of incentive compensation
opportunities with the long-term financial goals. All compensation components
were evaluated including base salary, annual incentive awards, and long-term
stock incentive grants. As a result of this review, the Committee and the Board
of Directors approved new annual and long-term incentive plans for fiscal year
1997 as separately described for each compensation component below.
COMPENSATION PROGRAM COMPONENTS
The Committee regularly reviews the Company's compensation program to
ensure that salary levels and incentive opportunities are competitive. This
process entails an annual assessment of both the total compensation levels and
the individual pay components. In determining competitive compensation, the
Committee obtains information on a large number of companies through published
national executive compensation surveys and comparative analyses of compensation
data compiled from proxy statements. The Committee focuses its analysis
primarily on organizations with comparable revenues, asset size, number of
employees and service industry classifications. The universe of companies used
for competitive compensation comparisons is broader than those companies which
comprise the published industry index in the Performance Graph included in this
proxy statement, since the Company's competitors for management talent extend
beyond the Company's direct competitors.
BASE SALARY -- It is the objective of the Committee to establish base
salary levels for the Company's executive officers that are generally comparable
to similar executive positions in companies of similar size and complexity as
the Company. Actual officer salaries are approved by the Committee and are based
on a combination of factors, including the performance of the executive, his or
her salary relative to the competitive market, the salary increase budget for
the Company, and the recommendation of the Chief Executive Officer. Additional
considerations may include the background, experience, and scope of
accountability of the executive. All named executive officers have entered into
employment agreements with the Company (see "Employment and Severance
Agreements"). Under these agreements, the Committee has the sole discretion for
determining any increase in base salary; however, pursuant to the agreements,
base salaries may not be decreased.
13
<PAGE> 18
ANNUAL INCENTIVE COMPENSATION -- The objective of the annual incentive plan
is to deliver competitive levels of compensation for the attainment of financial
objectives and operating results that the Committee believes are primary drivers
of stock price performance over time. Target awards for the Company's executive
officers under the plan represent the 50th percentile of the competitive market
for executive positions at companies of similar size and complexity. Actual
awards are determined based primarily on the Company's and executive's
performance, with the maximum award available being two times the target
incentive for executive officers.
During fiscal year 1996, the Company's officers were eligible to
participate in an annual incentive plan with awards based primarily on
attainment of certain earnings per share goals, subject to a return on assets
threshold. The target award for the officers was weighted for financial and
individual/team performance, depending on the ability of the officer to impact
the Company's overall financial results. Financial performance was heavily
weighted for executive officers, with Messrs. Ranck's, Muldoon's, and Myers'
incentive objectives based 100% on the Company's financial performance. For
fiscal year 1996, the Company's financial performance fell short of the minimum
earnings per share and return on assets objectives, resulting in no incentive
awards being paid to the Company's named executive officers.
For fiscal year 1997, the Committee analyzed and approved the introduction
of a new annual incentive plan that replaces the existing annual incentive plan
(a description of the Company's Annual Management Incentive Plan is provided on
page 30 of this Proxy Statement). Consistent with the long-term financial goals
and the Company's organizational realignment, the proposed Annual Management
Incentive Plan emphasizes the need for achievement across all operating units of
the Company in three key performance areas: financial results, customer
satisfaction, and specific team/individual initiatives.
To attain the financial objectives, the Company is required to improve its
return on gross assets and generate increased cash flow, which together are
weighted 75% for the named executive officers. Customer satisfaction requires
that the Company deliver consistent and integrated service of the highest
quality through the teamwork and cooperation of a customer-driven organization,
and is weighted 25% for the named executive officers. In addition, all other
executives also will be responsible for achieving team and individual
performance objectives that demonstrate commitment to Company values and
encourage individual accountability. To ensure alignment of the plan with
shareholder interests, above-target incentive awards can only be earned if
superior financial results in excess of the business plan are achieved.
To encourage executives to hold a significant ownership stake in the
Company, executives can elect to receive payment of up to 100% of their annual
incentive award in restricted Common Stock, with a premium of 25% additional
shares, under the Company's Convertible Annual Incentive Award Plan. Stock
granted for this purpose is restricted for a two-year period during which the
shares are forfeitable and the executive cannot sell, transfer, pledge or assign
ownership.
STOCK INCENTIVE PLAN -- The Committee strongly believes that by providing
those persons who have substantial responsibility for the management and
profitable growth of the Company with an opportunity to increase their ownership
of Company stock, the best interest of the Company's
14
<PAGE> 19
shareholders and executives will be closely aligned. During 1996, executives
were eligible to receive stock options giving them the right to purchase shares
of Common Stock of the Company at a specified price in the future. Options
granted in fiscal year 1996 have a term of ten years, become exercisable,
subject to certain exceptions, in annual increments of 25% beginning one year
after the date of grant, and have an option price equal to 100% of the fair
market value of the Company's Common Stock on the date of grant. No stock
options granted under the current plans have been repriced, nor will the
Committee consider option repricing in the future.
In determining stock option grants, the Committee establishes a competitive
range (with the midpoint of the competitive range approximating the 50th
percentile of the survey data) of annualized long-term award values based on
each executive's salary level, position, and compensation mix. The annualized
award range is then converted to actual numbers of stock options with the value
of stock options estimated using the Black-Scholes option valuation model. The
actual number of options granted is based upon each executive's contribution and
performance. Additionally, from time to time, special circumstances (i.e.,
significant changes in position or responsibilities, etc.) may be considered in
making an option award, and there have been instances, in prior year grants, of
exceptions to the normal range where the Committee deemed it appropriate.
For fiscal year 1997, the Committee has approved the reallocation of
approximately two-thirds of the executive officers and certain key executives'
stock option participation into an upfront grant of performance shares that vest
and are converted into shares of the Company's Common Stock only when both of
the following two critical performance measures are met:
- Significant improvement in operating cash flow after subtracting a charge
for the Company's cost of capital, which requires that the Company earns
an average annual return on gross assets over the five-year period
beginning October 1, 1996 that meets pre-established cumulative dollar
amounts exceeding 13%; and
- Appreciation in the value of the Company's Common Stock over the same
five-year period.
The new Long-Term Incentive Plan establishes provisions for partial vesting
of performance shares as performance measures are attained, while full vesting
in the performance shares occurs only when (i) the fair market value of the
Company's Common Stock reaches $50 per share and (ii) the Company achieves
substantially improved cash flow. All grants of performance shares are
contingent on approval by shareholders of the new Long-Term Incentive Plan (a
description of the Company's Long-Term Incentive Plan is provided on page 32 of
this Proxy Statement).
EXECUTIVE STOCK OWNERSHIP GUIDELINES
To further align the interests of executives with the Company's
shareholders in terms of both risk and reward, the Committee has established
stock ownership guidelines that are designed to encourage the accumulation and
retention of a significant portion of the Company's Common Stock by its
executive officers. The guidelines suggest that by the end of calendar year
2000, each executive officer hold a minimum of three times base salary in the
Company's Common Stock.
15
<PAGE> 20
Eligible shares include stock held as a shareholder of record, in brokerage
accounts, restricted shares granted under the Convertible Annual Incentive Award
Plan, stock acquired through the Company's Stock Ownership and Savings [401(k)]
Plan, and any deferred compensation in the form of phantom share units. A
variety of mechanisms have been developed to provide opportunities for
executives to increase stock ownership over an extended time.
DEDUCTIBILITY OF COMPENSATION
The Committee has carefully considered Section 162(m) of the Internal
Revenue Code and believes the Company's pay-for-performance practices ensure
that executive officer compensation is strongly tied to performance. The
Committee believes it is in the best interests of the Company and its
shareholders to comply with the new tax law while still preserving the
flexibility to reward executives consistent with the Company's pay philosophy
for each compensation element. Therefore, the Board of Directors is recommending
shareholder approval of performance-based compensation plans for executive
officers and key employees. (See "Approval of the Company's 1996 Stock Incentive
Plan, the Annual Management Incentive Plan and the Long-Term Incentive Plan" on
page 27 of this Proxy Statement).
DISCUSSION OF 1996 COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
In considering the compensation for the Chief Executive Officer ("CEO") for
fiscal year 1996, the Committee has reviewed Mr. Ranck's existing compensation
arrangements and both Company and individual performance. The Committee has made
the following determinations regarding Mr. Ranck's fiscal year 1996
compensation:
- Base salary has been increased to $600,000 from $500,000 to reflect Mr.
Ranck's promotion to Chief Executive Officer of the Company and provide a
competitive total compensation opportunity;
- Due to the failure of the Company to achieve minimum financial
performance objectives during fiscal year 1996, the Committee made no
annual incentive award to Mr. Ranck; and
- A stock option grant of 250,000 shares (at an option price equal to fair
market value on the date of grant) was made during fiscal year 1996 to
recognize the promotion of Mr. Ranck to Chief Executive Officer and to
provide a significant incentive to increase the Company's stock price.
During December 1995, the Board of Directors adopted a revision to the
Company's Guidelines on Corporate Governance Issues that requires an annual
evaluation of the CEO's performance. As part of this process, the Committee is
responsible for conducting an independent assessment of the CEO's performance
which includes soliciting feedback from the Company's directors. Every director
is requested to complete a written evaluation of the CEO's performance based on
a formal position
16
<PAGE> 21
description for the job of CEO, which outlines responsibilities and key business
objectives in each of the following areas:
- Leadership
- Strategic Planning
- Financial Results
- Succession Planning
- Human Resources
- Communications with Shareholders
- External and Board Relations
The first cycle of the expanded CEO evaluation process was completed in
December 1996, and the Committee will use the results of this evaluation process
as part of its deliberations when considering future adjustments to Mr. Ranck's
compensation.
CONCLUSION -- After completing its assessment of all compensation elements,
the Committee believes that the total compensation opportunity offered to
executives of the Company is competitive with the compensation programs provided
by other comparable corporations. The Committee also believes that the Company's
new incentive plans will encourage and reward participants to perform consistent
with the returns that are generated on behalf of the shareholders. The Committee
will continue to monitor the effectiveness of the Company's total compensation
program to ensure that it is supports the strategic human resource needs of the
Company.
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
Gerald Grinstein, Chairman
William T. Butler
Marina v.N. Whitman
17
<PAGE> 22
PERFORMANCE GRAPH
The following performance graph compares the performance of the Company's
Common Stock to the S&P 500 Index and to the Dow Jones Pollution Control Index
for the Company's last five fiscal years. The graph assumes that the value of
the investment in the Company's Common Stock and each index was $100 at
September 30, 1991 and that all dividends were reinvested.
COMPARISON OF FIVE-YEAR CUMULATIVE RETURN
<TABLE>
<CAPTION>
MEASUREMENT PERIOD DOW JONES POLLUTION
(FISCAL YEAR COVERED) BFI S&P 500 INDEX CONTROL INDEX
<S> <C> <C> <C>
1991 100 100 100
1992 126 111 98
1993 125 125 87
1994 177 130 91
1995 173 169 92
1996 145 203 98
</TABLE>
18
<PAGE> 23
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
compensation of the Chief Executive Officer and each of the Company's four other
most highly compensated executive officers (collectively, the "named executive
officers") for the fiscal year ended September 30, 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
- -------------------------------------------------------------------------------------------------------------------------
(G)
SECURITIES
(F) UNDERLYING
(E) RESTRICTED STOCK (H)
(A) (B) (C) (D) OTHER ANNUAL STOCK OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) AWARDS(3) (SHARES) COMPENSATION(4)
- -------------------------------- ---- -------- -------- --------------- --------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Bruce E. Ranck 1996 $600,000 $ -0- $ -0- $ -0- 250,000 $ 4,750
President and 1995 500,000 500,000 8,483(5) -0- 55,000 4,620
Chief Executive Officer 1994 485,000 243,758 -0- 62,830 55,000 4,620
Norman A. Myers 1996 508,000 -0- -0- -0- 52,500 2,992
Vice Chairman and 1995 475,000 237,500 -0- 297,445 50,000 2,976
Chief Marketing Officer 1994 475,000 231,565 -0- 59,601 50,000 2,976
Louis A. Waters 1996 465,000 -0- -0- -0- 44,400 184,703(6)
Chairman and CEO of 1995 426,000 232,500 7,722(5) 291,090 44,400 182,088(6)
BFI International, Inc. 1994 365,115 172,171 -0- 23,056 44,400 176,998(6)
J. Gregory Muldoon 1996 365,800 -0- -0- -0- 176,000 4,750
Executive Vice President 1995 290,000 174,080 -0- 72,400 24,000 4,620
and Chief Operating 1994 290,000 110,279 -0- 32,258 24,000 4,620
Officer
Rufus Wallingford 1996 364,000 -0- -0- -0- 27,500 4,750
Senior Vice President and 1995 350,000 140,000 8,640(5) 175,305 25,000 4,620
General Counsel 1994 262,500(7) 118,206(8) -0- 26,353 30,000 -0-
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
(1) No bonuses were paid to the Company's officers for fiscal 1996. The bonus
amount for fiscal 1995 includes the cash portion paid to and deferred by the
officer (Messrs. Ranck, Muldoon and Wallingford deferred 50%, 10% and 20%,
respectfully, of their cash awards); the remaining portion of the incentive
compensation awards for Messrs. Myers, Waters, Muldoon and Wallingford was
paid in restricted shares of the Company's Common Stock, the amount of
shares being determined by the officer's personal election under the
Company's Convertible Annual Incentive Award Plan that allows the officer to
receive up to 50% of his fiscal 1995 annual incentive award in restricted
shares. Messrs. Myers, Waters and Wallingford each elected to receive 50%,
and Mr. Muldoon 25%, of their fiscal 1995 incentive compensation award in
restricted shares. The bonus amount for fiscal 1994 includes the cash
portion paid to and deferred by the officer; the remaining 10% of the
officer's incentive compensation award was paid in restricted shares of the
Company's Common Stock (see note (3) below for details regarding the terms
of the restricted shares).
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<PAGE> 24
(2) The named executive officers did not receive any perquisites or other
personal benefits in which the aggregate amount of such compensation
exceeded $50,000 or 10% of the total of his annual salary and bonus.
(3) No restricted shares were issued to the Company's officers for fiscal 1996.
On December 5, 1995, Messrs. Myers, Waters, Muldoon and Wallingford were
granted a total of 26,980 restricted shares of the Company's Common Stock
based upon the percentages elected by the officers under the Company's
Convertible Annual Incentive Award Plan for fiscal 1995, with an additional
25% stock premium. On June 1, 1994, the Company's officers, except for Mr.
Waters, were granted a total of 9,660 restricted shares of the Company's
Common Stock based upon 6% of the officer's July 1, 1994 base salary,
divided by the average market value of the Company's Common Stock on the
date of grant. On December 6, 1994, the Company's officers, including Mr.
Waters, were granted a total of 10,680 restricted shares of the Company's
Common Stock based upon 10% of the officer's fiscal 1994 incentive
compensation award with an additional 25% stock premium. The restricted
shares are restricted for a two-year period, during which time the officers
cannot sell, transfer, pledge or assign them, but as the registered holders
of these shares, the officers can vote the shares and receive any dividends.
At the end of the two-year restricted period, taxable income will be
recognized in an amount equal to the fair market value of the shares on that
date. The value of the restricted shares issued is based on the fair market
value of the Company's Common Stock on the date of grant. The number and
value, respectively, of the aggregate restricted share holdings as of
September 30, 1996 for each named executive officer were as follows: Ranck:
1,205 shares, $30,125; Myers: 10,740 shares, $268,500; Waters: 10,240
shares, $256,000; Muldoon: 2,885 shares, $72,125; and Wallingford: 6,240
shares, $156,000.
(4) Consists of the amount of the Company's match for each named executive
officer under the BFI Employee Stock Ownership and Savings Plan.
(5) Consists of income and the tax gross-up associated with spousal attendance
at a Board of Directors' meeting.
(6) Includes $179,953, $177,468 and $172,378 in retirement pay for fiscal 1996,
1995 and 1994, respectively, earned for 20 years of service prior to his
current position as Chairman and Chief Executive Officer of BFI
International, Inc. Mr. Waters, as beneficiary, receives trust payments paid
in accordance with a trust agreement. See "Employment and Severance
Agreements" herein for a discussion of Mr. Waters' employment agreement.
(7) Consists of nine months of base salary for Mr. Wallingford, who was elected
Senior Vice President and General Counsel, effective January 1, 1994; he was
not employed by the Company prior to that time.
(8) Consists of a guaranteed first year incentive award of 50% of base salary,
less the 10% that was paid in restricted shares (see note (3) above for
details regarding the terms of the restricted shares).
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<PAGE> 25
STOCK OPTIONS GRANTED IN LAST FISCAL YEAR
The following table sets forth certain information concerning stock options
granted to the named executive officers in the last fiscal year:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
GRANT DATE
INDIVIDUAL GRANTS VALUE
- --------------------------------------------------------------------------------- -------------
(B) (C) (F)
NUMBER OF PERCENTAGE GRANT DATE
SECURITIES OF TOTAL PRESENT
UNDERLYING OPTIONS (D) VALUE BASED
OPTIONS GRANTED TO EXERCISE (E) ON
(A) GRANTED EMPLOYEES IN PRICE EXPIRATION BLACK-SCHOLES
NAME (SHARES)(1) FISCAL 1996 (PER SHARE) DATE MODEL
- -------------------------- ----------- ------------ ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Bruce E. Ranck............ 250,000 9.3% $ 30.94 12/04/2005 $2,677,500(2)
Norman A. Myers........... 52,500 2.0% 30.94 12/04/2005 562,300(2)
Louis A. Waters........... 44,400 1.7% 30.94 12/04/2005 475,500(2)
J. Gregory Muldoon........ 26,000 1.0% 30.94 12/04/2005 278,500(2)
150,000 5.6% 30.56 05/05/2006 1,975,500(3)
Rufus Wallingford......... 27,500 1.0% 30.94 12/04/2005 294,500(2)
</TABLE>
- ---------------
(1) All options were granted on December 5, 1995, except for the options granted
to Mr. Muldoon on May 6, 1996 for 150,000 shares. All of the options were
granted under the Company's 1993 Stock Incentive Plan, except for 60,000
shares that were granted to Mr. Ranck from the 1990 Stock Option Plan that
are included in the above stock option for a total of 250,000 shares. Both
grants were made to Mr. Ranck on December 5, 1995 and are combined for
purposes of this chart. Twenty-five percent of the above options become
exercisable one year after the date of grant and, subject to certain
acceleration provisions, 25% will become exercisable each year thereafter on
a cumulative basis.
(2) Based upon the Black-Scholes option valuation model, which estimates the
present dollar value of BFI Common Stock to be $10.71 per option share, as
adjusted for vesting schedule. The actual value, if any, an executive may
realize will depend on the excess of the stock price over the exercise price
on the date the option is exercised, so that there is no assurance the value
realized will be at or near the value estimated by the Black-Scholes model.
The assumptions underlying the Black-Scholes model include (a) an expected
volatility of .253 based on the prior two years of quarter-end closing stock
prices of BFI Common Stock, (b) a risk-free rate of return of 5.67%, which
approximates the 10-year Treasury bond rate, (c) BFI Common Stock dividend
yield of 2.20%, and (d) a ten-year period from time of grant until exercise.
(3) Based upon the Black-Scholes option valuation model, which estimates the
present dollar value of BFI Common Stock to be $13.17 per option share, as
adjusted for vesting schedule. The actual value, if any, an executive may
realize will depend on the excess of the stock price over the exercise price
on the date the option is exercised, so that there is no assurance the value
realized will be at or near the value estimated by the Black-Scholes model.
The
21
<PAGE> 26
assumptions underlying the Black-Scholes model include (a) an expected
volatility of .337 based on the prior two years of quarter-end closing stock
prices of BFI Common Stock, (b) a risk-free rate of return of 6.83%, which
approximates the 10-year Treasury bond rate, (c) BFI Common Stock dividend
yield of 2.23%, and (d) a ten-year period from time of grant until exercise.
STOCK OPTIONS EXERCISED IN LAST FISCAL YEAR
The following table sets forth the aggregate option exercises during the
last fiscal year and the value of outstanding options at September 30, 1996 for
each of the named executive officers:
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND SEPTEMBER 30, 1996 OPTION VALUES
<TABLE>
<CAPTION>
(D)
NUMBER OF SECURITIES (E)
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
(B) OPTIONS AT SEPTEMBER 30, IN-THE-MONEY OPTIONS AT
SHARES (C) 1996 (SHARES) SEPTEMBER 30, 1996(1)
(A) ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bruce E. Ranck......... -0- -0- 458,150 331,250 $ 1,718,000 $ 2,400
Norman A. Myers........ -0- -0- 261,250 126,250 402,100 2,100
Louis A. Waters........ -0- -0- 209,550 136,150 20,700 6,900
J. Gregory Muldoon..... -0- -0- 90,250 209,750 74,800 700
Rufus Wallingford...... -0- -0- 21,250 61,250 -0- -0-
</TABLE>
- ---------------
(1) Computed based upon the difference between aggregate fair market value and
aggregate exercise price.
EMPLOYMENT AND SEVERANCE AGREEMENTS
Bruce E. Ranck and Norman A. Myers are each parties to employment
agreements with the Company. Their agreements provide for continuously renewing
five-year terms until age 65, and continuing year to year thereafter until
terminated by the Company or the employee. The agreements also provide for the
payment of minimum annual base salaries and for participation by the employee in
all Company benefit plans and programs. The current annual salary for Messrs.
Ranck and Myers is $600,000 and $508,000, respectively.
The employment agreements for Messrs. Ranck and Myers include provisions
governing part-time status, termination and change in control. If the Company
should terminate an agreement other than for cause (as defined in the
agreements), or the Company breaches the agreement, or the employee is not
elected and serving in his current capacity for the Company, or the employee's
duties or responsibilities are materially changed or diminished (without his
consent) from his current duties, the agreement may be terminated by either
party on a date up to five years after notice of termination is given. During
that ensuing period, the employee would continue his
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<PAGE> 27
employment on a part-time basis and be available to consult with the Company.
Generally, the employee's compensation while on part-time status would be 75
percent of the average of the employee's compensation (including salary and
bonus) for the two highest of the three years prior to the employee going on
part-time status. In the event that Messrs. Ranck and Myers were terminated
without cause during 1997 or if the employee terminated the agreement because of
a breach by the Company, his annual compensation on part-time status would be
approximately $684,900 and $670,700, respectively, subject to an annual
cost-of-living adjustment. As a part-time status employee, he would continue to
participate in the Company's benefit plans and programs. The agreement with each
employee also provides that he may elect part-time status upon attaining the age
of 62, at reduced annual compensation, subject to an annual cost-of-living
adjustment, but without any participation in the Company's incentive
compensation plans.
In the event of a change in control of the Company, the employee may elect
to receive a lump sum payment equal to three times the employee's average
annualized base compensation includable in gross income over the five taxable
years preceding the tax year in which the change in control occurs. If a change
in control were to occur during 1997 and the election to take the change in
control payment were made by Messrs. Ranck and Myers, they would receive
approximately $2,286,800 and $2,599,500, respectively. The election by the
employee to take the change in control payment would be in lieu of other
benefits and rights under such employee's agreement, except, generally, amounts
payable under pension, insurance and similar plans, reimbursement for legal and
other advisory expenses and certain stock option and indemnification rights.
Louis A. Waters has an employment agreement that provides for a
continuously renewing five-year term until terminated by either the Company or
the employee. Mr. Waters' current base salary is $465,000. Mr. Waters' agreement
also has a change in control payment provision. If a change in control were to
occur during 1997 and the election to take the change in control payment were
made, Mr. Waters would receive approximately $2,095,400. After twenty years of
service, Mr. Waters began to receive a monthly retirement benefit on February 1,
1989 pursuant to a Company-funded trust of which Mr. Waters is the beneficiary.
His current monthly retirement benefit payment under the trust agreement is
approximately $15,000. Upon actual retirement from the Company, Mr. Waters'
employment agreement provides that the current retirement benefit payment will
be replaced by a monthly benefit that is estimated at age 65 to be $15,750. This
retirement benefit will be in addition to those payable from the BFI Retirement
Plan and the BFI Benefit Restoration Plan (see "Retirement and Restoration
Plans"). His employment agreement also provides that his retirement benefits
will increase annually based upon 75% of the percentage increase in the Consumer
Price Index.
J. Gregory Muldoon and Rufus Wallingford each has an employment agreement
with the Company, which has a continuously renewing three-year term until age
65, unless sooner terminated by the parties. The agreements provide for the
payment of a minimum annual base salary and for participation by the officers in
all Company benefit plans and programs. The current annual salary for Mr.
Muldoon is $437,000 and $364,000 for Mr. Wallingford. The employment agreements
include provisions governing inactive status, termination and change of control.
If the Company should terminate the agreements other than for cause (as defined
in the agreements), the
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<PAGE> 28
termination would be effective on the third anniversary of the date of notice of
termination (or, if sooner, when the officer reaches age 65), and the officer
would go on inactive status on the date of such notice. The officer's
compensation while on inactive status would be 75% of the base salary that the
officer was earning prior to such notice and the officer would continue to
participate in the Company's benefit programs. In the event of a change of
control of the Company and if the officer has not been placed on inactive status
by the Company or terminated for cause, then he may elect (within twelve months
after the date of the change of control) to receive a lump sum payment equal to
three times his base amount (as defined by federal tax law). If a change of
control were to occur during 1997 and Messrs. Muldoon and Wallingford elected to
take the change of control payment, they would receive approximately $1,691,300
and $1,365,400, respectively. Such lump sum payments would terminate all of the
officers' rights under their agreements.
RETIREMENT AND RESTORATION PLANS
The Company's defined-benefit retirement plan (the "Plan") covers all
employees of the Company located in the United States, except certain employees
subject to collective bargaining agreements and certain other employees covered
by other plans not made a part of the Plan.
Generally, the Plan provides that, on December 31 of each year, account
balances established for each eligible employee are credited in an amount equal
to 4.5% of the salary and bonus received by such employee during the period
beginning January 1 and ending December 31 of that year. Currently, the balance
in each employee's account earns interest at a rate of 6% per year, subject to
adjustment by the Company's Benefits Administration Committee, comprised of six
officers of the Company. Any adjustment must be made prior to January 1 of each
year, however, interest earned on account balances can not be reduced below 4%
or increased above 12%. The normal retirement age under the Plan is 65 with an
early retirement option at age 55. Benefits under the Plan vest after five years
of vesting service.
The estimated annual benefits payable at age 65 (as a single life annuity)
for each named executive officer are as follows: Mr. Ranck, $397,000; Mr. Myers,
$352,000; Mr. Waters, $318,000; Mr. Muldoon $293,000; and Mr. Wallingford,
$43,000. See discussion under "Employment and Severance Agreements" for
information concerning additional retirement benefits for Mr. Waters.
Currently, the Internal Revenue Code limits the pension from the Plan to
$125,000 and limits the annual pay used to calculate pensions to $160,000; these
amounts are indexed annually to the changes in Social Security benefits. If the
annual pension to any person would be limited by Sections 415 or 401(A)(17) of
the Internal Revenue Code, such amounts otherwise payable to the Plan
participant pursuant to the Plan may be paid directly to such participant by the
Company, depending on whether he is also a participant of either of the BFI
Benefit Restoration Plan or the BFI Cash Balance Benefit Restoration Plan. The
purpose of the BFI Benefit Restoration Plan is to pay all participants in the
plan the full retirement benefit otherwise payable to them under the Company's
prior retirement plan but for the benefit limitations imposed by Section 415 and
the pay limitation imposed by Section 401(A)(17) of the Internal Revenue Code.
The purpose of the BFI Cash Balance Restoration Plan is to pay all participants
in the plan the retirement benefit otherwise payable but for the benefit
limitation imposed by Section 401(A)(17) of the Internal Revenue Code.
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<PAGE> 29
CERTAIN TRANSACTIONS
Ulrich Otto
The Company and Otto Holding International B.V. ("OHI") each own 50% of the
stock of Otto Entsorgungsdienstleistungen GmbH ("Otto Waste Services"), a
company engaged in the solid waste services business in Germany. Mr. Otto and
members of his family indirectly own 100% of OHI. Mr. Otto, a director of the
Company, serves as Managing Director of Otto Waste Services and as President of
OHI. Mr. Otto was elected to the Board of Directors of the Company in March
1994.
The Company and OHI are parties to a supply agreement pursuant to which
OHI, its subsidiaries and affiliates ("OHI Group") have agreed to supply the
Company with its requirements for certain types of containers and to supply
certain other equipment. All purchases by the Company are subject to the
condition that the products supplied by the OHI Group satisfy certain
requirements, including competitive pricing, quality, specifications, freight
costs and term of delivery.
During fiscal 1996, the Company, primarily through its ownership interest
in Otto Waste Services, engaged in various transactions with the OHI Group. The
OHI Group leased containers and equipment and provided certain administrative
services to Otto Waste Services. Charges for these administrative services were
approximately $4.7 million during fiscal 1996. The Company, including Otto Waste
Services, also purchased or entered into capital leases for approximately $30.8
million of containers from the OHI Group during fiscal 1996. In addition, Otto
Waste Services leased certain office space from the OHI Group at a cost of
approximately $427,000. The transactions between the Company, including Otto
Waste Services, and the OHI Group have been undertaken in the ordinary course of
business, are at prices that the Company believes are competitive and on terms
that are substantially similar to those that would have been effected with an
unrelated party.
During fiscal 1996, Otto Waste Services sold certain assets related to
plastics processing to the OHI Group. These assets were sold to the OHI Group
for approximately $2.5 million, which amount was determined based upon the fair
market value of such assets. Additionally, Otto Waste Services sold the stock of
one of its subsidiaries to the OHI Group at its recorded book value of
approximately $2.1 million. The OHI Group also sold two companies specializing
in plastics recycling and processing to Otto Waste Services at their net book
value of approximately $372,000. In connection with the acquisition of these two
companies, Otto Waste Services assumed liabilities of approximately $6.6 million
of long-term debt with third parties and approximately $7.7 million in net
payables with affiliated companies of Otto Waste Services and other companies
within the OHI Group. Each of the foregoing transactions was approved by the
Shareholder Committee of Otto Waste Services, which consists of representatives
of the Company and the OHI Group. Management of the Company believes that each
of these transactions was effected on terms that are substantially similar to
those that would have been effected with unrelated third parties.
In December 1996, the Company and OHI entered into an agreement for the
sale by the Company to OHI of the stock of one of the Company's subsidiaries.
The agreed to sales price, which is payable on May 31, 1997, is 19.6 million
deutsche marks (approximately U.S. $12.7 million as of December 31, 1996) and
was determined on the basis of arms' length negotiations between the
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<PAGE> 30
parties. OHI has the right to terminate the agreement before May 31, 1997.
Management of the Company believes that the terms of the agreement are
substantially similar to those that would have been effected with an unrelated
third party.
Louis A. Waters
See discussion under "Employment and Severance Agreements" for information
concerning the trust established and funded by the Company in order to provide
the retirement benefits that Mr. Waters is entitled to receive pursuant to the
terms of his employment agreement with the Company.
PROPOSAL TO APPROVE APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed Arthur Andersen LLP as independent
auditors of the Company and its subsidiaries for the fiscal year ending
September 30, 1997. This appointment was made subject to the approval of the
Company's shareholders. Accordingly, the following resolution will be offered at
the Meeting:
"RESOLVED, that the appointment by the Board of Directors of
Browning-Ferris Industries, Inc. of Arthur Andersen LLP as the auditors of
the Company and its subsidiary companies for the fiscal year ending
September 30, 1997, is hereby approved."
Arthur Andersen LLP has been serving the Company in this capacity since
1973 and has advised the Company that it will have in attendance at the Meeting
a representative who will be afforded an opportunity to make a statement, if
such representative desires to do so, and will respond to appropriate questions
presented at the Meeting.
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APPROVAL OF THE COMPANY'S
1996 STOCK INCENTIVE PLAN,
MANAGEMENT ANNUAL INCENTIVE PLAN
AND LONG-TERM INCENTIVE PLAN
During 1996, the Company announced new long-term financial goals that align
the Company's performance objectives with the creation of shareholder value. To
support the achievement of the Company's new financial goals, the Compensation
Committee of the Board of Directors (the "Committee") initiated a comprehensive
examination of the Company's executive compensation policies to develop a
strategy that would more closely link management's compensation to the
performance of the Company and the value created for shareholders.
As the result of its review, the Committee recommended, and the Board of
Directors adopted, the Browning-Ferris Industries, Inc. 1996 Stock Incentive
Plan (the "SIP"), Annual Management Incentive Plan (the "AMIP") and Long-Term
Incentive Plan (the "LTIP", collectively, with the SIP and AMIP, the "Incentive
Plans"). Each of the Incentive Plans was approved by the Board subject to
approval by the Company's shareholders at the Meeting. Along with the stock
ownership guidelines that have been established by the Committee (described
under the heading "Executive Stock Ownership Guidelines" on page 15 of this
Proxy Statement), the SIP and LTIP Plans were designed to provide executive
officers and key employees (including officers and directors who are employees)
of the Company with an opportunity to acquire a proprietary interest in the
Company, which will encourage them to more closely identify with shareholder
interests and to achieve financial results consistent with the Company's
long-range business plan. Further, the AMIP is designed to provide executive
officers and other officers of the Company with annual cash bonuses upon the
achievement of certain predetermined performance goals that are linked to the
performance objectives of the Company.
The Committee also designed the Incentive Plans to permit the Company to
take a deduction under Section 162(m) of the Internal Revenue Code (the "Code")
with respect to performance-based compensation to any participant who is a
"covered employee" within the meaning of Section 162(m).
Subject to shareholder approval of the Incentive Plans, at January 17,
1997, 1,015,000 performance shares have been awarded under the LTIP, which
shares are convertible into up to 1,015,000 shares of the Company's Common
Stock, $.16 2/3 par value ("Common Stock"), upon attainment of the performance
goals established under the LTIP discussed below under the heading "SUMMARY OF
THE LTIP". If the Incentive Plans are not approved by shareholders at the
Meeting, then each of the plans will be void and the performance shares granted
will be canceled.
The closing price of the Company's Common Stock on the New York Stock
Exchange on January 17, 1997 was $28.25 per share.
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<PAGE> 32
SUMMARY OF THE SIP
Grants under the SIP can take the form of stock options, restricted stock
or stock awards. As of January 17, 1997, no awards have been made under the SIP,
although up to a maximum of 1,500,000 shares of Common Stock may be issued under
the SIP upon vesting of the performance shares granted under the LTIP, which is
discussed below under the heading "SUMMARY OF THE LTIP".
ADMINISTRATION
The SIP is administered by the Committee. Subject to the limitations in the
SIP, the Committee has authority to determine and designate the eligible
individuals and to determine the type, amount and terms of any award. All
questions of interpretation and application of the SIP, or of any awards granted
under the SIP, are subject to the determination of the Committee.
SHARES SUBJECT TO SIP
The maximum number of shares of Common Stock which may be issued under the
SIP is 10,000,000 shares, of which no more than 1,500,000 shares may be awarded
as stock awards and restricted stock. The shares of Common Stock may be treasury
shares or authorized but unissued shares. In the event a stock option expires or
is terminated or canceled, the shares of Common Stock allocable to the
unexercised portion of such option will be available for future awards under the
plan.
ELIGIBILITY
The individuals eligible to receive awards under the SIP are key employees
(including officers and directors who are employees) and certain consultants of
the Company or any of its subsidiaries. The Company currently estimates that
approximately 1,200 employees are eligible to participate in the SIP.
AWARDS
The Committee is authorized to grant to such eligible individuals awards
under the SIP. Unless the Committee specifically provides otherwise, options
granted under the SIP are non-transferable except by will or the laws of descent
and distribution. The maximum number of shares of Common Stock which may be
covered by options granted to any one person under the SIP is 250,000 annually.
STOCK OPTIONS
Stock options granted under the SIP may be in the form of either incentive
stock options within the meaning of Section 422 of the Code or non-qualified
stock options. The price at which shares of Common Stock may be purchased
pursuant to a stock option will not be less than the fair market value of the
shares of Common Stock on the date of grant. Stock options will be exercisable
from time to time in part or as a whole, provided that no stock option will be
exercisable after the
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<PAGE> 33
expiration of ten years from the date of grant and no stock options will be
repriced. The exercise price of a stock option may be paid in cash, Common
Stock, or a combination thereof.
STOCK AWARDS AND RESTRICTED STOCK
A stock award consists of the issuance by the Company to a participant of
shares of Common Stock, without other payment therefor, in lieu of certain cash
compensation or as additional compensation for such participant's services to
the Company. Restricted stock grants consist of shares of Common Stock which are
issued by the Company to a participant at a price, which may be below fair
market value or which may be zero, but subject to certain restrictions deemed
appropriate by the Committee, including, but not limited to, restrictions on
transferability, requirements of continued employment, or attainment of certain
individual or Company performance measures. The Committee is authorized to
determine the number of shares of Common Stock to be issued to a participant
pursuant to a stock award or restricted stock grant, the prices at which shares
of restricted stock may be issued, and the restrictions on the shares of
restricted stock. Subject to the terms and conditions of the SIP, a participant
receiving shares of restricted stock will have all the rights of a shareholder
with respect to such shares, including without limitation, dividends and voting
rights. Stock awards and restricted stock grants do not constitute
performance-based compensation under Section 162(m) of the Code.
ADJUSTMENTS
The SIP provides for adjustment of the aggregate number of shares reserved
for issuance under the plan and the number of shares subject to any outstanding
option upon the occurrence of certain events. These events include, among other
things, stock splits, stock dividends, or any other increase or reduction in the
number of shares of the Common Stock outstanding provided the Company does not
receive consideration therefor. The SIP also provides that, in the event of a
merger, consolidation or sale of all of the Company's assets, the holder of any
outstanding option will be entitled to receive upon exercise the number and
class of shares of stock or other securities or property to which the holder
would have been entitled to receive if, immediately prior to such event, the
holder had been the holder of record of the number of shares of Common Stock as
to which such option is exercisable.
TERMINATION AND AMENDMENT
No awards may be granted after September 3, 2006. The Board may amend,
terminate or suspend the SIP at any time, in its sole and absolute discretion;
provided, however, that no amendment that would (a) materially increase the
number of shares of Common Stock that may be issued under the SIP, (b)
materially modify the requirements as to eligibility for participation in the
SIP, or (c) otherwise materially increase the benefits accruing to participants
under the SIP shall be made without the approval of the Company's shareholders.
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<PAGE> 34
SUMMARY OF THE AMIP
Awards under the AMIP consist of annual cash bonuses to executive officers
and other officers of the Company, based on the Company's performance. In lieu
of cash, eligible participants may elect to receive all or any portion of their
bonus amount in shares of restricted Common Stock, with a 25% stock premium,
under the Company's Convertible Annual Incentive Award Plan. See "Annual
Incentive Compensation" on page 14 of this Proxy Statement.
ADMINISTRATION
The AMIP is administered by the Committee, which will certify in writing as
to the achievement of performance criteria prior to payment of any awards.
Subject to the provisions of the plan, the Committee is authorized to administer
and interpret the plan and to exercise all powers and authorities either
specifically granted to it under the plan or necessary or advisable in the
administration of the plan. The determinations of the Committee are final and
conclusive; provided, however, that no action may be taken which would prevent
awards that are intended to provide "performance-based compensation," within the
meaning of Section 162(m) of the Code, from doing so. The Committee may, in its
discretion, reduce in whole or in part the amount of any award that would
otherwise be payable to a participant under the AMIP.
ELIGIBILITY
Executive officers and other officers of the Company are eligible to
participate in the AMIP. There are currently 23 employees eligible to
participate in the AMIP.
AWARDS
Within the time period prescribed by Section 162(m) of the Code, the
Committee will establish the performance goals for each fiscal year. The
performance goals will be based upon one or more of the following performance
measures: return on equity, assets, capital or investment; pre-tax or after-tax
profit levels expressed in absolute dollars or earnings per share of the
Company; cash flow or similar measures; or objective customer satisfaction
measures. The performance goals established by the Committee will include a
threshold level of performance below which no award will be payable and a
maximum award opportunity for each participant. Performance goals also may be
based upon attaining specified levels of Company performance based upon one or
more of the criteria described above relative to prior periods or the
performance of other companies.
With respect to participants who are not "covered employees" within the
meaning of Section 162(m) of the Code, the performance goals may also include an
individual or team goal component. Individual goals will be measured based upon
actual individual or team performance as compared to the previously described
Company performance measures. The Committee shall be responsible for determining
the portion of a participant's performance goals that may consist of individual
or team goals, the portion of any award attributable to such goals and whether
such award is contingent upon the attainment of the previously described Company
performance measures.
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<PAGE> 35
The Committee is authorized to adjust the method of calculating attainment
of performance goals in recognition of nonrecurring items and may reduce
performance results upon which awards are based to offset unintended results
arising from events not anticipated when the goals were established, provided
that the adjustment is permitted by Section 162(m) of the Code. The Committee
may also make a prorated award to an employee who becomes eligible for
participation in the plan after the start of any performance year. The maximum
annual award that may be granted to a participant under the AMIP is $2,000,000.
DEFERRALS
The Committee will permit participants to defer receipt of all or a portion
of an award under the terms of the Company's Deferred Compensation Plan.
AMENDMENT, MODIFICATION, SUSPENSION AND TERMINATION
The Board may amend, modify, suspend or terminate the AMIP for any purpose
except that no amendment or alteration will be effective prior to approval by
the Company's shareholders to the extent such approval is required pursuant to
Section 162(m) of the Code or otherwise required by law. Further, no amendment
to the AMIP shall be effective that would increase the maximum amount that can
be paid to a participant under the plan; change the performance criteria set
forth in the plan; or modify the eligibility requirements for participants
unless first approved by the Company's shareholders. Subject to earlier
termination pursuant to the above, the AMIP will terminate September 30, 2001.
After that date, no future awards may be granted.
CHANGE IN CONTROL
Immediately upon a change in control, all outstanding awards will be deemed
earned at the maximum performance goal level and the Company will make a payment
of such awards in cash within 10 days after the effective date of the change in
control. Such payment would not constitute "performance-based" compensation
within the meaning of Section 162(m) of the Code. A "Change in Control" shall be
deemed to have occurred when, with or without the approval of the Board of
Directors of the Company, (i) more than 25% of the voting power of the Company's
outstanding securities entitled to vote in elections of directors shall be
acquired by any person (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended); or (ii) as the result of a tender
offer, merger, consolidation, sale of assets or contested election, or any
combination of such transactions, the persons who were directors of the Company
immediately before the transaction shall cease to constitute a majority of the
Board of Directors of the Company or of any successor to the Company.
ESTIMATE OF BENEFITS
The amounts that will be paid pursuant to the AMIP for fiscal 1997 are not
currently determinable. If the AMIP had been in effect during fiscal year 1996,
the named executive officers would have received no cash bonuses.
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<PAGE> 36
SUMMARY OF THE LTIP
The LTIP is a five-year performance plan. Awards under the LTIP consist of
performance shares which are convertible into an equivalent number of shares of
Common Stock upon the attainment of certain Company and stock price performance
measures. In its discretion, the Committee is authorized to terminate the LTIP
at the end of four years. It is expected that the Committee will terminate the
plan and seek any required shareholder approval to institute a new long-term
plan if, at the end of four years, substantial progress has not been made in
attaining the performance goals described below.
ADMINISTRATION
The LTIP is administered by the Committee, which will certify in writing as
to the achievement of performance criteria prior to payment of any awards.
Subject to the provisions of the plan, the Committee is authorized to administer
and interpret the plan and to exercise all powers and authorities either
specifically granted to it under the plan or necessary or advisable in the
administration of the plan. The determinations of the Committee in the
administration of the plan are final and conclusive; provided, however, that no
action may be taken which would prevent awards that are intended to provide
"performance-based compensation," within the meaning of Section 162(m) of the
Code, from doing so.
ELIGIBILITY
Executive officers, other officers and key employees (including directors
who are employees) of the Company or any of its subsidiaries or affiliates who
are deemed by the Committee as having significant influence on the financial
performance of the Company are eligible to participate in the LTIP. Currently 30
employees are eligible to participate in the plan.
AWARDS
Awards under the plan consist of performance shares, which, upon the
attainment of certain performance goals, are convertible into shares of Common
Stock. Awards of performance shares do not provide the participant with rights
to dividends or voting rights prior to issuance of shares of Common Stock
pursuant to such award. Upon issuance of such Common Stock, participants will
also receive a cash payment equal to the sum of all dividends that would have
been declared on the Common Stock from October 1, 1996 through the issuance
date.
Participants are eligible for and receive only one award of performance
shares during the five-year period that began on October 1, 1996. The Committee
may make an award to an employee who becomes eligible for participation in the
plan after October 1, 1996. The number of performance shares subject to, and the
performance goals required for vesting of, any such award shall reflect the
remaining time in the performance period at the time the award is granted.
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<PAGE> 37
SHARES SUBJECT TO PLAN
The maximum number of performance shares which may be awarded pursuant to
the LTIP is 1,500,000 shares. Upon vesting, each performance share will be
converted to one share of Common Stock. No participant may receive an award in
excess of 200,000 performance shares. The shares of Common Stock issued upon
conversion of performance shares may be treasury shares or authorized but
unissued shares.
PERFORMANCE GOALS
The performance shares will vest in increments of 25% based on the
attainment of two performance goals. Each performance goal will have been
attained when the target levels for the two performance measures: "Cumulative
Cash Value Added" or "Cumulative CVA" and "Moving Average Stock Price", as
defined in the LTIP, have been attained and are concurrently in effect as of the
end of any fiscal quarter during the term of the plan. The table below sets
forth the target levels that must be achieved to attain each of the four
performance goals and the percentage of performance shares that vest upon the
attainment of each goal.
<TABLE>
<CAPTION>
PERFORMANCE GOALS
---------------------------------
1 2 3 4
--- ---- ---- ----
<S> <C> <C> <C> <C>
Cumulative CVA (in millions)...................... $20 $130 $240 $350
Moving Average Stock Price........................ $35 $ 40 $ 45 $ 50
Vesting of Performance Shares..................... 25% 25% 25% 25%
Cumulative Vesting of Performance Shares.......... 25% 50% 75% 100%
</TABLE>
DETERMINATION OF MOVING AVERAGE STOCK PRICE AND CUMULATIVE CVA
"Moving Average Stock Price" is generally defined as the average closing
price of a share of Common Stock as reported on the New York Stock Exchange
during the three-month time period immediately preceding the date of such
determination.
"Cumulative CVA" is generally defined as (i) operating cash flows (whether
positive or negative) from October 1, 1996 to the date of determination less
(ii) average gross assets for the applicable period multiplied by the plan
specified cost of capital of 13%. Cumulative CVA will be calculated at the end
of each fiscal year and each fiscal quarter in each partial fiscal year from
October 1, 1996, to the date of any such determination. Where applicable,
recognized definitions under generally accepted accounting principles will be
used in determining each of the items used to calculate Cumulative CVA. Certain
terms which are components of the Cumulative CVA calculation are generally
defined in the plan as follows:
Operating cash flow for any period is generally defined as the sum of (i)
net income, (ii) minority interest, (iii) depreciation, (iv) amortization, (v)
after-tax interest expense, and (vi) asset impairment write-downs or other
special charges during the period (except to the extent such write-downs or
charges constitute extraordinary items), increased by any extraordinary losses
or decreased by any extraordinary income during the period.
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Average gross assets generally means the average (determined as set forth
in the LTIP) of the Company's gross assets, defined generally as (a) the total
of (i) the book value of the Company's assets, plus (ii) accumulated
depreciation and amortization, plus (iii) an adjustment for goodwill attributed
to any pooling-of-interests acquisitions during the performance period, plus
(iv) any other reductions in the net book value of the assets prior to
disposition of the assets, less (b) the total of (i) non-interest bearing
current liabilities, plus (ii) deferred tax liabilities, plus (iii) continuing
environmental accruals of the Company.
PLAN TERM
The performance period will be the five-year period beginning October 1,
1996, and ending September 30, 2001.
SPECIAL CIRCUMSTANCES
In the event of (i) the death or disability of any participant, (ii) the
involuntary termination of employment (other than for cause) of any participant,
or (iii) subject to approval of the Committee, the retirement at age 65, such
participant will be entitled to receive a prorata portion of the next segment,
if any, of performance shares which vest and which the participant would have
been entitled to receive if such event had not occurred.
CHANGE OF CONTROL
Immediately upon a change of control all outstanding awards will vest
automatically, and all performance shares will be deemed earned at the maximum
performance goal level, i.e. the Cumulative CVA shall be deemed to be $350
million, and the Moving Average Stock Price shall be deemed to be $50. The
Company will issue certificates evidencing the Common Stock subject to such
performance share awards within 10 days after the effective date of the change
in control. Such award would not constitute "performance-based" compensation
within the meaning of Section 162(m) of the Code. The definition of "Change in
Control" is set forth on page 31 of this Proxy Statement.
34
<PAGE> 39
ESTIMATE OF BENEFITS
The benefits that will be received by participants in the LTIP are not
currently determinable. The number of performance shares that have been awarded
to the named executive officers and the other plan participants pursuant to the
LTIP is as follows:
<TABLE>
<CAPTION>
NUMBER OF
NAME AND POSITION PERFORMANCE SHARES
------------------------------------------------------------------ ------------------
<S> <C>
Bruce Ranck....................................................... 170,000
President and Chief Executive Officer
Norman A. Myers................................................... 72,000
Vice Chairman and Chief Marketing Officer
Louis A. Waters................................................... 72,000
Chairman and Chief Executive Officer of BFI International, Inc.
J. Gregory Muldoon................................................ 84,000
Executive Vice President and Chief Operating Officer
Rufus Wallingford................................................. 50,000
Senior Vice President and General Counsel
Executive Officer Group (including the persons named above)....... 636,000
Non-Executive Officer Director Group.............................. 76,000
Non-Executive Officer Employee Group.............................. 379,000
</TABLE>
FEDERAL INCOME TAX CONSEQUENCES
The following summary generally describes the principal federal income tax
consequences under current tax laws of certain events under each of the
Incentive Plans. The summary is general in nature and is not intended to cover
all tax consequences that may apply to a particular participant or to the
Company, nor does it describe foreign, state or local tax consequences.
INCENTIVE STOCK OPTIONS
No income results to a participant upon the grant or exercise of an
incentive stock option ("ISO") if the participant is an employee of the Company
or a subsidiary of the Company at all times during the period commencing on the
date of grant and ending on the date three months (or one year in the case of a
participant who is totally and permanently disabled) prior to the date of
exercise.
In the event of a disposition of stock received upon exercise of an ISO
after the ISO holding periods (within two years from the date the ISO is granted
or within one year from the date the ISO is exercised (the "ISO holding
periods")) have been satisfied, any gain or loss, equal to the difference
between the amount realized upon such disposition and the option price,
generally will be taxable as long-term capital gain or loss. In the event of a
disposition of stock received upon exercise of an ISO prior to the expiration of
the ISO holding periods, the participant will recognize
35
<PAGE> 40
ordinary income equal to the excess of the fair market value of such stock at
the time of exercise (or the amount realized upon such disposition, if less)
over the option price. If the amount realized upon such disqualifying
disposition exceeds the fair market value of such stock at the time of exercise,
the excess will be taxable as long-term or short-term capital gain, depending on
the participant's holding period.
No deduction is allowable to the Company upon the grant or exercise of an
ISO. In the event that a participant recognizes ordinary income as a result of a
disposition of stock received upon exercise of an ISO prior to the expiration of
the ISO holding periods, the Company generally will be entitled to a deduction
in an amount equal to the ordinary income recognized by the participant.
Certain additional special rules apply if the exercise price for an option
is paid for with the shares previously owned by the participant rather than in
cash.
NON-QUALIFIED STOCK OPTIONS
No income is recognized upon the grant of a non-qualified stock option to a
participant. The participant recognizes ordinary income upon exercise of the
non-qualified stock option equal to the excess of the fair market value of the
stock received upon exercise of the stock option on the date of exercise over
the option price. Such ordinary income is subject to withholding. The
participant's tax basis in these shares will be their fair market value when
purchased. On subsequent sale of such shares, gain or loss will be recognized in
an amount equal to the difference between the tax basis thereof and the amount
realized on such sale.
Certain additional special rules apply if the exercise price for an option
is paid for with shares previously owned by the participant rather than in cash.
RESTRICTED STOCK
A participant generally will not recognize taxable income upon the grant of
restricted stock, and the recognition of any income will be postponed until the
time that the restrictions on the shares lapse, at which time the participant
will recognize ordinary income equal to the fair market value of the restricted
stock at the time that such restrictions lapse. A participant may elect to be
taxed at the time of the grant of restricted stock and, if this election is
made, the participant will recognize ordinary income equal to the fair market
value of the restricted stock at the time of grant determined without regard to
any of the restrictions thereon.
STOCK AWARDS
Ordinary income will be recognized by a participant on the date of a stock
award. The participant will recognize ordinary income equal to the fair market
value of the shares on the date of the award, which becomes the tax basis in a
subsequent sale.
36
<PAGE> 41
PERFORMANCE SHARES
When performance shares are earned and stock is issued therefor, a
participant will realize ordinary income equal to the fair market value of the
performance shares.
DIVIDEND EQUIVALENTS
A participant realizes ordinary income upon the receipt of dividend
equivalents in an amount equal to any cash received.
DEDUCTIBILITY BY THE COMPANY
The Company generally will be entitled to a deduction equal to the ordinary
income recognized by the participant in the same taxable year in which the
participant recognizes ordinary income with respect to non-qualified stock
options, restricted stock, stock awards, performance shares and dividend
equivalent payments, except with respect to any payment resulting from a change
in control.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of Forms 3 and 4 furnished to the Company during
its most recent fiscal year and Forms 5 furnished to the Company with respect to
its most recent fiscal year, the Company believes that all transactions by
reporting persons were reported on a timely basis.
OTHER MATTERS
Management of the Company does not intend to present any other items of
business and knows of no other items of business that are likely to be brought
before the Meeting, except those set forth in the foregoing Notice of Annual
Meeting of Shareholders. However, if any other matters should properly come
before the Meeting, the persons named in the enclosed proxy will have
discretionary authority to vote such proxy in accordance with their best
judgment on such matters.
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Any shareholder who wishes to submit a proposal to be presented at the 1998
Annual Meeting of Shareholders must deliver such proposal to the Secretary of
the Company. The proposal must be received at the Company's executive offices
(757 N. Eldridge, Houston, Texas 77079) no later than September 24, 1997 for
inclusion in the Company's proxy statement and form of proxy relating to that
meeting.
37
<PAGE> 42
COST OF SOLICITATION
This solicitation is made on behalf of the Board of Directors of the
Company. The cost of solicitation of proxies in the accompanying form will be
paid by the Company. The Company will also, pursuant to regulations of the
Securities and Exchange Commission, make arrangements with brokerage houses and
other custodians, nominees and fiduciaries to send proxies and proxy materials
to their principals and will reimburse them for their reasonable expenses in so
doing. In addition to solicitation by use of the mails, certain directors,
officers and employees of the Company may solicit the return of proxies by
telephone, telegram or personal interviews. In addition, the Company has
retained Morrow & Co., Inc., New York, New York, to assist in the solicitation
of proxies and will pay approximately $10,000 in fees for the solicitation of
proxies to such firm, plus reimbursement of expenses.
By Order of the
Board of Directors,
/s/ Gerald K. Burger
Gerald K. Burger
Vice President and Secretary
Houston, Texas
January 22, 1997
38
<PAGE> 43
[BROWING-FERRIS INDUSTRIES, INC., LOGO]
=======================================
NOTICE OF 1997 ANNUAL MEETING
AND
PROXY STATEMENT
======================================
IMPORTANT
PLEASE SIGN AND DATE YOUR PROXY
AND PROMPTLY RETURN IT IN THE ENCLOSED
[RECYCLED PAPER LOGO] ENVELOPE.
<PAGE> 44
X PLEASE MARK YOUR 9934
VOTES AS IN THIS
EXAMPLE.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND WILL BE
VOTED. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" ALL OF THE BOARD
OF DIRECTORS' NOMINEES AND "FOR" PROPOSALS (2) AND (3).
- -------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3.
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of 2. Proposal to approve the appointment of Arthur
Director Anderson LLP as auditors for the Company's
(see reverse) 1997 fiscal year.
For, except vote withheld from the following 3. Proposal to approve the Company's 1990
nominee(s): Stock Incentive Plan, the Annual Management
Incentive Plan and the Long-Term Incentive
Plan.
- ---------------------------------------------
4. In their discretion, the proxies are authorized to
- --------------------------------------------- vote on such other matters as may properly come
before the meeting or any adjournment thereof.
All as more particularly described in the Proxy Statement
relating such meeting, receipt of which is hereby
acknowledged.
-----------------------------------------------------------------------------
PLEASE SIGN YOUR NAME HERE EXACTLY AS IT APPEARS HEREON. JOINT OWNERS
MUST EACH SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR,
TRUSTEE. OR GUARDIAN, PLEASE GIVE YOUR FULL TITLE AS IT APPEARS HEREON.
IF A CORPORATION, PLEASE SIGN IN FULL CORPORATE NAME BY PRESIDENT OR
OTHER AUTHORIZED OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP
BY AUTHORIZED PERSON.
-----------------------------------------------------------------------
-----------------------------------------------------------------------
SIGNATURE(S) DATE
</TABLE>
<PAGE> 45
BROWNING-FERRIS INDUSTRIES, INC.
PROXY -- ANNUAL MEETING OF SHAREHOLDERS -- MARCH 5, 1997
The undersigned shareholder of record on January 6, 1997, of
P Browning-Ferris Industries, Inc., a Delaware corporation (the "Company"),
herby appoints WILLIAM D. RUCKELSHAUS, and GERALD K. BURGER, either one or
R both of them, proxies of the undersigned, with full power of substitution,
to vote, as designated below, at the annual meeting of shareholders of the
O Company to be held on March 5, 1997, at 2:00 p.m., Houston time, in the
Company's auditorium located on the 14th floor of the corporate office at
X 757 N. Eldridge, Houston, Texas, and at any adjournment thereof, the number
of votes which the undersigned would be entitled to cast if personally
Y present:
To elect the following four nominees to serve as directors for
three-year terms and until their successors are duly elected and qualified:
Gregory D. Brenneman Marc J. Sharpiro
Harry J. Phillips, Sr. Robert M. Teeter
----------------
SEE REVERSE SIDE
----------------
<PAGE> 46
APPENDIX A
BROWNING-FERRIS INDUSTRIES
ANNUAL MANAGEMENT INCENTIVE PLAN
ARTICLE I. PURPOSE AND GENERAL DESCRIPTION
The purpose of the Annual Management Incentive Plan (the "Plan") of
Browning-Ferris Industries (the "Company") is to align the interest of the
Company's management and shareholders. Specifically, the Plan's objectives are
to:
o Focus management's attention on accomplishing results that lead to
increases in shareholder value;
o Support the financial objectives of the Company; and
o Offer a results-based compensation program that is competitive and
delivers superior rewards for exceptional results.
Accordingly, the Company may award to executive officers and other officers of
the Company, annual incentive compensation on the terms and conditions
established herein.
ARTICLE II. DEFINITIONS
As used in the Plan, the following terms shall have the meanings set forth
below:
"Annual Incentive Award" or "Award" means the compensation payable in
cash granted under the Plan to a Participant by the Committee pursuant
to such terms, conditions, restrictions and limitations established by
the Committee and the Plan.
"Base Salary" shall mean the actual base earnings of a Participant for
the Plan Year, as approved by the Committee, exclusive of any Awards
under this Plan or any other prior or present commitment, including
contractual arrangements, any salary advance, any allowance or
reimbursement, gratifications, and the value of any basic or
supplemental employee benefits or perquisites.
"Board" shall mean the Board of Directors of the Company.
"Change in Control," for all purposes of the Plan, shall be deemed to
have occurred if, with or without the approval of the Board, any of
the following events shall occur:
<PAGE> 47
(1) more than 25% of the voting power of the Company's outstanding
securities entitled to vote in elections of directors shall be
acquired by any person (as such term is used in Sections 13(d)
and 14(d) of the Exchange Act) except with respect to any
Participant who is included in any such person; or
(2) as the result of a tender offer, merger, consolidation, sale
of assets or contested election, or any combination of such
transactions, the persons who were directors of the Company
immediately before the transaction shall cease to constitute a
majority of the Board of the Company or of any successor to
the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Commission" shall mean the Securities and Exchange Commission.
"Committee" means the Compensation Committee of the Board, or such
other committee designated by the Board to administer the Plan,
provided that the Committee shall consist of two or more persons, each
of whom is an "outside director" within the meaning of Section 162(m)
of the Code.
"Company" means Browning-Ferris Industries, Inc., a Delaware
corporation, and its successors and assigns.
"Covered Employees" means those participants in the Plan who are
"covered employees" within the meaning of Section 162(m).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Participant" means an individual who is an executive officer or other
officer of the Company, including any Covered Employee.
"Performance Goals" shall be defined as the objective performance
criterion or criteria established by the Committee, pursuant to
Section V hereof, for the purpose of determining Awards under the
Plan.
"Plan" shall mean the Browning-Ferris Industries, Inc. Annual
Management Incentive Plan.
"Plan Year" means the consecutive 12 month period that constitutes the
Company's fiscal year.
"Restricted Stock" shall mean the shares of Common Stock, $.16-2/3 par
value, of the Company with such restrictions, including transfer and
vesting restrictions, as provided
-2-
<PAGE> 48
for in the Company's Convertible Annual Incentive Award Plan, as such
plan may be amended from time to time.
"Section 162(m)" shall mean Section 162(m) of the Code and the
regulations promulgated thereunder.
ARTICLE III. ADMINISTRATION
3.1 The Plan shall be administered by the Committee.
3.2 Subject to the provisions of the Plan, the Committee shall have the
authority in its sole discretion to administer and interpret the Plan
and to exercise all the powers and authorities either specifically
granted to it under the Plan or necessary or advisable in the
administration of the Plan, including, without limitation, to
establish the target and maximum Awards for each level of Participant;
to determine the performance measures and their relative weighting; to
determine whether, to what extent and under what circumstances any
Award may be settled, canceled, forfeited, exchanged, or surrendered;
to waive or modify any condition applicable to an Award subject to
compliance with Section 162(m); to make adjustments in the performance
goals of an Award (i) in recognition of unusual or nonrecurring events
affecting the Company or the financial statements of the Company,
subject to compliance, with Section 162(m), if applicable, or (ii) in
response to changes in applicable laws, regulations, or accounting
principles; to establish, amend or rescind any administrative
policies; and to make all other determinations necessary or advisable
for the administration of the Plan. The Committee may correct any
defect, supply any omission or reconcile any inconsistency in the Plan
or in any Award in the manner and to the extent it shall deem
desirable to carry it into effect. The determinations of the
Committee in the administration of the Plan, as described herein,
shall be final and conclusive; provided, however, that no action shall
be taken which will prevent Awards granted under the Plan that are
intended to provide "performance-based compensation," within the
meaning of Section 162(m), from doing so.
ARTICLE IV. ELIGIBILITY
All executive officers and other officers of the Company shall participate in
the Plan. The Committee may withdraw its approval for participation in the
Plan for a Participant at any time. In the event of such withdrawal, such
Participant shall cease to be a Participant as of the date designated by the
Committee and the employee shall be notified of such withdrawal as soon as
practicable following such action. Further, such Participant shall cease to
have any right to an Award for the Plan Year in which such withdrawal is
effective; provided, however, that the Committee may in its sole discretion,
authorize a prorated award based on the number
-3-
<PAGE> 49
of full months of participation prior to the effective date of such withdrawal
and the Company's performance during such period.
ARTICLE V. PERFORMANCE GOALS AND MEASURES
5.1 Performance Goals that are intended to comply with Section 162(m)
shall be established by the Committee within the time period
prescribed by Section 162(m) for the Plan Year relating to a specific
Award; provided, however, the Committee may establish Performance
Goals that are not intended to comply with Section 162(m) after such
time period. The Performance Goals may be identical for all
Participants or, at the discretion of the Committee, may be different
to reflect more appropriate measures of individual performance. The
criterion or criteria used in establishing Performance Goals may, at
the discretion of the Committee, include one or any combination of the
following: (i) return on equity, assets, capital or investment; (ii)
pre-tax or after-tax profit levels expressed in absolute dollars or
earnings per share of the Company; (iii) cash flow or similar
measures; or (iv) objective customer satisfaction measures. The
Performance Goals established by the Committee shall include a
threshold level of performance below which no Award will be payable
and a maximum Award opportunity for each Participant. Performance
Goals also may be based upon attaining specified levels of Company
performance based upon one or more of the criteria described above
relative to prior periods or the performance of other companies. The
determination of attainment of the Performance Goals shall be
determined in accordance with generally accepted accounting principles
and certified in writing by the Committee.
5.2 The Committee shall be authorized to make adjustments in the method of
calculating attainment of Performance Goals in recognition of: (i)
extraordinary or non-recurring items, (ii) changes in tax laws, (iii)
changes in generally accepted accounting principles or changes in
accounting policies, (iv) charges related to restructured or
discontinued operations, (v) restatement of prior period financial
results, and (vi) any other unusual, non-recurring gain or loss that
is separately identified and quantified in the Company's financial
statements. Notwithstanding the foregoing, the Committee may, at its
sole discretion, reduce the performance results upon which Awards are
based under the Plan, to offset any unintended result(s) arising from
events not anticipated when the Performance Goals were established,
provided that such adjustment is permitted by Section 162(m).
5.3 With respect to Participants other than Covered Employees, the
Performance Goals may, at the discretion of the Committee, include
Individual Goal components. Individual Goals shall be measured based
upon actual individual or team performance as compared to the
objective goals established by the Committee pursuant to Paragraph
5.1. The Committee shall be responsible for determining the relative
weighting of Individual Goals as a component of a Participant's
Performance Goals. The Committee
-4-
<PAGE> 50
shall determine which Participants, if any, are eligible to include
Individual Goals as a component of their Performance Goals. The
Committee may, in its sole discretion, determine that the portion of
Award attributable to Individual Goals shall only be payable upon the
attainment of that component of Performance Goals established pursuant
to Paragraph 5.1. Covered Employees shall not be eligible to include
Individual Goals as a component of their Performance Goals unless
permitted by Section 162(m).
ARTICLE VI. AWARDS
6.1 Awards under the Plan shall be paid in cash, or at the election of the
Participant, shares of Restricted Stock pursuant to the Company's
Convertible Annual Incentive Award Plan.
6.2. The Committee shall review the prior year's performance in relation to
the Performance Goals and determine the level of achievement of the
Performance Goals. Payment of Annual Incentive Awards to Participants
under the Plan shall occur only after the Committee has certified in
writing that the Performance Goals have been achieved for the relevant
Plan Year. Notwithstanding the attainment of Performance Goals of the
Company as a whole, Awards for individual Participants under the Plan
may be denied or adjusted downward by the Committee, in its sole
judgment, based on its assessment of the Participant's performance.
The maximum Annual Incentive Award that may be granted to a
Participant under the Plan for any Plan Year shall be $2.0 million.
ARTICLE VII. DEFERRALS AND SETTLEMENTS
The Committee may permit Participants to elect to defer receipt of all or a
portion of the Annual Incentive Award under the terms established pursuant to
the Company's Deferred Compensation Plan. It may also provide that amounts be
credited with interest.
ARTICLE VIII. WITHHOLDING TAXES
The Company shall have the right to deduct from any payment to be made pursuant
to the Plan the amount of any taxes required by law.
ARTICLE IX. NO RIGHT TO CONTINUED EMPLOYMENT OR AWARDS
No person shall have any claim or right to be granted an Award, and the grant
of an Award shall not be construed as giving a Participant the right to be
retained in the employ of the
-5-
<PAGE> 51
Company or its subsidiaries. Further, the Company and its subsidiaries
expressly reserve the right at any time to terminate the employment of any
Participant free from any liability, or any claim under the Plan, except as
provided herein.
ARTICLE X. CHANGE IN CONTROL
Immediately upon a Change in Control, all outstanding Awards (except Awards
held by a Participant included in any person causing a Change in Control
pursuant to clause (a) of the definition of Change in Control) shall be deemed
earned at the maximum Performance Goal level and the Company shall make payment
in cash to each Participant within ten (10) days after the effective date of
the Change in Control in the amount of such maximum Award. The granting of
Awards under the Plan shall in no way affect the right of the Company to
adjust, reclassify, reorganize, or otherwise change its capital or business
structure, or to merge, consolidate, dissolve, liquidate, sell or transfer all
or any portion of its businesses or assets.
It is recognized that under certain circumstances: (a) payments or benefits
provided to a Participant might give rise to an "excess parachute payment"
within the meaning of Section 280G of the Code; and (b) it might be beneficial
to a Participant to disclaim some portion of the payment or benefit in order to
avoid such "excess parachute payment" and thereby avoid the imposition of an
excise tax resulting therefrom; and (c) under such circumstances it would not
be to the disadvantage of the Company to permit the Participant to disclaim any
such payment or benefit in order to avoid the "excess parachute payment" and
the excise tax resulting therefrom.
Accordingly, the Participant may, at the Participant's option, exercisable at
any time or from time to time, disclaim any entitlement to any portion of the
payment or benefits arising under this Plan which would constitute "excess
parachute payments," and it shall be the Participant's choice as to which
payments or benefits shall be so surrendered, if and to the extent that the
Participant exercises such option, so as to avoid "excess parachute payments."
ARTICLE XI. AMENDMENT, MODIFICATION,
SUSPENSION OR TERMINATION
The Board may amend, modify, suspend or terminate this Plan for any purpose
except that no amendment or alteration shall be effective prior to approval by
the Company's shareholders to the extent such approval is then required
pursuant to Section 162(m) or otherwise required by law. Further, no amendment
to the Plan shall be effective that would (i) increase the maximum amount that
can be paid to a Participant under the Plan; (ii) change the performance
criterion or criteria set forth in Section V hereof for payment of Awards; or
(iii) modify the eligibility requirements for Participants in the Plan unless
first approved by the Company's shareholders.
-6-
<PAGE> 52
ARTICLE XII. GOVERNING LAW
The validity, construction and effect of the Plan and any actions taken or
relating to the Plan shall be determined in accordance with the laws of the
State of Texas and applicable Federal law.
ARTICLE XIII. OTHER BENEFIT AND COMPENSATION PROGRAMS
Unless otherwise specifically provided to the contrary in the relevant plan,
program or practice, settlements of Awards received by Participants under the
Plan shall not be deemed a part of a Participant's regular, recurring
compensation for purposes of calculating payments or benefits from any Company
benefit plan, program or practice or any severance policy of the Company.
Further, the Company may adopt other compensation programs, plans or
arrangements as it deems appropriate or necessary.
ARTICLE XIV. SUCCESSORS AND ASSIGNS
The Plan shall be binding on all successors and assigns of a Participant,
including, without limitation, the estate of such Participant and the executor,
administrator or trustee of such estate, or any receiver or trustee in
bankruptcy or representative of the Participant's creditors.
ARTICLE XV. EFFECTIVE DATE
This Plan shall be effective as of the date it is approved by the Board.
Notwithstanding the foregoing, the adoption of this Plan is expressly
conditioned upon approval by the Company's shareholders at the annual meeting
held in 1997. If the shareholders of the Company shall fail to approve this
Plan at such meeting, this Plan shall terminate and cease to be of any further
force or effect. Subject to earlier termination pursuant to Article XI, the
Plan shall have a term of five years from its effective date.
ARTICLE XVI. INTERPRETATION
The Plan as applicable to certain employees is designed and intended to comply
with Rule 16b-3 promulgated under the Exchange Act and with Section 162(m) of
the Code, and all provisions hereof shall be construed in a manner to so comply
with respect to such employees.
-7-
<PAGE> 53
APPENDIX B
BROWNING-FERRIS INDUSTRIES
LONG-TERM INCENTIVE PLAN
ARTICLE I. PURPOSE AND GENERAL DESCRIPTION
The purpose of the Long-Term Incentive Plan (the "Plan") of Browning-Ferris
Industries, Inc. (the "Company") is to align the interest of the Company's
management and shareholders. Specifically, the Plan's objectives are to:
o Focus management's attention on accomplishing results that lead to
increases in shareholder value;
o Support the financial objectives of the Company; and
o Offer a results-based compensation program that is competitive and
delivers superior rewards for exceptional results.
Participants in the Plan will receive Awards of Performance Shares which will
vest in segments subject to the Company's attaining specified Performance Goals
or Hurdles during the Performance Period of the Plan, as set forth herein. The
Performance Hurdles include the attainment of Cumulative Cash Value Amounts and
specified Moving Average Stock Prices. The Performance Period will be the five
years beginning October 1, 1996, subject to earlier termination as set forth
herein.
ARTICLE II. DEFINITIONS
1. As used in the Plan, the following terms shall have the meanings set
forth below:
"After-Tax Interest Expense" means the Interest Expense of the
Company, net of Interest Income, adjusted for income taxes based on
the effective tax rate or rates utilized in the Company's financial
statements for the period or periods for which the determination is
being made, excluding the effect on such tax rates of any special
charges at the discretion of the Committee.
"Average Gross Assets" means for any period the average of the Gross
Assets at the end of the immediately preceding fiscal year and at the
end of each fiscal quarter (including the fourth fiscal quarter)
ending on or prior to the date of such determination. Average Gross
Assets shall be calculated at the end of each fiscal year and at the
end of each fiscal quarter in such fiscal year during the Performance
Period.
"Award" means any grant of Performance Shares under the Plan to a
Participant by the Committee.
<PAGE> 54
"Award Agreement" means a written agreement with respect to an Award
between the Company and a Participant establishing the terms,
conditions, restrictions and limitations applicable to an Award. To
the extent an Award Agreement is inconsistent with the terms of the
Plan, the Plan shall govern the rights of the Participant thereunder.
"Board" shall mean the Board of Directors of the Company.
"Business Day" means any day on which the Stock Exchange is open for
trading.
"Capital Charge" means for any period the Average Gross Assets for the
period multiplied by the Cost of Capital applicable to the period.
"Cash Value Added" or "CVA" means for any period (1) Operating Cash
Flow (whether positive or negative) less the Capital Charge applicable
to the period. Cash Value Added or CVA shall be determined as of the
end of each fiscal year and of each fiscal quarter in any partial
fiscal year during the Performance Period.
"Change in Control," for all purposes of the Plan, shall be deemed to
have occurred if any of the following events shall occur (with or
without the approval of the Board):
(a) more than 25% of the voting power of the Company's outstanding
securities entitled to vote in elections of directors shall be
acquired by any person (as such term is used in Sections 13(d)
and 14(d) of the Exchange Act), except with respect to any
Participant who is included in any such person; or
(b) as the result of a tender offer, merger, consolidation, sale
of assets or contested election, or any combination of such
transactions, the persons who were directors of the Company
immediately before any such transaction shall cease to
constitute a majority of the Board of the Company or of any
successor to the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Commission" shall mean the Securities and Exchange Commission.
"Committee" means the Compensation Committee of the Board, or such
other committee designated by the Board to administer the Plan,
provided that the Committee shall consist of three or more persons,
each of whom is an "outside director" within the meaning of Section
162(m) of the Code.
"Common Stock" or "Shares" shall mean the shares of Common Stock, par
value $.16-2/3 a share, of the Company.
-2-
<PAGE> 55
"Company" means Browning-Ferris Industries, Inc., a Delaware
corporation, and its successors and assigns.
"Continuing Environmental Accruals" means long-term environmental and
landfill costs associated with obligations for closure and
post-closure of the Company's landfills, corrective actions and
remediations at certain of these landfill facilities and corrective
actions at Superfund sites (excluding any such costs associated with
discontinued operations of the Company), determined as set forth in
the financial statements of the Company.
"Cost of Capital" means 13% per annum for all purposes of the Plan
during the Performance Period.
"Cumulative Cash Value Added" or "Cumulative CVA" means the sum of the
Cash Value Added during each fiscal year and each fiscal quarter in
each partial fiscal year from October 1, 1996, to the date of any such
determination.
"Disability" means any physical or mental condition of any Participant
continuing for more than six (6) months which, in the sole judgment of
the Committee, is likely to continue and to prevent the Participant
from having any significant influence on the financial performance of
the Company.
"Dividend Equivalent" means an amount in cash equal to (i) the cash
dividends declared on each share of Common Stock from October 1, 1996,
to the date of vesting of any Performance Shares (including any
Performance Shares which vest as a result of a Change in Control)
multiplied by (ii) the number of Performance Shares vesting on any
such date.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Forfeiture Termination of Employment" means (i) any termination of
employment of a Participant for cause or (ii) any voluntary
termination of employment by a Participation prior to Normal
Retirement Age.
"GAAP" means generally accepted accounting principles.
"Gross Assets" means at any time (a) the total of (i) the book value
of the Company's assets, plus (ii) accumulated Depreciation and
Amortization, plus (iii) Pooling-of-Interests Goodwill during the
Performance Period, plus (iv) any other reductions in the net book
value of the assets prior to disposition of the assets, less (b) the
total of (i) non-interest bearing current liabilities, plus (ii)
Deferred Tax Liabilities, plus (iii) Continuing Environmental Accruals
of the Company.
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<PAGE> 56
"Moving Average Stock Price" means the average closing price of a
share of Common Stock as reported on the Stock Exchange composite tape
for each Business Day in the period beginning on any Business Day and
ending on the immediately preceding date which is also a Business Day
(or the next date which is a Business Day) in the third month
thereafter. For example, the Moving Average Stock Price would be
determined during the periods February 3 to May 2, 1997, and February
25 to May 25, 1998.
"Normal Retirement Age" means 65.
"Operating Cash Flow" means for any period the sum of (i) Net Income,
(ii) Minority Interest, (iii) Depreciation, (iv) Amortization, (v)
After-Tax Interest Expense, and (vi) asset impairment write-downs or
other special charges during the period (except to the extent such
write-downs or charges constitute Extraordinary Items), increased by
any Extraordinary Losses or decreased by any Extraordinary Income
during the period. Operating Cash Flow shall be determined for each
fiscal year and for each fiscal quarter in any partial fiscal year
during the Performance Period.
"Participant" means an officer or key employee of the Company or its
subsidiaries who is selected by the Committee to participate in the
Plan.
"Performance Goals" or "Hurdles" in respect to Awards of Performance
Shares mean the Cumulative CVA and Moving Average Stock Price
standards established pursuant to Paragraph 1 of Article V hereof, as
amended by the Committee in compliance with the provisions of
Paragraph 2 of Article V hereof.
"Performance Period" means the five year period beginning October 1,
1996, and ending September 30, 2001, subject to earlier termination at
the discretion of the Committee.
"Performance Shares" shall mean shares of Common Stock subject to an
Award granted pursuant to Article VI and deliverable upon attainment
of the Performance Goals.
"Plan" shall mean the Browning-Ferris Industries, Inc. Long Term
Incentive Plan.
"Pooling-of-Interests Goodwill" means, in connection with any
acquisition made by the Company during the Performance Period and
accounted for as a pooling-of-interests, an amount equal to the
closing price of a Share of Common Stock on the Stock Exchange on the
date of consummation of the acquisition multiplied by the number of
Shares issued in connection with the acquisition less the
stockholders' equity, partners' equity or other applicable measurement
of equity of the business acquired.
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<PAGE> 57
"Section 162(m)" shall mean Section 162(m) of the Code and the
regulations promulgated thereunder.
"Stock Exchange" means the New York Stock Exchange, Inc. ("NYSE") or,
if the Common Stock is no longer included on the NYSE, then such other
market price reporting system on which the Common Stock is traded or
quoted.
"Voting Stock" means securities entitled to vote in an election of
Directors of the Company.
2. Recognized definitions under GAAP, if applicable, shall be used in
determining any accounting item hereunder, including, without
limitation, Amortization, current liabilities, Deferred Tax
Liabilities, Depreciation, Extraordinary Items, Extraordinary Losses,
Extraordinary Income, Interest Expense, Interest Income, Minority
Interest, and Net Income (Loss). Such determinations shall be made on
a consolidated basis unless not permissible pursuant to GAAP.
ARTICLE III. ADMINISTRATION
1. The Plan shall be administered by the Committee.
2. Subject to the provisions of the Plan, the Committee shall have the
authority in its sole discretion to administer and interpret the Plan
and to exercise all the powers and authorities either specifically
granted to it under the Plan or necessary or advisable in the
administration of the Plan, including, without limitation, the
authority to select the Participants; to determine the Disability of
any Participant; to determine the number of Performance Shares subject
to any Award; to determine whether, to what extent and under what
circumstances any Award may be settled, canceled, forfeited,
exchanged, or surrendered, whether upon termination of employment or
otherwise; to waive or modify any condition applicable to an Award
subject to compliance with Section 162(m); to make adjustments in the
performance goals of an Award (i) in recognition of unusual or
nonrecurring events affecting the Company or the financial statements
of the Company, subject to compliance with Section 162(m), if
applicable, or (ii) in response to changes in applicable laws,
regulations, or accounting principles; to interpret the Plan; to
establish, amend or rescind any administrative policies; to determine
the terms and provisions of any agreements entered into hereunder; to
determine or establish procedures to determine whether Performance
Goals have been attained; to terminate the Plan after four (4) years
if the Committee so determines in its discretion; and to make all
other determinations necessary or advisable for the administration of
the Plan. The Committee may correct any defect, supply any omission
or reconcile any inconsistency in the Plan or in any Award in the
manner and
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<PAGE> 58
to the extent it shall deem desirable to carry it into effect. The
determinations of the Committee in the administration of the Plan, as
described herein, shall be final and conclusive; provided, however,
that no action shall be taken which will prevent Awards granted under
the Plan from meeting the requirements for exemption from Section
16(b) of the Exchange Act, or subsequent comparable statute, as set
forth in Rule 16b-3 under the Exchange Act or any subsequent
comparable rule; and, provided further, that no action shall be taken
which will prevent Awards hereunder that are intended to provide
"performance-based compensation," within the meaning of Section
162(m), from doing so.
ARTICLE IV. AWARDS
1. Awards under the Plan shall consist of Performance Shares. Awards of
Performance Shares shall not provide the Participant with rights to
dividends or voting rights prior to the Participant becoming the
holder of record of shares issued pursuant to an Award, except for the
right to receive a Dividend Equivalent pursuant to Paragraph 3 of
Article V. The terms, conditions and restrictions of each Award shall
be set forth in an Award Agreement, and such Award Agreement shall
include provisions respecting arbitration of any disputes thereunder.
2. Participants shall, except as set forth below, be eligible for and
receive only one Award of Performance Shares, subject to approval of
the Plan by the Shareholders of the Company. The Committee may, in
its discretion, subject to compliance with Section 162(m), make an
Award to an employee who becomes eligible for participation in the
Plan after October 1, 1996. The number of Performance Shares subject
to, and the Performance Hurdles required for vesting of, any such
Award shall reflect the remaining time in the Performance Period when
the Award is granted.
3. Eligible Participants include any executive named under Section 162(m)
and any other officer, senior executive or other employee of the
Company or its affiliates deemed by the Committee as having a
significant influence on the financial performance of the Company.
ARTICLE V. PERFORMANCE HURDLES
1. The Performance Shares vest in four separate segments effective as of
the end of any fiscal period (regardless of when any determination is
actually made) when both the Cumulative CVA and Average Stock Price
Performance Hurdles have been attained and are in effect as of the end
of such fiscal period as set forth below:
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<PAGE> 59
<TABLE>
<CAPTION>
Performance Hurdles
-------------------
1 2 3 4
- - - -
<S> <C> <C> <C> <C>
Cumulative CVA (in millions) $20 $130 $240 $350
Moving Average Stock Price $35 $ 40 $ 45 $ 50
Vesting of Performance Shares 25% 25% 25% 25%
Cumulative Vesting of Performance Shares 25% 50% 75% 100%
</TABLE>
2. The Committee shall have the right, in its discretion, to modify,
amend or otherwise adjust the Performance Hurdles, subject to
compliance with the requirements of Section 162(m), if it determines
an adjustment would be consistent with the objectives of the Plan,
taking into account the interests of the Participants and the
Shareholders of the Company. The types of events which could cause an
adjustment in the Performance Hurdles include, without limitation,
accounting changes which substantially affect the determination of
Performance Hurdles, changes in applicable laws or regulations which
affect the Performance Hurdles, divisive corporate reorganizations,
including spinoffs or other distributions of property or stock, or
other events which the Committee determines require an adjustment in
the Performance Goals.
3. Certificates representing any shares of Common Stock vested pursuant
to Paragraph I above shall be issued and distributed as soon as
reasonably practicable after the determination that such shares have
vested. The Company shall concurrently pay to each Participant any
Dividend Equivalent due in connection with the vesting of such
Performance Shares.
ARTICLE VI. PERFORMANCE SHARES SUBJECT TO THE PLAN
An aggregate of 1,5000,000 shares of Common Stock shall be available for Awards
of Performance Shares under the Plan, subject to adjustment in accordance with
the provisions of Article IX hereof. The maximum Award to any Participant
shall not exceed 200,000 Performance Shares in the aggregate. Shares of Common
Stock available for issuance under the Plan may be authorized and unissued
Shares or treasury shares, as the Company may from time to time determine. The
Board of Directors and the appropriate officers of the Company shall from time
to time take whatever actions are necessary to file required documents with
governmental authorities and the Stock Exchange to make shares of Common Stock
available for issuance pursuant to Awards. The Committee may from time to time
adopt and observe such procedures concerning the counting of shares against the
Plan maximum as it may deem appropriate under Rule 16b-3 issued pursuant to the
Exchange Act.
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<PAGE> 60
ARTICLE VII. SPECIAL CIRCUMSTANCES
1. Forfeiture Termination of Employment. In the event of the Forfeiture
Termination of Employment of any Participant, any Award shall
automatically terminate, and the Participant shall not be entitled to
any Performance Shares which have not vested previously.
2. Normal Retirement, Death, Disability, Involuntary Termination. In the
event of (i) the death or Disability of a Participant, (ii) the
involuntary termination of employment of a Participant (other than for
cause) or (iii) the retirement from employment of a Participant after
reaching Normal Retirement Age, the Participant shall, subject to
approval of the Committee in the case set forth in clause (iii), be
entitled to receive a prorata portion of the next segment, if any, of
Performance Shares which vest and which the Participant would have
been entitled to receive if he had not been terminated without cause,
retired, died or become disabled but not any additional segment of
Performance Shares which become vested thereafter. The proration
shall be based on the date of the Participant's involuntary
termination, retirement, death or Disability in relation to the date
of vesting of the Performance Shares occurring immediately before (or
October 1, 1996, if no such vesting date has occurred) and immediately
after such involuntary termination, retirement, death or Disability
date.
ARTICLE VIII. ADJUSTMENTS; WITHHOLDING TAXES
1. The existence of outstanding Awards shall not affect in any manner the
right or power of the Company or its shareholders to make or authorize
(i) any adjustments, recapitalizations, reorganizations or other
changes in the capital stock of the Company or its business; (ii) any
merger or consolidation of the Company; (iii) any issuance of bonds,
debentures, preferred or prior preference stock (whether or not such
issue is prior to, on a parity with or junior to the Common Stock);
(iv) the dissolution or liquidation of the Company, or any sale or
transfer of all or any part of its assets or business; or (v) any
other corporate act or proceeding of any kind, whether or not of a
character similar to that of the acts or proceedings enumerated above.
2. In the event of any subdivision or consolidation of outstanding shares
of Common Stock or declaration of a dividend payable in shares of
Common Stock or other stock split, then (i) the number of shares of
Common Stock issuable pursuant to each Award and (ii) the total number
of Shares reserved under the Plan shall each be proportionately
adjusted to reflect such transaction. In the event of any other
recapitalization or capital reorganization of the Company, any
consolidation or merger of the Company with another corporation or
entity, the adoption by the Company of a plan of exchange affecting
the Common Stock or any distribution to holders of
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<PAGE> 61
Common Stock of securities or property (other than normal cash
dividends or dividends payable in Common Stock), the Board of
Directors shall make appropriate adjustments to the number of shares
of Common Stock issuable pursuant to each Award to reflect such
transaction ; provided that such adjustments shall only be such as are
necessary to maintain the proportionate interest of the Participants
and preserve, without exceeding, the value of the Awards.
3. The Company shall have the right to deduct from any payment to be made
pursuant to the Plan the amount of any taxes required by law to be
withheld therefrom, or to require a Participant to pay to the Company
such amount required to be withheld prior to the issuance or delivery
of any shares of Common Stock or the payment of any Dividend
Equivalent under the Plan. The Committee may, in its discretion,
permit a Participant to elect to satisfy such withholding obligation
by (i) having the Company retain the number of shares of Common Stock
or (ii) tendering the number of shares of Common Stock, in either
case, at a value determined by the Committee to be equal to the amount
required to be withheld. Any fraction of a share of Common Stock
required to satisfy such obligation shall be disregarded and the
amount due shall instead be paid in cash, to or by the Participant, as
the case may be.
ARTICLE IX. REGULATORY APPROVALS AND LISTINGS
Notwithstanding anything contained in this Plan to the contrary, the Company
shall have no obligation to issue or deliver certificates evidencing Shares
under this Plan prior to (i) the obtaining of any approval from any
governmental agency which the Company shall, in its sole discretion, determine
to be necessary or advisable; (ii) the listing of such Shares on the Stock
Exchange; and (iii) the completion of any registration or other qualification
of the Shares under any state or federal law or ruling of any governmental body
which the Company shall, in its sole discretion, determine to be necessary or
advisable.
ARTICLE X. NO RIGHT TO CONTINUED EMPLOYMENT OR GRANTS
No person shall have any claim or right to be granted an Award, and the grant
of an Award shall not be construed as giving a Participant the right to be
retained in the employ of the Company or its subsidiaries. Further, the
Company and its subsidiaries expressly reserve the right at any time to
terminate the employment of any Participant free from any liability, or any
claim under the Plan, except as provided herein or in any Award Agreement
entered into hereunder.
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<PAGE> 62
ARTICLE XI. CHANGE IN CONTROL
1. Immediately upon a Change in Control, all outstanding Awards (except
Awards held by a Participant included in any person causing a Change
in Control pursuant to clause (a) of the definition of Change in
Control) shall vest automatically, and all Performance Share Awards
(including any Dividend Equivalent) shall be deemed earned at the
maximum Performance Goal level, i.e., the Cumulative CVA shall be
deemed to be $350 million and the Moving Average Stock Price shall be
deemed to be $50 upon the occurrence of such Change in Control.
2. The Company shall issue certificates evidencing the shares subject to
such Performance Share Awards, and a check in payment of any Dividend
Equivalent due in connection with the vesting of such Performance
Shares, within 10 days after the effective date of the Change in
Control.
3. It is recognized that under certain circumstances: (a) payments or
benefits provided to a Participant might give rise to an "excess
parachute payment" within the meaning of Section 280G of the Code; and
(b) it might be beneficial to a Participant to disclaim some portion
of the payment or benefit in order to avoid such "excess parachute
payment" and thereby avoid the imposition of an excise tax resulting
therefrom; and (c) under such circumstances it would not be to the
disadvantage of the Company to permit the Participant to disclaim any
such payment or benefit in order to avoid the "excess parachute
payment" and the excise tax resulting therefrom.
Accordingly, the Participant may, at the Participant's option,
exercisable at any time or from time to time, disclaim any entitlement
to any portion of the payment or benefits arising under this Plan
which would constitute "excess parachute payments," and it shall be
the Participant's choice as to which payments or benefits shall be so
surrendered, if and to the extent that the Participant exercises such
option, so as to avoid "excess parachute payments."
ARTICLE XII. GOVERNING LAWS
The validity, construction and effect of the Plan and any actions taken or
relating to the Plan shall be determined in accordance with the laws of the
State of Texas and applicable Federal law.
ARTICLE XIII. RIGHTS AS SHAREHOLDERS
A Participant shall have no rights as a shareholder until he or she becomes the
holder of record.
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<PAGE> 63
ARTICLE XIV. OTHER BENEFIT AND COMPENSATION PROGRAMS
Unless otherwise specifically provided to the contrary in the relevant plan,
program or practice, settlements of Awards received by Participants under the
Plan shall not be deemed a part of a Participant's regular, recurring
compensation for purposes of calculating payments or benefits from any Company
benefit plan, program or practice or any severance pay law of any country.
Further, the Company may adopt other compensation programs, plans or
arrangements as it deems appropriate or necessary.
ARTICLE XV. SUCCESSORS AND ASSIGNS
The Plan shall be binding on all successors and assigns of a Participant,
including, without limitation, the estate of such Participant and the executor,
administrator or trustee of such estate, or any receiver or trustee in
bankruptcy or representative of the Participant's creditors.
ARTICLE XVI. EFFECTIVE DATE
This Plan shall be effective as of October 1, 1996, subject to approval by the
Board. Notwithstanding the foregoing, the adoption of this Plan is expressly
conditioned upon approval by the Company's shareholders at the annual meeting
held in 1997. If the shareholders of the Company shall fail to approve this
Plan at such meeting, this Plan shall terminate and cease to be of any further
force or effect and all grants of Awards hereunder shall be null and void.
ARTICLE XVII. INTERPRETATION
The Plan as applicable to certain employees is designed and intended to comply
with Rule 16b-3 promulgated under the Exchange Act and with Section 162(m) of
the Code, and all provisions hereof shall be construed in a manner to so comply
with respect to such employees.
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<PAGE> 64
APPENDIX C
BROWNING-FERRIS INDUSTRIES, INC.
1996 STOCK INCENTIVE PLAN
1. PURPOSE. The 1996 Stock Incentive Plan (the "Plan") is to benefit
Browning-Ferris Industries, Inc. (the "Company") and its subsidiary
corporations through the maintenance and development of its management
by offering certain executives, key employees (including
employee-directors) and consultants of the Company and its
subsidiaries (the "Participants") an opportunity to become owners of
the Common Stock, $.16-2/3 par value, of the Company and is intended
to advance the best interests of the Company by providing such persons
with additional incentive by increasing their proprietary interest in
the success of the Company and its subsidiary corporations.
2. ADMINISTRATION. The Plan shall be administered by the Compensation
Committee of the Board of Directors of the Company or by another
committee designated to act by the Board of Directors (the
"Committee"). The Committee shall be comprised solely of two or more
directors each of whom is an "outside director" within the meaning of
Section 162(m) of the Internal Revenue Code of 1986, as amended, and
the rules and regulations issued thereunder, and a "non-employee
director" as defined in Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended ("Rule 16b-3"). Meetings shall be
held at such times and places as shall be determined by the Committee.
A majority of the members of the Committee shall constitute a quorum
for the transaction of business, and the vote of a majority of those
members present at any meeting shall decide any question brought
before that meeting. In addition, the Committee may take any action
otherwise proper under the Plan by the unanimous written consent of
its members. No member of the Committee shall be liable for any act or
omission of any other member of the Committee or for any act or
omission on his own part, including but not limited to the exercise of
any power or discretion given to him under the Plan, except those
resulting from his own gross negligence or willful misconduct. All
questions of interpretation and application of the Plan, or of options
granted hereunder (the "Options") and of stock awards and restricted
stock (which are defined in Paragraph 17 hereof) granted hereunder,
shall be subject to the determination, which shall be final and
binding, of a majority of the whole Committee.
3. OPTIONS, STOCK AWARDS AND RESTRICTED STOCK GRANTS. The stock subject
to the Options and other provisions of the Plan shall be shares of the
Company's Common Stock, $.16-2/3 par value (the "Stock"). The total
amount of the Stock with respect to which Options, stock awards and
restricted stock may be granted under this Plan shall not exceed in
the aggregate 10,000,000 shares, but no more than 1,500,000 shares of
Stock in the aggregate may be awarded as stock awards and restricted
stock grants; provided, that the class and aggregate number of shares
of Stock which may be subject to Options, stock awards and restricted
stock granted hereunder shall be subject to adjustment in accordance
with the provisions of Paragraph 16 hereof. Such shares of Stock may
be treasury shares or authorized but unissued shares of Stock. In the
event that any outstanding Option for any reason shall
<PAGE> 65
expire or is terminated or canceled, the shares of Stock allocable to
the unexercised portion of such Option may again be subject to an
Option, stock award or restricted stock under the Plan.
4. AUTHORITY TO GRANT OPTIONS. The Committee may grant from time to time
to such eligible individuals (the "Optionees") as set forth in
Paragraph 5 an Option or Options to buy a stated number of shares of
Stock under the terms and conditions of the Plan and the stock option
agreement. Options granted under the Plan may, in the discretion of
the Committee, be either incentive stock options as defined in Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
non-qualified stock options. Each stock option agreement shall
specifically state, for each Option granted thereunder, whether the
Option is an incentive stock option or a non-qualified option, but any
Option not designated by the Committee as an incentive stock option
shall be a non-qualified stock option. In no event, however, shall
both an incentive stock option and a non-qualified stock option be
granted together under the Plan in such a manner that the exercise of
one Option affects the rights to exercise the other. No Options shall
be granted under the Plan subsequent to September 3, 2006. Except as
provided in Paragraph 6, all provisions of this Plan relating to
options apply to both incentive and non-qualified options. The only
Options under the Plan which may be granted are those which either (i)
are granted after adoption of the Plan and are conditioned upon
approval of the Plan by the stockholders of the Company within twelve
months of such adoption or (ii) are granted after both adoption of the
Plan and approval thereof by the stockholders of the Company within
twelve months after the date of such adoption, all as provided in
Paragraph 21 hereof. The maximum number of Options which may be
granted to any one Participant from this Plan annually is 250,000;
provided, that the class and the aforesaid maximum number of shares
shall be subject to adjustments in accordance with the provisions of
Paragraph 16 hereof.
5. ELIGIBILITY FOR STOCK OPTIONS. Except as provided in Paragraph 6(iv),
the individuals who shall be eligible to receive Options under the
Plan shall be key employees (including employee-directors) of the
Company or of any subsidiary corporation and any person who is a party
to a written consulting agreement with the Company or any of its
subsidiary corporations, as determined by the Committee. Non-employee
directors are not eligible. For all purposes of the Plan, the term
"subsidiary corporation" shall mean any corporation of which the
Company is the "parent corporation" as that term is defined in Section
424(e) of the Code.
6. PROVISIONS APPLICABLE TO INCENTIVE STOCK OPTIONS. The following
provisions shall apply only to incentive stock options granted under
the Plan:
(i) No incentive stock option shall be granted to any employee
who, at the time such Option is granted, owns, within the
meaning of Section 422 of the Code, stock possessing more than
10 percent of the total combined voting power of all classes
of Stock of the Company or any of its subsidiaries, except
that such an Option may be granted to such an employee if at
the time the Option is granted the option price is at
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<PAGE> 66
least 110 percent of the fair market value of the Stock
(determined in accordance with Paragraph 7) subject to the
Option, and the Option by its terms is not exercisable after
the expiration of five years from the date the Option is
granted;
(ii) To the extent that the aggregate fair market value of stock
with respect to which incentive stock options (without regard
to this subparagraph) are exercisable for the first time by
any individual during any calendar year (under all plans of
the Company and its subsidiaries) exceeds $100,000, such
Options shall be treated as Options which are not incentive
stock options. This subparagraph shall be applied by taking
Options into account in the order in which they were granted.
If some but not all Options granted on any one day are subject
to this subparagraph, then such Options shall be apportioned
between incentive stock option and non-qualified stock option
treatment in such manner as the Committee shall determine.
For purposes of this subparagraph, the fair market value of
any stock shall be determined, in accordance with Paragraph 7,
as of the date the Option with respect to such Stock is
granted.
(iii) No incentive stock option granted under the Plan shall be
exercisable any sooner than one year from the date of grant.
(iv) Only employees (including employee-directors) of the Company
and its subsidiary corporations shall be eligible to receive
incentive stock options.
(v) Incentive stock options shall not be transferable by the
Optionee other than by will or under the laws of descent and
distribution, and shall be exercisable, during the Optionee's
lifetime, only by the Optionee or his legal guardian or
representative.
7. OPTION PRICE; FAIR MARKET VALUE. The price at which shares of Stock
may be purchased pursuant to an Option shall be not less than the fair
market value of the shares of Stock on the date the Option is granted,
and the Committee in its discretion may provide that the price at
which shares may be so purchased shall be more than such fair market
value. For all purposes of this Plan, the "fair market value" of the
Stock shall be the closing selling price of the Stock as reported in
The Wall Street Journal for the last trading day before the date as of
which such fair market value is to be determined. No Option may be
repriced.
8. DURATION OF OPTIONS. Subject to Paragraph 6 (i), no Option shall be
exercisable after the expiration of ten years from the date such
Option is granted. An Option shall expire immediately following the
last day on which such Option is exercisable pursuant to this
Paragraph 8 or any decision of the Committee made pursuant to
Paragraph 9.
9. AMOUNT EXERCISABLE. The Committee in its discretion may provide that
an Option shall be exercisable throughout the term of the Option or
during any lesser period of time from the date of grant of the Option
and ending upon or before the expiration of the term. Each Option may
be exercised, so long as it is valid and outstanding, from time to
time in part or
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<PAGE> 67
as a whole, subject to any limitations with respect to the number of
shares for which the Option may be exercised at a particular time and
to such other conditions as the Committee in its discretion may
specify upon granting the Option.
10. EXERCISE OF OPTIONS. Options shall be exercised by the delivery of
written notice to the Company setting forth the number of shares of
Stock with respect to which the Option is to be exercised, together
with cash, wire transfer, certified check, bank draft or postal or
express money order payable to the order of the Company (the
"Acceptable Funds") for an amount equal to the Option price of such
shares of Stock, or at the election of the Optionee, by exchanging
shares of Stock owned by the Optionee, so long as the exchanged shares
of Stock plus Acceptable Funds paid, if any, have a total fair market
value (determined in accordance with Paragraph 7, as of the date of
exercise) equal to the purchase prices for such shares to be acquired
upon exercise of said Option, and specifying the address to which the
certificates for such shares are to be mailed. Whenever an Option is
exercised by exchanging shares of Stock theretofore owned by the
Optionee: (1) no shares of Stock received upon exercise of that Option
thereafter may be exchanged to pay the Option price for additional
shares of Stock within the following six months; and (2) the Optionee
shall deliver to the Company certificates registered in the name of
such Optionee representing a number of shares of Stock legally and
beneficially owned by such Optionee, free of all liens, claims, and
encumbrances of every kind, accompanied by stock powers duly endorsed
in blank by the record holder of the shares represented by such
certificates, with signature guaranteed by a commercial bank or trust
company or by a brokerage firm having a membership on a registered
national stock exchange. Such notice may be delivered in person to
the Secretary of the Company, or may be sent by mail to the Secretary
of the Company, in which case delivery shall be deemed made on the
date such notice is received. As promptly as practicable after
receipt of such written notification and payment, the Company shall
deliver to the Optionee certificates for the number of shares with
respect to which such Option has been so exercised, issued in the
Optionee's name; provided, that such delivery shall be deemed effected
for all purposes when a stock transfer agent of the Company shall have
deposited such certificates in the United States mail, addressed to
the Optionee, at the address specified pursuant to this Paragraph 10.
The delivery of certificates upon the exercise of Options may, in the
discretion of the Committee, be subject to any reasonable conditions,
including, but not limited to (a) payment to the Company by the person
exercising such Option of the amount, determined by the Company, of
any tax liability of the Company (including but not limited to federal
and state income and employment taxes required to be withheld)
resulting from such exercise, or from a sale or other disposition of
the stock issued upon exercise of such Option (or a stock option
granted under another plan of the Company), if such sale or other
disposition might be a "disqualifying disposition" described in
Section 422(a) of the Code and (b) agreement by the person exercising
such Option to provide the Company with such information as the
Company might reasonably request pertaining to such exercise, sale or
other disposition. The Optionee may elect to have the Company accept
or retain Stock as payment of an Optionee's tax liability to the
Company, as described in (a), above.
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11. TRANSFERABILITY OF OPTIONS. Options shall not be transferable by the
Optionee other than by will or under the laws of descent and
distribution, and shall be exercisable, during the Optionee's
lifetime, only by the Optionee or his legal guardian or
representative; provided, however, subject to Paragraph 6(v), the
Committee, in its sole discretion, may grant Options that are
transferable by the Optionee to (i) immediate family members (such as
children, grandchildren or spouse); (ii) trusts for the benefit of the
Optionee's immediate family members; and (iii) partnerships in which
immediate family members are the only partners.
12. TERMINATION OF EMPLOYMENT OF OPTIONEE. Except as may be otherwise
expressly provided herein, Options shall terminate on such date as
shall be selected by the Committee in its discretion and specified in
the option agreement. If an Optionee is an employee of the Company or
of a subsidiary corporation at the time an Option is granted, and,
before the date of expiration of the Option, an employment
relationship with the Company and all subsidiaries is severed, for any
reason (except as otherwise provided for herein), the Option shall
terminate thirty days following severance of the employment
relationship. Whether authorized leave of absence, or absence on
military or government service, shall constitute severance of an
employment relationship with the Company or a subsidiary corporation
and the Optionee, shall be determined by the Committee at the time
thereof. If, before the date of expiration of a non-qualified Option,
the Optionee shall be retired in good standing from the employ of the
Company and all subsidiaries for reasons of age or disability under
the then established rules of the Company, the Option shall terminate
on the earlier of such date of expiration or one year after the date
of such retirement. In the event of such retirement, the Optionee
shall have the right prior to the termination of such Option to
exercise the Option to the extent to which he was entitled to exercise
such Option immediately prior to such retirement; however, in the
event that the Optionee has retired on or after attaining the age of
sixty-two (62) years, the Optionee shall be entitled to exercise all
or any part of such Option (without regard to any limitations imposed
pursuant to Paragraph 9 hereof. If during the exercisability period
as set forth hereinabove as being one year, an Optionee becomes an
employee or consultant for a competitor of the Company, it shall be
deemed that the employee's retirement status under the Plan shall be
considered as not in good standing and the exercisability period shall
automatically be reduced to thirty days from the date of the
consulting or employment arrangement, and further that the accelerated
vesting of stock options on or after age 62 shall be rescinded and
such Optionee shall only be able to exercise that portion of the
Option which was exercisable immediately prior to such retirement and
the remaining portion shall immediately be deemed canceled. Upon the
death of the Optionee, his executors, administrators, or any person or
persons to whom his Option may be transferred by will or by the laws
of descent and distribution, shall have the right, at any time prior
to the earlier of the date of expiration or one year following the
date of such death, to exercise the Option, in whole or in part
(without regard to any limitations imposed pursuant to Paragraph 9
hereof. The Committee shall be permitted, in its discretion, to grant
to any employee an Option which is an incentive stock option or a
non-qualified stock option with a provision that the Option shall
continue in full force and effect
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as a non-qualified stock option with no modification of the option
price if the person's status with the Company or its subsidiary
changes, but such person continues as a director or consultant of the
Company.
13. REQUIREMENTS OF LAW. The Company shall not be required to sell or
issue any shares under any Option if the issuance of such shares shall
constitute a violation by the Optionee or the Company of any
provisions of any law or regulation of any governmental authority.
14. NO RIGHTS AS STOCKHOLDER. No Optionee shall have rights as a
Stockholder with respect to shares covered by any Option until the
date of issuance of a stock certificate for such shares; and, except
as otherwise provided in Paragraph 16 hereof, no adjustment for
dividends, or otherwise, shall be made if the record date thereof is
prior to the date of issuance of such certificate.
15. NO EMPLOYMENT OR NOMINATION OBLIGATION. The granting of any Option
shall not impose upon the Company or any subsidiary any obligation to
continue to nominate an Optionee for election as a director or to
employ or continue to employ any Optionee; and the right of the
Company or any subsidiary to terminate the employment of any employee
shall not be diminished or affected by reason of the fact that an
Option has been granted to the employee.
16. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The existence of
outstanding Options shall not affect in any way the right or power of
the Company or its stockholders to make or authorize any or all
adjustments, recapitalizations, reorganizations or other changes in
the Company's capital structure or its business, or any merger or
consolidation of the Company, or any issue of bonds, debentures,
preferred or prior preference stock ahead of or affecting the Stock or
the rights thereof, or the dissolution or liquidation of the Company,
or any sale or transfer of all or any part of its assets or business,
or any other corporate act or proceeding, whether of a similar
character or otherwise.
If the Company shall effect a subdivision or consolidation of shares
or other capital readjustment, the payment of a stock dividend, or
other increase or reduction of the number of shares of the Stock
outstanding, without receiving compensation therefor in money,
services or property, then (a) the number, class, and per share price
of shares of stock subject to outstanding Options hereunder shall be
appropriately adjusted in such a manner as to entitle an Optionee to
receive upon exercise of an Option, for the same aggregate cash
consideration, an equivalent total number and class of shares as he
would have received had he exercised his Option in full immediately
prior to the event requiring the adjustment; and (b) the number and
class of shares then reserved for issuance under the Plan shall be
adjusted by substituting for the total number and class of shares of
Stock then reserved that number and class of shares of stock that
would have been received by the owner of an equal number of
outstanding shares of each class of Stock as the result of the event
requiring the adjustment.
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After a merger of one or more corporations into the Company, or after
a consolidation of the Company and one or more corporations in which
the Company shall be the surviving corporation, each holder of an
outstanding Option shall, at no additional cost, be entitled upon
exercise of such Option to receive (subject to any required action by
stockholders) in lieu of the number and class of shares as to which
such Option would have been so exercisable in the absence of such
event, the number and class of shares of stock or other securities or
property to which such holder would have been entitled pursuant to the
terms of the agreement of merger or consolidation if, immediately
prior to such merger or consolidation, such holder had been the holder
of record of the number and class of shares of Stock equal to the
number and class of shares as to which such Option shall be so
exercised.
If the Company is merged into or consolidated with another corporation
under circumstances where the Company is not the surviving
corporation, or if the Company sells or otherwise disposes of
substantially all its assets to another corporation and is liquidated
while unexercised Options remain outstanding under the Plan, (i)
subject to the provisions of clause (iii) below, after the effective
date of such merger, consolidation or sale and liquidation, as the
case may be, each holder of an outstanding Option shall be entitled,
upon exercise of such Option, to receive, in lieu of shares of the
Stock, shares of such stock or other securities as the holders of
shares of such class of Stock received pursuant to the terms of the
merger, consolidation or sale; (ii) the Committee may waive any
limitations imposed pursuant to Paragraph 9 hereof so that all
Options, from and after a date prior to the effective date of such
merger, consolidation, or sale and liquidation, as the case may be,
specified by the Committee, shall be exercisable in full; and (iii)
all outstanding Options may be canceled by the Committee as of the
effective date of any such merger, consolidation or sale and
liquidation provided that (x) notice of such cancellation shall be
given to each holder of an Option and (y) each holder of an Option
shall have the right to exercise such Option in full (without regard
to any limitations imposed pursuant to Paragraph 9 hereof during a
30-day period preceding the effective date of such merger,
consolidation or sale and liquidation.
Except as herein before expressly provided, the issue by the Company
of shares of stock of any class, or securities convertible into shares
of stock of any class, for cash or property, or for labor or services
either upon direct sale or upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or obligations of the
Company convertible into such shares or other securities, shall not
affect, and no adjustment by reason thereof shall be made with respect
to, the number, class or price of shares of Stock then subject to
outstanding Options.
17. STOCK AWARDS AND RESTRICTED STOCK GRANTS. A stock award consists of
the issuance by the Company to a Participant of shares of Stock,
without other payment therefor, in lieu of certain cash compensation
or as additional compensation for his services to the Company.
Restricted stock grants consist of shares of Stock which are issued by
the Company to a Participant at a price which may be below their fair
market value or for no payment, but
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subject to restrictions on their sale or other transfer by the
Participant. The issuance of Stock pursuant to stock awards and
restricted stock grants shall be subject to the following terms and
conditions:
(i) Number of Shares. Subject to Section 3, the number of shares
to be issued by the Company to a Participant pursuant to a
stock award or restricted stock grant shall be determined by
the Committee.
(ii) Sale Price. The Committee shall determine the prices, if any,
at which shares of restricted stock shall be issued to a
Participant, which may vary from time to time and among
Participants and which may be below the fair market value of
such shares of Stock at the date of sale and which may be
zero.
(iii) Restrictions. All shares of restricted stock issued hereunder
shall be subject to such restrictions as the Committee may
determine, including, without limitation any or all of the
following:
(a) a prohibition against the sale, transfer, pledge or
other encumbrance of the shares of restricted stock,
such prohibition to lapse (i) at such time or times
as the Committee shall determine (whether in annual
or more frequent installments, at the time of the
death, disability or retirement of the holder of
such shares, or otherwise) or (ii) upon written
certification by the Committee of the attainment of
certain performance measurements;
(b) a requirement that the holder of shares of restricted
stock forfeit, or (in the case of shares sold to a
Participant) resell back to the Company at his cost,
all or a part of such shares in the event of
termination of the holder's employment during any
period in which such shares are subject to
restrictions; or
(c) a prohibition against employment of the holder of
such restricted stock by any competitor of the
Company or its affiliates, or against such holder's
dissemination of any secret or confidential
information belonging to the Company or a subsidiary
of the Company.
Shares of restricted stock shall be registered in the name of the
Participant and deposited, together with a stock power endorsed in
blank, with the Company. Each such certificate shall bear a legend in
substantially the following form:
"The transferability of this certificate and the shares of
Common Stock represented by it are subject to the terms and
conditions (including conditions of forfeiture) contained in
the 1996 Stock Incentive Plan of the Company, and an agreement
entered into between the registered owner and the Company. A
copy of the Plan and agreement is on file in the office of the
Secretary of the Company."
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<PAGE> 72
At the end of any time period during which the shares of restricted
stock are subject to forfeiture and restrictions on transfer or upon
the attainment of certain performance measurements, such shares will
be delivered free of all restrictions to the Participant or to the
Participant's legal representative, beneficiary or heir.
Subject to the terms and conditions of the Plan, each Participant
receiving restricted stock shall have all the rights of a stockholder
with respect to shares of stock during any period in which such shares
are subject to forfeiture and restrictions on transfer, including
without limitation, the right to vote such shares. By accepting a
stock award or a restricted stock grant, the Participant agrees to
remit to the Company when due any federal and state income and
employment taxes required to be withheld by the Company and the
Participant may elect to have the Company accept or retain Stock as
payment of such tax liability. Dividends paid in cash or property
other than Stock with respect to shares of restricted stock shall be
paid to the Participant currently or, at the election of the
Participant, be reinvested by the Participant under the Company's
Dividend Reinvestment Plan. Shares purchased with reinvested dividends
shall not be restricted.
18. TERMINATION AND AMENDMENT OF THE PLAN. The Board of Directors of the
Company may amend, terminate or suspend the Plan at any time, in its
sole and absolute discretion; provided, however, no amendment that
would (a) materially increase the number of shares of Stock that may
be issued under the Plan, (b) materially modify the requirements as to
eligibility for participation in the Plan, or (c) otherwise materially
increase the benefits accruing to Participants under the Plan shall be
made without the approval of the Company's stockholders.
19. WRITTEN AGREEMENT. Each Option or restricted stock granted hereunder
shall be embodied in a written agreement, which shall be subject to
the terms and conditions prescribed above and shall be signed by the
Participant and by the Chairman of the Board, Chief Executive Officer,
the Vice Chairman, the President or any Vice President of the Company
for and in the name and on behalf of the Company. Stock awards
granted hereunder may be embodied in such a written agreement. Such
an Option, stock award or restricted stock agreement shall contain
such other provisions as the Committee in its discretion shall deem
advisable.
20. INDEMNIFICATION OF COMMITTEE. The Company shall indemnify each
present and future member of the Committee against, and each member of
the Committee shall be entitled without further act on his part to
indemnity from the Company for, all expenses (including the amount of
judgments and the amount of approved settlements made with a view to
the curtailment of costs of litigation, other than amounts paid to the
Company itself) reasonably incurred by him in connection with or
arising out of any action, suit or proceeding in which he may be
involved by reason of his being or having been a member of the
Committee, whether or not he continues to be a member of the Committee
at the time of incurring such expenses; provided, however, that such
indemnity shall not include any expenses incurred by any such member
of the Committee (a) in respect of matters as to which he shall be
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finally adjudged in any such action, suit or proceeding to have been
guilty of gross negligence or willful misconduct in the performance of
his duty as a member of the Committee, or (b) in respect of any matter
in which any settlement is effected, to an amount in excess of the
amount approved by the Company on the advice of its legal counsel; and
provided further, that no right of indemnification under the
provisions set forth herein shall be available to or enforceable by
any such member of the Committee unless, within sixty (60) days after
institution of any such action, suit or proceeding, he shall have
offered the Company, in writing, the opportunity to handle and defend
same at its own expense. The foregoing right of indemnification shall
inure to the benefit of the heirs, executors or administrators of each
such member of the Committee and shall be in addition to all other
rights to which such member of the Committee may be entitled as a
matter of law, contract, or otherwise.
21. ADOPTION, APPROVAL AND EFFECTIVE DATE OF PLAN. The Plan shall be
considered adopted and shall become effective on the date the Plan is
approved by the Board of Directors of the Company; provided, however,
that the Plan and any grants of Options, stock awards or restricted
stock grants thereunder, shall be void, if the stockholders of the
Company shall not have approved adoption of the Plan within twelve
months after such effective date.
22. GOVERNING LAW. This Plan and all determinations made and actions
taken pursuant hereto shall be governed by the laws of the State of
Delaware, without reference to principles of conflict of laws, and
shall be construed accordingly.
23. COMPLIANCE WITH SEC REGULATIONS. It is the Company's intent that all
transactions under the Plan comply in all respects with Rule 16b-3,
and any successor rule pursuant thereto. If any provision of this
Plan is later found not to be in compliance with the Rule, the
provision shall be deemed null and void. All grants of Options and
Stock and all exercises of Options under this Plan shall be executed
in accordance with the requirements of Section 16 of the Securities
Exchange Act of 1934, as amended, and any regulations promulgated
thereunder.
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