<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 Rule 14a-11(c) or Rule 14a-12
P. H. GLATFELTER COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[LOGO]
P. H. GLATFELTER COMPANY
228 SOUTH MAIN STREET
SPRING GROVE, PENNSYLVANIA 17362
---------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
APRIL 23, 1997
---------------------
TO THE SHAREHOLDERS:
The annual meeting of shareholders of P. H. Glatfelter Company will be held
at the Company's principal office, 228 South Main Street, Spring Grove,
Pennsylvania, on Wednesday, April 23, 1997 at 10:00 A.M. for the following
purposes:
1. To elect five members of the Board of Directors, one to serve a
two-year term expiring in 1999 and four to serve for full three-year terms
expiring in 2000.
2. To consider and take action upon a proposal to approve amendments
to the Company's 1992 Key Employee Long-Term Incentive Plan.
3. To consider and take action upon a proposal to approve the
Company's Management Incentive Plan.
4. To transact such other business as may properly come before the
meeting.
Only holders of Common Stock of record on the transfer books of the Company
at the close of business on February 26, 1997 will be entitled to notice of and
to vote at the meeting.
It is important that your shares be represented and voted at the Annual
Meeting. Whether or not you currently intend to be present personally at the
Annual Meeting, you are urged to complete, date, sign and return the
accompanying proxy in the enclosed, self-addressed envelope requiring no postage
if mailed in the United States. You may still vote in person if you do attend
the Annual Meeting.
/s/ R.S. WOOD
R. S. WOOD,
Secretary
March 14, 1997
<PAGE> 3
P. H. GLATFELTER COMPANY
PROXY STATEMENT
INTRODUCTION
The accompanying proxy is solicited by the Board of Directors of P. H.
Glatfelter Company (the "Company"), 228 South Main Street, Spring Grove,
Pennsylvania 17362. Copies of this proxy statement and the accompanying proxy
are being mailed to the holders of Common Stock on or after March 14, 1997. The
proxy may be revoked by a shareholder at any time prior to its use by giving
written notice of such revocation to the Secretary of the Company, by appearing
at the meeting and voting in person or by the timely submission of a properly
executed later dated proxy. The expense of this solicitation will be paid by the
Company. Some of the officers and other employees of the Company may solicit
proxies personally and by telephone.
Holders of Common Stock of record at the close of business on February 26,
1997 will be entitled to one vote per share so held of record on all business of
the meeting, except that the holders have cumulative voting rights in elections
of directors. Therefore, each shareholder is entitled to as many votes in the
election of directors of each class as shall equal the number of his shares of
Common Stock multiplied by the number of directors of such class to be elected.
A shareholder may cast all such votes for a single nominee or may distribute
them between two or more nominees within such class as he sees fit. The Company
had 42,330,048 shares of Common Stock outstanding on the record date. Under
Pennsylvania law and the by-laws of the Company, the presence at the annual
meeting, in person or by proxy, of shareholders entitled to cast at least a
majority of the votes that all shareholders are entitled to cast on a particular
matter will constitute a quorum for the purposes of consideration and action on
such matter. If the proxy is signed and returned without directions, the shares
will be voted as indicated in the Proxy Statement by the persons named in the
accompanying proxy. The votes will be counted by judges of election appointed by
the Company.
ELECTION OF DIRECTORS
One director is to be elected at the annual meeting of shareholders to
serve a two-year term expiring on the date of the 1999 annual meeting and until
his successor is elected and shall qualify. Four directors are to be elected at
the annual meeting of shareholders to serve three-year terms expiring on the
date of the 2000 annual meeting of shareholders and until their respective
successors are elected and shall qualify. The persons named in the accompanying
proxy intend to vote for the election of R. W. Kelso for a term expiring in
1999, and R. E. Chappell, G. H. Glatfelter II, T. C. Norris and R. L. Smoot for
terms expiring in 2000, unless authority to vote for one or more of such
nominees is specifically withheld in the proxy. Messrs. Chappell, Glatfelter,
Kelso, Norris and Smoot are currently directors of the Company. The persons
named in the proxy will have the right to vote cumulatively and to distribute
their votes among the nominees as they consider advisable. The nominee for
election as director for a term expiring in 1999 receiving the highest number of
votes cast by shareholders entitled to vote thereon, and the four nominees for
election as directors for terms expiring in 2000 receiving the highest number of
votes cast by shareholders entitled to vote thereon, will be elected to serve on
the Board of Directors. Votes that are withheld will be counted in determining
the presence of a quorum, but will have no effect on the vote. The Board of
Directors is informed that all the nominees are willing to serve as directors,
but if any of them should decline to serve or become unavailable for election as
a director at the meeting, an event which the Board of Directors does not
anticipate, the persons named in the proxy will vote for such nominee or
nominees as may be designated by the Board of Directors unless the Board of
Directors reduces the number of directors accordingly.
The following table sets forth information as to the nominees and the other
persons who are to continue as directors of the Company after the annual
meeting. The offices referred to in the table are offices of the
<PAGE> 4
Company unless otherwise indicated. For information concerning the number of
shares of Common Stock of the Company owned by each director and all directors
and officers as a group as of February 26, 1997, see "Ownership of Common
Stock."
<TABLE>
<CAPTION>
YEAR FIRST PRINCIPAL OCCUPATION AND
ELECTED A BUSINESSES DURING LAST FIVE
NAME AGE DIRECTOR YEARS AND CURRENT DIRECTORSHIPS
- --------------------------- --- ---------- -----------------------------------------------
<S> <C> <C> <C>
Nominee to be elected for a term expiring in 1999:
Richard W. Kelso 59 1997 President and Chief Executive Officer, PQ
Corporation; Director of SPS Technologies
Nominees to be elected for terms expiring in 2000:
Robert E. Chappell 52 1989 Chairman and Chief Executive Officer, Penn
Mutual Life Insurance Company from January 1,
1997 to present; President and Chief Executive
Officer, Penn Mutual Life Insurance Company
from April 1, 1995 to December 31, 1996;
President and Chief Operating Officer, Penn
Mutual Life Insurance Company from January 1994
to April 1995; Executive Vice President, PNC
Bank Corp. (formerly PNC Financial Corp.), a
bank holding company, from January 1992 to
December 1993
George H. Glatfelter II(1) 45 1992 Senior Vice President since September 1995;
Vice President--General Manager, Glatfelter
Paper Division from May 1993 to September 1995;
General Manager, Glatfelter Paper Division
prior to May 1993
Thomas C. Norris 58 1976 Chairman, President and Chief Executive Officer
Richard L. Smoot 56 1994 President and Chief Executive Officer, PNC
Bank, National Association, Philadelphia/South
Jersey markets since October 1995; President
and Chief Executive Officer, PNC Bank, National
Association, Philadelphia prior to October 1995
Directors continuing for terms expiring in 1999:
Nicholas DeBenedictis 51 1995 Chairman and Chief Executive Officer of
Philadelphia Suburban Corporation since May
1993; President and Chief Executive Officer of
Philadelphia Suburban Corporation and Chairman
of Philadelphia Suburban Water Company from
July 1992 to May 1993; Senior Vice President of
Corporate Public Affairs of Philadelphia
Electric Company March 1989 to June 1992;
Director of Philadelphia Suburban Corporation,
Air and Water Technologies Corporation and
Provident Mutual Life Insurance Company
George H. Glatfelter(1) 70 1970 Retired; former Vice President--Manufacturing,
Spring Grove Mill
M. A. Johnson II 63 1970 Retired; former Executive Vice President,
Treasurer and Chief Financial Officer
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
YEAR FIRST PRINCIPAL OCCUPATION AND
ELECTED A BUSINESSES DURING LAST FIVE
NAME AGE DIRECTOR YEARS AND CURRENT DIRECTORSHIPS
- --------------------------- --- ---------- -----------------------------------------------
<S> <C> <C> <C>
Directors continuing for terms expiring in 1998:
Roger S. Hillas 69 1964 Retired; Chairman and Chief Executive Officer,
Meritor Savings Bank, prior to December 1992;
Director of Consolidated Rail Corporation, Toll
Bros., Inc., VF Corporation and The Bon-Ton
Stores, Inc.
Paul R. Roedel 69 1992 Retired; Chairman and Chief Executive Officer,
Carpenter Technology Corporation, manufacturer
of specialty metals, prior to July 1992;
Director of Carpenter Technology Corporation
and GPU, Inc.
John M. Sanzo 47 1992 Private Financial Consultant since June 1994;
President, Edison Control Corporation,
manufacturer of circuit indicators for electric
utility industry, from November 1991 to June
1994; Managing Director, The First Boston
Corporation, an investment bank, prior to
August 1991
</TABLE>
- ---------------
(1) George H. Glatfelter II is the son of George H. Glatfelter.
APPROVAL OF AMENDMENTS TO THE
1992 KEY EMPLOYEE LONG-TERM INCENTIVE PLAN
At the annual meeting, shareholders will be asked to approve amendments to
the 1992 Key Employee Long-Term Incentive Plan (the "Long-Term Incentive Plan").
If adopted, these amendments will (a) increase the maximum aggregate number of
shares of Common Stock which may be issued under the Long-Term Incentive Plan
from 3,000,000 to 5,000,000, (b) limit to 200,000 the maximum number of shares
of Common Stock with respect to which options may be granted under the Long-Term
Incentive Plan to any individual during any calendar year, (c) extend the
termination date for the Long-Term Incentive Plan from April 22, 2002 until
April 23, 2007, (d) permit directors (including directors who are not employees
of the Company) to be granted stock options and restricted stock awards under
the Long-Term Incentive Plan, (e) grant to the Compensation Committee of the
Board of Directors (the "Compensation Committee") administering the Long-Term
Incentive Plan greater authority to accelerate the exercisability or vesting of
awards and to extend the post-termination exercise periods (but not beyond the
end of the stated term) for options granted under the Long-Term Incentive Plan,
(f) specify the types of performance goals that the Compensation Committee may
use when granting performance-based awards, (g) limit the number of performance
shares and the dollar amount of any performance units awarded to any individual
during any calendar year to 60,000 and $1,000,000, respectively, and (h) require
that the Company seek shareholder approval of future amendments to the Long-Term
Incentive Plan only if such approval is necessary to comply with the Internal
Revenue Code of 1986, as amended (the "Code"), federal or state securities law
or other applicable rules and regulations. The Long-Term Incentive Plan, as
proposed to be amended, is set forth in full as Exhibit A to this Proxy
Statement and is incorporated herein by reference.
The Long-Term Incentive Plan was originally approved by the Board of
Directors on March 25, 1992 and by the shareholders of the Company on April 22,
1992. It was amended by the Board on March 13, 1997, subject to the approval of
certain amendments by the shareholders of the Company at the annual meeting.
Certain of the amendments are necessary for awards under the Long-Term Incentive
Plan to qualify as performance-based compensation that will be deductible for
federal income tax purposes under Section 162(m) of the Code. (See "Report of
Compensation Committee on Executive Compensation.") The Long-Term Incentive
Plan, as amended, is designed to enable the Company to offer key employees and
directors of
3
<PAGE> 6
the Company and its subsidiaries equity interests in the Company and other
incentive awards in order to attract, retain, and reward such individuals and to
strengthen the mutuality of interests between such individuals and the Company's
shareholders.
ADMINISTRATION
The Long-Term Incentive Plan is administered by the Compensation Committee.
Under the Long-Term Incentive Plan, the Compensation Committee must be composed
of at least three directors, each of whom is a "non-employee director" within
the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as in
effect from time to time, and an "outside director" within the meaning of
Section 162(m) of the Code and regulations promulgated thereunder, as in effect
from time to time. The Compensation Committee, subject to the provisions of the
Long-Term Incentive Plan, as amended, will have the authority to determine and
designate officers, key employees and directors to whom awards shall be made and
the terms, conditions and restrictions applicable to each award (including, but
not limited to, the option price, any restriction or limitation, any vesting
schedule or acceleration thereof, and any forfeiture restrictions). The
Compensation Committee may, in its sole discretion, accelerate the vesting of
awards or extend the period during which an option may be exercised after an
optionee ceases to be an employee or director of the Company, but not beyond the
expiration of its stated term.
TYPES OF AWARDS
The Long-Term Incentive Plan contains provisions for granting various
awards, including non-qualified stock options, incentive stock options as
defined in Section 422 of the Code, performance shares, performance units and
restricted stock.
Stock Options. A "stock option" is a contractual right to purchase a
number of shares of Common Stock at a price determined on the date the option is
granted. The option price per share of Common Stock purchasable upon exercise of
a stock option and the time or times at which such options shall be exercisable
shall be determined by the Compensation Committee at the time of grant. Such
option price shall not be less than 100% of the fair market value of the Common
Stock on the date of grant in the case of an incentive stock option and shall
not be less than 85% of the fair market value of the Common Stock on the date of
grant in the case of a non-qualified stock option. Unless otherwise determined
by the Compensation Committee, the option price may be paid in whole or in part
in the form of Common Stock already owned by the participant, based on the fair
market value of such Common Stock on the last trading date preceding payment.
No stock option may be exercised within six months after the date of grant
nor more than ten years after the date of grant and, except as provided by the
Compensation Committee, no option may be exercised if the optionee ceases to be
an employee or a director of the Company for any reason other than death or
disability. In the event of death or disability, any option exercisable at the
date of death or the date on which disability commenced may be exercised for a
period of one year from the date of death or commencement of disability (unless
otherwise determined by the Compensation Committee at or after the date of
grant) or until the expiration of the stated term of the option, whichever
period is shorter.
Restricted Stock. "Restricted stock" are shares of Common Stock granted to
a participant for no or nominal consideration which will be forfeited to the
Company if the recipient ceases to be an employee or director of the Company
during a restriction period specified by the Compensation Committee. In lieu of
issuing a stock certificate representing such shares of Common Stock upon lapse
of the applicable restrictions, the Compensation Committee may, in its sole
discretion, elect to distribute to the participant cash in an amount equal to
the fair market value of such shares on the date such restrictions lapse. In the
event of death or disability, the restrictions will lapse with respect to that
percentage of restricted stock held by the participant that is equal to the
percentage of the restriction period that had elapsed as of the date of death or
commencement of disability.
4
<PAGE> 7
Performance Share. A "performance share" is an award of the right to
receive stock (or cash of an equivalent value) at the end of a specified
performance period only if specified performance goals are met. As amended, the
Long-Term Incentive Plan provides that performance goals may be based on the
Company's stock price, return on assets, return on capital employed, return on
shareholders' equity, earnings, earnings per share, total shareholder return,
sales, costs, or such other objective performance goals as may be established by
the Compensation Committee from time to time. Performance shares shall be
forfeited upon termination of employment during the performance period for any
reason other than death or disability. In the event of death or disability, the
participant or his estate will be entitled to receive, at the expiration of the
performance period, a percentage of his performance shares equal to the
percentage of the performance period that had elapsed at the time of death or
commencement of disability, provided that the Compensation Committee determines
that the applicable performance goals have been met.
Performance Unit. A "performance unit" is an award of the right to receive
a fixed dollar amount, payable in cash or stock of an equivalent value, at the
end of a specified performance period only if specified performance goals are
met. As amended, the Long-Term Incentive Plan provides that performance goals
may be based on the Company's stock price, return on assets, return on capital
employed, return on shareholders' equity, earnings, earnings per share, total
shareholder return, sales, costs, or such other objective performance goals as
may be established by the Compensation Committee from time to time. Performance
units will be forfeited upon termination of employment during the performance
period for any reason other than death or disability. In the event of death or
disability, the participant or his estate will be entitled to receive, at the
expiration of the performance period, a percentage of his performance units
equal to the percentage of the performance period that had elapsed at the time
of death or commencement of disability, provided that the Compensation Committee
determines that the applicable performance goals have been met.
ELIGIBILITY
Officers and other key employees of the Company and its subsidiaries are
eligible to be granted stock options, restricted stock, performance shares and
performance units under the Long-Term Incentive Plan. As amended, the Long-Term
Incentive Plan would also permit directors of the Company to be granted awards
of stock options and restricted stock. Eligibility shall be determined by the
Compensation Committee. Approximately 360 persons are currently eligible to
receive awards under the Long-Term Incentive Plan.
SHARES SUBJECT TO THE LONG-TERM INCENTIVE PLAN
The proposed amendments to the Long-Term Incentive Plan would increase the
number of shares of Common Stock issuable pursuant to awards granted thereunder
from 3,000,000 to 5,000,000. As of January 31, 1997, an aggregate of 1,797,895
shares of Common Stock were issued or issuable pursuant to awards granted under
the Long-Term Incentive Plan. Shares of Common Stock issuable under the Long-
Term Incentive Plan may be either authorized and unissued shares or issued
shares reacquired by the Company and held in treasury. As amended, the Long-Term
Incentive Plan would limit the number of shares of Common Stock with respect to
which options may be granted to any individual during any calendar year to
200,000. It would also limit the number of performance shares and the dollar
amount of any performance units awarded to any individual during any calendar
year to 60,000 and $1,000,000, respectively. The aggregate number of shares
issuable under the Long-Term Incentive Plan, the maximum individual limit for
option grants and performance shares, and the number of shares subject to
options and awards outstanding under the Long-Term Incentive Plan are subject to
adjustment in the event of a merger, reorganization, consolidation,
recapitalization, dividend (other than a regular cash dividend), stock split, or
other change in corporate structure affecting the Common Stock. Shares subject
to options that expire, terminate or are cancelled unexercised, shares of
restricted stock that have been forfeited to the Company, and shares that are
not issued as a result of forfeiture or termination of an award may be reissued
under the Long-Term Incentive Plan.
5
<PAGE> 8
CHANGE OF CONTROL
In the event of a change of control of the Company (as defined in the
Long-Term Incentive Plan), all outstanding options that have been held for at
least six months shall immediately become fully exercisable and all outstanding
awards of restricted stock that have been held for at least six months shall
immediately cease to be subject to forfeiture or deferral limitations. In
addition, the Compensation Committee may, in its sole discretion, provide that
participants shall receive immediately some or all of the shares of Common Stock
or cash subject to outstanding performance share and performance unit awards in
the event of a change of control.
SECTION 162(M)
Under Section 162(m) of the Code, the Company may deduct, for federal
income tax purposes, compensation paid to its chief executive officer and four
other most highly compensated executive officers only to the extent that such
compensation does not exceed $1,000,000 for any individual during any year,
provided that compensation that qualifies as "performance-based compensation" is
not counted toward the $1,000,000 limit. The Long-Term Incentive Plan, as
proposed to be amended, includes features necessary for certain awards
thereunder to qualify as "performance-based compensation."
To so qualify, stock options granted under the Long-Term Incentive Plan
must have an exercise price per share that is not less than the fair market
value of a share of the Company's Common Stock on the date of grant. Performance
shares and performance units may qualify for the exemption only if (i) the
Compensation Committee establishes in writing objective performance goals for
such awards no later than 90 days after the commencement of the performance
period and (ii) no payments are made to participants pursuant to the awards
until the Compensation Committee certifies in writing that the applicable
performance goals have been met.
FEDERAL TAX CONSEQUENCES
The Federal income tax discussion set forth below is intended for general
information only. State and local income tax consequences are not discussed, and
may vary from locality to locality.
Non-Qualified Options. Under present Treasury regulations, an optionee who
is granted a non-qualified option will not realize taxable income at the time
the option is granted. In general, an optionee will be subject to tax for the
year of exercise on an amount of ordinary income equal to the excess of the fair
market value of the shares on the date of exercise over the option price, and
the Company will receive a corresponding deduction. Income tax withholding
requirements apply upon exercise. The optionee's basis in the shares so acquired
will be equal to the option price plus the amount of ordinary income upon which
he is taxed. Upon subsequent disposition of the shares, the optionee will
realize capital gain or loss, long-term or short-term, depending upon the length
of time the shares are held after the option is exercised.
Incentive Options. An optionee is not taxed at the time an incentive
option is granted. The tax consequences upon exercise and later disposition
depend upon whether the optionee was an employee of the Company or a subsidiary
at all times from the date of grant until three months preceding exercise (one
year in the case of death or disability) and on whether the optionee holds the
shares for more than one year after exercise and two years after the date of
grant of the option.
If the optionee satisfies both the employment rule and the holding rule,
for regular tax purposes the optionee will not realize income upon exercise of
the option and the Company will not be allowed an income tax deduction at any
time. The difference between the option price and the amount realized upon
disposition of the shares by the optionee will constitute a long-term capital
gain or a long-term capital loss, as the case may be.
6
<PAGE> 9
If the optionee meets the employment rule but fails to observe the holding
rule (a "disqualifying disposition"), the optionee generally recognizes as
ordinary income, in the year of the disqualifying disposition, the excess of the
fair market value of the shares at the date of exercise over the option price.
Any excess of the sales price over the fair market value at the date of exercise
will be recognized by the optionee as capital gain (long-term or short-term
depending on the length of time the stock was held after the option was
exercised). If, however, the sales price is less than the fair market value at
the date of exercise, then the ordinary income recognized by the optionee is
generally limited to the excess of the sales price over the option price. In
both situations, the Company's tax deduction is limited to the amount of
ordinary income recognized by the optionee. Under current Internal Revenue
Service guidelines, the Company is not required to withhold any Federal income
tax in the event of a disqualifying disposition.
Different consequences will apply for an optionee subject to the
alternative minimum tax.
Restricted Stock. Recipients of shares of restricted stock that are not
"transferable" and are subject to "substantial risk of forfeiture" at the time
of grant will not be subject to Federal income taxes until lapse or release of
the restrictions on the shares, unless the recipient files a specific election
under the Code to be taxed at the time of grant. The recipient's income and the
Company's deduction will be equal to the fair market value of the shares on the
date of lapse or release of such restrictions (or on the date of grant if such
election is made) less any purchase price.
Performance Shares and Performance Units. A participant is not taxed upon
the grant of performance shares or performance units. Upon receipt of the
underlying shares or cash, he will be taxed at ordinary income tax rates on the
amount of cash received and/or the current fair market value of stock received,
and the Company will be entitled to a corresponding tax deduction. The
participant's basis in any shares acquired pursuant to the settlement of
performance shares or units will be equal to the amount of ordinary income on
which he was taxed and, upon subsequent disposition, any gain or loss will be
capital gain or loss.
Withholding. The Company shall have the right to reduce the number of
shares of Common Stock deliverable pursuant to the Long-Term Incentive Plan by
an amount which would have a fair market value equal to the amount of all
federal, state, or local taxes to be withheld, based on the tax rates then in
effect or the tax rates that the Company reasonably believes will be in effect
for the applicable tax year, or to deduct the amount of such taxes from any cash
payment to be made to the participant, pursuant to the Plan or otherwise.
PRIOR AWARDS
As of January 31, 1997, awards covering an aggregate of 1,797,895 shares of
Common Stock have been granted under the Long-Term Incentive Plan. It is not
possible to predict the individuals who will receive future awards under the
Long-Term Incentive Plan or the number of shares of Common Stock covered by any
future award because such awards are wholly within the discretion of the
Compensation Committee. For illustrative purposes only, the following table sets
forth the awards that were made under the Long-Term Incentive Plan during 1996:
<TABLE>
<CAPTION>
PERFORMANCE
NAME OR GROUP OPTIONS SHARES(1)
--------------------------------------------------------------- -------- -----------
<S> <C> <C>
T.C. Norris.................................................... -- --
G.H. Glatfelter II............................................. 13,450 8,340
R.S. Lawrence.................................................. 7,790 4,830
R.P. Newcomer.................................................. 13,450 8,340
J.F. Myers..................................................... 9,115 5,650
Executive Officer Group........................................ 65,575 40,660
Non-Executive Officer Employee Group........................... 136,455 4,200
</TABLE>
7
<PAGE> 10
- ---------------
(1) Number of performance shares is based on the maximum number of shares of
Common Stock issuable pursuant to such awards.
On March 7, 1997, the closing price of a share of Common Stock on the
American Stock Exchange was $16 7/8.
TERMINATION OR AMENDMENT OF THE LONG-TERM INCENTIVE PLAN
The Board may at any time amend, discontinue, or terminate the Long-Term
Incentive Plan or any part thereof, provided, however, that unless otherwise
required by law, the rights of a participant may not be impaired without the
consent of such participant, and provided that the Company will submit an
amendment to the Company's shareholders if necessary to comply with the Internal
Revenue Code, federal or state securities laws or any other applicable rules or
regulations. Unless sooner terminated, the Long-Term Incentive Plan, as amended,
will expire on April 23, 2007 and no awards may be granted after that date.
The amendments to the Long-Term Incentive Plan will become effective if a
majority of the votes cast on the proposal are cast in favor of approval.
Abstentions will be counted as present for purposes of determining the presence
of a quorum for purposes of this proposal, but will not be counted as votes
cast. Broker non-votes (i.e., shares held by a broker or nominee as to which the
broker or nominee does not have the authority to vote on a particular matter)
will not be counted as present for purposes of determining the presence of a
quorum for purposes of this proposal and will not be voted. Accordingly, neither
abstentions nor broker non-votes will have any effect on the outcome of the vote
on this proposal.
The Board of Directors recommends that you vote FOR approval of the
amendments to the Long-Term Incentive Plan.
APPROVAL OF MANAGEMENT INCENTIVE PLAN
At the annual meeting, shareholders will be asked to approve the Management
Incentive Plan (the "Management Incentive Plan"). The Management Incentive Plan
is set forth in full as Exhibit B to this Proxy Statement and is incorporated
herein by reference.
The Management Incentive Plan was adopted by the Board of Directors as of
January 1, 1994 and last amended and restated on March 13, 1997. The Company is
submitting the Management Incentive Plan to shareholders for their approval at
the annual meeting in an effort to qualify awards under the Management Incentive
Plan as performance-based compensation that is deductible under Section 162(m)
of the Code. (See "Report of Compensation Committee on Executive Compensation.")
The Management Incentive Plan is administered by the Compensation
Committee. The Compensation Committee establishes incentive bonus opportunities
designed to encourage greater efforts on the part of key salaried employees to
increase the profits of the Company. The underlying objectives of the Management
Incentive Plan are to assure that incentive bonus awards are at risk annually,
to reward key mill management personnel on the basis of both mill and corporate
financial results, and to provide an incentive bonus award structure for key
salaried employees of the Company that is similar to that of comparable
companies.
To establish financial targets for payment of incentive awards, the Company
and each of its mills are treated as separate profit centers. In addition, the
Glatfelter Paper Group profit center represents a combination of the Spring
Grove and Neenah mill profit centers. For each fiscal year, the Compensation
Committee selects, based on the recommendation of the Chief Executive Officer of
the Company, those members of management and highly compensated salaried
employees who will participate in the Management Incentive Plan (based on their
position responsibilities, organizational reporting relationship, current salary
grade and/or rate, individual performance expectations and competitive
practices) and the profit center to
8
<PAGE> 11
which they are assigned. Sixty-three employees are currently eligible to
participate in the Management Incentive Plan.
The incentive awards to be paid to participants in the Management Incentive
Plan are based on the midpoint of the salary range for such participant's salary
grade, multiplied by a percentage that will vary depending on whether specified
maximum, target or minimum financial objectives are achieved. For 1997 awards,
the percentages to be paid to participants range from 5% to 25% if the minimum
financial objectives are achieved and from 40% to 140% if the maximum financial
objectives are achieved. The Compensation Committee establishes the range of
award percentages prior to the beginning of each calendar year for each salary
grade under the Company's compensation structure. In no event will the award
paid to any participant under the Management Incentive Plan exceed $1,000,000
for any calendar year.
The incentive bonus awards for all profit centers, exclusive of the
Corporate profit center, have to date been based on a combination of the return
on capital employed (as defined for each of the individual mill profit centers)
and the return on shareholders' equity (as defined) of the Company. The
incentive bonus awards for the Corporate profit center have to date been based
solely on return on shareholders' equity (as defined) of the Company. The
Compensation Committee may, in the future, establish financial objectives that
are based on other business criteria, such as stock price, return on assets,
earnings, earnings per share, total shareholder return, sales or costs.
If a participant's employment with the Company terminates by reason of
death, retirement or permanent disability, his incentive bonus award will be
determined on the basis of the financial results of his profit center and his
base salary midpoint for such fiscal year, prorated to reflect the period of
service prior to his termination of employment. If a participant's employment
with the Company terminates for any other reason, he will not receive an
incentive bonus award for such fiscal year, unless the Compensation Committee,
in its sole discretion, determines otherwise.
If the Compensation Committee certifies in writing that the applicable
financial objectives have been achieved during a year, the awards will be paid
to the participants in cash at the beginning of the following year. If the
participant so elects, receipt of payment may be deferred to a future date. If
the minimum financial objectives are not achieved during a year, the participant
will not receive any payments. The Company may withhold from any payments made
under the Management Incentive Plan any amounts that are required to be withheld
pursuant to any statute or other governmental regulation or ruling.
For 1997, the individuals and groups listed below will receive the
following benefits if the Management Incentive Plan is approved by the Company's
shareholders and the minimum, target or maximum goals under the Management
Incentive Plan are achieved:
<TABLE>
<CAPTION>
NAME OR GROUP MINIMUM($) TARGET($) MAXIMUM($)
----------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
T. C. Norris................................... 90,314 361,255 722,511
G. H. Glatfelter II............................ 30,602 122,408 244,815
R. S. Lawrence................................. 17,732 70,927 141,854
R. P. Newcomer................................. 30,602 122,408 244,815
J. F. Myers.................................... 23,341 93,364 186,728
Executive Officer Group........................ 243,639 974,554 1,949,107
Non-Executive Officer Employee Group........... 320,580 1,282,318 2,564,640
</TABLE>
The Board of Directors may at any time amend, modify or terminate the
Management Incentive Plan or any part thereof, provided that if the Management
Incentive Plan is in effect at the beginning of a fiscal year, it may not be
terminated or amended for such year.
The Management Incentive Plan will satisfy the Section 162(m) shareholder
approval requirement if a majority of the votes cast on the proposal are cast in
favor of approval. Abstentions will be counted as present
9
<PAGE> 12
for purposes of determining the presence of a quorum for purposes of this
proposal, but will not be counted as votes cast. Broker non-votes (i.e., shares
held by a broker or nominee as to which the broker or nominee does not have the
authority to vote on a particular matter) will not be counted as present for
purposes of determining the presence of a quorum for purposes of this proposal
and will not be voted. Accordingly, neither abstentions nor broker non-votes
will have any effect on the outcome of the vote on this proposal.
The Board of Directors recommends that you vote FOR approval of the
Management Incentive Plan.
INFORMATION ABOUT THE BOARD OF DIRECTORS
AND ITS COMMITTEES
BOARD OF DIRECTORS
The Board of Directors held five meetings during 1996. Each of the
incumbent directors attended at least 75% of the aggregate of all meetings of
the Board of Directors and committees thereof on which he served in 1996, except
for R. E. Chappell who attended 71% of the meetings of the Board and committees
on which he served. The standing committees of the Board are the Executive
Committee, the Audit Committee, the Compensation Committee, the Finance
Committee, the Nominating Committee and the Employee Benefits Committee. The
members of all of these committees are appointed by the Board.
COMMITTEES
Executive Committee -- The Executive Committee consists of four members of
the Board: G. H. Glatfelter, R. S. Hillas, M. A. Johnson II and T. C. Norris.
The Executive Committee has the authority to exercise all of the powers of the
Board of Directors between meetings of the Board, except the power to amend the
Company's By-Laws, submit matters to shareholders for approval, create or fill
vacancies in the Board of Directors and repeal or modify any prior action of the
Board of Directors that by its terms can be repealed or amended only by the
Board. The Executive Committee held no meetings during 1996.
Audit Committee -- The Audit Committee consists of five members of the
Board: R. E. Chappell, N. DeBenedictis, R. S. Hillas, P. R. Roedel and J. M.
Sanzo, none of whom are members of the Company's management. Generally, the
Audit Committee (i) recommends to the Board of Directors the independent
accountants to be appointed for the Company, (ii) meets with the independent
accountants, the chief internal auditor and corporate officers to review matters
relating to corporate financial reporting and accounting procedures and
policies, adequacy of financial, accounting and operating controls and the scope
of the audits of the independent accountants and internal auditors, including in
the case of the independent accountants, the fees for such services and (iii)
reviews and reports on the results of such audits to the Board of Directors. The
Audit Committee held two meetings during 1996.
In accordance with the recommendations of the Audit Committee, the Board of
Directors has appointed Deloitte & Touche LLP, independent certified public
accountants, to audit the consolidated financial statements of the Company and
its consolidated subsidiaries for the year ending December 31, 1997. A
representative of Deloitte & Touche is expected to attend the shareholders'
meeting and will be given the opportunity to make a statement if he or she
desires to do so and will be available to respond to appropriate questions.
Compensation Committee -- The Compensation Committee consists of four
members of the Board: N. DeBenedictis, R. S. Hillas, P. R. Roedel and R. L.
Smoot. The responsibilities of the Compensation Committee are described below
(see "Report of Compensation Committee on Executive Compensation"). The
Compensation Committee held four meetings during 1996.
Finance Committee -- The Finance Committee consists of five members of the
Board: R. E. Chappell, G. H. Glatfelter II, M. A. Johnson II, T. C. Norris and
J. M. Sanzo. The Finance Committee is responsible
10
<PAGE> 13
for overseeing the Company's financial affairs and recommending such financial
actions and policies, including those with respect to dividends, as are most
appropriate to accommodate the Company's strategic and operating strategies
while maintaining its sound financial condition. The Finance Committee held no
meetings during 1996.
Nominating Committee -- The Nominating Committee consists of four members
of the Board: R. S. Hillas, T. C. Norris, J. M. Sanzo and R. L. Smoot. The
responsibilities of the Nominating Committee include the identification and
recruitment of effective candidates for nomination as directors and officers of
the Company. The Nominating Committee held two meetings during 1996. The
Nominating Committee will consider as nominees for election to the Board persons
recommended by the holders of Common Stock of the Company. Any shareholder
desiring to recommend a nominee for election at the 1998 annual meeting of
shareholders should submit such nomination in writing to the Secretary of the
Company by November 14, 1997.
Employee Benefits Committee -- The Employee Benefits Committee consists of
two members of the Board, G. H. Glatfelter II and T. C. Norris, and three
officers or employees of the Company, D. H. Landis, R. P. Newcomer and R. S.
Wood. The responsibilities of the Employee Benefits Committee include the
general overview of the provisions of various pension plans of the Company and
periodic review of pension fund performance. The Employee Benefits Committee is
also responsible for administering the Company's various profit sharing, 401(k)
savings and stock ownership plans and for conducting a periodic review of profit
sharing and savings plan fund performance. The Employee Benefits Committee held
four meetings during 1996.
COMPENSATION OF DIRECTORS
Non-employee directors are paid a retainer fee of $7,500 per year. In
addition, non-employee directors are paid $1,000 for every board meeting
attended plus $500 for every committee meeting attended. Non-employee committee
chairpersons also receive an annual committee-related retainer of $1,000.
11
<PAGE> 14
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
from the Company and its subsidiaries which was awarded to, earned by, or paid
to the Company's Chief Executive Officer and each of the Company's four other
most highly compensated executive officers in 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------------
AWARDS
------------------------ PAYOUTS($)
NAME AND ANNUAL COMPENSATION RESTRICTED SECURITIES -------------
PRINCIPAL FISCAL ---------------------- STOCK UNDERLYING LTIP ALL OTHER
POSITION YEAR SALARY($) BONUS($)(1) AWARDS($)(2) OPTIONS PAYOUTS($)(3) COMPENSATION($)(4)
- ------------------------- ------ --------- ----------- ------------ ---------- ------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
T. C. Norris............. 1996 390,002 399,483 0 0 1,662,500 4,525
Chairman, President 1995 355,052 370,964 0 0 0 10,567
and CEO 1994 320,102 4,802 0 0 0 9,519
G. H. Glatfelter II...... 1996 177,330 143,837 0 13,450 0 0
Senior Vice President 1995 157,593 152,416 0 15,580 0 0
1994 128,619 4,244 0 0 0 0
R. S. Lawrence........... 1996 165,108 149,441 0 7,790 0 4,500
Vice President--General 1995 146,760 133,056 0 15,580 0 4,403
Manager, Ecusta 1994 127,620 0 0 0 0 3,829
Division
R. P. Newcomer........... 1996 167,880 143,069 0 13,450 0 4,500
Senior Vice President, 1995 140,277 191,914 0 18,230 0 4,122
Treasurer and CFO 1994 112,212 1,683 0 0 0 3,280
J. F. Myers.............. 1996 182,952 113,348 0 9,115 831,250 4,498
Vice President-- 1995 166,320 191,953 0 18,230 0 4,990
Manufacturing 1994 151,200 2,268 0 0 0 4,536
Technology
</TABLE>
- ---------------
(1) Reflects distributions under a broad-based profit sharing plan payable to
all salaried employees and bonuses under the Management Incentive Plan for
executive officers and other senior level employees. Bonuses under the
Management Incentive Plan were not earned in 1994 since financial results
did not meet minimum award goals.
(2) At December 31, 1996, Mr. Norris held restricted stock awards for 60,000
shares of common stock, 20,000 shares of which will vest on each of May 1,
1997, May 1, 1998 and May 1, 1999. At December 31, 1996, the fair market
value of the shares subject to awards held by Mr. Norris was $1,080,000. No
dividends are paid on shares subject to restricted stock awards which have
not vested. The table does not include performance shares described under
"Long-Term Incentive Plan Awards."
(3) Reflects payouts of awards made in 1988, which vested on May 1, 1996
pursuant to the 1988 Restricted Common Stock Award Plan.
(4) Other compensation reported for 1996 represents (a) matching contributions
under the Company's 401(k) Savings Plan and (b) in the case of Mr. Norris,
the $25 payable to him as an employee at the Company's Spring Grove Mill
with service in excess of 25 years.
12
<PAGE> 15
OPTION GRANTS
The following table sets forth information concerning the number of options
granted during 1996 and the value of unexercised options to purchase Common
Stock held by the named executive officers at December 31, 1996. Under the terms
of the stock options granted during 1996, none of the options were exercisable
until 1997.
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
NUMBER OF % OF
SECURITIES TOTAL GRANT
UNDERLYING OPTIONS DATE
OPTIONS GRANTED TO EXERCISE PRESENT
GRANTED EMPLOYEES PRICE EXPIRATION VALUE
NAME (#)(1) DURING 1996 ($/SH)(1) DATE ($#)(2)
- ------------------------------------ ---------- ----------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
T. C. Norris........................ 0 -- -- -- --
G. H. Glatfelter II................. 13,450 6.7 17.16 12/31/05 53,787
R. S. Lawrence...................... 7,790 3.9 17.16 12/31/05 31,152
R. P. Newcomer...................... 13,450 6.7 17.16 12/31/05 53,787
J. F. Myers......................... 9,115 4.5 17.16 12/31/05 36,451
</TABLE>
- ---------------
(1) Options granted are exercisable with respect to 25% of the total number of
shares subject to option on each of January 1, 1997 and January 1 of the
following three years, provided the grantee of the option has been
continuously employed by the Company since the date of grant.
(2) The estimated present value at grant date of options granted during 1996 has
been calculated using the Black-Scholes option pricing model, based upon the
following assumptions: estimated time until exercise: ten years; a risk-free
interest rate of 5.60%, representing the interest rate on a U.S. Government
zero-coupon bond on the date of grant with a maturity corresponding to the
estimated time until exercise; a volatility rate of 24%; and a dividend
yield of 4.08%, representing the current $0.70 per share annualized
dividends divided by the fair market value of the Common Stock on the date
of grant. The approach used in developing the assumptions upon which the
Black-Scholes valuation was done is consistent with the requirements of
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation."
13
<PAGE> 16
YEAR-END OPTION VALUES
The following table sets forth information concerning options exercised in
1996 and the value of unexercised options to purchase Common Stock held by the
named executive officers at December 31, 1996.
AGGREGATED OPTION EXERCISES IN 1996
AND OPTION VALUES AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
SHARES SECURITIES UNDERLYING OPTIONS AT
ACQUIRED ON OPTIONS AT 12/31/96 12/31/96($)(1)
EXERCISE VALUE ---------------------------- ----------------------------
NAME (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
T. C. Norris........... 0 n/a 33,750 11,250 1,055 352
G. H. Glatfelter II.... 0 n/a 22,645 31,385 1,316 13,734
R. S. Lawrence......... 0 n/a 22,645 25,725 1,316 8,959
R. P. Newcomer......... 0 n/a 23,307 33,373 1,440 14,107
J. F. Myers............ 0 n/a 23,307 29,038 1,440 10,450
</TABLE>
- ---------------
(1) Value is measured by the difference between the closing price for the
Company's Common Stock on the American Stock Exchange on December 31, 1996
and the exercise price of the option.
LONG-TERM INCENTIVE PLAN AWARDS
The following table sets forth information concerning the number of
performance shares granted in 1996 under the Company's 1992 Key Employee
Long-Term Incentive Plan.
LONG-TERM INCENTIVE PLAN AWARDS IN 1996
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
NUMBER OF PERFORMANCE OR NON-STOCK PRICE BASED PLAN
SHARES, UNITS OTHER PERIOD -----------------------------------
OR OTHER UNTIL MATURATION THRESHOLD TARGET MAXIMUM
NAME RIGHTS(1) OR PAYOUT(2) SHARES(#) SHARES(#) SHARES(#)
- ---------------------------------- ------------- ---------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
T. C. Norris...................... 0 -- -- -- --
G. H. Glatfelter II............... 4,170 4 years 1,042 4,170 8,340
R. S. Lawrence.................... 2,415 4 years 604 2,415 4,830
R. P. Newcomer.................... 4,170 4 years 1,042 4,170 8,340
J. F. Myers....................... 2,825 4 years 706 2,825 5,650
</TABLE>
- ---------------
(1) Performance shares awarded in 1996 under the 1992 Key Employee Long-Term
Incentive Plan will be paid at the end of the performance period in amounts
based upon the Company's success in achieving certain performance goals,
which are a combination of (i) return on average shareholders' equity and
(ii) pre-tax earnings growth for the period. Payouts of earned performance
shares will be made in common stock of the Company. The performance shares
will be forfeited upon termination of a participant's employment with the
Company during the performance period for any reason other than death or
disability.
(2) The performance period is from January 1, 1996 to December 31, 1999.
14
<PAGE> 17
EMPLOYEE BENEFIT PLANS
Salary Continuation Plan
The Company has a Salary Continuation Plan which provides for the payment
for ten years following the retirement or death of the participant of an amount
which on an actuarial basis as computed in 1987, was expected to equal the
difference between 55% of the participant's then projected compensation at age
60 and the sum of then projected Social Security and Company pension plan
retirement benefits to which the participant is entitled. If the participant
dies prior to retirement, the benefits are payable to the participant's
beneficiary. Compensation for purposes of the Salary Continuation Plan generally
includes salary plus cash received and deferred compensation accrued under the
Company's Management Incentive Plan and the former Salaried Employees' Profit
Sharing Plan and Company contributions under the Employee Stock Purchase Plan.
The Company has purchased insurance on the lives of the participants to provide
funds to help offset the costs of benefits payable under the Plan. T. C. Norris
is the only named executive officer who participates in the Plan.
Pension Plans
Officers and directors who are full time employees of the Company
participate in the P. H. Glatfelter Company Retirement Plan for Salaried
Employees (the "Pension Plan"). Benefits payable under the Pension Plan are
based upon years of service and average annual compensation for the five
consecutive calendar years during the ten years preceding the year of retirement
that yield the highest average. Retirement benefits under the Pension Plan are
not subject to any deduction for Social Security benefits. Retirement benefits
accrued under the Pension Plan for Employees of the Ecusta Division are reduced
by any pension benefits payable under a pension plan maintained by a predecessor
employer. Annual compensation for purposes of the Pension Plan generally
includes salary as listed in the Summary Compensation Table on page 12
("Compensation Table") plus bonus listed in the Compensation Table for the prior
year. To the extent deferral of an award under the Company's Management
Incentive Plan causes a reduction in a participant's pension under the Pension
Plan, the Management Incentive Plan provides a pension supplement.
Employees in the Spring Grove Division who earned a vested benefit under
the Pension Plan before May 1, 1970 may receive a benefit, if greater than the
usual benefit, which does not give effect to years of service, and is based on
plan earnings, which consist of the sum of average compensation in excess of
annual base salary for the five year period prior to the year of actual
retirement, or, if earlier, the year in which the employee attains age 60, and
the annual base salary as of the April 30th closest to the retirement date or,
if earlier, the April 30th closest to the 60th birthday. Annual compensation for
such participants generally means the salary and bonus amounts listed in the
Compensation Table.
The Company has a Supplemental Executive Retirement Plan ("SERP") which
provides participants with pension benefits that would have been payable under
the Pension Plan but for certain legal limits. The benefits payable under the
SERP to each participant are equal to the difference between the benefits that
would have been payable under the Pension Plan in the absence of any legal
limits and the benefits actually payable under the Pension Plan. Participants
may elect to receive the benefits in any form permitted under the Pension Plan,
or in the form of a single sum.
The following table shows the estimated annual retirement benefits payable
in the form of a single life annuity at normal retirement age under the Pension
Plan, the SERP and the pension supplement provided under the Management
Incentive Plan.
15
<PAGE> 18
PENSION PLAN TABLE
<TABLE>
<CAPTION>
AVERAGE ESTIMATED ANNUAL RETIREMENT BENEFIT BASED ON YEARS OF
ANNUAL SERVICE
FIVE YEAR PLAN -------------------------------------------------------
COMPENSATION($) 15 20 25 30 35
- --------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
125,000................................... 25,782 34,376 42,970 46,095 49,220
150,000................................... 31,032 41,376 51,720 55,470 59,220
175,000................................... 36,282 48,376 60,470 64,845 69,220
200,000................................... 41,532 55,376 69,220 74,220 79,220
250,000................................... 52,032 69,376 86,720 92,970 99,220
300,000................................... 62,532 83,376 104,220 111,720 119,220
400,000................................... 83,532 111,376 139,220 149,220 159,220
500,000................................... 104,532 139,376 174,220 186,720 199,220
600,000................................... 125,532 167,376 209,220 224,220 239,220
700,000................................... 146,532 195,376 244,220 261,720 279,220
800,000................................... 167,532 223,376 279,220 299,220 319,220
</TABLE>
The following executive officers who participate in the Pension Plan had the
indicated credited years of service at December 31, 1996: T. C. Norris: 37
years, G. H. Glatfelter II: 20 years, R. S. Lawrence: 36 years, R. P. Newcomer:
24 years, and J. F. Myers: 29 years.
Of the named executive officers at December 31, 1996, Mr. Norris and Mr.
Myers earned a vested benefit under the Pension Plan before May 1, 1970 and
their accrued benefits at age 65 in the form of a single life annuity under such
plan, calculated without respect to service, were $243,449 and $100,909 per
year, respectively.
The Company has a Supplemental Management Pension Plan which provides for
the payment of an early retirement supplement to any participant who retires
before reaching age 65 and elects to defer receipt of benefits under the Pension
Plan until he reaches age 65 or, if earlier, until the first day of the 36th
month following his retirement. The monthly payment equals the monthly amount
calculated for the participant under the Pension Plan and the SERP, but with the
addition of three years to the participant's age. Payments end when the
participant or the participant's beneficiary begins to receive payments under
the Pension Plan or, if there is no beneficiary, at death.
COMPENSATION COMMITTEE INTERLOCK
AND INSIDER PARTICIPATION
The Compensation Committee consists of four members of the Board of
Directors: P. R. Roedel (Chairman), N. DeBenedictis, R. S. Hillas and R. L.
Smoot.
REPORT OF COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Compensation Committee reviews and approves the elements of the
Company's executive compensation program and assesses the effectiveness of the
program as a whole. The Compensation Committee's responsibilities include: (i)
reviewing and establishing the level of salaries and benefits for corporate
officers and other key senior management employees of the Company, including but
not limited to benefits under the Company's long-term incentive plan, profit
sharing plan, defined benefit and contribution plans and other welfare benefit
plans, (ii) reviewing annually with the Company's Chief Executive Officer, T. C.
Norris, the job performance of corporate officers and key senior management as
measured against financial and other objectives and the Company's achievements
as compared to certain other companies in the paper and forest
16
<PAGE> 19
products industry, and (iii) reviewing and approving the participants in, and
the operating rules for awards under, the Company's Management Incentive Plan.
The Compensation Committee from time to time reviews the Company's entire
executive compensation structure through an examination of compensation
information for comparable companies and certain broader-based data, including
data relating to the geographic areas in which the Company has facilities,
compiled by the Company and by compensation and other consulting firms. As used
herein, comparable companies refer to other companies in the paper and forest
products industry (both publicly and privately owned) selected by management as
being the companies in the industry which on an overall basis are most similar
to the Company in relation to size, products and financial and other
characteristics and in certain cases to general industry and nondurable
manufacturing companies of roughly the same revenue size as the Company. Certain
of the comparable companies are included in the Dow Jones Paper Products
Industry Group and/or the S&P 500, and therefore are represented in the Stock
Performance Chart below. In examining the compensation paid by the comparable
companies, the Compensation Committee does not analyze the stock performance of
such companies, but does examine their general financial performance.
Executive Compensation Policies. The Compensation Committee has generally
structured the Company's executive compensation program (i) to be competitive
with compensation programs of comparable companies to enable the Company to
attract, retain and motivate a highly qualified executive management team, (ii)
to provide a significant portion of variable-based compensation that is
contingent upon objectively-measured performance to align executive officers'
interests with those of the Company's shareholders, and (iii) to include
appropriate and flexible design features in such programs which will be
responsive to the peculiarities of the paper industry and to the changing needs
of the Company. The elements of the Company's executive compensation program are
salary, annual incentive compensation, long-term incentive compensation and
other benefits. From time to time the Compensation Committee solicits the advice
of compensation and other consulting firms to evaluate the Company's executive
compensation program in order to ensure that such program is competitive with
compensation programs of comparable companies.
The Compensation Committee intends that awards made under the Long-Term
Incentive Plan and the Management Incentive Plan will qualify as
performance-based compensation that will be deductible for federal income tax
purposes under Section 162(m) of the Code.
Salary. The Company's policy is to pay fair salaries at levels which are
sufficient to attract and retain high caliber individuals based on the relative
value of each position, as measured against comparable companies. The
Compensation Committee assigns each executive position a salary range based on
the salary level for similar positions at comparable companies. Ranges are
adjusted by the Compensation Committee periodically.
Generally, executive officer salaries are reviewed and approved annually.
The salary for each executive is set by the Compensation Committee after an
assessment of his or her performance and the relation of his or her salary to
the midpoint for the relevant salary range, as well as the Company's financial
results and general economic conditions. The factors that were considered in
granting salary increases to executive officers in 1996 were as follows: (i) the
Company's financial performance in 1995, (ii) the salary levels for a number of
the executive officers were significantly below the midpoint salary levels of
the salary grades for their respective positions and the midpoint salary levels
for positions of similar scope and responsibility at comparable companies and,
(iii) the Compensation Committee's assessment of the officer's performance as
evaluated and reported to the Compensation Committee by the Chief Executive
Officer.
Annual Incentive Compensation. The Compensation Committee establishes
incentive bonus opportunities designed to encourage greater efforts on the part
of key salaried employees to increase the profits of the Company. The incentive
bonus opportunities potentially represent a significant portion of total
compensation and are intended to correlate with the financial performance of the
Company or one or more divisions thereof. The underlying objectives of the
Company's Management Incentive Plan are to assure that incentive bonus
17
<PAGE> 20
awards are at risk annually, to reward key mill management personnel on the
basis of both mill and corporate financial results, and to provide an incentive
bonus award structure for key salaried employees of the Company that is similar
to that of comparable companies.
To establish financial targets for payment of incentive awards, the Company
and each of its mills are treated as separate profit centers. In addition, the
Glatfelter Paper Group profit center represents a combination of the Spring
Grove and Neenah mill profit centers. The incentive bonus award for all profit
centers, exclusive of the Corporate profit center, is based on a combination of
the return on capital employed (as defined for each of the individual mill
profit centers), and the return on shareholders' equity (as defined) of the
Company. The incentive bonus award for the Corporate profit center is based on
return on shareholders' equity (as defined) of the Company.
The Compensation Committee establishes maximum, target and minimum
financial objectives to be achieved for each profit center each year. Under the
Plan, when establishing such financial objectives, the Compensation Committee
considers the current economic climate, the forecast for the Company's business
and the historical financial results of the Company. This methodology is
intended to induce management to enhance the profitability of the Company
throughout the full business cycle, and therefore to provide value to the
shareholders of the Company. The Compensation Committee believes that executive
officers should not receive any incentive bonus if the Company does not achieve
annually established minimum financial objectives. If the minimum financial
objectives are achieved, the incentive award for an executive officer would be
determined by multiplying a percentage derived from the financial performance of
such officer's respective profit center by the midpoint of the salary range for
such officer.
The financial performance of the Company's Corporate profit center for
1996, which is the relevant profit center for all but one of the named executive
officers, was slightly above the target financial objectives established by the
Compensation Committee. The financial performance for the Ecusta mill profit
center for 1996, which is the relevant profit center for Mr. Lawrence, exceeded
the maximum financial objectives established by the Compensation Committee as it
did in 1995. The incentive bonus payments for certain named executive officers
were higher on a relative basis for 1996 as compared to 1995 due to such
officers' promotions in October 1995 (i.e. their midpoint base salary, which is
used in determining their incentive awards, was higher in 1996 than in 1995).
The incentive bonuses paid in 1996 and 1995 are in contrast to 1994, when no
incentive bonuses were paid because the Company did not reach the minimum
financial objectives for that year.
Long-Term Incentive Compensation. The Company's Long-Term Incentive Plan
enables the Company to offer key employees equity interests in the Company and
other incentive awards, including performance-based stock incentives. Certain
features of the Plan (i.e. stock options, performance shares, performance units
and restricted stock) are similar to long-term incentives offered by many of the
comparable companies. The primary purposes of the Plan are to (i) attract,
retain, motivate and reward key employees, (ii) provide target long-term
incentive award opportunities which are competitive with comparable companies,
(iii) assure that the awards issued pursuant to the Plan reflect the cyclical
and long-term nature of the paper industry, (iv) enable senior executives to
acquire appropriate levels of equity interest in the Company in order to
increase the alignment of their interests with those of shareholders and (v)
otherwise strengthen the mutuality of interests between key employees and the
Company's shareholders.
In 1995, the Company adopted a long-term incentive program, developed at
the direction of the Compensation Committee by an executive compensation
consulting firm, under which stock options and/or performance shares are granted
annually to key employees. The value of such awards is based upon the value of
awards granted to positions of similar scope and responsibility within
comparable companies. Stock options have an exercise price equal to the fair
market value of the Company's Common Stock at the time of the grant and become
exercisable in 25% increments on January 1 of the next four years. Contingent
awards of performance shares are generally made on the first day of the
four-year Award Period. At the end of the four-
18
<PAGE> 21
year award period, the number of shares earned is based upon the level of
achievement of two factors: return on average shareholders' equity and pre-tax
earnings growth for the four-year performance period. If the threshold return on
average shareholders' equity is not attained, no shares are earned. Above the
threshold goals, the contingent award is reduced if the target goals are not met
and such contingent award is supplemented if the target goals are exceeded.
Payouts of earned performance shares are made in common stock of the Company at
the end of the four-year performance period. The primary factor considered by
the Compensation Committee in setting the amounts of options and performance
shares granted in 1996 were the amounts granted to officers in positions of
similar responsibility by comparable companies.
CEO Compensation. Mr. Norris' salary was increased effective July 1, 1995
and remained unchanged through 1996. However, the Compensation Committee
determined in its review of comparable company data that Mr. Norris' midpoint
base salary was significantly below the average for his peer group. Accordingly,
Mr. Norris' salary grade was increased effective January 1, 1996.
Mr. Norris' annual incentive bonus award for 1996 reflected the fact that
the financial performance of the Company's Corporate profit center for 1996 was
slightly above the target financial objectives established by the Compensation
Committee for 1996. Although the Corporate profit center's financial performance
for 1996 did not meet the maximum financial objectives in 1996 (as it did in
1995), Mr. Norris' annual incentive bonus award in 1996 exceeded his award for
1995 because of his promotion to a higher salary grade. At the request of Mr.
Norris, the Compensation Committee did not award him any long-term incentive
compensation in 1996.
P. R. Roedel
N. DeBenedictis
R. S. Hillas
R. L. Smoot
19
<PAGE> 22
STOCK PERFORMANCE CHART
The following chart compares the yearly percentage change in the cumulative
total return on the Company's Common Stock during the five years ended December
31, 1996 with the cumulative total return on the S&P 500 Composite Index and the
Dow Jones Paper Products Industry Group. The comparison assumes $100 was
invested on December 31, 1990 in the Company's Common Stock and in each of the
foregoing indices and assumes reinvestment of dividends.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURNS
AMONG P.H. GLATFELTER COMPANY, S&P 500 COMPOSITE INDEX AND
DOW JONES PAPER PRODUCTS INDUSTRY GROUP
<TABLE>
<CAPTION>
DOW JONES
PAPER
S&P 500 PRODUCTS
MEASUREMENT PERIOD COMPOSITE INDUSTRY P.H. GLATFEL
(FISCAL YEAR COVERED) INDEX GROUP TER COMPANY
<S> <C> <C> <C>
1991 100.00 100.00 100.00
1992 107.62 99.43 68.29
1993 118.46 107.24 74.02
1994 120.03 119.45 64.32
1995 165.13 136.47 73.79
1996 203.05 114.20 80.68
</TABLE>
CERTAIN TRANSACTIONS
R. L. Smoot, a director of the Company, is President and Chief Executive
Officer of PNC Bank, National Association, Philadelphia/South Jersey markets.
PNC Bank, National Association ("PNC Bank"), an indirect subsidiary of PNC Bank
Corp., has a banking relationship with the Company and provides general banking
services and credit facilities. The Company has a line of credit with PNC Bank
in the amount of $45,000,000, in respect of which the Company paid $1,240 in
interest for 1996. The maximum outstanding principal balance in 1996 was
$4,000,000. All transactions between the Company and PNC Bank have been made in
the ordinary course of business and on substantially the same terms as those
prevailing at the time for comparable transactions with other persons.
20
<PAGE> 23
OWNERSHIP OF COMMON STOCK
The following table sets forth as of February 26, 1997 (except as otherwise
noted) the holdings of (i) each person who is known by the Company to own
beneficially more than 5% of the Common Stock of the Company, (ii) each director
and certain executive officers and (iii) all directors and executive officers of
the Company as a group. All stock with respect to which a person has the right
to acquire beneficial ownership within 60 days is considered beneficially owned
by that person.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP PERCENTAGE
(NUMBER OF SHARES) OF CLASS
--------------------------------- (IF
VOTING AND/OR GREATER
NAME DIRECT(1) INVESTMENT POWER(2) THAN 1%)
- ----------------------------------------------------- --------- ------------------- ----------
<S> <C> <C> <C>
Principal Holders
PNC Bank Corp...................................... 0 16,643,890(3) 39.3%
Fifth Ave. & Wood St.
Pittsburgh, Pa.
P.H. Glatfelter Family Shareholders' Voting 0 13,596,631(4) 32.1%
Trust...........................................
c/o PNC Bank
17th and Chestnut Streets
Philadelphia, Pa.
G.H. Glatfelter.................................... 0 4,028,135(5) 9.5%
Spring Grove, Pa.
John Hancock Mutual Life Insurance Company......... 0 2,221,376(6) 5.2%
John Hancock Place
Boston, Ma.
Directors and certain officers (other than those
listed above)
R. E. Chappell..................................... 0 2,000 --
N. DeBenedictis.................................... 1,000 1,000 --
G. H. Glatfelter II................................ 0 48,763(7) --
R. S. Hillas....................................... 0 6,000 --
M. A. Johnson II................................... 10,544 1,536 --
R. W. Kelso........................................ 0 0 --
R. S. Lawrence..................................... 4,406 37,081(8) --
J. F. Myers........................................ 40,386 70,306(9) --
R. P. Newcomer..................................... 3,174 41,811(10) --
T. C. Norris....................................... 82,573 51,026(11) --
P. R. Roedel....................................... 200 0 --
J. M. Sanzo........................................ 500 0 --
R. L. Smoot........................................ 500 0 --
All directors and executive officers as a group.... 158,582 4,388,435(12) 10.7%
</TABLE>
- ---------------
(1) Reported in this column are shares held of record.
(2) Does not include shares reported in Direct Ownership column. For purposes
of the table, shares of Common Stock are considered beneficially owned by a
person if such person has or shares voting or investment power with respect
to such stock. As a result, the same security may be beneficially owned by
more than one person and, accordingly, in some cases, the same shares are
listed opposite more than one name in the table. Also includes, in some
cases, shares beneficially held by wives or minor children, as to which
beneficial ownership is disclaimed.
(3) Consists of 8,684,607 shares as to which PNC Bank Corp. has sole voting
power; 7,700,789 shares as to which PNC Bank Corp. has shared voting power;
8,115,386 shares as to which PNC Bank Corp. has
21
<PAGE> 24
sole investment power; and 7,919,594 shares as to which PNC Bank Corp. has
shared investment power. The amounts specified for shared voting power and
shared investment power both include 89,348 shares held by PNC Bank as
co-trustee with G. H. Glatfelter. In addition, 13,596,631 shares of the
total amount of shares beneficially held by PNC Bank Corp. are deposited in
the Voting Trust (see footnotes (5) and (7)). Of the 16,643,890 shares
beneficially held by PNC Bank Corp., all such shares are also considered to
be beneficially held by its subsidiary, PNC Bancorp, Inc., and 16,632,356
shares are considered to be beneficially held by PNC Bank. All of the above
share amounts are as of December 31, 1996.
(4) Consists of shares beneficially owned as of December 31, 1996 by certain
descendants of Philip H. Glatfelter or the spouses of such descendants,
including shares beneficially owned by G. H. Glatfelter and G. H.
Glatfelter II, which were deposited in the P. H. Glatfelter Family
Shareholders' Voting Trust dated July 1, 1993 (the "Voting Trust"). Shares
deposited in the Voting Trust may be withdrawn subject to certain
conditions. Co-trustees for the Voting Trust are William M. Eyster II,
Katherine G. Costello, Patricia G. Foulkrod, Phillip H. Glatfelter IV,
Irene G. Fegley and PNC Bank. Co-trustees other than PNC Bank each
represent a family group. The shares deposited in the Voting Trust may be
voted only in accordance with a majority of votes cast by the co-trustees
pursuant to a weighted formula in which (i) each co-trustee (other than PNC
Bank) is entitled to cast such number of votes as is equal to the number of
shares deposited in the Voting Trust in which members of his or her family
group have an interest and (ii) PNC Bank is entitled to cast such number of
votes as is equal to the number of shares deposited in the Voting Trust in
which any fiduciary trust of which PNC Bank is a trustee and which is for
the benefit of one or more Glatfelter family members has an interest. The
co-trustees have no dispositive power with regard to the shares deposited
in the Voting Trust. The Voting Trust will continue until it is terminated
by the co-trustees or all of the shares deposited in the Voting Trust are
withdrawn. The address for each of the co-trustees is c/o PNC Bank, 17th
and Chestnut Streets, Philadelphia, Pa.
(5) Includes 89,348 shares held as co-trustee with PNC Bank, 905,577 shares (of
which 4,416 shares are also included in the number of shares which he holds
as co-trustee) which G. H. Glatfelter has the right to withdraw from
certain trusts of which PNC Bank is trustee and 3,037,626 shares which G.
H. Glatfelter has the right, on certain conditions, to purchase. All shares
beneficially owned by G. H. Glatfelter are deposited in the Voting Trust
(see footnote (4)).
(6) Represents 2,221,376 shares beneficially owned, as of December 31, 1996 by
The Berkeley Financial Group through its direct, wholly-owned subsidiary,
NM Capital Management, Inc., which beneficially owns 2,147,276 shares, and
through its direct, wholly-owned subsidiary, John Hancock Advisers, Inc.,
which beneficially owns 74,100 shares. NM Capital Management, Inc. has sole
voting power as to 875,272 shares, and sole investment power as to
2,147,276 shares and does not share voting or investment power as to any
shares. John Hancock Advisers, Inc. has sole voting and investment power as
to all of its shares. The Berkeley Financial Group is a direct,
wholly-owned subsidiary of John Hancock Asset Management, which is a
direct, wholly-owned subsidiary of John Hancock Subsidiaries, Inc., which
is a direct, wholly-owned subsidiary of John Hancock Mutual Life Insurance
Company.
(7) Includes 36,153 shares subject to the currently exercisable portion of an
option. Of the shares beneficially owned by G. H. Glatfelter II, 11,580 are
subject to the Voting Trust (see footnote (4)).
(8) Includes 34,738 shares subject to the currently exercisable portion of an
option.
(9) Includes 36,394 shares subject to the currently exercisable portion of an
option.
(10) Includes 37,478 shares subject to the currently exercisable portion of an
option.
(11) Includes 45,000 shares subject to the currently exercisable portion of an
option.
(12) Includes 284,676 shares subject to currently exercisable portions of
options.
22
<PAGE> 25
G. H. Glatfelter, the Voting Trust, PNC Bank Corp., PNC Bancorp, Inc., PNC
Bank and John Hancock Mutual Life Insurance Company and its above-referenced
subsidiaries may be deemed to be "control persons" of the Company for purposes
of the proxy rules and regulations of the Securities and Exchange Commission.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
A trust for which G. H. Glatfelter is co-trustee sold 1,121 shares on
December 26, 1996; Mr. Glatfelter did not report the sale until February 10,
1997.
OTHER BUSINESS
The Board of Directors does not intend to present to the meeting any
business other than the election of directors, the approval of amendments to the
Long-Term Incentive Plan and the approval of the Management Incentive Plan. If
any other matter is presented to the meeting which under applicable proxy
regulations need not be included in this proxy statement or which the Board of
Directors did not know would be presented a reasonable time before this
solicitation, the persons named in the accompanying proxy will have
discretionary authority to vote proxies with respect to such matter in
accordance with their best judgment.
DEADLINE FOR SHAREHOLDER PROPOSALS
The Company must receive any proposal which a shareholder wishes to submit
to the 1998 annual meeting of shareholders by November 14, 1997, if the proposal
is to be considered by the Board of Directors for inclusion in the proxy
material for that meeting.
/s/ R.S. WOOD
R. S. WOOD,
Secretary
March 14, 1997
23
<PAGE> 26
EXHIBIT A
P. H. GLATFELTER COMPANY
1992 KEY EMPLOYEE LONG-TERM INCENTIVE PLAN
(AS PROPOSED TO BE AMENDED)
ARTICLE I
PURPOSE
The purpose of this 1992 Key Employee Long-Term Incentive Plan (the "Plan")
is to enable P. H. Glatfelter Company (the "Company") to offer key employees of
the Company and its subsidiaries equity interests in the Company and other
incentive awards, including performance-based stock incentives, and to offer
directors of the Company stock options and equity interests in the Company,
thereby attracting, retaining and rewarding such individuals, and strengthening
the mutuality of interests between such individuals and the Company's
shareholders.
ARTICLE II
DEFINITIONS
For purposes of this Plan, the following terms shall have the following
meanings:
2.1 "Award" shall mean any award under this Plan of any Stock Option,
Restricted Stock, Performance Share or Performance Unit.
2.2 "Board" shall mean the Board of Directors of the Company.
2.3 "Change of Control" shall mean the occurrence of any one of the
following: (i) the Company enters into an agreement of reorganization, merger or
consolidation pursuant to which it is not the surviving corporation, (ii) the
Company sells substantially all its assets, or (iii) in excess of 51% of the
issued and outstanding shares of Common Stock is acquired by a single purchaser
or group of related purchasers, other than a purchaser or group of purchasers
who are descendants of, or entities controlled by descendants of, P. H.
Glatfelter, in any case other than in a transaction in which the surviving
corporation or the purchaser is the Company or a majority-owned subsidiary of
the Company.
2.4 "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.5 "Committee" shall mean the Compensation Committee of the Board
consisting of three or more Directors, each of whom shall be a "non-employee
director" within the meaning of Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as in effect from
time to time, and an "outside director" within the meaning of Section 162(m) of
the Code and regulations promulgated thereunder, as in effect from time to time.
2.6 "Common Stock" means the Common Stock, par value $.01 per share, of the
Company.
2.7 "Disability" shall mean a disability due to any medically determinable
physical or mental impairment that prevents a Participant from fulfilling the
duties that such Participant was performing at the time of the occurrence of
such disability and which can be expected to result in death or which has lasted
or can be expected to last for a continuous period of more than twelve months,
as determined by the Committee in its sole discretion.
2.8 "Fair Market Value" for purposes of this Plan, unless otherwise
required by any applicable provision of the Code or any regulations issued
thereunder, shall mean, as of any date, the average of the high and low sales
prices of a share of Common Stock as reported on the American Stock Exchange.
<PAGE> 27
2.9 "Incentive Stock Option" shall mean any Stock Option awarded under this
Plan intended to be and designated as an "Incentive Stock Option" within the
meaning of Section 422 of the Code.
2.10 "Non-Qualified Stock Option" shall mean any Stock Option awarded under
this Plan that is not an Incentive Stock Option.
2.11 "Participant" shall mean an individual to whom an Award has been made
pursuant to this Plan.
2.12 "Performance Cycle" shall have the meaning set forth in Section 9.1.
2.13 "Performance Period" shall have the meaning set forth in Section 8.1.
2.14 "Performance Share" shall mean an Award made pursuant to Article VIII
of this Plan of the right to receive Common Stock or cash of an equivalent
value, or a combination of both, at the end of a specified Performance Period.
2.15 "Performance Unit" shall mean an Award made pursuant to Article IX of
this Plan of the right to receive a fixed dollar amount, payable in cash or
Common Stock or a combination of both, at the end of a specified Performance
Cycle.
2.16 "Restricted Stock" shall mean an Award of shares of Common Stock under
this Plan that is subject to restrictions under Article VII.
2.17 "Restriction Period" shall have the meaning set forth in Section
7.2(d).
2.18 "Stock Option" or "Option" shall mean any option to purchase shares of
Common Stock granted pursuant to Article VI.
2.19 "Termination of employment" shall mean a termination of employment for
reasons other than a military or personal leave of absence granted by the
Company or, in the case of a director of the Company, termination of service as
a member of the Board.
ARTICLE III
ADMINISTRATION
3.1 The Committee. The Plan shall be administered and interpreted by the
Committee.
3.2 Awards. The Committee shall have full authority to grant, pursuant to
the terms of this Plan, to persons eligible under Article V: (i) Stock Options,
(ii) Restricted Stock, (iii) Performance Shares and (iv) Performance Units. In
particular, the Committee shall have the authority:
(a) to select the persons eligible under Article V to whom Stock
Options, Restricted Stock, Performance Shares and Performance Units may
from time to time be granted hereunder;
(b) to determine whether and to what extent Incentive Stock Options,
Non-Qualified Stock Options, Restricted Stock, Performance Shares and
Performance Units, or any combination thereof, are to be granted hereunder
to one or more persons eligible under Article V;
(c) to determine the number of shares of Common Stock to be covered by
each such Award granted hereunder;
(d) to determine the terms and conditions, not inconsistent with the
terms of this Plan, of any Award granted hereunder (including, but not
limited to, the option or purchase price, any restriction or limitation,
any vesting schedule or acceleration thereof, or any forfeiture
restrictions or waiver thereof, regarding any Award and the shares of
Common Stock relating thereto, based on such factors as the Committee shall
determine, in its sole discretion); and
A-2
<PAGE> 28
(e) to determine whether, to what extent and under what circumstances
Common Stock and other amounts payable with respect to an Award under this
Plan shall be deferred.
3.3 Guidelines. Subject to Article X hereof, the Committee shall have the
authority to adopt, alter and repeal such administrative rules, guidelines and
practices governing this Plan as it shall, from time to time, deem advisable; to
interpret the terms and provisions of this Plan and any Award issued under this
Plan (and any agreements relating thereto); and to otherwise supervise the
administration of this Plan. The Committee may correct any defect, supply any
omission or reconcile any inconsistency in this Plan or in any Award granted in
the manner and to the extent it shall deem necessary to carry this Plan into
effect. Notwithstanding the foregoing, no action of the Committee under this
Section 3.3 shall impair the rights of any Participant without the Participant's
consent.
3.4 Decisions Final. Any decision, interpretation or other action made or
taken in good faith by the Committee arising out of or in connection with the
Plan shall be final, binding and conclusive on the Company and all employees and
directors and their respective heirs, executors, administrators, successors and
assigns.
ARTICLE IV
SHARE LIMITATION
4.1 Shares. The maximum aggregate number of shares of Common Stock which
may be issued under this Plan shall not exceed five million (5,000,000) shares
(subject to any increase or decrease pursuant to Section 4.2) which may be
either authorized and unissued Common Stock or issued Common Stock reacquired by
the Company. If any Option granted under this Plan shall expire, terminate or be
cancelled for any reason without having been exercised in full, the number of
unpurchased shares shall again be available for the purposes of the Plan;
provided, however, that if such expired, terminated or cancelled Option shall
have been issued in conjunction with another Award, none of such unpurchased
shares shall again become available for purposes of this Plan to the extent that
the related Award granted under this Plan is exercised. Further, if any shares
of Restricted Stock granted hereunder are forfeited or any Award of Performance
Shares terminates without the delivery of such shares, the shares subject to
such Award, to the extent of such forfeiture or termination, shall again be
available under this Plan.
4.2 Changes. In the event of any merger, reorganization, consolidation,
recapitalization, dividend (other than a regular cash dividend), stock split, or
other change in corporate structure affecting the Common Stock, such
substitution or adjustment shall be made in the maximum aggregate number of
shares which may be issued under this Plan, in the maximum aggregate number of
shares with respect to which Options or Performance Shares may be granted under
this Plan to any individual during any calendar year, in the number and option
price of shares subject to outstanding Options granted under this Plan, and in
the number of shares subject to other outstanding Awards granted under this
Plan, as may be determined to be appropriate by the Committee, in its sole
discretion, provided that the number of shares subject to any Award shall always
be a whole number.
ARTICLE V
ELIGIBILITY
5.1 Employees. Officers and other key employees of the Company and any
subsidiary of the Company are eligible to be granted Awards under this Plan.
5.2 Directors. Directors of the Company who are not employees of the
Company or one of its subsidiaries are eligible to be granted Non-Qualified
Stock Options and Restricted Stock under this Plan.
A-3
<PAGE> 29
ARTICLE VI
STOCK OPTIONS
6.1 Options. Each Stock Option granted under this Plan shall be either an
Incentive Stock Option or a Non-Qualified Stock Option.
6.2 Grants. The Committee shall have the authority to grant to any person,
to the extent eligible under Article V, one or more Incentive Stock Options,
Non-Qualified Stock Options, or both types of Stock Options. To the extent that
any Stock Option does not qualify as an Incentive Stock Option (whether because
of its provisions or the time or manner of its exercise or otherwise), such
Stock Option or the portion thereof which does not qualify as an Incentive Stock
Option shall constitute a separate Non-Qualified Stock Option.
6.3 Incentive Stock Options. Anything in the Plan to the contrary
notwithstanding, no term of this Plan relating to Incentive Stock Options shall
be interpreted, amended or altered, nor shall any discretion or authority
granted under the Plan be exercised, so as to disqualify the Plan under Section
422 of the Code, or, without the consent of the Participants affected, to
disqualify any Incentive Stock Option under such Section 422.
6.4 Terms of Options. Options granted under this Plan shall be subject to
the following terms and conditions and shall contain such additional terms and
conditions, not inconsistent with the terms of this Plan, as the Committee shall
deem desirable:
(a) Stock Option Certificate. Each Stock Option shall be evidenced
by, and subject to the terms of, a Stock Option Certificate executed by the
Company. The Stock Option Certificate shall specify whether the Option is
an Incentive Stock Option or a Non-Qualified Stock Option, the number of
shares of Common Stock subject to the Stock Option, the option price, the
option term, and the other terms and conditions applicable to the Stock
Option.
(b) Option Price. The option price per share of Common Stock
purchasable upon exercise of a Stock Option shall be determined by the
Committee at the time of grant but shall be not less than 100% of the Fair
Market Value of the Common Stock on the date of grant if the Stock Option
is intended to be an Incentive Stock Option and shall not be less than 85%
of the Fair Market Value of the Common Stock on the date of grant if the
Stock Option is intended to be a Non-Qualified Stock Option.
(c) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Stock Option shall be exercisable more than ten years
after the date it is granted.
(d) Exercisability. Stock Options shall be exercisable at such time
or times and subject to such terms and conditions as shall be determined by
the Committee at the time of grant, provided that no Stock Option may be
exercised within six months after the date of grant.
(e) Method of Exercise. Subject to such installment exercise and
waiting period provisions as may be imposed by the Committee, Stock Options
may be exercised in whole or in part at any time during the option term, by
giving written notice of exercise to the Company specifying the number of
shares to be purchased. Such notice shall be accompanied by payment in full
of the option price in such form as the Committee may accept and, if
requested, by the representation described in Section 12.4. Unless
otherwise determined by the Committee in its sole discretion at or after
grant, payment in full or in part may be made in the form of Common Stock
duly owned by the Participant (and for which the Participant has good title
free and clear of any liens and encumbrances), based on the Fair Market
Value of the Common Stock on the last trading date preceding payment. Upon
payment in full of the option price, as provided herein, a stock
certificate or stock certificates representing the number of shares of
Common Stock to which the Participant is entitled shall be issued and
registered in the name of and delivered to the Participant.
A-4
<PAGE> 30
(f) Death. Unless otherwise determined by the Committee at the time
of grant, if a Participant's employment by the Company or one of its
subsidiaries, or a Participant's service on the Board, terminates by reason
of death, any Stock Option held by such Participant which was exercisable
at the date of death may thereafter be exercised by the legal
representative of the Participant's estate for a period of one year from
the date of such death or until the expiration of the stated term of such
Stock Option, whichever period is the shorter.
(g) Disability. If the Committee, in its sole discretion, determines
that a Participant has suffered a Disability, any Stock Option held by such
Participant which was exercisable on the date on which such Disability
commenced (as determined by the Committee in its sole discretion) may
thereafter be exercised by the Participant for a period of one year from
the date of such commencement (or such other period as may be determined by
the Committee at the time of grant) or until the expiration of the stated
term of such Stock Option, whichever period is the shorter; provided,
however, that, if the Participant dies within such one-year period (or
other period determined by the Committee at the time of grant), any
unexercised Stock Option held by such Participant shall thereafter be
exercisable to the extent to which it was exercisable at the time of death,
for a period of one year from the date of such death or until the
expiration of the stated term of such Stock Option, whichever period is the
shorter. In the event of termination of employment by reason of Disability,
if an Incentive Stock Option is exercised after the expiration of the
exercise periods that apply for purposes of Section 422 of the Code, such
Stock Option will thereafter be treated as a Non-Qualified Stock Option.
(h) Termination of Employment. Unless otherwise determined by the
Committee at the time of grant, if a Participant's employment by the
Company and its subsidiaries, or a Participant's service on the Board,
terminates for any reason other than death or Disability, the Stock Option
shall terminate as of the date of such termination of employment.
(i) Incentive Stock Option Limitations. To the extent that the
aggregate Fair Market Value (determined as of the date of grant) of the
Common Stock with respect to which Incentive Stock Options are exercisable
for the first time by the Participant during any calendar year under the
Plan and/or any other stock option plan of the Company or any subsidiary or
parent corporation (within the meaning of Section 424 of the Code) exceeds
$100,000, such Options shall be treated as Options which are not Incentive
Stock Options.
Should any of the foregoing provisions not be necessary in order for
the Stock Options to qualify as Incentive Stock Options, or should any
additional provisions be required, the Committee may amend the Plan
accordingly, without the necessity of obtaining the approval of the
shareholders of the Company.
(j) Committee Discretion. Notwithstanding any other provision of this
Plan, if a Participant's employment by the Company or any of its
subsidiaries, or a Participant's service on the Board, terminates for any
reason (including death or Disability), the Committee may, in its sole
discretion, accelerate the exercisability of any outstanding Stock Option
held by such Participant and/or extend the post-termination exercise
periods set forth in subsections (f), (g) and (h) of this Section 6.4,
provided that such post-termination exercise period may not be extended
beyond the expiration of the stated term of such Stock Option.
6.5 Individual Limit. The maximum aggregate number of shares of Common
Stock with respect to which Stock Options may be granted under this Plan to any
individual during any calendar year shall not exceed two hundred thousand
(200,000) shares (subject to any increase or decrease pursuant to Section 4.2).
A-5
<PAGE> 31
ARTICLE VII
RESTRICTED STOCK
7.1 Awards of Restricted Stock. The Committee shall determine the eligible
persons to whom, and the time or times at which, grants of Restricted Stock will
be made, the number of shares to be awarded, the price (if any) to be paid by
the recipient, the time or times within which such Awards may be subject to
forfeiture, the vesting schedule and rights to acceleration thereof, and the
other terms and conditions of the Awards, in addition to those set forth in
Section 7.2.
The provisions of Restricted Stock Awards need not be the same with respect
to each Participant, and such Awards to individual Participants need not be the
same in subsequent years.
7.2 Terms and Conditions. Restricted Stock awarded pursuant to this
Article VII shall be subject to the following terms and conditions and such
other terms and conditions, not inconsistent with the terms of this Plan, as the
Committee shall deem desirable:
(a) Purchase Price. Unless otherwise determined by the Committee, the
purchase price for shares of Restricted Stock shall be zero.
(b) Award Certificate. Each Restricted Stock Award shall be evidenced
by, and subject to the terms of, a Restricted Stock Award Certificate
executed by the Company. The Restricted Stock Award Certificate shall
specify the number of shares of stock subject to the Award, the time or
times within which such Restricted Stock is subject to forfeiture and the
other terms, conditions and restrictions applicable to such Award.
(c) Stock Certificate. When the restrictions applicable to a
Restricted Stock Award, or any portion thereof, lapse, a stock certificate
or stock certificates representing the number of shares of Common Stock
covered by such Restricted Stock Award, or portion thereof, shall be issued
and registered in the name of and delivered to the Participant. In lieu of
issuing a stock certificate or stock certificates representing such shares
of Common Stock, the Committee may, in its sole discretion, elect to
distribute to the Participant cash in an amount equal to the Fair Market
Value of such shares of Common Stock on the date on which the Restricted
Stock ceased to be subject to forfeiture, provided that the shares of
Common Stock to which the Participant was entitled shall be deemed to have
been issued for purposes of Article IV hereof.
(d) Restriction Period. Subject to the provisions of this Plan and
the Restricted Stock Award Certificate, shares of Restricted Stock will be
forfeited to the Company if the Participant ceases to be an employee of the
Company and any of its subsidiaries, or ceases to be a member of the Board,
during a period set by the Committee commencing with the date of such Award
(the "Restriction Period"). Subject to the provisions of this Plan, the
Committee, in its sole discretion, may provide for the lapse of such
restrictions in installments, provided that no such restrictions shall
lapse within six months after the date of the Award.
(e) Death or Disability. Subject to the provisions of this Plan and
the Restricted Stock Award Certificate, upon the death or Disability of a
Participant during the Restriction Period, restrictions will lapse with
respect to a percentage of the Restricted Stock Award granted to the
Participant that is equal to the percentage of the Restriction Period that
has elapsed as of the date of death or the date on which such Disability
commenced (as determined by the Committee in its sole discretion), and a
certificate or certificates representing such shares of Common Stock shall
be issued and registered in the name of the Participant or the
Participant's estate, as the case may be.
(f) Committee Discretion. Notwithstanding any other provision of this
Plan, if a Participant's employment by the Company or any of its
subsidiaries, or a Participant's service on the Board, terminates for any
reason (including death or Disability), the Committee may, in its sole
discretion, determine that the restrictions applicable to any outstanding
Restricted Stock Award held by such Participant shall lapse
A-6
<PAGE> 32
at the time of such termination or on such accelerated basis as may be
determined by the Committee, in its sole discretion.
ARTICLE VIII
PERFORMANCE SHARES
8.1 Award of Performance Shares. The Committee shall determine the
eligible persons to whom and the time or times at which Performance Shares shall
be awarded, the number of Performance Shares to be awarded to any person, the
duration of the period (the "Performance Period") during which, and the
conditions under which, receipt of the shares of Common Stock will be deferred,
and the other terms and conditions of the Award in addition to those set forth
in Section 8.2.
The provisions of Performance Share Awards need not be the same with
respect to each Participant, and such Awards to individual Participants need not
be the same in subsequent years.
8.2 Terms and Conditions. Performance Shares awarded pursuant to this
Article VIII shall be subject to the following terms and conditions and such
other terms and conditions, not inconsistent with the terms of this Plan, as the
Committee shall deem desirable:
(a) Conditions. The Committee, in its sole discretion, shall specify
the Performance Period during which, and the conditions under which, the
receipt of shares of Common Stock covered by the Performance Share Award
will be deferred, provided that the Performance Period shall not be less
than six months. The receipt of shares of Common Stock pursuant to a
Performance Share Award shall be conditioned upon the attainment of one or
more preestablished objective performance goals, within the meaning of
Section 162(m) of the Code and regulations promulgated thereunder,
established by the Committee. Such goals must be established in writing not
later than 90 days after the commencement of the Performance Period,
provided that the outcome is substantially uncertain at the time the goal
is established (provided that in no event may the performance goal be
established after 25% of the Performance Period has elapsed). The
performance goals may be based on the Company's stock price, return on
assets, return on capital employed, return on shareholders' equity,
earnings, earnings per share, total shareholder return, sales, costs, or
such other objective performance goals as may be established by the
Committee from time to time.
(b) Award Certificate. Each Performance Share Award shall be
evidenced by, and subject to the terms of, a Performance Share Certificate
executed by the Company. The Performance Share Certificate shall specify
the number of shares of stock subject to the Award, the applicable
Performance Period and the other terms and conditions applicable to such
Award.
(c) Stock Certificate. If the Committee certifies in writing, after
the expiration of the Performance Period, that the performance goals
specified in the Performance Share Certificate and all other material terms
of the award have been satisfied, a stock certificate or stock certificates
representing the number of shares of Common Stock covered by the
Performance Share Award shall be issued and registered in the name of and
delivered to the Participant. In lieu of issuing a stock certificate or
stock certificates representing such shares of Common Stock, the Committee
may, in its sole discretion, elect to distribute to the Participant cash in
an amount equal to the Fair Market Value of such shares of Common Stock at
the end of the Performance Period, provided that the shares of Common Stock
to which the Participant was entitled shall be deemed to have been issued
for purposes of Article IV hereof.
(d) Death or Disability. Subject to the provisions of this Plan and
the Performance Share Certificate, in the event of the death or Disability
of a Participant, the Participant or the Participant's estate, as the case
may be, shall be entitled to receive, at the expiration of the Performance
Period, a percentage of Performance Shares that is equal to the percentage
of the Performance Period that had elapsed as of the date of death or date
on which such Disability commenced (as determined by the
A-7
<PAGE> 33
Committee in its sole discretion), provided that the Committee, in its sole
discretion, determines that the conditions specified in the Performance
Share Certificate have been satisfied, and a certificate or certificates
representing such shares of Common Stock shall be issued and registered in
the name of the Participant or the Participant's estate, as the case may
be.
(e) Termination of Employment. Unless otherwise determined by the
Committee at the time of grant, the Performance Shares will be forfeited
upon termination of a Participant's employment with the Company and its
subsidiaries during the Performance Period for any reason other than death
or Disability.
8.3 Individual Limit. The maximum number of shares of Common Stock that
may be subject to Performance Share Awards granted to any individual during any
calendar year shall be sixty thousand (60,000) shares (subject to any increase
or decrease pursuant to Section 4.2).
ARTICLE IX
PERFORMANCE UNITS
9.1 Award of Performance Units. The Committee shall determine the eligible
persons to whom and the time or times at which Performance Units shall be
awarded, the number of Performance Units to be awarded to any person, the
duration of the period (the "Performance Cycle") during which, and the
conditions under which, a Participant's right to Performance Units will be
vested, the ability of Participants to defer the receipt of payment of such
Units, and the other terms and conditions of the Award in addition to those set
forth in Section 9.2.
A Performance Unit shall have a fixed dollar value.
The provisions of Performance Unit Awards need not be the same with respect
to each Participant, and such Awards to individual Participants need not be the
same in subsequent years.
9.2 Terms and Conditions. The Performance Units awarded pursuant to this
Article IX shall be subject to the following terms and conditions and such other
terms and conditions, not inconsistent with the terms of this Plan, as the
Committee shall deem desirable:
(a) Conditions. The Committee, in its sole discretion, shall specify
the Performance Cycle during which, and the conditions under which, the
Participant's right to Performance Units will be vested, provided that the
Performance Cycle shall not be less than six months. The vesting of
Performance Units shall be conditioned upon the attainment of one or more
pre-established objective performance goals, within the meaning of Section
162(m) of the Code and regulations promulgated thereunder, established by
the Committee. Such goals must be established in writing not later than 90
days after the commencement of the Performance Period, provided that the
outcome is substantially uncertain at the time the goal is established
(provided that in no event may the performance goal be established after
25% of the Performance Period has elapsed). The performance goals may be
based on the Company's stock price, return on assets, return on capital
employed, return on shareholders' equity, earnings, earnings per share,
total shareholder return, sales, costs, or such other objective performance
goals as may be established by the Committee from time to time.
(b) Award Certificate. Each Performance Unit Award shall be evidenced
by, and subject to the terms of, a Performance Unit Certificate executed by
the Company. The Performance Unit Certificate shall specify the dollar
value of the Award, the applicable Performance Cycle and the other terms
and conditions applicable to such Award.
(c) Vesting; Payment. If the Committee certifies in writing, after
the expiration of the Performance Cycle, that the performance goals
specified in the Performance Unit Certificate and all other
A-8
<PAGE> 34
material terms of the award have been satisfied, the Performance Units will
be vested and the Participant will receive payment of the amount specified
in the Performance Unit Certificate as soon as practicable thereafter.
Payment may be made in cash, shares of Common Stock or a combination of
both, as determined by the Committee, in its sole discretion.
(d) Death or Disability. Subject to the provisions of this Plan and
the Performance Unit Certificate, in the event of the death or Disability
of a Participant, the Participant or the Participant's estate, as the case
may be, shall be entitled to receive, at the expiration of the Performance
Cycle, a percentage of the Performance Units that is equal to the
percentage of the Performance Cycle that had elapsed as of the date of
death or date on which such Disability commenced (as determined by the
Committee in its sole discretion), provided that the Committee, in its sole
discretion, determines that the conditions specified in the Performance
Unit Certificate have been satisfied, and payment therefor shall be made to
the Participant or the Participant's estate, as the case may be.
(e) Termination of Employment. Unless otherwise determined by the
Committee at the time of grant, the Performance Units will be forfeited
upon termination of a Participant's employment with the Company and its
subsidiaries during the Performance Cycle for any reason other than death
or Disability.
9.3 Individual Limit. The maximum dollar amount of Performance Unit Awards
granted to any individual during any calendar year shall be $1,000,000.
ARTICLE X
TERMINATION OR AMENDMENT
10.1 Termination or Amendment of Plan. The Board may at any time amend,
discontinue or terminate this Plan or any part thereof (including any amendment
deemed necessary to ensure that the Company may comply with any regulatory
requirement referred to in Article XII); provided, however, that, unless
otherwise required by law, the rights of a Participant with respect to Awards
granted prior to such amendment, discontinuance or termination, may not be
impaired without the consent of such Participant and, provided further, that the
Company will seek the approval of the Company's shareholders for any amendment
if such approval is necessary to comply with the Code, Federal or state
securities law or any other applicable rules or regulations.
10.2 Amendment of Awards. The Committee may amend the terms of any Award
theretofore granted, prospectively or retroactively, but, subject to Article IV,
no such amendment or other action by the Committee shall impair the rights of
any holder without the holder's consent. The Committee may also substitute new
Stock Options for previously granted Stock Options having higher option prices.
ARTICLE XI
UNFUNDED PLAN
11.1 Unfunded Status of Plan. This Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to any
payment not yet made to a Participant by the Company, nothing contained herein
shall give any such Participant any rights that are greater than those of a
general creditor of the Company.
A-9
<PAGE> 35
ARTICLE XII
GENERAL PROVISIONS
12.1 Nonassignment. Except as otherwise provided in this Plan, any Award
made hereunder and the rights and privileges conferred thereby shall not be
transferred, assigned, pledged or hypothecated in any way (whether by operation
of law or otherwise), and shall not be subject to execution, attachment or
similar process. Upon any attempt to transfer, assign, pledge, hypothecate or
otherwise dispose of such Award, right or privilege contrary to the provisions
hereof, or upon the levy of any attachment or similar process thereon, such
Award and the rights and privileges conferred hereby shall immediately terminate
and the Award shall immediately be forfeited to the Company.
12.2 Change of Control. In the event of a Change of Control, all
outstanding Stock Options that have been held for at least six months shall
immediately become fully exercisable and all outstanding Restricted Stock Awards
that have been held for at least six months shall immediately cease to be
subject to forfeiture or deferral limitations, and upon payment by the
Participant of the option or purchase price, if any, stock certificates
representing the Common Stock covered thereby shall be issued and registered in
the name of and delivered to the Participants or other payment therefor made as
soon as practicable. In the event of a Change of Control, the Committee may, in
its sole discretion, determine whether Participants should immediately receive
some or all of the shares of Common Stock or cash covered by outstanding
Performance Share Awards or Performance Unit Awards.
12.3 Rights as Shareholder. A Participant shall not be deemed to be the
holder of Common Stock or to have the rights of a holder of Common Stock, with
respect to any Award hereunder, unless and until all applicable restrictions, if
any, have lapsed and a stock certificate or stock certificates representing
shares of Common Stock are issued to him.
12.4 Legend. The Committee may require each person acquiring shares
pursuant to an Award under the Plan to represent to the Company in writing that
the Participant is acquiring the shares without a view to distribution thereof.
The certificates for such shares may include any legend which the Committee
deems appropriate to reflect any restrictions on transfer.
All certificates representing shares of Common Stock delivered under the
Plan shall be subject to such stock transfer orders and other restrictions as
the Committee may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Common Stock is then listed, any applicable Federal or state
securities law, and any applicable corporate law, and the Committee may cause a
legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.
12.5 Other Plans. Nothing contained in this Plan shall prevent the Board
from adopting other or additional compensation arrangements, subject to
shareholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases.
12.6 No Right to Employment. Neither this Plan nor the grant of any Option
or other Award hereunder shall give any Participant or other employee any right
with respect to continuance of employment by the Company or any subsidiary, nor
shall there be a limitation in any way on the right of the Company or any
subsidiary of the Company by which a Participant is employed to terminate such
Participant's employment at any time. Neither this Plan nor the grant of any
Option or other award hereunder shall give any director the right to continue as
a member of the Board or obligate the Company to nominate any director for
reelection by the Company's shareholders.
12.7 Withholding of Taxes. The Company shall have the right to reduce the
number of shares of Common Stock otherwise deliverable pursuant to this Plan by
an amount which would have a Fair Market Value equal to the amount of all
Federal, state or local taxes to be withheld, based upon the tax rates then in
A-10
<PAGE> 36
effect or the tax rates that the Company reasonably believes will be in effect
for the applicable tax year or to deduct the amount of such taxes from any cash
payment to be made to a Participant, pursuant to this Plan or otherwise. In
connection with such withholding, the Committee may make such arrangements as
are consistent with the Plan as it may deem appropriate.
12.8 Listing and Other Conditions.
(a) As long as the Common Stock is listed on the American Stock
Exchange or any other national securities exchange or system sponsored by a
national securities association, the issuance of any shares of Common Stock
pursuant to an Award shall be conditioned upon such shares being listed on
such exchange or system. The Company shall have no obligation to issue such
shares unless and until such shares are so listed, and the right to
exercise any Option or vest in any other Award with respect to such shares
shall be suspended until such listing has been effected.
(b) If at any time counsel to the Company shall be of the opinion that
any sale or delivery of shares of Common Stock pursuant to an Award is or
may in the circumstances be unlawful or result in the imposition of excise
taxes under the statutes, rules or regulations of any applicable
jurisdiction, the Company shall have no obligation to make such sale or
delivery, or to make any application or to effect or to maintain any
qualification or registration under the Securities Act of 1933, as amended,
or otherwise with respect to shares of Common Stock or Awards, and the
right to exercise any Option or vest in any other Award shall be suspended
until, in the opinion of such counsel, such sale or delivery shall be
lawful or shall not result in the imposition of excise taxes.
(c) Upon termination of any period of suspension under this Section
12.8, any Award affected by such suspension which shall not then have
expired or terminated shall be reinstated as to all shares available before
such suspension and as to shares which would otherwise have become
available during the period of such suspension, but no such suspension
shall extend the term of any Option.
12.9 Governing Law. This Plan and actions taken in connection herewith
shall be governed and construed in accordance with the laws of the Commonwealth
of Pennsylvania.
12.10 Construction. Wherever any words are used in this Plan in the
masculine gender they shall be construed as though they were also used in the
feminine gender in all cases where they would so apply, and wherever any words
are used herein in the singular form they shall be construed as though they were
also used in the plural form in all cases where they would so apply.
12.11 Liability of Committee. No member of the Board of Directors or the
Committee nor any employee of the Company or any of its subsidiaries shall be
liable for any act or action hereunder, whether of omission or commission, by
any other member or employee or by any agent to whom duties in connection with
the administration of this Plan have been delegated or, except in circumstances
involving bad faith, gross negligence or fraud, for anything done or omitted to
be done by himself.
12.12 Other Benefits. No payment pursuant to an Award under this Plan
shall be deemed compensation for purposes of computing benefits under any
retirement plan of the Company or any of its subsidiaries nor affect any
benefits under any other benefit plan now or hereafter in effect under which the
availability or amount of benefits is related to the level of compensation.
12.13 Costs. The Company shall bear all expenses incurred in administering
this Plan, including expenses of issuing Common Stock pursuant to any Awards
hereunder.
12.14 Severability. If any part of this Plan shall be determined to be
invalid or void in any respect, such determination shall not affect, impair,
invalidate or nullify the remaining provisions of this Plan which shall continue
in full force and effect.
A-11
<PAGE> 37
12.15 Successors. This Plan shall be binding upon and inure to the benefit
of any successor or successors of the Company.
12.16 Headings. Article and section headings contained in this Plan are
included for convenience only and are not to be used in construing or
interpreting this Plan.
ARTICLE XIII
EFFECTIVE DATE OF PLAN
13.1 This Plan shall be effective as of the date of its approval by the
Company's shareholders.
ARTICLE XIV
TERM OF PLAN
14.1 No Stock Option, Restricted Stock, Performance Share or Performance
Unit shall be granted pursuant to this Plan on or after April 23, 2007, but
Awards granted prior to such date may extend beyond that date.
A-12
<PAGE> 38
EXHIBIT B
P. H. GLATFELTER COMPANY
MANAGEMENT INCENTIVE PLAN
(ADOPTED AS OF JANUARY 1, 1994)
(AMENDED AND RESTATED EFFECTIVE MARCH 13, 1997)
1. PURPOSE OF THE PLAN
The purpose of the Management Incentive Plan (hereinafter called the
"Plan") is to provide an incentive to greater efforts on the part of key
salaried employees to increase profits of P. H. Glatfelter Company, hereinafter,
together with its subsidiaries, called the "Company". The underlying objectives
of the Plan are as follows:
(a) Maximize the annual return on shareholders' equity.
(b) Promote and reward management teamwork at both corporate and mill
levels.
(c) Enable the Company to attract and retain a talented management
team.
(d) Assure that Plan awards are at risk annually.
(e) Reward key mill management personnel on the basis of both mill and
corporate financial results.
(f) Provide above-average incentive award potential to key salaried
employees of the Company whose base salaries are generally below average
market rates.
2. PROFIT CENTERS OF THE PLAN
In order to accomplish the objectives of the Plan, the Company and each of
its mills shall be treated as a separate profit center for the purpose of
rewarding those employees, who through the exercise of their responsibilities,
are in a position to have a significant bearing on the success and profitability
of their profit center, and therefore on the profitability of the Company. In
addition, a Glatfelter Paper Group profit center shall represent a combination
of the Spring Grove and Neenah mill profit centers. The profit centers are
identified as follows:
Corporate Profit Center
Glatfelter Paper Group Profit Center
Spring Grove Mill Profit Center
Neenah Mill Profit Center
Ecusta Mill Profit Center
3. AMENDMENT OR TERMINATION OF THE PLAN
This Plan is an amendment and restatement of the P. H. Glatfelter Company
Management Incentive Plan and shall continue in force from year to year until
amended, modified or terminated. The Company reserves the right by action of its
Board of Directors or the Compensation Committee thereof (hereinafter called the
"Committee") at any time to amend or modify the Plan in any respect or to
terminate the Plan in its entirety, provided that, if the Plan is in effect at
the beginning of a fiscal year, it may not be terminated or amended for such
year. The Company will seek the approval of the Company's shareholders for an
amendment if such approval is necessary to comply with the Internal Revenue
Code, Federal or state securities law or any other applicable rules or
regulations.
<PAGE> 39
4. ADMINISTRATION OF THE PLAN
The management of the Plan shall be vested in the Committee, which shall be
comprised solely of two or more "outside directors" (as defined in regulations
promulgated under Section 162(m) of the Internal Revenue Code). The majority of
the members of the Committee at any time in office shall constitute a quorum for
the transaction of business at any meeting. Any determination or action of the
Committee may be made or taken by a majority of its members present at any
meeting at which a quorum is present or without a meeting by unanimous written
consent executed by all the members then in office.
5. PARTICIPANTS IN THE PLAN
(a) The participants in the Plan and the profit center to which they are
assigned for each fiscal year shall be proposed by the Chief Executive Officer
and approved by the Committee on or before the December 31 immediately preceding
such fiscal year. In this respect, the action of the Committee shall be final.
Participation is limited to selected management and highly compensated salaried
employees of the Company. Nothing herein contained shall be construed as giving
any salaried employee the right to participate in the Plan, except after
approval by the Committee, and then his participation shall be subject to all
the provisions of the Plan.
(b) The criteria that will be considered by the Committee in approving a
participant shall include position responsibilities, organizational reporting
relationship, current salary grade and/or rate, individual performance
expectations, and competitive practices.
(c) If a participant shall transfer from one profit center to another
during the year, his incentive award shall be determined on the basis of the
financial results of each profit center for such fiscal year, prorated based on
service to each profit center during such fiscal year. The participant's salary
grade at the time he is approved by the Committee as a participant in the Plan
for such year shall be such participant's salary grade for purposes of
determining the maximum, target and minimum awards for each profit center.
(d) If a participant's employment by the Company should terminate during
the fiscal year by reason of his death, retirement or permanent disability, his
incentive award shall be determined on the basis of the financial results of his
profit center for such fiscal year and his base salary midpoint for such fiscal
year, prorated to reflect the period of service prior to his death, retirement
or permanent disability, and shall be paid either to him or, as appropriate, the
beneficiary specifically designated by the participant on the applicable form,
or, if no such specific designation is made, to such beneficiary as is
designated under the Company's Group Life Insurance Plan. A participant who has
been removed from the payroll of the Company during the fiscal year for any
reason, other than his death, retirement or permanent disability, shall not
participate in the Plan for such fiscal year, unless the Committee, in its sole
discretion, determines that he shall so participate. The decision of the
Committee in this regard shall be final.
(e) In consideration of the payments to be made in accordance with the
provisions of the Plan, the participants may not be participants in the
Company's Conference Group award program.
6. DETERMINATION OF INCENTIVE COMPENSATION AWARDS
(a) The Plan shall provide incentive awards based on achievement of
specified performance goals. Such performance goals shall be based on certain
measurements of profitability in each of the Company's profit centers.
Initially, such profitability shall be measured by the return on average
shareholders' equity (ROSE) in the case of the Corporate Profit Center and by
both the return on average shareholders' equity (ROSE) of the Company and the
return on average capital employed (ROCE) for the applicable mill profit center.
In the case of the Glatfelter Paper Group, the financial results of the Spring
Grove and Neenah mill profit centers will be combined for purposes of
calculating return on average capital employed. The determination of profit
B-2
<PAGE> 40
center profitability shall be based on the audited consolidated financial
statements of the Company and on the Company's internal financial statements for
each mill after the audit adjustments have been applied.
(b) The amount of an individual's award shall be based on a percentage of
such individual's base salary midpoint for the salary grade approved for him by
the Committee. If such salary midpoints are revised at any time during a fiscal
year, the Committee will revise the midpoints applicable to such year. The
incentive award as a percentage of base salary midpoint will vary based on the
applicable ROSE and ROCE levels achieved for the Plan Year. In no event may the
incentive award paid to any participant for any plan year exceed $1,000,000.
(c) The ROSE and ROCE factors are a measure of profitability and will be
established in the operating rules for each profit center, adopted annually by
the Committee in accordance with Paragraph 9. The incentive award shall equal
the base salary midpoint multiplied by the Incentive Award Factor which will
vary in relationship to the actual ROSE and ROCE levels achieved for the year.
(d) The Committee may, from time to time, establish performance goals based
on business criteria other than ROSE and ROCE, such as stock price, return on
assets, earnings, earnings per share, total shareholder return, sales or costs.
7. PAYMENT OF INDIVIDUAL INCENTIVE AWARDS
(a) Each year after the Committee has approved the participants in the Plan
for the following year in accordance with Paragraph 5(a), each participant shall
make an election by February 1 of such following year to receive his incentive
award in cash or to defer the receipt of 25%, 50%, 75% or 100% of the award to a
future period, specifying irrevocably the timing of the future payment(s) in
accordance with the deferred options established by the Committee. The amount of
deferred awards shall be adjusted at the end of each calendar quarter by
crediting the cumulative deferred awards with interest for the quarter based on
the prime rate of interest on the last business day of the quarter at Morgan
Guaranty Trust Company of New York (or such comparable rate as is determined by
the Committee if such prime rate is unavailable or, if in the opinion of the
Committee it no longer reflects the rate of interest on such bank's demand loans
to its most credit-worthy customers). The interest credit shall be earned from
the date when the award would have been paid if not deferred and shall be
compounded on the accumulated award and accrued interest. Should a deferred
award be paid during a quarter, interest on the amount of such payment shall be
accrued at the rate used for the immediately preceding quarter.
(b) Cash incentive awards shall be paid annually as promptly as practicable
after the Company's certified public accountants have completed their
examination of the Company's year-end consolidated financial statements and the
Committee has certified that the applicable performance goals have been met.
(c) Deferred incentive awards shall be paid on the first Monday in April of
each year pursuant to a participant's election to defer receipt of his award. In
the event a participant who has deferred an award determines that he has a
financial hardship which necessitates the acceleration of the payment of the
deferred award, he shall submit his request to release the funds to the
Committee which shall consider the circumstances and, in its sole discretion,
determine whether the request shall be approved.
(d) If a participant separates from the Company before age 55, or after age
55 without being vested under the terms of the Company's Retirement Plan for
Salaried Employees, including the Supplemental Executive Retirement Plan
(collectively, the "Pension Plans"), such participant will receive the unpaid
amount of his cumulative deferred award(s) in a lump sum within 30 days of his
separation date or, at the sole discretion and option of the Committee, as
stipulated on his election form. If such participant separates after age 55 and
is vested under the terms of the Company's Pension Plans, his deferred award(s)
will be paid as stipulated on his election form(s). If a participant should die
before his deferred award(s) has been
B-3
<PAGE> 41
completely paid out, the unpaid amount will be paid in a lump sum to his
designated beneficiary, as designated under the Company's Group Life Insurance
Plan, on a timely basis after his death.
8. MANAGEMENT INCENTIVE PLAN ADJUSTMENT SUPPLEMENT
The Company will supplement the basic monthly pension payable under the
Company's Pension Plans, with respect to an employee who is a participant in the
Plan and elected to defer incentive awards in accordance with Paragraph 7 of the
Plan, as provided in the Plan of Supplemental Retirement Benefits for the
Management Committee.
9. MANAGEMENT INCENTIVE PLAN OPERATING RULES
On or prior to December 31 immediately preceding each fiscal year, the
Committee shall adopt operating rules for each of the profit centers for such
fiscal year to be based on the operating budget for such fiscal year and
estimated financial results for the then current fiscal year, both as presented
at the December Board of Directors' meeting. These operating rules will
establish maximum, target and minimum Incentive Award Factors for each salary
grade and the corresponding maximum, target and minimum rates of return on
average shareholders' equity and rates of return on average capital employed for
each of the individual profit centers based on historical and anticipated rates
of return for the profit centers (or maximum, target and minimum goals based on
such other business criteria as the Committee may establish pursuant to
Paragraph 6(d)), and such other administrative and procedural rules which the
Committee considers appropriate.
10. DEFINITIONS
For the purpose of determining the incentive awards under the Plan, the
following definitions shall apply:
(a) Return on Average Shareholders' Equity (ROSE) shall mean Incentive
Income divided by Average Shareholders' Equity.
(b) Incentive Income shall mean income before income taxes as reported for
the fiscal year in the Company's audited consolidated financial statements. . .
i) before provision is made for the amounts paid or payable under the
Plan, the Employees' Profit Sharing Plans, and the Spring Grove Conference
Group award program, and
ii) after such adjustment, if any, as shall be made to exclude, to the
extent that the Committee in its sole discretion may determine, the whole
or any part of any item which is both unusual in nature and infrequent in
occurrence.
(c) Average Shareholders' Equity shall mean the average of the
shareholders' equity as reported in each of the Company's monthly internal
financial statements during the fiscal year.
(d) The "Incentive Award Factor" shall be the percentage of base salary
midpoint for each salary grade corresponding to the maximum, target and minimum
performance goals established for the corporate, mill, and the paper group
profit centers in the operating rules.
(e) Return on Capital Employed (ROCE) shall mean Operating Profit divided
by Average Capital Employed. ROCE shall be based on the Company's internal
financial reports for each of the Spring Grove, Neenah, and Ecusta mills after
the year-end audit adjustments by the Company's independent certified public
accountants have been applied to the accounting records and related reports. In
the case of the Spring Grove mill profit center, the Return on Capital Employed
shall be based on the consolidated financial reports for the Spring Grove mill
and The Glatfelter Pulp Wood Company. In the case of the Glatfelter Paper Group
profit center, the Return on Capital Employed shall be based on the consolidated
financial reports for the Spring Grove mill, The Glatfelter Pulp Wood Company,
and the Neenah mill.
B-4
<PAGE> 42
(f) Operating Profit shall mean operating profit as reported for the fiscal
year in the Company's internal financial statements by mill and for The
Glatfelter Pulp Wood Company. . .
i) before provision is made for the amounts paid or payable under the
Plan, the Employees' Profit Sharing Plans, and the Spring Grove Conference
Group award program, and
ii) after such adjustment, if any, as shall be made to exclude, to the
extent that the Committee in its sole discretion may determine, the whole
or any part of any item which is both unusual in nature and infrequent in
occurrence.
(g) Average Capital Employed shall mean the sum of the average of
inventories and net property, plant, and equipment as shown in the Company's
monthly internal financial statements by mill and for the Glatfelter Pulp Wood
Company during the fiscal year.
(h) Retirement shall mean voluntary separation from service by a
participant who has achieved an age whereby he is eligible for and has elected
to receive early retirement under the Company's Pension Plans.
(i) Disability shall mean a disability due to any medically determinable
physical or mental impairment that prevents a participant from fulfilling the
duties that such participant was performing at the time of the occurrence of
such disability and which can be expected to result in death or which has lasted
or can be expected to last for a continuous period of more than twelve months,
as determined by the Committee in its sole discretion.
11. RIGHTS NOT TRANSFERABLE
Rights to incentive cash awards and deferred incentive awards are not
transferable by a participant except upon the death of the participant by
operation of will or the laws of intestacy.
12. FUNDING
The Plan is not funded. All awards that are not received in cash shall
remain as part of the general assets of the Company and shall not be deemed held
in trust for the benefit of the participant.
13. WITHHOLDING OF APPLICABLE TAXES
The Company shall have the right to withhold amounts from incentive cash
awards and deferred incentive awards as shall be required to be withheld by the
Company pursuant to any statute or other governmental regulation or ruling.
14. CONCLUSION
The interpretation of the Plan or any provision thereof or the operating
rules made by the Committee shall be binding upon both the Company and every
participant in the Plan. While it is the intention of the Company to provide a
fair and reasonable basis for the determination of incentive compensation awards
and the selection of the participants, the Plan is not an employment contract
between the Company and the salaried employees or any participants and shall not
constitute an agreement by the Company to continue any participant in its employ
for any period of time notwithstanding that the termination of the employment of
a participant during a fiscal year will preclude an incentive award to such
participant for such year.
B-5
<PAGE> 43
[TO APPEAR ON BACK COVER]
(LOGO)
Printed on Ecusta Nyalite
Manufactured by the Ecusta Division of the
P. H. Glatfelter Company
Basis 25x38 -- 37 lb. Recycled.
<PAGE> 44
PROXY P. H. GLATFELTER COMPANY
SPRING GROVE, PENNSYLVANIA
------------------------------------
PROXY SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF THE COMPANY FOR THE ANNUAL MEETING
OF SHAREHOLDERS TO BE HELD APRIL 23, 1997
The undersigned shareholder of P. H. Glatfelter Company hereby appoints
Nicholas DeBenedictis, Roger S. Hillas and M. A. Johnson II and each of them,
attorneys and proxies, with power of substitution in each of them, to vote and
act for and on behalf of the undersigned at the annual meeting of shareholders
of the Company to be held at the Company's principal office, Spring Grove,
Pennsylvania, on Wednesday, April 23, 1997, and at all adjournments thereof,
according to the number of shares which the undersigned would be entitled to
vote if then personally present, as indicated hereon and in their discretion
upon such other business as may come before the meeting, all as set forth in the
notice of the meeting and in the proxy statement furnished herewith, copies of
which have been received by the undersigned; and hereby ratifies and confirms
all that said attorneys and proxies may do or cause to be done by virtue hereof.
IT IS AGREED THAT UNLESS OTHERWISE MARKED ON THE OTHER SIDE SAID
ATTORNEYS AND PROXIES ARE APPOINTED WITH AUTHORITY TO VOTE FOR THE ELECTION OF
DIRECTORS AND THAT AS TO THE OTHER PROPOSALS WHICH ARE DESCRIBED IN THE PROXY
STATEMENT, SAID ATTORNEYS AND PROXIES SHALL VOTE AS DIRECTED, OR IN THE ABSENCE
OF SUCH DIRECTIONS, FOR SUCH PROPOSALS.
(PLEASE FILL IN, SIGN AND DATE ON THE OTHER SIDE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE)
(Continued and to be signed on reverse side)
<PAGE> 45
/X/ PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
VOTE FOR ALL
NOMINEES LISTED VOTE
AT RIGHT, EXCEPT AS WITHHELD
INDICATED BELOW FROM ALL NOMINEES
1. Election of Directors: / / / /
THE BOARD OF DIRECTORS RECOMMENDS VOTING 'FOR' THE NOMINEES.
NOMINEES: Term Expiring in 1999:
Richard W. Kelso
Term Expiring in 2000:
Robert E. Chappell
George H. Glatfelter II
Thomas C. Norris
Richard L. Smoot
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE THAT NOMINEE'S
NAME IN THE SPACE BELOW:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2. Approval of Amendments FOR AGAINST ABSTAIN
to 1992 Key Employee / / / / / /
Long-Term Incentive Plan
3. Approval of Management FOR AGAINST ABSTAIN
Incentive Plan / / / / / /
Signature Date
-------------------------------------------- ------------------
Signature Date
-------------------------------------------- ------------------
IF HELD JOINTLY
NOTE: Signature should be the same as the name printed above. Executors,
administrators, trustees, guardians, attorneys, and officers of
corporations should add their title when signing.
