<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
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
LORAL CORPORATION
- - - --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
LORAL CORPORATION
- - - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / 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 transactions applies:
- - - --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:/1
- - - --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- - - --------------------------------------------------------------------------------
/ / 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:
- - - --------------------------------------------------------------------------------
/1 Set forth the amount on which the filing fee is calculated and state how it
was determined.
<PAGE> 2
---------------------------------
1994
---------------------------------
NOTICE OF
ANNUAL MEETING
AND
PROXY STATEMENT
[LOGO]
<PAGE> 3
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JULY 26, 1994
------------------------
The Annual Meeting of Stockholders of Loral Corporation will be held in the
Third Floor Auditorium, Chemical Banking Corporation headquarters, 270 Park
Avenue, New York, New York, at 2:00 o'clock P.M., on Tuesday, July 26, 1994 for
the purpose of:
1. Electing to the Board five Directors whose terms have expired;
2. Acting upon a proposal to approve the Company's Incentive Compensation
Plan for Senior Executives;
3. Acting upon a proposal to approve the Company's 1994 Stock Option and
Incentive Stock Purchase Plan;
4. Acting upon a proposal to ratify the selection of Coopers & Lybrand as
independent auditors for the fiscal year ending March 31, 1995; and
5. Transacting any other business which may properly come before the
meeting.
The Board of Directors has fixed the close of business on June 15, 1994 as
the date for determining Stockholders of record entitled to receive notice of,
and to vote at, the Annual Meeting.
All Stockholders are cordially invited to attend. Those who do not expect
to be present are requested to date, sign and mail the enclosed Proxy as
promptly as possible in the enclosed postage paid envelope.
By Order of the Board of Directors
[SIG]
BERNARD L. SCHWARTZ
Chairman of the Board of Directors
Date: June 27, 1994
<PAGE> 4
PROXY STATEMENT
LORAL CORPORATION
600 THIRD AVENUE
NEW YORK, NEW YORK 10016
------------------------
ANNUAL MEETING OF STOCKHOLDERS
JULY 26, 1994
------------------------
PROXY SOLICITATION
The enclosed Proxy is solicited by and on behalf of the Board of Directors
of Loral Corporation (the "Company" or "Loral"). Any Proxy given by a
Stockholder may be revoked by him at any time before it is voted by written
notice to the Secretary, by a duly executed Proxy bearing a later date, or by
voting in person at the meeting. The cost of soliciting proxies will be borne by
the Company. The Company will enlist the assistance of and reimburse banks,
brokers and other nominees for their costs in transmitting Proxies and Proxy
authorizations to beneficial owners whose stock is registered in the name of
such nominees. The Company has also retained W. F. Doring and Company to assist
it in the solicitation of proxies and will pay a fee, not to exceed $7,500, for
such services. Proxies, ballots and voting tabulations that identify
Stockholders will be held confidential, except in a contested proxy solicitation
or where necessary to meet applicable legal requirements. The Inspectors of
Election will not be employees of the Company. This Proxy Statement and the
enclosed Proxy will be first mailed to Stockholders on or about June 27, 1994.
OUTSTANDING VOTING STOCK
Only Stockholders of record at the close of business on June 15, 1994 are
entitled to notice of and to vote at the Annual Meeting. There were 83,564,544
shares of common stock, par value $.25 per share ("Common Stock") of the Company
outstanding on that date and each share is entitled to one vote on each matter.
Abstentions and broker "non-votes" will be counted in determining the number of
shares present but will not be voted for election of directors or on other
proposals and will have the same effect as a vote against Proposal 3.
As of May 27, 1994, the only officer or Director owning 1% or more of the
Company's Common Stock was Bernard L. Schwartz, Chairman of the Board of
Directors and Chief Executive Officer of Loral, who beneficially owned 2,103,712
shares constituting approximately 2.5% of the Company's outstanding voting
securities. All Directors and current executive officers as a group (25 persons)
owned beneficially 3,241,603 shares constituting approximately 3.8% of
outstanding voting securities.
Lehman Brothers Holdings, Inc. on behalf of Lehman Brothers Merchant
Banking Portfolio Partnership L.P., Lehman Brothers Capital Partners II, L.P.,
Lehman Brothers Offshore Investment Partnership L.P., and Lehman Brothers
Offshore Investment Partnership-Japan L.P. (collectively the "Lehman
Partnerships"), which on May 27, 1994 owned 3,067,558 shares, 2,084,092 shares,
842,880 shares, and 320,430 shares, respectively, of Loral Common Stock, has
filed a Schedule 13D reflecting its beneficial ownership of 6,314,960 (7.6%)
shares of Loral Common Stock acquired by the Lehman Partnerships from the
Company in connection with Loral's purchase of the Lehman Partnerships' minority
interest in the businesses of Ford
<PAGE> 5
Aerospace, other than Space Systems/Loral, acquired by the Company from Ford
Motor Company. The shares were acquired for investment purposes by the Lehman
Partnerships and are subject to an agreement with the Company limiting certain
actions of the Lehman Partnerships including limitations on their ability to
acquire additional shares or to vote or sell their shares. On June 23, 1994 the
Lehman Partnerships sold 3,000,000 shares of Common Stock to the Company's
pension plans.
Based upon filings made with the Company, Fidelity Investments, FMR Corp.
("FMR"), owns 6,398,554 (7.7%) shares of Common Stock. FMR has represented that
the shares were acquired for investment companies and managed accounts.
ELECTION OF DIRECTORS
The Company has three classes of Directors serving staggered three-year
terms. Class I consists of three Directors and Classes II and III consist of
four Directors. Four Class III Directors are to be elected at the Annual Meeting
for three-year terms expiring on the date of the Annual Meeting in 1997. In
addition, one Class II Director is to be elected for a two year term expiring at
the 1996 Annual Meeting. The terms of the Class I and remaining Class II
Directors expire on the date of the Annual Meeting in 1995 and 1996,
respectively. Of the Directors named below, the terms of office of Messrs.
Lazarus (Class II), Ruderman, Schwartz, Shapiro and Stanton (Class III) expire
at the 1994 Annual Meeting.
The five persons named above have been nominated by the Board of Directors
for election as Directors to serve for a period of three years (or two years
with respect to Mr. Lazarus) and until their respective successors are duly
elected and shall qualify. Unless authority to vote for management's nominees is
withheld, the enclosed Proxy will be voted for the election of the five persons
named above, except that the persons designated as proxies reserve full
discretion to cast their votes for other persons in the unanticipated event that
any of such nominees is unable or declines to serve. The nominees, other than
Mr. Lazarus, have acted as Directors of the Company since the last Annual
Meeting of Stockholders. Mr. Lazarus was elected by the Board of Directors in
March 1994.
The Company has standing Audit and Government Compliance (the "Audit
Committee"), Nominating, and Compensation and Stock Option (the "Compensation
Committee") Committees. The Audit Committee, which met four times during fiscal
1994, is comprised of four members: Messrs. Hodes, Ruderman, Shapiro and
Stanton. The Audit Committee reviews and acts or reports to the Board with
respect to government procurement compliance matters as well as various auditing
and accounting matters, including the selection of the Company's independent
auditors, the accounting and financial practices and controls of the Company,
audit procedures and findings, and the nature of services performed for the
Company by, and the fees paid to, the independent auditors. The Nominating
Committee, which met once in fiscal 1994, is comprised of Messrs. Kekst, Shapiro
and Stanton. The Nominating Committee is chartered to establish criteria for
recommendations for director nominees and in connection therewith, to consider
the participation and contribution of current Directors. The Nominating
Committee does not generally accept nominees randomly received from third
parties, including Stockholders. The Compensation Committee, which met two times
during fiscal 1994, is comprised of four members: Messrs. Gittis, Hodes, Kekst
and Shapiro. The Compensation Committee reviews and provides recommendations to
the Board of Directors regarding executive compensation matters. The
Compensation Committee is also responsible for the administration of the
Company's Stock Option Plans and Restricted Stock Purchase Plan and will be
responsible for administration of the Incentive Compensation Plan for Senior
Executives and the 1994 Stock Option and Incentive Stock Purchase Plan, if
approved by Stockholders.
2
<PAGE> 6
The Board of Directors held six meetings during fiscal 1994. No Director
attended fewer than 75% of the meetings of the Board of Directors or of its
committees. Directors are paid a fixed fee of $25,000 per year. Non-employee
Directors are also currently paid $6,000 (increased from $3,000 in January 1994)
for personal attendance at each meeting. Audit Committee members are paid $2,000
per year and $1,000 per meeting. Compensation Committee members are paid $500
per year. The Company provides certain life insurance and medical benefits to
certain non-employee Directors. For fiscal 1994 the value of these benefits was
$13,565 for Mr. Gittis, $15,515 for Mr. Hodes, $14,553 for Mr. Kekst, $14,223
for Mr. Ruderman, $6,491 for Mr. Shapiro and $14,170 for Mr. Yankelovich.
The Company has purchased insurance from the Great American Insurance
Company insuring the Company against obligations it might incur as a result of
its indemnification of its officers and Directors for certain liabilities they
might incur, and insuring such officers and Directors for additional liabilities
against which they might not be indemnified by the Company. The insurance
expires on March 31, 1995, and costs $340,000. Pursuant to the New York Business
Corporation Law, the Company has entered into Indemnity Agreements with its
Directors and executive officers. The Indemnity Agreements are intended to
provide the full indemnity protection authorized by New York law.
The following table provides certain relevant information concerning the
Directors and their principal occupations:
<TABLE>
<CAPTION>
SERVED AS
DIRECTOR
PRINCIPAL OCCUPATION CONTINUOUSLY
NAME AGE AND DIRECTORSHIPS SINCE
- - - ---- --- -------------------- ------------
<S> <C> <C> <C>
Bernard L. Schwartz(1)....... 68 Chairman of the Board of Directors and 1972
(Class III) Chief Executive Officer
Director of Reliance Group Holdings, Inc.,
and certain subsidiaries, Sorema
International Holding N.V., First Data
Corporation and K&F Industries, Inc.; and
Trustee of N.Y. University Medical Center
Howard Gittis................ 60 Vice Chairman and Chief Administrative 1990
(Class I) Officer of MacAndrews & Forbes Holdings,
Inc.
Director of Andrews Group Incorporated,
Consolidated Cigar Corporation, Mafco
Worldwide Corporation, National Health
Laboratories Incorporated, New World
Communications Group Incorporated, New
World Television Incorporated, Revlon
Consumer Products Corporation, Revlon
Worldwide Corporation and Jones Apparel
Group, Inc.
Robert B. Hodes(1)(2)........ 68 Partner and Co-Chairman of the Executive 1959
(Class II) Committee, Willkie Farr & Gallagher, law
firm, New York, N.Y.
Director of Aerointernational, Inc., W.R.
Berkley Corporation, The Cremer
Foundation, Crystal Oil Company, LCH
Investments N.V. and R.V.I. Guarantee Co.
Ltd.
</TABLE>
3
<PAGE> 7
<TABLE>
<CAPTION>
SERVED AS
DIRECTOR
PRINCIPAL OCCUPATION CONTINUOUSLY
NAME AGE AND DIRECTORSHIPS SINCE
- - - ---- --- -------------------- ------------
<S> <C> <C> <C>
Gershon Kekst(1)............. 59 President of Kekst and Company, Inc., 1972
(Class I) corporate and financial communications
consultants,
New York, N.Y.
Frank C. Lanza............... 62 President and Chief Operating Officer 1981
(Class II)
Charles Lazarus.............. 70 Chairman and Director of Toys "R" Us, Inc. 1994
(Class II) Director of Automatic Data Processing, Inc.
Malvin A. Ruderman........... 67 Professor of Physics, Columbia University, 1975
(Class III) New York, N.Y.
E. Donald Shapiro............ 62 The Joseph Solomon Distinguished Professor 1973
(Class III) of Law since 1983 and Dean/Professor of Law
(1973-1983), New York Law School
Director of Interferon Sciences, Inc.,
MelaRx Pharmaceuticals, Bank Leumi Trust
Co., Future Medical Products, Inc.,
Kranzco Realty Trust and Premiere Laser
Systems
Vice Admiral Allen M. Shinn,
U.S.N. (Ret.).............. 86 Independent Consultant 1973
(Class II) Director Emeritus of Pennzoil Company
Thomas J. Stanton, Jr.(2).... 66 Chairman Emeritus of National Westminster 1988
(Class III) Bancorp NJ
Director of Reliance Group Holdings, Inc.,
and Reliance Insurance Co.
Daniel Yankelovich(2)........ 69 Chairman of DYG, Inc., market, consumer and 1982
(Class I) opinion research, New York, N.Y.
Director of U.S. West Inc., Meredith
Corporations and Arkla, Inc.
</TABLE>
- - - ---------------
(1) Member of Executive Committee.
(2) Member of Pension Advisory Committee.
4
<PAGE> 8
SECURITIES OWNED BY DIRECTORS AND EXECUTIVE OFFICERS
The following table shows the number of shares of Common Stock beneficially
owned by the Directors and nominees, the named executive officers in the Summary
Compensation Table ("NEOs"), and all Directors and officers as a group on May
27, 1994. Individuals have sole voting and investment power over the stock
unless otherwise indicated in the footnotes.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME OF INDIVIDUAL BENEFICIAL OWNERSHIP(1)(2) OF CLASS
- - - ----------------------------------------------------------- -------------------------- --------
<S> <C> <C>
Bernard L. Schwartz........................................ 2,103,712 (3) 2.5%
Michael P. DeBlasio........................................ 96,436 (4) *
Howard Gittis.............................................. 2,000 *
Robert B. Hodes............................................ 14,400 (5) *
Gershon Kekst.............................................. 13,200 *
Frank C. Lanza............................................. 616,964 (6) *
Robert V. LaPenta.......................................... 71,170 (7) *
Charles Lazarus............................................ 7,000 (8) *
Malvin A. Ruderman......................................... 16,000 (9) *
E. Donald Shapiro.......................................... 14,000(10) *
Vice Admiral Allen M. Shinn................................ 14,000 *
Thomas J. Stanton, Jr...................................... 12,000 *
Michael B. Targoff......................................... 53,825(11) *
Daniel Yankelovich......................................... 15,500 *
All Directors and Executive Officers as a Group (25
persons)................................................. 3,241,603(12) 3.8%
</TABLE>
- - - ---------------
* Represents holdings of less than one percent.
(1) Includes shares which, as of May 27, 1994, may be acquired within sixty
days pursuant to the exercise of options (which shares are treated as
outstanding for the purposes of determining beneficial ownership and
computing the percentage set forth); shares held by trusts of which
Directors and their wives are trustees; shares held by a trust in which an
officer and Director is trustee; and shares held for the benefit of
officers as of March 31, 1994 in the Loral Master Savings Plan, (the
"Savings Plan").
(2) Except as noted, all shares are owned directly with sole investment and
voting power. All Directors other than Messrs. Schwartz, Lanza, Gittis and
Lazarus have the right to exercise, at $17.72 per share, 10,000 shares;
such exercisable shares are included in the table.
(3) Includes 80,000 shares held by Mr. Schwartz' wife, 1,000,000 shares
exercisable under Company Stock Option Plans, and 6,023 shares in the
Savings Plan.
(4) Includes 14,714 shares exercisable under Company Stock Option Plans, 3,514
shares in the Savings Plan, and 20,369 shares restricted under the
Company's Restricted Stock Purchase Plan.
(5) Includes 400 shares held by Mr. Hodes' minor child as to which Mr. Hodes
disclaims beneficial ownership.
(6) Includes 241,710 shares exercisable under Company Stock Option Plans, 2,096
shares in the Savings Plan, and 48,438 shares restricted under the
Company's Restricted Stock Purchase Plan.
(7) Includes 4,284 shares exercisable under Company Stock Option Plans, 2,818
shares in the Savings Plan, and 20,369 shares restricted under the
Company's Restricted Stock Purchase Plan.
(8) Includes 2,000 shares held by Mr. Lazarus' wife.
5
<PAGE> 9
(9) Includes 6,000 shares owned jointly with Mr. Ruderman's wife.
(10) Includes 4,000 shares held by Mr. Shapiro's wife as to which Mr. Shapiro
disclaims beneficial ownership.
(11) Includes 2,085 shares in the Savings Plan, and 20,369 shares restricted
under the Company's Restricted Stock Purchase Plan.
(12) Includes 1,400,258 shares exercisable under Company Stock Option Plans,
26,949 shares in the Savings Plan, and 147,738 shares restricted under the
Company's Restricted Stock Purchase Plan.
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The goals of the Company's compensation program are to align compensation
with business objectives and corporate performance and to enable the Company to
attract, retain and reward executive officers who contribute to the long-term
success of the Company and thereby create value for Stockholders. In order to
attain these goals, the Company's compensation policies have historically linked
compensation to corporate performance.
The principal components of the Company's compensation program have been
annual cash compensation consisting of base salary and incentive bonus and
long-term incentive compensation using restricted stock awards and stock
options. In determining the amount and form of executive compensation, the
Compensation Committee has considered the competitive market for senior
executives, the executive's role in the Company's achieving its business
objectives and the Company's overall performance.
LIMITATIONS ON FEDERAL TAX DEDUCTION. Recently enacted Internal Revenue
Code (the "Code") Section 162(m) is effective for Loral's taxable year which
commenced April 1, 1994. Under Section 162(m), Federal income tax deductions for
publicly-traded companies may be denied to the extent total taxable compensation
exceeds $1 million in any one year for any executive officer named in the
Summary Compensation Table for such year. The deduction limit does not apply to
compensation which qualifies as "performance based". To qualify as "performance
based", compensation must be based on the attainment of objective,
pre-established performance goals that are set by a committee of outside
directors. In addition, the business criteria on which the performance goals are
based must be disclosed to and approved by stockholders.
Provided that other compensation objectives are met, it is the
Compensation Committee's intention that executive compensation be deductible
for Federal income tax purposes. For this reason, it is recommended that
Stockholders approve the Incentive Compensation Plan for Senior Executives (the
"Annual Bonus Plan") and the 1994 Stock Option and Incentive Stock Purchase
Plan (the "1994 Stock Plan"), each of which has been designed to comply with
Section 162(m). For further information concerning these plans, see Proposal 2
and Proposal 3.
ANNUAL CASH COMPENSATION. The Company has historically paid its Chairman
and Chief Executive Officer ("CEO"), Bernard L. Schwartz, and its President and
Chief Operating Officer, Frank C. Lanza, pursuant to long-term employment
contracts. Base salaries for Messrs. Schwartz and Lanza have been fixed by
contract and have been increased over the years based on changes in the Consumer
Price Index. Base salaries for the other NEOs have been set at competitive
levels by the CEO in consultation with the Compensation Committee, giving due
regard to individual performance and time in position.
Annual incentive compensation for Messrs. Schwartz and Lanza has been
determined according to a contractual formula which provides for no bonus to be
paid until the Company's shareholders' equity, as
6
<PAGE> 10
defined, has grown by at least 8 1/4% from the end of the last fiscal year, and
for bonuses to be directly proportionate to increases above that level. In order
to retain the benefit of Mr. Schwartz' leadership, the Compensation Committee
has obtained a five-year extension of his current employment contract, which
otherwise would have expired on March 31, 1995. The extended contract
incorporates the same terms and conditions as the current contract, except that
the performance threshold that must be achieved before annual incentive bonuses
can be paid has been increased from 8 1/4% to 9 1/4% growth in shareholders'
equity. Because of the Federal income tax limitations referred to above, the
annual incentive bonus provisions have been established pursuant to Loral's
Annual Bonus Plan, which is subject to Stockholder approval as explained in
Proposal 2. Provided Stockholders approve the Annual Bonus Plan, the 9 1/4%
performance threshold will apply during the entire term of Mr. Schwartz'
extended contract. It will also apply for the final fiscal year of his current
contract and for the balance of Mr. Lanza's contract, which expires on March 31,
1997.
Annual incentive compensation for other corporate executives has not been
based on a formula using quantitative target levels. The CEO, in consultation
with the Compensation Committee, sets the compensation by assessing a number of
factors, including the executive's individual effort, performance and
contribution toward achieving the Company's business plan and growth objectives.
Incentive compensation for corporate officers with line responsibility for
division operations is generally tied to performance targets for the businesses
under their authority. These performance targets are set as part of the
Company's annual budgeting process.
LONG-TERM INCENTIVE COMPENSATION. It has been the Compensation Committee's
belief that Stockholders' interests are best served by encouraging key employees
to develop ownership interests in the Company. To that end, the Company has
relied upon both discount and fair market value employee stock options, and
restricted stock grants which vested according to the level of reported pre-tax
profits.
Fiscal 1994 reflected continued strong performance that was achieved during
a period of significant defense cutbacks. The option grants reflected in the
Option Grants Table for fiscal 1994 for Mr. Schwartz were made by the
Compensation Committee based on its assessment of his contributions to Company
performance and of his ability to enhance the long-term value of the Company
through continued leadership. The level of option grants for other NEOs was
based on the Committee's assessment of similar factors and took into account
that no options had been granted to such officers since 1990.
The Company's performance during the twenty-two fiscal year period since
Mr. Schwartz became Chairman of the Board and Chief Executive Officer of the
Company is highlighted by the Performance Graphs following this report, which
compare the cumulative total return for Loral Common Stock with that of the
Standard & Poor's 500 Composite Stock Index and with that of a peer group. The
Compensation Committee believes that the Company's compensation policies, which
have been instrumental in attracting and retaining highly qualified and
dedicated personnel, have been an important factor in the Company's growth and
success.
During 1994, the Compensation Committee retained the services of The Wyatt
Company, executive compensation consultants, to reevaluate the Company's
long-term incentive compensation programs. The 1994 Stock Plan described in
Proposal 3 was adopted by the Committee based on The Wyatt Company's
recommendation. The Plan requires that all stock options be granted with an
exercise price equal to fair market value at date of grant. It also permits key
executives to acquire restricted stock if performance objectives such as those
established by the Annual Bonus Plan are attained and only if at least
two-thirds of the fair market grant value of the restricted stock is funded by
the executive. Restrictions generally lapse over a five-year vesting period.
Acquisitions of restricted stock will be funded at the beginning of the vesting
period with part of the executive's annual incentive bonus that would otherwise
have been paid currently. The
7
<PAGE> 11
Compensation Committee believes the 1994 Stock Plan will tie long-term
compensation directly to increases in Stockholders' value and recommends that
Proposal 3 be approved.
This report of the Compensation Committee and the Performance Graphs
immediately following shall not be deemed incorporated by reference by any
general statements incorporating by reference this proxy statement into any
filing under the Securities Act of 1933 or under the Securities Exchange Act of
1934, except to the extent it shall be specifically incorporated and shall not
otherwise be deemed filed under such Acts.
MEMBERS OF THE COMPENSATION COMMITTEE
Howard Gittis
Robert B. Hodes
Gershon Kekst
E. Donald Shapiro
COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION
None of the members of the Compensation Committee of the Board of Directors
are present or former officers or employees of the Company or its subsidiaries.
Mr. Hodes is a partner in the law firm of Willkie Farr & Gallagher and Mr. Kekst
is the principal stockholder of Kekst & Company, Inc. Both firms provided
services to the Company during the year.
8
<PAGE> 12
STOCK PERFORMANCE GRAPHS
The graph below compares the yearly change in cumulative total return,
including reinvestment of dividends, of the Company's Common Stock with that of
the Standard & Poor's 500 Composite Stock Index and a peer group index for the
last five fiscal years, assuming an investment of $100 in the Company's stock
and each index on April l, 1989. The companies in the peer group are: E-Systems,
GM/Hughes, Grumman, Harris, Lockheed, Loral, Martin Marietta, Raytheon and Texas
Instruments.
TOTAL RETURN TO STOCKHOLDERS
<TABLE>
<CAPTION>
MEASUREMENT PERIOD S&P 500 IN-
(FISCAL YEAR COVERED) LORAL CORP. DEX PEER GROUP
<S> <C> <C> <C>
1989 100 100 100
1990 88.63 119.27 93.55
1991 121.01 136.46 110.64
1992 101.58 151.53 113.92
1993 183.18 174.60 177.17
1994 246.26 177.17 207.07
</TABLE>
(AS PREPARED BY STANDARD & POOR'S COMPUSTAT)
9
<PAGE> 13
The graph below compares the yearly change in cumulative total return,
including reinvestment of dividends, of the Company's Common Stock with that of
the Standard & Poor's 500 Composite Stock Index, for the last twenty-two fiscal
years, assuming an investment of $100 in the Company's stock and the S&P index
on April 1, 1972, just after Mr. Schwartz became Chairman of the Board of
Directors and Chief Executive Officer of the Company.
TOTAL RETURN TO STOCKHOLDERS
<TABLE>
<CAPTION>
MEASUREMENT PERIOD S&P 500 IN-
(FISCAL YEAR COVERED) LORAL CORP. DEX
<S> <C> <C>
1972 100.00 100.00
1973 65.31 107.01
1974 38.77 93.30
1975 102.04 86.94
1976 214.28 111.53
1977 241.98 111.18
1978 393.12 105.95
1979 582.05 127.13
1980 884.31 134.93
1981 1476.70 188.78
1982 1054.07 164.29
1983 1861.81 236.76
1984 1677.11 257.31
1985 2380.16 305.71
1986 3606.42 420.39
1987 3171.30 530.69
1988 3054.67 486.08
1989 2934.31 573.73
1990 2600.68 683.77
1991 3550.97 781.95
1992 2980.68 867.97
1993 5375.07 999.81
1994 7225.99 1014.54
</TABLE>
(AS PREPARED BY STANDARD & POOR'S COMPUSTAT)
10
<PAGE> 14
<TABLE>
FISCAL YEAR 1994
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG TERM COMPENSATION AWARDS
-----------------------------
ANNUAL COMPENSATION SECURITIES
NAME AND PRINCIPAL ------------------- RESTRICTED UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS(A) STOCK AWARD(B) STOCK OPTIONS(C) COMPENSATION(D)
------------------ ---- -------- ---------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Bernard L. Schwartz 1994 $884,000 $3,604,237 -- 600,000 $97,399
Chairman of the Board 1993 $859,000 $3,525,669 -- 400,000 $86,266
of Directors and Chief 1992 $833,000 $4,966,969 -- 400,000 --
Executive Officer
Frank C. Lanza 1994 $618,925 $1,751,404 -- 150,000 $25,000
President and 1993 $600,924 $1,200,000 $1,623,019 -- $25,000
Chief Operating Officer 1992 $501,923 $1,567,500 -- -- --
Michael P. DeBlasio 1994 $402,973 $ 355,584 -- 70,000 $ 5,385
Senior Vice President- 1993 $402,973 $ 330,556 $ 682,500 -- $ 5,284
Finance 1992 $354,132 $ 368,534 -- -- --
Robert V. LaPenta 1994 $337,723 $ 311,069 -- 70,000 $ 8,620
Senior Vice President 1993 $337,723 $ 290,917 $ 682,500 -- $ 7,881
and Controller 1992 $288,632 $ 331,268 -- -- --
Michael B. Targoff 1994 $327,684 $ 311,495 -- 70,000 $10,758
Senior Vice President 1993 $327,684 $ 291,301 $ 682,500 -- $ 9,692
and Secretary 1992 $278,555 $ 295,114 -- -- --
</TABLE>
- - - ---------------
(a) During fiscal 1990, Loral employees holding stock options were offered an
opportunity to receive a cash bonus of $5.00 per share for certain
specified option shares with exercise prices under $30 per share. The bonus
was payable in three annual installments for fiscal 1990 through fiscal
1992. In order to receive the bonus, the employee had to remain in Loral's
employ, agree to extend the vesting period of the remainder of his options
by two years and convert all options to non-qualified options rather than
incentive stock options. For the year ended March 31, 1992 the payments
were $583,333 for Mr. Schwartz, $117,500 for Mr. Lanza, $82,000 for Mr.
DeBlasio, $90,000 for Mr. LaPenta, and $53,500 for Mr. Targoff.
(b) Value of shares awarded under the Restricted Stock Purchase Plan. Shares
awarded under the plan vest and become freely transferable in accordance
with a formula based upon Loral earnings. The total number of shares
vesting under the plan each year is equal to 3% of the Company's pre-tax
profit divided by the grant value (currently $105 per share) of restricted
shares outstanding. Any shares not earned at the earlier of completion of
the seventh year or termination of employment will be forfeited. Dividends
are paid on the restricted shares awarded. As of March 31, 1994, the number
and value of restricted stock holdings, respectively, were 48,438 shares
and $1,810,370 for Mr. Lanza, 20,369 shares and $761,291 for each of Mr.
DeBlasio, Mr. LaPenta and Mr. Targoff.
(c) Securities underlying stock options have been adjusted to reflect a
two-for-one stock split distributed on October 7, 1993.
(d) Includes annual Board of Directors fee in 1994 and 1993 of $25,000 for Mr.
Schwartz and Mr. Lanza, company matching contributions of $3,598 in 1994
and $3,722 in 1993 to the Savings Plan for Mr. DeBlasio, Mr. LaPenta and
Mr. Targoff and the value of supplemental life insurance programs
attributable to 1994 and 1993 in the amounts of $72,399 and $61,266 for Mr.
Schwartz, $1,787 and $1,562 for Mr. DeBlasio, $5,022 and $4,159 for Mr.
LaPenta, and $7,160 and $5,970 for Mr. Targoff, respectively.
11
<PAGE> 15
<TABLE>
FISCAL YEAR 1994
OPTION EXERCISES AND YEAR-END VALUE TABLE
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
YEAR-END OPTION VALUES
<CAPTION>
VALUE OF
UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
NUMBER OF UNEXERCISED OPTIONS OPTIONS AT
SHARES AT YEAR-END YEAR-END(A)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED(A) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bernard L. Schwartz....... -- -- 800,000 200,000 $18,525,000 --
Frank C. Lanza............ 25,000 $ 354,658 241,710 224,290 $ 6,624,525 $ 5,329,850
Michael P. DeBlasio....... -- -- 14,714 108,858 $ 414,010 $ 2,600,220
Robert V. LaPenta......... 18,998 $ 466,107 -- 121,722 -- $ 2,973,276
Michael B. Targoff........ 26,714 $ 768,832 -- 133,858 -- $ 3,367,220
</TABLE>
- - - ---------------
(a) Market value of underlying securities at exercise date or year-end, as the
case may be, minus the exercise price.
<TABLE>
FISCAL YEAR 1994
OPTION GRANTS TABLE
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
% OF TOTAL MARKET
OPTIONS EXERCISE PRICE ON GRANT
NUMBER OF GRANTED TO OR BASE DATE DATE
OPTIONS EMPLOYEES PRICE OF GRANT EXPIRATION PRESENT
NAME GRANTED IN FISCAL YEAR (PER SHARE) (PER SHARE) DATE VALUE(C)
---- --------- -------------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Bernard L. Schwartz....... 400,000(a) 21.11% $ 21.5000 $ 31.5000 8/09/2003 $ 6,128,000
Bernard L. Schwartz....... 200,000(a) 10.55% $ 37.6250 $ 37.6250 1/25/2004 $ 2,958,000
Frank C. Lanza............ 150,000(b) 7.92% $ 15.8125 $ 25.8125 5/18/2003 $ 1,884,000
Michael P. DeBlasio....... 70,000(b) 3.69% $ 15.8125 $ 25.8125 5/18/2003 $ 879,200
Robert V. LaPenta......... 70,000(b) 3.69% $ 15.8125 $ 25.8125 5/18/2003 $ 879,200
Michael B. Targoff........ 70,000(b) 3.69% $ 15.8125 $ 25.8125 5/18/2003 $ 879,200
</TABLE>
- - - ---------------
(a) The option is exercisable in full but shares acquired are subject to vesting
restrictions which lapse over a four and one-half year period.
(b) Exercisability vests over a six year period.
(c) The Company used the Black-Scholes model of option valuation to determine
grant date present value. The Company does not advocate or necessarily agree
that the Black-Scholes model can properly determine the value of an option.
The present value calculation is based on a ten-year option term, a risk-
free interest rate assumption of 5.75%, historic stock price average
volatility of 25% over a ten-year period and the Company's current dividend
rate of $.56 per share. However, there were no adjustments made for
non-transferability or risk of forfeiture. The actual value realized, if
any, will depend on the amount by which the stock price at the time of
exercise exceeds the exercise price. There is no assurance that the amount
estimated by the Black-Scholes model will be realized.
12
<PAGE> 16
EMPLOYMENT AGREEMENTS AND OTHER ARRANGEMENTS
The Company has an employment agreement with Bernard L. Schwartz, which
expires on March 31, 1995. The agreement has been extended effective April 1,
1995 for a five year term expiring March 31, 2000. The extended agreement is
identical to the current agreement except as respects the incentive bonus
provisions. Under the extended agreement, Mr. Schwartz will receive 3% of the
increase over 9 1/4% in the Company's shareholders' equity as adjusted for stock
issuances, other non-operating charges or credits and before dividends. The
existing agreement has a lower threshold rate of 8 1/4% growth in shareholders'
equity before the 3% incentive compensation is triggered. The extended agreement
also includes a cap on maximum annual incentive compensation of $9 million,
adjusted for inflation.
The extended agreement will not be fully effective unless Stockholders
approve Proposal 2. If Proposal 2 is not approved, the Company and Mr. Schwartz
will seek to negotiate alternative employment provisions. If Proposal 2 is
approved, Mr. Schwartz' fiscal 1995 incentive compensation, the last year under
the existing contract, will be subject to the $9 million cap and the 9 1/4%
rather than 8 1/4% threshold rate for growth in shareholders' equity.
Hereinafter, the existing agreement and the extended agreement are referred to
as the "Employment Agreements."
Pursuant to the Employment Agreements, Mr. Schwartz' annual base salary was
$884,000 for fiscal 1994, and will be increased annually by the percentage
change in a consumer price index. In accordance with the incentive bonus
provisions, Mr. Schwartz received fiscal 1994 incentive compensation of
$3,495,470.
Pursuant to the Employment Agreements, if Mr. Schwartz is removed as
Chairman of the Board of Directors or as Chief Executive Officer other than for
cause, or if his duties, authorities or responsibilities are diminished, or if
there is a change in control (as defined to encompass the Company becoming a
subsidiary of another company, the acquisition of 35% or more of the voting
securities of the Company by a particular stockholder or group, or a change in
35% of the Company's Directors at the insistence of the shareholder group), Mr.
Schwartz may elect to terminate the contract. In any such event, or upon his
death or disability, Mr. Schwartz will be entitled to receive a lump sum payment
discounted at 9% per annum, in an amount equal to his base salary as adjusted
for consumer price index changes for the remainder of the term, an amount of
incentive compensation equal to the highest received by Mr. Schwartz in any of
the prior three years, times the number of years (including partial fiscal
years) remaining during the term, and an amount calculated to approximate the
annual compensation element reflected in the difference between fair market
value and exercise price of stock options granted to Mr. Schwartz. All such sums
are further increased to offset any tax due by Mr. Schwartz under the excise tax
and related provisions of Section 4999 of the Code but subject to a cap equal to
200% of any such tax.
The Company has an employment agreement with Frank C. Lanza for a five year
term expiring March 31, 1997. Pursuant to the agreement, Mr. Lanza's annual base
salary was $617,500 for fiscal 1994, to be increased annually by the percentage
change in a consumer price index. Under the agreement, Mr. Lanza is entitled to
annual incentive compensation under the growth in shareholders' equity formula
applicable under Mr. Schwartz' Employment Agreements, but at 1 1/2% of the
increase over the 8 1/4% threshold through fiscal 1994 and as a result of a
recent amendment, 9 1/4% thereafter, subject to Stockholder approval of Proposal
2. As a result, Mr. Lanza received fiscal 1994 incentive compensation of
$1,747,735. If Mr. Lanza becomes disabled, he will receive 50% of his salary for
the remainder of the term.
The Company has established Supplemental Life Insurance Programs for
certain key employees including the executives listed in the Summary
Compensation Table. For Messrs. Schwartz, Lanza, DeBlasio, LaPenta and Targoff,
the Plans are funded with "Split-Dollar" insurance policies in the face amounts
of $20,500,000, $1,000,000, $1,060,000, $1,200,000 and $1,450,000 respectively.
In the event of death, the
13
<PAGE> 17
Company will be entitled to receive an amount not less than the Company's
cumulative contributions. If any of such officers terminates his employment
prior to the time that the Company's contributions equal the cash value of the
insurance policy, he will be responsible for repayment of the remainder of the
Company's contribution to the extent cash becomes available in the policy. Such
officers contribute to the payment for this program.
PENSION PLANS
The individuals named in the Summary Compensation Table participate in a
pension plan that generally provides an annual benefit for each year of
membership for the first 14 years of Loral service, of 1.2% of such remuneration
up to the Social Security Wage Base and 1.45% of such remuneration in excess of
that Base, and for 15 or more years of Loral service, 1.5% of such remuneration
up to the Social Security Wage Base and 1.75% of such remuneration in excess of
that Base, all subject to certain vesting and other requirements. Remuneration
covered by the plan primarily includes salary and bonus. Annual compensation for
pension accruals since December 31, 1988 has been limited by Federal tax law. In
1993, the applicable limit was $235,840. Effective January 1, 1994, the limit is
$150,000. This amount is subject to cost of living adjustments.
Estimated annual benefits upon retirement for Messrs. Schwartz and Lanza
approximate the $118,800 current maximum permitted under the Employee Retirement
Income Security Act. Estimated annual benefits upon retirement for Messrs.
DeBlasio, LaPenta and Targoff are $96,674, $107,585 and $84,659, respectively.
The retirement benefits have been computed assuming that (i) employment will be
continued until normal retirement as defined by the Social Security
Administration, or until the expiration of current employment agreements, if
later; and (ii) current levels of creditable compensation, the Social Security
Wage Base and the Federal tax law compensation limit will continue without
increases or adjustments throughout the remainder of the computation period.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Bernard L. Schwartz is Chairman, Chief Executive Officer, 35% owner and
controlling shareholder of K&F Industries, Inc. ("K&F"), which acquired the
Company's Aircraft Braking and Engineered Fabrics businesses in April 1989.
Certain other NEOs are directors of K&F's operating subsidiaries. Mr. Schwartz
and the other NEOs receive compensation from K&F for rendering advisory services
to K&F. Such compensation is not included in the Summary Compensation Table but
is considered by the Compensation Committee regarding compensation from Loral.
In connection with the sale, K&F issued to the Company a $30 million 14.75%
paid-in-kind Subordinated Convertible Debenture due 2004, which is convertible
into 15% of K&F's common stock. Pursuant to agreements between the Company and
K&F, the parties provide services to each other and share certain expenses
relating to a production program, real property occupancy, benefits
administration, treasury, accounting and legal services. The related charges
agreed upon by the parties were established to reimburse each party for the
actual cost incurred without profit or fee. The Company believes that the
arrangements with K&F are as favorable as could have been obtained from an
unaffiliated third party. The Company's billings to and from K&F in fiscal 1994
were $2,995,000 and $2,743,000, respectively. The Company's sales to K&F in
fiscal 1994 were $6,785,000.
Robert B. Hodes, a Director and a member of the Executive, Audit, Pension
Advisory, and Compensation Committees, is a partner in the law firm of Willkie
Farr & Gallagher, which is general counsel to the Company. For the fiscal year
ended March 31, 1994, the Company paid fees and disbursements in the amount of
$187,000 for corporate communications consultations to Kekst & Company, Inc., of
which company Gershon Kekst, a Director and member of the Executive, Nominating
and Compensation Committees, is
14
<PAGE> 18
President and the principal stockholder. Kekst & Company, Inc. continues to
render such services to the Company.
In 1991, the Company made a $100,000 loan to Lawrence H. Schwartz, a Vice
President of the Company, in connection with a home purchase. The loan, which
bore interest at 7%, was repaid during the year.
PROPOSAL 2. APPROVAL OF INCENTIVE COMPENSATION PLAN FOR SENIOR EXECUTIVES.
Stockholders are being asked to approve the Loral Corporation Incentive
Compensation Plan for Senior Executives. This Annual Bonus Plan was adopted by
the Compensation Committee on June 23, 1994, subject to approval of this
proposal by Stockholders. Stockholder approval is necessary to permit annual
incentive compensation payable to Messrs. Schwartz, Lanza and such other NEOs as
may be designated by the Compensation Committee as participants, to qualify as
"performance-based compensation" and be deductible by the Company under Section
162(m) of the Code. See "Report of the Compensation Committee on Executive
Compensation -- Limitations on Federal Tax Deduction."
The following general description of the Annual Bonus Plan is qualified in
its entirety by reference to the text of such Plan, which is filed with the
Securities and Exchange Commission as an exhibit to this Proxy Statement.
The Annual Bonus Plan will be administered by the Compensation Committee.
In addition to NEOs, participants may include any other senior officers of the
Company designated by the Compensation Committee. The Company estimates that
there are approximately 20 employees who are potentially eligible to participate
in the Annual Bonus Plan.
The Annual Bonus Plan authorizes the Compensation Committee to set such
performance targets as are appropriate relating to one or more of the following:
revenues, earnings per share, profit before or after taxes, net income, or
operating income; return on or growth in shareholders' equity; return on assets,
capital or investment; stock price performance; attainment of expense reduction
levels; and implementation or completion of critical projects. The goals
established by the Committee can be different each year and different goals may
be set for different participants. Except as otherwise permitted by final
regulations interpreting Section 162(m), the goals must be established no later
than 90 days after the commencement of the fiscal year to which the bonus
relates.
The Committee may permit participants to elect that up to 100% of their
annual bonus, which would otherwise be paid in cash, be deferred and used to
fund acquisitions of restricted Common Stock awarded in accordance with the
incentive stock purchase provisions of the 1994 Stock Plan described in Proposal
3, if such Proposal is approved by Stockholders. In order to satisfy the Section
162(m) requirements, any such deferral election must be made no later than 90
days after the commencement of the performance period to which the bonus
relates. The Plan caps the maximum annual incentive compensation element for any
participant at $9 million, including the fair market value of any Common Stock
awarded under the incentive stock purchase provisions of the 1994 Stock Plan.
This limit would be adjustable according to changes in the Consumer Price Index.
Unless the Compensation Committee certifies that the applicable performance
targets are attained, no bonuses will be paid pursuant to the Annual Bonus Plan.
No shares of Common Stock will be issued under the Annual Bonus Plan. To
the extent that a participant's annual bonus is deferred and applied to the
acquisition of restricted Common Stock, such stock will be issued under and
subject to the terms and conditions of the 1994 Stock Plan. No bonus may be paid
under the Annual Bonus Plan with respect to any fiscal year commencing after
March 31, 1999, unless it
15
<PAGE> 19
would otherwise be deductible under Code Section 162(m). The Compensation
Committee may amend or terminate the Annual Bonus Plan in its discretion.
However, no amendment shall be effective if it would require Stockholder
approval for the Plan to continue to comply with Code Section 162(m), unless it
receives the requisite Stockholder approval.
Subject to obtaining Stockholder approval, the Compensation Committee has
selected Messrs. Schwartz and Lanza as participants in the Annual Bonus Plan
and, pursuant to modified employment agreements, has provisionally established a
performance threshold that requires a 9 1/4% increase in shareholders' equity,
as defined, before bonuses can be paid. See "Employment Agreements And Other
Arrangements."
If Stockholder approval of the Annual Bonus Plan is obtained, the
modifications to Messrs. Schwartz and Lanza's existing employment agreements
will be effective and also the threshold rate will be increased from 8 1/4% to
9 1/4% for purposes of determining the incentive bonus payable for Loral's
current fiscal 1995. If Stockholder approval of the Plan is not obtained, the
provisions of the modified employment agreements not related to incentive
compensation will remain in force, including provisions which obligate the
Company and the executives to renegotiate in good faith the terms of incentive
bonus arrangements that will apply. If mutually satisfactory agreements for
incentive compensation arrangements are not reached, the executives may
terminate their modified employment agreements. Whether any negotiated incentive
compensation arrangements would result in more or less annual compensation or
whether such compensation would be tax deductible by Loral is not determinable.
APPROVAL OF PROPOSAL 2 WILL REQUIRE THE AFFIRMATIVE VOTE OF THE HOLDERS OF
A MAJORITY OF THE SHARES OF COMMON STOCK REPRESENTED IN PERSON OR BY PROXY AND
VOTING AT THE MEETING.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE IN FAVOR OF THIS
PROPOSAL.
PROPOSAL 3. APPROVAL OF 1994 STOCK OPTION AND INCENTIVE STOCK PURCHASE PLAN.
Stockholders are being asked to consider and approve the 1994 Stock Option
and Incentive Stock Purchase Plan. This 1994 Stock Plan was adopted by the
Compensation Committee on June 23, 1994, subject to approval of this proposal by
Stockholders. The 1994 Stock Plan is being propounded rather than adopting a new
Stock Option Plan or a new Restricted Stock Purchase Plan. Stockholder approval
is necessary to (i) effectuate stock options granted, subject to Stockholder
approval of the 1994 Stock Plan, primarily to new employees who joined the
company as part of the IBM Federal Systems Company acquisition and certain other
employees (but not to NEOs); (ii) permit further stock options to be granted to
employees from time to time as has been the Company's practice; and (iii) permit
new incentive stock purchase awards to be granted to eligible employees.
It is also necessary to permit stock options and incentive stock purchase
awards which may be granted to participants who are NEOs to qualify as
"performance-based compensation" and be deductible by the Company when paid
under Section 162(m) of the Code. See "Report of the Compensation Committee on
Executive Compensation -- Limitations on Federal Tax Deduction." Approval is
also required to comply with Rule 16b-3(b)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act").
The following general description of the 1994 Stock Plan is qualified in
its entirety by reference to the text of such Plan, which is filed with the
Securities and Exchange Commission as an exhibit to this Proxy Statement.
PURPOSE. The purposes of the 1994 Stock Plan are to attract and retain
highly-qualified executives, to align executive and Stockholder long-term
interests by creating a direct link between executive compensation
16
<PAGE> 20
and Stockholder return, to enable executives to develop and maintain a
substantial stock ownership position in Loral and to provide incentives to such
executives to contribute to the success of the Company.
ADMINISTRATION. The 1994 Stock Plan will be administered by the
Compensation Committee, which is a disinterested committee comprised solely of
non-employee Directors who are not eligible to participate. The Committee
selects the participants, determines the number and duration of the options to
be granted and the terms and conditions of option agreements and sets
limitations on the extent to which a participant's earned annual bonus may be
deferred and applied to the funding of restricted stock. The Committee may
establish performance or other conditions which must be satisfied for options to
become exercisable or for incentive stock purchase awards to vest. The Committee
may also provide for accelerated vesting of options and incentive stock purchase
awards upon certain prescribed events, or in its discretion.
PARTICIPATION. In addition to the NEOs, participants may include all other
senior officers of the Company, all group and divisional officers and such other
key employees of the Company and its operating subsidiaries as are designated by
the Compensation Committee. Non-employee Directors are not eligible to
participate. The Company estimates that there are approximately 2,000 employees
who are potential participants in the 1994 Stock Plan.
TYPES OF AWARDS. Awards granted under the 1994 Stock Plan may be
"incentive stock options" ("ISOs"), within the meaning of Section 422 of the
Code, nonqualified stock options ("NQSOs"), or incentive stock purchase awards.
All options and incentive stock purchase awards relate to Loral Common Stock. A
stock option may carry with it a grant of a Limited Right.
STOCK OPTIONS. No option may be granted with an exercise price that is
less than the fair market value of the Company's Common Stock on the date of
grant. Unless otherwise provided in the option agreement, all options will have
a term of ten years, and the option exercise price must be paid in cash or in
shares of Common Stock having a fair market value equal to the option exercise
price. The maximum number of shares of Common Stock with respect to which
options may be granted to any participant during one fiscal year is 300,000.
LIMITED RIGHTS. The Compensation Committee may award a Limited Right to
any holder of a stock option. The Committee may provide that Limited Rights will
be automatically exercised upon a Change in Control of the Company (as defined
in the 1994 Stock Plan), upon certain events constituting a Change in Control,
or alternatively, that Limited Rights may be exercised only during the
thirty-day period beginning on the first day following a Change in Control. Upon
the exercise of a Limited Right, the holder shall receive cash equal to the
excess over the related option exercise price of the higher of (i) highest gross
price paid or to be paid for a share of Common Stock involved in the Change in
Control, or (ii) the highest reported closing sales price of a share of the
Common Stock on the New York Stock Exchange, in each case during the 60-day
period before the date on which the Limited Right is exercised. Each Limited
Right shall be exercisable only to the same extent that the related option is
exercisable and in no event after termination of the related option. In no event
shall a Limited Right be exercised by an optionee who is subject to Section
16(b) of the Exchange Act during the first six months after the granting of a
Limited Right or the effective date of the 1994 Stock Plan, whichever is later.
Upon the exercise of a Limited Right, the related option shall be considered to
have been exercised to the same extent. Upon exercise or termination of the
related option, the Limited Right with respect to such option shall be
considered to have been exercised or terminated.
INCENTIVE STOCK PURCHASE AWARDS. The Compensation Committee may permit
participants in the 1994 Stock Plan to elect that up to 100% of their annual
bonus which would otherwise be paid in cash, either under the Annual Bonus Plan
or under any other Company bonus plan, be deferred into a Restricted Stock
Purchase Account which will be used to fund acquisitions of Common Stock,
subject to such maximums as the
17
<PAGE> 21
Committee may establish from time to time. For fiscal 1995, the Committee has
established an individual maximum of 15,000 shares. Neither Mr. Schwartz nor Mr.
Lanza will receive any award for fiscal 1995. While the Compensation Committee
retains discretion to provide otherwise, as a general rule for existing
employees, no acquisition opportunities will be provided unless the conditions
for payment of a participant's bonus have been satisfied. To the extent a
participant fails to make a proper election for deferral of bonus, the
Compensation Committee would be authorized to permit after-tax acquisitions of
restricted Common Stock, on the same basis as shares could have been purchased
with the participant's deferred bonus, but only up to the number of shares that
could have been awarded had a proper deferral election been made with respect to
the maximum percentage of bonus eligible for deferral for that year.
The 1994 Stock Plan caps the maximum value of Common Stock that may be
awarded to any participant in connection with incentive stock purchase awards
for any year at $9 million. This limit will be adjusted for changes in a
consumer price index. Any after-tax acquisitions of Common Stock would require
funding of the participant's Restricted Stock Purchase Account no later than the
regular bonus payment date. Any election to acquire restricted Common Stock by a
person who is subject to the reporting and short-swing profit provisions under
Section 16(b) of the Exchange Act must be made at least six months prior to the
day the amount of the participant's annual incentive bonus is finally determined
by the Compensation Committee.
If a proper deferral election is made, a certificate representing up to 1.5
times the number of shares of Common Stock that could have been purchased with
the portion of the participant's bonus that was deferred, had it instead been
paid in cash, will be registered in the participant's name but deposited with
the Company along with a stock power endorsed in blank. Subject to transfer
restrictions, the participant will have the rights of an owner, including the
right to receive dividends and the right to vote.
Shares of restricted Common Stock will be subject to vesting provisions and
are subject to forfeiture until fully vested. Vesting will be at the rate of 25%
per year commencing upon the second anniversary of the date the shares are
granted. The Compensation Committee may establish specified performance
conditions that, if attained, will result in accelerated vesting. Permissible
performance targets may relate to one or more of the following: revenues,
earnings per share, profit before or after taxes, net income, or operating
income; return on or growth in shareholders' equity; return on assets, capital
or investment; stock price performance; attainment of expense reduction levels;
and implementation or completion of critical projects. The goals established by
the Committee can be different each year and different goals may be set for
different participants.
If a participant voluntarily leaves the Company's employ prior to the
expiration of the vesting period, other than due to death or disability (which
may result in accelerated vesting), or if his employment is terminated by the
Company, all non-vested shares of restricted Common Stock are forfeited and the
remaining balance in a participant's Restricted Stock Purchase Account will be
returned to the participant, in an amount equal to the lower of the original
cost, or the then market value, of the shares to which the bonus relates.
SHARES SUBJECT TO THE 1994 STOCK PLAN. The Company has reserved 5.5
million shares of Common Stock for issuance under the 1994 Stock Plan, of which
no more than 1.5 million will be available for incentive stock purchases. Shares
issued under the 1994 Stock Plan may be either authorized and unissued shares or
shares which have been reacquired by the Company. In the event that any option
expires or lapses prior to exercise or in the event that any shares of
restricted Common Stock subject to incentive stock purchase awards are
forfeited, the shares to which such option or incentive stock purchase award
relates will again be available for purchase and issuance under the 1994 Stock
Plan to the extent permitted by Rule 16b-3 under the Exchange Act.
18
<PAGE> 22
CHANGE IN CONTROL. The 1994 Stock Plan provides for automatic acceleration
of vesting of all options and restricted Common Stock awarded pursuant to the
incentive stock purchase provisions of the Plan upon a Change in Control, as
defined in the Plan. A Change in Control is generally deemed to occur upon (i)
the acquisition by any person or group of persons of beneficial ownership of 35%
or more of the combined voting power of the Company's outstanding voting
securities, (ii) the first purchase under a tender offer or exchange offer
pursuant to which shares of Common Stock have been purchased or (iii) the
election, during any period of 24 months, or less, of 35%, or more, of the
members of the Board of Directors, without the approval of Continuing Members,
as defined in the 1994 Stock Plan, as constituted at the beginning of such
period. In certain instances where the Change in Control transaction is approved
in advance by Continuing Members and the rights of optionees are preserved by
the surviving corporation, no acceleration of vesting will result.
MARKET VALUE. The closing market price of a share of Common Stock on June
23, 1994 was $36.
FEDERAL TAX CONSEQUENCES. Set forth below is a brief description of the
Company's understanding of the Federal income tax consequences applicable to
NQSOs, ISOs and incentive stock purchase awards granted under the 1994 Stock
Plan. The summary is not intended to constitute tax advice and does not address
possible state, local or foreign tax consequences.
NQSOS. No income is realized by the optionee at the time a NQSO is
granted. Generally, at exercise, ordinary income is realized by the optionee in
an amount equal to the difference between the option price paid for the shares
and the fair market value of the shares, if unrestricted, on the date of
exercise, and the optionee's employer is generally entitled to a tax deduction
in the same amount subject to applicable tax withholding requirements. A
participant's tax basis in Common Stock is equal to the amount paid for such
stock plus the amount includible in income with respect to such stock. At sale,
appreciation (or depreciation) after the date of exercise is treated as either
short-term or long-term capital gain (or loss) depending on how long the shares
have been held.
ISOS. No taxable income is realized by the optionee upon the grant or
exercise of an ISO. If Common Stock is issued to an optionee pursuant to the
exercise of an ISO, and if no disqualifying disposition of such shares is made
by such optionee within two years after the date of grant or within one year
after the transfer of such shares to such optionee, then (1) upon sale of such
shares, any gain or loss realized is treated as a long-term capital gain or loss
and (2) no deduction will be allowed to the optionee's employer for Federal
income tax purposes.
If the Common Stock acquired upon the exercise of an ISO is disposed of
prior to the expiration of either holding period described above, generally (1)
the optionee will realize ordinary income in the year of disposition in an
amount equal to the excess (if any) of the fair market value of such shares at
exercise (or, if less, the amount realized on the disposition of such shares)
over the option price paid for such shares, and (2) the optionee's employer will
be entitled to deduct such amount for Federal income tax purposes. Any further
gain (or loss) realized by the optionee will be taxed as short-term or long-term
capital gain (or loss) as the case may be and will not result in any deduction
by the employer.
Subject to certain exceptions for disability or death, if an ISO is
exercised more than three months following termination of employment, the
exercise of the option will generally be taxed as the exercise of a NQSO.
The exercise of an ISO will give rise to an item of tax preference that may
result in alternative minimum tax liability for the optionee, unless the
optionee engages, within the same year of exercise, in a disqualifying
disposition of the shares received upon exercise. Each optionee is potentially
subject to the alternative minimum tax. In substance, a taxpayer is required to
pay the higher of his alternative minimum tax liability or
19
<PAGE> 23
his "regular" income tax liability. As a result, a taxpayer has to determine his
potential liability under the alternative minimum tax.
In general, for purposes of the alternative minimum tax, the exercise of an
ISO will be treated as if it were the exercise of a NQSO. As a result, the rules
of Section 83 of the Code relating to transfers of property, including
restricted property, will apply in determining the optionee's alternative
minimum taxable income. Consequently, an optionee exercising an ISO with respect
to Common Stock will have income, for purposes of determining the base for the
application of the alternative minimum tax, in an amount equal to the spread
between the option price for the shares and the fair market value of the shares
on the date of exercise.
INCENTIVE STOCK PURCHASE AWARDS. No income tax will result to a
participant upon the receipt of shares of restricted Common Stock. A participant
generally realizes as ordinary income the fair market value of the restricted
Common Stock (less any amounts paid for such stock, except pre-tax amounts) at
the earlier of the time such restricted Common Stock is either transferable or
no longer subject to a substantial risk of forfeiture ("Forfeiture Period")
within the meaning of Section 83 of the Code (including, in the case of a person
subject to Section 16(b) of the Exchange Act, any period during which such
person would be subject to potential liability). Upon the expiration of the
Forfeiture Period, a participant's tax basis in the Common Stock is equal to any
after-tax amount paid for such stock plus the amount includible in income with
respect to such stock. With respect to the sale of Common Stock after the
expiration of the Forfeiture Period, any gain or loss would generally be treated
as long-term or short-term, depending on the holding period. The holding period
for capital gains treatment would begin when the Forfeiture Period expires. The
Company generally would be entitled to a deduction in the amount of a
participant's income at the time such income is includible as described above,
provided that applicable Federal income tax withholding requirements are
satisfied (subject to possible limitations on deductibility under Section 162(m)
of the Code of compensation paid to executives designated in that Section).
Dividends paid to a participant on restricted Common Stock prior to vesting are
taxable compensation in the year received.
APPROVAL OF PROPOSAL 3 WILL REQUIRE THE AFFIRMATIVE VOTE IN PERSON OR BY
PROXY OF THE HOLDERS OF A MAJORITY OF ALL OUTSTANDING SHARES OF COMMON STOCK
ENTITLED TO VOTE.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE IN FAVOR OF THIS
PROPOSAL.
20
<PAGE> 24
NEW PLAN BENEFITS
Set forth below is a tabular presentation of the benefits and amounts that
will be received by or allocated to each of the indicated persons under each of
the new employee benefits plans.
<TABLE>
<CAPTION>
LORAL CORPORATION LORAL CORPORATION 1994
INCENTIVE COMPENSATION STOCK OPTION AND
PLAN FOR SENIOR INCENTIVE STOCK
EXECUTIVES(1) PURCHASE PLAN(2)
--------------------------- ----------------------
DOLLAR NUMBER OF DOLLAR NUMBER OF
NAME AND PARTIES VALUE($) UNITS VALUE($) UNITS
- - - -------------------------------------------- ----------- --------- -------- ---------
<S> <C> <C> <C> <C>
Bernard L. Schwartz......................... $ 3,139,130 N/A -- --
Frank C. Lanza.............................. $ 1,569,565 N/A -- --
Michael P. DeBlasio......................... -- N/A -- --
Robert V. LaPenta........................... -- N/A -- --
Michael B. Targoff.......................... -- N/A -- --
Executive Officer Group..................... -- N/A -- --
Non-Employee Director Group................. * * * *
All Employees as a Group.................... -- N/A -- (3)
</TABLE>
- - - ---------------
* Not eligible for participation
(1) Because the amount of benefits to be received by each participant in the
Annual Bonus Plan depends upon the attainment of performance goals, it is
not possible to determine what amounts will be paid in the future under this
Plan. For a description of the performance goals which have been established
for Messrs. Schwartz and Lanza for fiscal 1995, see Proposal 2-Approval of
Incentive Compensation Plan for Senior Executives. The amounts in the Dollar
Value column represent the bonus compensation that would have been paid to
Messrs. Schwartz and Lanza for the Company's last fiscal year if the
performance goals selected for fiscal 1995 had been in place at such time,
assuming no part of the bonus was deferred toward the purchase of restricted
Common Stock in accordance with the provisions of the 1994 Stock Plan.
(2) Because the amount of benefits to be received by each participant in the
1994 Stock Plan depends on the attainment of performance goals, and upon the
participant's election to take advantage of the opportunity to acquire
shares of restricted Common Stock through deferral of payment of part of his
annual bonus, and upon the discretionary authority of the Compensation
Committee to grant options or incentive stock purchase awards, it is not
possible to determine the number of shares that will be granted or awarded
under this plan during fiscal 1995.
(3) The Compensation Committee has granted options on 352,300 shares, primarily
to employees of the Company's Federal Systems subsidiary. All such options
are conditioned upon Stockholder approval of Proposal 3.
PROPOSAL 4. RATIFICATION OF ELECTION OF INDEPENDENT AUDITORS OF LORAL.
The Board of Directors has selected Coopers & Lybrand, certified public
accountants, as the independent auditors of the Company for the fiscal year
ending March 31, 1995.
Coopers & Lybrand has advised the Company that it has no direct or indirect
financial interest in the Company or any of its subsidiaries, and that it has
had, during the last three years, no connection with the Company or any of its
subsidiaries other than as independent auditors and related activities. Coopers
& Lybrand will have a representative present at the meeting who will have an
opportunity to make a statement if he or she so desires and to respond to
appropriate questions.
21
<PAGE> 25
During fiscal 1994, Coopers & Lybrand provided services consisting of the
audit of the annual consolidated financial statements of the Company and its
subsidiaries and of retirement and other employee benefit plans, consultations
with respect to the Company's quarterly consolidated financial statements,
reports and registration statements filed with the Securities and Exchange
Commission and general consultations on accounting, taxes, benefit plans,
acquisitions, government compliance and related matters.
IF THE STOCKHOLDERS, BY THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY
OF THE SHARES OF COMMON STOCK REPRESENTED IN PERSON OR BY PROXY AND VOTING AT
THE MEETING DO NOT RATIFY THE SELECTION OF COOPERS & LYBRAND, THE SELECTION OF
INDEPENDENT AUDITORS WILL BE RECONSIDERED BY THE BOARD.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE IN FAVOR OF THIS
PROPOSAL.
LORAL STOCKHOLDERS' PROPOSALS
Proposals of the Company's Stockholders intended to be presented at the
1995 Annual Meeting of the Company must be received by the Company at 600 Third
Avenue, New York, New York 10016, Attention: Secretary, no later than February
24, 1995.
OTHER ACTION AT MEETING AND VOTING OF PROXIES
Management does not know of any matters to come before the Annual Meeting
other than those herein set forth. However, the enclosed Proxy confers
discretionary authority upon the proxy holders named therein to vote and act in
accordance with their best judgement with regard to any other matters which
should come before the meeting or any adjournment thereof. Upon receipt of such
Proxy (in the form enclosed and properly signed) in time for voting, the shares
represented thereby will be voted as indicated thereon or, if no direction is
indicated, will be voted FOR the election of Directors and FOR any Proposal.
By Order of the Board of Directors
Michael B. Targoff
Secretary
Date: June 27, 1994
22
<PAGE> 26
LORAL CORPORATION
PROXY--ANNUAL MEETING OF STOCKHOLDERS, JULY 26, 1994
BERNARD L. SCHWARTZ, MICHAEL B. TARGOFF and ROBERT B. HODES, and each of them,
are hereby appointed the proxies of the undersigned, with full power of
substitution on behalf of the undersigned to vote, as designated below, all the
shares of the undersigned at the Annual Meeting of Stockholders of LORAL
CORPORATION, to be held in the Third Floor Auditorium, Chemical Banking
Corporation headquarters, 270 Park Avenue, New York, N.Y. on July 26, 1994, at
2:00 o'clock P.M. and at all adjournments thereof. THE BOARD OF DIRECTORS
RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSALS:
<TABLE>
<S> <C>
1. ELECTION OF ONE CLASS II and FOUR CLASS III DIRECTORS--Nominees: Class II: C. Lazarus;
Class III: B.L. Schwartz, M.A. Ruderman, E.D. Shapiro, T.J. Stanton, Jr.
</TABLE>
<TABLE>
<S> <C>
/ / VOTE FOR all nominees except those written below / / WITHHOLD AUTHORITY to vote for all nominees
</TABLE>
Instruction: To withhold to vote for any nominee write that nominee's name
on the line below:
- - - --------------------------------------------------------------------------------
2. Proposal to approve the Company's Incentive Compensation Plan for Senior
Executives;
FOR / / AGAINST / / ABSTAIN / /
3. Proposal to approve the Company's 1994 Stock Option and Incentive Stock
Purchase Plan;
FOR / / AGAINST / / ABSTAIN / /
4. Proposal to ratify the selection of COOPERS & LYBRAND as independent auditors
for the Company for its fiscal year ending March 31, 1995
FOR / / AGAINST / / ABSTAIN / /
5. In their discretion, upon such other matters as may properly come before the
meeting
FOR / / AGAINST / / ABSTAIN / /
(Continued on other side)
<PAGE> 27
This Proxy when properly executed will be voted in the manner directed
herein by the undersigned Stockholder. If no direction is indicated, this Proxy
will be voted FOR the election of all nominees listed hereon and FOR Proposals
2 through 5.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby acknowledges
receipt of the Notice of Annual
Meeting and accompanying Proxy
Statement.
Dated: , 1994
-----------------------
-----------------------------------
-----------------------------------
(Signature of Stockholder)
(Please sign exactly as name or
names appear hereon. When signing
as attorney, executor, administrator,
trustee or guardian, please give
your full title as such; if by a
corporation, by an authorized
officer; if by a partnership, in
partnership name by an authorized
person. For joint owners, all co-
owners must sign.)
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY IN THE ENVELOPE PROVIDED.
<PAGE> 28
LORAL CORPORATION
1994 STOCK OPTION AND INCENTIVE STOCK PURCHASE PLAN
ARTICLE I
PURPOSE
The purposes of the 1994 Stock Option and Incentive Stock
Purchase Plan (the "Plan") are (i) to attract and retain highly-qualified
executives, (ii) to align executive and stockholder long-term interests by
creating a direct link between executive compensation and stockholder return,
(iii) to enable executives of Loral Corporation (the "Company") to develop and
maintain a substantial stock ownership position in the Company and (iv) to
provide incentives to such executives to contribute to the success of the
Company's businesses. To achieve these objectives, the Plan provides for the
granting of "incentive stock options," within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code") ("Incentive Options"),
nonqualified stock options ("Nonqualified Options") (collectively "Options"),
Limited Rights, as defined below, and for the awarding of shares of restricted
common stock of the Company ("Incentive Stock Awards") pursuant to the
Company's incentive stock purchase program ("Incentive Stock Purchase
Program").
The term "Company," when used in the Plan with reference to
eligibility and employment, shall include the Company and its subsidiaries.
The word "subsidiary," when used in the Plan, shall mean any subsidiary of the
Company within the meaning of Section 424(f) of the Code.
ARTICLE II
ADMINISTRATION
The Plan shall be administered by a committee (the
"Committee") selected by the Board of Directors of the Company (the "Board")
from among its members, which shall consist of not less than three members,
each of whom must be a "disinterested person" within the meaning of the rules
promulgated under Section 16(b) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and at least two of whom shall be "outside
directors" within the meaning of Section 162(m) of the Code; provided, however,
that after the date on which Rule 16b-3(c)(2)(i) of the Exchange Act has become
effective with respect to the Company, only two individuals shall be required
to serve on the Committee. Subject to the provisions of the Plan, the
Committee shall have sole authority, in
<PAGE> 29
its absolute discretion: (a) to determine which of the eligible employees of
the Company shall be granted Options and which may participate in the Incentive
Stock Purchase Program; (b) to grant Options, Limited Rights and Incentive
Stock Awards; (c) to determine the times when Options may be granted and the
number of shares that may be purchased pursuant to such Options; (d) to
determine the maximum amount that may permissibly be deferred pursuant to a
Bonus Deferral Election, as defined below, the maximum number of shares of
restricted stock that may be awarded, and the vesting period that will apply to
such shares under the Incentive Stock Purchase Program, (e) to determine the
exercise price of the shares subject to each Option, which price shall be not
less than the minimum specified in Section 5.1; (f) to determine the time or
times when each Option becomes exercisable, the duration of the exercise period
and any other restrictions on the exercise of Options issued hereunder; (g) to
prescribe the form or forms of the Option agreements under the Plan; (h) to set
the vesting schedule for Incentive Stock Awards; (i) to determine the
circumstances under which the time for exercising Options and the vesting of
Incentive Stock Awards should be accelerated and to accelerate the time for
exercising outstanding Options and the vesting of Incentive Stock Awards; (j)
to determine whether and the extent to which Limited Rights may be granted; (k)
to adopt, amend and rescind such rules and regulations as, in its opinion, may
be advisable in the administration of the Plan; and (l) to construe and
interpret the Plan, the rules and regulations and the Option agreements under
the Plan and to make all other determinations deemed necessary or advisable for
the administration of the Plan; provided, however, that with respect to those
eligible employees who are not "officers" of the Company, within the meaning of
Section 16(b) of the Exchange Act, the Committee may delegate to any person or
persons ("Subcommittee") all or any part of its authority as set forth in (a)
through (l) above. All references in the Plan to the powers of a Subcommittee
to act for the Committee shall be applicable only to the extent consistent with
the foregoing provision and only to the extent consistent with the powers which
have actually been delegated to it. All decisions, determinations and
interpretations of the Committee, or Subcommittee, to the extent consistent
with such delegation, shall be final and binding.
ARTICLE III
STOCK
The stock to be distributed under the Plan shall be shares of
authorized but unissued common stock of the Company, par value $.25 per share,
or previously issued shares of common stock reacquired by the Company (the
"Stock"). Under the Plan, the
-2-
<PAGE> 30
maximum number of shares of Stock which may be issued or awarded shall be
limited to 5,500,000 shares, of which not more than 1,500,000 may be
distributed pursuant to Incentive Stock Awards, except as such number of shares
shall be adjusted in accordance with the provisions of Article VIII hereof.
The maximum number of shares of Stock with respect to which Options may be
granted to any one person during one fiscal year shall not exceed 300,000,
except as such number of shares shall be adjusted in accordance with the
provisions of Article VIII hereof.
The aggregate number of shares of Stock with respect to which
Options may be granted under the Plan shall be decreased by the sum of (i) the
number of shares with respect to which Options have been granted and are then
outstanding, and (ii) the number of shares of Stock which have been awarded
pursuant to Incentive Stock Awards. The aggregate number of shares of Stock
that may be awarded pursuant to Incentive Stock Awards under the Plan shall be
decreased by the sum of (i) the number of shares with respect to which
Incentive Stock Awards have been made, and (ii) the excess of (A) the number of
shares with respect to which Options have been granted (without having again
become available for issuance pursuant to the following sentence), over (B)
4,000,000. In the event that any outstanding Option or Incentive Stock Award
under the Plan for any reason expires, is terminated, forfeited or is cancelled
prior to the expiration date of the Plan, the shares of Stock called for by the
unexercised portion of such Option or unvested portion of such Incentive Stock
Award may, to the extent permitted by Rule 16b-3 under the Exchange Act, again
be subject to an Option or unvested portion of an Incentive Stock Award under
the Plan, respectively.
ARTICLE IV
ELIGIBILITY OF PARTICIPANTS
The Committee may designate any officer of the Company, and
group or divisional officer and any other key employee of the Company as
eligible to receive Options and to participate in the Incentive Stock Purchase
Program under the Plan. Non- employee directors shall not be eligible to
participate in the Plan.
-3-
<PAGE> 31
ARTICLE V
OPTIONS
The Committee or Subcommittee may in its sole discretion grant
Options to such officers, group or divisional officers, and such other key
employees of the Company as it determines appropriate. Options shall be
evidenced by Option agreements (which need not be identical) in such forms as
the Committee may from time to time approve.
Option agreements shall conform to the terms and conditions of the
Plan. Such agreements may provide that the grant of any Option under the Plan
or that Stock acquired pursuant to the exercise of any Option shall be subject
to such other conditions (whether or not applicable to the Option or Stock
received by any other optionee) as the Committee determines appropriate,
including, without limitation, provisions conditioning exercise upon the
occurrence of certain events or performance, provisions to assist the optionee
in financing the purchase of Stock through the exercise of Options, provisions
for forfeiture, or restrictions on resale or other disposition, of shares
acquired under the Plan, provisions giving the Company the right to repurchase
shares acquired under the Plan in the event the participant elects to dispose
of such shares, and provisions to comply with Federal and state securities laws
and Federal and state income-tax withholding requirements. Options granted
under this Plan which are intended to qualify as Incentive Options shall be
specifically designated as such in the Option agreement.
5.1 OPTION PRICE
The exercise price for each Option granted under the Plan
shall be determined by the Committee or Subcommittee; provided, however, that
it shall not be less than the fair market value of the Stock on the date of
grant. The fair market value shall be deemed for all purposes of the Plan to
be the mean between the highest and lowest sale prices reported as having
occurred on any Exchange with which the Stock may be listed and traded on the
date chosen to determine such fair market value, or, if there is no such sale
on that date, then on the last preceding date on which such a sale was
reported. If the Stock is not listed on any Exchange but the Stock is quoted
on the National Market System of the National Association of Securities Dealers
Automated Quotation System on a last sale basis, then the fair market value of
the Stock shall be deemed to be the mean between the high and low price
reported. If the Stock is not quoted on the National Market System of the
National Association of Securities Dealers Automated Quotation System on a last
sale basis, then the fair market value of the Stock shall mean the amount
determined by the Board to be the fair
-4-
<PAGE> 32
market value based upon a good faith attempt to value the Stock accurately and
computed in accordance with applicable regulations of the Internal Revenue
Service. In no event shall the Option exercise price be less than the par
value per share of Stock on the date an Option is granted.
5.2 EXERCISE AND TERMS OF OPTIONS
The Committee or Subcommittee shall determine the dates after
which Options may be exercised, in whole or in part, and may establish a
vesting schedule that must be satisfied before shares acquired upon exercise of
an Option may be transferable or no longer subject to forfeiture. If an Option
is exercisable in installments, installments which are exercisable and not
exercised shall remain exercisable.
Any other provision of the Plan to the contrary
notwithstanding and subject to Section 5.4 in the case of Incentive Options, no
Option shall be exercised after the date which is ten years from the date of
grant of such Option (the "Termination Date").
If prior to the Termination Date, an optionee shall cease to
be employed by the Company for any reason other than death, the Option may
remain exercisable for a period not extending beyond the earlier of the
Termination Date or the date that is 90 days after the date of cessation of
employment to the extent the Option was exercisable at the time of cessation of
employment; provided, however, that the Committee or Subcommittee may in its
sole discretion provide in the Option agreement or otherwise resolve that the
period during which the Option may be exercised shall be extended to any date
not beyond the Termination Date.
In the event of the death of an optionee prior to the
Termination Date and while employed by the Company or while entitled to
exercise an Option pursuant to the preceding paragraph, the optionee's Options
may remain exercisable until the earlier of the Termination Date or the date
that is one year from the date of death, by the person or persons, to whom the
optionee's rights under the Option pass by will or the applicable laws of
descent and distribution to the extent that the optionee was entitled to
exercise it on the date of death; provided, however, that the Committee or
Subcommittee may in its sole discretion provide in the Option agreement that
the period during which the Option may be exercised shall be extended to any
date not beyond the Termination Date.
-5-
<PAGE> 33
5.3 LIMITED RIGHTS
The Committee or Subcommittee, in its sole discretion, may
provide in the Option agreement in connection with the grant of any Option that
the optionee shall have a limited right ("Limited Right") which would allow the
optionee to receive the value of the Option, as described below, upon a Change
in Control as defined below. The Committee may provide that Limited Rights
will automatically be exercised upon the occurrence of a Change in Control, or
upon the occurrence of certain events constituting a Change in Control, or
alternatively may provide that the Limited Rights may be exercised by the
optionee upon the occurrence of a Change in Control or of certain events
constituting a Change in Control.
Limited Rights or any applicable portion thereof granted with
respect to a given Option shall terminate and cease to exist upon the
termination of the related Option. Upon the exercise of an Option, the related
Limited Right shall cease to exist to the extent of the shares of Stock with
respect to which such Option is exercised. Limited Rights shall be
transferable only at such time or times and to the extent that the underlying
Option would be transferable.
Limited Rights that may be exercised at the discretion of the
optionee may only be exercised within the 30-day period following a Change in
Control; provided, however, that, subject to the foregoing, in the event that a
Change in Control shall occur within six months of the grant of a Limited Right
to an optionee who is subject to Section 16(b) of the Exchange Act, the 30- day
exercise period for such optionee shall commence on the first day following
such six-month period.
A Limited Right related to an Option shall be exercised by
surrendering the applicable portion of the related Option to the extent that
the related Option otherwise is exercisable. Upon such exercise and surrender,
the optionee shall be entitled to receive in cash, in lieu of exercising his
Option, an amount determined in the manner prescribed below.
Upon the exercise of a Limited Right related to an Option, an
optionee shall be entitled to receive an amount in cash equal in value to the
excess of (i) the Change in Control Price, as defined below, of a share of
Stock over (ii) the exercise price specified in the related Option, such excess
to be multiplied by the number of shares of Stock in respect of which the
Limited Right shall have been exercised.
-6-
<PAGE> 34
For purposes of Article VIII and this Section 5.3, the
following definitions shall apply:
"Change in Control" shall mean the first to occur of the
following:
a. The acquisition by any person (including a
group, within the meaning of Section 13(d)(3) or 14(d)(2) of
the Exchange Act), other than the Company, of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 35% or more of the combined voting power
of the Company's then outstanding voting securities, without
the approval of a majority of the Continuing Directors;
b. The first purchase under a tender offer or
exchange offer, other than an offer by the Company, pursuant
to which shares of Stock have been purchased, unless such
tender offer or exchange offer is approved by a majority of
the Continuing Directors; or
c. The election, including the filling of
vacancies, during any period of 24 months or less, of 35% or
more, of the members of the Board, without the approval of
Continuing Directors, as constituted at the beginning of such
period.
"Change in Control Price" shall mean the highest price per
share of Stock paid in any transaction in connection with a Change in Control
of the Company.
"Continuing Director" shall mean any director of the Company
who either (i) is a member of the Board on the date this Plan is adopted by the
Board, or (ii) is nominated for election to the Board by a majority of the
Board which majority is comprised of directors who were, at the time of such
nomination, Continuing Directors.
5.4 SPECIAL PROVISIONS APPLICABLE TO INCENTIVE OPTIONS ONLY
To the extent the aggregate fair market value (determined as
of the time the Option is granted) of the Stock with respect to which any
Options granted hereunder which are intended to be Incentive Options may be
exercisable for the first time by the optionee in any calendar year (under this
Plan or any other stock option plan of the Company or any parent or subsidiary
thereof) exceeds $100,000, such Options shall not be considered Incentive
Options.
-7-
<PAGE> 35
No Incentive Option may be granted to an individual who, at
the time the Option is granted, owns directly, or indirectly within the meaning
of Section 424(d) of the Code, stock possessing more than 10 percent of the
total combined voting power of all classes of stock of the Company or of any
parent or subsidiary thereof, unless such Option (i) has an Option price of at
least 110 percent of the fair market value of the Stock on the date of the
grant of such Option; and (ii) cannot be exercised more than five years after
the date it is granted.
Each optionee who receives an Incentive Option must agree to
notify the Company in writing immediately after the optionee makes a
disqualifying disposition of any Stock acquired pursuant to the exercise of an
Incentive Option. A disqualifying disposition is any disposition (including
any sale) of such Stock before the later of (a) two years after the date the
optionee was granted the Incentive Option or (b) one year after the date the
optionee acquired Stock by exercising the Incentive Option. Any transfer of
ownership to a broker or nominee shall be deemed to be a disposition unless the
optionee provides proof satisfactory to the Committee of his continued
beneficial ownership of the Stock.
5.5 PAYMENT FOR SHARES
Payment for shares of Stock purchased under an Option granted
hereunder shall be made in full upon exercise of the Option, by certified or
bank cashier's check payable to the order of the Company or, unless otherwise
prohibited by the terms of an Option agreement, by one or more of the
following: (i) in the form of unrestricted Stock already owned by the optionee
based in any such instance on the fair market value of the Stock on the date
the Option is exercised; provided, however, that, in the case of an Incentive
Option, the right to make a payment in the form of already owned shares of
Stock may be authorized only at the time the Option is granted; (ii) by
delivering a properly executed exercise notice to the Company, together with a
copy of irrevocable instructions to a broker to deliver promptly to the Company
the amount of sale or loan proceeds to pay the purchase price; (iii) by a
combination thereof, in each case in the manner provided in the Option
agreement; or (iv) by any other means acceptable to the Company. To facilitate
the foregoing, the Company may enter into agreements for coordinated procedures
with one or more brokerage firms. To the extent the Option exercise price may
be paid in shares of Stock as provided above, shares delivered by the optionee
may be shares which were received by the optionee upon exercise of one or more
Incentive Options, but only if such Stock has been held by the optionee for at
least the greater of (i) two years from the date the Incentive Options were
granted or (ii) one year after the transfer of shares of Stock to the optionee.
-8-
<PAGE> 36
The Committee may, in its discretion, require that an optionee pay to
the Company, at the time of exercise, such amount as the Committee deems
necessary to satisfy the Company's obligation to withhold Federal, state or
local income or other taxes incurred by reason of the exercise or the transfer
of shares thereupon. At the sole discretion of the Committee or Subcommittee,
an optionee may satisfy such withholding requirements by having the Company
withhold from the number of shares of Stock otherwise issuable upon exercise of
the Option that number of shares having an aggregate fair market value on the
date of exercise equal to the withholding amount.
5.6 NON-TRANSFERABILITY OF OPTION RIGHTS
No Option shall be transferable except by will or the laws of
descent and distribution. During the lifetime of the optionee, the Option
shall be exercisable only by him. The Committee may, however, in its sole
discretion, allow for transfer of Nonqualified Options to family members or
former spouses, subject to such conditions or limitations as it may establish
to ensure compliance with Rule 16b-3 promulgated pursuant to the Exchange Act,
or for other purposes.
5.7 NO OBLIGATION TO EXERCISE OPTION
The grant of an Option shall impose no obligation on the
optionee to exercise such Option.
5.8 CANCELLATION OF OPTIONS
The Committee or Subcommittee, in its discretion, may, with the
consent of any optionee, cancel any outstanding Option hereunder.
5.9 RIGHTS AS A STOCKHOLDER
An optionee or a transferee of an Option shall have no rights
as a stockholder with respect to any share covered by his Option until he shall
have become the holder of record of such share, and he shall not be entitled to
any dividends or distributions or other rights in respect of such share for
which the record date is prior to the date on which he shall have become the
holder of record thereof.
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ARTICLE VI
INCENTIVE STOCK PURCHASE PROGRAM
6.1 ELIGIBILITY
The Committee may by written notice permit eligible
participants who have been selected for participation in the Incentive Stock
Purchase Program ("Eligible Executives") to elect that up to 100% of their
annual incentive bonuses otherwise payable pursuant to (i) the Company's
Incentive Compensation Plan for Senior Executives (the "Annual Bonus Plan") or
(ii) any other annual bonus plan maintained by the Company, to be deferred and
credited to a restricted stock purchase account. An Eligible Executive's
restricted stock purchase account will be used to fund acquisitions of Stock at
the time an Incentive Stock Award becomes vested, or will be returned to such
Executive at the time such Award becomes forfeited, to the extent and at the
time or times provided in Section 6.4 hereof. Only those Eligible Executives
who make timely Bonus Deferral Elections as provided in Section 6.2, or who
otherwise meet the requirements of Section 6.2, shall be eligible to receive an
Incentive Stock Award under the Plan. The amount deferred in accordance with
an Eligible Executive's Bonus Deferral Election shall be subject to reduction
or to such other limitations as are from time to time established under the
Annual Bonus Plan or under the Plan.
6.2 BONUS DEFERRAL ELECTION
Not later than 90 days after the end of each fiscal year, or
such later date as the Committee may establish, each Eligible Executive may
make an irrevocable election ("Bonus Deferral Election") to defer a fixed
percentage or a fixed dollar amount of his or her annual incentive bonus for
that fiscal year by filing a deferral election form with the Committee or
Subcommittee. To the extent that an Eligible Executive fails to make a timely
Bonus Deferral Election, the Committee or Subcommittee may permit after-tax
acquisitions of restricted Stock on the same terms and conditions, and subject
to the same limitations, as those Eligible Executives making a proper Bonus
Deferral Election, provided the Eligible Executive pays to the Company, for
crediting to an unfunded restricted stock purchase account, such amount as the
Executive wishes to have applied to the purchase of Stock, no later than the
date the Executive's bonus for such fiscal year is paid, and further provided,
that any Eligible Executive who is subject to Section 16(b) of the Exchange Act
must elect to defer his or her annual incentive bonus at least six months prior
to the day the amount of such bonus is determined.
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6.3 INCENTIVE STOCK AWARDS
On an Eligible Executive's bonus payment date, an amount equal
to the portion of the Executive's bonus which is validly deferred, or the
amount otherwise paid to the Company on an after-tax basis, shall be credited
to an unfunded restricted stock purchase account. On the same date or as soon
as practicable thereafter, a number of shares of restricted Stock, as
determined in the following paragraph, shall be registered in the Executive's
name and deposited with the Secretary of the Company to be held for the account
of the Eligible Executive and the Executive shall deliver to the Secretary a
stock power or powers executed in blank, covering such shares.
The number of shares of restricted Stock awarded to any
Eligible Executive shall be fixed by the Committee but shall in no event exceed
1.5 times the number of shares of Stock that could have been purchased on the
regular bonus payment date with the portion of the Eligible Executive's bonus
that was deferred and credited to a restricted stock purchase account, had it
instead been paid in cash. The amount of shares that could have been purchased
shall be determined by reference to the fair market value of the Stock as
determined in accordance with Section 5.1 hereof, on the regular bonus payment
date. In the case of an Eligible Executive whose restricted stock purchase
account is established by reference to after-tax dollars, the number of shares
that could have been purchased shall be determined by reference to the amount
of after-tax dollars properly paid to the Company in accordance with Section
6.2 hereof.
6.4 RESTRICTIONS ON TRANSFERABILITY; VESTING OF SHARES
Until such time as shares of Stock covered by an Incentive
Stock Award have become vested and all restrictions have lapsed, such shares
shall not be subject to sale, assignment, pledge, or other transfer or
disposition by the Eligible Executive, except to the extent otherwise
specifically permitted herein by reason of a tender offer or an exchange or
conversion of such shares because of merger, consolidation, reorganization, or
other corporate action.
Each Eligible Executive shall vest in his Incentive Stock
Award over 5 years at the rate of 25% on each anniversary of the Incentive
Stock Award beginning on the second anniversary of the date of grant ("Vesting
Date"). On each Vesting Date, 25% of the Stock covered by the Executive's
Incentive Stock Award shall be delivered to the Eligible Executive, subject to
implementation of such arrangements satisfactory to the Committee for the
withholding of taxes.
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The Committee may establish specified performance conditions
that, if attained, will result in accelerated vesting. Permissible performance
targets include one or more of the following: revenues; earnings per share;
profit before or after taxes; net income or operating income; return on or
growth in shareholders' equity; return on assets, capital or investment; stock
price performance; attainment of expense reduction levels; and implementation
or completion of critical projects. The goals established by the Committee may
be different each year and different goals may be set for different
participants. The Committee may also provide for accelerated vesting of
Incentive Stock Awards upon certain prescribed events, or in its discretion.
Upon the occurrence of each vesting event, a pro rata portion
of the amount set aside in the unfunded restricted stock purchase account which
relates to the Stock as to which vesting conditions have been satisfied shall
be applied to the purchase of such Stock without further action on the part of
the Eligible Executive, and the Company shall have no further obligation to the
Eligible Executive with respect to the amount so applied. To the extent that
shares of restricted Stock are forfeited in accordance with Section 6.6 below
(the "Forfeited Shares"), the Eligible Executive shall be entitled to a cash
payment equal to the lesser of (i) the pro rata portion of the amount set aside
in the unfunded restricted stock purchase account which relates to the
Forfeited Shares, in cash, without interest or other earnings equivalent, or
(ii) the fair market value of the Forfeited Shares on the date of the event
which gave rise to the forfeiture, as determined in accordance with Section 5.1
of the Plan, in either case, net of applicable withholding for taxes. Upon the
making of such payment, the Company shall have no further obligation to the
Eligible Executive under the Plan relating to the Incentive Stock Award or to
any amount previously credited to such Executive's restricted stock purchase
account.
6.5 DIVIDEND AND VOTING RIGHTS
Subject to the restrictions set forth in Section 6.4 above or
established pursuant to Article VIII below, and to the delivery of stock powers
as provided in Section 6.4, upon the making of an Incentive Stock Award, an
Eligible Executive shall have all the rights of a stockholder of the Company,
including, without limitation, the right to vote or give tender instructions
for all of the shares of Stock covered by his Incentive Stock Award and the
right to receive dividends when paid.
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6.6 TERMINATION OF EMPLOYMENT
Unless otherwise provided by the Committee, if an Eligible
Executive dies, becomes disabled or voluntarily terminates employment with the
Company for any reason or if such Executive's employment is terminated by the
Company for any reason, all non-vested shares of Stock covered by an Incentive
Stock Award shall be forfeited.
6.7 MAXIMUM LIMIT ON INCENTIVE STOCK AWARDS
Notwithstanding any other provision of the Plan, the maximum
value of Incentive Stock Awards made to any Eligible Executive for any one
fiscal year, determined as of the date of the award, shall not exceed $9.0
million. Such maximum limit shall be adjusted annually, commencing as of July
1, 1995 and as of July 1 of each year thereafter, by a percentage equal to the
percentage change from the beginning until the end of the Company's immediately
preceding fiscal year in the Annual Average All Items Index of the U.S. City
Average Consumer Price Index for All Urban Consumers (CPI-U) as published by
the U.S. Bureau of Labor Statistics, or any successor index that may at the
time have replaced such Index.
ARTICLE VII
TAXES
The Company may, in its discretion, require that an optionee
or recipient of an Incentive Stock Award pay to the Company, prior to and as a
condition of distribution of Stock pursuant to the exercise of Options or an
Incentive Stock Award, such amount as the Company deems necessary to satisfy
its obligation to withhold Federal, state or local income or other taxes
incurred by reason of the payment or the transfer of shares. At its sole
discretion, the Committee or Subcommittee may allow or require a person to
satisfy such withholding requirements by having the Company withhold from the
number of shares of Stock otherwise issuable pursuant to an Option or Incentive
Stock Award that number of shares having an aggregate fair market value on the
date of distribution equal to the amount required to be withheld.
ARTICLE VIII
ADJUSTMENT FOR RECAPITALIZATION, MERGER, ETC.
The aggregate number of shares of Stock which may be purchased
pursuant to Options granted, the number of shares of Stock covered by each
outstanding Option and the price per share
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thereof in each such Option shall be appropriately adjusted for any increase or
decrease in the number of outstanding shares of Stock resulting from a stock
split or other subdivision or consolidation of shares of Stock or for other
capital adjustments or payments of stock dividends or distributions or other
increases or decreases in the outstanding shares of Stock effected without
receipt of consideration by the Company.
In the event there is a Change in Control, as defined in
Section 5.3, any Option granted hereunder may be exercised in part or in whole
without regard to vesting provisions delaying the exercisability thereof and
all unvested Incentive Stock Awards shall become immediately vested.
Subject to any required action by the stockholders, if after
any merger, consolidation or tender offer to which the Company is a party, the
majority of the directors of the surviving corporation will be persons
nominated by a majority of the Board, which majority is comprised of Continuing
Directors, as defined in Section 5.3 hereof, any Option or Incentive Stock
Award granted hereunder shall cover the securities to which a holder of the
number of shares of Stock covered by the unexercised portion of the Option or
unvested portion of the Incentive Stock Award would have been entitled pursuant
to the terms of the merger or consolidation; provided, however, that the
Committee may provide, in its sole discretion, and on such basis as it deems
equitable, that merger or consolidation consideration not denominated in common
stock of the surviving corporation having the greatest voting and dividend
rights ("Reorganization Common Stock") be converted into an equivalent number
of shares of Reorganization Common Stock so that the Option or Incentive Stock
Award relates solely to Reorganization Common Stock.
Subject to the following proviso, 30 days prior to any merger
or consolidation to which the Company is a party and which is not referred to
in the immediately preceding two paragraphs or a dissolution or liquidation of
the Company, any Option granted hereunder may be exercised in part or in whole,
and all Stock delivered upon exercise of any Option granted under the Plan and
all Stock covered by an Incentive Stock Award shall become fully vested without
regard to the otherwise applicable vesting provisions, and upon such merger,
consolidation, dissolution or liquidation, all Options outstanding hereunder
shall terminate; provided, however, that the foregoing provision shall not
apply in the event that there is a merger or consolidation approved by a
majority of the Board which majority is comprised of Continuing Directors, as
defined in Section 5.3 hereof, and the surviving corporation (i) in the case of
Options, grants an option or options to purchase its shares on such terms and
conditions, both as to the number of shares and otherwise which shall
substantially preserve
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the rights and benefits of any Option then outstanding hereunder, all as
provided for in the agreements of merger or consolidation or like agreements,
and (ii) in the case of Incentive Stock Awards, (A) assumes the obligations of
the Company with respect to outstanding Incentive Stock Awards, on a basis
which substantially preserves the rights of Incentive Stock Award grantees, and
acknowledges such obligation in writing to each Eligible Executive, and in the
merger, consolidation or like agreements to the extent required in order to be
effective, and (B) to the extent the merger, consolidation or tender offer
consideration does not consist entirely of Reorganization Common Stock, either
adjusts the number of shares to the number that would have been received had
such consideration been comprised entirely of Reorganization Common Stock or
equitably adjusts each Eligible Executive's unfunded restricted stock purchase
account so that the full benefit of any such consideration not consisting of
Reorganization Common Stock is delivered to such Executive as and when Stock
originally covered by the Incentive Stock Award would have become vested.
The foregoing adjustments and the manner of application of the
foregoing provisions shall be determined by the Committee in its sole
discretion. Any such adjustment may provide for the elimination of any
fractional share which might otherwise become subject to an Option or Incentive
Stock Award.
ARTICLE IX
USE OF PROCEEDS
The proceeds received from the sale of Stock pursuant to the
Plan shall be used for general corporate purposes.
ARTICLE X
EMPLOYMENT RIGHTS
Nothing in the Plan or in any Option or Incentive Stock Award
granted hereunder shall confer on any optionee or Eligible Executive any right
to continue in the employ of the Company or any of its subsidiaries, or to
interfere in any way with the right of the Company or any of its subsidiaries
to terminate such optionee's or executive's employment at any time.
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ARTICLE XI
COMPLIANCE WITH THE LAW
The Company is relieved from any liability for the nonissuance
or non-transfer or any delay in issuance or transfer of any shares of Stock
subject to Options or Incentive Stock Awards under the Plan which results from
the inability of the Company to obtain or in any delay in obtaining from any
regulatory body having jurisdiction, all requisite authority to issue or
transfer shares of Stock of the Company either upon exercise of the Options
under the Plan or shares of Stock issued as a result of such exercise or
shares of stock issued pursuant to an Incentive Stock Award if counsel for the
Company deems such authority necessary for lawful issuance or transfer of any
such shares. Appropriate legends may be placed on the stock certificates
evidencing shares issued upon exercise of Options or pursuant to Incentive
Stock Awards to reflect such transfer restrictions.
Each Option and Incentive Stock Award granted under the Plan
is subject to the requirement that if at any time the Committee determines, in
its discretion, that the listing, registration or qualification of shares of
Stock issuable upon exercise of Options or pursuant to Incentive Stock Awards
is required by any securities exchange or under any state or Federal law, or
that the consent or approval of any governmental regulatory body is necessary
or desirable as a condition of, or in connection with, the grant of Options or
the issuance of shares of Stock, no shares of Stock shall be issued, in whole
or in part, unless such listing, registration, qualification, consent or
approval has been effected or obtained free of any conditions or with such
conditions as are acceptable to the Committee.
ARTICLE XII
EFFECTIVE DATE AND EXPIRATION DATE OF PLAN
The Plan is effective as of June 1, 1994, subject to approval
by the stockholders of the Company in a manner which complies with Rule 16b-3
under the Exchange Act and applicable state law. The expiration date of the
Plan, after which no Option or Incentive Stock Award may be granted hereunder,
shall be May 31, 2004.
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ARTICLE XIII
AMENDMENT OR DISCONTINUANCE OF PLAN
The Board may, without the consent of the Company's
stockholders or optionees under the Plan, at any time terminate the Plan
entirely and at any time or from time to time amend or modify the Plan,
provided that no such action shall adversely affect Options or Incentive Stock
Awards theretofore granted hereunder without the optionee's or Incentive Stock
Award recipient's consent, and provided further that no such action by the
Board, without approval of the stockholders, may (a) increase the total number
of shares of Stock which may be purchased or acquired pursuant to Options or
Incentive Stock Awards granted under the Plan, either in the aggregate or for
any optionee or Eligible Executive, except as contemplated in Article VIII; (b)
expand the class of employees eligible to receive Options or Incentive Stock
Awards under the Plan; (c) decrease the minimum Option price; (d) extend the
maximum term of Options granted hereunder; or (e) extend the term of the Plan.
ARTICLE XIV
SHAREHOLDER APPROVAL
Anything in the Plan to the contrary notwithstanding, the grant of
Options and Incentive Stock Awards hereunder shall be of no force or effect, no
Option granted hereunder to such person shall vest or become exercisable in any
respect, and no stock acquired pursuant to Incentive Stock Awards shall be
transferable to the extent it would otherwise be transferable, unless and until
the Plan is approved by the affirmative vote of a majority of the shares
outstanding.
ARTICLE XV
MISCELLANEOUS
(a) If the Committee or Subcommittee shall find that any
person to whom any amount is payable under the Plan is unable to care for his
affairs because of illness or accident, or is a minor, or has died, then any
payment due to such person or his estate (unless a prior claim therefor has
been made by a duly appointed legal representative), may, if the Committee or
Subcommittee so directs the Company, be paid to his spouse, child, relative, an
institution maintaining or having custody of such person, or any other person
deemed by the Committee to be a proper recipient on behalf of such person
otherwise entitled to payment. Any such payment shall be a complete discharge
of the liability of the Committee and the Company therefor.
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(b) No member of the Committee or Subcommittee shall be
personally liable by reason of any contract or other instrument executed by
such member or on his behalf in his capacity as a member of the Committee or
Subcommittee nor for any mistake of judgment made in good faith, and the
Company shall indemnify and hold harmless each member of the Committee or
Subcommittee and each other employee, officer or director of the Company to
whom any duty or power relating to the administration or interpretation of the
Plan may be allocated or delegated, against any cost or expense (including
counsel fees) or liability (including any sum paid in settlement of a claim)
arising out of any act or omission to act in connection with the Plan unless
arising out of such person's own fraud or bad faith; provided, however, that
approval of the Company's Board shall be required for the payment of any amount
in settlement of a claim against any such person. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification
to which such persons may be entitled under the Company's Certificate of
Incorporation or By-Laws, as a matter of law, or otherwise, or any power that
the Company may have to indemnify them or hold them harmless.
(c) The Plan shall be governed by and construed in
accordance with the internal laws of the State of New York without reference to
the principles of conflicts of law thereof.
(d) No provision of the Plan shall require the Company,
for the purpose of satisfying any obligations under the Plan, to purchase
assets or place any assets in a trust or other entity to which contributions
are made or otherwise to segregate any assets to provide for payment of
benefits under the Plan. Optionees and Eligible Executives shall have no
rights under the Plan other than as unsecured general creditors of the Company,
except that insofar as they may have become entitled to payment of additional
compensation by performance of services, they shall have the same rights as
other employees under general law.
(e) Each member of the Committee or Subcommittee and each
member of the Company's Board of Directors shall be fully justified in relying,
acting or failing to act, and shall not be liable for having so relied, acted
or failed to act in good faith, upon any report made by the independent public
accountant of the Company and upon any other information furnished in
connection with the Plan by any person or persons other than such member.
(f) Except as otherwise specifically provided in the
relevant plan document, no payment under the Plan shall be taken into account
in determining any benefits under any pension, retirement, profit-sharing,
group insurance or other benefit plan of the Company.
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(g) The expenses of administering the Plan shall be
borne by the Company.
(h) Masculine pronouns and other words of masculine
gender shall refer to both men and women.
* * *
As adopted by the Compensation Committee
of the Board of Directors of
Loral Corporation
on June 23, 1994
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LORAL CORPORATION
INCENTIVE COMPENSATION PLAN
FOR SENIOR EXECUTIVES
I. PURPOSE
The purposes of the Plan are (i) to establish an annual incentive compensation
program for designated senior officers of the Company in order to attract and
retain highly-qualified executives by providing appropriate performance-based
incentive compensation, and (ii) to align executive and stockholder long-term
interests by encouraging Participants, through the optional deferral feature,
to develop and maintain a substantial stock ownership interest in the Company
by acquiring Common Stock in accordance with the provisions of the Incentive
Stock Purchase Plan. The Plan provides for payment of annual compensation,
contingent upon continued employment and meeting certain performance goals, to
designated senior officers who make substantial contributions to the Company.
II. DEFINITIONS
"Bonus Award" means the annual incentive compensation award, as determined by
the Committee, to be granted to a Participant based on the level of attainment
of the annual performance goals set by the Committee.
"Bonus Deferral Election" means the irrevocable election by a Participant to
defer a portion of his or her Bonus Award to be applied to the purchase of
shares of restricted Common Stock pursuant to the Incentive Stock Purchase
Plan.
"Committee" means the committee selected by the Board of Directors of the
Company to administer the Plan, from among its members, of at least three
individuals, each of whom is (i) a "disinterested person" within the meaning of
Rule 16b-3 promulgated under the Exchange Act, and (ii) an "outside director"
within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"); provided, however, that after the date on which Rule
16b-3(c)(2)(i) of the Exchange Act has become effective with respect to the
Company, only two such individuals shall be required to serve on the Committee.
"Common Stock" means the common stock of the Company, par value $0.25 per
share.
"Company" means Loral Corporation.
"Designated Beneficiary" means the beneficiary or beneficiaries designated in
accordance with Article XIII hereof to receive the amount, if any, payable
under the Plan upon the Participant's death.
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"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Incentive Stock Purchase Plan" means the Company's 1994 Stock Option and
Incentive Stock Purchase Plan.
"Long-term Disability" means the inability of the Participant to substantially
perform his or her duties to the Company by reason of physical or mental
disability, as determined by the Committee in its reasonable discretion.
"Participant" means any senior officer of the Company who has received written
notice from the Committee of his or her designation as a Participant.
"Plan" means the Loral Corporation Incentive Compensation Plan for Senior
Executives.
III. ELIGIBILITY
Participants in the Plan for any fiscal year shall be selected by the Committee
from among those Company executives whose efforts contribute materially to its
annual success. No employee shall be a Participant unless he or she is
selected by the Committee and receives written notice of such selection. No
employee shall at any time have the right to be selected as a Participant, nor,
having been selected as a Participant for one year, to be selected as a
Participant in any other year.
IV. ADMINISTRATION
Except as otherwise herein expressly provided, full power and authority to
construe, interpret, and administer the Plan shall be vested in the Committee,
including the power to amend or terminate the Plan. The Committee may at any
time adopt such rules, regulations, policies, or practices as, in its sole
discretion, it shall determine to be necessary or appropriate for the
administration of, or the performance of its respective responsibilities under,
the Plan. The Committee may at any time amend, modify, suspend, or terminate
such rules, regulations, policies, or practices.
Without limitation on the powers set forth in the preceding paragraph, the
Committee shall determine eligibility for participation, establish such
performance goals for each Participant as the Committee deems appropriate, fix
the amount of bonus that will be paid if the performance goals are attained,
calculate and determine each Participant's level of attainment of such goals,
and calculate the Bonus Award to be paid to each Participant. The Committee
shall also determine the time at which Bonus Awards will be paid, any
restrictions on payment and the portion of such Bonus Awards which may be
deferred and
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applied to the purchase of restricted Common Stock in accordance with the
provisions of the Incentive Stock Purchase Plan.
V. BONUS AWARDS
Not later than 90 days after the commencement of a fiscal year for which a
Bonus Award may be made, the Committee shall select and notify eligible
officers of their selection as Participants in the Plan and shall establish
such maximum potential Bonus Award, the maximum amount that can be deferred by
any Participant pursuant to a Bonus Deferral Election and the objective goals
relating to corporate performance (including, but not limited to, improvements
in revenues, earnings per share, profit before or after taxes, net income or
operating income, return on or growth in shareholders' equity, return on net
assets, capital or investment, stock price performance, attainment of expense
reduction levels, and implementation or completion of critical projects) as for
each Participant the Committee deems appropriate. The Committee shall
communicate such maximum Bonus Award and goals to each Participant in writing.
The goals established by the Committee may be different each year and different
goals may be set for different participants.
Bonus Awards will be earned by each Participant based upon the level of
attainment of his or her goals during the calendar year. No Bonus Award will
be paid under the Plan unless such goals are attained. The attainment of
performance goals does not assure a Participant of any level of Bonus Award,
which Award shall remain fully in the discretion of the Committee unless
otherwise agreed in a written agreement with the Participant. As soon as
practicable after the end of the fiscal year to which a Bonus Award relates and
prior to the payment of any such award, the Committee shall certify, in
writing, as to whether the performance goals and any other material conditions
of the Bonus Award were in fact satisfied and shall determine in its discretion
the amount of Bonus Award to be paid to each Participant.
Notwithstanding any other provision of the Plan, the maximum Bonus Award that
may be paid to any Participant for any one fiscal year shall not exceed $9.0
million, including the fair market value of any Common Stock awarded under the
incentive stock purchase provisions of the Incentive Stock Purchase Plan. Such
maximum limit shall be adjusted annually, commencing as of July 1, 1995 and as
of July 1 of each year thereafter, by a percentage equal to the percentage
change from the beginning until the end of the Company's immediately preceding
fiscal year in the Annual Average All Items Index of the U.S. City Average
Consumer Price Index for All Urban Consumers (CPI-U) as published by the U.S.
Bureau of Labor Statistics, or any successor index that may at the time have
replaced such Index.
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All amounts due under the Plan shall be paid in cash and no shares of Common
Stock will be issued under the Plan. To the extent that a Participant makes a
valid Bonus Deferral Election, the Participant's rights to any Common Stock
which is thereafter issued to the Participant under the Incentive Stock
Purchase Plan shall be governed exclusively by the terms and conditions of such
Plan.
VI. DEFERRAL OF BONUS AWARD
No later than 90 days after commencement of any fiscal year, any Participant
for that fiscal year may make a Bonus Deferral Election for such year in an
amount not to exceed the maximum amount set by the Committee for such fiscal
year. Such election must be made in writing on a deferral election form
supplied by the Committee. Notwithstanding the Participant's Bonus Deferral
Election, the Committee may, at any time after the date such election has been
filed, up until the last day of the month preceding the month when undeferred
Bonus Awards would normally be paid, reduce the maximum percentage, or
establish a maximum dollar limit, of a Participant's Bonus Award that may
permissibly be deferred for such year.
VII. PAYMENT OF BONUS AWARDS
The portion of any Bonus Award earned for any fiscal year which is not subject
to a valid Bonus Deferral Election shall be paid in cash as soon as practicable
after the end of such fiscal year. On the date that a Bonus Award is to be
paid to any Participant, if a valid Bonus Deferral Election was made, the
amount deferred shall be withheld and the obligation to pay amounts so withheld
(net of any applicable withholding taxes) shall be recorded in an unfunded
restricted stock purchase account for application to the purchase of restricted
Common Stock upon satisfaction of applicable vesting conditions established
under the Incentive Stock Purchase Plan.
Upon the occurrence of each vesting event under the Incentive Stock Purchase
Plan, a pro rata portion of the amount set aside in the unfunded restricted
stock purchase account which relates to the Common Stock as to which vesting
conditions have been satisfied shall be applied to the purchase of such stock
without further action on the part of the Participant, and the Company shall
have no further obligation to the Participant with respect to the amount so
applied. To the extent that shares of restricted Common Stock are forfeited in
accordance with the provisions of the Incentive Stock Purchase Plan (the
"Forfeited Shares"), the Participant shall be entitled to a cash payment equal
to the lesser of (i) the pro rata portion of the amount set aside in the
unfunded restricted stock purchase account which relates to the Forfeited
Shares, in cash, without interest or other earnings equivalent, or (ii) the
fair market value of the
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Forfeited Shares on the date of the event which gave rise to the forfeiture, as
determined in accordance with the provisions of the Incentive Stock Purchase
Plan, in either case, net of applicable withholding for taxes. Except as
described in Article VIII below, in order to be eligible for payment of any
Bonus Award for any fiscal year, a Participant must be actively employed by the
Company at the end of such fiscal year.
VIII. TERMINATION OF EMPLOYMENT
In the event of a Participant's termination of employment with the Company for
any reason before the end of any fiscal year for which a Bonus Award would
otherwise be paid, any Bonus Award previously made for such Participant shall
lapse, unless otherwise provided in the Participant's written employment
agreement, or unless the Committee specifically determines that such amounts
are to be paid.
IX. REORGANIZATION OR DISCONTINUANCE
The obligations of the Company under the Plan shall be binding upon any
successor corporation or organization resulting from merger, consolidation or
other reorganization of the Company, or upon any successor corporation or
organization succeeding to substantially all of the assets and business of the
Company. The Company will make appropriate provision for the preservation of
Participants' rights under the Plan in any agreement or plan which it may enter
into or adopt to effect any such merger, consolidation, reorganization or
transfer of assets.
If the business conducted by the Company shall be discontinued, any previously
earned and unpaid Bonus Awards under the Plan shall become immediately payable
to the Participants then entitled thereto.
X. NON-ALIENATION OF BENEFITS
A Participant may not assign, sell, encumber, transfer or otherwise dispose of
any rights or interests under the Plan except by will or the laws of descent
and distribution. Any attempted disposition in contravention of the preceding
sentence shall be null and void.
XI. NO CLAIM OF RIGHT UNDER THE PLAN
No employee or other person shall have any claim or right to be selected as a
Participant under the Plan. Neither the Plan nor any action taken pursuant to
the Plan shall be construed as giving any employee any right to be retained in
the employ of the Company.
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XII. TAXES
The Company shall deduct from all Bonus Awards paid under the Plan all federal,
state, local and other taxes required by law to be withheld with respect to
such payments. At such time as shares of restricted Common Stock vest under
the provisions of the Incentive Stock Purchase Plan, the Company's tax
withholding obligations with respect to amounts credited to a restricted stock
purchase account shall, unless the Committee under the Incentive Stock Purchase
Plan makes other arrangements to satisfy such withholding, be satisfied by the
withholding by such Committee of shares of restricted Common Stock deposited
with the Company pursuant to such plan having a fair market value on the
vesting date equal to the aggregate amount of taxes required to be withheld.
All amounts paid upon settlement of a Participant's restricted stock purchase
account due to the forfeiture of shares of restricted Common Stock under the
Incentive Stock Purchase Plan shall also be net of applicable withholding for
taxes.
XIII. DESIGNATION AND CHANGE OF BENEFICIARY
Each Participant shall designate at the time of his or her selection as a
Participant one or more persons as the Designated Beneficiary who shall be
entitled to receive the amount, if any, payable under the Plan upon the death
of the Participant. Such designation shall be in writing to the Committee. A
Participant may, from time to time, revoke or change his or her Designated
Beneficiary without the consent of any prior Designated Beneficiary by filing a
written designation with the Committee. The last such designation received by
the Committee shall be controlling; provided, however, that no designation, or
change or revocation thereof, shall be effective unless received by the
Committee prior to the Participant's death, and in no event shall it be
effective as of a date prior to such receipt.
XIV. PAYMENTS TO PERSONS OTHER THAN THE PARTICIPANT
If the Committee shall find that any person to whom any amount is payable under
the Plan is unable to care for his or her affairs because of illness or
accident, or is a minor, or has died, then any payment due to such person or
his or her estate (unless a prior claim therefor has been made by a duly
appointed legal representative) may, if the Committee so directs, be paid to
his or her spouse, a child, a relative, an institution maintaining or having
custody of such person, or any other person deemed by the Committee, in its
sole discretion, to be a proper recipient on behalf of such person otherwise
entitled to payment. Any such payment shall be a complete discharge of the
liability of the Company therefor.
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XV. NO LIABILITY OF COMMITTEE MEMBERS
No member of the Committee shall be personally liable by reason of any contract
or other instrument related to the Plan executed by such member or on his or
her behalf in his or her capacity as a member of the Committee, nor for any
mistake of judgment made in good faith, and the Company shall indemnify and
hold harmless each employee, officer, or director of the Company to whom any
duty or power relating to the administration or interpretation of the Plan may
be allocated or delegated, against any cost or expense (including legal fees)
or liability (including any sum paid in settlement of a claim with the approval
of the Board of Directors) arising out of any act or omission to act in
connection with the Plan unless arising out of such person's own fraud or bad
faith.
XVI. TERMINATION OR AMENDMENT OF THE BONUS PLAN
Except as otherwise provided in this Article XVI, the Committee may amend,
suspend or terminate the Plan at any time without approval of the Company's
shareholders. No amendment to the Plan shall be effective if it would require
shareholder approval for Bonus Awards made under the Plan, as amended, to
continue to meet the requirements for "performance-based compensation" under
the provisions of Section 162(m)(3)(C) of the Code, unless such approval is
obtained. No amendment shall be effective with respect to a Participant to
whom a Bonus Award has been made if it would adversely affect his rights
thereunder, without his express written consent. No Bonus Award may be paid
under the Plan with respect to any fiscal year of the Company commencing after
March 31, 1999 unless it would otherwise be deductible under Section 162(m) of
the Code.
XVII. UNFUNDED PLAN
Participants shall have no right, title, or interest whatsoever in or to any
investments which the Company may make to aid it in meeting its obligations
under the Plan. Nothing contained in the Plan, and no action taken pursuant to
its provisions, shall create or be construed to create a trust of any kind, or
a fiduciary relationship between the Company and any Participant, beneficiary,
legal representative or any other person. To the extent that any person
acquires a right to receive payments from the Company under the Plan, whether
with respect to a Bonus Award or with respect to a restricted stock purchase
account, such right shall be no greater than the right of an unsecured general
creditor of the Company. All payments to be made hereunder shall be paid from
the general funds of the Company and no special or separate fund shall be
established and no segregation of assets shall be made to assure payment of
such amounts except as expressly set forth in the Plan.
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The Plan is not intended to be subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). To the extent the Plan is
determined to be so subject, it is intended to constitute a "plan which is
unfunded and is maintained by the employer primarily for the purpose of
providing deferred compensation for a select group of management or highly
compensated employees," as such phrase is used in ERISA, and the terms of the
Plan shall be interpreted consistent with such intent.
XVIII. GOVERNING LAW
The terms of the Plan and all rights thereunder shall be governed by and
construed in accordance with the laws of the state of New York, without
reference to principles of conflict of laws.
XIX. EFFECTIVE DATE; SHAREHOLDER APPROVAL
The Plan is adopted subject to receiving approval at the 1994 annual meeting of
the Company's shareholders of a majority of the votes cast by holders of shares
of Common Stock entitled to vote thereon. If shareholder approval is not
received, the Plan shall not take effect and all Bonus Awards made by the
Committee pursuant to the Plan shall be void. If shareholder approval is
received, the effective date of the Plan shall be June 1, 1994. If shareholder
approval of the Incentive Stock Purchase Plan is not received, but shareholder
approval of the Plan is received, the provisions of the Plan relating to Bonus
Deferral Elections shall not be implemented but the Plan shall otherwise
continue in full force and effect.
ADOPTED SUBJECT TO STOCKHOLDER
APPROVAL BY ACTION OF THE
COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS ON JUNE 23, 1994
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