<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
R.P. SCHERER CORPORATION
(Name of Registrant as specified in its charter)
N/A
(Name of person(s) filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
of Schedule 14A.
/ / $500 per each party to the controvery 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 scurities to which transaction applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount previously paid:
2) Form, Schedule, or Registration Statement No.:
3) Filing party:
4) Date filed:
<PAGE> 2
R.P. SCHERER CORPORATION
2075 West Big Beaver Road
P.O. Box 7060
Troy, MI 48007-7060
July 28, 1995
Dear Shareholder:
Your Board of Directors joins me in extending to you a cordial invitation
to attend the 1995 Annual Meeting of Stockholders which will be held on
September 12, 1995 at The Townsend Hotel, 100 Townsend Avenue, Birmingham,
Michigan. Please note that this year's meeting will start promptly at 1:00
p.m. local time.
We sincerely hope you will be able to attend and participate in the
meeting. We will report on the Company's continued progress, including the
status of our Advanced Therapeutic Products Group, and respond to questions
you may have about the Company's business. In addition, we will vote on the
matters included in the enclosed proxy statement.
Whether or not you plan to attend, it is important that your shares be
represented and voted at the meeting and, therefore, we urge you to
complete, sign, date and return the enclosed proxy card in the envelope
provided for this purpose.
Sincerely yours,
/s/ John P. Cashman
--------------------------
John P. Cashman
Chairman of the Board
<PAGE> 3
________________________________________________________
TO ASSURE YOUR REPRESENTATION AT THE MEETING,
PLEASE DATE AND SIGN THE ENCLOSED PROXY AND
RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
________________________________________________________
R.P. SCHERER CORPORATION
2075 WEST BIG BEAVER ROAD
P.O. BOX 7060
TROY, MICHIGAN 48007-7060
(810) 649-0900
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
September 12, 1995
The Annual Meeting of Stockholders of R.P. Scherer Corporation will be held
on September 12, 1995 at The Townsend Hotel, 100 Townsend Avenue,
Birmingham, Michigan, beginning at 1:00 p.m. local time for the following
purposes:
1. To elect directors of the Company to serve until the next Annual
Meeting and until their respective successors shall be elected and
shall qualify;
2. To ratify the appointment of Arthur Andersen LLP as independent
auditors of the Company for the fiscal year ending March 31, 1996;
3. To ratify an amendment to the 1992 Stock Option Plan for key
members of management of the Company; and
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on July 14, 1995 as
the record date for the determination of stockholders entitled to notice of
and to vote at the Annual Meeting or any adjournment thereof.
Whether or not you plan to be present at the meeting in person, please fill
in, date and sign the enclosed proxy and return it promptly in the
self-addressed envelope. It does not require postage if mailed in the
United States.
By Order of the Board of Directors,
Nicole S. Williams
Corporate Secretary
July 28, 1995
<PAGE> 4
R.P. SCHERER CORPORATION
2075 WEST BIG BEAVER ROAD
P. O. BOX 7060
TROY, MICHIGAN 48007-7060
(810) 649-0900
PROXY STATEMENT
The accompanying proxy is solicited on behalf of the Board of Directors
of R.P. Scherer Corporation (the "Company") for use at the Annual
Meeting of Stockholders to be held on September 12, 1995 at The
Townsend Hotel, 100 Townsend Avenue, Birmingham, Michigan, beginning at
1:00 p.m. local time. It is expected that this Proxy Statement and the
accompanying proxy will be mailed commencing August 7, 1995 to each
stockholder entitled to vote.
Proxies delivered pursuant to this solicitation are revocable at the
option of the persons executing the same, prior to their exercise, by
attendance and voting at the Annual Meeting or by written notice
delivered to the Corporate Secretary of the Company prior to the
meeting. Unless previously revoked, all proxies representing shares
entitled to vote which are delivered pursuant to this solicitation will
be voted at the meeting by the named attorneys-in-fact and agents, to
the extent authorized, in accordance with the directions contained
therein. If no such directions are given, the shares represented by
such proxies will be voted in favor of the election of directors, the
ratification of the appointment of auditors, the ratification of an
amendment to the 1992 Stock Option Plan, and in accordance with the
discretion of the named attorneys-in-fact and agents on any other
matters that may properly come before the meeting.
On July 14, 1995, the record date for the determination of stockholders
entitled to notice of and to vote at the Annual Meeting, the Company
had outstanding 23,328,570 shares of common stock (the "Common Stock"),
and there were no outstanding shares of any other class of stock. Each
holder of the Common Stock is entitled to one vote for each share of
such stock held by him. A majority of the outstanding shares, whether
present in person or by proxy, is required to constitute a quorum to
transact business at the meeting.
1
<PAGE> 5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND
MANAGEMENT
The following table sets forth information as of June 30, 1995,
regarding the beneficial ownership of Common Stock of the Company by
principal holders, by each director of the Company beneficially owning
Common Stock and by all officers and directors of the Company as a
group.
<TABLE>
<CAPTION>
NUMBER OF COMMON
NAME AND ADDRESS SHARES PERCENT
---------------- ------ -------
<S> <C> <C>
Janus Capital Corporation (1)
100 Fillmore Street, Suite 300
Denver, Colorado 80206 3,099,090 13.3%
Provident Investment Counsel(2)
300 North Lake Avenue, Suite 1001
Pasadena, CA 91101 1,754,700 7.5%
The Equitable Companies (3)
787 Seventh Avenue
New York, NY 10019 1,332,900 5.7%
John P. Cashman 618,651 2.6%
Aleksandar Erdeljan 689,651 2.9%
Nicole S. Williams 34,306 -
Thomas J. Stuart 17,843 -
Louis Lasagna 12,000 -
Robert H. Rock 12,000 -
R.P. Scherer Corporation(4)
2075 West Big Beaver Road
Troy, Michigan 48084
All officers and directors as a group(4) 1,384,451 5.6%
================================================================================================
</TABLE>
(1) As reported in Amendment No. 1 to Schedule 13G filed with the Securities
and Exchange Commission (the "SEC") by Janus Capital Corporation ("Janus"),
Janus, Janus Venture Fund ("JVF"), and Thomas H. Bailey ("Bailey" -
shareholder of Janus, who, through stock ownership thereof, is deemed to
exercise control over Janus), exercised as of December 31, 1994, voting and
dispositive power with respect to 3,099,090 shares, 1,431,900 shares, and
3,099,090 shares, respectively. Janus and Bailey have advised that with
respect to such shares, other investment companies registered with the SEC
(including JVF) have the right to receive any dividends from, or the
proceeds from the sale of, these securities, and that Janus and Bailey
disclaim beneficial interest in such shares.
(2) As reported in Amendment No. 2 to Schedule 13G filed with the SEC by
Provident Investment Counsel ("Provident"), Provident and Robert M.
Kommerstad ("Kommerstad" - shareholder of Provident, who, through stock
ownership thereof, is deemed to exercise control over Provident), exercised
as of December 31, 1994, voting and dispositive power with respect to
1,331,750 shares, and dispositive power only with respect to 422,950
shares.
(3) As reported in Amendment No. 1 to Schedule 13G filed with the SEC, these
shares are owned jointly on behalf of AXA Assurances I.A.R.D. Mutuelle, AXA
Assurances Vie Mutuelle, Alpha Assurances I.A.R.D. Mutuelle, Alpha
Assurances Vie Mutuelle, and Uni Europe Assurance Mutuelle, as a group, as
well as AXA (cumulatively, "Mutuelles AXA"), The Equitable Companies
Incorporated ("Equitable"), and Alliance Capital Management L.P.
("Alliance"). The Mutuelles AXA exercised as of December 31, 1994, voting
and dispositive power over 150,000 shares, and Alliance exercised voting
power over 868,700 shares and dispositive power over 1,182,900 shares as of
that date.
(4) Each of the named individuals has (or will have upon the exercise of
options exercisable within sixty days) voting and investment power with
respect to all shares shown as beneficially owned by such person. The
shareholdings listed include shares subject to options granted pursuant to
the Company's stock plans exercisable within sixty days held as of June 30,
1995, as follows: Mr. Cashman - 572,509 shares; Mr. Erdeljan - 572,509
shares; Ms. Williams - 34,306 shares; Mr. Stuart - 17,743 shares; Mr.
Lasagna - 12,000 shares; and Mr. Rock - 12,000 shares.
2
<PAGE> 6
DIRECTORS
Set forth below are the name, age and employment history, including all
positions held concurrently or successively in the past five years, of each
of the Company's directors.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OF EMPLOYMENT
NAME AGE AND FIVE-YEAR EMPLOYMENT HISTORY
---- --- ------------------------------------------
<S> <C> <C>
John P. Cashman 54 Chairman of the Company since August 1991 and Director of the Company since June
1990. Chairman and Director of R.P. Scherer International Corporation from 1989 to
February 1995. Chairman and President of Cashman Group Inc. since 1986.
Chairman of Pharmaphil Group, Inc. from January 1987 to June 1989. President of
Manville International and Mining Group and Senior Vice President and Officer of
Manville Corporation from 1984 to 1986.
Aleksandar Erdeljan 45 President of the Company since August 1991 and Director of the Company since June
1990. President and Director of R.P. Scherer International Corporation from 1989 to
February 1995. President of Pharmaphil Group, Inc. from January 1987 to June 1989.
Director of Corporate Development of the Company from June 1985 to January 1987.
Lori G. Koffman 36 Director of the Company since September 1989, and of R.P. Scherer International
from September 1989 through February 1995. Assistant Secretary of the Company
since December 1989. Director, CIBC Wood Gundy Capital since April 1995. Senior
Vice President, Lehman Brothers Inc. ("Lehman") from 1990 to December 1994.
Vice President, Lehman from 1987 to 1990.
Frederick Frank 63 Director of the Company since June 1990, and of R.P. Scherer International
Corporation from August 1988 through February 1995. Senior Managing Director of
Lehman. Also a director of Applied Bioscience International, Inc. and Physicians
Computer Network.
James A. Stern 44 Director of the Company since June 1990, and of R.P. Scherer International
Corporation from June 1990 through February 1995. Chairman of The Cypress
Group, a private merchant bank, since April 1994. Managing Director of Lehman
and head of its Merchant Banking Group from 1989 to 1994. Also a director of Noel
Group, Inc., K & F Industries Inc., Lear Seating Corporation, American Marketing
Industries Holdings Inc. and Infinity Broadcasting Corporation.
Louis Lasagna, M.D 71 Director of the Company since September 1991, and of R.P. Scherer International
Corporation from June 1992 through February 1995. Dean for Scientific Affairs,
Tufts University School of Medicine, since 1995. Dean, Sackler School of Graduate
Biomedical Sciences, Tufts University; Professor of Psychiatry and Professor of
Pharmacology, Tufts University, in each case since 1984. Independent consultant
since 1965. Director of Tufts University Center for the Study of Drug Development
since 1975. Chairman of the Board of the United States branch of Astra
Pharmaceutical Products, Inc. Member of the Board of Trustees of International Life
Sciences Institute/Nutrition Foundation since 1980 and Chairman since 1991.
Director of the Foundation for Nutritional Advancement since 1980.
Robert H. Rock 44 Director of the Company since September 1991, and of R.P. Scherer International
Corporation from June 1992 through February 1995. Chairman of Metroweek
Corporation since December 1988. President of MLR Enterprises since October
1987. Chairman and Chief Executive Officer of the Hay Group from October 1986
to October 1987. Also a director of Hunt Manufacturing Company and the Wistar
Institute.
</TABLE>
3
<PAGE> 7
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OF EMPLOYMENT
NAME AGE AND FIVE-YEAR EMPLOYMENT HISTORY
---- --- --------------------------------
<S> <C> <C>
John E. Avery 66 Director of the Company since January 1995. Chairman of the Americas Society and
Council of the Americas since 1993, and Director since 1991. Assistant to the
Chairman of Johnson & Johnson from 1992 to 1993. Company Group Chairman,
Johnson & Johnson, from 1979 to 1992. Also a director of the Argentine-American
Chamber of Commerce. Member of the Dean's Council at the Yale University
School of Medicine, the Advisory Board of the Yale School of Organization and
Management, the Board of Governors of the Foreign Policy Association, and the
Council on Foreign Relations.
</TABLE>
BOARD MEETINGS AND COMMITTEES
The Board of Directors met four times during the Company's fiscal year ended
March 31, 1995. No member of the Board attended fewer than 75% of the aggregate
number of meetings of the Board and the committees on which he or she served
during the period. The Board of Directors has three standing committees: an
Audit Committee, an Executive Committee and a Compensation Committee.
The Audit Committee consists of Directors John E. Avery (Chairman), Louis
Lasagna, James A. Stern and Robert H. Rock. The principal functions of the
Audit Committee are to (i) review the scope and services of the Company's
independent auditors, (ii) review the Company's internal control policies and
procedures, (iii) make recommendations to the full Board concerning the
selection of auditors and the scope of their audit services, (iv) annually
review the Company's audited financial statements and the qualifications and
fees of the independent auditors of the Company, and (v) perform such other
functions from time to time as requested by the full Board. The Audit Committee
met three times during the 1995 fiscal year.
The Executive Committee consists of Directors John P. Cashman, Aleksandar
Erdeljan, and James A. Stern (Chairman). The Committee exercises all of the
powers of the Board of Directors, except as limited by Delaware Law or by the
Company's By-Laws, in the management of the business and the affairs of the
Company during intervals between meetings of the Board of Directors. The
Executive Committee did not meet during the 1995 fiscal year.
The Compensation Committee consists of Directors Frederick Frank, Robert H.
Rock (Chairman) and James A. Stern. The Compensation Committee, subject to
final approval of the full Board, reviews and approves salaries and other
benefits of officers and employees and administers the Incentive Compensation
Plan, the 1992 Stock Option Plan and the Company's other compensation plans for
officers and key employees. The Compensation Committee met five times during
the 1995 fiscal year.
COMPENSATION OF OUTSIDE DIRECTORS
Directors who are not officers or employees of the Company or any of its
subsidiaries ("Outside Directors") are currently paid an annual retainer of
$18,000 and $1,000 for each Board meeting attended, and an additional annual
retainer of $3,000 for serving as chairman of any committee of the Board of
Directors. In addition, pursuant to separate option agreements, each Outside
Director is initially granted options to purchase 12,000 shares of Common Stock
at a price which reflects the market value at the time of grant; such options
become exercisable three years from the date of grant, and expire seven years
after the date of vesting.
4
<PAGE> 8
EXECUTIVE COMPENSATION, RETIREMENT PLANS AND OTHER TRANSACTIONS
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's Compensation Committee (the "Committee") is comprised of three
non-employee directors: Robert H. Rock, James A. Stern and Frederick Frank. The
Committee makes recommendations to the Board of Directors concerning the
remuneration plans for senior management. In addition, the Committee exercises
administrative powers with respect to the Company's remuneration plans,
including incentive compensation, stock option and retirement benefit plans.
During fiscal 1995, the Board of Directors has neither rejected nor modified
any recommendation made by the Committee.
Compensation Philosophy
Compensation for executive officers of the Company is designed to:
1. Reinforce the attainment of annual performance goals while also
encouraging a long-term perspective toward sustained profitable growth
by providing for a substantial portion of executive officers' total
compensation to be based upon the increase in economic value of the
Company.
2. Align the interests of executive officers with those of the
shareholders through programs that provide a portion of annual
compensation in options to purchase Common Stock of the Company, thus
allowing for the accumulation of an equity interest in the Company and
linking compensation with increased stock value.
3. Enable the Company to attract and retain capable management by
providing a competitive total compensation opportunity.
Compensation Vehicles
The primary components of executive compensation are an annual salary, an
incentive compensation plan for certain executives, and a stock option plan.
Annual Salary
Executives officers are provided with an annual salary which is intended to
fall within the median to 75th percentile of base compensation for equivalent
positions with industrial employers with revenues in a range comparable to
those of the Company. Annual salaries for all executives are monitored and
compensation guidelines are adjusted annually as of June 1st on the basis of
comparison to compensation surveys, changes in responsibilities of the
executive and other information. If compensation levels are deemed
appropriate, then an increase reflecting the current annual inflation rate is
made. The increase to adjust for inflation as of June 1, 1995 was 3.8%.
5
<PAGE> 9
Incentive Compensation Plan
The R.P. Scherer Corporation Management Incentive Compensation Plan
("Incentive Compensation Plan"), which was ratified by the shareholders
in fiscal 1993, has as its purpose to provide certain management
employees other than the Chairman and President an annual incentive
specifically related to increases in economic value of the Company.
Under the Incentive Compensation Plan, incentive compensation is
directly linked to return generated through the employment of capital.
This return, which is defined as "Economic Value Added" ("EVA"), is
measured individually for each of the Company's major business
divisions, as well as for the Company on a consolidated basis. EVA
equals the operating profit generated less taxes and the cost of
capital (based upon net operating assets) employed to generate such
profit. The Incentive Compensation Plan rewards executives for
increases in EVA and penalizes such executives for any decreases in
EVA.
For fiscal 1995, the EVA award, based on the EVA objectives as approved
by the Board of Directors, was designed to provide an incentive award
equivalent to 40% of salary for the participants in the Incentive
Compensation Plan. Actual improvement in EVA for fiscal 1995 resulted
in a consolidated EVA award of 71.2% as compared with the target award
of 40% of salary. A portion of this award must be used to purchase
stock options, as described below, and the remainder is paid as a cash
bonus. This increased award resulted from a consolidated EVA increase
of $11 million, which was approximately $6 million higher than the EVA
increase which would have provided a 40% award. The average cash bonus
earned under the Incentive Compensation Plan in fiscal 1995 by
executive officers (other than the co-CEO's) which appear in the
summary compensation table was 39% of total cash compensation as
compared with 35% in fiscal 1994. This situation reflects continued
improvement in financial results and satisfies the Committee's desire
that a significant portion of total cash compensation be tied to the
financial performance of the Company.
In addition to the EVA-based award, the Committee may, at the
recommendation of the Chairman and President, grant to each participant
a discretionary cash award, which is a function of their performance
against qualitative objectives.
1992 Stock Option Plan
The Stock Option Plan of R.P. Scherer Corporation and Subsidiaries
("1992 Stock Option Plan"), which was ratified by the shareholders in
fiscal 1993, is designed to provide executives stock options as an
additional incentive to maximize shareholder value through improved
Company financial performance. Under the 1992 Stock Option Plan, 25% of
the EVA award earned by participants through the Incentive Compensation
Plan is applied each year to purchase options for shares of Common
Stock at a cost per share option as determined under the provisions of
the 1992 Stock Option Plan. Options purchased in any given year are not
a function of prior holdings. The exercise price of such purchased
option is the beginning of year average stock price net of the purchase
cost, increased by a 10% annual rate compounded over five years. Hence,
the market value of the Company's Common Stock must increase at a
correspondingly higher rate before such options become in-the-money.
For each purchased share option, the participants in the 1992 Stock
Option Plan receive a granted option to purchase an additional share of
Common Stock which is exercisable at an average stock price for the
beginning of the year. Options may be exercised in whole or in part,
but may only be exercised for an equal number of shares issuable upon
the exercise of purchased options and granted options. The granted
options provide an added incentive for participants to achieve results
which enhance shareholder value.
6
<PAGE> 10
CEO Compensation
The compensation structure for Messrs. Cashman and Erdeljan (who are
co-chief executive officers) was established prior to the initial
public offering of Common Stock in October 1991. Messrs. Cashman's and
Erdeljan's total compensation levels have been dependent upon the
economic value of the Company; an increase or a decrease in the
economic value of the Company is reflected in an increase or decrease
in Messrs. Cashman's and Erdeljan's total compensation. In conjunction
with such performance goals, the Committee has reviewed the total
compensation of Messrs. Cashman and Erdeljan in relation to the
compensation levels of chief executive officers of both the "peer group
companies" set forth below under Performance Graph and other industrial
companies with revenues comparable to those of the Company to ensure
their total compensation is within the range of total compensation paid
to these other chief executive officers. The increase of 7% reflected
in cash compensation for fiscal 1995 reflects the continuing
improvement in economic value achieved by the Company.
For the Chairman and President, a portion of the increase in annual
salary for the coming year related to the improvement in the current
year's consolidated economic value is to be used to purchase stock
options as established by the Committee. Of the increase in salary for
fiscal 1995, the Committee has required that a substantial portion of
that increase be used to purchase stock options, as reflected in the
table Option Grants for Fiscal Year 1995. This determination is based
on the Committee's desire to increase as much as possible the
executive's long-term investment in the Company, while maintaining the
annual cash compensation in line with that of chief executives of peers
and other similar-sized companies.
Performance Graph
The graph set forth below compares the cumulative total shareholder
return on the Company's Common Stock for the period commencing October
11, 1991 (the date of the initial public offering of the Common Stock)
with the Standard and Poor's 500 Index and peer group companies.
The following self-selected group of peer companies represents
companies against whom the Company competes and against whose
performance the Company is often compared by financial analysts: Alza
Corporation, IVAX Corporation, Forest Laboratories, Inc., Elan
Corporation, plc, and The West Company (the "Peer Group"). The Peer
Group data has been weighted according to the respective company's
stock market capitalization.
Since the initial public offering in October 1991, the market value of
the Company's Common Stock has nearly tripled through the end of fiscal
1995, outperforming both the S&P 500 Index and the Company's Peer
Group. For fiscal 1995, total market return on the Company's common
stock was 37%, while chief executive cash compensation increased 7%.
The Committee believes that the Company's compensation policies are
providing appropriate increases in CEO compensation as evidenced by the
increased returns being realized by the Company's shareholders.
7
<PAGE> 11
COMPARISION OF 42 MONTH CUMULATIVE TOTAL RETURN
Amoung R.P. Scherer Corporation, The S&P 500 Index and a Peer Group
<TABLE>
<CAPTION>
10/91 12/91 3/92 6/92 9/92 12/92 3/93
<S> <C> <C> <C> <C> <C> <C> <C>
R.P. Scherer Corporation $100 $168 $153 $130 $166 $211 $149
Peer Group $100 $144 $125 $119 $116 $133 $108
S&P 500 $100 $110 $107 $109 $113 $118 $124
<CAPTION>
6/93 9/93 12/93 3/94 6/94 9/94 12/94 3/95
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R.P. Scherer Corporation $155 $182 $207 $201 $181 $228 $249 $275
Peer Group $103 $ 98 $120 $102 $ 93 $ 99 $ 93 $105
S&P 500 $124 $127 $130 $125 $126 $132 $132 $145
</TABLE>
Note: Represents $100 invested on October 11, 1991 in the Company's and its
Peer Group's common stock and on September 30, 1991 in the Standard &
Poor's Index. Total return assumes reinvestment of dividends.
THE COMPENSATION COMMITTEE
Frederick Frank
Robert H. Rock
James A. Stern
8
<PAGE> 12
SUMMARY COMPENSATION TABLE FOR FISCAL YEAR 1995
The following table sets forth information concerning all cash
compensation paid by the Company for services rendered in all
capacities during the three most recent fiscal years ended March
31, to each of its five most highly compensated corporate
executive officers. For fiscal 1995, such information reflects
the effects of the amendment to the 1992 Stock Option Plan, as
described in Matters to be Voted Upon - Ratification of Second
Amendment to the 1992 Stock Option Plan.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
---------------------------- -------------------------------------
AWARDS (#) Payouts
------------------------- -------
Securities
Name and Fiscal Restricted Underlying All Other
Principal Position Year Salary Bonus Other Stock Options LTIP Compensation
- ------------------------------- ------ -------- -------- ------ ---------- ------------ ------ -------------
(1) (2) (2) (2) (2, 3)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John P. Cashman 1995 $625,697 -- 77,702 $ 9,951
Chairman and Co-Chief 1994 582,584 -- 82,458 9,736
Executive Officer 1993 505,625 -- 71,162 10,123
Aleksandar Erdeljan 1995 625,697 -- 77,702 --
President and Co-Chief 1994 582,584 -- 82,458 --
Executive Officer 1993 505,625 -- 71,162 --
Nicole S. Williams 1995 212,487 $135,437 36,562 --
Executive Vice President, 1994 205,667 109,397 21,390 --
Finance, Chief Financial 1993 195,833 94,250 18,066 --
Officer, Treasurer, Secretary
Thomas J. Stuart 1995 125,625 81,152 21,908 --
Vice President and 1994 113,125 60,174 11,766 --
Controller 1993 108,333 51,840 9,936 --
Dennis R. McGregor (4) 1995 101,833 64,795 17,492 --
Assistant Treasurer and 1994 64,423 35,267 6,896 --
Director of Tax Operations 1993 N/A N/A N/A N/A
===================================================================================================================================
</TABLE>
(1) Messrs. Cashman and Erdeljan are not participants in the
Company's bonus program.
(2) The Company does not have restricted stock award plans, long
term incentive plans ("LTIPs") or stock appreciation rights
("SARs"). Other annual compensation is below the level where
disclosure would be required.
(3) Represents contributions on behalf of Mr. Cashman to a defined
contribution retirement plan. See Executive Compensation
Pursuant to Plans - Employment Agreements. Such contributions
are in lieu of Mr. Cashman's participation in the Company's
defined benefit pension plan.
(4) Mr. McGregor began employment with the Company in August, 1993.
9
<PAGE> 13
OPTION GRANTS FOR FISCAL YEAR 1995
The following table provides information on option grants for the
Company's common stock in fiscal year 1995 to the named executive
officers. Such information reflects the effects of the amendment to the
1992 Stock Option Plan, as described in Matters to be Voted Upon -
Ratification of Second Amendment to the 1992 Stock Option Plan.
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rate
of Stock Price Appreciation
Individual Grants for Option Term
----------------------------------------------------- ---------------------------
Securities % of Total Exercise
Underlying Option or Base
Options Grants for Price Expiration
Name Granted (#) the Year ($/Share) Date 5%($) 10% ($)
- ----------------------------- ----------- ---------- --------- ------------- ---------- ----------
(1) (2) (2)
<S> <C> <C> <C> <C> <C> <C>
John P. Cashman:
Purchased Portion 38,851 8.02% $ 57.05 June 16, 2002 $ 332,176 $1,313,552
Granted Portion 38,851 8.02% 37.51 June 16, 2002 1,091,325 2,072,701
Aleksandar Erdeljan:
Purchased Portion 38,851 8.02% 57.05 June 16, 2002 332,176 1,313,552
Granted Portion 38,851 8.02% 37.51 June 16, 2002 1,091,325 2,072,701
Nicole S. Williams:
Purchased Portion 18,281 3.77% 57.05 June 16, 2002 156,303 618,081
Granted Portion 18,281 3.77% 37.51 June 16, 2002 513,513 975,291
Thomas J. Stuart:
Purchased Portion 10,954 2.26% 57.05 June 16, 2002 93,657 370,355
Granted Portion 10,954 2.26% 37.51 June 16, 2002 307,698 584,396
Dennis R. McGregor:
Purchased Portion 8,746 1.81% 57.05 June 16, 2002 74,778 295,702
Granted Portion 8,746 1.81% 37.51 June 16, 2002 245,675 466,599
======================================================================================================================
</TABLE>
(1) The purchased option cost is set at a price in accordance
with the 1992 Stock Option Plan, as amended. The
purchased option exercise price is set at a beginning
average market price per share, net of the purchase cost,
increased by a 10% annual rate compounded over five years.
The granted option exercise price is set at the beginning
average market price per share. See Executive
Compensation Pursuant to Plans - Stock Option Plans.
Purchased and granted options both vest three years from
the date of grant. Options may only be exercised for an
equal number of purchased portion shares and granted
portion shares.
(2) Based upon market value of $46.63 per share at date of
grant.
10
<PAGE> 14
OPTION EXERCISES IN FISCAL YEAR 1995 AND
FISCAL YEAR END OPTION VALUE
The following table provides information on option exercises in fiscal
year 1995 by the named executive officers and the value of such
officers' options at March 31, 1995. Such information includes the
effects of the amendment to the 1992 Stock Option Plan, as described in
Matters to be Voted Upon - Ratification of Second Amendment to the 1992
Stock Option Plan.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Options at Fiscal Year End Fiscal Year End
-------------------------------------- -----------------------------------
Shares Acquired Value Not Not
Name on Exercise (#) Realized ($) Exercisable (#) Exercisable (#) Exercisable ($) Exercisable ($)
- -------------------- ------------------ ------------- ----------------- ------------------ ----------------- ----------------
(1) (2) (2)
<S> <C> <C> <C> <C> <C> <C>
John P. Cashman N/A N/A 572,509 231,322 $24,356,297 $ 2,772,446
Aleksandar Erdeljan N/A N/A 572,509 231,322 24,356,297 2,772,446
Nicole S. Williams N/A N/A 34,306 76,018 1,050,376 761,325
Thomas J. Stuart N/A N/A 17,743 43,610 525,274 424,091
Dennis R. McGregor N/A N/A -- 24,388 -- 164,977
=================================================================================================================================
</TABLE>
(1) A significant portion of the options now exercisable for
Messrs. Cashman and Erdeljan were granted in connection
with their interests in the leveraged buy-out of the
Company in June, 1989.
(2) Based upon market value of $50.25 per share at March 31, 1995.
EXECUTIVE COMPENSATION PURSUANT TO PLANS
The Company maintains certain compensation plans, programs and
arrangements for the Company's executive officers and key employees.
Set forth below is a brief description of each such plan, program or
arrangement under which compensation or other benefits were paid to
named executive officers during fiscal 1995 or are proposed to be paid
in the future. In addition, set forth below is a brief description of
termination of employment and change of control arrangements.
Employment Agreements
In June 1994, the Company entered into employment agreements with Mr.
Cashman, Mr. Erdeljan and Ms. Williams. The agreements each provide for
an initial term of employment of one year, automatically renewable
thereafter for successive one year periods, unless terminated by either
party to the agreement. The annual salary for both Mr. Cashman and Mr.
Erdeljan under the agreements was established at $632,286 as of June 1,
1994, and the annual salary of Ms. Williams at $213,625. The
Compensation Committee may adjust the salary of Mr. Cashman, Mr.
Erdeljan or Ms. Williams for subsequent years.
Mr. Cashman, Mr. Erdeljan, and Ms. Williams are entitled to participate
in stock option plans which have been adopted by the Company (as
described below) and in retirement and welfare benefit plans that are
in effect or which may be adopted by the Company. In addition, Ms.
Williams is eligible to participate in the Incentive Compensation Plan
described below. Mr. Cashman made an election to waive irrevocably his
participation in the R.P. Scherer Corporation Employees' Retirement
Income Plan (the "Retirement Income Plan" described below). In lieu of
participation in the Retirement Income Plan, the Company contributes
annually an amount to a defined contribution retirement plan on behalf
of Mr. Cashman, as set forth in the Summary Compensation Table for
Fiscal Year 1995 above.
11
<PAGE> 15
Pursuant to each of these employment agreements, if the Company
terminates the employment of Mr. Cashman, Mr. Erdeljan or Ms. Williams
without cause or if Mr. Cashman, Mr. Erdeljan or Ms. Williams terminate
for good reason (as set forth in each employment agreement) or if the
Company properly notifies Mr. Cashman, Mr. Erdeljan or Ms. Williams of
its intention to terminate their employment agreement on the
termination date of the term of employment then in effect, the Company
must pay the employee a monthly amount for twenty-four consecutive
months after termination equal to one-twelfth of the employee's annual
average salary for the prior twenty-four months, and also provide
welfare plan benefits for twenty-four months in accordance with plan
terms. The agreements further provide that in the event of physical or
mental disability of Mr. Cashman, Mr. Erdeljan or Ms. Williams (as set
forth in each employment agreement), the Company may terminate their
employment and shall be obligated for similar benefits; however, such
amount will be reduced by any amount received by Mr. Cashman, Mr.
Erdeljan, or Ms. Williams, as the case may be, in respect of his or her
disability from any employee benefit or disability plans maintained by
the Company.
Pursuant to their respective contracts, Mr. Cashman, Mr. Erdeljan and
Ms. Williams have agreed to keep confidential all proprietary
information relating to the Company's business obtained in the course
of employment, and have agreed not to compete with the Company for a
period of two years after termination of their respective employment.
Retirement Plans
Retirement Income Plan
The Retirement Income Plan, a noncontributory qualified pension plan,
provides for a defined benefit based on years of service and the
employee's highest consecutive five-year average annual compensation.
The Retirement Income Plan covers essentially all United States
employees of the Company not represented by a collective bargaining
agent for which a pension plan has been the subject of good faith
bargaining and who meet certain eligibility requirements.
Contributions to the Retirement Income Plan are made by the Company
based upon the Participants' annual salaries, plus all other forms of
cash compensation (including overtime, bonuses and commissions), and
certain actuarial assumptions with regard to funding. During fiscal
1995, the Company accrued aggregate contributions for the Retirement
Income Plan in an amount approximating 4.1% of such total compensation.
Supplemental Plan
In 1994, the limits on the amount of annual compensation that can
legally be taken into account for purposes of determining pension
benefits under the Retirement Income Plan were significantly reduced
(originally $150,000, now adjusted for inflation to $153,250 but
rounded to $150,000, as opposed to $235,840 which was in effect for
1993) will impact the pensions of key management employees. In order to
provide retirement benefits for key management employees based on
annual compensation limits in effect prior to 1994, increased
thereafter for cost of living, in 1994 the Company adopted the
Supplemental Benefit Plan for Key Employees of R.P. Scherer Corporation
(the "Supplemental Plan"), a nonqualified benefit plan. The
Supplemental Plan provides benefits to key management employees only as
designated by the Compensation Committee. Benefits under the
Supplemental Plan will be provided pursuant to the same terms as the
Retirement Income Plan, provided that the limit on compensation taken
into account to determine benefits under the Supplemental Plan will be
set at a base of approximately $242,000 in fiscal 1994, thereafter
adjusted by a percentage based on cost of living increases, not to
exceed 4% annually (the 1995 limit is $247,536). A key management
employee's Supplemental Plan benefits will not be subject to Internal
Revenue Code limits on annual additions applicable to qualified plans,
but are offset by benefits payable to that employee under the
Retirement Income Plan.
12
<PAGE> 16
Benefits Payable under the Plans
The following table shows annual pension benefits payable on a straight
life annuity basis, in various remuneration and years of service
classifications, to employees under the Retirement Income Plan and the
Supplemental Plan (jointly, the "Plans"), assuming retirement at age 65
in calendar 1995. Benefit amounts are not subject to reduction for
Social Security payments. Benefit amounts may be offset by payments
made under a prior plan of the Company or a plan sponsored by a foreign
subsidiary or affiliate.
<TABLE>
<CAPTION>
Annual Benefit for Years of Service Indicated
------------------------------------------------------------------------------
Highest Consecutive
Five Year Average Annual Ten Twenty Thirty Forty
Compensation Years Years Years Years
- --------------------------------- ---------------- ----------------- ------------------ --------------
<S> <C> <C> <C> <C>
$125,000 $17,400 $34,800 $ 52,200 $ 67,150
150,000 21,150 42,300 63,450 81,525
175,000 24,800 49,800 74,700 95,900
200,000 28,650 57,300 85,950 110,275
225,000 32,400 64,800 97,200 124,650
250,000 (1) 33,952 67,905 101,857 130,600
300,000 (1) 33,952 67,905 101,857 130,600
350,000 (1) 33,952 67,905 101,857 130,600
400,000 (1) 33,952 67,905 101,857 130,600
450,000 (1) 33,952 67,905 101,857 130,600
500,000 (1) 33,952 67,905 101,857 130,600
===================================================================================================================
</TABLE>
(1) The Retirement Income Plan as been amended effective January 1,
1994, as required by law, to limit compensation that may be taken
into account by such plan after 1993 to $150,000 annually, as will
be adjusted for cost-of-living increases. Accordingly, the
Supplemental Plan provides additional benefits based on annual
compensation limits in effect prior to the reduction of includible
compensation to $150,000, but as increased for cost of living
($247,536 for calendar 1995).
Credited service in the Plans for those individuals listed in Summary
Compensation Table for Fiscal Year 1995 who are active participants is
as follows: Mr. Erdeljan, 13.7 years (including years credited for
service from 1978 to 1987 and from 1989 to the present); Ms. Williams,
2.9 years; Mr. Stuart, 4.7 years; and Mr. McGregor, 1.4 years. Mr.
Cashman has elected not to participate in the Retirement Income Plan.
For purposes of the Plans, the final average compensation of such
individuals as of January 1, 1995 was approximately as follows: Mr.
Erdeljan, $228,731; Ms. Williams, $232,122; Mr. Stuart, $138,269, and
Mr. McGregor, $132,445.
401(k) Plan
Eligible employees may also participate in a tax-qualified cash or
deferred profit sharing plan known as the R.P. Scherer Corporation
Savings Plan (the "401(k) Plan"). Under the 401(k) Plan, employees who
have met eligibility standards may elect to reduce their annual
compensation by up to 15%, to a maximum of $9,240 for the 1995 calendar
year, and have the amount of the reduction contributed to the 401(k)
Plan. The Company also contributes to the 401(k) Plan on behalf of each
participant an additional amount equal to 50% of each participant's
pretax contributions, but not to exceed the lesser of 3% of the
participant's compensation or $500. All contributions are fully vested.
Incentive Compensation Plan
The purpose of the Incentive Compensation Plan is to provide certain
key employees of the Company an incentive to promote the maximization
of shareholder value over the long term.
The Incentive Compensation Plan is administered by the Committee in
conjunction with the full Board of Directors. Under the Incentive
Compensation Plan, incentive compensation is directly linked to return
generated through the employment of capital. This return, or EVA (as
previously defined), is measured individually for each of the Company's
major business divisions (each a "Unit") and equals the operating
profit
13
<PAGE> 17
generated by each Unit less taxes and the cost of capital employed to
generate such profit. The Incentive Compensation Plan rewards
designated management employees in each Unit for increases in EVA and
penalizes such employees for any decreases in EVA by deducting amounts
from an employee's Bonus Bank, as described below.
Management employees who are designated as participants
("Participants") by the Chairman and President of the Company and
approved by the Committee are eligible to participate in the Incentive
Compensation Plan. Currently approximately 18 employees are
Participants in the Incentive Compensation Plan. The Participant(s) of
each Unit are eligible to receive an EVA-based award (the "EVA Award")
based on the performance of their Unit. The EVA Award each year for a
Unit is comprised of two elements: the "Base Award" and the
"Improvement Award." The Base Award is equal to a pre-determined
percentage of the aggregate annual salary of a Unit's Participants and
is earned for an applicable year if the prior year's EVA level for the
Unit is achieved. The Improvement Award is based on a percentage of the
increase or decrease in EVA from the prior year's EVA. Improvement
Awards which exceed a pre-determined percentage of a Participant's base
salary are deferred and credited to the Participant's account ("Bonus
Bank"). These amounts are subject to loss if subsequent performance
deteriorates. One-third of the balance in a Participant's Bonus Bank
(if it is positive) is paid out each succeeding year in which a
Participant earns a new bonus under the Incentive Compensation Plan.
The relationship between EVA achievement and percentages of salary
awarded as EVA Award is determined by the Committee.
The Incentive Compensation Plan provides that 25% (or such other
percentage set by the Compensation Committee) of the EVA Award for each
current year, subject to certain limits, is used to purchase stock
options under the Company's 1992 Stock Option Plan (as described
below). Once options have been purchased from such portion of a year's
EVA Award, and to the extent that options remain available for purchase
under the Stock Option Plan, then up to 25% of additional amounts
distributed from the Bonus Bank, if any, will be used to purchase such
options.
The Board of Directors may amend, suspend or terminate the Incentive
Compensation Plan upon the recommendation of the Committee and, as
required, with stockholder approval, provided that no such change in
the Incentive Compensation Plan will be effective to eliminate or
diminish the distribution of any award that has been allocated to a
Participant's Bonus Bank prior to the date of such change.
Discretionary Awards
In addition to the EVA Award under the Incentive Compensation Plan, the
Committee may, at the recommendation of the Chairman and President,
grant to key members of management a discretionary award, generally up
to 10% of salary, which is a function of their performance against a
pre-determined set of primarily qualitative objectives. The
discretionary award is paid in cash following the year in which it is
earned.
Stock Option Plans
1992 Stock Option Plan
The purpose of the 1992 Stock Option Plan is to aid the Company in
retaining and attracting capable management employees and to provide an
inducement to such employees to promote the best interests of the
Company by enabling and encouraging them to acquire stock ownership in
the Company.
The 1992 Stock Option Plan is administered by the Committee, which has
the authority to grant options and set the terms and conditions of each
grant. The 1992 Stock Option Plan authorizes a total of 1,800,000
shares of Common Stock to be issued upon exercise of options granted
thereunder. Under the terms of the 1992 Stock Option Plan any
management employee of the Company who is eligible to receive a bonus
under the Incentive Compensation Plan or such other management employee
designated by the
14
<PAGE> 18
Committee is eligible to receive options under the 1992 Stock Option
Plan. Currently, there are 23 participants in the 1992 Stock Option
Plan ("Optionee"). The Committee also has the authority to ensure that
the 1992 Stock Option Plan complies with foreign law and practices.
Each option grant under the 1992 Stock Option Plan represents the right
to purchase a number of shares of Common Stock of the Company and
consists of two portions: a purchased portion and a granted portion.
The purchased portion for a participating management employee is
determined by applying 25% (or such other percentage set by the
Committee) of such employee's bonus under the Company's Incentive
Compensation Plan (or such other compensation designated by the
Committee to be applied to purchase options), to purchase stock options
at a cost per share option as determined under the provisions of the
Plan. The designated stock price equals the average market value per
share of the Common Stock over a two month period which includes the
first month of the fiscal year in which the option is granted and the
last month of the preceding fiscal year (the "Average Stock Price").
The exercise price for the purchased portion is fixed on the grant date
and equals the Average Stock Price, net of the purchase cost, increased
at a 10% annual rate compounded over five years. The granted portion
represents the right to purchase an additional number of shares equal
to the number of shares which make up the purchased portion and is
exercisable at the Average Stock Price. Options may be exercised in
whole or in part, but may only be exercised for an equal number of
purchased portion shares and granted portion shares.
Options become exercisable on the third anniversary of the date of
their grant, provided that the Committee may accelerate the time at
which any option may be exercised. Each option granted under the 1992
Stock Option Plan will expire on the day following the seventh
anniversary of the date when granted, unless such option shall have
expired earlier under the provisions of the Plan or the Committee shall
have extended the time in which such options may be exercisable.
The Board of Directors may amend or terminate the 1992 Stock Option
Plan, but may not (i) without the consent of the Optionees, alter or
impair any rights or obligations under any option theretofore granted,
or (ii) make any alternation in the 1992 Stock Option Plan that would
cause the 1992 Stock Option Plan to fail to comply with any requirement
of applicable law or regulation, if such revision or amendment were not
approved by the stockholders of the Company, unless and until
stockholder approval of such revision or amendment is obtained.
The number of share options granted under the 1992 Stock Option Plan in
fiscal 1995, and the purchased portion cost and exercise price of such
options are pending shareholder ratification of the amendment to the
1992 Stock Option Plan. See Matters to be Voted Upon - Ratification of
Second Amendment to the 1992 Stock Option Plan. Under such amendment,
options to purchase a total of 484,454 shares are to be granted under
the 1992 Stock Option Plan for fiscal 1995. For such fiscal 1995
grants, the purchased portion, costing $2.08 each, is exercisable at
$57.05 per share, and the granted portion is exercisable at $37.51 per
share. For persons named in the Summary Compensation Table for Fiscal
Year 1995 and all executive officers as a group, the following options
were granted under the 1992 Stock Option Plan (as amended), all for
fiscal 1995: John P. Cashman, 77,702 shares; Aleksandar Erdeljan,
77,702 shares; Nicole S. Williams, 36,562 shares; Thomas J. Stuart,
21,908 shares; Dennis R. McGregor, 17,492 shares; and all executive
officers as a group, 231,366 shares. A total of 253,088 share options
were granted to other non-executive officer employees for fiscal 1995.
No compensation expense was recorded by the Company in connection with
the 1992 Stock Option Plan for fiscal 1995. A total of 271,846 options
for common stock remain available for future grant under the 1992 Stock
Option Plan.
As of July 24, 1995, the last sale price of the Common Stock on the New
York Stock Exchange was $44.50 per share.
1990 Stock Option Plans
The Company implemented three Stock Option Plans in November 1990: the
1990 Nonqualified Stock Option Plan, the 1990 Nonqualified Performance
Stock Option Plan A, and the 1990 Nonqualified
15
<PAGE> 19
Performance Stock Option Plan B (collectively, the "1990 Stock Option
Plans") A total of 1,239,612 options for shares of Common Stock were
authorized for issuance to key management personnel under the 1990
Stock Option Plans. As a group, all current executive officers hold
998,186 options under the 1990 Stock Option Plans.
The 1990 Stock Option Plans are administered by the Committee. Each
option granted under the 1990 Stock Option Plans will expire no later
than the day following the 10th anniversary of the date granted, unless
such option shall have expired earlier under the provisions of the 1990
Stock Option Plans. Options granted under the 1990 Stock Option Plans,
as amended, may be transferred by an Optionee to a grantor trust under
certain conditions, if the transfer is approved by the Compensation
Committee. The Board of Directors may alter or amend the 1990 Plans or
alter or amend any and all Option Agreements thereunder; provided, that
no such action may alter the provisions of any outstanding Stock Option
Agreement to the detriment of an Optionee without the Optionee's
consent.
During fiscal 1995, an additional 16,575 options were granted to other
employees of the Company, and 5,257 options were exercised, leaving
1,084,983 options outstanding at year-end. All options granted under
the 1990 Stock Option Plans have an exercise price of $5.49 per share.
No commitments exist to exercise any options granted under the 1990
Stock Option Plans and the Company has no present plans to grant the
remaining Options authorized for the 1990 Stock Options Plans.
Approximately $0.3 million of compensation expense was recorded for the
1990 Stock Option Plans in fiscal 1995.
As of July 24, 1995, the last sale price of the Common Stock on the New
York Stock Exchange was $44.50 per share.
Federal Income Tax Consequences of the 1992 and 1990 Stock Option Plans
The following discussion is a general summary of the material U.S.
federal income tax consequences to U.S. participants in the Company's
stock option plans. The discussion is based on the Internal Revenue
Code of 1986, as amended (the "Code"), regulations thereunder, rulings
and decisions now in effect, all of which are subject to change. The
summary does not discuss all aspects of federal income taxation that
may be relevant to a particular participant in light of such
participant's personal investment circumstances.
The grant of an option generally will not result in taxable income to
the Optionee at the time of grant. In general, upon the exercise of
options by the payment of cash, the Optionee will recognize ordinary
income (and the Company will be entitled to a deduction if certain
withholding requirements are met, subject to deductible limits on
executive compensation under Section 162(M) of the Internal Revenue
Code, where applicable) in an amount equal to the excess of the fair
market value of the shares of Common Stock on the date of exercise over
the exercise price.
Any subsequent disposition of the shares acquired pursuant to an option
will result in gain or loss to the Optionee in an amount equal to the
difference between the sale price and the Optionee's basis in the
Common Stock at the date of exercise. An Optionee's basis for the
Common Stock for purposes of determining his gain or loss on subsequent
disposition of the shares generally will be the fair market value of
the Common Stock on the date of exercise of the Option.
Pursuant to the terms of the 1992 and 1990 Stock Option Plans, the time
at which options may be exercised due to a merger, consolidation or
other reorganization of the Company with or into another entity may be
accelerated. Under certain circumstances, such acceleration may result
in an excess parachute payment and the imposition of an excise tax
payable by the Optionee and the loss of a deduction to the Company
under Section 280(G) of the Internal Revenue Code with respect to any
amounts which are deemed to be excess parachute payments.
16
<PAGE> 20
MATTERS TO BE VOTED UPON
ELECTION OF DIRECTORS
There are currently eight members of the Board of Directors whose names
and background information are described above under Directors. All of
the current members of the Board of Directors are nominated to be
re-elected to hold office until the next Annual Meeting of Stockholders
and until their successors have been elected and have qualified. The
persons named in the accompanying proxy will vote all shares for which
they have received proxies for the election of the nominees unless
contrary instructions are given. In the event that any nominee should
become unavailable, shares will be voted for such other person or
persons as may be nominated by management. Management has no reason to
believe that nominees will be unable to serve. Directors are elected by
plurality vote.
RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors has appointed Arthur Andersen LLP to audit the
accounts of the Company for the fiscal year ending March 31, 1996,
subject to the ratification of such appointment by the affirmative vote
of holders of a majority of the outstanding shares entitled to vote at
the Annual Meeting. Representatives of Arthur Andersen LLP are expected
to be present at the Annual Meeting and will be afforded an opportunity
to make a statement if they desire to do so and will be available to
respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE COMPANY'S AUDITORS FOR THE
FISCAL YEAR ENDING MARCH 31, 1996. THE VOTE REQUIRED FOR SUCH
RATIFICATION IS A FAVORABLE VOTE OF THE HOLDERS OF A MAJORITY OF ALL
OUTSTANDING SHARES PRESENT IN PERSON OR BY PROXY AND ENTITLED TO BE
VOTED AT THE ANNUAL MEETING.
RATIFICATION OF SECOND AMENDMENT TO THE 1992 STOCK OPTION PLAN
At the Annual Meeting of Stockholders, the stockholders will be asked
to ratify a second amendment to the 1992 Stock Option Plan (the "Option
Amendment") relating to the method of determining the cost of options
purchased under the 1992 Stock Option Plan. The Option Amendment is
generally expected to have the effect of reducing the purchase cost for
purchased portion options, thereby both increasing the number of
options a participant is required to purchase and increasing the
exercise price of such purchased options. Following the recommendation
of the Compensation Committee, the disinterested members of the Board
of Directors have unanimously approved the Option Amendment. Adoption
of the Option Amendment is subject to stockholder ratification.
The principal features of the Option Amendment are summarized below.
For additional information with respect to the 1992 Stock Option Plan,
see Executive Compensation Pursuant to Plans - Stock Option Plans. The
Option Amendment is set forth as Exhibit A to this Proxy Statement. The
following summary of the material features of the Option Amendment does
not purport to be complete, and is qualified in its entirety by
reference to Exhibit A and the 1992 Stock Option Plan.
Summary Description of the Option Amendment
The 1992 Stock Option Plan provides that each participant must purchase
a number of stock options determined by dividing 25% (or such other
percentage set by the Compensation Committee) of such participant's
annual bonus under the Company's Incentive Compensation Plan (or such
other compensation designated by the Compensation Committee) by a
predetermined purchase cost for each option. (An additional equal
number of options for shares of common stock known as the granted
portion options, are also granted to participants.)
17
<PAGE> 21
Prior to the Option Amendment, the purchase cost was equal to 10% of an
average market value per share of the Company's Common Stock at the
beginning of the applicable fiscal year. As a result of the significant
appreciation in the market value of the Company's Common Stock over the
past several years, the purchase cost increased to levels which had the
effect of substantially reducing the number of options which a
participant had to purchase. The Compensation Committee determined that
a change in the method of computing the purchase cost was appropriate
in order to preserve the original purposes of the 1992 Stock Option
Plan. One of the primary purposes is to provide an inducement to key
management employees to promote the best interests of the Company
through the opportunity to acquire meaningful stock ownership.
The Option Amendment will change the method of determining the purchase
cost as a means of increasing the number of options a participant is
required to purchase. Under the provisions of the Option Amendment, the
purchase cost per option (or "Applicable Amount" as therein defined)
will be equal to either (i) $1.80 (10% of the price per share of Common
Stock at the time of the Company's initial public offering in fiscal
year 1992), increased by an inflationary factor of 5% compounded
annually beginning with fiscal year 1993, or (ii) such other value as
may be determined by the Compensation Committee. The exercise price for
purchased options is equal to an average market value per share of the
Company's Common Stock at the beginning of the applicable fiscal year,
net of the purchase cost, increased at a 10% annual rate compounded
over five years. The provisions of the Option Amendment would only
apply to options granted for fiscal year 1995 and subsequent years.
For fiscal year 1995, the purchase cost would be reduced under the
Option Amendment, and will result in the exercise price for purchased
options being correspondingly higher for fiscal 1995 option grants.
Management anticipates that the Option Amendment will have the effect
of increasing both the quantity and exercise price of options purchased
for future fiscal years as well.
The following compares the purchased cost, number of options to be
purchased and exercise price for each purchased option before and after
reflecting the provisions of the Option Amendment for fiscal year 1995
grants.
<TABLE>
<CAPTION>
Before Option After Option
Amendment Amendment
------------------------ ----------------------
<S> <C> <C>
Purchase Cost per Option $3.75 $2.08
Total Number of Purchased Options 134,321 242,227
Exercise Price for Purchased Options $54.37 $57.05
</TABLE>
As provided for under the 1992 Stock Option Plan, for each option
purchased a participant receives one granted option. The Option
Amendment, however, in no way affects the exercise price for the
granted portion of options received through the 1992 Stock Option Plan.
See Option Grants for Fiscal Year 1995 and Stock Option Plans - 1992
Stock Option Plan herein for the quantity of options to be granted to
the executive officers and other employees under the 1992 Stock Option
Plan, as amended.
THE BOARD OF DIRECTORS, EXCLUDING INTERESTED DIRECTORS, RECOMMENDS A
VOTE FOR THE 1992 OPTION AMENDMENT. THE VOTE REQUIRED FOR APPROVAL OF
THE OPTION AMENDMENT IS A FAVORABLE VOTE OF THE HOLDERS OF A MAJORITY
OF ALL OUTSTANDING SHARES PRESENT IN PERSON OR BY PROXY AND ENTITLED TO
VOTE AT THE ANNUAL MEETING.
18
<PAGE> 22
OTHER MATTERS
The Company does not know of any business other than that described
above to be presented for action to the stockholders at the meeting,
but it is intended that the proxies will be exercised upon any other
matters and proposals that may legally come before the meeting and any
adjournments thereof in accordance with the discretion of the persons
named therein as attorneys-in-fact and agents unless contrary
instructions are received.
The cost of this solicitation will be borne by the Company. Proxies may
be solicited by personal interview, telephone and telegraph, as well as
by use of the mails. Banks, brokerage houses and other custodians,
nominees or fiduciaries will be requested to forward soliciting
material to their principals and to obtain authorization for the
execution of proxies, and will be reimbursed for their reasonable
out-of-pocket expenses incurred in that connection. Employees of the
Company participating in the solicitation of proxies will not receive
any additional remuneration.
The Annual Report of the Company for the fiscal year ending March 31,
1995, including certified financial statements, has been furnished to
all persons who were stockholders of record of the Company on the
record date for the Annual Meeting.
A list of stockholders entitled to vote at the Annual Meeting will be
open to examination by any stockholder during business hours, for any
purpose germane to the meeting, from August 29, 1995 through September
12, 1995 at the World Headquarters of R.P. Scherer Corporation, 2075
West Big Beaver Road, Troy, Michigan 48084.
PROPOSALS OF SECURITY HOLDERS
A proposal by a security holder intended to be presented at the
Company's next annual meeting of stockholders and to be included in the
proxy statement therefor must be received at the Company's principal
executive offices at 2075 West Big Beaver Road, Troy, Michigan 48084,
to the attention of the Corporate Secretary, no later than April 24,
1996.
AVAILABILITY OF FORM 10-K
THE COMPANY WILL PROVIDE TO ANY STOCKHOLDER, WITHOUT CHARGE,
UPON WRITTEN REQUEST OF SUCH STOCKHOLDER, A COPY OF THE ANNUAL REPORT
ON FORM 10-K FOR THE FISCAL YEAR ENDED MARCH 31, 1995, AS FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION. SUCH REQUESTS SHOULD BE
ADDRESSED TO: NICOLE S. WILLIAMS, CORPORATE SECRETARY, R.P. SCHERER
CORPORATION, 2075 WEST BIG BEAVER ROAD, P.O. BOX 7060, TROY, MICHIGAN
48007-7060.
PLEASE DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT
PROMPTLY IN THE ENCLOSED REPLY ENVELOPE TO
WHICH NO POSTAGE NEED BE AFFIXED IF
MAILED IN THE UNITED STATES.
19
<PAGE> 23
EXHIBIT A
SECOND AMENDMENT TO STOCK OPTION PLAN OF
R.P. SCHERER CORPORATION AND SUBSIDIARIES
(AS AMENDED JULY 1994)
1. Amendment to Preamble. The second sentence of the last paragraph of
the preamble of the Stock Option Plan of R.P. Scherer Corporation and
Subsidiaries ("Plan") is amended to read in its entirety, effective June 6,
1995, as follows:
The purchase portion of a particular option for an applicable
management employee will be determined by applying 25% (or such other
fraction set by the Compensation Committee) of such management
employee's Bonus or Designated Compensation (as hereinafter defined) to
purchase, at a predetermined price, the right to acquire shares of the
Company's common stock upon payment of the appropriate exercise price.
2. Amendment to Article 1. Article 1, Section 1.2 of the Plan is
amended to read in its entirety, effective for option grants for Fiscal Year
1995 and subsequent periods, as follows:
"Applicable Amount" means, (i) the value equating to $1.80
increased by a factor of 5%, compounded annually beginning with the
Fiscal Year 1993, or (ii) such other value as may be determined from
time to time by the Committee (as hereinafter defined).
3. Amendment to Article 3. Article 3, Section 3.3(a)(i), is
amended to read in its entirety, effective June 6, 1995, as
follows:
(A) 25% (or such other fixed percentage as the Committee may
determine will be applicable with respect to any particular selected
management Employee) of the Bonus or the Designated Compensation paid
to each selected management Employee, divided by (b) the Applicable
Amount (the "Purchased Portion Shares"); plus
IN WITNESS WHEREOF, R.P. Scherer Corporation has adopted this Amendment this
____ day of ________________________, 19 ____.
ATTEST: R.P. SCHERER CORPORATION
_________________________ By: _______________________
Secretary Its: __________________
20
<PAGE> 24
R.P. SCHERER CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
P
SEPTEMBER 12, 1995
R
Revoking any prior appointment, the undersigned hereby appoints J.
O CASHMAN, A. ERDELJAN and N. WILLIAMS and each of them,
attorneys-in-fact and agents with power of substitution, to vote as
X Proxy for the undersigned as herein stated, at the Annual Meeting
of Stockholders of R.P. Scherer Corporation to be held at The Townsend
Y Hotel, 100 Townsend Avenue, Birmingham, Michigan on September 12,
1995, beginning at 1 P.M. local time, and at any adjournment thereof,
with respect to the number of shares of common stock of R.P. Scherer
Corporation the undersigned would be entitled to vote if personally
present.
<TABLE>
<S> <C>
Election of Directors, Nominees: (change of address)
John E. Avery, John P. Cashman, Aleksandar Erdeljan, _____________________________________
Frederick Frank, Lori G. Koffman, Louis Lasagna, Robert H. _____________________________________
Rock, James A. Stern (If you have written in the above
space, please mark the
corresponding box on the reverse
side of this card.)
</TABLE>
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE
APPROPRIATE BOXES, SEE REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOXES
IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS'
RECOMMENDATIONS. THE PROXIES CANNOT VOTE YOUR SHARES UNLESS YOU SIGN
AND RETURN THIS CARD.
SEE REVERSE
SIDE
<PAGE> 25
<TABLE>
<S> <C>
/X/ PLEASE MARK YOUR SHARES IN YOUR NAME
VOTES AS IN THIS
EXAMPLE.
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of / / / / 2. Ratification / / / / / /
(see reverse) of the
Directors appointment of
auditors for
For, except vote withheld Fiscal 1996
from the following 3. Ratification / / / / / /
nominee(s): of Second
________________________________ Amendment
to the 1992
Stock Option
Plan
FOR AGAINST ABSTAIN
4. In accordance with their discretion on / / / / / /
any other matters which may properly
come before the meeting.
Change The undersigned acknowledges receipt
of / / of the Notice of Annual Meeting of Stockholders
Address and the Proxy Statement dated July 28, 1995.
Attend When shares are held by joint tenants, both should
Meeting / / sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full
title as such. If a corporation, please
sign in full corporate name by President or other
authorized officer. If a partnership, please sign in
partnership name by an authorized person.
SIGNATURE(S) __________________________________________________ DATE _________________________ PLEASE MARK, SIGN, DATE AND
RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
SIGNATURE(S) __________________________________________________ DATE ________________________
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign. When signing
as attorney, executor, administrator, trustee or guardian, please give full title as such.
</TABLE>
<PAGE> 26
EXHIBIT INDEX
-------------
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
99 Supplemental information - Stock Option Plan of R.P. Scherer
Corporation and Subsidiaries, amended, July, 1995.
<PAGE> 1
EXHIBIT 99
STOCK OPTION PLAN
OF
R.P. SCHERER CORPORATION AND SUBSIDIARIES
AMENDED JULY, 1995
R.P. Scherer Corporation, a Delaware corporation, hereby adopts this Stock
Option Plan of R.P. Scherer Corporation (the "Company") and Subsidiaries (the
"Plan"). The purposes of the Plan are as follows:
(1) To further the growth, development and financial success of the Company
by providing additional incentives to certain of its management employees who
have been or will be given responsibility for the management or administration
of the Company's business affairs by assisting them to become owners of capital
stock of the Company and thus to benefit directly from its growth, development
and financial success.
(2) To enable the Company to obtain and retain the services of the type of
professional, technical and managerial employees considered essential to the
long range success of the Company by providing and offering them an opportunity
to become owners of capital stock of the Company under options.
Each option granted to a management employee under the Plan represents the
right to purchase a number of shares of common stock of the Company and each
such option will consist of two portions: a purchase portion and a granted
portion. The purchase portion of a particular option for an applicable
management employee will be determined by applying 25% (or such other fraction
set by the Compensation Committee) of such management employee's Bonus (as
hereinafter defined) to purchase, at a predetermined price, the right to
acquire shares of the Company's common stock upon payment of the appropriate
exercise price. The exercise price for each share which is part of the
purchase portion of an option will be fixed on the date of grant and equal the
amount determined by increasing the remainder of such designated stock price by
10% per year for five years. The granted portion of such option will be the
right to purchase an additional number of shares equal to the number of shares
which make up the purchase portion of such option at an exercise price per
share equal to the designated stock price. Options may be exercised in whole
or in part, but may only be exercised for an equal number of purchase portion
shares and granted portion shares.
ARTICLE 1
DEFINITIONS
Section 1.1 General
Whenever the following terms are used in the Plan
they shall have the meaning specified below unless the context clearly
indicates to the contrary.
Section 1.2 - "Applicable Amount" means, (i) the value equating to $1.80
increased by a factor of 5%, compounded annually beginning with Fiscal Year
1993 or (ii) such other value as may be determined from time to time by the
Committee (as hereinafter defined).
Section 1.3 - "Applicable Fiscal Year" means the Fiscal Year for which an
Option is being granted.
Section 1.4 - "Average Fair Market Value" means with respect to any share of
stock, the average of the Fair Market Value of a share of such stock on each of
the trading days during the period from March 1 of the Fiscal Year preceding
the Applicable Fiscal Year to April 30 of the Applicable Fiscal Year. If such
stock is not listed or quoted, the Average Fair Market Value will be
established by the Committee and will be binding upon all Optionees, the
Company and all other interested persons. The Average Fair Market Value may be
more or less than the book value of such stock.
Section 1.5 - "Board" means the Board of Directors of the Company.
Section 1.6 - "Bonus" means the Economic Value Added Bonus granted under the
Bonus Plan, as from time to time amended, to any selected management
Employee.
<PAGE> 2
Section 1.7 - "Bonus Plan" means the R.P. Scherer Corporation Management
Incentive Compensation Plan (Based upon Economic Value Added), as from time to
time amended.
Section 1.8 - "Cause" means (1) any act or acts of an Optionee constituting a
felony (or its equivalent) under the laws of the United States, any state
thereof or any foreign jurisdiction; (ii) any material breach by an Optionee of
any employment agreement with the Company or any of its Subsidiaries or the
policies of the Company or any of its Subsidiaries or the willful and
persistent failure or refusal of an Optionee (after written notice to such
Optionee) to perform his duties of employment or comply with any lawful
directives of the Board or of the Board of Directors of the Subsidiary of the
Company which employs the Optionee; (iii) a course of conduct amounting to
gross, willful misconduct or dishonesty; or (iv) any misappropriation of
material property of the Company or any of its Subsidiaries by an Optionee or
any misappropriation of a corporate or business opportunity of the Company or
any of its Subsidiaries by an Optionee.
Section 1.9 - "Code" means the Internal Revenue Code of 1986, as amended.
Section 1.10 - "Committee" means the Compensation Committee of the Board,
appointed as provided in Section 6.1.
Section 1.11 - "Common Stock" means the Common Stock, par value $.01 per share,
of the Company.
Section 1.12 - "Company" means R.P. Scherer Corporation.
Section 1.13 - "Date of Grant" means the date upon which the Committee approves
the options to be granted for the Applicable Fiscal Year which will be within
six weeks of the end of the Applicable Fiscal Year.
Section 1.14 - "Discounted Initial Value" is the excess of (i) $18.00 for
Fiscal Year 1992 or the Average Fair Market Value of a share of Common Stock
for each fiscal year thereafter, over (ii) the corresponding Applicable Amount.
Section 1.15 - "Employee" means any employee of the Company, or of any
corporation which is then a Subsidiary of the Company, whether such employee is
so employed at the time the Plan is adopted or becomes so employed subsequent
to the adoption of the Plan.
Section 1.16 - "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
Section 1.17 - "Fair Market Value" means the last sales price for a share of
stock on a particular day on the principal exchange on which such stock may at
the time be listed or, if there shall have been no sales on such exchange on
any such trading day, the average of the closing bid and asked prices on such
exchange on such trading day or if there is no such bid and asked price on such
trading day on the next preceding date when such bid and asked price occurred
or, if such stock shall not be so listed, the average of the closing sales
prices as reported by NASDAQ at the end of each trading day in the
over-the-counter market, or if such stock is not so listed or quoted, the price
will be established by the Committee and will be binding upon all Optionees,
the Company and all other interested persons. The Fair Market Value may be
more or less than the book value of such stock.
Section 1.18 - "Fiscal Year" means the fiscal year of the Company which runs
from April 1 through March 31.
Section 1.19 - "Good Reason" shall mean:
(i) any material reduction by the Company of such Participant's
duties, responsibilities or titles,
(ii) any involuntary removal of such Participant from any position
previously held (except in connection with a promotion or a termination for
Cause, death or disability, or the voluntary termination by the Participant
other than for Good Reason), or
(iii) such other reasons (including non-employment related reasons)
as may be approved by the Committee, in its sole discretion, from time to time.
Section 1.20 - "Granted Portion Exercise Price" has the meaning given in
Section 4.1(b).
<PAGE> 3
Section 1.21 - "Granted Portion Shares" has the meaning given in Section
3.3(a)(i).
Section 1.22 - "Option" means any option granted under the Plan to purchase
Common Stock. An Option will entitle the holder to purchase a multiple number
of shares of Common Stock determined in accordance with Section 3.3. Each
Option will be partially exercisable in accordance with Section 5.2. Options
include only options which are not intended to be "incentive stock options"
under Section 422 of the Code.
Section 1.23 - "Optionee" means an Employee to whom an Option is granted under
the Plan.
Section 1.24 - "Permanent Incapacitating Disability" means the inability of an
Employee to perform the principal duties of his job at the Company due to
physical or mental condition, as determined by a physician, for a period of at
least one year.
Section 1.25 - "Permitted Transferee" means (i) the guardian, executors,
administrators, testamentary trustee, legatees or beneficiaries of an Optionee
or of any Permitted Transferee, or (ii) a transferee pursuant to a qualified
domestic relations order as defined by the Code, provided that such transfer is
made expressly subject to the Plan and that the transferee agrees in writing to
be bound by the terms and conditions hereof as if such transferee were the
Optionee.
Section 1.26 - "Plan" means this Stock Option Plan of R.P. Scherer Corporation
and its Subsidiaries, as from time to time amended.
Section 1.27 - "Purchased Portion Exercise Price" has the meaning give in
Section 4.1(a).
Section 1.28 - "Purchased Portion Shares" has the meaning given in Section
3.3(a)(ii).
Section 1.29 - "Secretary" means the Secretary or any Assistant Secretary of
the Company.
Section 1.30 - "Securities Act" means the Securities Act of 1933, as amended.
Section 1.31 - "Subsidiary" means, as to the Company, a corporation,
partnership or other entity of which shares of stock or other ownership
interests having ordinary voting power (other than stock or such other
ownership interests having such power only by reason of the happening of a
contingency) to elect a majority of the board of directors or other managers of
such corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly through one
or more intermediaries, or both, by the Company. Unless otherwise qualified,
all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall
refer to a Subsidiary or Subsidiaries of the Company.
Section 1.32 - "Termination of Employment" means the time when the
employee-employer relationship between the Optionee and the Company and its
Subsidiaries is terminated for any reason whatsoever. The Committee, in its
absolute discretion, will determine the effect of all other matters and
questions relating to Termination of Employment, including, but not by way of
limitation, all questions of whether particular leaves of absence constitute
Terminations of Employment and the question of whether any reemployment by the
Company is simultaneous with termination. Notwithstanding any other provision
of the Plan, the Company or any of its Subsidiaries have an absolute and
unrestricted right to terminate any Employee's employment at any time for any
reason whatsoever with or without cause.
Section 1.33 - "Total Available Shares" means the total number of shares of
Common Stock set forth in Section 2.1 issuable upon the exercise of Options
less the aggregate number of shares of Common Stock issued, or reserved for
issuance, upon the exercise of Options granted hereunder prior to the date of
such determination.
Section 1.34 - Pronouns: The masculine pronoun includes the feminine and
neuter and the singular includes the plural, where the context so indicates.
<PAGE> 4
ARTICLE 2
SHARES SUBJECT TO PLAN
Section 2.1 - Shares Subject to Plan
The shares of stock subject to Options shall be shares of Common
Stock. The maximum aggregate number of shares of Common Stock which may be
issued upon exercise of Options granted under the Plan is 1,800,000. If the
outstanding shares of Common Stock subject to Options are, from time to time,
changed into or exchanged for a different number of shares of Common Stock, by
reason of a reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, stock dividend, combination of shares, or
otherwise, the maximum aggregate number of shares of Common Stock which may be
issued upon exercise of Options granted under the Plan will be increased or
decreased in proportion to the change in Common Stock.
Section 2.2 - Unexercised Options
If any Option expires or is cancelled without having been fully
exercised, the number of shares subject to such Option but as to which such
Option was not exercised prior to its expiration or cancellation may again be
optioned hereunder, subject to the limitations of Section 2.1.
ARTICLE 3
GRANTING OF OPTIONS
Section 3.1 - Eligibility
Any management Employee of the Company or of any Subsidiary who is
(a) eligible to receive a Bonus or (b) such other management Employee
designated by the Committee to receive an Option under the Plan, will be
eligible to be granted an Option under the Plan.
Section 3.2 - Granting of Options
The Committee, within six weeks after the close of each Fiscal
Year, will (i) determine the number of shares of Common Stock subject to each
Option to be granted to selected management Employee in accordance with Section
3.3; (ii) determine the terms and conditions of each Option, consistent with
the Plan; and (iii) establish such conditions to the exercise of each Option as
it may deem necessary, including but not limited to requiring Optionees to
enter into agreements regarding transferability and other restrictions with
respect to shares issuable upon exercise of any Options.
Section 3.3 - Determination of Number of Shares Subject to Each Option
(a) Upon the determination of the dollar amount of the Bonus awarded each
selected management Employee or the dollar amount such other compensation
designated by the Committee to be used to purchase an Option under the Plan
("Designated Compensation"), the number of shares of Common Stock to be subject
to each Option will equal:
(i) (A) 25% (or such other fixed percentage as the Committee may
determine will be applicable with respect to any particular selected management
Employee) of the Bonus or the Designated Compensation paid to each selected
management Employee, divided by (B) the Applicable Amount (the "Purchased
Portion Shares"); plus
(ii) an additional number of shares of Common Stock equal to the
number resulting from the calculation in clause (i) (the "Granted Portion
Shares").
<PAGE> 5
(b) Notwithstanding Section 3.3(a), if, as of any Date of Grant, the aggregate
number of shares of Common Stock issuable upon the exercise of all Options to
be purchased by or granted to management Employees as of such date pursuant to
Section 3.2 exceeds the Total Available Shares, then the number of shares
subject to any Option to be issued as of such Date of Grant (a "Current
Option") will be reduced. In such case, the number of shares subject to any
Current Option will equal (i) (A) the number of shares of Common Stock subject
to such Current Option determined in accordance with Section 3.3(a), divided by
(B) the aggregate number of shares of Common Stock subject to all Current
Options determined in accordance with Section 3.3(a) multiplied by (ii) the
Total Available Shares.
ARTICLE 4
TERMS OF OPTIONS
Section 4.1 - Exercise Price
(a) With respect to the Purchased Portion Shares, the Purchased Portion
Exercise Price is (i) the Discounted Initial Value multiplied by 1.61051 (which
represents five 10% increases in the Discounted Initial Value on a compounded
basis).
(b) With respect to the Granted Portion Shares, the Granted Portion
Exercise Price is (i) the Average Fair Market Value of a share of Common Stock
for the Applicable Fiscal Year.
Section 4.2 - Commencement of Exercisability
(a) Subject to the provisions of Sections 4.2(b), 4.3 and 7.2, each Option
shall become exercisable three years after it is granted; provided, however,
that by a resolution adopted after an Option is granted the Committee may, on
such terms and conditions as it may determine to be appropriate and subject to
Section 7.2, accelerate the time at which any Option may be exercised.
(b) Upon the death of an Optionee or a Permanent Incapacitating Disability
suffered by an Optionee while in the employ of the Company, any unexercisable
Options held by such Optionee or by such Optionee's Permitted Transferees will
immediately become exercisable.
Section 4.3 - Expiration of Options
(a) Subject to the provisions of Sections 4.3(c) and 7.2, each Option
shall expire seven years and one day from the date it was granted; provided,
however, subject to the provisions of Section 4.3(c), that by resolution
adopted after an Option is granted the Committee may, on such terms and
conditions as it may determine to be appropriate and subject to Sections
4.2(b), 4.3(c) and 7.2, extend the time in which such Option may be exercised.
(b) Upon the involuntary termination for Cause, or the voluntary termination
without Good Reason before retirement (which for purposes of the Plan shall be
determined at or over the age of 55 or at any earlier date approved by the
Committee), of a Optionee's employment with the Company or any of its
Subsidiaries, all outstanding unexercisable Options held by such Optionee or
such Optionee's Permitted Transferees will immediately expire.
(c) Upon the involuntary termination without Cause, or the voluntary
termination with Good Reason before retirement (which for purposes of the Plan
shall be determined at or over the age of 55 or at any earlier date approved by
the Committee), of an Optionee's employment with the Company or any of its
subsidiaries, a pro rata portion of the outstanding unexercisable Options held
by such Optionee or such Optionee's Permitted Transferees shall become
immediately exercisable as determined by the formula set forth below, while the
remaining portion of such outstanding unexercisable Options will immediately
expire. For each outstanding Option held, the number of shares immediately
exercisable pursuant to that Option will equal (i) the number of shares of
Common Stock subject to such Option, multiplied by (ii) the quotient of (A) the
number of full years such Option had been held, divided by (B) three (provided,
that such quotient shall be greater than one (the "Quotient")). In addition,
the Company will pay to such Optionee an amount in cash equal to the amount
paid by or on behalf of such Optionee to purchase each outstanding Option
multiplied by (ii)(A) one, minus (B) the Quotient. However, as provided in
Section 4.2 (a), the Committee may expressly choose to depart from the default
rule
<PAGE> 6
expressed in Section 4.3(c) herein in order to adopt other rules concerning the
expiration and/or acceleration of such outstanding unexercisable Options.
Example
An Optionee voluntarily terminates with Good Reason effective July 18, 1995.
The Optionee held a total of 7,600 Options at such date, consisting of the
following:
<TABLE>
<CAPTION>
Purchased Portion Granted
---------------------------- -------
Fiscal Year Grant* Shares Cost/Sh. Paid Portion Shares
------------------ ------ -------- ---- --------------
<S> <C> <C> <C> <C>
1992 1,000 $1.80 $1,800 1,000
1993 900 2.74 2,466 900
1994 1,500 3.00 4,500 1,500
1995 400 3.50 1,400 400
----- ------ ------
3,800 $10,166 3,800
===== ======== =======
</TABLE>
____________________
*Assume all grants were made in the month of June,
immediately following each fiscal year end.
The Optionee would be entitled to exercise the following upon the July 18, 1995
date of termination:
<TABLE>
<CAPTION>
Shares
------------------------
Fiscal Year Grant % Vested Purchased Granted
----------------- -------- --------- -------
<S> <C> <C> <C>
1992 100% 1,000 1,000
1993 66 2/3 600 600
1994 33 1/3 500 500
1995 0 -- --
-------- ---------
2,100 2,100
======== =========
</TABLE>
All remaining shares (Purchased and Granted) would immediately expire upon
termination. No options would be granted for fiscal 1996 as the termination
took place in the first fiscal quarter.
The Optionee would be repaid the following sums for Purchased Portion shares
which would become unexercisable and expire:
<TABLE>
<CAPTION>
Amount
Fiscal Year Grant % Repaid Shares Cost/Sh. Repaid
----------------- -------- ------ -------- --------
<S> <C> <C> <C> <C>
1992 0 % -- $1.80 $ --
1993 33 1/3 300 2.74 822
1994 66 2/3 1,000 3.00 3,000
1995 100 400 3.50 1,400
-----
$5,222
======
</TABLE>
(d) No Option may be exercised to any extent by anyone after, and every Option
will expire no later than, the expiration of seven years from the date the
Option was granted.
Section 4.4 - No Right to Continue in Employment or Office
Nothing in the Plan (i) will confer upon any Optionee who is an
Employee any right to continue in the employ of the Company or any of its
Subsidiaries or (ii) will interfere with or restrict in any way the rights of
the Company and its Subsidiaries, which are hereby expressly reserved, to
terminate the employment of any Optionee at any time for any reason whatsoever,
with or without good cause.
<PAGE> 7
Section 4.5 - Adjustments in Outstanding Options
Subject to Section 4.6, if the outstanding shares of Common Stock
subject to Options are, from time to time, changed into or exchanged for a
different number or kind of shares of the Company or other securities of the
Company or of another corporation, by reason of a reorganization, merger,
consolidation, recapitalization, reclassification, stock split-up, stock
dividend, combination of shares, or otherwise, the number of shares of Common
Stock subject to all outstanding Options, or portions thereof then unexercised,
will be increased or decreased in proportion to the change in Common Stock and
the Committee will make any other appropriate and equitable adjustment in the
kind of shares, the exercise price or other consideration as to which all
outstanding Options, or portions thereof then unexercised, will be exercisable.
Any such adjustment made by the Committee will be final and binding upon all
Optionees, the Company and all other interested persons.
Section 4.6 - Merger, Consolidation, Exchange, Acquisition, Liquidation or
Dissolution
(a) All outstanding Options issued under the Plan will immediately become
exercisable as to all shares of Common Stock covered thereby in the event that
(i) the Company merges with or into, or consolidates with, another entity; (ii)
the Company sells, exchanges or otherwise disposes of all or substantially all
of the assets of the Company; (iii) 50% or more of the Company's then
outstanding shares of voting stock is acquired by another corporation, person
or entity; (iv) the Company liquidates or dissolves; or (v) the Company
recapitalizes or enters into any similar transaction, and as a result of which
the Common Stock either (A) is no longer a voting equity security of the
Company or (B) is no longer listed on a national securities exchange or
authorized for quotation on an inter-dealer quotation system of a national
securities association. In connection with any such transaction the Committee
may, but shall not be required to, provide that all outstanding Options shall
automatically be converted into the right to receive from the Company or its
successor, not later than 30 days after the transaction, cash in an amount
equal to the number of shares of Common Stock covered by the Options
immediately prior to the transaction times (i) the fair market value of the
consideration receivable by the holder of one share of Common stock immediately
following transaction less (ii) the exercise price per share of Common stock
covered by the Option immediately prior to the transaction. In addition, the
Committee may, in its sole discretion, provide that the Options will terminate
30 days following the consummation of a transaction described above. For
purposes of this paragraph (a), the term "Company" shall not include any
Subsidiary.
(b) Upon the occurrence of any event described in paragraph (a) and if an
Optionee does not elect to exercise his or her Options in connection with such
event as therein provided and the Committee does not provide for the
termination of such Options, then following consummation of such event, such
Optionee, upon exercise of his or her Options, will only be entitled to receive
the kind and amount of stock, securities or assets that such Optionee would
have received had such Optionee exercised his or her Options immediately prior
to such transaction.
(c) The Company shall promptly notify each holder of an Option of any event
which shall cause the acceleration of all outstanding Options and of any
conversion of Options into the right to receive cash or the termination of
Options each as described in paragraph (a).
Section 4.7 - Expiration of Options Upon Certain Breaches
Notwithstanding any other provision of the Plan or any other agreement, if an
Optionee breaches any non-competition agreement with the Company or any of its
Subsidiaries or breaches any agreement or duty imposed by law with respect to
the pre-termination or post-termination conduct of such Optionee (including,
without limitation, any confidentiality agreement), then all outstanding
unexercisable Options held by such Optionee or such Optionee's Permitted
Transferees will immediately expire.
<PAGE> 8
ARTICLE 5
EXERCISE OF OPTIONS
Section 5.1 - Persons Eligible to Exercise
During the lifetime of the Optionee, only he or a Permitted
Transferee may exercise an Option granted to him, or any portion thereof.
After the death of the Optionee, any exercisable portion of an Option may,
prior to the time when such Option portion becomes unexercisable under Section
4.3 or Section 4.6, be exercised by a Permitted Transferee.
Section 5.2 - Partial Exercise
At any time and from time to time following the date on which an
Option becomes exercisable under Section 4.2 and prior to the time when any
exercisable Option or exercisable portion thereof expires or becomes
unexercisable under Section 4.3 or Section 4.6, such Option or portion thereof
may be exercised, subject to Section 5.3, in whole or in part; provided,
however, that the Company will not be required to issue fractional shares.
Each Option granted to an Optionee in any Fiscal Year may only be exercised for
an even number of shares of Common Stock representing an equal number of Shares
subject to the Purchased Portion Exercise Price as shares subject to the
Granted Portion Exercise Price; provided further that the Company is only
required to issue the lesser of (i) 100 shares of Common Stock, and (ii) the
total number of shares of Common Stock subject to any one Option.
Section 5.3 - Manner of Exercise
An exercisable Option, or any exercisable portion thereof, may be exercised
such that one share of Common Stock subject to the Purchased Portion Exercise
Price is purchased for each Share of Common Stock subject to the Granted
Portion Exercise Price that is purchased. Such Option or portion thereof is
exercisable solely by delivering to the Secretary or his office all of the
following prior to the time when such Option or such portion becomes
unexercisable under Section 4.3 or Section 4.6:
(i) notice in writing signed by the Optionee or other person then entitled
to exercise such Option or portion thereof, stating that such Option or portion
thereof is exercised;
(ii) full payment of the Purchased Portion Exercise Price and the Granted
Portion Exercise Price (in cash, by check or by the presentation of shares of
Common Stock valued at the Fair Market Value of such shares of Common Stock on
the trading day immediately preceding the date such Option is exercised) for
the shares with respect to which such Option or portion thereof is thereby
exercised, together with payment or arrangement for payment of any federal
income or other tax required to be withheld by the Company with respect to such
shares;
(iii) such representations and documents as the Committee reasonably deems
necessary or advisable to effect compliance with all applicable provisions of
the Securities Act, and any other federal, state or foreign securities laws or
regulations. The Committee may, in its absolute discretion, also take whatever
additional actions it deems appropriate to effect such compliance, including,
without limitation, placing legends on share certificates and issuing
stop-transfer orders to transfer agents and registrars; and
(iv) in the event that the Option or portion thereof shall be exercised
pursuant to Section 5.1 by any person or persons other than the Optionee,
appropriate proof of the right of such person or persons to exercise the
Option or portion thereof.
Section 5.4 - Rights as Stockholders
The holders of Options shall not be, nor have any of the rights or
privileges of, stockholders of the Company in respect of any shares purchasable
upon the exercise of any part of an Option unless and until certificates
representing such shares have been issued by the Company to such holders.
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ARTICLE 6
ADMINISTRATION
Section 6.1 - Compensation Committee
The Committee shall consist of at least two directors of the Company. It shall
be appointed by and shall serve at the pleasure of the Board. To the extent
required to avoid liability under Section 16 of the Exchange Act, no person
shall be eligible to serve on the Committee unless he is then a "disinterested
person" as such term is used in Rule 16b-3(c)(2)(i) of the rules of the
Securities and Exchange Commission under the Exchange Act, as such rule or its
equivalent is then in effect. Appointment of Committee members shall be
effective upon acceptance of appointment. Committee members may resign at any
time by delivering written notice to the Board. Vacancies in the Committee
shall be filled by the Board.
Section 6.2 - Duties and Powers of Committee
It shall be the duty of the Committee to conduct the general administration of
the Plan in accordance with its provisions. The Committee shall have the power
to interpret the Plan and the Options and to adopt such rules for the
administration, interpretation, and application of the Plan as are consistent
therewith and to interpret, amend or revoke any such rules. Any such
interpretations and rules shall be consistent with the basic purpose of the
Plan to grant Options. In its absolute discretion, the Board may at any time
and from time to time exercise any and all rights and duties of the Committee
under the Plan provided that the Board will not exercise any rights and duties
of the Committee if such action would cause the Plan or any grant thereunder to
fail to comply with the exemption provided in Rule 16b-3 (or any comparable
rule then in effect) under Section 16 of the Exchange Act.
Section 6.3 - Majority Rule
The Committee will act by a majority of its members in office and the Committee
may act either by vote at a telephonic or other meeting or by a memorandum or
other written instrument signed by a majority of the Committee.
Section 6.4 - Professional Assistance; Good Faith Actions; Indemnification
The Committee may employ attorneys, consultants, accountants, appraisers,
brokers or other persons, and all expenses and liabilities the Committee incurs
in connection therewith or otherwise in connection with the administration of
the Plan will be borne by the Company. The Committee, the Company and the
officers and Directors of the Company will be entitled to rely upon the advice,
opinions or valuations of any such persons so employed. All actions taken and
all interpretations and determinations made by the Committee in good faith will
be final and binding upon all Optionees, the Company and all other interested
persons. No member of the Committee will be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan or
the Options, and all members of the Committee will be fully protected and
indemnified by the Company with respect to any such action, determination or
interpretation.
ARTICLE 7
MISCELLANEOUS PROVISIONS
Section 7.1 - Options Not Transferable
No Option or interest or right therein will be subject to disposition by
transfer, alienation, anticipation, pledge, encumbrance, assignment or any
other means, whether such disposition be voluntary or involuntary or by
operation of law or by judgement, levy, attachment, garnishment or any other
legal or equitable proceeding (including bankruptcy), and any attempted
disposition thereof will be null and void and of no effect; provided, however,
that nothing in this Section 7.1 will prevent transfers to Permitted
Transferees.
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<PAGE> 10
Section 7.2 - Amendment, Suspension or Termination of the Plan
The Board may amend or terminate the Plan, but may not (i) without
the consent of the Optionees, alter or impair any rights or obligations under
any Option theretofore granted, or (ii) make any alteration in the Plan that
would cause the Plan to fail to comply with (A) Section 16 of the Exchange Act
(or Rule 16b-3 of the rules of the Securities and Exchange Commission under the
Exchange Act), or (B) any other requirement of applicable law or regulation, if
such revision or amendment were not approved by the holders of the Common Stock
of the Company, unless and until the approval of the holders of such Common
Stock is obtained.
Section 7.3 - Effect of Plan Upon Other Option and Compensation Plans
Nothing in the Plan will be construed to limit the right of the
Company or any of its Subsidiaries (i) to establish any other forms of
incentives or compensation for employees of the Company or any of its
Subsidiaries or (ii) to grant or assume options otherwise than under the Plan
in connection with any proper corporate purpose, including, but not by way of
limitation, the grant or assumption of options in connection with the
acquisition by purchase, lease, merger, consolidation or otherwise, of the
business, stock or assets of any corporation, firm or association.
Section 7.4 - Titles
Titles are provided herein for convenience only and are not to
serve as a basis for interpretation or construction of the Plan.
Section 7.5 - Foreign Employees
Notwithstanding anything to the contrary in Articles III, IV and V (other than
Section 4.3(d) and Section 5.1), the Committee may grant options to eligible
Employees who are not United States citizens or residents on such terms and
conditions as may, in the judgement of the Committee, be necessary or desirable
to foster the purposes of the Plan. In furtherance of the purposes of the
Plan, the Committee may adopt such modifications to the terms of Options and
such procedures and guidelines, and may cause the Company to take such other
actions, as may be necessary or advisable to comply with foreign laws and
practices.
Section 7.6 - Certain Powers of the Committee
Notwithstanding anything to the contrary, the Committee may on such terms and
conditions as it may determine to be appropriate and subject to Section 7.2,
waive certain provisions of this Plan from time to time as it sees fit,
provided however that under no circumstances may Section 4.3(b) or 4.3(d) be
waived.
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