<PAGE>
As filed with the Securities and Exchange Commission on July 29, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(AMENDMENT NO. 1)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
COMMISSION FILE NUMBER 33-30999
---------------------------------
R.P. SCHERER CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3523163
(State of Incorporation) (I.R.S. Employer
2301 WEST BIG BEAVER ROAD, Identification Number)
TROY, MICHIGAN 48084 (Address of principal
(Zip code) executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (248) 649-0900
---------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
--------------------- -----------------------------------------
COMMON STOCK, $.01 PAR VALUE
NEW YORK STOCK EXCHANGE
6 3/4% SENIOR NOTES DUE 2004 NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: None _________
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES /X/ NO / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. YES /X/ NO / /
The aggregate market value of all shares of common stock held by non-affiliates
of the Registrant as of June 5, 1998 was approximately $1,742,000,000 (based on
closing price of $82.00 per share as of June 5, 1998).
Number of shares outstanding of each class of the Registrant's common stock as
of June 5, 1998: 23,994,076 shares of common stock, par value $.01.
---------------------------
DOCUMENTS INCORPORATED BY REFERENCE:
None.
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<PAGE>
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
EXECUTIVE OFFICERS AND DIRECTORS
The name, age and employment history, including all positions held
concurrently or successively in the past five years, of each of the R.P.
Scherer Corporation's (the "Company") executive officers and directors are
included in Item I of the Company's Annual Report on Form 10-K filed on June 11,
1998.
The Board of Directors met four times during the Company's fiscal year ended
March 31, 1998. 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 currently 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 Board of Directors. The
Audit Committee met three times during the 1998 fiscal year.
The Executive Committee currently consists of Directors Aleksandar Erdeljan,
James A. Stern (Chairman) and Ken Way. 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 met once during the 1998 fiscal year.
The Compensation Committee currently 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 four times during the 1998 fiscal year.
COMPENSATION OF OUTSIDE DIRECTORS
Directors of the Company who are not officers 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.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, officers and persons who
own more than 10% of a registered class of the
<PAGE>
Company's equity securities to file reports of ownership and changes in
ownership with the Securities and Exchange Commission and the New York Stock
Exchange. Directors, officers and greater than 10% beneficial owners are
required by applicable regulations to furnish the Company with copies of all
Section 16(a) forms they file. Based solely upon a review of the copies of
the forms furnished to the Company, the Company believes that during the 1998
fiscal year all filing requirements applicable to its directors and officers
under Section 16(c) were satisfied on a timely basis.
3
<PAGE>
ITEM 11 EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE FOR FISCAL YEAR 1998
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 (the "named executive officers").
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation (2) Awards (3)
-------------------------- -------------
Securities
Name and Fiscal Underlying
Principal Position Year Salary Bonus Options (#)
- ------------------- ------ ---------- --------- -------------
<S> <C> <C> <C> <C>
Aleksandar Erdeljan 1998 $586,523 $457,600 62,522
Chairman and Chief 1997 (1) 688,367 253,000 (2) 57,392
Executive Officer 1996 706,270 - 39,868
George L. Fotiades 1998 328,333 248,641 (4) 104,266
President and Chief Operating 1997 237,500 111,625 (4) 20,652
Officer 1996 - - (4) 8,472
Nicole S. Williams 1998 237,841 191,500 26,325
Executive Vice President, 1997 228,764 105,877 24,018
Finance, Chief Financial 1996 220,389 48,783 16,200
Officer, and Secretary
Thomas J. Stuart 1998 192,388 154,895 20,840
Senior Vice President, 1997 185,977 85,639 19,426
Corporate Planning and 1996 132,053 31,141 10,342
Development
Dennis R. McGregor 1998 123,627 101,504 14,259
Treasurer and Director of 1997 119,347 56,120 12,730
Tax Operations 1996 105,436 23,338 7,750
</TABLE>
- --------------------------------------------------------------------------------
(1) Mr. Erdeljan's participation in the Company's bonus program began in fiscal
1997. The salary paid Mr. Erdeljan in fiscal 1997 reflects the previous
compensation structure in which total cash compensation, consisting of only
salary, reflected in part the performance of the Company during the prior
fiscal year.
(2) In fiscal 1996, with Mr. Cashman's decision to step down from his position
of Chairman and co-CEO and the appointment by the Board of Directors of Mr.
Erdeljan to the positions of Chairman, President and CEO, it was decided by
the Compensation Committee that a new compensation structure should be put
in place for Mr. Erdeljan. Effective for Fiscal 1997, the new compensation
structure reflected the additional responsibilities and more traditional
structure than had existed previously. The Committee conducted a survey of
executive base salaries paid for similar positions in companies of similar
size as Scherer, as well as an analysis of the Peer Group to determine an
appropriate base salary level that would place Mr. Erdeljan in the median
to 75th percentile of base salaries for similar positions of such
companies. This resulted in the establishment of a base salary for Fiscal
1997 of $550,000. Mr. Erdeljan also became a participant in the EVA
Incentive Compensation Plan, which determined his cash bonus and stock
option grant for Fiscal 1997.
(3) The Company does not have restricted stock award plans, long term incentive
plans ("LTIPs") or stock appreciation rights ("SARs"). Other annual
compensation is below the level where disclosure would be required by
Exchange Act rules.
(4) Mr. Fotiades began employment with the Company in June, 1996 and was
appointed a Director of the Company and President and Chief Operating
Officer of the Company in January 1998.
4
<PAGE>
OPTION GRANTS FOR FISCAL YEAR 1998
The following table provides information on option grants for the Company's
common stock in fiscal year 1998 to the named executive officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATE
OF STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
------------------------------------------------------------- ------------------------------
SECURITIES % OF TOTAL EXERCISE OR
UNDERLYING OPTION BASE
OPTIONS GRANTS FOR PRICE EXPIRATION
NAME GRANTED (#) THE YEAR ($/SHARE) DATE 5% ($) 10% ($)
- ---------------------- ------------- ----------- ------------ --------------- ------------ --------------
(1) (2) (2)
<S> <C> <C> <C> <C> <C> <C>
Aleksandar Erdeljan: 62,522 10.54% $81.84 June 1, 2005 $2,083,052 $4,854,396
George L. Fotiades: 70,000 11.80% $57.75 Jan. 15, 2005 1,645,704 3,835,189
34,266 5.78% $81.84 June 1, 2005 1,141,644 2,660,515
Nicole S. Williams: 26,325 4.44% $81.84 June 1, 2005 877,073 2,043,952
Thomas J. Stuart: 20,841 3.51% $81.84 June 1, 2005 694,362 1,618,158
Dennis R. McGregor: 14,259 2.40% $81.84 June 1, 2005 475,069 1,107,112
</TABLE>
- --------------------------------------------------------------------------------
(1) In accordance with the 1997 Stock Option Plan, the exercise price of these
options is no less than the fair market value of the underlying shares on
the date of grant of the options, but, if greater, will be the average of
the fair market value of the stock on each of the trading days from the
period of March 1st of the fiscal year preceding the applicable fiscal year
until April 30th of the applicable fiscal year times a factor of 1.27628
which represents five compounded 5% increases in the average fair market.
(2) Exercise or Base Price Based closely approximates market value per share at
date of grant.
5
<PAGE>
OPTION EXERCISES IN FISCAL YEAR 1998 AND
FISCAL YEAR END OPTION VALUE
The following table provides information on option exercises in fiscal year 1998
by the named executive officers and the value of such officers' options at March
31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR END FISCAL YEAR END (2)
-------------------------- ------------------------------
NOT NOT
SHARES ACQUIRED VALUE EXERCISABLE EXERCISABLE EXERCISABLE EXERCISABLE
NAME ON EXERCISE (#) REALIZED ($) (#) (#) ($) ($)
- --------------------- ----------------- ------------ ----------- ------------ ------------- --------------
(1)
<S> <C> <C> <C> <C> <C> <C>
Aleksandar Erdeljan N/A N/A 803,831 159,782 $40,994,828 $1,089,986
George L. Fotiades N/A N/A 2,824 130,566 175,116 1,314,632
Nicole S. Williams N/A N/A 80,324 66,543 2,268,365 452,424
Thomas J. Stuart N/A N/A 56,222 50,609 1,774,475 344,695
Dennis R. McGregor 6,896 $198,794 17,492 34,739 353,688 233,362
</TABLE>
- --------------------------------------------------------------------------------
(1) A substantial majority of the options now exercisable by Mr. Erdeljan were
granted in connection with his interest in the leveraged buy-out of the
Company in June, 1989.
(2) Based upon market value of $67.50 per share at March 31, 1998.
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 1998 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
The Company entered into employment agreements with Mr. Erdeljan and Nicole S.
Williams in June 1994 and with Mr. Fotiades in January 1998 (collectively, the
"Agreements"). The Agreements 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. Pursuant to the Agreements, the
annual salaries for Mr. Erdeljan, Ms. Williams and Mr. Fotiades (collectively,
the "Employees") as of June 1, 1998 were $596,024, $249,429 and $407,000,
respectively, with further adjustments available at the discretion of the
Compensation Committee of the Company's Board of Directors. Pursuant to these
Agreements, if an Employee's employment is terminated by Scherer without Cause
(as defined below) or by the Employee for Good Reason(as defined below) or the
Company expresses its intention to terminate the Agreement at the end of the
term of such agreement, the Employee is to receive (i) a monthly amount for 24
months equal to one-twelfth of the Employee's annual average salary for the
prior 12 months (the "Termination Benefit"), (ii) welfare plan benefits for 24
months in accordance with
6
<PAGE>
the terms of such plans and (iii) use of a company car for 12 months. In the
event of an Employee's physical or mental disability (as defined in the
Agreements) the Company may terminate employment and shall, subject to
certain reductions, provide such Employee with the Termination Benefit.
For purposes of the Agreements, "Cause" means: (i) any act or acts of the
Employee constituting a felony or its equivalent; (ii) any material breach by
the Employee of any employment agreement with the Company or its policies or
the willful and persistent failure or refusal of the Employee to perform his
or her duties of employment or comply with any lawful directives of the
Company's Board of Directors; (iii) a course of conduct amounting to gross
negligence, willful misconduct or dishonesty; or (iv) any misappropriation of
material property or a corporate or business opportunity of the Company. For
purposes of the Agreements, "Good Reason" means: (i) any material reductions
of such Employee's duties, responsibilities or titles; (ii) subject to
certain exceptions, any involuntary removal of such Employee from any prior
position; (iii) voluntary termination by such Employee within six months
after a Change in Control (as defined in the Agreements and which term
encompasses the Merger as defined below); or (iv) such other reasons as may
be approved by the Company, in its sole discretion, from time to time. The
Agreements contain confidentiality clauses as well as a non-competition
clause which provides that the Employee is not to compete with Scherer for a
period of two years after termination of employment.
The Employees 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, the Employees are eligible to participate in the
Incentive Compensation Plan as described elsewhere herein.
In connection with the Agreement and Plan of Merger, dated as of May 17, 1998
(the "Merger Agreement"), by and among the Company, Cardinal Health, Inc.
("Cardinal") and a wholly owned subsidiary of Cardinal, pursuant to which,
subject to the conditions and on the terms set forth in the Merger Agreement,
the subsidiary of Cardinal is to be merged with and into the Company, with
the Company surviving and becoming a wholly owned subsidiary of Cardinal (the
"Merger"), Mr. Erdeljan, the Company and Cardinal entered into an amendment
(the "May 17 Amendment") to Mr. Erdeljan's Agreement. Pursuant to such
amendment, (i) if Mr. Erdeljan terminates his employment (x) prior to the
90th day following the effective date of the Merger between the Company and
Cardinal (the "Merger") (the "90th Day"), such termination shall not be
deemed to be for Good Reason and he shall not be entitled to any further
payments or welfare plan benefits, (y) after the 90th Day, he shall receive
(1) after payment of the Termination Benefit described above, termination
payments for an additional 12 month period, (2) for each of the three years
following termination, an amount equal to his annual bonus received
immediately before such termination and (3) welfare plan benefits for a total
of 60 months and (ii) the non-compete clause contained in the Prior Agreement
has a five(rather than two) year term. On May 17, 1998, Mr. Fotiades, the
Company and Cardinal entered into an amendment and restatement to Mr.
Fotiades' Agreement, and the Company and Cardinal entered into an employment
agreement with Mr. Stuart pursuant to which Mr. Stuart shall receive an
annual salary of $230,000 (Mr. Fotiades' Agreement, as amended and restated,
and Mr. Stuart's employment agreement, collectively, the "Fotiades/Stuart
Employment Agreements" and, along with Mr. Erdeljan's Agreement, as amended
pursuant to the May 17 Amendment, collectively, the "Employment Agreements"),
each to become effective at the effective date of the Merger. The
Fotiades/Stuart Employment Agreements' terms differ from the Agreements in
that pursuant to the Fotiades/Stuart Employment Agreements, Mr. Fotiades and
Mr. Stuart will receive a retention bonus ("Retention Bonus") of $500,000
and $300,000, respectively, to be paid in four installments with the first to
be paid at the effective date of the Merger and the last to be paid on the
third anniversary thereof provided that such payments shall be made, subject
to the exception set forth in clause (ii) of this paragraph, only for so long
as Messrs. Fotiades and Stuart, respectively, are employed under the
applicable
7
<PAGE>
Fotiades/Stuart Agreement. In addition, a voluntary termination by Messrs.
Fotiades or Stuart in connection with a change in control shall be excluded
from the definition of "Good Reason." If Messrs. Fotiades or Stuart,
respectively, terminates employment for Good Reason or his employment is
terminated without Cause he shall receive, in addition to amounts described
in the Agreement, (i) for the two years after termination, an amount equal to
the average of the annual bonuses paid in the prior two years and (ii) any
remaining installments of the Retention Bonus.
8
<PAGE>
RETIREMENT PLANS
Pursuant to the Merger Agreement, for a period of at least one year following
the effective time of the Merger, benefits will be provided to continuing and
former employees of the Company and its subsidiaries that, in the aggregate,
are no less favorable than the benefits provided under the benefit plans
applicable to the Company's and its subsidiaries' employees immediately
prior to consummation of the Merger (although there is no requirement to keep
in effect any particular plan).
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 1998, the
Company accrued aggregate contributions for the Retirement Income Plan in an
amount approximating 3% 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 in
1994, now adjusted for inflation to $160,000, as opposed to $235,840 which
was in effect for 1993), and impacted 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 1998 limit is $267,339). 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.
9
<PAGE>
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 1998.
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 $17,250 $34,500 $51,750 $66,625
150,000 21,000 42,000 63,000 81,000
175,000 24,750 49,500 74,250 95,375
200,000 28,500 57,000 85,500 109,750
225,000 32,250 64,500 96,750 124,125
250,000 (1) 36,000 72,000 108,000 138,500
300,000 (1)
36,000 72,000 108,000 138,500
350,000 (1) 36,000 72,000 108,000 138,500
400,000 (1) 36,000 72,000 108,000 138,500
450,000 (1) 36,000 72,000 108,000 138,500
500,000 (1) 36,000 72,000 108,000 138,500
</TABLE>
- -------------------------------------------------------------------------------
(1) The Retirement Income Plan has 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 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 ($160,000 for calendar 1998).
Credited service in the Plans for those individuals listed in SUMMARY
COMPENSATION TABLE FOR FISCAL YEAR 1997 who are active participants is as
follows: Mr. Erdeljan, 16.7 years (including years credited for service from
1978 to 1987 and from 1989 to the present); Mr. Fotiades 1.5 years, Ms.
Williams, 5.9 years; Mr. Stuart, 7.7 years; and Mr. McGregor, 4.4 years. The
final average compensation of such individuals as of January 1, 1998 was
approximately as follows: Mr. Erdeljan, $248,264; Mr. Fotiades $165,553, Ms.
Williams, $248,264; Mr. Stuart, $214,637, and Mr. McGregor, $160,177.
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 $10,000 for the 1998 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 $500. All
contributions become 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.
10
<PAGE>
The Incentive Compensation Plan is administered by the Compensation Committee
of the Board of Directors (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 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 37 employees are Participants in the Incentive Compensation
Plan. The Participant(s) of each Unit are eligible to receive an annual
award based on the EVA performance of their unit (the "EVA Award"). 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 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
Pursuant to the Merger Agreement, stock options outstanding under the 1997
Stock Option Plan, the 1992 Stock Option Plan and the 1990 Stock Option Plans
will be converted upon consummation of the Merger into options to purchase
common shares of Cardinal (with appropriate adjustments to reflect the ratio
used pursuant to the Merger Agreement for the exchange of common stock of the
Company for common shares of Cardinal in the Merger). Such Cardinal options
otherwise will have the same terms and conditions as the Company options from
which they were converted, and as a result, unvested Company options issued
pursuant to the
11
<PAGE>
Company stock option plans will automatically vest upon consummation of the
Merger to the extent such acceleration of vesting is provided for in the
Company's stock option plans.
1997 STOCK OPTION PLAN
The purpose of the R.P. Scherer 1997 Stock Option Plan (the "1997 Stock
Option Plan") is to attract, retain and motivate selected employees and
directors who are in a position to have an impact on the results of the
operations of the business of the Company or one or more of its Subsidiaries.
The Company expects that it will benefit from the additional incentive which
such employees will have to increase the value of the Company's Shares as a
result of the Plan.
The 1997 Stock Option Plan provides for up to 1.2 million shares to be issued
thereunder. The 1997 Stock Option Plan provides selected employees and
directors with options to purchase common stock of the Company and is
designed to comply with the requirements of Section 162(m) of the Internal
Revenue Code. The 1997 Stock Option Plan is administered by the Committee,
which has the authority to grant options and set the terms and conditions of
each grant. Under the terms of the 1997 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 Committee is eligible to receive options under the 1997 Stock Option
Plan. Currently, there are approximately 37 participants in the 1997 Stock
Option Plan ("Optionee"). The Committee also has the authority to ensure
that the 1997 Stock Option Plan complies with foreign law and practices.
It is the intent of the Committee that options granted under the 1997 Stock
Option Plan will have the same fundamental attributes of options granted
under the 1992 Stock Option Plan. These attributes, which, where applicable
will appear in the option award agreements, are namely the following: the
stock options will be for a term of seven (7) years and will vest three (3)
years from the date of grant; and the exercise price of these options will be
established in such a manner as to ensure that the stock appreciates for the
shareholder before participants realizes any compensation from exercise of
the stock options. Accordingly, the exercise price of these options will be
no less than the fair market value of the underlying shares on the date of
grant of the options, but, if greater, will be the average of the fair market
value of the stock on each of the trading days from the period of March 1st
of the fiscal year preceding the applicable fiscal year until April 30th of
the applicable fiscal year times a factor of 1.27628 which represents five
compounded 5% increases in the average fair market.
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 1997 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 1997 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 1997 Stock Option Plan that would cause the 1997 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.
Based on fiscal 1998 performance, a total of 497,947 shares were granted
under the 1997 Stock Option Plan on June 1, 1998 based on fiscal 1998
performance. Such 497,947 shares are exercisable at $81.84 per share, the
market value on the date of grant. For persons named in the SUMMARY
COMPENSATION TABLE FOR FISCAL YEAR 1998 and all executive officers as a
group, the following options were granted under the 1997 Stock Option Plan,
all for fiscal 1998:
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Aleksandar Erdeljan, 62,522 shares; George L. Fotiades, 34,266 shares, Nicole
S. Williams, 26,325 shares; Thomas J. Stuart, 20,841 shares; Dennis R.
McGregor, 14,259 shares; and all executive officers as a group,181,248
shares. A total of 316,699 share options were granted to other non-executive
officer employees for fiscal 1998. Additionally under the 1997 Stock Option
Plan, on January 15, 1998 George L. Fotiades was granted 70,000 shares having
an exercise price of $57.75, approximating the market price on the date of
grant, as a result of his appointment as President and Chief Operating
Officer. No compensation expense was recorded by the Company in connection
with the 1997 Stock Option Plan for fiscal 1998. At June 30, 1998, a total
of 302,535 options for common stock remain available for future grant under
the 1997 Stock Option Plan.
As of July 24, 1998, the last sale price of the Common Stock on the New York
Stock Exchange was $89.125 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 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 505,815 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 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 1998, 5,116 options under the 1990 Stock Option Plans were
granted to new employees of the Company, 501,049 options were exercised and
7,525 options were cancelled, leaving 532,798 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. In fiscal 1998, $0.1 million of compensation expense was
recorded related to fiscal 1998 grants under the 1990 Stock Option Plans.
As of July 24, 1998, the last sale price of the Common Stock on the New York
Stock Exchange was $89.125 per share.
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ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND MANAGEMENT
The following table sets forth information as of June 30, 1998, 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>
NUMBER OF COMMON
NAME AND ADDRESS SHARES PERCENT
------------------ ---------------- ---------
<S> <C> <C>
G E Investment Management Incorporated (1) 1,380,544 5.8%
3003 Summer Street
Stamford, CT 06904-7900
Manning & Napier Advisors (2) 1,294,785 5.4%
1100 Chase Square
Rochester, NY 14604
Aleksandar Erdeljan 920,973 3.7%
George Fotiades 2,824 *
Nicole S. Williams 80,324 *
Thomas J. Stuart 56,322 *
Dennis R. McGregor 17,492 *
John E. Avery 12,000 *
Frederick Frank 12,000 *
Lori G. Koffman 12,000 *
Louis Lasagna 8,000 *
Robert H. Rock 12,000 *
James A. Stern 12,000 *
Kenneth L. Way 2,000 *
R.P. Scherer Corporation(3)
2301 West Big Beaver Road
Troy, Michigan 48084
All officers and directors as a group(3) 1,148,735 4.6%
</TABLE>
- ----------------------------------------------------------------------------
* Represents less than 1% of the Company's outstanding common stock.
(1) As reported in Schedule 13G filed with the SEC by G E Investment Management
Incorporated on February 13, 1998 in a statement filed on behalf of General
Electric Company ("GE"), General Electric Investment Corporation, a wholly
owned subsidiary of GE ("GEIC"), GE Investment Management Incorporated, a
wholly owned subsidiary of GE ("GEIM"), and the Trustees of General
Electric Pension Trust, a New York common law trust ("GEPT"). GEIC acts as
an Investment Adviser (registered under the Investment Advisers Act of
1940) to GEPT and certain other entities and accounts, and may be deemed to
be a beneficial owner of 470,051 shares owned by GEPT and of 486,795 shares
owned by such other entities and accounts. GEIM acts as an Investment
Adviser (registered under the Investment Advisers Act of 1940) to certain
entities and accounts, and may be deemed to be a beneficial owner of
423,698 shares of Common Stock of the Issuer owned by such entities or
accounts.
(2) As reported in Schedule 13G/A filed with the Securities and Exchange
Commission (the "SEC") by Manning & Napier Advisors, Inc. on July 7, 1998
Manning & Napier Advisors, Inc. exercised beneficial ownership and sole
dispositive power as of that date with respect to 1,294,785 shares and,
with respect to 1,235,260 of these same shares, sole voting power.
(3) 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
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<PAGE>
listed include shares subject to options granted pursuant to the
Company's stock plans exercisable within sixty days held as of June 30,
1998, as follows: Mr. Erdeljan - 803,831 shares; Mr. Fotiades - 2,824
shares, Ms. Williams - 80,324 shares; Mr. Stuart - 56,322 shares; Mr.
McGregor - 17,492 shares; Mr. Avery - 12,000 shares, Mr. Frank - 12,000
shares, Ms. Koffman - 12,000 shares, Dr. Lasagna - 8,000 shares; Dr.
Rock -12,000 shares and Mr. Stern - 12,000 shares.
15
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ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships appears in Items 1 and 8 of
the Company's Annual Report on Form 10-K, as filed with the Securities and
Exchange Commission on June 11, 1998, and in Item 10 of this Form 10-K/A.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, R.P. Scherer Corporation has duly caused
this Amendment No. 1 to its Annual Report on Form 10-K for the fiscal year
ended March 31, 1998 to be signed on its behalf by the undersigned, thereunto
duly authorized, on July 28, 1998.
R.P. SCHERER CORPORATION
By: /s/ Aleksandar Erdeljan
--------------------------------
Aleksandar Erdeljan
Chairman and Chief Executive
Officer
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