<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 ss. 240.14a-11(C) or ss. 240.14a-12
SOFAMOR DANEK GROUP, INC.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11. (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
-----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
5) Total fee paid:
[ ] 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 the 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
SOFAMOR DANEK GROUP [LOGO]
1800 PYRAMID PLACE
MEMPHIS, TENNESSEE 38132
--------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
APRIL 29, 1997
--------------------------------------------------------------
The Annual Meeting of Shareholders of Sofamor Danek Group, Inc. (the
"Company") will be held at The Ridgeway Inn, 5679 Poplar Avenue, Memphis,
Tennessee, on Tuesday, April 29, 1997 at 10:30 a.m. to:
(1) Elect nine (9) directors, each for a term of one year;
(2) Act upon a Proposal to approve the Company's 1993 Long Term
Incentive Plan, as amended.
(3) Transact such other business as may properly come before the
meeting.
Only shareholders of record of Common Shares at the close of business on
March 10, 1997 will be entitled to vote at the meeting.
By Order of the Board of Directors
Richard E. Duerr, Jr.
Secretary
Memphis, Tennessee
March 21, 1997
- - --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE MEETING, THE BOARD OF DIRECTORS
URGES YOU TO COMPLETE, DATE, AND SIGN THE ENCLOSED PROXY AND RETURN IT WITHOUT
DELAY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO ADDITIONAL POSTAGE IF MAILED
IN THE UNITED STATES.
- - --------------------------------------------------------------------------------
<PAGE> 3
SOFAMOR DANEK GROUP [LOGO]
1800 PYRAMID PLACE
MEMPHIS, TENNESSEE 38132
March 21, 1997
--------------------------------------
PROXY STATEMENT
--------------------------------------
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Sofamor Danek Group, Inc. (the
"Company") for use at its Annual Meeting of Shareholders on April 29, 1997 and
any adjournments thereof. Common Shares (as defined below) represented at the
meeting by the enclosed proxy will be voted in accordance with any directions
noted thereon. A shareholder giving a proxy may revoke it before it is voted by
giving written notice of such revocation to the Secretary of the Company prior
to its exercise. Attendance at the meeting by a shareholder who has given a
proxy will not have the effect of revoking a proxy previously given unless the
shareholder gives such written notice of revocation to the Secretary of the
Company before the proxy is voted.
Votes cast by proxy or in person at the Annual Meeting will be
tabulated by the election inspectors appointed for the meeting and will
determine whether or not a quorum is present. The election inspectors will treat
abstentions as shares that are presented and entitled to vote for purposes of
determining the presence of a quorum. If a broker indicates on the proxy that it
does not have discretionary authority as to certain shares to vote on a
particular matter, those shares will not be considered as present and entitled
to vote with respect to that matter.
The election of directors requires a plurality of the votes cast with a
quorum present. Abstentions and broker non-votes have no effect on the plurality
vote for the election of directors. Approval of the Long Term Incentive Plan, as
amended requires the affirmative vote of a majority of shares present or
represented and entitled to vote. For purposes of determining the number of
votes present or represented and entitled to vote on the Long Term Incentive
Plan, as amended, abstentions will be counted and will therefore be equivalent
to a vote against, but broker non-votes will not be counted.
This Proxy Statement and the accompanying form of Proxy were mailed on
or about March 21, 1997 to all shareholders of record as of the close of
business on March 10, 1997.
As of February 28, 1997, the Company had outstanding and entitled to
vote at the Annual Meeting 24,564,306 Common Shares, no par value ("Common
Shares"). Each Common Share is entitled to one vote, and only holders of record
of Common Shares as of the close of business on March 10, 1997 will be entitled
to vote at the meeting.
1
<PAGE> 4
PROPOSAL 1 ELECTION OF DIRECTORS
PROXIES IN THE ACCOMPANYING FORM WILL BE VOTED AT THE MEETING IN FAVOR
OF THE ELECTION AS DIRECTORS OF THE NOMINEES NAMED BELOW, UNLESS AUTHORITY TO DO
SO IS SPECIFICALLY WITHHELD.
Pursuant to the Company's By-Laws, the Board of Directors is elected to
a term which will expire in one year. At each Annual Meeting of Shareholders,
successors to directors whose terms expire at that meeting shall be elected for
one year terms. Nine (9) directors are to be elected at this Annual Meeting of
Shareholders to hold office for a term of one year expiring at the 1998 Annual
Meeting of Shareholders, or until a successor shall have been elected. The Board
of Directors has no reason to believe that any of the nominees named below will
be unavailable, or, if elected, will decline to serve. If some unexpected
occurrence should, in the judgment of the Board of Directors, make necessary the
substitution of some other person for any nominee, the shares represented by
proxies will be voted for such other person as the Board of Directors may
select.
Certain information is given below for each nominee for director. All
of the nominees are presently directors and were previously elected by the
shareholders (other than Marie-Helene Plais). Dr. Cotrel was formerly Chairman
of the Board of Sofamor S.A., a French Societe Anonyme ("Sofamor"). Sofamor
changed from a S.A. designation to a S.N.C. (Societe en nom Collectif) in
November, 1993. Dr. Cotrel was appointed to the Board on June 22, 1993 pursuant
to the Shareholders' Agreement dated June 21, 1993 (the "Agreement"), among the
Company, the shareholders of Sofamor ("Holders"), and SOFYC (represented by Dr.
Cotrel) as designated representative of the Holders (the "Designated
Representative"). Pursuant to the Agreement, the Company agreed that for and
after the 1995 annual meeting of the Company's shareholders, and for so long as
the Holders or their permitted assignees in the aggregate beneficially own 10%
or more of the issued and outstanding voting securities of the Company, the
Designated Representative may, with respect to each election of directors of the
Company, request the Company to include, as a nominee for the Board recommended
by the Board, one person designated by the Designated Representative; provided,
however, that, in the event that the Company issues after June 21, 1993
additional shares of voting securities, such 10% amount shall be reduced to
reflect the issuance of such voting securities; provided further that in no
event shall such amount be adjusted below 7.5%. Each such person designated by
the Designated Representative shall be so nominated by the Company if (i) he or
she does not then serve as an employee of Sofamor or any other subsidiary of the
Company, and (ii) the Board, in the exercise of its fiduciary duties, shall
determine that he or she is qualified to serve on the Board. The Holders and the
Designated Representative agreed in the Agreement that in the event that the
Designated Representative has the right to designate one person as a nominee for
the Board, such person, unless incapacitated or otherwise unavailable, shall be
Dr. Cotrel or Philippe Cotrel. As a result of Philippe Cotrel's responsibilities
as Mayor of Letouquet, France, he resigned as a director of the Company as of
January 1, 1997. Marie-Helene Plais was appointed to the Board as of such date.
2
<PAGE> 5
NOMINEES FOR DIRECTOR
<TABLE>
<CAPTION>
NAME OF NOMINEE,
YEAR FIRST ELECTED OFFICES HELD WITH COMPANY
A DIRECTOR PRINCIPAL OCCUPATION FOR PAST FIVE YEARS
<S> <C>
E.R. Pickard Mr. Pickard was President and Chief Operating Officer of the Company from August 1990
until becoming President and Chief Executive Officer on April 1, 1991 and Chairman of the
1991 Board and Chief Executive Officer on May 23, 1994. From 1968 until joining the Company,
Mr. Pickard was employed by Richards Medical Company in various capacities including
Director of Manufacturing (1975-78), Group Director of Manufacturing (1979-81), Vice
President, Manufacturing (1982-85), and President, Orthopaedics Division (1986-90). Mr.
Pickard was appointed as a Director of the Company in February 1991. Mr. Pickard is a
director of Exactech, Inc. Mr. Pickard is 48 years of age.
James J. Gallogly Mr. Gallogly has been President and Chief Operating Officer for the Company since June,
1994. From 1988 until joining the Company, Mr. Gallogly was President and Chief Executive
1994 Officer of Resound, Inc., a public company engaged in the design, development,
manufacturing, and marketing of highly specialized hearing aids and related otological
devices. Prior to joining Resound, Inc., Mr. Gallogly was President of the Microsurgery
Division of Richards Medical Company, now Smith & Nephew Richards, Inc.. Mr. Gallogly is
48 years of age.
L.D. Beard Mr. Beard has been a Director of the Company since 1983. He was President and Chief
Executive Officer of the Company from 1983 to August 1990, Chairman of the Board and Chief
1983 Executive Officer of the Company from August 1990 to April 1991 and Chairman of the Board
of the Company from April 1, 1991 until his retirement on May 23, 1994. Mr. Beard is 64
years of age.
George W. Bryan, Sr. Mr. Bryan has been a Director of the Company since July, 1992. Since 1983 Mr. Bryan has
been Senior Vice President of Sara Lee Corporation and the President of its Meat Division.
1992 Mr. Bryan is a Director of Union Planters Corporation and Union Planters National Bank.
Mr. Bryan is 52 years of age.
Robert A. Compton Mr. Compton has been a Director of the Company since April 1990, and a general partner of
CID Equity Partners since 1988. From 1985 to 1988 he served as Investment Manager with
1990 First Chicago Venture Capital. Mr. Compton is also a Director of Enterprise Systems, Inc.
and a Director of The Ewing Marion Kauffman Foundation. Mr. Compton is 41 years of age.
Yves Paul Cotrel, M.D. Dr. Cotrel has been a Director of the Company since June 1993. He had been the Chairman
of the Sofamor Board since 1986 until 1993. Dr. Cotrel was the Chief of the Spine Unit at
1993 the Calot Institute at Berck Plage from 1953-1977. Dr. Cotrel acted as a consultant to
the Luxembourg Public Health Ministry from 1977-1991, and has been Chairman of the Board
of Directors of the French Research Institute for Skeletal Diseases since 1989. Dr.
Cotrel is the father of Dr. Marie-Helene Plais. Dr. Cotrel is 71 years of age.
Samuel F. Hulbert, Ph.D. Dr. Hulbert has been a Director of the Company since 1985 and since 1976 has served as
President of Rose-Hulman Institute of Technology. Dr. Hulbert is a Director of Citizens
1985 Bank of Western Indiana. Dr. Hulbert is 60 years of age.
Marie-Helene Plais, M.D. Dr. Plais has been a Director and an Executive Vice President of the Company since
January, 1997. She has been with the Company since August, 1987. She served as the
1997 Medical Director of Sofamor until 1989 when she became Sofamor's Vice President of
Marketing and Sales. Until assuming her present position, she served as the President of
Sofamor Danek Europe. Dr. Plais is 47 years of age.
George F. Rapp, M.D. Dr. Rapp has been a Director of the Company since 1983 and is an orthopaedic surgeon who
has practiced since 1964 in Indianapolis, Indiana. He is a graduate of the Indiana
1983 University School of Medicine. Dr. Rapp also serves as a Clinical Professor of
Orthopaedic Surgery at the Indiana University School of Medicine. Dr. Rapp served as a
consultant to the Company from 1988 until December 31, 1991. Dr. Rapp is 65 years of age.
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE ELECTION, AS
DIRECTORS, OF EACH OF THE NINE INDIVIDUALS LISTED.
3
<PAGE> 6
BOARD OF DIRECTORS AND COMMITTEES
BOARD MEETINGS AND ATTENDANCE OF DIRECTORS
The Board of Directors held six (6) meetings in 1996. All directors
attended at least 75% of the aggregate of (i) the total number of meetings of
the Board of Directors held while they were members, and (ii) the total number
of meetings held by all Committees of the Board on which they served as members.
DIRECTORS' COMPENSATION
Employees who also serve as directors receive no fees for services
rendered in their capacity as directors. Fees are paid only to non-employee
directors. In 1996 each non-employee director received an annual retainer of
$25,000, which is paid quarterly, a fee of $5,000 for committee membership
(whether one or more) and the reimbursement of reasonable expenses incurred with
meeting attendance. The Company has entered into a Split Dollar Arrangement with
one non-employee director whereby the Company pays the premiums under the
non-employee director's life insurance policy. The compensation reflects the
special services provided by the non-employee director. The premium paid by the
Company in 1996 was $41,405. Upon the maturity of the policy, all premiums paid
will be returned to the Company. Non-employee directors participate in the
Director Program under the Company's Long Term Incentive Plan.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has three (3) standing
Committees: Audit Committee, Board Affairs Committee and Compensation Committee.
The members of the Audit Committee are Robert A. Compton and Samuel F.
Hulbert. This Committee, which held one (1) meeting in 1996, reviews and
recommends to the Board policies and actions; reviews internal audit activities;
recommends to the Board the engagement of independent auditors; reviews the
professional services to be rendered by the independent auditors, the scope of
their audit, their fees, and the results of their engagement; reviews insurance
and risk management activities; and oversees compliance with the Company's
business conduct policies.
The members of the Board Affairs Committee are L. D. Beard, Robert A.
Compton, E.R. Pickard and George F. Rapp, M.D. This Committee held one (1)
meeting in 1996. It is responsible for making recommendations to the Board on
issues relating to the proper and orderly functioning of the Board and,
functioning as a nominating committee, to recommend nominees for the Board.
Nominations for the election of directors may be made by the Board of
Directors or by any shareholder entitled to vote in the election of directors;
provided, however, that a shareholder may nominate a person for election as a
director at a meeting only if written notice of such shareholder's intent to
make such nomination has been given to the Secretary of the Company not later
than sixty (60) nor more than ninety (90) days in advance of the anniversary of
the previous year's annual meeting or, if later, the seventh day following the
4
<PAGE> 7
first public announcement of the date of the meeting at which the shareholder
wishes to make a nomination. Each such notice shall set forth: (i) the name and
address of the shareholder who intends to make the nomination and of the person
or persons to be nominated; (ii) a representation that the shareholder is a
holder of record of stock of the Company entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting and nominate the person
or persons specified in the notice; (iii) a description of all arrangements,
understandings, or relationships between the shareholder and each nominee and
any other person or persons (naming such person or persons) pursuant to which
the nomination or nominations are to be made by the shareholder; (iv) such other
information regarding each nominee proposed by such shareholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the United States Securities and Exchange Commission had the nominee been
nominated, or intended to be nominated, by the Board of Directors, and (v) the
consent of each nominee to serve as a director of the Company if so elected. In
addition, the shareholder making such nomination shall promptly provide any
other information reasonably requested by the Company which may include, but not
be limited to compliance with applicable proxy rules of the Securities Exchange
Act of 1934. No person shall be eligible for election as a director of the
Company unless nominated in accordance with the procedures set forth herein. The
Chairman of any meeting of shareholders shall direct that any nomination not
made in accordance with these procedures be disregarded.
The members of the Compensation Committee are George W. Bryan, Sr.,
Robert A. Compton, and Samuel F. Hulbert. This Committee, which held four (4)
meetings in 1996, is responsible for approving, administering, and recommending
to the Board compensation, stock, and benefit programs and plans for employees
of the Company.
5
<PAGE> 8
COMMON SHARES OWNED BY PRINCIPAL
SHAREHOLDERS AND MANAGEMENT
The following table sets forth, as of February 28, 1997, the number of
Common Shares beneficially owned by each Director, each nominee for Director,
the Named Officers (as hereinafter defined), all current executive officers and
Directors as a group and all persons known by the Company to own beneficially
more than 5% of the Company's Common Shares.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNERSHIP (19) COMMON SHARES
-----------------------------------------------------------------------
<S> <C> <C>
E.R. Pickard(1) 420,220 1.70%
James J. Gallogly(2) 276,019 1.11
L.D. Beard(3) 587,566 2.39
George W. Bryan, Sr.(4) 13,334 *
Robert A. Compton(5) 19,355 *
Yves Paul Cotrel, M.D.(6)(7)(8) 4,188,308 17.05
Samuel F. Hulbert, Ph.D.(9) 44,584 *
Marie-Helene Plais (6)(10)(11) 3,498,863 14.23
George F. Rapp, M.D.(9)(12) 183,589 *
Mark D. LoGuidice(13) 38,053 *
Laurence Y. Fairey(14) 26,237 *
Don W. Urbanowicz(15) 15,000 *
Annie Cotrel(6)(10) 3,463,350 14.10
Benedicte Cotrel (6)(10) 3,449,401 14.04
Marie Louise Cotrel(6)(16) 4,174,816 17.00
Philippe Cotrel(6)(8)(10) 3,478,299 14.16
Yves-Regis Cotrel(6)(10) 3,456,965 14.07
Elizabeth Cotrel Gauzan(6)(10) 3,479,935 14.17
Catherine Cotrel Lechien(6)(10) 3,467,935 14.12
Marie-Christine Milliez(6)(10) 3,467,935 14.12
SOFYC, S.C. ("SOFYC") 3,337,272 13.59
24 bis Auenue du President Wilson
75016 Paris, France
FMR Corp.(17) 1,890,800 7.70
82 Devonshire Street
Boston, MA 02109-3614
All Executive Officers and Directors as a 6,124,080 24.20
Group (18 persons)(18)
</TABLE>
- - -------------------------------------------------
* Less than one percent
6
<PAGE> 9
(1) Includes 148,250 shares which he has the right to acquire within 60
days upon the exercise of options.
(2) Includes 275,000 shares which he has the right to acquire within 60
days upon the exercise of options.
(3) Includes 3,334 shares which he has the right to acquire within 60 days
upon the exercise of options. Also includes 225,650 shares owned by Mr.
Beard's wife; 4,750 shared owned by the L. D. and Betty T. Beard
Charitable Trust; 49,548, 6,589, and 26,467 shares owned by Grantor
Retained Annuity Trusts (GRATs) #1, #2, and #3, respectively, for L. D.
Beard; and 93,841, 12, 482, and 50,127 shares owned by GRATs #1, #2,
and #3, respectively for Betty T. Beard.
(4) Includes 13,334 shares which he has the right to acquire within 60 days
upon the exercise of options.
(5) Includes 3,334 shares which he has the right to acquire within 60 days
upon the exercise of options and 3,000 shares owned by Mr. Compton's
wife.
(6) Includes 3,337,272 shares held by SOFYC, a family holding company,
which are beneficially owned by each of Yves Paul Cotrel (Dr. Cotrel),
Marie Louise Cotrel (Mrs. Cotrel), and Marie-Helene Plais, Philippe
Cotrel, Yves-Regis Cotrel, Marie-Christine Milliez, Catherine Cotrel
Lechien, Elisabeth Cotrel Gauzan, Benedicte Cotrel, and Annie Cotrel
(collectively the "Cotrel Children") with shared dispositive and voting
power. Dr. and Mrs. Cotrel each own 135,128 shares (24.8%) of SOFYC,
while each of the Cotrel Children owns 34,191 shares (6.3%).
(7) Includes 837,544 shares in usufruct with shared voting and dispositive
power.
(8) Includes 3,334 shares which he has the right to acquire within 60 days
upon the exercise of options.
(9) Includes 10,834 shares which he has the right to acquire within 60 days
upon the exercise of options.
(10) Includes 104,693 shares in nue-propriete with shared voting and
dispositive power.
(11) Includes 28,200 shares which she has the right to acquire within 60
days upon the exercise of options.
(12) Includes 48,046 shares owned by Dr. Rapp's wife. Also includes 22,800,
22,800, 22,050, and 22,050 shares owned by the George F. Rapp GRAT #3,
Margaret M. Rapp GRAT #3, George F. Rapp GRAT #4, and Margaret M. Rapp
GRAT #4, respectively.
(13) Includes 37,500 shares which he has the right to acquire within 60 days
upon the exercise of options.
(14) Includes 24,400 shares which he has the right to acquire within 60 days
upon the exercise of options.
(15) Includes 15,000 shares which he has the right to acquire within 60 days
upon the exercise of options.
(16) Pursuant to Nominee Agreements, Mrs. Cotrel has shared voting powers
with respect to 837,544 shares held in usufruct, but does not have
dispositive powers with respect to such shares.
(17) FMR Corp. beneficially owned 1,890,800 shares of the common stock of
the Company. This number includes 1,714,600 shares beneficially owned
by Fidelity Management & Research Company, as a result of its serving
as investment adviser to various investment companies registered under
Section 8 of the Investment Company Act of 1940 and serving as
investment adviser to certain other funds which are generally offered
to limited groups of investors; 157,600 shares beneficially owned by
Fidelity Management Trust Company, as a result of its serving as
trustee or managing agent for various private investment accounts,
primarily employee benefit plans and serving as investment adviser to
certain other funds which are generally offered to limited groups of
investors; and 18,600 shares beneficially owned by Fidelity
International Limited, as a result of its serving as investment adviser
to various non-U.S. investment companies. FMR Corp. has sole voting
power with respect to 157,600 shares and sole dispositive power with
respect to 1,872,200 shares. Fidelity International Limited has sole
voting and dispositive power with respect to all the shares it
beneficially owns.
(18) Includes 744,937 shares which they have the right to acquire within 60
days upon the exercise of options.
(19) Except as otherwise noted, the nature of the beneficial ownership for
all shares is sole voting and investment power.
The persons identified in footnotes 3, 5, 6, 7, 10, 12, and 16 above
may be deemed to beneficially own the shares under the rules and regulations of
the Securities and Exchange Commission, but the inclusion of those shares does
not constitute, and should not be construed as, an admission of beneficial
ownership.
7
<PAGE> 10
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's executive compensation program is administered by the
Compensation Committee of the Board of Directors. Following review and approval
by the Compensation Committee, issues pertaining to executive compensation are
generally submitted to the full Board of Directors for approval. This Report was
prepared by the Compensation Committee of the Company's Board of Directors.
COMPENSATION PRINCIPLES AND PROCEDURES
The Company's executive compensation policies focus on the following
objectives:
- - - Ensure that there is an appropriate linkage between executive compensation,
operating performance and the creation of shareholder value; and
- - - Ensure that the total compensation program is competitive and will be able
to attract, motivate, and retain executives of outstanding abilities.
To achieve these objectives, executive compensation has consisted of
base salary, bonus and stock options, with the bonus being determined primarily
on the basis of the Company's operating performance. Because the Company was
very successful in the years prior to 1994, its executive officers were well
compensated. In 1994, the Company's operating performance was less successful
and total executive officer compensation decreased significantly, while in 1995,
the Company's operating performance improved and total executive officer
compensation was moderately increased. In 1996, the Company's operating
performance further improved, and total executive officer compensation increased
substantially. Thus, executive officer compensation in any particular year may
be above or below the levels of comparable companies depending on the Company's
operating performance. The Compensation Committee periodically reviews the
Company's compensation program in order to be assured that it is competitive in
order to attract and retain highly-motivated, qualified executives and is
properly linked to Company's operating performance and the creation of
shareholder value. The Compensation Committee is aware of the limitations
imposed by the Internal Revenue Code of 1986, as amended (the "Internal Revenue
Code") on deductions relating to executive officer compensation (unless certain
conditions apply) in excess of $1,000,000. The Committee considers such
limitations in connection with compensation decisions in order to obtain maximum
deductibility of executive compensation consistent with its responsibility to
provide motivational and competitive compensation which is performance-based.
As part of the periodic review process, the Compensation Committee
evaluates the following:
- - - The mix between base salary and bonus;
- - - The annual bonus program, including its structure and performance
measures; and
- - - The effectiveness of the Company's stock programs.
The Compensation Committee conducts a review of publicly available
compensation information for comparable companies including the Wyatt and Mercer
surveys, a comparison of the market price performance of the Company's Common
Shares versus recognized and comparable
8
<PAGE> 11
indexes, and an evaluation of external factors such as the regulatory
environment. Surveys of publicly-owned medical device companies and companies
with comparable financial performance were also prepared. They included many of
the approximately 40 companies in the SIC Code Index reflected in the
performance chart below, whose principal business is the research, development,
manufacture, and/or distribution of medical equipment, hospital supplies and
diagnostic products. These factors are subjectively weighted by the Compensation
Committee. After considerable deliberation by and upon the recommendation of the
Compensation Committee, and after a review of that recommendation by the Board
of Directors, the Board of Directors adopted the compensation program (other
than awards or grants under certain of the Company's stock plans) for the
Company's executive officers.
INDUSTRY COMPARISONS, PERFORMANCE MEASUREMENTS AND CEO COMPENSATIONS
The 1996 executive compensation program, as reflected in the Tables
that follow this report, consisted of base salary, a bonus program based
primarily on Company operating performance (as well as individual performance
objectives for each executive officer), Company contributions to various savings
and stock ownership programs, and stock options that generally vest and become
exercisable in annual increments over periods of three (3) years or more.
Consistent with previous years, the base salaries of the executive officers were
set at or slightly above median levels based upon comparative, published
industry data and after considering the previous year's operating performance,
the effectiveness of the executive officers in carrying out their duties, and
their contributions to overall Company performance (which factors are
subjectively weighted by the Compensation Committee). The compensation program
was weighted between salary and the bonus payouts, the latter being primarily
determined on the basis of the Company's operating performance. The overall
compensation package for Mr. E.R. Pickard, the Company's Chief Executive Officer
("CEO") was a base salary of $310,000 a bonus equal to $336,493, and other
compensation equal to $1,409,552 for a total of $2,056,045.
The bonus program provides for the payment of an increasing specified
percentage of salary based on the Company's operational performance measured if
specified investment thresholds are met. There is no maximum payout or "cap" on
bonus payments, but if the operational performance thresholds are not met, or if
individual performance objectives are not met, no bonus would be paid. The
Committee believes it would be adverse to the Company's interests to disclose
the objective performance measures used by the Committee in setting
compensation.
The Company's performance during fiscal 1996 exceeded the operational
performance thresholds for performance-based bonuses to be paid to the executive
officers in 1996. In addition, the Company did pay a special bonus to certain
executive officers of the Company, including Mr. Pickard, in recognition of
their significant activities in local charitable and civic organizations.
THE COMPENSATION COMMITTEE:
George W. Bryan, Sr.
Robert A. Compton
Samuel F. Hulbert
9
<PAGE> 12
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG SOFAMOR DANEK GROUP, INC., COMPARABLE COMPANY INDEX AND S&P 500 INDEX
JANUARY 1, 1992 TO DECEMBER 31, 1996
(BASED ON CLOSING SHARE PRICE)
The price of the Company's stock has increased from $28.375 on December
31, 1995 to close at $30.50 on December 31, 1996. The change in the value of the
Company's stock versus the change in value of the S&P 500 Index and a comparable
company index from January 1, 1992 through December 31, 1996, is reflected in
the following table. The comparable company index consists of publicly-traded
companies under the SIC Code 3842-Orthopedic, Prosthetic, and Surgical
Appliances.
<TABLE>
<CAPTION>
Fiscal Year Ending December 31,
Base 1992 1993 1994 1995 1996
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sofamor Danek Group, Inc. 100 157.99 121.46 47.49 103.65 111.42
SIC Code Index 100 86.16 70.16 75.53 113.88 109.79
S&P 500 Index 100 107.64 118.50 120.06 165.18 203.11
</TABLE>
Assumes $100 invested on January 1, 1992, in Sofamor Danek Group, Inc., the
comparable company index and the S&P 500 Index. Assumes dividends are
reinvested.
The comparable company index is weighted for market capitalization and consists
of the companies listed under the SIC Code 3842-Orthopedic, Prosthetic and
Surgical Appliances.
10
<PAGE> 13
The following table sets forth the annual and long term compensation for
services in all capacities to the Company for 1994, 1995, and 1996 of those
persons who were, at December 31, 1996, (i) the Chief Executive Officer and (ii)
the other four most highly compensated executive officers of the Company (the
"Named Officers").
<TABLE>
<CAPTION>
SUMMARY OF COMPENSATION
Annual Compensation Long Term Compensation
Awards
Name and Principal Year Salary Bonus Other Securities Underlying All Other
Position ($) ($) ($) Options/ Compensation
SARs ($)
Granted (1)
(#)
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
E.R. Pickard 1996 310,000 336,493 1,408,475(2) 0 1,077(3)
Chairman & Chief Executive 1995 285,000 26,131 45,056 500,000 870(3)
Officer 1994 240,000 33,361 416,905(4) 0 870(3)
James J. Gallogly 1996 300,000 286,170 0 100,000 6,977(5)
President & Chief 1995 275,000 1,700 0 0 6,803(6)
Operating Officer 1994 143,154 100,000 0 500,000 135,784(7)
Mark D. LoGuidice 1996 240,000 194,690 0 60,000 58,763(8)
President, 1995 208,693 75,000(9) 0 100,000 104,694(10)
Sofamor Danek USA 1994 0 0 0 0 0
Laurence Y. Fairey 1996 210,000 219,805 0 57,000 6,968(11)
Executive Vice President & 1995 195,000 5,605 0 25,000 6,870(12)
Chief Financial Officer 1994 180,000 3,323 0 85,000 510(3)
Don W. Urbanowicz 1996 210,000 152,580 0 65,000 6,548(13)
Executive Vice President 1995 46,039 25,000(14) 0 80,000 52,272(7)
Sofamor Danek USA 1994 0 0 0 0 0
</TABLE>
(1) Although one of the Company's Plans permits grants of freestanding
stock appreciation rights ("SARs"), no grants of this type have been
made.
(2) Includes additional compensation relating to debt forgiveness and taxes
thereon of $763,200 and to pay interest on shareholder loan and taxes
thereon of $645,275.
(3) Includes premiums paid by the Company for group term life insurance.
(4) Includes additional compensation to pay interest on shareholder loan
and taxes thereon.
(5) Includes the Company's contributions under its Sofamor Danek Group,
Inc. 401(k) Savings Plan ("Savings Plan") of $6,000 and premiums paid
by the Company for group term life insurance of $977.
(6) Includes the Company's contributions under its Savings Plan of $6,000
and premiums paid by the Company for group term life insurance of $803.
(7) Includes moving and relocation expenses and taxes thereon.
(8) Includes moving and relocation expenses and taxes thereon of $52,196,
premiums paid by the Company for group term life insurance of $567 and
the Company's contribution under its Savings Plan of $6,000.
(9) Mr. LoGuidice received a bonus of $75,000 as a condition of employment.
(10) Includes moving and relocation expenses and taxes thereon of $102,376,
premiums paid by the Company for group term life insurance of $241 and
the Company's contributions under its Savings Plan of $2,077.
(11) Includes the Company's contributions under its Savings Plan of $6,000
and premiums paid by the Company for group term life insurance of $968.
(12) Includes the Company's contributions under its Savings Plan of $6,000
and premiums paid by the Company for group term life insurance of $870.
(13) Includes the Company's contribution under its Savings Plan of $6,000
and premiums paid by the Company for group term life insurance of $548.
(14) Mr. Urbanowicz received a bonus of $25,000 as a condition of
employment.
11
<PAGE> 14
GRANTS OF OPTIONS
The following table sets forth information as to options granted to the Named
Officers during 1996 and the potential realizable value of those options based
upon various assumed rates of appreciation in the price of the Company's stock
during the term of those options.
1996 OPTION GRANTS
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed Annual
Rates of Stock Price
Appreciation
Individual Grants for Option Term (2)
- - -------------------------------------------------------------------------------------------------------------------
Number of
Securities % of Total
Underlying Options Exercise or
Options Granted to Base Price Expiration Date
Name Granted (1) Employees in ($/Sh) 5% ($) 10% ($)
(#) 1996
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
E.R. Pickard 0 0.0 N/A N/A N/A N/A
James J. Gallogly 100,000 8.7 27.375 11-27-2006 1,721,599 4,362,870
Mark D. LoGuidice 60,000 5.2 27.375 11-27-2006 1,032,959 2,617,722
Laurence Y. Fairey 57,000 5.0 27.375 11-27-2006 981,311 2,486,836
Don W. Urbanowicz 65,000 5.7 27.375 11-27-2006 1,119,039 2,835,865
</TABLE>
(1) All of the options are non-qualified stock options granted on November
27, 1996 under the Long Term Incentive Plan, subject to the approval by
the Company's shareholders of the increase in the number of shares
available for issuance under the Long Term Incentive Plan. Mr.
Gallogly's options vest April 22, 1999. Mr. LoGuidice's options vest as
follows: 30,000 shares on November 27, 2000 and November 27, 2001. Mr.
Fairey's options vest as follows: 4,000 shares on November 27, 1997,
November 27, 1998, and November 27, 1999; 20,000 shares on November 27,
2000 and 25,000 shares on November 27, 2001. Mr. Urbanowicz's options
vest as follows: 5,000 shares on November 27, 1997, November 27, 1998
and November 27, 1999; and 25,000 shares on November 27, 2000 and
November 27, 2001.
(2) Based on the ten (10) year option term and annual compounding at each
assumed rate for that full term. Such amounts are not intended to
forecast future price appreciation of the Company's Common Shares.
12
<PAGE> 15
OPTION EXERCISES AND VALUES
The following table sets forth aggregate information concerning exercise of
stock options during 1996 by each of the Named Officers and the value of their
unexpired options at December 31, 1996.
1996 AGGREGATED OPTION EXERCISES AND YEAR-END VALUES
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised Options at 12-31-96 In-the-Money Options at 12-31-96
(#) ($)
Shares
Acquired on Value Realized Exercisable/ Exercisable/
Name Exercise ($) ($) Unexercisable Unexercisable (1)
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
E.R. Pickard 0 0 145,250 / 381,000 1,768,375 / 4,406,250
James J. Gallogly 75,000 1,261,336 175,000 / 350,000 3,106,250 / 4,750,000
Mark D. LoGuidice 12,500 294,313 12,500 / 135,000 221,875 / 1,518,750
Laurence Y. Fairey 17,000 382,650 40,600 / 134,400 386,950 / 1,216,425
Don W. Urbanowicz 0 0 20,000 / 125,000 210,000 / 833,125
</TABLE>
(1) Market value of underlying securities at year-end, minus the exercise
price.
EMPLOYMENT AGREEMENTS. Certain executive officers (other than the Chief
Executive Officer and the Chief Operating Officer) and certain vice presidents
and group directors of the Company are party to employment agreements dated
January 1, 1996 with the Company (each, an "Employment Agreement"). Previous
employment agreements with the Chief Executive Officer and the Chief Operating
Officer expired on December 31, 1995. The Employment Agreements have an initial
term that expires on December 31, 1998, but will be renewed automatically for
one year periods unless notice not to renew is provided by either party at least
90 days prior to the renewal date. If a Change in Control (as defined below
under the description of the amendment to the Company's Long Term Incentive
Plan) occurs during the term of the Employment Agreements, the term of
employment will extend until the third anniversary of the date on which the
Change in Control occurs (the "Covered Period").
The Employment Agreements fix each such officers' base compensation for
the 1996 calendar year (and for so long as such officers' performance is rated
"good" or better), provide for participation by such officers in such employment
benefit plans as the Company may adopt from time to time for its management or
supervisory personnel generally, provide for reimbursement of travel and other
expenses incurred in connection with such officers' employment, including
reimbursement in certain cases of club dues, telephone expenses and a spousal
travel allowance, and contain other customary employment terms.
The Employment Agreements are terminable by the Company with or without
"just cause" (as defined in the Employment Agreements). Prior to a Change in
Control, upon the termination of an officer's employment without just cause
(which includes termination and dissolution of the Company or a bona fide
decision by the Company to terminate its business), subject to the officer's
compliance with certain restrictive covenants (including, nondisclosure of
confidential information, noncompetition and nonsolicitation of employees and
customers),
13
<PAGE> 16
such officer is entitled to receive an amount equal to twelve times such
officer's monthly base salary payable over such twelve months. After the
occurrence of a Change in Control, in the event that an officer's employment is
terminated without "cause" or such officer resigns for "good reason" (as such
terms are defined in the Employment Agreements), such officer shall provide
consulting services to the successor employer for a period of (i) three years in
the event of termination during the first year following the Change in Control;
(ii) two years in the event of termination during the second year following the
Change in Control; and (iii) one year in the event of termination during the
third year following the Change in Control. In consideration of the consulting
services and subject to such officer's compliance with restrictive covenants,
such officer will receive a lump sum payment equal to the product of (A) such
officer's base salary immediately prior to such termination (without taking into
account any salary reduction that gave rise to a "good reason" termination) and
(B) the number of years in the consulting period. The officer would also be
entitled to receive payment for all unused accrued vacation days and a pro rata
portion of his projected annual bonus for the year in which termination occurs,
calculated on the basis of the target bonus for such year. Such officer will
continue to be eligible to participate in the medical, dental, health, life and
other fringe benefit plans and arrangements applicable to him immediately prior
to the termination during the consulting period or, if earlier, until such
officer and his dependents are eligible and elect substantially equivalent (or
greater) benefits with a subsequent employer. The circumstances that constitute
"cause" for the Company to terminate an executive following a Change in Control
are more limited than those circumstances that constitute "just cause" prior to
a Change in Control.
For certain executive officers and vice presidents, the terms of their
Employment Agreements provide that any payments made, or benefits provided, to
them in connection with a Change in Control that would otherwise result in the
imposition of golden parachute excise taxes under Section 4999 of the Internal
Revenue Code will be subject to reduction to fall under the statutory safe
harbor (three times average W-2 pay for the five years preceding the Change in
Control) unless such officer's after-tax position would be at least $10,000
better if such cap were not applied.
Certain other executive officers and vice presidents, including the
Named Officers, are party to letter agreements dated January 1, 1996 with the
Company pursuant to which, in the event any payments or benefits provided to
them (including the accelerated vesting of options) result in the imposition of
golden parachute excise taxes under Section 4999 of the Internal Revenue Code,
the Company will pay them gross-up payments to hold them harmless against any
parachute tax liability and put them in the same after-tax position he would
have had, had no excise tax been payable; provided, however, that no gross-ups
will be provided, and the relevant payments and benefits will instead be capped,
if such gross-ups would result in them receiving less than $20,000 more
after-tax than if the amounts were capped. The determination of golden parachute
tax liability will be made by independent auditors at the Company's expense.
Effective August 20, 1990, the Company employed E. R. Pickard as
President and Chief Operating Officer of the Company. Mr. Pickard was granted
and has exercised a non-qualified option to purchase 450,000 Common Shares at
$3.87 per share under the 1988 Non-Qualified
14
<PAGE> 17
Stock Option Plan (the "1988 Plan"). The Company loaned $1,740,000 to Mr.
Pickard to enable him to exercise his option. The loan is evidenced by a
promissory note and bears interest at the lowest rate per annum that does not
require the imputing of interest under the Internal Revenue Code. Under the
original Non-Qualified Stock Option Agreement, during the first two years of his
employment, Mr. Pickard was entitled to a bonus equal to 130% of the interest
accrued on the loan and thereafter was entitled to a bonus of 100% of the
interest accrued on the loan. In 1991, the Company agreed that if Mr. Pickard
remains employed with the Company and the Company meets certain performance
goals for the five (5) year period of 1992 through 1996, Mr. Pickard will earn a
$1,000,000 reduction in the loan. In 1995, the Company's Board of Directors
extended the maturity date of the loan to December 31, 1999, provided for
additional compensation to Mr. Pickard equal to the amount necessary to pay the
interest on the loan and the additional taxes thereon for the years 1994 through
1999, and provided for additional loan forgiveness of $600,000 subject to
employment requirements and specific performance requirements being met. The
Company had the right to repurchase 337,500 of those 450,000 shares at $3.87 per
share if Mr. Pickard's employment had been terminated before June 30, 1992;
however, the Company waived those repurchase rights prior to June 30, 1992. This
waiver resulted in a decrease in the Company's 1992 tax liability. Given this
permanent tax benefit, the Company entered into separate loans with Mr. Pickard
equal to his 1991 and 1992 tax liabilities at an estimated individual tax rate
of 32% (approximately $3,100,000) caused by the expiration of the Company's 1991
repurchase rights on 112,500 shares and the 1992 waiver of the remaining
repurchase rights, provided that the amount of the loans shall not exceed the
Company's tax benefit arising from the 1991 expiration and the 1992 waiver of
the repurchase rights. The loans for the tax liabilities are evidenced by a
promissory note which bears interest at the lowest rate per annum that does not
require the imputing of interest under the Internal Revenue Code. The Company
will pay Mr. Pickard bonuses equal to the amount necessary to pay that interest
and the additional taxes thereon. Interest will be accrued annually.
In 1996, the Company's Board of Directors extended the maturity date of
all of Mr. Pickard's loans described above to March 31, 2006, and provided for
forgiveness of the loans in increments beginning in 1996 through 2005. The
extension of the maturity dates and loan forgiveness are subject to employment
requirements and specific performance requirements being met. The Company shall
make a payment to cover any applicable taxes, and interest and penalties
thereon, resulting from the loan forgiveness. In the event of Change in Control,
the loans are forgiven; and the Company shall make a payment to cover any
applicable taxes, and interest and penalties thereon, resulting from the loan
forgiveness. The loans are currently secured by 200,000 Common Shares.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are George W. Bryan, Sr.,
Robert A. Compton and Samuel F. Hulbert. The Compensation Committee is
responsible for approving, administering and recommending to the Board
compensation, stock and benefit programs and plans for employees of the Company.
15
<PAGE> 18
CERTAIN TRANSACTIONS
INDEBTEDNESS OF MANAGEMENT
During 1995, the Company made a bridge loan to Marie-Helene Plais, an
executive officer and director of the Company, in the amount of $200,000 which
was repaid in July, 1996; the loan bore no interest. In 1995, short-term
advances in the amount of $233,657 were made to Mr. Pickard which were repaid in
March, 1996; the advances bore no interest. During April, 1996, the Company made
a bridge loan to Mark D. LoGuidice, an executive officer of the Company, in the
amount of $200,000 which was repaid in August, 1996; the loan bore no interest.
In addition to the indebtedness of Mr. Pickard, Ms. Plais, and Mr.
LoGuidice to the Company which is described above, certain directors and
executive officers have been indebted to the Company relating to the exercise of
stock options under the 1988 Plan. All individuals who exercised options under
the 1988 Plan incurred personal taxable income, and the Company received a tax
deduction for the difference between the fair market value and the exercise
price. The Company loaned to each individual an amount equal to the exercise
price of his options plus an additional amount to provide funds for payment of
income taxes resulting from the exercise. The loans, evidenced by promissory
notes to the Company bear interest at the lowest rate per annum that does not
require the imputing of interest under the Internal Revenue Code and are
collateralized by stock issued as a result of the exercise of the options. As of
February 28, 1997, the aggregate principal balance of the notes receivable for
the exercise of the options and the tax liabilities was $3,714,997 and aggregate
interest of $204,684 had accrued on those notes receivable. Pursuant to the
terms of the 1988 Plan, the Company must pay bonuses to the individuals owing
interest to the Company pursuant to loans under the 1988 Plan. Such bonuses will
equal the amount of interest due and payable to the Company, except as noted
above. All loans made by the Company pursuant to the 1988 Plan were repaid prior
to 1996, except for those of Mr. Pickard.
The following table sets forth information regarding loans to Mr.
Pickard in connection with the stock option exercises under the 1988 Plan
described above that were outstanding during 1996.
PRINCIPAL AND ACCRUED INTEREST
------------------------------
HIGHEST OUTSTANDING OUTSTANDING INDEBTEDNESS
INDEBTEDNESS DURING 1996 AS OF FEBRUARY 28, 1997
------------------------ -----------------------
$4,711,341 $3,919,681
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company agreed to a Consulting Agreement effective June 21, 1993,
with Dr. Cotrel whereby he would receive $200,000 per year, for a three-year
period, in exchange for providing consulting services to the Company. Final
payments in the amount of $124,090 were made during 1996 pursuant to this
Consulting Agreement.
By mutual agreement, the Company and Excelor have terminated the
commercial agency relationship between the two parties. Excelor was the
Company's commercial agent in
16
<PAGE> 19
France. Yves Regis Cotrel is the principal of Excelor. Pursuant to French law,
mandatory payments are required upon termination of a commercial agency
relationship. Total payments in the amount of $540,000 were made in 1997 by the
Company.
As discussed more fully above under Election of Directors, the Company,
the Holders and SOFYC are party to an Agreement which provides for the
Designated Representative to nominate one person to the Board of Directors of
the Company.
17
<PAGE> 20
PROPOSAL 2 APPROVAL OF 1993 LONG TERM INCENTIVE PLAN, AS AMENDED
GENERAL
The Sofamor Danek Group, Inc. 1993 Long Term Incentive Plan (the "Long
Term Plan") was adopted by the Company's Board of Directors on December 16,
1992, and approved by the shareholders on June 21, 1993. The Company is seeking
shareholder approval of the Long Term Plan, as amended (the "Amended Plan"). The
Amended Plan provides for an increase in the number of shares available for
issuance thereunder from 3,500,000 to 6,000,000, subject to adjustment as
provided for in the Amended Plan. On October 11, 1996, the Board of Directors
approved an amendment to the Long Term Plan that increased the shares available
for grant thereunder from 3,500,000 to 6,000,000 shares. In addition, the Board
of Directors has approved certain other technical amendments in response to
Section 162(m) of the Internal Revenue Code and recent amendments to Section 16
of the Securities Exchange Act of 1934, as amended (the "1934 Act").
The additional 2,500,000 Common Shares available under the Amended Plan
will be registered under the Securities Act of 1933 with the Securities and
Exchange Commission after approval by the shareholders of the increase has been
obtained. The 3,500,000 Common Shares currently reserved for the Amended Plan
have been so registered. The closing price of the Company's Common Shares on
February 28, 1997, as reported by the New York Stock Exchange, was $39.625 per
share.
The Board of Directors believes that the Amended Plan benefits the
Company by encouraging employees to associate their interests with those of the
Company and its stockholders through opportunities for increased stock
ownership. The principal features of the Amended Plan are summarized below, but
this summary is qualified in its entirety by reference to the full text of the
Amended Plan, which is attached hereto as Exhibit A.
ELIGIBILITY
The Amended Plan is currently administered by the Compensation
Committee (the "Committee"). Executive officers (currently 12 persons), other
key employees (approximately 220 persons as of February 28, 1997) and
non-employee directors (currently 6 persons) of the Company and its subsidiaries
who can make substantial contributions to the Company's long-term profitability
and value are eligible to participate in the Amended Plan. To ensure that income
realized by the Chief Executive Officer and the other four most highly
compensated executive officers on the exercise of an option or stock
appreciation right under the Amended Plan will be tax deductible by the Company,
the Amended Plan limits the number of awards that may be granted to any
participant to 500,000 Common Shares in any calendar year. The Amended Plan also
provides for nondiscretionary grants of options to non-employee directors (the
"Director Program"). Pursuant to the Director Program, non-employee directors
receive as of every third annual meeting of shareholders a grant of an option to
purchase 5,000 Common Shares, which vests in equal annual installments over a
three-year period, provided that such non-employee director continues to serve
as a director of the Company.
18
<PAGE> 21
AWARDS
Set forth below is a description of the types of awards which may be
granted under the Amended Plan:
Stock Options
Stock options may be options which are intended to qualify as incentive
stock options ("Incentive Stock Options") within the meaning of Section 422(b)
of the Internal Revenue Code or options which are not intended to so qualify
("Non-qualified Stock Options"). The Committee has the discretion to fix the
exercise price of the options, however, the exercise price for Incentive Stock
Options cannot be less than 100% of the fair market value as of the date of
grant (110% in the case of a ten percent shareholder). The Committee has broad
discretion as to the terms and conditions upon which options granted shall be
exercised. Options have a maximum term of ten years from date of grant (five
years in the case of an incentive stock option granted to a ten percent
shareholder). Options granted to date generally have a ten (10) year term and
generally become exercisable on a cumulative basis in equal annual installments
over a period ranging from three to five years.
Stock Appreciation Rights
Stock appreciation rights ("SARs") are rights to receive cash or
shares, or a combination thereof, as the Committee may determine, in an amount
equal to the excess of (i) the fair market value of the shares with respect to
which the SAR is exercised, over (ii) a specified price. That price must not be
less than 100% of the fair market value of the shares at the time the SAR is
granted, or, if the SAR is granted in connection with a previously issued stock
option, not less than 100% of the fair market value of shares at the time such
option is granted. SARs may be granted in connection with a previously or
contemporaneously granted stock option or independent of a stock option. No cash
consideration will be received by the Company for the granting of any SAR. If a
SAR is granted in relation to a stock option, (i) the SAR will be exercisable
only at such times and by such persons as the related option is exercisable, and
(ii) the grantee's right to exercise either the related option or the SAR will
be canceled to the extent that the other is exercised. No SAR may be exercised
later than ten years after the date of grant. The Committee may provide in the
SAR agreement circumstances under which SARs will become immediately exercisable
and may, notwithstanding the foregoing restriction on time of exercise,
accelerate the exercisability of any SAR at any time.
Restricted Shares
Awards of restricted shares under the Amended Plan may be made at the
discretion of the Committee and consistent of shares of stock granted to a
participant and subject to a stock restriction agreement. At the time of an
award, a participant has the benefits of ownership in respect of such shares,
including the right to vote such shares and receive dividends thereon and other
distributions subject to the restrictions set forth in the Amended Plan and in
the stock restriction agreement. The shares may not be sold, transferred or
disposed of until such restrictions have elapsed. The Committee has broad
discretion as to the specific terms and
19
<PAGE> 22
conditions of each award, including applicable rights upon certain terminations
of employment.
Performance Units
Performance unit awards entitle grantees to future payments based upon
the achievement of pre-established long-term performance objectives. A
performance unit agreement will establish with respect to each unit award (i) a
performance period of not fewer than two years, (ii) a value for each unit which
will not thereafter change, or which may vary thereafter pursuant to criteria
specified by the Committee and (iii) maximum and minimum performance targets to
be achieved during the applicable performance period. Under each agreement, the
grantee will be entitled to full value of a unit award for achievement of
maximum targets and a portion of a unit award for performance exceeding minimum
targets but less than maximum targets. The Committee has discretion to determine
the participants to whom performance unit awards are to be made, the times in
which such awards are to be made, the size of such awards and all other
conditions of such awards, including any restrictions, deferral periods or
performance requirements.
PAYMENT
The exercise price applicable to an option may be satisfied in cash or
by tendering Common Shares owned by the optionee, or a combination of cash and
shares. If the exercise price is paid by tendering shares, the Committee in its
discretion may grant the optionee a new stock option for the number of shares
used to pay the exercise price. The Committee has the discretion to provide
financing to a participant in a principal amount sufficient for the purchase of
shares pursuant to an option and/or to pay the amount of taxes required to be
withheld in connection with option exercises, awards of shares and performance
unit awards. The Committee also has the discretion to permit a participant to
satisfy such tax withholding obligations, in whole or in part, by having the
company withhold shares for the value equal to the amount of taxes required by
law to be withheld.
ADJUSTMENT
In the event of any change in the outstanding Common Shares of the
Company due to a stock dividend or distribution, recapitalization, merger,
consolidation, reorganization, split-up, combination, exchange of shares or the
like, the Board of Directors, in its discretion, may adjust proportionately the
number of shares which may be issued under the Amended Plan, the number of
shares subject to outstanding awards, and the option exercise price of each
outstanding option. The Board of Directors may also make such other changes in
outstanding options, SARs, performance units and restricted stock awards as it
deems equitable in its absolute discretion to prevent dilution or enlargement of
the rights of grantees, provided that any fractional shares resulting from such
adjustments will be eliminated.
CHANGE IN CONTROL PROVISIONS
In the event of (i) a Change in Control (as defined below) or (ii) a
Potential Change in Control (as defined below), unless the Board of Directors
otherwise determines by resolution,
20
<PAGE> 23
the following acceleration and valuation provisions will apply for: (a) any SAR
and any stock options awarded not previously exercisable and vested will become
fully exercisable and vested and all restrictions applicable to any restricted
stock, performance units or other stock-based awards will lapse and (b) the
value of all outstanding options, SARs, restricted stock, performance units and
other stock-based awards will, unless otherwise determined by the Board of
Directors in its sole discretion at or after grant but prior to any Change in
Control, be cashed out on the basis of the Change in Control Price (as defined
below) as of the date such Change in Control is determined to have occurred or
such other date as the Board of Directors may determine prior to the Change in
Control.
As used in the Amended Plan, the term "Change in Control" means the
happening of any of the following: (i) any person or entity, including a "group"
as defined in Section 13(d)(3) of the 1934 Act, other than the Company, a
subsidiary of the Company, or any employee benefit plan of the Company or its
subsidiaries, becomes the beneficial owner of the Company's securities having
25% or more of the combined voting power of the then outstanding securities of
the Company that may be cast for the election for directors of the Company
(other than as a result of an issuance of securities initiated by the Company in
the ordinary course of business); (ii) as the result of, or in connection with,
any cash tender or exchange offer, merger or other business combination, sale of
assets or contested election, or any combination of the foregoing transactions,
less than a majority of the combined voting power of the then outstanding
securities of the Company or any successor corporation or entity entitled to
vote generally in the election of directors of the Company or such other
corporation or entity after such transaction, are held in the aggregate by
holders of the Company's securities entitled to vote generally in the election
of directors of the Company immediately prior to such transactions; or (iii)
during any period of two consecutive years, individuals who at the beginning of
any such period constitute the Board of Directors cease for any reason to
constitute at least a majority thereof, unless the election, or the nomination
for election by the Company's stockholders, of each director of the Company
first elected during such period was approved by a vote of at least two-thirds
of the directors of the Company then still in office who were directors of the
Company at the beginning of any such period.
As used in the Amended Plan, the term "Potential Change in Control"
means the happening of any of the following: (i) the approval by stockholders of
an agreement by the Company, the consummation of which would result in a Change
of Control of the Company; or (ii) the acquisition of beneficial ownership,
directly or indirectly, by any entity, person or group (other than the Company,
a wholly-owned subsidiary thereof or any employee benefit plan of the Company or
its subsidiaries (including any trustee of such plan acting as such trustee) of
securities of the Company representing 5% or more of the combined voting power
of the Company's outstanding securities and the adoption by the Board of
Directors of a resolution to the effect that Potential Change in Control of the
Company has occurred for purposes of the Amended Plan.
As used in the Amended Plan, the term "Change in Control Price" means
the highest price per share paid in any transaction reported on the New York
Stock Exchange, or paid or offered in any bona fide transaction related to a
Potential or actual Change in Control of the Company at any time during the
60-day period immediately preceding the occurrence of the
21
<PAGE> 24
Change in Control (or, where applicable, the occurrence of the Potential Change
in Control event), in each case determined by the Board of Directors.
AMENDMENT
The Board of Directors may terminate, amend, modify, or suspend the
Amended Plan at any time, except that no termination, amendment, modification,
or suspension shall be effective without the authorization of the holders of a
majority of the Company's outstanding shares, increase the maximum number of
Shares if such authorization is required to comply with Rule 16b-3 under the
1934 Act or to comply with any other law, regulation, or stock exchange rule. No
termination, modification, amendment, or suspension of the Amended Plan will
adversely affect the rights of any grantee or beneficiary under an award
previously granted, unless the grantee or beneficiary consents thereto; but it
will be conclusively presumed that any adjustment to the Amended Plan does not
adversely affect any such right.
DURATION
Unless it is sooner terminated in accordance with the Amended Plan, it
will remain in effect until all awards under the Amended Plan have been
satisfied by the issuance of Common Shares or the payment of cash or have
expired or otherwise terminated, but no award will be granted after December 16,
2002.
GENERAL RESTRICTIONS
The Amended Plan provides that each award including, without
limitation, the Director Options, will be subject to certain general
restrictions set forth in Paragraph 12 of the Amended Plan.
NEW PLAN BENEFITS
Awards under the Amended Plan are determined by the Compensation
Committee in its discretion. For this reason, it is not possible to determine
the benefits and amounts that will be received by any individual participant or
group of participants in the future. However, the table below indicates stock
options which have been granted (excluding options granted that have lapsed or
terminated) under the Amended Plan, subject to the approval by the shareholders
of the Amended Plan described herein.
<TABLE>
<CAPTION>
NAME AND POSITION NUMBER OF OPTIONS GRANTED
- - ----------------- -------------------------
<S> <C>
E. R. Pickard 0
James J. Gallogly 100,000
Mark D. LoGuidice 60,000
Laurence Y. Fairey 57,000
Don W. Urbanowicz 65,000
All current Executive Officers as a Group 505,000
Non-Executive Directors as a Group 0
Non-Executive Officer Employees as a Group 193,000
</TABLE>
22
<PAGE> 25
FEDERAL TAX CONSEQUENCES
(1) Incentive Stock Options: No income will be realized by an optionee
upon the optionee's purchase of shares pursuant to the exercise of an Incentive
Stock Option. In order to avail himself of this tax benefit, the optionee must
not dispose of the shares before he has held such shares for at least one year
after the date of exercise and at least two years after the date of grant.
Assuming compliance with this and other applicable tax provisions, an optionee
will recognize long-term capital gain or loss when the optionee disposes of the
shares, measured by the difference between the option price and the amount
realized for the shares at the time of disposition. If the optionee disposes of
shares purchased upon the exercise of the option before the expiration of the
above-noted periods, any amount realized from such disqualifying disposition
will be taxable as ordinary income in the year of disposition to the extent of
the lesser of the amount realized by the optionee in excess of the option price,
or the spread between the option price and the fair market value of the shares
at the time the option is exercised. Any amount realized in excess of the fair
market value of the shares on the date of exercise will be treated as long- or
short-term capital gain, depending upon the holding period of the shares. No
deduction will be allowed to the Company for federal income tax purposes at the
time of the grant or exercise of any Incentive Stock Option. At the time of a
disqualifying disposition by an optionee, the Company will be entitled to a
deduction for the amount taxable to the optionee as ordinary income.
(2) Non-qualified Stock Options: The exercise of a Non-qualified Stock
Option will result in the recognition of ordinary income by the optionee for
federal income tax purposes in an amount equal to the difference between the
option price and the fair market value of the shares acquired upon the exercise
of the option. The Company will be entitled to a deduction equal to the amount
of income recognized by the optionee. Upon the later sale of any shares acquired
upon the exercise of a Non-qualified Stock Option, any amount realized by the
optionee in excess of the amount recognized by the optionee as ordinary income
will be treated as long- or short-term capital gain to the optionee, depending
upon the holding period of the shares.
This description of tax consequences is based upon present federal
income tax laws and is subject to change as the laws change. The summary does
not cover any state or local tax consequences of participation in the Amended
Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR
PROPOSAL 2 TO APPROVE THE 1993 LONG TERM INCENTIVE PLAN, AS AMENDED, AS SET
FORTH ABOVE.
23
<PAGE> 26
RELATIONSHIP WITH INDEPENDENT AUDITORS
Upon the recommendation of the Audit Committee, the Board of Directors
has selected Coopers & Lybrand, an independent public accounting firm, to audit
the books and records of the Company for 1997.
Coopers & Lybrand has served the Company as its independent public
accounting firm since 1987 and also performs work on special projects as
assigned by the Company. Representatives of Coopers & Lybrand will attend the
1997 Annual Shareholders Meeting and if they desire to do so will be afforded
the opportunity to make statements and are expected to be available to respond
to appropriate questions.
OTHER BUSINESS
On or before November 30, 1996, no shareholder of record presented to
the Company any matter to be properly presented for a vote of the shareholders
at the 1997 Annual Meeting of Shareholders.
The Board of Directors knows of no other business which will be
presented at the meeting. If, however, other matters are properly presented, the
persons named in the enclosed proxy will vote the shares represented thereby in
accordance with their best judgment.
SHAREHOLDER PROPOSALS FOR THE 1998 ANNUAL MEETING
If any shareholder intends to present a proposal for consideration at
the 1998 Annual Meeting of Shareholders, such proposal must be received by the
Company not later than November 20, 1997 to be eligible for inclusion in the
Company's proxy statement and form of proxy for such meeting.
OTHER INFORMATION
The Company has retained Corporate Communications, Inc. of Nashville,
Tennessee, as its investor and public relations advisor for a fee of $3,000 per
month, a portion of which fee will be to aid solicitation, which will be
undertaken by mail, telephone, telegraph, and personal contact and which may
include solicitation by officers and employees of the Company. The costs of
solicitation will be borne by the Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on the Company's review of the copies of forms required to
be filed under Section 16(a) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), received by it or written representations from certain
reporting persons that no other reports were required, the Company believes that
all filing requirements under Section 16(a) of the Exchange Act were satisfied
by its officers, directors and greater than 10% shareholders except that one
report was inadvertently filed late by Mr. Beard with respect to transactions
which resulted solely in a change from indirect to direct ownership of the
Common Shares.
24
<PAGE> 27
ANNUAL REPORT AND FINANCIAL STATEMENTS
A copy of the Company's Annual Report to Shareholders for 1996,
including financial statements, is being mailed to all shareholders of the
Company with this Proxy Statement. A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM
10-K THAT WAS FILED BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION
IS AVAILABLE WITHOUT CHARGE UPON WRITTEN REQUEST TO SOFAMOR DANEK GROUP, INC.,
1800 PYRAMID PLACE, MEMPHIS, TENNESSEE 38132 (TELEPHONE NUMBER 901-396-2695),
ATTENTION: LAURENCE Y. FAIREY, EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER.
By Order of the Board of Directors
Richard E. Duerr, Jr.
Secretary
Memphis, Tennessee
March 21, 1997
25
<PAGE> 28
EXHIBIT A
SOFAMOR DANEK GROUP, INC.
1993 LONG-TERM INCENTIVE PLAN, AS AMENDED
1. PURPOSE.
The purpose of the SOFAMOR DANEK GROUP, INC. 1993 LONG-TERM INCENTIVE PLAN, AS
AMENDED (the "Plan") is to further the earnings of SOFAMOR DANEK GROUP, INC., an
Indiana corporation, and its subsidiaries (collectively, the "Company") by
assisting the Company in attracting, retaining and motivating management
employees and directors of high caliber and potential. The Plan provides for the
award of long-term incentives to those officers, other key executives and
directors who make substantial contributions to the Company by their loyalty,
industry and invention. In addition, the Plan contains a program (the `Director
Program") which provides for the non-discretionary periodic grant of
Non-qualified Stock Options (as hereinafter defined) to non-employee directors
of the Company (the "Director Options").
2. ADMINISTRATION.
The Plan (other than the Director Program) shall be administered by a committee
(the "Committee"). The Board of Directors of the Company (the "Board of
Directors") may act as the Committee, or it may delegate such responsibility to
one or more of its members. The Committee shall have full and final authority in
its discretion to interpret the provisions of the Plan (other than the Director
Program) and to decide all questions of fact arising in its application. Subject
to the provisions hereof, the Committee shall have full and final authority in
its discretion to determine the employees and directors to whom awards shall be
made under the Plan (other than the Director Program); to determine the type of
awards to be made under the Plan (other than the Director Program) and the
amount, size and terms and conditions of each such award under the Plan (other
than the Director Program); to determine the time when awards shall be granted;
to determine the provisions of each agreement evidencing an award; and to make
all other determinations necessary or advisable for the administration of the
Plan (other than the Director Program).
3. STOCK SUBJECT TO THE PLAN.
The Company may grant awards under the Plan with respect to not more than a
total of 6,000,000 shares of no par value common stock of the Company (the
"Shares") (subject, however, to adjustment as provided in paragraph 21, below).
Such Shares may be authorized and un-issued Shares or treasury Shares. In any
calendar year, no participant may be granted awards relating to more than
500,000 shares. Except as otherwise provided herein, any Shares subject to an
option or right which for any reason is surrendered before exercise or expires
or is terminated unexercised as to such Shares shall again be available for the
granting of awards under the Plan. Similarly, if any Shares granted pursuant to
restricted stock awards are forfeited, such forfeited Shares shall again be
available for the granting of awards under the Plan, unless the dividends were
paid to the holders of such Shares.
4. ELIGIBILITY TO RECEIVE AWARDS.
Persons eligible to receive awards under the Plan (other than the Director
Program) shall be limited to those officers, other key executive employees and
directors of the Company who are in positions in
26
<PAGE> 29
which their decisions, actions and counsel have a significant impact upon the
profitability and success of the Company.
5. FORM OF AWARDS.
Awards may be made from time to time by the Committee (other than the Director
Program) in the form of stock options to purchase Shares, stock appreciation
rights, performance units, restricted stock, or any combination of the above.
Stock options may be options which are intended to qualify as incentive stock
options ("Incentive Stock Options") within the meaning of Section 422(b) of the
Internal Revenue Code of 1986, as amended (the "Code"), or options which are not
intended to so qualify ("Non-Qualified Stock Options").
6. EMPLOYEE STOCK OPTIONS.
Stock options for the purchase of Shares granted other than under the Director
Program shall be evidenced by written agreements in such form not inconsistent
with the Plan as the Committee shall approve from time to time. Such agreement
shall contain the terms and conditions applicable to the options, including in
substance the following terms and conditions:
(a) Type of Option. Each option agreement shall identify the
options represented thereby as Incentive Stock Options or
Non-Qualified Stock Options, as the case may be, and shall set
forth the number of Shares subject to the options.
(b) Option Price. The option exercise price to be paid by the
optionee to the Company for each Share purchased upon the
exercise of an option shall be determined by the Committee,
but shall in no event be less than the par value of a Share.
(c) Exercise Term. Each option agreement shall state the period or
periods of time within which the option may be exercised, in
whole or in part, as determined by the Committee and subject
to such terms and conditions as are prescribed for such
purpose by the Committee, provided that no Incentive Stock
Option shall be exercisable after ten years, and no
Non-Qualified Stock Option shall be exercisable after ten
years and one day, from the date of grant thereof. The
Committee, in its discretion, may provide in the option
agreement circumstances under which the option shall become
immediately exercisable, in whole or in part, and,
notwithstanding, the foregoing may accelerate the
exercisability of any option, in whole or in part, at any
time.
(d) Payment for Shares. The purchase price of the Shares with
respect to which an option is exercised shall be payable in
full at the time of exercise in cash, Shares at fair market
value, or a combination thereof, as the Committee may
determine and subject to such terms and conditions as may be
prescribed by the Committee for such purpose. If the purchase
price is paid by tendering Shares, the Committee in its
discretion, may grant the optionee a new stock option for the
number of Shares used to pay the purchase price.
27
<PAGE> 30
(e) Rights Upon Termination of Employment. In the event that an
optionee ceases to be an employee or director of the Company
for any cause other than Retirement (as defined below), death
or Disability (as defined below), the optionee shall have the
right to exercise the option during its term within a period
of three months after such termination to the extent that the
option was exercisable at the time of termination, or within
such other period, and subject to such terms and conditions,
as may be specified by the Committee. (As used herein, the
term "Retirement" means retirement from active employment with
the Company on or after age 65, or such earlier age with the
express written consent for purposes of the Plan of the
Company at or before the time of such retirement, and the term
"Retires" has the corresponding meaning. As used herein, the
term "Disability" means a condition that, in the judgment of
the Committee, has rendered a grantee completely and
presumably permanently unable to perform any and every duty of
his regular occupation, and the term "Disabled" has the
corresponding meaning). In the event that an optionee Retires,
dies or becomes Disabled prior to the expiration of his option
and without having fully exercised his option, the optionee or
his Beneficiary (as defined below) shall have the right to
exercise the option during its term within a period of (i) one
year after termination of employment due to Retirement, death
or Disability, or (ii) one year after death if death occurs
either within one year after termination of employment due to
Retirement or Disability or within three months after
termination of employment for other reasons, to the extent
that the option was exercisable at the time of death or
termination, or within such other period, and subject to such
terms and conditions, as may be specified by the Committee.
(As used herein, the term "Beneficiary" means the person or
persons designated in writing by the grantee as his
Beneficiary with respect to an award under the Plan; or, in
the absence of an effective designation or if the designated
person or persons predecease the grantee, the grantee's
Beneficiary shall be the person or persons who acquire by
bequest or inheritance the grantee's rights in respect of an
award). In order to be effective, a grantee's designation of a
Beneficiary must be on file with the Committee before the
grantee's death, but any such designation may be revoked and a
new designation substituted therefor at any time before the
grantee's death.
(f) Non-Transferability. Options granted under the Plan shall not
be sold, assigned, transferred, exchanged, pledged,
hypothecated, or otherwise encumbered, other than by will, by
the laws of descent and distribution or pursuant to a
qualified domestic relations order. During the lifetime of the
optionee the option is exercisable only by the optionee.
(g) Incentive Stock Options. In the case of an Incentive Stock
Option, each option shall be subject to such other terms
conditions and provisions as the Committee determines
necessary or desirable in order to qualify such option as an
incentive stock option within the meaning of Section 422(b) of
the Code (or any
28
<PAGE> 31
amendment or substitute or successor thereto or regulation
thereunder), including in substance, without limitation, the
following:
(i) The purchase price of stock subject to an Incentive
Stock Option shall not be less than 100 percent of
the fair market value of such stock on the date the
option is granted, as determined by the Committee.
(ii) The aggregate fair market value (determined as of the
time the option is granted) of the stock with respect
to which incentive stock options are exercisable for
the first time by an optionee in any calendar year
(under all plans of the Company and its subsidiary
corporations (which term, as used hereinafter, shall
have the meaning ascribed thereto in Section 425(f)
of the Code (or successor provision of similar
import))) shall not exceed $100,000.
(iii) No Incentive Stock Option shall be granted to any
employee if at the time the option is granted the
individual owns stock possessing more than 10 percent
of the total combined voting power of all classes of
stock of the Company or of a subsidiary corporation
of the Company, unless at the time such option is
granted the option price is at least 110 percent of
the fair market value (as determined by the
Committee) of the stock subject to the option and
such option by its terms is not exercisable after the
expiration of five years from the date of grant.
(iv) Directors who are not employees of the Company shall
not be eligible to receive Incentive Stock Options.
(v) In the event of termination of employment by reason
of Retirement, if an Incentive Stock Option is
exercised after the expiration of the exercise
periods that apply for purposes of Section 422 of the
Code, the option will thereafter be treated as a
Non-Qualified Stock Option.
7. STOCK APPRECIATION RIGHTS.
Stock appreciation rights (SARs) shall be evidenced by written SAR agreements in
such form not inconsistent with the Plan as the Committee shall approve from
time to time. Such SAR agreements shall contain the terms and conditions
applicable to the SARs, including in substance the following terms and
conditions:
(a) Award. SARs may be granted in connection with a previously or
contemporaneously granted stock option (other than an option
granted pursuant to the Director Program), or independently of
a stock option. SARs shall entitle the grantee, subject to
such terms and conditions as may be determined by the
Committee, to receive upon exercise thereof all or a portion
of the excess of (i) the fair market value at the time of
exercise, as determined by the Committee, of a specified
number of Shares with respect to which the SAR is exercised,
over (ii)
29
<PAGE> 32
a specified price which shall not be less than 100 percent of
the fair market value of the Shares at the time the SAR is
granted, or, if the SAR is granted in connection with a
previously issued stock option, not less than 100 percent of
the fair market value of the Shares at the time such option
was granted. Upon exercise of an SAR, the number of Shares
reserved for issuance hereunder shall be reduced by the number
of Shares covered by the SAR. Shares covered by an SAR shall
not be used more than once to calculate the amount to be
received pursuant to the exercise of the SAR.
(b) SARs Related to Stock Options. If an SAR is granted in
relation to a stock option, (i) the SAR shall be exercisable
only at such times, and by such persons, as the related option
is exercisable; (ii) the grantee's right to exercise the
related option shall be canceled if and to the extent that the
Shares subject to the option are used to calculate the amount
to be received upon the exercise of the related SAR; (iii) the
grantee's right to exercise the related SAR shall be canceled
if and to the extent that the Shares subject to the SAR are
purchased upon the exercise of the related option; and (iv)
the SAR shall not be transferable other than by will or by the
laws of descent and distribution, and shall be exercisable
during the lifetime of the grantee only by him.
(c) Term. Each SAR agreement shall state the period or periods of
time within which the SAR may be exercised, in whole or in
part, as determined by the Committee and subject to such terms
and conditions as are prescribed for such purpose by the
Committee, provided that no SAR shall be exercisable later
than ten years after the date of grant. The Committee may, in
its discretion, provide in the SAR agreement circumstances
under which the SARs shall become immediately exercisable, in
whole or in part, and may, notwithstanding the foregoing,
accelerate the exercisability of any SAR, in whole or in part,
at any time.
(d) Termination of Employment. SARs shall be exercisable only
during the grantee's employment by the Company (or, in the
case of a grantee who is a non-employee director, only during
his service as a director of the Company), except that, in the
discretion of the Committee, an SAR may be made exercisable
for up to three months after the grantee's employment (or
tenure as a director) is terminated for any reason other than
Retirement, death or Disability, and for up to one year after
the grantee's employment (or tenure as a director) is
terminated because of Retirement, death or Disability.
(e) Payment. Upon exercise of an SAR, payment shall be made in
cash, in Shares at fair market value on the date of exercise,
or in a combination thereof, as the Committee may determine at
the time of exercise.
(f) Other Terms. SARs shall be granted in such manner and such
form, and subject to such additional terms and conditions, as
the Committee in its sole discretion deems necessary or
desirable, including without limitation: (i) if granted in
30
<PAGE> 33
connection with an Incentive Stock Option, in order to satisfy
any requirements set forth under Section 422 of the Code; or,
(ii) in order to avoid any liability in connection with an SAR
under Section 16(b) of the Securities Exchange Act of 1934, as
amended (the "1934 Act").
8. RESTRICTED STOCK AWARDS.
Restricted stock awards under the Plan shall consist of Shares free of any
purchase price or for such purchase price as may be established by the Committee
restricted against transfer, subject to forfeiture, and subject to such other
terms and conditions (including attainment of performance objectives) as may be
determined by the Committee. Restricted stock shall be evidenced by written
restricted stock agreements in such form not inconsistent with the Plan as the
Committee shall approve from time to time, which agreement shall contain the
terms and conditions applicable to such awards, including in substance the
following terms and conditions:
(a) Restriction Period. Restrictions shall be imposed for such
period or periods as may be determined by the Committee. The
Committee, in its discretion, may provide in the agreement
circumstances under which the restricted stock shall become
immediately transferable and non-forfeitable, or under which
the restricted stock shall be forfeited, and, notwithstanding
the foregoing, may accelerate the expiration of the
restriction period imposed on any Shares at any time.
(b) Restrictions Upon Transfer. Restricted stock and the right to
vote such Shares and to receive dividends thereon, may not be
sold, assigned, transferred, exchanged, pledged, hypothecated,
or otherwise encumbered, except as herein provided, during the
restriction period applicable to such Shares. Notwithstanding
the foregoing, and except as otherwise provided in the Plan,
the grantee shall have all of the other rights of a
stockholder, including, but not limited to, the right to
receive dividends and the right to vote such Shares.
(c) Certificates. A certificate or certificates representing the
number of restricted Shares granted shall be registered in the
name of the grantee. The Committee, in its sole discretion,
shall determine when the certificate or certificates shall be
delivered to the grantee (or, in the event of the grantee's
death, to his Beneficiary), may provide for the holding of
such certificate or certificates in escrow or in custody by
the Company or its designee pending their delivery to the
grantee or Beneficiary, and may provide for any appropriate
legend to be borne by the certificate or certificates.
(d) Lapse of Restrictions. The restricted stock agreement shall
specify the terms and conditions upon which any restriction
upon restricted stock awarded under the Plan shall expire,
lapse, or be removed, as determined by the Committee. Upon the
expiration, lapse, or removal of such restrictions, Shares
free of the restrictive legend shall be issued to the grantee
of his legal representative.
31
<PAGE> 34
9. PERFORMANCE UNITS.
Performance unit awards under the Plan shall entitle grantees to future payments
based upon the achievements of pre-established long-term performance objectives
and shall be evidenced by written performance unit agreements in such form not
inconsistent with this Plan as the Committee shall approve from time to time.
Such agreements shall contain the terms and conditions applicable to the
performance unit awards, including in substance the following terms and
conditions:
(a) Performance Period. The Committee shall establish with respect
to each unit award a performance period of not fewer than two
years.
(b) Unit Value. The Committee shall establish with respect to each
unit award value for each unit which shall not thereafter
change, or which may vary thereafter pursuant to criteria
specified by the Committee.
(c) Performance Targets. The Committee shall establish with
respect to each unit award maximum and minimum performance
targets to be achieved during the applicable performance
period. Achievement of maximum targets shall entitle grantees
to payment with respect to the full value of a unit award.
Grantees shall be entitled to payment with respect to a
portion of a unit award according to the level of achievement
of targets as specified by the Committee for performance which
achieves or exceeds the minimum target but fails to achieve
the maximum target.
(d) Performance Measures. Performance targets established by the
Committee shall relate to corporate, subsidiary, division, or
unit performance and may be established in terms of growth in
gross revenue, earnings per share, ratios of earnings to
equity or assets, or such other measures or standards as may
be determined by the Committee in its discretion. Multiple
targets may be used and may have the same or different
weighting, and they may relate to absolute performance or
relative performance measured against other companies or
businesses.
(e) Adjustments. At any time prior to the payment of a unit award,
the Committee may adjust previously established performance
targets or other terms and conditions, including the Company's
or other corporations' financial performance for Plan
purposes, to reflect major unforeseen events such as changes
in laws, regulations or accounting practices, mergers,
acquisitions or divestitures or other extraordinary unusual or
nonrecurring items or events.
(f) Payment of Unit Awards. Following the conclusion of each
performance period, the Committee shall determine the extent
to which performance targets have been attained and any other
terms and conditions satisfied for such period. The Committee
shall determine what, if any, payment is due on the unit award
and whether such payment shall be made in cash, Shares, or a
combination thereof. Payment shall be made in a lump sum or
installments, as determined by the
32
<PAGE> 35
Committee, commencing as promptly as practicable following the
end of the performance period unless deferred subject to such
terms and conditions and in such form as may be prescribed by
the Committee.
(g) Termination of Employment. In the event that a grantee ceases
to be employed by the Company prior to the end of the
performance period by reason of death, Disability, or
Retirement with the consent of the Company, any unit award, to
the extent earned under the applicable performance targets,
shall be payable at the end of the performance period
according to the portion of the performance period during
which the grantee was employed by the Company, provided that
the Committee shall have the power to provide for an
appropriate settlement of a unit award before the end of the
performance period. Upon any other termination of employment,
participation shall terminate forthwith and all outstanding
unit awards shall be canceled.
10. LOANS AND SUPPLEMENTAL CASH.
The Committee, in its sole discretion to further the purpose of the Plan, may
provide for supplemental cash payments or loans to individuals in connection
with all or any part of an award under the Plan. Supplemental cash payments
shall be subject to such terms and conditions as shall be prescribed by the
Committee at the time of grant, provided that in no event shall the amount of
payment exceed:
(a) In the case of an option, the excess fair market value of a
Share on the date of exercise over the option price multiplied
by the number of Shares for which such option is exercised, or
(b) In the case of an SAR, performance unit, or restricted stock
award, the value of the Shares and other consideration issued
in payment of such award.
Any loan shall be evidenced by a written loan agreement or other instrument in
such form and containing such terms and conditions (including, without
limitation, provisions for interest, payment schedules, collateral, forgiveness
or acceleration) as the Committee may prescribe from time to time.
11. DIRECTOR PROGRAM.
(a) Eligible Directors. Each member of the Board of Directors who
is not a full-time employee of the Company is an "Eligible
Director."
(b) Administration. The Director Program shall be administered by
the Board of Directors. Subject to the provisions of the
Director Program, the Board shall be authorized to:
(i) adopt, revise and repeal such administrative rules,
guidelines and practices governing the Director
Program as it shall from time to time deem advisable;
33
<PAGE> 36
(ii) interpret the terms and provisions of the Director
Program and any option issued under the Director
Program (and any agreements relating thereto), and
otherwise settle all claims and disputes arising
under the Director Program;
(iii) delegate responsibility and authority for the
operation and administration of the Director Program,
appoint employees and officers of the Company to act
on its behalf, and employ persons to assist in the
fulfilling of its responsibilities under the Director
Program; and
(iv) otherwise supervise the administration of the
Director Program; provided, however, that the Board
of Directors shall have no discretion with respect to
the selection of Eligible Directors to receive
options hereunder, the number of Shares covered by
such option or the price or timing of any options
granted hereunder; provided, further, that any action
by the Board of Directors relating to the Director
Program will be taken only if approved by the
affirmative vote of a majority of the directors who
are not then eligible to participate under the
Director Program.
(c) Option Grants.
(i) Number of Options Granted. The following number of
Director Options are hereby granted to each Eligible
Director under the Director Program:
(A) As of the date of Board approval of the
Director Program, a Director Option to
purchase 5,000 Shares is granted to each
person who on that date is an incumbent
Eligible Director.
(B) With respect to each person who first
becomes an Eligible Director after the date
of Board approval of the Director Program, a
Director Option to purchase 5,000 Shares is
granted as of the date such person first
becomes an Eligible Director.
(C) As of the date of every third annual meeting
of the Company's shareholders following the
grant of a Director Option to an Eligible
Director pursuant to section (A) or (B)
above, and provided that such Eligible
Director remains an incumbent on such date,
a Director Option to purchase 5,000 Shares
is granted to such Eligible Director.
(d) Terms and Conditions of Director Options Under the Director
Program.
(i) Option Agreement. Each Director Option granted under
the Director Program shall be evidenced by an option
agreement.
34
<PAGE> 37
(ii) Option Price. The option exercise price per Share of
a Director Option shall be the fair market value of a
Share as of the date of grant. The Director Options
granted as of the date of Board approval of the
Director Program have an exercise price of $11.875.
(iii) Option Term. The term of each Director Option shall
be ten years. No Director Option shall be exercised
by any person after expiration of the term of the
Director Option.
(iv) Exercisability. A Director Option shall be
exercisable during its term, 33.33% on the first
anniversary of the date of grant, an additional
33.33% on the second anniversary of the date of
grant, and the remaining 33.33% on the third
anniversary of the date of grant. The Director
Options granted on the date the Director Program was
approved by the Board vest 33.33% on December 19,
1995, 1996, and 1997.
(e) Method of Exercise. Director Options may be exercised, in
whole or in part, at any time and from time to time during the
relevant exercise period, by giving written notice of exercise
to the Company specifying the number of Shares to be
purchased. Such notice shall be accompanied by payment in full
of the purchase price, either in cash or by certified or bank
check, or such other instrument as the Board of Directors may
accept. Payment in full or in part may also be made in the
form of unrestricted Shares already owned by the Director (and
based upon the fair market value of the Shares so tendered as
of the date the Director Option is exercised, as determined by
the Board of Directors). No Shares shall be issued until full
payment therefor has been made. Eligible Directors shall
generally have the rights to dividends or other rights of a
stockholder with respect to Shares subject to the Director
Option when the Eligible Director has given notice as to
exercise, has paid in full for such shares and, if requested,
has given any representations required by the Board of
Directors.
(f) Nontransferability. Director Option shall not be sold,
assigned, transferred, exchanged, pledged, hypothecated, or
otherwise encumbered, otherwise than by will, by the laws of
descent and distribution or pursuant to a qualified domestic
relations order. During the lifetime of the optionee, a
Director Option shall be exercisable only by the optionee.
(g) Termination by Reason of Death. If an optionee ceases to be an
Eligible Director by reason of death, any Director Option held
by such optionee may thereafter be exercised to the extent
then exercisable, by the legal representative of the estate or
by the legatee of the Eligible Director under the will of the
Eligible Director, for a period of one year from the date of
such death or until the expiration of the stated term of such
Director Option, whichever period is shorter.
(h) Termination by Reason of Disability. If an optionee ceases to
be an Eligible Director by reason of disability, any Director
Option held by such optionee may
35
<PAGE> 38
thereafter be exercised by the optionee, to the extent it was
exercisable at the time of termination, for a period of one
year from the date of such termination or until the expiration
of the stated term of such Director Option, whichever period
is shorter, provided, however, that if the optionee dies
within such one-year period, any unexercised Director Option
held by such optionee shall thereafter be exercisable to the
extent it was exercisable at the time of death for a period of
one year from the date of such death or until the expiration
of the stated term of such Director Option, whichever period
is shorter.
(i) Other Termination. If an optionee ceases to be an Eligible
Director for any reason other than death or disability (except
as a result of becoming an employee of the Company), any
Director Option held by such optionee may thereafter be
exercised by the optionee, to the extent it was exercisable at
the time of such termination, for a period of three months
from the date of such termination or the expiration of the
stated term of such Director Option, whichever period is
shorter; provided, however, that if the optionee dies within
such three-month period, any unexercised Director Option held
by such optionee shall thereafter be exercisable, to the
extent to which it was exercisable at the time of death, for a
period of one year from the date of such death or until the
expiration of the stated term of the Director Option,
whichever period is shorter. If an optionee ceases to be an
Eligible Director by reason of his becoming an employee of the
Company and his employment with the Company is subsequently
terminated, any Director Option held by such optionee may
thereafter be exercised by the optionee, to the extent that it
was exercisable at the time of such termination, for a period
of three months from the date of such termination or the
expiration of the stated term of the Director Option,
whichever period is shorter; provided, however, that if the
optionee dies within such three-month period, any unexercised
Option held by such optionee shall thereafter be exercisable,
to the extent to which it was exercisable at the time of
death, for a period of one year from the date of such death or
until the expiration of the stated term of the Director
Option, whichever period is shorter.
12. GENERAL RESTRICTIONS.
Each award under the Plan shall be subject to the requirement that if at any
time the Company shall determine that (i) the listing, registration or
qualification of the Shares subject or related thereto upon any securities
exchange or under any state or federal law, or (ii) the consent or approval of
any regulatory body, or (iii) an agreement by the recipient of an award with
respect to the disposition of Shares, or (iv) the satisfaction of withholding
tax or other withholding liabilities is necessary or desirable as a condition of
or in connection with the granting of such award or the issuance or purchase of
Shares thereunder, such award shall not be consummated in whole or in part
unless such listing, registration, qualification, consent, approval, agreement,
or withholding shall have been effected or obtained free of any conditions not
acceptable to the Company. Any such restriction affecting an award shall not
extend the time within which the award may be exercised; and neither the Company
nor its directors or officers nor the Committee shall have any obligation or
liability to the grantee or to a
36
<PAGE> 39
Beneficiary with respect to any Shares with respect to which an award shall
lapse or with respect to which the grant, issuance or purchase of Shares shall
not be effected, because of any such restriction.
13. SINGLE OR MULTIPLE AGREEMENTS.
Multiple awards, multiple forms of awards, or combinations thereof may be
evidenced by a single agreement or multiple agreements, as determined by the
Committee.
14. RIGHTS OF THE SHAREHOLDER.
The recipient of any award under the Plan, shall have no rights as a shareholder
with respect thereto unless and until certificates for Shares are issued to him,
and the issuance of Shares shall confer no retroactive right to dividends.
15. RIGHTS TO TERMINATE EMPLOYMENT.
Nothing in the Plan or in any agreement entered into pursuant to the Plan shall
confer upon any person the right to continue in the employment of the Company or
affect any right which the Company may have to terminate the employment of such
person.
16. WITHHOLDING.
(a) Prior to the issuance or transfer of Shares under the Plan,
the recipient shall remit to the Company an amount sufficient
to satisfy any federal, state or local withholding tax
requirements. Other than with respect to awards under the
Director Program, the recipient may satisfy the withholding
requirement in whole or in part by electing to have the
Company withhold Shares having a value equal to the amount
required to be withheld. The value of the Shares to be
withheld shall be the fair market value, as determined by the
Committee, of the stock on the date that the amount of tax to
be withheld is determined (the "Tax Date"). Such election must
be made prior to the Tax Date, must comply with all applicable
securities law and other legal requirements, as interpreted by
the Committee, and may not be made unless approved by the
Committee, in its discretion.
(b) Whenever payments to a grantee in respect of an award under
the Plan to be made in cash, such payments shall be net of the
amount necessary to satisfy any federal, state or local
withholding tax requirements.
17. NON-ASSIGNABILITY.
No award under the Plan shall be sold, assigned, transferred, exchanged,
pledged, hypothecated, or otherwise encumbered, other than by will or by the
laws of descent and distribution, or by such other means as the Committee (or
the Board of Directors, in the case of the Director Program) may approve. Except
as otherwise provided herein, during the life of the recipient, such award shall
be exercisable only by such person or by such person's guardian or legal
representative.
37
<PAGE> 40
18. NON-UNIFORM DETERMINATIONS.
The Committee's determinations under the Plan (including without limitation
determinations of the persons to receive awards, the form, amount and timing of
such awards, the terms and provisions of such awards and the agreements
evidencing same, and the establishment of values and performance targets) need
not be uniform and may be made selectively among persons who .receive, or are
eligible to receive, awards under the Plan, whether or not such persons are
similarly situated.
19. CHANGE IN CONTROL PROVISIONS.
(a) In the event of (1) a Change in Control (as defined) or (2) a
Potential Change in Control (as defined) the following
acceleration and valuation provisions shall apply unless the
Board of Directors otherwise determines by resolution:
(i) Any SARs and any stock options awarded under the Plan
not previously exercisable and vested shall become
fully exercisable and vested.
(ii) Any restrictions and deferral limitations applicable
to any restricted stock, performance units or other
Stock-based awards, in each case to the extent not
already vested under the Plan, shall lapse and such
shares, performance units or other stock-based awards
shall be deemed fully vested.
(iii) The value of all outstanding stock options, SARs,
restricted stock, performance units and other
stock-based awards, in each case to the extent
vested, shall, unless otherwise determined by the
Committee (or the Board of Directors with respect to
the Director Program) in its sole discretion at or
after grant but prior to any Change in Control, be
cashed out on the basis of the Change in Control
Price (as defined) as of the date such Change in
Control or such Potential Change in Control is
determined to have occurred or such other date as the
Committee may determine prior to the Change in
Control.
(b) As used herein, the term "Change in Control" means the
happening of any of the following:
(i) Any person or entity, including a "group" as defined
in Section 13(d)(3) of the 1934 Act, other than the
Company, a subsidiary of the Company, or any employee
benefit plan of the Company or its subsidiaries,
becomes the beneficial owner of the Company's
securities having 25 percent or more of the combined
voting power of the then outstanding securities of
the Company that may be cast for the election for
directors of the Company (other than as a result of
an issuance of securities initiated by the Company in
the ordinary course of business), or
38
<PAGE> 41
(ii) As the result of, or in connection with, any cash
tender or exchange offer, merger or other business
combination, sale of assets or contested election, or
any combination of the foregoing transactions, less
than a majority of the combined voting power of the
then outstanding securities of the Company or any
successor corporation or entity entitled to vote
generally in the election of directors of the Company
or such other corporation or entity after such
transaction, are held in the aggregate by holders of
the Company's securities entitled to vote generally
in the election of directors of the Company
immediately prior to such transactions; or
(iii) During any period of two consecutive years,
individuals who at the beginning of any such period
constitute the Board of Directors cease for any
reason to constitute at least a majority thereof,
unless the election, or the nomination for election
by the Company's stockholders, of each director of
the Company first elected during such period was
approved by a vote of at least two-thirds of the
directors of the Company then still in office who
were directors of the Company at the beginning of an
such period.
(c) As used herein, the term "Potential Change in Control" means
the happening of any of the following:
(i) The approval by stockholders of an agreement by the
Company, the consummation of which would result in a
Change in Control of the Company; or
(ii) The acquisition of beneficial ownership, directly or
indirectly, by any entity, person or group (other
than the Company, a wholly-owned subsidiary thereof
or any employee benefit plan of the Company or its
subsidiaries (including any trustee of such plan
acting as such trustee)) of securities of the Company
representing 5 percent or more of the combined voting
power of the Company's outstanding securities and the
adoption by the Board of Directors of a resolution to
the effect that a Potential Change in Control of the
Company has occurred for purposes of this Plan.
(d) As used herein, the term "Change in Control Price" means the
highest price per share paid in any transaction reported on
the New York Stock Exchange, or paid or offered in any
bonafide transaction related to a Potential or actual Change
in Control of the Company at any time during the 60 day period
immediately preceding the occurrence of the Change in Control
(or, where applicable, the occurrence of the Potential Change
in Control event), in each case determined by the Committee
except that, in the case of Incentive Stock Options and SARs
relating to Incentive Stock Options, such price shall be based
only on transactions reported for the date on which the
optionee exercises such SARs or, where applicable, the date on
which a cash out occurs under Section 19(a)(iii).
39
<PAGE> 42
20. NON-COMPETITION PROVISION.
Unless the award agreement relating to a stock option, SAR, restricted stock or
performance unit specifies otherwise, a grantee shall forfeit all un-exercised,
unearned and/or unpaid awards, including, but not by way of limitation, awards
earned but not yet paid, all unpaid dividends and dividend equivalents, and all
interest, if any, accrued on the foregoing if, (i) in the opinion of the
Committee, the grantee without the written consent of the Company, engages
directly or indirectly in any manner or capacity as principal, agent, partner,
officer, director, employee or otherwise, in any business or activity
competitive with the business conducted by the Company or any of its
subsidiaries; or (ii) the grantee performs any act or engages in any activity
which in the opinion of the Chief Executive Officer of the Company is inimical
to the best interests of the Company.
21. ADJUSTMENTS.
In the event of any change in the outstanding common stock of the Company, by
reason of a stock dividend or distribution, recapitalization, merger,
consolidation, reorganization, split-up, combination, exchange or Shares or the
like, the Board of Directors, in its discretion, may adjust proportionately the
number of Shares which may be issued under the Plan, the number of Shares
subject to outstanding awards, and the option exercise price of each outstanding
option, and may make such other changes in outstanding, options, SARs,
performance units and restricted stock awards, as it deems equitable in its
absolute discretion to prevent dilution or enlargement of the rights of
grantees, provided that any fractional Shares resulting from such adjustments
shall be eliminated.
22. AMENDMENT.
The Board of Directors may terminate, amend, modify or suspend the Plan at any
time, except that no termination, amendment, modification or suspension shall be
effective without the authorization of the holders of a majority of Company's
outstanding Shares, if such authorization is required to comply with Rule 16b-3
under the 1934 Act or to comply with any other law regulation or stock exchange
rule. No termination, modification, amendment or suspension of the Plan shall
adversely affect the rights of any grantee or Beneficiary under an award
previously granted, unless the grantee or Beneficiary shall consent; but it
shall be conclusively presumed that any adjustment pursuant to paragraph 21
hereof does not adversely affect any such right.
23. EFFECT ON OTHER PLANS.
Participation in this Plan shall not affect a grantee's eligibility to
participate in any other benefit or incentive plan of the Company. Any awards
made pursuant to this Plan shall not be used in determining the benefits
provided under any other plan of the Company unless specifically provided
therein.
24. EFFECTIVE DATE AND DURATION OF THE PLAN.
The Plan shall become effective when adopted by the Board of Directors, provided
that the Plan is approved by the holders of a majority of the outstanding Shares
on the date of its adoption by the Board or before the first anniversary of that
date. Unless it is sooner terminated in accordance with paragraph 22 hereof, the
Plan shall remain in effect until all awards under the Plan have been satisfied
by the issuance of Shares or payment of cash or have expired or otherwise
terminated, but no award shall be
40
<PAGE> 43
granted more than ten years after the earlier of the date the Plan is adopted by
the Board of Directors or is approved by the Company's shareholders.
25. UNFUNDED PLAN.
The Plan shall be unfunded, except to the extent otherwise provided in
accordance with Section 8 hereof. Neither the Company nor any affiliate shall be
required to segregate any assets that may be represented by stock options, SARs,
or performance units, and neither the Company nor any affiliate shall be deemed
to be a trustee of any amounts to be paid under any stock option, SAR or
performance unit. Any liability of the Company or any affiliate to pay any
grantee or Beneficiary with respect to an option, SAR or performance unit shall
be based solely upon any contractual obligations created pursuant to the
provisions of the Plan; no such obligations will be deemed to be secured by a
pledge or encumbrance on any property of the Company or an affiliate.
26. GOVERNING LAW.
The Plan shall be construed and its provisions enforced and administered in
accordance with the laws of the State of Tennessee, except to the extent that
such laws may be superseded by any federal law.
<PAGE> 44
APPENDIX A
SOFAMOR DANEK GROUP, INC.--PROXY
SOLICITED BY BOARD OF DIRECTORS FOR ANNUAL MEETING OF SHAREHOLDERS--APRIL 29,
1997
The undersigned appoints E. R. PICKARD and JAMES J. GALLOGLY, or any one of
them, attorneys and proxies with power of substitution to vote all of the Common
Shares of SOFAMOR DANEK GROUP, INC., standing in the name of the undersigned at
the Annual Meeting of Shareholders on Aprl 29, 1997, and at all adjournments
thereof, upon the matters set forth in the Notice and Proxy Statement of said
meeting, receipt of which is acknowledged.
The shares represented by this proxy will be voted as directed by the
Shareholder. If you wish to vote in accordance with the recommendations of the
Board of Directors, you may sign below and mail in the envelope provided. If no
direction is given, shares will be voted FOR Proposals 1, 2 and 3. Specific
choices may be made on the reverse side.
DATED: , 1997
SIGNATURE(S) OF SHAREHOLDER(S)
(Please sign exactly as name or
names appear hereon. Full title
of one signing in
representative capacity should
be clearly designated after
signature. Names of all joint
holders should be written even
if signed by only one.)
PLEASE COMPLETE, DATE, SIGN AND MAIL PROXY CARD IN THE ENVELOPE PROVIDED.
POSTAGE NOT NECESSARY IF MAILED IN THE UNITED STATES.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1, 2 AND 3
1. Election of Directors
<TABLE>
<S> <C>
[ ]FOR all nominees [ ] WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all nominees listed
</TABLE>
E. R. Pickard, James J. Gallogly, L. D. Beard, George W. Bryan, Sr., Robert A.
Compton, Yves Paul Cotrel, M.D.
Samuel F. Hulbert, Ph.D., Marie-Helene Plais, M.D., George F. Rapp, M.D.
(TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, LINE THROUGH THE
NOMINEE'S NAME ABOVE.)
2. Act upon a Proposal to approve the Company's 1993 Long Term Incentive Plan,
as amended.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY WILL BE VOTE FOR PROPOSALS 1 AND 2 UNLESS INSTRUCTIONS TO THE
CONTRARY ARE INDICATED.
PLEASE TURN OVER AND SIGN ON THE REVERSE SIDE
