<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
Scientific-Atlanta, Inc.
- - - --------------------------------------------------------------------------------
(Name of Registrant as Specified in Charter)
Scientific-Atlanta, Inc.
- - - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
Set forth the amount on which the filing fee is calculated and state how it
was determined.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
Scientific
Atlanta
(LOGO)
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders of Scientific-Atlanta, Inc., will be
held on Friday, November 11, 1994, at 9:00 a.m., local time, at the Swissotel,
3391 Peachtree Road, N.E., Atlanta, Georgia 30326 for the purpose of considering
and voting upon the following matters, all of which are described in the
attached Proxy Statement:
1. The election of three directors;
2. A proposal to approve the Corporation's Long-Term Incentive Plan;
3. A proposal to approve the Corporation's Senior Officer Annual
Incentive Plan;
4. A proposal to ratify the selection of Arthur Andersen LLP as
independent auditors of the Corporation for the current fiscal year; and
5. Such other matters as may properly come before the meeting and any
adjournment thereof.
Only shareholders of record at the close of business on September 23, 1994
shall be entitled to notice of and to vote at the meeting and any adjournment
thereof.
A proxy solicited by the Board of Directors, together with a Proxy
Statement and a copy of the 1994 Annual Report, are enclosed herewith. Please
sign, date, and return the proxy promptly in the enclosed business reply
envelope. If you attend the meeting and wish to vote in person, you may do so by
withdrawing your proxy prior to the meeting.
By order of the Board of Directors
/s/ William E. Eason, Jr.
-------------------------
William E. Eason, Jr.
Secretary
October 3, 1994
PLEASE COMPLETE AND RETURN THE ENCLOSED PROXY PROMPTLY SO THAT YOUR VOTE MAY BE
RECORDED AT THE MEETING IF YOU DO NOT ATTEND PERSONALLY.
Scientific-Atlanta, Inc., One Technology Parkway, South, Norcross, Georgia 30092
<PAGE> 3
SCIENTIFIC-ATLANTA, INC.
ONE TECHNOLOGY PARKWAY, SOUTH
NORCROSS, GEORGIA 30092
PROXY STATEMENT
Scientific-Atlanta, Inc. recently effected a two-for-one stock split-up in
the form of a stock dividend. The stock dividend will be payable on or about
October 6, 1994 to shareholders of record at the close of business on September
8, 1994. All share data in this Proxy Statement has been adjusted retroactively
to account for the stock dividend.
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Scientific-Atlanta, Inc. (the
"Corporation"), for use at the Annual Meeting of Shareholders of the Corporation
to be held on November 11, 1994, and any adjournment thereof. Shareholders of
record as of the close of business on September 23, 1994 (the "Record Date") are
entitled to notice of and to vote at the meeting. On that date the Corporation
had 75,687,468 shares of Common Stock, par value $0.50 per share (the "Common
Stock"), outstanding and entitled to vote at the meeting, with each share
entitled to one vote.
Copies of solicitation materials will be furnished to brokerage houses and
other fiduciaries for forwarding to beneficial owners of shares of the
Corporation's Common Stock. The Corporation has engaged Morrow & Co., Inc. to
assist in the solicitation of proxies from brokers, banks and their nominees
which are shareholders of record, at a cost of approximately $8,000. The costs
of this solicitation, including the cost of preparing and mailing this Proxy
Statement, will be paid by the Corporation. In addition to solicitations by
mail, directors and regular employees of the Corporation may solicit proxies in
person or by telephone or telegraph without receiving any compensation in
addition to their regular compensation as directors or employees.
Proxies are first being mailed to shareholders on October 3, 1994. Any
proxy which is returned by a shareholder properly completed and which is not
revoked will be voted at the meeting in the manner specified therein. Unless
contrary instructions are given, the persons designated as proxyholders in the
accompanying proxy card(s) (or their substitutes) will vote FOR the election of
the Board of Directors' nominees, FOR Proposals 2, 3 and 4, and in the
proxyholders' discretion with regard to all other matters. Any proxy given
pursuant to this solicitation may be revoked prior to the meeting at any time by
delivering an instrument revoking it, or a duly executed proxy bearing a later
date, to the Secretary of the Corporation. Any proxy given pursuant to this
solicitation may also be revoked by any shareholder who attends the meeting and
gives oral notice of his election to vote in person, without compliance with any
other formalities.
The presence at the meeting, in person or by proxy, of a majority of the
shares of Common Stock outstanding on the Record Date will constitute a quorum
at the meeting. Votes cast by proxy or in person at the Annual Meeting will be
counted by the persons appointed by the Corporation to act as the inspectors of
election for the meeting. Inspectors of election will treat shares represented
by proxies that reflect abstentions or include "broker non-votes" as shares that
are present and entitled to vote for purposes of determining the presence of a
quorum. With the exception of the proposals regarding the Long-Term Incentive
Plan (the "LTIP") and the Senior Officer Annual Incentive Plan (the "Incentive
Plan") where abstentions will be included in the calculations for the purpose of
determining whether the matters have been approved and will be treated as "no"
votes, abstentions or "broker non-votes" do not constitute a vote "for" or
"against" any matter and thus will be disregarded in any calculation of "votes
cast". If a broker or nominee has physically indicated on the proxy that it does
not have discretionary authority to vote on a matter, those shares will be
treated as not present and not entitled to vote with respect to that matter
(even though those shares may be considered entitled to vote for quorum purposes
and entitled to vote on other matters).
Any unmarked proxies, including those submitted by brokers or nominees,
will be voted in favor of the proposals and the nominees for the Board of
Directors, as indicated in the accompanying proxy card.
<PAGE> 4
CERTAIN BENEFICIAL OWNERSHIP
The following table sets forth information as to shares of the
Corporation's Common Stock held by persons known to the Corporation to be the
beneficial owners of more than five percent of the Corporation's Common Stock
based upon information publicly filed by such persons:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP CLASS
- - - ----------------------------------------------------- ----------------- ----------
<S> <C> <C>
The Equitable Companies Incorporated 12,109,600(1) 16.0%
787 Seventh Avenue
New York, New York 10019
FMR Corp. 8,858,304(2) 11.7%
82 Devonshire Street
Boston, Massachusetts 02109
SunBank Capital Management, National Association 4,976,800(3) 6.6%
200 South Orange Avenue
Orlando, Florida 32801
</TABLE>
- - - ---------------
(1) Based on a Schedule 13G, dated March 8, 1994, filed with the Securities and
Exchange Commission by The Equitable Companies Incorporated and related
entities, including Alliance Capital Management, L.P. The Equitable
Companies Incorporated and related entities have sole voting power over
10,249,700 shares and sole dispositive power over 12,109,600 shares.
(2) Based on a Schedule 13G, dated June 8, 1994, filed with the Securities and
Exchange Commission by FMR Corp. and related entities. Of such shares, FMR
Corp. has sole voting power over 235,724 shares and sole dispositive power
over 8,858,304 shares. Includes shares held as trustee for certain of the
Corporation's employee benefit plans.
(3) Based on a Schedule 13G, dated February 11, 1994, filed with the Securities
and Exchange Commission by SunBank Capital Management and related entities.
SunBank Capital Management has sole voting and dispositive power over all
such shares.
2
<PAGE> 5
The following table sets forth information as of July 1, 1994 with respect
to shares of the Corporation's Common Stock owned by each director of the
Corporation, each executive officer named in the Summary Compensation Table and
by all directors and executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT
NAME OF OF BENEFICIAL OF
BENEFICIAL OWNER OWNERSHIP(1)(2) CLASS
- - - ------------------------------------------------------- ----------------- -------
<S> <C> <C>
Marion H. Antonini..................................... 31,125 *
William E. Kassling.................................... 37,125 *
Wilbur Branch King..................................... 33,450 *
Mylle Bell Mangum...................................... 280 *
Alonzo L. McDonald..................................... 46,250 *
James F. McDonald...................................... 261,374(3) *
David J. McLaughlin.................................... 27,756 *
James V. Napier........................................ 56,169 *
Sidney Topol........................................... 23,326 *
John H. Levergood...................................... 42,000 *
Raymond D. Lucas....................................... 68,292 *
Dr. H. Allen Ecker..................................... 51,578 *
Jack W. Simpson, Sr.................................... 32,092 *
All Directors and Executive Officers as a group (18
persons)............................................. 954,715(3) 1.3%
</TABLE>
- - - ---------------
* Represents less than one percent.
(1) Unless otherwise indicated, each person has sole voting and dispositive
power with respect to the shares shown. The table does not include rights
to receive performance-based restricted stock awards granted under the LTIP
subject to shareholder approval of the LTIP. See "Report of the Human
Resources and Compensation Committee" and "Proposal No. 2 -- Proposal to
Approve Long-Term Incentive Plan."
(2) Includes the following number of shares of Common Stock that may be
purchased upon the exercise of stock options exercisable on July 1, 1994 or
within 60 days thereafter: Mr. Antonini, 28,125; Mr. Kassling, 28,125; Mr.
King, 13,126; Mr. Alonzo L. McDonald, 41,250; Mr. James F. McDonald,
125,000; Mr. McLaughlin, 15,626; Mr. Napier, 41,251; Mr. Levergood, 40,000;
Mr. Lucas, 55,000; Dr. Ecker, 46,050; Mr. Simpson, 21,000; and all
directors and executive officers as a group, 623,053.
(3) Includes 50,000 shares of restricted stock granted to Mr. James F. McDonald
which have not yet vested, but with respect to which Mr. McDonald has
voting power. See "Compensation of Officers and Directors -- Summary
Compensation Table."
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Articles of Incorporation of the Corporation provide for the division
of the Board of Directors into three classes, with the directors in each class
serving for a term of three years. At the Annual Meeting, three nominees for
director are to be elected to serve until the Annual Meeting of Shareholders in
1997 and until their successors are elected and qualified. All of the nominees
for election as directors at this meeting, and all directors whose term of
office will continue after the Annual Meeting, are currently directors of the
Corporation.
Directors are to be elected by a plurality of the votes cast at the Annual
Meeting in person or by proxy by the holders of shares entitled to vote in the
election. The Board of Directors is informed that all of the nominees are
willing to serve as directors, but if any of them should decline or be unable to
act as a director, the persons designated as proxyholders in the accompanying
proxy card(s) (or their substitutes) will vote for such substitute nominee or
nominee(s) as may be designated by the Board of Directors unless the Board
reduces the number of directors accordingly.
3
<PAGE> 6
NOMINEES FOR DIRECTORS
The following information has been furnished by the respective nominees for
election as directors for a term expiring in 1997.
<TABLE>
<CAPTION>
DIRECTOR
NAME PRINCIPAL OCCUPATION SINCE
- - - ---------------------------------- --------------------------------------------- --------
<S> <C> <C>
David J. McLaughlin President, McLaughlin and Company, Inc. 1987
James V. Napier Chairman of the Board, Scientific-Atlanta, 1978
Inc.
Sidney Topol President, Topol Group, Inc. 1972
</TABLE>
Mr. McLaughlin, 58, has been President of McLaughlin and Company, Inc.
since 1984. That firm helps organizations manage change and improve performance
through consulting, seminars and publications. From 1987 until 1990 he also
served as Managing Principal of Sibson & Company, Inc., consultants in the field
of human resources. He is a director of Exide Electronics Group, Inc., Smart &
Final, Inc., HR Soft, Inc. and TBI Inc.
Mr. Napier has been Chairman of the Board of the Corporation since November
1992. Mr. Napier served as interim Chief Executive Officer of the Corporation
from December 1992 until July 1993. From 1988 to 1992 he was Chairman and
President of Commercial Telephone Group, Inc., a designer of telecommunications
products. From 1986 to 1988 he was an independent business consultant. From
March 1985 until March 1986 he served as President of HBO & Company, which
provides information processing materials and services to health care
facilities. Previously, he was Chairman and Chief Executive Officer of Contel
Corporation, a telecommunications company. Mr. Napier is 57 and is a director of
Engelhard Corporation, Vulcan Materials Company, HBO & Company, Intelligent
Systems, L.P., and Rhodes, Inc.
Mr. Topol, 69, served as President of the Corporation from 1971 to 1983,
Chief Executive Officer from 1975 to 1987, and Chairman of the Board from 1978
to 1990. He is presently President of Topol Group, Inc., a consulting and
investment firm, a position he has held for more than five years. Mr. Topol is a
director of Alpha Industries, Inc. and is Chairman of the Massachusetts
Telecommunications Council.
OTHER DIRECTORS
The following information has been furnished by the other directors, whose
terms of office will continue after the 1994 Annual Meeting.
<TABLE>
<CAPTION>
DIRECTOR
NAME PRINCIPAL OCCUPATION SINCE
- - - ---------------------------- ------------------------------------------------- --------
<S> <C> <C>
Marion H. Antonini Chairman and Chief Executive Officer, Welbilt 1990
Corporation
William E. Kassling Chairman and Chief Executive Officer, 1990
Westinghouse Air Brake Company
Wilbur Branch King Attorney at Law, Of Counsel to 1971
Kilpatrick & Cody
Mylle Bell Mangum Executive Vice President -- Strategic Management, 1993
Holiday Inn Worldwide
Alonzo L. McDonald Chairman and Chief Executive Officer, Avenir 1985
Group, Inc.
James F. McDonald President and Chief Executive Officer of the 1993
Corporation
</TABLE>
Mr. Antonini has been Chairman of the Board of Welbilt Corporation since
July 1990 and President and Chief Executive Officer of that company since
September 1990. From 1986 to 1990, Mr. Antonini served as Chairman of KD
Equities, a merchant banking firm. Prior to that, he served as Group Vice
President of Xerox Corporation's Worldwide Operations from 1982 to 1986 and in
other executive positions with that company.
4
<PAGE> 7
Mr. Antonini, 64, is a director of Vulcan Materials Company and Engelhard
Corporation. His term of office as a director of the Corporation expires in
1996.
Mr. Kassling was a Group Vice President of American Standard, Inc. for more
than five years before becoming Chief Executive Officer of Westinghouse Air
Brake Company in March 1990. Mr. Kassling is 50 and is a director of Dravo
Corporation. His term of office as a director expires in 1996.
Mr. King was a partner in the law firm of Kilpatrick & Cody in Atlanta,
Georgia, for more than five years until his retirement in December 1986. Mr.
King has been Of Counsel to that firm since his retirement. Kilpatrick & Cody
represents the Corporation from time to time in certain legal matters. Mr. King
is 65. His term as a director of the Corporation expires in 1995.
Ms. Mangum has been Executive Vice President -- Strategic Management of
Holiday Inn Worldwide ("Holiday Inn") since August 1992. Ms. Mangum is also a
member of the Board of Directors and Executive Committee of Holiday Inn. From
1985 until August 1992, Ms. Mangum was Director, Corporate Planning and
Development with BellSouth Corporation. Ms. Mangum is 45 and is a director of
Carpenter Technology. Her term as a director of the Corporation expires in 1996.
Mr. Alonzo L. McDonald has been Chairman of Avenir Group, Inc., a firm of
private development bankers, for more than five years. Previously, he was
President and Vice Chairman of the Board of Bendix Corporation and Managing
Director and Chief Executive Officer for worldwide operations of McKinsey &
Company. He has served as Director of the White House staff during the Carter
administration and in several other key government positions. Mr. McDonald is 66
and is a director of CAE Industries and LaFarge Corporation. His term as a
director of the Corporation expires in 1995.
Mr. James F. McDonald was elected President and Chief Executive Officer of
the Corporation effective July 15, 1993. Mr. McDonald was a general partner of
J. H. Whitney & Company, a private investment firm, from 1991 until his
employment by the Corporation. From 1989 to 1991 he was President and Chief
Executive officer of Prime Computer, Inc., a supplier of CAD/CAM software and
computer systems. Prior to that time he was President and Chief Operating
Officer of Gould, Inc., a computer and electronics company (1984 to 1989) and
held a variety of positions with IBM Corporation (1963 to 1984). Mr. McDonald is
54 and is a director of Burlington Resources, Inc. His term of office as a
director of the Corporation expires in 1995.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors met five times during the 1994 fiscal year to
consider matters related to the Corporation's business. The Board of Directors
has an Executive Committee, an Audit Committee, a Human Resources and
Compensation Committee, a Governance and Nominations Committee and a Pension
Investment Committee. With the exception of Ms. Mangum, each director attended
more than 75% of the aggregate of the total number of meetings of the Board and
the committees of which he or she is a member during the period of the 1994
fiscal year that he or she served as a director or committee member.
The Executive Committee acts for the Board of Directors between meetings,
subject to certain limitations. Members of the Executive Committee, which met
two times during the 1994 fiscal year, are directors Antonini, Kassling, King,
James F. McDonald and Napier. Mr. Napier is Chairman.
The Audit Committee makes recommendations as to the selection of
independent auditors, evaluates the audit services and the Corporation's
financial, accounting and internal audit policies, functions and systems, and
approves the engagement of independent auditors to provide non-audit services.
The Audit Committee met three times during the 1994 fiscal year. The Audit
Committee consists of directors Antonini, Kassling, Alonzo L. McDonald, Napier
and Topol. Mr. McDonald is Chairman.
The Human Resources and Compensation Committee makes determinations as to
the compensation and benefits to be paid to the Corporation's officers and key
employees. The Human Resources and Compensation Committee met seven times during
the 1994 fiscal year. The members of the Committee are directors Antonini, King,
Mangum, McLaughlin and Napier. Mr. McLaughlin is Chairman.
5
<PAGE> 8
The Governance and Nominations Committee considers nominations for
directors (and will consider nominees by shareholders) and provides oversight of
the governance of the Board of Directors including issues concerning size,
committee structure, membership and compensation of the Board. Nominations
should be in writing, addressed to Chairman, Governance and Nominations
Committee, c/o the Office of the General Counsel, Scientific-Atlanta, Inc., One
Technology Parkway, South, Norcross, Georgia 30092. The Governance and
Nominations Committee met once during the 1994 fiscal year. The members of the
Committee are directors Antonini, Kassling, King and Napier. Mr. King is
Chairman.
The Pension Investment Committee reviews the performance of firms which
provide investment advice and services to the Corporation on pension investment
matters. The Committee met twice during the 1994 fiscal year. Members of this
Committee are directors Mangum, Alonzo L. McDonald, McLaughlin and Topol. Mr.
Topol is Chairman.
COMPENSATION OF OFFICERS AND DIRECTORS
CASH COMPENSATION
The following table sets forth in the prescribed format the compensation
paid to the Chief Executive Officer and the other four most highly compensated
executive officers of the Corporation for services rendered in all capacities
during the Corporation's last three fiscal years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION ----------------------- --------
---------------------------------- RESTRICTED ALL
OTHER STOCK SECURITIES LTIP OTHER
NAME AND FISCAL ANNUAL AWARD(S) UNDERLYING PAYOUTS COMPEN-
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMP.($)(1) ($)(2) OPTIONS(#) ($)(3) SATION($)(4)
- - - -------------------------- ------ --------- -------- ----------- ---------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James F. McDonald......... 1994 $494,231 $344,000 $ -- $1,350,000(5) 350,000(6) $103,808 $142,158
President and Chief 1993 -- -- -- -- -- -- --
Executive Officer(7) 1992 -- -- -- -- -- -- --
John H. Levergood......... 1994 282,769 161,500 1,816 -- -- 53,610 7,812
Senior Vice President 1993 137,596 217,800 -- -- 60,000 -- 4,194
President, Broadband 1992 -- -- -- -- -- -- --
Communications Group(8)
Raymond D. Lucas.......... 1994 228,308 127,200 -- -- 15,000 33,579 6,994
Senior Vice President, 1993 220,308 113,300 -- -- 33,000 -- 5,476
Strategic Operations 1992 210,789 154,300 -- -- 66,000 -- 4,060
Chief Strategic Officer
Dr. H. Allen Ecker........ 1994 215,115 130,000 1,816 -- 17,200 36,207 5,446
Senior Vice President, 1993 206,038 108,500 -- -- 33,000 -- 4,126
Technical Operations 1992 196,615 148,900 -- -- 66,000 -- 3,147
Chief Technical Officer
Jack W. Simpson, Sr....... 1994 177,885 159,500 -- -- 60,000 41,564 121,708
Senior Vice President 1993 -- -- -- -- -- -- --
President, Network 1992 -- -- -- -- -- -- --
Systems Group(9)
</TABLE>
- - - ---------------
(1) The amounts disclosed in this column represent preferential earnings on
deferred compensation.
(2) Of the 100,000 shares ($1,350,000 in value) of restricted stock awarded to
Mr. McDonald during the fiscal year, 50,000 shares ($853,125 in value) were
restricted as of July 1, 1994. The table does not include the following
number and value of the rights to receive performance-based restricted
stock awards granted under the LTIP, subject to shareholder approval of the
LTIP, and held as of July 1, 1994: Mr. McDonald, 38,020 shares, $648,716;
Mr. Levergood, 19,640 shares, $335,108; Mr. Lucas, 12,300 shares, $209,869;
Dr. Ecker, 13,260 shares, $226,249; and Mr. Simpson, 15,220 shares,
$259,691.
6
<PAGE> 9
(3) Indicates a portion of the rights to receive performance-based restricted
stock awards granted under the LTIP subject to shareholder approval of the
plan. The performance objectives for the awards shown in this column were
achieved as of the end of the Corporation's 1994 fiscal year. See "Proposal
No. 2 -- Proposal to Approve Long-Term Incentive Plan."
(4) For the 1994 fiscal year, the amounts include $84,000 and $80,000 paid as
sign-on bonuses to Messrs. McDonald and Simpson, respectively, and $47,773
and $34,136 paid as relocation assistance to Messrs. McDonald and Simpson,
respectively. All other amounts in fiscal 1994 represent contributions to
the Corporation's 401(k) Plan.
(5) A total of 100,000 shares of restricted stock were awarded to Mr. McDonald
in connection with the commencement of his employment with the Corporation.
Of these shares, 50,000 vested on February 14, 1994 and 25,000 of such
shares shall vest on each of June 15, and July 15, 1995 as long as Mr.
McDonald is employed by the Corporation on those dates. The amount shown
represents the dollar value of the restricted stock award, calculated by
multiplying the closing market price of the Corporation's Common Stock on
the date of grant by the number of shares awarded. Dividends are paid on
the restricted stock reported in this column.
(6) These options were granted to Mr. McDonald in connection with the
commencement of his employment with the Corporation. The Corporation has
agreed to issue to Mr. McDonald additional options to purchase 150,000
shares of Common Stock, over a period of the next two fiscal years.
(7) Mr. McDonald was elected President and Chief Executive Officer of the
Corporation effective July 15, 1993.
(8) Mr. Levergood re-joined the Corporation as an officer in December 1992. He
had retired from the Corporation in December 1989. The amounts shown as
salary in the above table exclude $45,224 in retirement benefits and
$158,250 in consulting fees paid to Mr. Levergood in fiscal 1993.
(9) Mr. Simpson joined the Corporation as Senior Vice President and President,
Network Systems Group in October 1993.
STOCK OPTIONS
The following tables set forth certain information in the prescribed
formats with respect to options granted and exercised under the Corporation's
various stock option plans during the last fiscal year:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT
----------------------------------------------- ASSUMED ANNUAL
% OF TOTAL RATES OF
NUMBER OF OPTIONS STOCK PRICE
SECURITIES GRANTED TO EXERCISE APPRECIATION
UNDERLYING EMPLOYEES OR BASE FOR OPTION TERM(1)
OPTIONS IN FISCAL PRICE EXPIRATION -----------------------
NAME GRANTED(#) YEAR ($/SH) DATE(2) 5%($) 10%($)
- - - -------------------------------- ---------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
James F. McDonald............... 300,000(3) 24.7% $ 15.562 7/15/03 $2,936,152 $7,440,785
50,000(3) 4.1 13.50 2/14/04 424,500 1,075,775
John H. Levergood............... --(4) -- -- -- -- --
Raymond D. Lucas................ 15,000 1.2 15.937 8/23/03 150,345 381,000
Dr. H. Allen Ecker.............. 17,200 1.4 15.937 8/23/03 172,396 436,880
Jack W. Simpson, Sr............. 60,000(5) 4.9 17.00 11/10/03 641,473 1,625,617
</TABLE>
- - - ---------------
(1) The dollar amounts in these columns are determined using assumed rates of
appreciation set by the Securities and Exchange Commission and are not
intended to forecast future appreciation, if any, in the market value of
the Corporation's Common Stock. Such amounts are based on the assumption
that the named persons hold the options for their full 10-year term. The
actual value of the options will vary in accordance with the market price
of the Corporation's Common Stock.
7
<PAGE> 10
(2) Stock options were awarded under the Corporation's 1992 Employee Stock
Option Plan (the "1992 Plan"). The options become exercisable at the rate
of 25% per year commencing on the date of grant, except that if a change of
control occurs (as defined in the 1992 Plan), all options become
exercisable immediately. Options under the 1992 Plan may be exercised
within a period of two years following a termination by reason of
retirement, within one year following a termination by reason of death or
disability, and within 30 days following a termination for other reasons,
except for cause in which case the option expires immediately upon the
giving of the notice of such termination. The 1992 Plan grants broad
discretion to change or modify the material terms of option grants.
(3) These options were granted in connection with Mr. McDonald's employment by
the Corporation.
(4) No options were granted to Mr. Levergood in the Corporation's 1994 fiscal
year. In connection with his re-employment by the Corporation during the
1993 fiscal year, Mr. Levergood received a two-year grant of options.
(5) These options were granted in connection with Mr. Simpson's employment by
the Corporation.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR-END(#) AT FISCAL YEAR-END($)(1)
ACQUIRED ON VALUE ----------------------------- -------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- - - --------------------------- ------------ ----------- ----------------------------- -------------------------
<S> <C> <C> <C> <C>
James F. McDonald.......... -- $ 0 87,500 / 262,500 $ 157,031 / 471,094
John H. Levergood.......... -- 0 30,000 / 30,000 170,625 / 170,625
Raymond D. Lucas........... -- 0 50,998 / 72,752 524,112 / 675,151
Dr. H. Allen Ecker......... -- 0 41,050 / 76,650 422,759 / 708,058
Jack W. Simpson, Sr........ -- 0 15,000 / 45,000 938 / 2,813
</TABLE>
- - - ---------------
(1) The amounts in this column are calculated using the difference between the
closing market price of the Corporation's Common Stock at the end of the
Corporation's 1994 fiscal year and the option exercise prices.
LONG-TERM INCENTIVE AWARDS
The following table provides information in the prescribed format
concerning the right to receive performance-based restricted stock awards
granted during the last fiscal year under the LTIP. Such awards are subject to
shareholder approval of the LTIP. See "Proposal No. 2 -- Proposal to Approve
Long-Term Incentive Plan."
LONG-TERM INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERFORMANCE ESTIMATED FUTURE PAYOUTS
NUMBER OR OTHER IN SHARES
OF PERIOD UNTIL -------------------------------
SHARES MATURATION THRESHOLD TARGET(2) MAXIMUM
NAME (#) OR PAYOUT(1) (#) (#) (#)
- - - -------------------------------------------- -------- ------------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
James F. McDonald........................... 38,020 10 years 3,802 -- 38,020
John H. Levergood........................... 19,640 10 years 1,964 -- 19,640
Raymond D. Lucas............................ 12,300 10 years 1,230 -- 12,300
Dr. H. Allen Ecker.......................... 13,260 10 years 1,326 -- 13,260
Jack W. Simpson, Sr......................... 15,220 10 years 1,522 -- 15,220
</TABLE>
- - - ---------------
(1) In the 1994 fiscal year, the Corporation granted to 19 key executives rights
to receive performance-based restricted stock awards, subject to
shareholder approval of the LTIP. Vesting of these shares is based on
8
<PAGE> 11
achieving specified improvements in the Corporation's weighted five-year
average return on equity. Results are reviewed annually and shares vest
based on the degree of improvement achieved. Any shares which have not
vested at the end of the 10-year term are forfeited. The number of shares
shown represent a two-year grant and no further shares will be awarded
during fiscal 1995.
(2) Vesting of the rights to receive the performance-based restricted stock
awards is based on the degree of improvement in the Corporation's weighted
five-year average return on equity. Upon achieving the minimum level of
improvement, 10% of the rights become vested, as shown in the "Threshold"
column. Upon achievement of a specified maximum five-year average return on
equity, all such awards will be vested. No "target", as such, has been
established, but improvements in the Corporation's return on equity between
the "threshold" and the "maximum" levels will result in the vesting of a
proportionate number of awards.
RETIREMENT PLANS AND OTHER ARRANGEMENTS
Defined Benefit Retirement Plan. The Corporation presently has in effect a
non-contributory retirement plan (the "Retirement Plan") for the benefit of its
employees which provides for the payment of fixed benefits upon normal
retirement at age 65 on the basis of years of service and all cash compensation
of each employee. Examples of annual retirement benefits payable under the
Retirement Plan are set forth in the table below. These examples are based on
the following: (i) retirement at the normal retirement age of 65, (ii) "average
compensation" is the average compensation in the highest consecutive five of the
last ten calendar years of service that immediately precede retirement, and
(iii) the benefits are straight life annuities. Benefits under the Retirement
Plan are not reduced by social security benefits. The years of service credited
for retirement benefits for the persons named in the Summary Compensation Table
are James F. McDonald, 1 year; John H. Levergood, 23 1/6 years; Raymond D.
Lucas, 5 1/6 years; Dr. H. Allen Ecker, 17 2/3 years; and Jack W. Simpson,
Sr., 1/2 of 1 year.
<TABLE>
<CAPTION>
YEARS OF SERVICE(1)
AVERAGE ANNUAL -----------------------------------------------
COMPENSATION 15 20 25 30 35
- - - -------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
$125,000........................... $26,844 $36,492 $44,484 $44,484 $45,096
150,000........................... 31,668 44,700 51,096 53,448 55,128
175,000........................... 31,668 44,700 51,096 53,448 55,128
200,000........................... 31,668 44,700 51,096 53,448 55,128
225,000........................... 31,668 44,700 51,096 53,448 55,128
250,000........................... 31,668 44,700 51,096 53,448 55,128
500,000........................... 31,668 44,700 51,096 53,448 55,128
</TABLE>
- - - ---------------
(1) The Corporation also maintains a supplemental executive retirement plan for
certain key executive officers, including Messrs. McDonald, Lucas, Ecker
and Simpson. Provisions of the plan include a ten-year vesting requirement
and a normal retirement age of 65. Benefits are based upon fifty percent of
final average pay with offsets for the Retirement Plan, social security
benefits and any retirement benefits payable from former employers. The
Corporation has also agreed to provide to Mr. Levergood supplemental
retirement benefits based upon Mr. Levergood's average annual earnings
multiplied by a retirement factor. Under this arrangement, Mr. Levergood
could receive retirement benefits of up to sixty percent of his average
annual earnings (base salary and annual bonus) for the highest three years
of his employment with the Corporation. The table does not include such
supplemental benefits.
The Internal Revenue Service places an annual maximum limit ($150,000) on
the compensation which may be considered in determining a participant's
benefits. Effective July 1, 1994, the Corporation adopted a nonqualified
Restoration Retirement Plan to provide retirement benefits for those employees
whose benefits under the Retirement Plan will be curtailed by the limits
prescribed by the Internal Revenue Code. Effective July 1, 1994, if an
individual's compensation exceeds the prescribed limits, the excess benefits
will be paid by the Corporation pursuant to this plan or the Corporation's
supplemental executive retirement plan.
9
<PAGE> 12
Agreements with Certain Persons. The Corporation has letter agreements
with Messrs. Levergood, Lucas, Ecker and Simpson which provide for the
continuation of salary and certain benefits for a 12-month period (24-months
with respect to Mr. Levergood) in the event of termination of employment without
cause. The Corporation also has agreements with Messrs. McDonald, Lucas, Ecker
and Simpson which provide for the payment of two times the executive's
compensation plus the continuation of the executive's benefits for two years in
the event the executive's employment with the Corporation is terminated within
two years from the time of a change of control (as defined in the agreement) of
the Corporation, unless such termination is for cause. The Corporation has an
agreement with Mr. Levergood which entitles Mr. Levergood to receive the
continuation of his base salary for up to 36 months in the event Mr. Levergood
is terminated by the Corporation within 18 months of a change of control of the
Corporation, as defined in such agreement. In the event Mr. Levergood
voluntarily terminates his employment within 18 months of a change of control of
the Corporation, Mr. Levergood is entitled to a continuance of his base salary
for 24 months or his normal retirement date or death, whichever occurs first.
DIRECTOR COMPENSATION
Annual Fees. Each Director who is not an employee receives a $30,000
annual retainer, paid quarterly, and $1,250 for each meeting of the Board and
each meeting of a committee he or she attends. The Chairman of the Board and
each Committee chair receive an additional annual retainer of $50,000 and
$5,000, respectively, paid quarterly. Non-Employee Directors may elect to defer
all or a portion of their retainer and meeting fees under the Corporation's
Non-Employee Director Deferred Compensation Plan. At the election of the
participant, deferred amounts are deposited into either an interest account,
which earns interest at a rate set annually by the Human Resources and
Compensation Committee, or into a phantom stock account, which is deemed to
represent the number of shares of the Corporation's Common Stock which the
amount deferred could purchase at the market price of such stock at the time of
deferral.
Non-Employee Director Retirement Plan. Under the Retirement Plan for
Non-Employee Directors each director who is not an employee of the Corporation
("Non-Employee Director"), who has been a member of the Board of Directors for
at least 36 consecutive months and who retires on or after his 65th birthday is
entitled to receive for the remainder of his life an annual retirement benefit
equal to the annual retainer paid by the Corporation to its directors for the
last year that he was a director. A reduced benefit is provided for Non-Employee
Directors who retire prior to age 65. The Plan also provides for payments to a
Non-Employee Director who becomes totally and permanently disabled and for
payments to the spouse of a Non-Employee Director who dies.
Non-Employee Director Stock Option Plan. Under this plan, an initial
option to purchase 30,000 shares of the Corporation's Common Stock has been
granted to each Non-Employee Director. An option to purchase an additional 7,500
shares is granted to each such director on the date of each annual meeting of
shareholders. The exercise price for each option is the closing sale price of
the Corporation's Common Stock on the New York Stock Exchange on the date the
option is granted. Each option is exercisable as to 25% of the shares covered
thereby after the expiration of one year following the date of grant and for an
additional 25% of the shares after the expiration of each succeeding year. The
options granted under this plan are exercisable only by a member of the Board,
except in certain limited circumstances.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Napier, who served as interim Chief Executive Officer of the
Corporation from December 1992 until July 1993, is a member of the Human
Resources and Compensation Committee.
10
<PAGE> 13
REPORT OF THE
HUMAN RESOURCES AND COMPENSATION COMMITTEE
ROLE OF THE COMMITTEE AND THE BOARD
The Human Resources and Compensation Committee sets compensation policies
for the Corporation's senior management within guidelines approved by the Board
of Directors. The Committee evaluates individual and corporate performance from
a short and long-term perspective, establishes base salaries and approves annual
and long-term incentives for all officers, and administers the Corporation's
option and incentive plans. The Committee's recommendations regarding the
compensation of the Chief Executive Officer are subject to the approval of the
full Board.
COMPENSATION PHILOSOPHY
The Corporation's executive compensation program is designed to attract,
motivate and retain highly qualified executives and to encourage the achievement
of superior performance. The program is designed to:
- Foster a performance oriented environment with a high level of variable
compensation based on the short and long-term performance of the
individual, team, business unit and Corporation against demanding goals
and objectives.
- Provide total compensation opportunities which exceed industry medians
for superior financial results and outstanding personal performance.
- Align the interests of the Corporation's executives and shareholders
through the use of stock-based compensation plans.
BASE SALARIES
The Corporation positions its base salaries to be fully competitive with
the range of compensation levels of comparably-sized, high-technology companies
and with the Corporation's direct business competitors which have similar market
characteristics. National surveys such as Hewitt Associates' Total Compensation
Database(T)M and Radford Associates' Management Total Compensation Report and,
periodically, independent compensation consultants are utilized by the Committee
when determining such salaries.
In determining whether the base salaries of executives, including the Chief
Executive Officer, should be increased, the Committee takes into account
individual performance, performance of the operations directed by that
executive, and the positioning of compensation within established salary ranges.
INCENTIVE COMPENSATION
Under the Corporation's compensation philosophy, the majority of
compensation is intended to be payable under incentive plans. Payments and
awards under these incentive plans are based on the achievement of annual and
long-term goals and, accordingly, are "at risk". Executives of the Corporation
are eligible to participate in the following incentive plans as determined by
the Committee:
Senior Officer Annual Incentive Plan. This plan, which is being
submitted to the Corporation's shareholders for approval, has been designed
to qualify as "performance-based" compensation under Internal Revenue Code
(the "Code") Section 162(m) ("Code Section 162(m)"). If approved, the plan
will become effective in the Corporation's 1995 fiscal year and will be
used initially only for the Corporation's Chief Executive Officer. Payments
under the plan are based upon the achievement of annual goals.
Annual Incentive Plan. Under the Annual Incentive Plan (the "AIP"),
awards are made based on company, group, and division results and
assessments of individual performance. Quantitative and qualitative
objectives are weighted 60% and 40%, respectively, in setting "target"
awards for corporate staff participants and 75% and 25%, respectively, for
business unit participants.
11
<PAGE> 14
Quantitative objectives, consistent with annual business plans
approved by the Board, are used in determining the proportion of the award
which is to be governed by the company, group or division performance.
Awards under the AIP are not made if the minimum thresholds are not met.
The Committee may also take into account non-recurring extraordinary
circumstances unrelated to the Corporation's financial performance.
The award for Mr. McDonald under the AIP is discussed in the next
section of this report. AIP awards for Messrs. Lucas and Ecker were based
on the quantitative performance of the Corporation, as measured by profit
before tax, gross margin, return on net assets and revenue results versus
plan, and an assessment of their individual performance against personal
qualitative objectives. In the case of Messrs. Levergood and Simpson, the
quantitative portion of their awards was based on the performance of their
respective groups, as measured by the same financial factors already
discussed and to a lesser degree by corporate performance. They were also
assessed on their individual performance against personal qualitative
objectives.
AIP awards for the Chief Executive Officer and the four other most
highly compensated executives of the Corporation are included in the
"Bonus" column of the Summary Compensation Table.
1990 Long-Term Incentive Plan. Senior executives of the Corporation
are also eligible to receive cash awards under the 1990 Long-Term Incentive
Compensation Plan. The primary purpose of the plan is to offer participants
an incentive to achieve superior earnings and return on capital, thereby
helping assure superior long-term total return to shareholders. Under the
plan, the Committee selects the participants, determines the number of
contingent cash incentives which will be awarded to each participant, and
establishes the criteria for each three-year period which will determine
the value of the incentives. Awards are based on certain growth in earnings
per share and return on capital goals over each three-year period. For
fiscal years 1994, 1993 and 1992, the three-year objectives were not met
and no payments were made under the plan. No awards were granted under this
plan for fiscal years 1994 and 1995. It is intended that the proposed new
LTIP will replace this plan. See "Proposal No. 2 -- Proposal to Approve
Long-Term Incentive Plan."
Stock Option Plan. A larger group of executives, including the
executives named in the Summary Compensation Table, also receive grants of
stock options under the provisions of the 1992 Plan. The objective of the
grants is to align the interests of the executives with the interests of
the Corporation's shareholders by affording the executives the opportunity
of a potentially significant financial benefit if their efforts result in
stock price appreciation. The Committee takes into account the performance
of the individual recipient, the number of options previously awarded to
any individual participant and the Corporation's grant levels compared to
competitive practices, targeting near a median grant posture. Grants made
in fiscal 1994 to Mr. McDonald and the other named executives are shown in
the Summary Compensation Table and in the Option Grants Table. If the LTIP
is approved by the shareholders, future grants of options will in most
cases be made under the LTIP, and any options granted under the 1992 Plan
will reduce the number of shares available for awards under the LTIP.
During fiscal 1994, options to purchase a total of 1,214,700 shares were
granted to 233 optionees.
Long-Term Incentive Plan. This plan, which is being submitted to the
Corporation's shareholders for approval, permits the Committee to use one
or more long-term incentives to motivate excellent long-term performance.
In fiscal year 1994, performance-based restricted stock awards were
granted, subject to shareholder approval of the LTIP, to 19 key executives
including Messrs. McDonald, Levergood, Lucas, Ecker and Simpson. These
awards will vest over a term of up to 10 years, based on improvement in the
Corporation's weighted average return on equity over the previous five-year
period. The number of shares granted and those vested based on the
Corporation's fiscal year 1994 performance are shown in the Long-Term
Incentive Plan -- Awards in Last Fiscal Year Table and Summary Compensation
Table, respectively.
12
<PAGE> 15
POLICY RELATIVE TO CODE SECTION 162(M)
The Omnibus Budget Reconciliation Act of 1993 (OBRA) limited deductible
senior officer annual compensation to $1,000,000, unless the compensation
qualifies as "performance-based" compensation under Code Section 162(m). In
general, the Corporation will seek to maximize the use of the
"performance-based" exemption provided under Code Section 162(m). Although the
new Incentive Plan and the new LTIP have been designed to conform to the
requirements of Code Section 162(m), the initial grant of rights to receive
performance-based restricted stock awards under the LTIP does not meet the
requirements of Code Section 162(m) since such awards were granted more than 90
days after the beginning of the 1994 fiscal year. The Committee also believes
that inclusion of qualitative (non-quantitative) objectives play an important
role in incentive plans. The Committee will continue to base a portion of
incentive payments on such qualitative assessments, even though they may not
meet the Code Section 162(m) requirements to qualify as "performance-based"
compensation.
STOCK OWNERSHIP
The Committee believes that significant ownership of Common Stock by
officers and directors is desirable in that it more closely aligns the upside
and downside risk of return for these individuals with the Corporation's other
shareholders. As a result, the Corporation's officers and directors agreed
during fiscal year 1994 to increase their ownership over time to a level of one
times the annual salary for officers (three times in the case of the Chief
Executive Officer) and three times the annual retainer for outside directors.
Significant progress was achieved toward this goal. As of the end of fiscal year
1994, officers' holdings averaged 1.33 times base salaries and outside director
holdings averaged 6.93 times annual retainers (based on the closing price of the
Common Stock at the 1994 fiscal year-end).
CHIEF EXECUTIVE OFFICER COMPENSATION
On July 15, 1993, Mr. James F. McDonald became the Corporation's President
and Chief Executive Officer. In setting his initial compensation arrangements,
the Committee emphasized a focus on long-term growth and success of the
Corporation. Mr. McDonald's base salary and annual incentive opportunity were
set somewhat lower than the median of competitive practice. He was, however,
granted stock options for 350,000 shares and also 100,000 shares of restricted
stock to align his potential remuneration directly with the returns to the
Corporation's other shareholders.
During the 1994 fiscal year, Mr. McDonald participated in the AIP. As with
other corporate participants, his award under the AIP was based 60% on
quantitative results and 40% on qualitative results. Quantitative results were
slightly under plan and yielded a payout which was also slightly under target.
The Committee and Board of Directors agreed that Mr. McDonald's overall
performance was outstanding and awarded the maximum payment with regard to
qualitative results. Among his many significant accomplishments, the Committee
noted a 90% increase in net income and an 85% increase in earnings per share
(both as adjusted for certain non-recurring charges), significant strengthening
of the key management staff and reorganization of the Corporation's business
units to more effectively pursue its business strategies. The Committee also
noted a sharpened focus on international opportunities, Mr. McDonald's efforts
to improve the Company's manufacturing strategies and his efforts to more
closely align the Company's operations with customer needs. In total, Mr.
McDonald's AIP award represented approximately 140% of the targeted amount.
Mr. McDonald was not a participant in the fiscal years 1992-1994
performance period under the 1990 Long-Term Incentive Plan. He did, however,
receive the right to 38,020 performance-based shares of restricted stock,
subject to shareholder approval of the LTIP. Based upon the Corporation's 1994
fiscal year performance, the right to receive 6,084 shares under this award
vested, subject to shareholder approval of the LTIP.
OTHER COMPENSATION PLANS
The Corporation also has various broad-based employee benefit plans.
Executives participate in these plans on the same terms as eligible,
non-executive employees, subject to any legal limits on the amounts that
13
<PAGE> 16
may be contributed or paid to executives under the plans. The Corporation offers
an Employee Stock Purchase Plan pursuant to the provisions of Section 423 of the
Code under which employees may purchase Common Stock. The Voluntary Employee
Retirement and Investment Plan pursuant to the provisions of Section 401(k) of
the Code, permits employees to invest in a variety of funds on a pre-tax basis.
Matching contributions under the plan are made in Common Stock of the
Corporation.
The Corporation also maintains pension, insurance and other benefit plans
for its employees.
Submitted by the Human Resources and Compensation Committee:
David J. McLaughlin, Chairman
Marion H. Antonini
Wilbur Branch King
Mylle Bell Mangum
James V. Napier
PERFORMANCE GRAPH
The following graph shows a comparison of total return to shareholders for
the Corporation, the Standard & Poor's High Technology Index and the Standard &
Poor's 500 for the Corporation's last five fiscal years:
<TABLE>
<CAPTION>
S&P High
Measurement Period Scientific- Technology
(Fiscal Year Covered) Atlanta S&P 500 Index
<S> <C> <C> <C>
1989 100 100 100
1990 148 116 109
1991 79 124 104
1992 129 138 108
1993 274 156 126
1994 291 163 137
</TABLE>
14
<PAGE> 17
PROPOSAL NO. 2
PROPOSAL TO APPROVE
LONG-TERM INCENTIVE PLAN
At the Annual Meeting, there will be presented to the shareholders a
proposal to adopt the Corporation's Long-Term Incentive Plan (the "LTIP"). The
Board of Directors unanimously approved the LTIP and recommends that the
shareholders approve this proposal to adopt the LTIP.
The LTIP is intended to encourage officers and key employees of the
Corporation and its subsidiaries to acquire or increase their ownership of
Common Stock on reasonable terms, to provide compensation opportunities for
superior financial results and outstanding personal performance, to foster in
participants a strong incentive to put forth maximum effort for the continued
success and growth of the Corporation and its subsidiaries, and to assist in
attracting and retaining the best available individuals to the Corporation and
its subsidiaries. Stock options, stock appreciation rights ("SARs"), options
granted in tandem with SARs, restricted stock awards and performance awards may
be granted under the LTIP.
ADMINISTRATION
The LTIP is to be administered by a committee (the "Committee") appointed
by the Corporation's Board of Directors, which Committee shall consist of not
less than two directors, each of whom is a "disinterested person" as defined in
Rule 16b-3 of the rules and regulations under the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Unless the Board determines otherwise,
the Committee shall be comprised solely of "outside" directors within the
meaning of Section 162(m) of the Code. The Human Resources and Compensation
Committee has been designated as the Committee under the Plan until otherwise
determined by the Board of Directors. Subject to the provisions of the LTIP, the
Committee has full authority to determine the employees to whom awards under the
LTIP shall be granted, to determine the nature and the amount of the grants and
relevant conditions thereof, and to interpret and determine any and all matters
relating to the administration of the LTIP and the granting of awards
thereunder.
The Committee shall from time to time adopt policies and procedures
applicable to awards that govern the lapse or non-lapse of restrictions and the
rights of participants and beneficiaries in the event of death, disability,
termination of employment, or retirement or upon the occurrence of any other
event determined by the Committee to be appropriate. The Committee shall have
the authority to define disability and retirement and other terms under the
LTIP, and the Committee's policies and procedures may differ with respect to
awards granted at different times.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
Stock options granted under the LTIP may be intended to qualify for
treatment as incentive stock options under Section 422 of the Code (so called
"incentive stock options"), or as options not intended to qualify for such
treatment (so called "non-qualified options"), or a combination of incentive and
non-qualified stock options. The option or exercise price per share of any
option shall not be less than the "fair market value" (as defined in the LTIP)
of the shares covered by such option on the option grant date. In the event an
incentive stock option is granted to an employee who, at the time such incentive
stock option is granted, owns more than ten percent of the total combined voting
power of all classes of stock of the Corporation or if applicable, a subsidiary
or a parent of the Corporation (a "Ten-Percent Shareholder"), then the option
price per share of such incentive stock option shall not be less than 110
percent of the fair market value of the shares covered by the option on the
option grant date.
Options shall be exercisable for a term of not more than 10 years from the
date of grant and shall be subject to earlier termination as provided for by the
LTIP or the Committee. In the event an incentive stock option is granted to an
employee who, at the time of grant is a Ten-Percent Shareholder, then such
incentive stock option shall not be exercisable more than five years from the
option grant date. In any calendar year, no employee may be granted an incentive
stock option to the extent that the aggregate fair market value (such fair
market value being determined as the date of grant of the option in question) of
the stock with respect to
15
<PAGE> 18
which the incentive stock options first become exercisable by the employee
during any calendar year (under all plans of the Corporation) exceeds $100,000.
In addition, SARs may be granted under the LTIP in tandem with options or
may be granted on a stand alone basis. The Corporation's obligation to any
participant exercising an SAR may be paid in cash or shares of Common Stock, or
partly in cash or shares, at the discretion of the Committee. SAR's granted in
tandem with incentive stock options are subject to additional limitations under
the LTIP.
RESTRICTED STOCK AWARDS
Restricted stock awards granted under the LTIP shall be subject to such
terms and conditions as the Committee may, in its discretion, determine.
Restricted stock awards may be subject to restrictions which lapse over time
with or without regard to performance objectives for a specific period. Subject
to the restrictions set forth in the LTIP and in the related award agreement,
the shares granted under a restricted stock award shall be issued to the
recipient and deposited into escrow, if applicable. In establishing the
performance objectives, the Committee shall also establish a schedule or
schedules setting forth the portion of the award which will be earned or
forfeited based on the degree of achievement of the performance objectives
actually achieved or exceeded as determined by the Committee.
Subject to the restrictions set forth in the LTIP and as set forth in the
related award agreement, participants who receive restricted stock awards shall
be shareholders with respect to all shares represented by such certificate or
certificates issued to them and shall have all the rights of a shareholder with
respect to such shares, including the right to vote such shares and to receive
dividends and other distributions paid with respect to such shares. Until such
time as the restrictions determined by the Committee or otherwise set forth in
the related award agreement have lapsed, the shares awarded to a participant and
held by the Corporation and the right to vote such shares or receive dividends
on such shares, may not be sold, exchanged, transferred, pledged, hypothecated
or otherwise disposed of; provided however, that if so provided in the award
agreement, such shares may be transferred upon the death of the participant to
such participant's legal representative and heirs as may be entitled thereto by
will or the laws of intestacy.
PERFORMANCE AWARDS
Performance awards granted under the LTIP may consist of a right to receive
shares of Common Stock or units which may be paid in cash, shares of Common
Stock or a combination of cash and shares. Under the LTIP, the Committee is to
establish performance periods applicable to performance awards and the Committee
shall establish one or more specific performance objectives for a performance
period. Performance objectives are to be established prior to the grant of any
performance awards with respect to such period. In establishing the performance
objectives, the Committee shall also establish a schedule or schedules setting
forth the portion of the performance award which is to be earned or forfeited
based on the degree of achievement of the performance objectives actually
achieved or exceeded as determined by the Committee.
Performance awards may be granted alone, in addition to or in tandem with
other awards under the LTIP. The Committee may determine that a participant
forfeits such performance awards back to the Corporation upon termination of
employment for any reason or specified reasons. Until such time as the
performance objectives as determined by the Committee have been met and until
any restrictions upon the shares issued pursuant to any performance awards have
lapsed, performance awards and any rights thereto may not be sold, exchanged,
transferred, pledged, hypothecated or otherwise disposed of by any participant.
PERFORMANCE OBJECTIVES
Under the LTIP, performance objectives are the specific target objectives
established by the Committee under one or more of the following four factors:
earnings per share of the Corporation's Common Stock, return on average
shareholders' equity, return on capital, and total shareholder returns of the
Corporation compared to a peer group of comparable companies established by the
Committee. To the extent awards are intended to qualify as performance-based
compensation under Code Section 162(m), then the specific performance objectives
for such awards shall be established in writing no later than ninety (90) days
after the
16
<PAGE> 19
commencement of the applicable performance period. The performance periods
established by the Committee for which performance objectives are established
are to be not less than one and no more than ten consecutive fiscal years. The
Committee may adjust performance objectives, adjust the way performance
objectives are measured, or shorten any performance period if it determines that
conditions or the occurrence of events warrants such actions; provided, that the
Committee's right to make such adjustments shall not apply to any performance
award that is intended to qualify as performance-based compensation under Code
Section 162(m) if and to the extent that it would prevent the award from so
qualifying.
ELIGIBILITY
Awards under the LTIP may be granted to such officers (including officers
who are members of the Board) and other key salaried employees of the
Corporation or any of its subsidiaries as the Committee shall determine. The
Corporation estimates that approximately 160 officers and salaried employees are
currently eligible to receive grants under the LTIP.
AWARDS SUBJECT TO PLAN
The maximum shares of Common Stock with respect to which awards may be
granted under the LTIP in each fiscal year during any part of which the LTIP is
effective shall be one and one-half percent of the number of shares of the
Corporation's Common Stock outstanding as of the first day of such fiscal year;
and commencing in the Corporation's 1995 fiscal year and each fiscal year
thereafter, subtracting from such maximum number of shares the number of shares
subject to options, if any, granted pursuant to the Corporation's 1992 Plan. The
maximum number of shares available for such awards that may be granted in any
particular fiscal year may be increased by "borrowing" from the next fiscal year
an amount of up to one-half of one percent of the number of shares of Common
Stock outstanding as of the first day of the fiscal year, provided that the
number of shares of Common Stock which would otherwise be available for awards
in the next fiscal year shall be decreased by the number of shares "borrowed"
pursuant to this provision. Any unused portion of the percentage limit for any
year shall be carried forward and shall be available for awards in succeeding
years. Based upon the number of shares of the Corporation's Common Stock
outstanding as of the first day of the current fiscal year, awards for up to
1,132,420 shares of Common Stock are eligible to be granted under the LTIP in
the current fiscal year. As indicated above, such number may be increased by the
amount of up to 377,473 shares of Common Stock, provided that the number of
shares of Common Stock which would otherwise be available for awards in the 1996
fiscal year are decreased by a like number.
In no event shall more than 4,000,000 shares of Common Stock be
cumulatively available for awards of incentive stock options under the LTIP.
Moreover, the maximum number of shares of Common Stock with respect to which
options and SARs payable in shares may be granted during any year to any
employee shall not exceed 400,000. The maximum dollar value of Awards (other
than options and SARs payable in shares) that are intended to qualify as
performance-based compensation under Code Section 162(m) which may be paid to
any Employee for any applicable performance period shall be $4,000,000.
In the event of changes in the Corporation's outstanding shares by reason
of stock dividends, stock splits, recapitalizations, mergers, consolidations,
combinations, or exchanges of shares, reorganizations or liquidations or similar
events or in the event of extraordinary cash or non-cash dividends being
declared with respect to outstanding shares or other similar transactions, the
number and class of shares available for awards under the LTIP in the aggregate,
the number and class of shares subject to awards theretofore granted, the number
of SARs granted, applicable purchase prices, applicable performance objectives
for the performance periods not yet completed and performance levels and any
portion of the payments related thereto, shall be equitably adjusted by the
Committee.
Contingent upon approval of the LTIP by the Corporation's shareholders, the
Committee granted the right to receive performance-based restricted stock awards
under the LTIP in the 1994 fiscal year to a total of 19 key employees. See the
table captioned "Long-Term Incentive Plan -- Awards in Last Fiscal Year." Based
upon the Corporation's performance in the 1994 fiscal year, the following table
sets forth in the prescribed
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<PAGE> 20
format the portion of the awards that will vest and be received by each of the
following if this proposal is adopted:
NEW PLAN BENEFITS*
LONG-TERM INCENTIVE PLAN
<TABLE>
<CAPTION>
NUMBER OF
NAME AND POSITION(1) DOLLAR VALUE($)(2) RESTRICTED SHARES(3)
---------------------------------------- ------------------ --------------------
<S> <C> <C>
James F. McDonald....................... $103,808 6,084
John H. Levergood....................... 53,610 3,142
Raymond D. Lucas........................ 33,579 1,968
Dr. H. Allen Ecker...................... 36,207 2,122
Jack W. Simpson, Sr..................... 41,564 2,436
All Current Executive Officers
as a Group............................ 377,627 22,132
All Employees, Other than
Executive Officers as a Group......... 151,344 8,870
</TABLE>
- - - ---------------
* Awards granted under the LTIP during the 1994 fiscal year are subject to
approval of the LTIP by the Corporation's shareholders. The awards
disclosed in the table will be released to the participants if this
proposal is approved. The Committee has certified that the requisite
performance objectives for the release of the awards were achieved.
(1) Non-employee directors are not eligible to receive awards under the LTIP. As
a result, such non-executive director group is omitted from the table.
(2) The amounts shown represent the dollar value of the rights to receive the
restricted stock based upon the Corporation's 1994 fiscal year results,
calculated by multiplying the closing market price of the Corporation's
Common Stock on the last day of the Corporation's 1994 fiscal year by the
number of shares earned.
(3) The maximum number of shares covered by the performance-based restricted
stock awards (including the shares shown in the above table) for Messrs.
McDonald, Levergood, Lucas, Ecker, Simpson, all current executive officers
as a group and all employees, other than the executive officers as a group,
are 38,020; 19,640; 12,300; 13,260; 15,220; 138,320; and 55,440;
respectively. See the table captioned "Long-Term Incentive Plan -- Awards
in the Last Fiscal Year."
AMENDMENT OF LTIP
The LTIP may be amended at any time and from time to time by the
Corporation's Board of Directors, provided that no amendment without the
approval of the Corporation's shareholders shall be made if shareholder approval
is required under Code Section 162(m) or Rule 16b-3. Notwithstanding the
previous sentence, no amendment to the LTIP shall be made without the approval
of the Corporation's shareholders which would change the material terms of
performance goals that were previously approved by the Corporation's
shareholders within the meaning of the proposed treasury regulations issued
under Code Section 162(m), unless the Board of Directors determines that such
approval is not necessary to avoid loss of a deduction under Code Section
162(m), such approval will not avoid such a loss of a deduction, or where such
approval is not advisable.
CHANGE IN CONTROL
Upon a Change in Control (as defined in the LTIP) of the Corporation, (i)
all options and SARs then outstanding shall become immediately exercisable as of
the date of the Change in Control, whether or not then exercisable, (ii) all
restrictions and conditions of all restricted stock awards then outstanding
shall be deemed satisfied as of the date of the Change in Control, and (iii) all
performance awards shall be deemed to have been fully earned as of the date of
the Change in Control. Moreover, the Committee may at any time,
18
<PAGE> 21
and subject to such terms and conditions as it may impose, (a) grant awards that
become exercisable only in the event of a Change in Control, (b) provide for
awards to be exercised automatically and only for cash in the event of a Change
in Control, and (c) provide in advance or at the time of a Change in Control for
cash to be paid in settlement of any award in the event of a Change in Control.
FEDERAL INCOME TAX CONSEQUENCES
The tax consequences of awards granted under the LTIP are complex. The
following is a summary only of the general tax principles applicable to awards
under the LTIP under federal law as in effect on the date of this Proxy
Statement.
Options. There are no tax consequences to the optionee upon the grant of
an option pursuant to the LTIP. There are no tax consequences to the optionee
upon exercise of an incentive stock option, except that the amount by which the
fair market value of the shares at the time of exercise exceeds the option
exercise price is a tax preference item possibly giving rise to alternative
minimum tax. If the shares of Common Stock acquired are not disposed of within
two years from the date the incentive stock option was granted and within one
year after the shares are transferred to the optionee, any gain realized upon
the subsequent disposition of the shares will be characterized as long-term
capital gain and any loss will be characterized as long-term capital loss. If
all requirements other than the above described holding period requirements are
met, a "disqualifying disposition" occurs and gain in an amount equal to the
lesser of (i) the fair market value of the shares on the date of exercise minus
the option exercise price or (ii) the amount realized on disposition minus the
option exercise price (except for certain "wash" sales, gifts or sales to
related persons), is taxed as ordinary income and the Corporation will be
entitled to a corresponding deduction in an amount equal to the optionee's
ordinary income at that time. The gain in excess of this amount, if any, will be
characterized as long-term capital gain if the optionee held the shares for more
than one year.
Other than incentive stock options, all options granted under the LTIP will
be taxed as non-qualified options. Upon the exercise of a non-qualified option,
the optionee will recognize taxable income in the amount by which the then fair
market value of the shares of Common Stock acquired exceeds the option exercise
price, with the Corporation being entitled to a deduction in an equal amount.
The amount of such taxable income will be characterized as compensation income
to the optionee. Upon the subsequent disposition of the Common Stock, the
optionee will recognize gain or loss, which will be characterized as capital
gain or loss in an amount equal to the difference between the proceeds received
upon disposition and his or her basis for the shares (the basis being equal to
the sum of the price paid for the stock and the amount of income realized upon
exercise of the option) provided the shares are held as a capital asset. Any
capital gain or loss to the optionee will be characterized as long-term or
short-term, depending upon whether his or her holding period for tax purposes
exceeds one year.
The taxable income recognizable upon the exercise of a nonqualified option
is subject to withholding for federal income tax purposes. Accordingly, the
Corporation generally must, as a condition to the exercise of a non-qualified
option, deduct from payments or shares otherwise due to the optionee the amount
of taxes required to be withheld by virtue of such exercise or require that the
optionee pay such withholding to the Corporation or make other arrangements
satisfactory to the Corporation regarding the payment of such taxes.
Stock Appreciation Rights. The amount of any cash (or the fair market
value of any Common Stock) received by the holder of SARs upon the exercise of
SARs under the LTIP will be subject to ordinary income tax in the year of
receipt and the Corporation will be entitled to a deduction for such amount.
Restricted Stock Awards. An employee who has been awarded restricted stock
will not recognize taxable income at the time of the award unless he elects
otherwise. If the recipient elects to be taxed at the time of the award, the
Corporation will be entitled to a corresponding deduction. At the time
restrictions applicable to the restricted stock award lapse, the employee will
recognize ordinary income and the Corporation will be entitled to a
corresponding deduction. The recipient's income and the Corporation's deduction
will be equal to the excess of the fair market value of such stock at such time
over the amount paid therefor. Dividends paid on the restricted stock during the
period the shares are held in escrow will generally
19
<PAGE> 22
be ordinary compensation income to the recipient of the restricted stock and
deductible as such by the Corporation.
Performance Awards. An employee who has been awarded a performance award
will not recognize taxable income, and the Corporation will not be entitled to a
deduction at the time of the award. At the time the employee is entitled to the
performance award, the employee will recognize ordinary income equal to the sum
of the cash and fair market value of the shares of the Common Stock at such
time, and the Corporation will be entitled to a corresponding deduction. To the
extent performance awards are paid in shares of restricted Common Stock, the
Federal income tax consequences described above applicable to restricted stock
awards will apply.
Officers and Directors Subject to Section 16(b) Liability. Special rules
may apply to officers and directors subject to liability under Section 16(b) of
the Exchange Act that may prevent the recognition of income by such individuals
and the corresponding deduction by the Corporation before the date six months
following the grant of an option or SAR or the receipt of restricted stock or
shares pursuant to a performance award (unless the employee receives the shares
before that date and elects to be taxed upon such receipt).
Limitations on Deductions. The Corporation's deductions may be limited
(and employees receiving awards may be subject to an excise tax) to the extent
that benefits under the LTIP become payable as a result of a change in control
of the Corporation.
General Tax Law Considerations. The preceding paragraphs are intended to
be merely a summary of the most important Federal income tax consequences
concerning the grant of awards under the LTIP and the disposition of shares of
Common Stock issued thereunder in existence as of the date of this Proxy
Statement. Therefore, participants in the LTIP should review the current tax
treatment with their individual tax advisors at the time of the grant, exercise
or any other transaction relating to any award or underlying stock issued under
the LTIP.
20
<PAGE> 23
PROPOSAL NO. 3
PROPOSAL TO APPROVE
SENIOR OFFICER ANNUAL INCENTIVE PLAN
At the Annual Meeting, there will also be presented to the shareholders a
proposal to adopt the Corporation's Senior Officer Annual Incentive Plan (the
"Incentive Plan"). The Board of Directors unanimously approved the Incentive
Plan and recommends that the Corporation's shareholders approve this proposal to
adopt the Incentive Plan.
The purpose of the Incentive Plan is to improve the return to the
Corporation's shareholders by providing incentives for the Corporation's Chief
Executive Officer and other plan participants for superior performance. Under
the Incentive Plan, performance objectives are set at such a level as to require
the participants to excel in attaining such objectives. In this manner, the
Incentive Plan provides a means of rewarding the participants who are
contributing through their individual performance to the objectives of the
Corporation.
ADMINISTRATION
The Incentive Plan is administered by a committee appointed by the
Corporation's Board of Directors, which committee shall consist of not less than
two directors (the "Incentive Plan Committee"). Unless the Board determines
otherwise, the Incentive Plan Committee shall be comprised solely of "outside"
directors within the meaning of Code Section 162(m). The Incentive Plan
Committee has the power to (i) approve eligible participants under the plan,
(ii) approve payments under the plan, (iii) interpret the plan, (iv) adopt,
amend and rescind rules and regulations relating to the plan, and (v) make all
other determinations and take all other actions necessary or desirable for the
Incentive Plan's administration. Decisions of the Incentive Plan Committee
regarding the interpretation and administration of the Incentive Plan shall be
final and conclusive. The Human Resources and Compensation Committee has been
designated as the Incentive Plan Committee until otherwise determined by the
Board of Directors.
ELIGIBILITY
Participants under the Incentive Plan shall be the Corporation's Chief
Executive Officer and any other senior officers who are designated and approved
by the Incentive Plan Committee to receive a cash bonus under the Incentive
Plan; provided, however, that if a Change in Control (as defined in the
Incentive Plan) occurs prior to the time participants are determined for the
particular fiscal year in which the Change in Control occurs, all persons who
were participants in the prior year and who are active employees of the
Corporation as of the date of such Change in Control shall be participants for
the fiscal year in which the Change in Control occurs. Except as the Incentive
Plan Committee may otherwise determine, participants for any fiscal year must
serve as key officers of the Corporation and, except as the Incentive Plan
Committee may otherwise determine or as otherwise provided in the Incentive
Plan, participants for any fiscal year must be active employees of the
Corporation when the Incentive Plan Committee meets and approves cash bonuses
after the end of the Corporation's fiscal year. The Corporation estimates that
approximately eight senior officers are currently eligible to receive grants
under the Incentive Plan. Only Mr. James F. McDonald has been selected to
participate in the Incentive Plan in the current fiscal year.
INCENTIVE COMPENSATION AWARDS
Within 90 days of the beginning of each fiscal year of the Corporation, the
Incentive Plan Committee is to establish one or more specific performance
objectives for such fiscal year. The Incentive Plan Committee is also to
establish a schedule or schedules setting forth the amount to be paid based on
the extent to which the performance objectives for the fiscal year are actually
achieved as determined by the Incentive Plan Committee. Performance objectives
shall consist of the specific targets and objectives established by the
Incentive Plan Committee under any or all of the following four categories:
profit before taxes, return on net assets, revenue growth and gross margin.
21
<PAGE> 24
The Incentive Plan Committee may at any time adjust the performance
objectives and any schedules of payments related thereto or adjust the way the
performance objectives are measured; provided, that this provision shall not
apply to any payment that is intended to qualify as performance-based
compensation under Code Section 162(m) if and to the extent that it would
prevent the payment from so qualifying.
BONUSES SUBJECT TO PLAN
Bonuses awarded under the Incentive Plan are to be paid in cash within 90
days after the end of the Corporation's fiscal year, or deferred in whole or in
part based upon a written request for deferral submitted by the participant and
approved by the Corporation. Amounts paid under the Incentive Plan are
considered as compensation to the participant for purposes of the Corporation's
Retirement Plan and disability and life insurance programs unless and to the
extent that such compensation is expressly excluded by the provisions of the
plan or the instruments establishing such programs. Bonuses shall not be
considered as compensation for purposes of any other incentive or other benefits
unless the written instrument establishing such other plan or benefits expressly
includes compensation paid under the Incentive Plan. The maximum dollar value
with respect to payments under the Incentive Plan to any participant in any
single year is $600,000.
AMENDMENT OF INCENTIVE PLAN
The Incentive Plan may be amended at any time and from time to time by the
Corporation's Board of Directors. No amendment to the Incentive Plan shall be
made without the approval of the shareholders of the Corporation which would
change the material terms of performance goals that were previously approved by
the Corporation's shareholders within the meaning of the proposed regulations
issued under Code Section 162(m) or a successor provision, unless the Board of
Directors determines that such approval was not necessary to avoid loss of a
deduction under Code Section 162(m), such approval will not avoid such a loss of
deduction, or such approval is not advisable.
CHANGE IN CONTROL
Upon a Change in Control (as defined in the Incentive Plan) of the
Corporation, the bonus for performance objectives which have been met in any
fiscal year ending prior to the date of the Change in Control for which payment
has not previously been made shall be unconditionally payable in cash to each
participant. If a Change in Control occurs with approval of the Board of
Directors granted prior to such Change in Control, cash bonuses for the fiscal
year during which the Change in Control occurs shall be unconditionally payable
to each participant, such bonuses to be 50 percent of the target for each such
participant or such higher amount as may be approved by the Incentive Plan
Committee.
If a Change in Control occurs without approval of the Corporation's Board
of Directors granted prior to such Change in Control, cash bonuses for the
fiscal year during which the Change in Control occurs shall be unconditionally
payable to each participant, such bonuses to be 100 percent of the target for
each participant; provided, however, that in any case, if a Change in Control
occurs before targets have been established for a plan year, the targets for
such fiscal year in which the Change in Control occurs shall be no less
favorable to the participants than the targets for the prior fiscal year.
For a period of two fiscal years following the fiscal year in which a
Change in Control occurs, the Incentive Plan shall not be terminated or amended
in any way (including, but not limited to, restricting or limiting the right to
participate in the Incentive Plan of any person who is a participant on the day
prior to the date of the Change in Control), nor shall the manner in which the
Incentive Plan is administered be changed in a way that adversely affects the
level of participation or reward opportunities of any participant; provided,
however, that the Incentive Plan may be amended as necessary to make appropriate
adjustments for (i) any negative effect that the costs and expenses incurred by
the Corporation and its subsidiaries in connection with the Change in Control
may have on the benefits payable under the Incentive Plan, and (ii) any changes
to the Corporation and/or its subsidiaries following the Change in Control so as
to preserve the reward opportunities and performance targets for comparable
performance under the Incentive Plan as in effect on the date immediately prior
to the Change in Control.
22
<PAGE> 25
FURTHER INFORMATION APPLICABLE TO
PROPOSAL NO. 2 AND PROPOSAL NO. 3
The awards for any participant determined on the basis of performance
objectives established under the LTIP and the Incentive Plan may be reduced or
eliminated upon the attainment of the performance objective, but the respective
administrative committee for such plans shall not have the discretion to
increase a payment upon the attainment of a performance objective. Under Code
Section 162(m) the achievement of applicable performance goals and the actual
amounts payable to each participant under either the LTIP or the Incentive Plan
must be certified by the Committee or the Incentive Plan Committee,
respectively.
Because the Corporation retains the discretion to change the specific
performance target that it establishes under the LTIP and the Incentive Plan,
shareholder ratification of the performance goals will be required at five-year
intervals in the future under the proposed regulations issued under Code Section
162(m) to assure the status of payments under such plans as performance-based
compensation. In light of the ambiguities in Code Section 162(m) and
uncertainties regarding its ultimate interpretation, no assurances can be given
that compensation paid under such plans will in fact be deductible if it should,
together with any other compensation to any named executive officer, exceed
$1,000,000. The initial grants of the rights to receive performance-based
restricted stock awards under the LTIP do not meet the requirements of Code
Section 162(m) since such awards were granted more than 90 days after the
beginning of the 1994 fiscal year.
Other than the benefits indicated in the New Plan Benefits table disclosed
above in Proposal No. 2, the specific benefits to be paid to participants under
the LTIP and the Incentive Plan are not determinable in advance because it is
substantially uncertain whether the minimum levels of performance necessary to
achieve any level of award under the plans will be realized. Moreover, the
Committee and the Incentive Plan Committee each has retained discretion to
reduce the awards to any participant under the LTIP and the Incentive Plan,
respectively. The amount of benefits that would have been payable under the
Incentive Plan in the Corporation's 1994 fiscal year had the plan been in effect
are not determinable because the performance standards established for the 1995
fiscal year are materially different from those which would have been
established for 1994 fiscal year. The Corporation's Human Resources and
Compensation Committee believes that the specific numerical performance targets,
thresholds and maximums constitute confidential commercial or business
information, the disclosure of which may adversely affect the Corporation or
mislead the public.
AVAILABILITY OF PLANS
Copies of the LTIP and the Incentive Plan are available upon request
directed to William E. Eason, Jr., Senior Vice President and Secretary,
Scientific-Atlanta, Inc., One Technology Parkway, South, Norcross, Georgia
30092.
VOTE REQUIRED
Approval of the LTIP and the Incentive Plan requires the affirmative vote
of a majority of the shares of Common Stock present or represented and entitled
to vote at the Annual Meeting. For purposes of determining whether the requisite
approvals have been obtained, abstentions are included in the calculation for
the purpose of determining whether the matter has been approved and will be
treated as "no" votes, and "broker non-votes" will be disregarded in the
calculations.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR PROPOSAL
NO. 2 AND PROPOSAL NO. 3. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE
VOTED FOR THESE PROPOSALS UNLESS A VOTE AGAINST THE PROPOSALS OR AN ABSTENTION
IS SPECIFICALLY INDICATED.
23
<PAGE> 26
PROPOSAL NO. 4
SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected Arthur Andersen LLP to be the
independent auditors of the Corporation for the fiscal year ending June 30,
1995, and proposes that the shareholders ratify this selection at the Annual
Meeting. Arthur Andersen LLP also acted as independent auditors of the
Corporation for the 1994 fiscal year.
Representatives of Arthur Andersen LLP are expected to be present at the
Annual Meeting and will have the opportunity to make a statement if they desire
to do so and will be available to respond to appropriate questions.
Ratification of the selection of Arthur Andersen LLP requires the
affirmative vote of a majority of the shares voting on such proposal (i.e.,
shares voting for or against the proposal).
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THIS
PROPOSAL. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED FOR THIS
PROPOSAL UNLESS A VOTE AGAINST THE PROPOSAL OR AN ABSTENTION IS SPECIFICALLY
INDICATED.
OTHER MATTERS
The Board of Directors of the Corporation knows of no other matters which
are to be brought before the meeting. However, if any such other matters should
be presented for consideration and voting, it is the intention of the persons
named in the enclosed form of proxy to vote the proxy in accordance with their
best judgment.
SECTION 16 COMPLIANCE
Section 16(a) of the Exchange Act requires the Corporation's officers,
directors, and persons who own more than ten percent of a registered class of
the Corporation's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission (the "SEC"). Officers,
directors and greater than ten-percent shareholders are required by SEC
regulations to furnish the Corporation with copies of all Section 16(a) forms
they file. Based solely on a review of the copies of such forms furnished to the
Corporation and certain written representations, the Corporation believes that
during the last fiscal year all Section 16(a) filing requirements applicable to
its officers, directors and greater than ten-percent beneficial owners were
complied with, except that the initial statement of beneficial ownership filed
by Ms. Mangum inadvertently omitted a grant of options to her under the
Corporation's Non-Employee Director Stock Option Plan and an annual statement of
beneficial ownership for fiscal year 1993 filed by Mr. Levergood inadvertently
omitted a grant of options under the Corporation's 1992 Plan.
FORM 10-K ANNUAL REPORT
A copy of the Corporation's Annual Report on Form 10-K, including financial
statements and schedules, filed with the SEC for the fiscal year ended July 1,
1994, is included in the Annual Report to Shareholders which accompanies these
proxy materials. Copies of any exhibit(s) to the Form 10-K will be furnished on
request and upon the payment of the Corporation's expenses in furnishing such
exhibit(s). Any request for exhibits should be in writing addressed to William
E. Eason, Jr., Senior Vice President and Secretary, Scientific-Atlanta, Inc.,
One Technology Parkway, South, Norcross, Georgia 30092.
24
<PAGE> 27
SHAREHOLDER PROPOSALS FOR 1995 ANNUAL MEETING
Proposals by shareholders for presentation at the 1995 Annual Meeting must
be received by the Corporation not later than June 5, 1995, in order to be
included in the Corporation's Proxy Statement and form of proxy relating to that
meeting. Such proposals should be in writing and addressed to William E. Eason,
Jr., Senior Vice President and Secretary, Scientific-Atlanta, Inc., One
Technology Parkway, South, Norcross, Georgia 30092.
By order of the Board of Directors
/s/ William E. Eason, Jr.
-------------------------
William E. Eason, Jr.
Secretary
October 3, 1994
25
<PAGE> 28
SCIENTIFIC-ATLANTA, INC.
PROXY
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON NOVEMBER 11, 1994
The undersigned hereby appoints James V. Napier, James F. McDonald and
William E. Eason, Jr., and each of them, with full power of substitution,
attorneys and proxies of the undersigned, to represent the undersigned and to
vote the Common Stock as specified below at the Annual Meeting of Shareholders
of Scientific-Atlanta, Inc. to be held on November 11, 1994 at 9:00 a.m., local
time, at the Swissotel, 3391 Peachtree Road, N.E., Atlanta, Georgia 30326, and
at any adjournment thereof, upon the following matters and in accordance with
their best judgment with respect to any other matters which may properly come
before the meeting, all as more fully described in the Proxy Statement for said
Annual Meeting (receipt of which is hereby acknowledged).
THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS INDICATED, THIS
PROXY WILL BE VOTED FOR ALL NOMINEES FOR DIRECTORS LISTED IN PROPOSAL 1 AND FOR
PROPOSALS 2, 3 AND 4, AND IN ACCORDANCE WITH THE BEST JUDGMENT OF THE DESIGNATED
INDIVIDUALS WITH RESPECT TO MATTERS INCIDENT TO THE CONDUCT OF THE MEETING OR
WHICH MAY OTHERWISE PROPERLY COME BEFORE THE MEETING. IF ANY OF THE NOMINEES FOR
DIRECTOR ARE UNABLE TO SERVE OR FOR GOOD CAUSE WILL NOT SERVE, THE PROXYHOLDER
WILL VOTE FOR SUCH OTHER PERSON OR PERSONS AS THE BOARD OF DIRECTORS MAY
RECOMMEND.
The Board of Directors favors an affirmative vote for the nominees for director
listed below and for proposals 2, 3 and 4.
<TABLE>
<S> <C> <C> <C>
1. ELECTION OF DIRECTORS / / FOR all nominees listed below (except as / / WITHHOLD AUTHORITY to vote for all
marked to the contrary below) nominees listed below
</TABLE>
Nominees: David L. McLaughlin, James V. Napier and Sidney Topol
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name on the line provided below.)
-------------------------------------------------------------------------
(Continued and to be signed and dated on the reverse side)
<TABLE>
<S> <C> <C> <C> <C>
2. To Approve the Corporation's Long-Term Incentive Plan. / / FOR / / AGAINST / / ABSTAIN
3. To Approve the Corporation's Senior Officer Annual Incentive Plan. / / FOR / / AGAINST / / ABSTAIN
4. Ratification of selection of Arthur Andersen & Co. as independent / / FOR / / AGAINST / / ABSTAIN
auditors of the Corporation.
</TABLE>
NOTE: Please date and sign
this Proxy exactly as name
appears. When signing as
attorney, trustee,
administrator, executor or
guardian, please give your
title as such. In the case of
joint tenants, each joint
owner must sign.
Dated __________________, 1994
______________________________
Signature
______________________________
Signature (if held jointly)
VOTES MUST BE INDICATED
(X) IN BLACK OR BLUE INK. / /
SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE
<PAGE> 29
Exhibit Index
-------------
The following are being filed to comply with Item 10 of Schedule 14A:
__ Long-Term Incentive Plan
__ Senior Officer Annual Incentive Plan
<PAGE> 30
The following is being filed to comply with Item 10 of Schedule 14A
LONG TERM INCENTIVE PLAN
OF
SCIENTIFIC-ATLANTA, INC.
As adopted by the Board of Director on
August 25, 1994
and by the stockholders on
______________, 1994
<PAGE> 31
LONG-TERM INCENTIVE PLAN
OF
SCIENTIFIC-ATLANTA, INC.
1. PURPOSE OF THE PLAN. This Long-Term Incentive Plan of Scientific
Atlanta, Inc. originally adopted on the 11th day of May 1994, and amended and
restated on August 25, 1994, is intended to encourage officers and key
employees of the Company and its Subsidiaries to acquire or increase their
ownership of common stock of the Company on reasonable terms, to provide
compensation opportunities for superior financial results and outstanding
personal performance, to foster in participants a strong incentive to put forth
maximum effort for the continued success and growth of the Company and its
Subsidiaries, and to assist in attracting and retaining the best available
individuals to the Company and its Subsidiaries.
2. DEFINITIONS. When used herein, the following terms shall have the
meaning set forth below:
2.1 "Affiliate" means, with respect to any specified person or
entity, a person or entity that directly or indirectly, through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the person or entity specified.
2.2 "Award" means an SAR, an Option, an Option granted in
tandem with an SAR, a Restricted Stock Award, a Performance Share, a
Performance Unit, a Performance Award, or any or all of them.
2.3 "Award Agreement" means a written agreement in such form
as may from time to time be hereafter approved by the Committee, which Award
Agreement shall set forth the terms and conditions of an Award under the Plan,
and be duly executed by the Company and the Employee.
2.4 "Board" means the Board of Directors of the Company.
2.5 "Change in Control" shall mean the occurrence of any of the
following events:
(a) The acquisition in one or more transactions by any
"Person" (as the term person is used for purposes of Section 13(d)
or 14(d) of the Exchange Act of "Beneficial Ownership" (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty
percent (20%) or more of the combined voting power of the Company's
then outstandingvoting securities (the "Voting Securities"),
provided, however, that for purposes of this paragraph (a), the
Voting Securities acquired directly from the Company by any Person
shall be excluded from the determination of such Person's Beneficial
Ownership of Voting Securities (but such Voting Securities shall be
included in the calculation of the total number of Voting
Securities then outstanding); or
(b) The individuals who are members of the Incumbent Board
cease for any reason to constitute at least two-thirds of the
Board; or
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(c) Approval by stockholders of the Company of (i) a
merger or consolidation involving the Company if the stockholders
of the Company immediately before such merger or consolidation do
not own, directly or indirectly, immediately following such merger
or consolidation, more than eighty percent (80%) of the combined
voting power of the outstanding voting securities of the
corporation resulting from such merger or consolidation in
substantially the same proportion as their ownership of the Voting
Securities immediately before such merger or consolidation, or (ii)
a complete liquidation or dissolution of the Company or an
agreement for the sale or other disposition of all or substantially
all of the assets of the Company.
Notwithstanding anything in this Section 2.5 to the contrary, a Change in
Control shall not be deemed to occur solely because twenty percent (20%) or
more of the then outstanding Voting Securities is acquired by (i) a trustee or
other fiduciary holding securities under one or more employee benefit plans
maintained by the Company or any of its subsidiaries, or (ii) any corporation
which, immediately prior to such acquisition, is owned directly or indirectly
by the stockholders of the Company in the same proportion as their ownership of
stock in the Company immediately prior to such acquisition.
Moreover, notwithstanding anything in this Section 2.5 to the contrary, a
Change in Control shall not be deemed to occur solely because any Person (the
"Subject Person") acquired Beneficial Ownership of more than the permitted
amount of the outstanding Voting Securities as a result of the acquisition of
Voting Securities by the Company which, by reducing the number of Voting
Securities outstanding, increases the proportional number of shares
Beneficially Owned by the Subject Person, provided, that if a Change in Control
would occur (but for the operation of this sentence) as a result of the
acquisition of Voting Securities by the Company, and after such share
acquisition by the Company, the Subject Person becomes the Beneficial Owner of
any additional Voting Securities which increases the percentage of the then
outstanding Voting Securities Beneficially Owned by the Subject Person, then a
Change in Control shall occur.
2.6 "Code" means the Internal Revenue Code of 1986, as amended
from time to time, and reference to any specific provisions of the Code shall
refer to the corresponding provisions of the Code as it may hereafter be
amended or replaced.
2.7 "Committee" means the Human Resources and Compensation
Committee of the Board or any other committee appointed by the Board whose
members meet the requirements for eligibility to serve set forth in Section 4
of the Plan and which is vested by the Board with responsibility for the
administration of the Plan; provided, however, that only those members of the
Human Resources and Compensation Committee of the Board who participate in
decisions relative to Awards under this Plan shall be deemed to be part of the
"Committee" for purposes of this Plan.
2.8 "Company" means Scientific-Atlanta, Inc.
2.9 "Employees" means officers (including officers who are
members of the Board) and other key salaried employees of the Company or any
of its Subsidiaries.
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2.10 "Exchange Act" means the Securities Exchange Act of 1934,
as amended from time to time, and reference to any specific provisions of the
Exchange Act shall refer to the corresponding provisions of the Exchange Act
as it may hereafter be amended or replaced.
2.11 "Fair Market Value" means, with respect to the Shares, the
closing price on the New York Stock Exchange - Composite Tape of such Shares on
the date(s) in question, or, if the Shares shall not have been traded on any
such date(s), the closing price on the New York Stock Exchange - Composite Tape
on the first day prior thereto on which the Shares were so traded or if the
Shares are not traded on the New York Stock Exchange, such other amount as may
be determined by the Committee by any fair and reasonable means. Fair Market
Value determined by the Committee in good faith shall be final, binding and
conclusive on all parties.
2.12 "Incumbent Board" means the individuals who as of August
20, 1990 were members of the Board and any individual becoming a director
subsequent to August 20, 1990 whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least two-thirds of the
directors then comprising the Incumbent Board; provided, however, that any
individual who is not a member of the Incumbent Board at the time he or she
becomes a member of the Board shall become a member of the Incumbent Board upon
the completion of two full years as a member of the Board; provided, further,
however, that notwithstanding the foregoing, no individual shall be considered
a member of the Incumbent Board if such individual initially assumed office (i)
as a result of either an actual or threatened "election contest" (within the
meaning of Rule 14a-11 promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board (a "Proxy Contest"), or (ii) with the approval of the
other Board members, but by reason of any agreement intended to avoid or settle
a Proxy Contest.
2.13 "Incentive Stock Option" means an Option meeting the
requirements and containing the limitations and restrictions set forth in
Section 422 of the Code.
2.14 "Non-Qualified Stock Option" means an Option other than
an Incentive Stock Option.
2.15 "Option" means the right to purchase, at a price and for
a term fixed by the Committee in accordance with the Plan, and subject to such
other limitations and restrictions as the Plan and the Committee impose, the
number of Shares specified by the Committee. An Option may be either an
Incentive Stock Option or a Non-Qualified Stock Option.
2.16 "Parent" means any corporation, other than the employer
corporation, in an unbroken chain of corporations ending with the Company if
each of the corporations other than the employer corporation owns stock
possessing fifty percent (50%) or more of the total combined voting power of
all classes of stock in one of the other corporations in the chain.
2.17 "Participant" means any Employee to whom a grant of an
Award has been made and is outstanding under the Plan.
2.18 "Performance Award" means Performance Units, Performance
Shares or either or both of them.
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2.19 "Performance Objectives" means the specific targets and
objectives established by the Committee under the following four factors:
earnings per share of the Company's common stock, return on average
stockholders' equity, return on capital, and total stockholder returns of the
Company compared to a peer group of comparable companies established by the
Committee. Earnings per share, return on average stockholders' equity, return
on capital and total Company stockholder returns shall be determined and
measured in accordance with generally accepted accounting principles as
utilized by the Company in its reports filed under the Exchange Act.
2.20 "Performance Period" means a period of time established
by the Committee for which Performance Objectives have been established, of not
less than one nor more than ten consecutive Company fiscal years.
2.21 "Performance Share" means a right, granted to a
Participant under Section 12 of the Plan, that may be paid out as a Share.
2.22 "Performance Unit" means a right, granted to a
Participant under Section 12 of the Plan, that may be paid entirely in cash,
entirely in Shares, or such combination of cash and Shares as the Committee in
its sole discretion shall determine.
2.23 "Plan" means this Long-Term Incentive Plan.
2.24 "Regulation T" means Part 220, Chapter II, Title 12 of
the Code of Federal Regulations, issued by the Board of Governors of the
Federal Reserve System pursuant to the Exchange Act, as amended from time to
time, or any successor regulation which may hereafter be adopted in lieu
thereof.
2.25 "Restricted Stock Award" means the right to receive
Shares, but subject to forfeiture and/or other restrictions set forth in the
related Award Agreement and the Plan. Restricted Stock Awards may be subject
to restrictions which lapse over time with or without regard to Performance
Objectives as the Committee in its sole discretion shall determine.
2.26 "Rule 16b-3" means Rule 16b-3 of the General Rules and
Regulations of the Exchange Act (or any successor rule or regulation).
2.27 "SAR" means a stock appreciation right, which is a right
to receive an amount in cash, or Shares, or a combination of cash and Shares,
as determined or approved by the Committee in its sole discretion, no greater
than the excess, if any, of (i) the Fair Market Value of a Share on the date
the SAR is exercised, over (ii) the SAR Base Price.
2.28 "SAR Base Price" means the Fair Market Value of a Share
on the date an SAR was granted, or if the SAR was granted in tandem with an
Option (whether or not the Option was granted on a different date than the
SAR), in the Committee's discretion, the option price of a Share subject to the
Option.
2.29 "Securities Act" means the Securities Act of 1933, as
amended from time to time, and reference to any specific provisions of the
Securities Act shall refer to the corresponding provisions of the Securities
Act as it may hereafter be amended or replaced.
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2.30 "Share" or "Shares" means a share or shares of the
Company's $0.50 par value common stock, any security of the Company issued in
lieu of or in substitution of such common stock or, if by reason of the
adjustment provisions contained herein any rights under an Award under the Plan
pertain to any other security, such other security.
2.31 "Subsidiary" or "Subsidiaries" means any corporation
other than the employer corporation in an unbroken chain of corporations
beginning with the employer corporation if each of the corporations other than
the last corporation in the unbroken chain owns stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of stock in one
of the other corporations in such chain.
2.32 "Successor" means the legal representative of the estate
of a deceased Employee or the person or persons who shall acquire the right to
exercise an Award by bequest or inheritance or by reason of the death of the
Employee.
2.33 "Ten-Percent Stockholder" means an individual who "owns"
as defined in Section 425 of the Code, stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of: (i) the
Company; (ii) if applicable, a Subsidiary, or (iii) if applicable, the Parent.
2.34 "Term" means the period during which a particular Award
may be exercised.
2.35 "Window Period" means the period beginning on the third
business day following the date of release of the financial data specified in
paragraph (e)(l)(ii) of Rule 16b-3 and ending on the twelfth business day
following such date.
3. STOCK SUBJECT TO THE PLAN.
3.1 MAXIMUM NUMBER OF SHARES TO BE AWARDED. The maximum number
of Shares in respect for which Awards may be granted under the Plan in each
fiscal year of the Company during any part of which the Plan is effective shall
be one and one-half percent (1-1/2%) of the number of Shares of the Company
outstanding as of the first day of such fiscal year; and commencing in the
Company's 1995 fiscal year and in each fiscal year thereafter, subtracting from
such maximum number of Shares the number of Shares subject to options, if any,
granted pursuant to the Company's 1992 Employee Stock Option Plan. The maximum
number of Shares available for which Awards may be granted in any particular
fiscal year pursuant to the previous sentence may be increased by an amount of
up to one-half of one percent (.5%) of the number of Shares outstanding as of
the first day of such fiscal year, provided that the number of Shares which
would otherwise be available for Awards in the next fiscal year shall be
decreased by the increased number of Shares made available pursuant to this
sentence. Such Shares may be in whole or in part, as the Board shall from time
to time determine, authorized but unissued Shares, or issued Shares which shall
have been reacquired by the Company. Notwithstanding anything to the contrary
contained in this Section 3.1, in no event shall more than four million
(4,000,000) Shares be cumulatively available for Awards of Incentive Stock
Options under this Plan. The number of SARs payable in cash and the number of
Units payable in cash under the Plan shall be counted when computing the total
number of Shares available for Awards under the Plan to the extent they are
paid out in cash and to the extent that such cash-only units are intended to
satisfy the exclusion of Rule 16a-1(c)(3)(i) under the Exchange Act. Any
unused portion of the percentage limit for any year shall be carried forward
and made available for Awards in succeeding years.
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3.2 CERTAIN LIMITATIONS. The maximum number of Shares with
respect to which Options and SARs payable in Shares which may be granted during
any fiscal year to any Employee shall not exceed 400,000. The maximum dollar
value with respect to which Awards (other than Options and SARs payable in
Shares) that are intended to qualify as performance-based compensation under
Code Section 162(m)(4)(C) which may be paid to any Employee for any particular
Performance Period shall be Four Million Dollars ($4,000,000).
3.3 SHARES UNDERLYING EXPIRED, CANCELLED OR UNEXERCISED
AWARDS. Any Shares subject to issuance upon exercise of an Option or
SAR, but which are not issued because of a surrender, lapse, expiration or
termination of any such Option or SAR prior to issuance of the Shares, or any
Shares subject to an SAR paid in cash, shall once again be available for
issuance in satisfaction of Awards. Similarly, any Shares issued or issuable
pursuant to a Restricted Stock Award or Performance Award which are
subsequently forfeited or not issued pursuant to the terms of the grant shall
once again be available for issuance in satisfaction of Awards; provided,
however, that any Shares issued or issuable pursuant to an Award which are
subsequently forfeited or not issued as to which the forfeiting Employee
received any benefits of ownership such as dividends (but excluding voting
rights) from the Shares (as determined under Rule 16b-3) shall not be available
again for issuance.
4. ADMINISTRATION OF THE PLAN. The Board shall appoint the
Committee, which shall consist of not less than two (2) members of the Board,
each of whom is a "disinterested person" as defined in Rule 16b-3. Unless the
Board determines otherwise, the Committee shall be comprised solely of
"outside" directors within the meaning of Section 162(m)(4)(C)(i) of the Code.
Subject to the provisions of the Plan, the Committee shall have full authority,
in its discretion, to determine the Employees to whom Awards shall be granted,
the number of Shares, units or SARs to be covered by each of the Awards, and
the terms (including restrictions) of any such Award; to amend or cancel Awards
(subject to Section 21 of the Plan); to accelerate the vesting of Awards; to
require the cancellation or surrender of any options, stock appreciation
rights, units or restricted stock awards (to the extent the restrictions have
not yet lapsed) previously granted under this Plan or any other plans of the
Company as a condition to the granting of an Award; to interpret the Plan; and
to prescribe, amend, and rescind rules and regulations relating to it, and
generally to interpret and determine any and all matters whatsoever relating to
the administration of the Plan and the granting of Awards hereunder. The Board
may, from time to time, appoint members to the Committee in substitution for or
in addition to members previously appointed and may fill vacancies, however
caused, in the Committee. The Committee shall make such rules and regulations
for the conduct of its business as it shall deem advisable. All determinations
and decisions by the Committee in the exercise of its powers shall be final,
binding and conclusive. No member of the Committee shall be liable, in the
absence of bad faith, for any act or omission with respect to his service on
the Committee.
5. EMPLOYEES TO WHOM AWARDS MAY BE GRANTED. Awards may be
granted in each year or portion thereof while the Plan is in effect to such of
the Employees as the Committee, in its discretion, shall determine. In
determining the Employees to whom Awards shall be granted, the amount of the
Award, the number of Shares to be granted or subject to purchase under such
Awards and the number of SARs to be granted, the Committee shall take into
account the duties of the respective Employees, their present and potential
contributions to the success of the Company and its Subsidiaries, and such
other factors as the Committee shall deem relevant in connection with
accomplishing the purposes of the Plan. No Award shall be granted to any member
of the Committee
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so long as his or her membership on the Committee continues or to any member of
the Board who is not also an Employee.
6. STOCK OPTIONS.
6.1 TYPES OF OPTIONS. Options granted under this
Plan may be (i) Incentive Stock Options, (ii) Non-Qualified Stock
Options, or (iii) a combination of the foregoing. The Award Agreement shall
designate whether an Option is an Incentive Stock Option or a Non-Qualified
Stock Option. Any Option which is designated as a Non-Qualified Stock Option
shall not be treated by the Company or the Participant to whom the Option is
granted as an Incentive Stock Option for federal income tax purposes.
6.2 OPTION PRICE. The option price per Share of any
Option granted under the Plan shall not be less than the Fair Market
Value of the Shares covered by the Option on the date the Option is granted.
Notwithstanding anything herein to the contrary, in the event an Incentive
Stock Option is granted to an Employee who, at the time such Incentive Stock
Option is granted, is a Ten-Percent Stockholder, then the option price per
Share of such Incentive Stock Option shall not be less than one hundred ten
percent (110%) of the Fair Market Value of the Shares covered by the Incentive
Stock Option on the date the Incentive Stock Option is granted.
6.3 TERM OF OPTIONS. Options granted hereunder
shall be exercisable for a Term of not more than ten (10) years from
the date of grant and shall be subject to earlier termination as hereinafter
provided. Each Award Agreement issued hereunder shall specify the Term of the
Option, which Term shall be determined by the Committee in accordance with its
discretionary authority hereunder. Notwithstanding anything herein to the
contrary, in the event an Incentive Stock Option is granted to an Employee who,
at the time such Incentive Stock Option is granted, is a Ten-Percent
Stockholder, then such Incentive Stock Option shall not be exercisable more
than five (5) years from the date of grant and shall be subject to earlier
termination as hereinafter provided.
7. LIMIT ON FAIR MARKET VALUE OF INCENTIVE STOCK OPTIONS. In
any calendar year, no Employee may be granted an Incentive Stock Option
hereunder to the extent that the aggregate fair market value (such fair market
value being determined as of the date of grant of the Option in question) of
the Shares with respect to which Incentive Stock Options first become
exercisable by the Employee during any calendar year (under all such plans of
the Employee's employer corporation, its Parent, if any, and its Subsidiaries,
if any) exceeds the sum of One Hundred Thousand Dollars ($ 100,000). For
purposes of the preceding sentence, Options shall be taken into account in the
order in which they were granted. Any Option granted under the Plan which is
intended to be an Incentive Stock Option, but which exceeds the limitation set
forth in this Section 7, shall be a Non-Qualified Stock Option to the extent
that a portion of the Option exceeds this limitation.
8. STOCK APPRECIATION RIGHTS.
8.1 GRANT OF SAR. The Committee, in its discretion,
may grant an Employee an SAR in tandem with an Option or may grant an
Employee an SAR on a stand alone basis. The Committee, in its discretion, may
grant an SAR in tandem with an Option either at the time the Option is granted
or at any time after the Option is granted, but no later than six (6) months
and one (1) day prior to the end of the Term of the Option, so long as the
grant of the SAR is made during the period in which grants of SARs may be made
under the Plan. The Committee, in its discretion, may grant an
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SAR in tandem with an Option, which is exercisable either in lieu of, or in
addition to, exercise of the related Option.
8.2 LIMITATIONS ON EXERCISE. Each SAR granted in tandem with an
Option shall be exercisable to the extent, and only to the extent, the
related Option is exercisable and shall be for such Term as the Committee may
determine (which Term, which is not to exceed ten (10) years, may expire prior
to the Term of the related Option). Each SAR granted on a stand alone basis
shall be exercisable to the extent, and for such Term, as the Committee may
determine. If, and to the extent, an Employee who is subject to Section 16(b)
of the Exchange Act is to receive cash in exchange for an SAR, the SAR and any
related Option shall be exercisable only during a Window Period. The SARs
shall be subject to such other terms and conditions as the Committee, in its
discretion, shall determine and which are not otherwise inconsistent with the
Plan. The terms and conditions may include Committee approval of the exercise
of the SAR, limitations on the time within which and the extent to which such
SAR shall be exercisable, and limitations, if any, on the amount of
appreciation in value which may be recognized with regard to such SAR. The
Company's obligation to any Participant exercising an SAR may be paid in cash
or Shares, or partly in cash or Shares, at the sole discretion of the
Committee. The Committee shall have at all times final control and authority
over the form of payment of any SAR. If, and to the extent that, Shares are
issued in satisfaction of amounts payable on exercise of an SAR, the Shares
shall be valued at their Fair Market Value on the date of exercise.
8.3 SARS IN TANDEM WITH INCENTIVE STOCK OPTIONS. With respect to SARs
granted in tandem with Incentive Stock Options, the following shall apply:
(a) No SAR shall be exercisable unless the Fair Market Value of the
Shares on the date of exercise exceeds the option price of the related
Incentive Stock Option.
(b) In no event shall any amounts paid pursuant to the SAR exceed
the difference between the Fair Market Value of the Shares on the date of
exercise and the option price of the related Incentive Stock Option.
(c) The SAR must expire no later than the last date the related
Incentive Stock Option can be exercised.
8.4 SURRENDER OF OPTION OR SAR GRANTED IN TANDEM. If the Award
Agreement related to the grant of an SAR in tandem with an Option
provides that the SAR can only be exercised in lieu of the related Option,
then, upon exercise of such SAR, the related Option or portion thereof with
respect to which such SAR is exercised shall be deemed surrendered and shall
not thereafter be exercisable and, similarly, upon exercise of the Option, the
related SAR or portion thereof with respect to which such Option is exercised
shall be deemed surrendered and shall not thereafter be exercisable. If the
Award Agreement related to the grant of an SAR in tandem with an Option
provides that the SAR can be exercised in addition to the related Option, then,
upon exercise of such SAR, the related Option or portion thereof with respect
to which such SAR is exercised shall not be deemed surrendered and shall
continue to be exercisable and, similarly, upon exercise of the Option, the
related SAR or portion thereof with respect to which such Option is exercised
shall not be deemed surrendered and shall continue to be exercisable.
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9. EXERCISE OF RIGHTS UNDER OPTION OR SAR AWARDS.
9.1 NOTICE OF EXERCISE. An Employee entitled to exercise an
Option or SAR may do so by delivery of a written notice to that effect
specifying the number of Shares with respect to which the Option or SAR is
being exercised and any other information the Committee may prescribe. Except
as provided in Section 9.2 below, the notice shall be accompanied by payment in
full of the purchase price of any Shares to be purchased, which payment may be
made in cash or, with the Committee's approval (and subject to the requirements
of Rule 16b-3), in Shares valued at Fair Market Value at the time of exercise
or, with the Committee's approval, a combination thereof. No Shares shall be
issued upon exercise of an Option until full payment has been made therefor.
All notices or requests provided for herein shall be delivered to the Company
as determined by the Committee.
9.2 CASHLESS EXERCISE PROCEDURES. The Committee, in its sole
discretion, may establish procedures whereby an Employee, subject to
the requirements of Rule 16b-3, Regulation T, federal income tax laws, and
other federal, state and local tax and securities laws, can exercise an Option
or a portion thereof without making a direct payment of the option price to the
Company. If the Committee so elects to establish a cashless exercise program,
the Committee shall determine, in its sole discretion, and from time to time,
such administrative procedures and policies as it deems appropriate and such
procedures and policies shall be binding on any Employee wishing to utilize the
cashless exercise program.
10. RIGHTS OF OPTION AND SAR HOLDERS. The holder of an Option or SAR
shall not have any of the rights of a stockholder with respect to the Shares
subject to purchase or issuance under such Award, except to the extent
that one or more certificates for such Shares shall be delivered to the holder
upon due exercise of the Option or SAR.
11. RESTRICTED STOCK AWARDS. Restricted Stock Awards granted under
the Plan shall be subject to such terms and conditions as the Committee
may, in its discretion, determine. Restricted Stock Awards issued under the
Plan shall be evidenced by an Award Agreement in such form as the Committee may
from time to time determine. Restricted Stock Awards may be subject to
restrictions which lapse over time with or without regard to Performance
Objectives for a specific Performance Period.
11.1 RECEIPT OF SHARES. Each Award Agreement shall set forth
the number of Shares issuable under the Restricted Stock Award evidenced
thereby. Subject to the restrictions of Sections 11.2, 11.3 and 11.4
of the Plan and as set forth in the related Award Agreement, the number of
Shares granted under a Restricted Stock Award shall be issued to the recipient
Employee thereof on the date of grant of such Restricted Stock Award or as soon
as may be practicable thereafter and deposited into escrow, if applicable. If
the Committee determines that a Restricted Stock Award is intended to qualify
as performance-based compensation under Code Section 162(m)(4)(C), then such
Restricted Stock Award shall be subject to the attainment of Performance
Objectives for a Performance Period. Such specific Performance Objectives
shall be established in writing no later than ninety (90) days after the
commencement of the Performance Period to which the Performance Objectives
relate, but in no event after twenty-five percent (25%) of the Performance
Period has elapsed. In establishing the Performance Objective or Performance
Objectives, the Committee shall also establish a schedule or schedules setting
forth the portion of the Award which will be earned or forfeited based on the
degree of achievement of the Performance Objectives actually achieved or
exceeded as determined by the Committee. The Committee may at any time adjust
the Performance
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Objectives and any schedules and portions of payments related thereto, adjust
the way Performance Objectives are measured, or shorten any Performance Period
if it determines that conditions or the occurrence of events warrants such
actions; provided, that this provision shall not apply to any Restricted Stock
Award that is intended to qualify as performance-based compensation under Code
Section 162(m)(4)(C) if and to the extent that it would prevent the Award from
so qualifying. The Committee shall have the right to reduce or eliminate the
Restricted Stock Award payable upon the attainment of a Performance Objective,
but shall not have the discretion to increase an Award upon the attainment of a
Performance Objective with respect to a Participant whose compensation for the
particular year is subject to the limits on tax deductibility in Code Section
162(m).
11.2 RIGHTS OF RECIPIENT PARTICIPANTS. Shares received pursuant to
Restricted Stock Awards shall be duly issued or transferred to the Participant,
and a certificate or certificates for such Shares shall be issued in the
Participant's name. Subject to the restrictions in Section 11.3 of the Plan
and as set forth in the related Award Agreement, the Participant shall
thereupon be a stockholder with respect to all the Shares represented by such
certificate or certificates and shall have all the rights of a stockholder with
respect to such Shares, including the right to vote such Shares and to receive
dividends and other distributions paid with respect to such Shares. As a
condition to issuing Shares, the Committee may require a Participant to execute
an escrow agreement and any other documents which the Committee may determine.
In aid of such restrictions, certificates for Shares awarded hereunder,
together with a suitably executed stock power signed by each recipient
Participant, shall be held by the Company in its control for the account of
such Participant (i) until the restrictions determined by the Committee, in its
discretion, and as set forth in the related Award Agreement, lapse pursuant to
the Plan or the agreement, at which time a certificate for the appropriate
number of Shares (free of all restrictions imposed by the Plan or the Award
Agreement except those established by the Committee at the time of grant of the
Award) shall be delivered to the Participant, or (ii) until such Shares are
forfeited to the Company and cancelled as provided by the Plan or the Award
Agreement.
11.3 NON-TRANSFERABILITY OF RESTRICTED STOCK AWARDS. Until such
time as the restrictions determined by the Committee or otherwise set
forth in the related Award Agreement have lapsed, the Shares awarded to a
Participant and held by the Company pursuant to Section 11.2 of the Plan, and
the right to vote such Shares or receive dividends on such Shares, may not be
sold, exchanged, transferred, pledged, hypothecated or otherwise disposed of;
provided, however, that, if so provided in the Award Agreement, such Shares may
be transferred upon the death of the Participant to such of his legal
representatives, heirs and legatees as may be entitled thereto by will or the
laws of intestacy.
11.4 RESTRICTIONS. Shares received pursuant to Restricted Stock
Awards shall be subject to the terms and conditions as the Committee
may determine, including, without limitation, restrictions on the sale,
assignment, transfer or other disposition of such Shares and the requirement
that the Participant forfeit such Shares back to the Company upon termination
of employment for any reason or for specified reasons.
12. PERFORMANCE AWARDS.
12.1 PERFORMANCE PERIODS. The Committee shall establish Performance
Periods applicable to Performance Awards. There shall be no limitation on the
number of Performance Periods
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established by the Committee and more than one Performance Period may encompass
the same fiscal year.
12.2 PERFORMANCE OBJECTIVES. If the Committee determines that a
Performance Award is intended to qualify as performance-based compensation
under Code Section 162(m)(4)(C), then such Performance Award shall be subject
to the attainment of Performance Objectives for a Performance Period. Such
specific Performance Objectives shall be established in writing no later than
ninety (90) days after the commencement of the Performance Period to which the
Performance Objectives relate, but in no event after twenty-five percent (25%)
of the Performance Period has elapsed. In establishing the Performance
Objective or Performance Objectives, the Committee shall also establish a
schedule or schedules setting forth the portion of the Performance Award which
will be earned or forfeited based on the degree of achievement of the
Performance Objectives actually achieved or exceeded as determined by the
Committee. The Committee may at any time adjust the Performance Objectives and
any schedules and portions of payments related thereto, adjust the way
Performance Objectives are measured, or shorten any Performance Period if it
determines that conditions or the occurrence of events warrant such actions;
provided, that this provision shall not apply to any Performance Award that is
intended to qualify as performance-based compensation under Code Section
162(m)(4)(C) if and to the extent that it would prevent the Award from so
qualifying. The Committee shall have the right to reduce or eliminate the
compensation or Award payable upon the attainment of a Performance Objective
but shall not have the discretion to increase an Award upon the attainment of a
Performance Objective with respect to a Participant whose compensation for the
particular year is subject to the limits on tax deductibility in Code Section
162(m).
12.3 GRANTS OF PERFORMANCE AWARDS. Performance Awards may be granted
under the Plan in such form and to such Employees as the Committee may
from time to time approve. Performance Awards may be granted alone, in
addition to or in tandem with other Awards under the Plan. Subject to the
terms of the Plan, the Committee shall determine the amount or number of
Performance Awards to be granted to a Participant and the Committee may impose
different terms and conditions on any particular Performance Award granted to
any Participant. Each grant of a Performance Award shall be evidenced by a
written instrument stating the number of Performance Shares or Performance
Units granted, the Performance Period, the Performance Objective or Performance
Objectives, the proportion of payments for performance between the minimum and
full performance levels, if any, restrictions applicable to Shares receivable
in settlement, if any, and any other terms, conditions, restrictions and rights
with respect to such grant as determined by the Committee. The Committee may
determine that the Participant forfeit such Performance Awards back to the
Company upon termination of employment for any reason or for specified reasons.
The Committee may provide, in its sole discretion, that during a Performance
Period, a Participant shall be paid cash amounts, with respect to each
Performance Share or Performance Unit held by such individual in the same
manner, at the same time, and in the same amount paid, as a dividend on any
Share.
12.4 NONTRANSFERABILITY OF PERFORMANCE AWARDS. Until such time as the
Performance Objectives as determined by the Committee have been met and until
any restrictions upon the Shares issued pursuant to any Performance Awards have
lapsed, Performance Awards and any rights related thereto may not be sold,
exchanged, transferred, pledged, hypothecated or otherwise disposed of by any
Participant.
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12.5 PAYMENT OF AWARDS. As soon as practicable after the end of
the applicable Performance Period as determined by the Committee, the Committee
shall determine the extent to which the Performance Objectives have been met
and the extent to which Performance Awards are payable. Payment and settlement
of a Performance Award shall be as follows:
(a) In the case of Performance Shares, one or more stock
certificates representing the number of Shares payable shall be
delivered to the Participant, free of all restrictions except those
established by the Committee at the time of the grant of the
Performance Shares; and
(b) In the case of Performance Units, entirely in cash,
entirely in Shares, or in such combination of Shares and cash as the
Committee may determine, in its discretion, at any time prior to such
payment. If payment is to be made in the form of cash, the amount
payable for each Performance Unit earned shall be equal to the dollar
value of each Performance Unit (as determined by the Committee) times
the number of earned Performance Units.
13. AWARD TERMS AND CONDITIONS. Each Award Agreement setting forth an
Award shall contain such other terms and conditions not inconsistent herewith as
shall be approved by the Board or by the Committee. The Committee shall from
time to time adopt policies and procedures applicable to Awards that will
govern the lapse or non-lapse of restrictions and the rights of Participants
and beneficiaries in the event of death, disability, termination of employment,
or retirement of Participants or upon the occurrence of any other event
determined by the Committee, in its sole discretion, to be appropriate. The
Committee shall have authority to define disability and retirement and other
terms, and the Committee's policies and procedures may differ with respect to
Awards granted at different times. A Participant's rights in the event of
death, disability, termination of employment, or retirement or such other
events shall be set forth in the Award Agreement that evidences an Award to the
Participant.
14. NONTRANSFERABILITY OF AWARDS. No Award under the Plan and no rights
and interests therein, including the right to any amounts or Shares payable,
may be assigned, pledged, hypothecated or otherwise transferred by a Participant
except, in the event of a Participant's death to his or her designated
beneficiary or, in the absence of such designation, by will or the laws of
descent and distribution to the extent so permitted under the terms of the
Award Agreement. During the lifetime of a Participant, Options and SARs are
exercisable only by, and payments in settlement of Awards will be payable only
to, the Participant or his or her legal representative.
15. VESTING OF AWARDS. The Committee may, in its sole discretion, grant
Awards which vest over time and/or are based upon satisfaction of Performance
Objectives. The Committee may, in its discretion, modify or change any
Performance Objectives concerning any Award or accelerate the vesting of any
Award; provided that the Committee shall not modify or change any Performance
Objective or accelerate the vesting of any Award that is intended to qualify as
performance-based compensation under Code Section 162(m)(4)(C) if and to the
extent that such modification, change or acceleration would prevent the Award
from so qualifying.
16. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of changes
in all of the outstanding Shares by reason of stock dividends, stock splits,
recapitalizations, mergers, consolidations, combinations, or exchanges of
shares, separations, reorganizations or liquidations or
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<PAGE> 43
similar events or in the event of extraordinary cash or non-cash dividends
being declared with respect to outstanding Shares or other similar
transactions, the number and class of Shares available under the Plan in the
aggregate, the number and class of Shares subject to Awards theretofore
granted, the number of SARs therefore granted, applicable purchase prices,
applicable Performance Objectives for the Performance Periods not yet completed
and performance levels and portion of payments related thereto, and all other
applicable provisions, shall, subject to the provisions of the Plan, be
equitably adjusted by the Committee. The foregoing adjustment and the manner
of application of the foregoing provisions shall be determined by the Committee
in its sole discretion. Any such adjustment may provide for the elimination of
any fractional Share which might otherwise become subject to an Award.
17. CHANGE IN CONTROL.
17.1 EFFECT ON AWARDS. In the event of a Change in Control, then
(i) all Options, SARs and Options in tandem with SARs then outstanding
shall become fully exercisable as of the date of the Change in Control, whether
or not then exercisable, (ii) all restrictions and conditions of all Restricted
Stock Awards then outstanding shall be deemed satisfied as of the date of the
Change in Control, and (iii) all Performance Shares and Performance Units shall
be deemed to have been fully earned as of the date of the Change in Control.
Moreover, the Committee, in its sole discretion, may at any time, and subject
to the terms and conditions as it may impose: (a) grant Awards that become
exercisable only in the event of a Change in Control, (b) provide for Awards to
be exercised automatically and only for cash in the event of a Change in
Control, and (c) provide in advance or at the time of a Change in Control for
cash to be paid in settlement of any Award in the event of a Change in Control.
17.2 TERMINATION OF EMPLOYMENT. Notwithstanding anything
contained in this Plan to the contrary, in the event a Change in
Control takes place and a Participant's employment is terminated prior to the
Change in Control and the Participant reasonably demonstrates that such
termination (i) was at the request of a third party who has indicated an
intention or taken steps reasonably calculated to effect a Change in Control
and who effectuates the Change in Control or (ii) otherwise occurred in
connection with or in anticipation of a Change in Control which actually
occurs, then for all purposes of this Plan, the date of the Change in Control
in respect of such Participant shall mean the date immediately prior to the
date of termination of such Participant's employment.
18. FORM OF AWARDS. Nothing contained in the Plan nor any resolution
adopted or to be adopted by the Board or the stockholders of the Company shall
constitute the granting of any Award. An Award shall be granted hereunder at
such date or dates as the Committee may determine, subject to the Plan.
Whenever the Committee determines to grant an Award, the Secretary or the
President of the Company, or such other person as the Committee appoints, shall
send notice thereof to the Employee, in such form as the Committee approves,
stating the number of Shares, units and SARs subject to the Award, its Term,
and the other provisions, restrictions and conditions thereof. The notice
shall be accompanied by a written Award Agreement (and, in the case of a
Restricted Stock Award, by a blank stock power and/or escrow agreement for
execution by the Employee) which shall have been duly executed by or on behalf
of the Company. If the surrender of previously issued Awards is made a
condition of the grant, the notice shall set forth the pertinent details of
such condition. Execution of an Award Agreement by the recipient in accordance
with the provisions of the Plan shall be a condition precedent to the exercise
or settlement of any Award.
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19. WITHHOLDING FOR TAXES.
19.1 COMPANY'S RIGHT TO PAYMENT FOR TAXES REQUIRED TO BE
WITHHELD. The Company shall have the right, before any payment is made
or a certificate for any Shares is delivered or any Shares are credited to any
brokerage account, to deduct or withhold from any payment under the Plan any
Federal, state, local or other taxes, including transfer taxes, required by law
to be withheld or to require the Participant or his beneficiary or estate, as
the case may be, to pay any amount, or the balance of any amount, required to
be withheld. The Company may elect to deduct such taxes from any amounts
payable then or any time thereafter in cash or Shares or otherwise to the
Employee and, in the Committee's discretion, the Committee may permit the
payment of such taxes from Shares previously held by any Participant. If the
Employee disposes of Shares acquired pursuant to an Incentive Stock Option in
any transaction considered to be a disqualifying transaction under Sections 421
and 422 of the Code, the Employee must give the Company written notice of such
transfer and the Company shall have the right to deduct any taxes required by
law to be withheld from any amounts otherwise payable to the Employee.
19.2 EMPLOYEE ELECTION TO WITHHOLD SHARES. The Committee may
permit an Employee who is subject to Section 16(b) of the Exchange Act
to satisfy his or her tax liability with respect to the exercise, vesting or
settlement of an Award, by having the Company withhold Shares otherwise
issuable upon the exercise, vesting or settlement of the Award if such Employee
makes an irrevocable election, by way of a written statement in a form
acceptable to the Committee, at least six (6) months before the date the
Employee recognizes federal taxable income with respect to the receipt of such
Shares or during any Window Period. With regards to any determination made
during a Window Period, the Committee shall have the sole discretion to
determine the form in which payment of the tax liability will be made (by cash,
securities or any combination thereof) and to approve any such election.
20. TERMINATION OF PLAN. The Plan shall terminate ten (10) years from
the date hereof, and an Award shall not be granted under the Plan after
that date although the terms of any Awards may be amended at any date prior to
the end of its Term in accordance with the Plan. Any Awards outstanding at the
time of termination of the Plan shall continue in full force and effect
according to the terms and conditions of the Award and this Plan.
21. AMENDMENT OF THE PLAN. The Plan may be amended at any time and
from time to time by the Board, but no amendment without the approval
of the stockholders of the Company shall be made if stockholder approval under
Section 422 of the Code or Rule 16b-3 would be required. Notwithstanding the
previous sentence, no amendment to the Plan shall be made without the approval
of the stockholders of the Company which would change the material terms of
performance goals that were previously approved by the Company's stockholders
within the meaning of Proposed Treasury Regulation Section 1.162-27(e)(4)(vi)
or a successor provision, unless the Board determines that such approval is not
necessary to avoid loss of a deduction under Section 162(m) of the Code, such
approval will not avoid such a loss of deduction or such approval is not
advisable. Notwithstanding the discretionary authority granted to the Committee
in Section 4 of the Plan, no amendment of the Plan or any Award granted under
the Plan shall impair any of the rights of any Participant, without his or her
consent, under any Award theretofore granted under the Plan.
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<PAGE> 45
22. GOVERNING LAW; REGULATIONS AND APPROVALS.
22.1 GOVERNING LAW. This Plan and the rights of all persons
claiming hereunder shall be construed and determined in accordance of
the laws of the State of Georgia without giving effect to the conflicts of laws
principles thereof, except to the extent that such laws are preempted by
federal law.
22.2 DELIVERY OF SHARES. The obligation of the Company to issue,
sell and deliver Shares with respect to any Awards granted under this
Plan shall be subject to all applicable laws, rules and regulations, including
all applicable federal and state securities laws, and the obtaining of all such
approvals by governmental agencies as may be deemed necessary or appropriate by
the Committee.
22.3 SECURITIES ACT REQUIREMENTS. No award shall be granted and
no certificates for Shares pursuant to the grant or exercise of an Award shall
be delivered pursuant to this Plan if the grant or delivery would, in
the opinion of counsel for the Company, violate the Securities Act or any other
Federal or state statutes having similar requirements as may be in effect at
that time. As a condition of the issuance of any Shares pursuant to the grant
or exercise of an Award under this Plan, the Committee may require the
recipient to furnish a written representation that he or she is acquiring the
Shares for investment and not with a view to distribution to the public. In
the event that the disposition of Shares acquired pursuant to the Plan is not
covered by a then current registration statement under the Securities Act, as
amended, and is not otherwise exempt from such registration, such Shares shall
be restricted against transfer to the extent required by the Securities Act and
Rule 144 of the Securities Act or the regulations hereunder.
22.4 LISTING AND REGULATORY REQUIREMENTS. Each Award is subject
to the further requirements that, if at any time the Committee shall
determine, in its discretion, that the listing, registration or qualification
of the Shares subject to the Award is required by any securities exchange or
under any applicable law or the rule of any regulatory body, or is necessary or
desirable as a condition of, or in connection with, the granting of such Award
or the issuance of Shares thereunder, such Award will not be granted or
exercised and the Shares may not be issued unless and until such listing,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Committee.
22.5 SECTION 16. With respect to persons subject to Section 16
of the Exchange Act, transactions under this Plan are intended to
comply with all applicable conditions of Rule 16b-3 or its successors under the
Exchange Act. To the extent any provision under the Plan or action by the
Committee fails to so comply, it shall be deemed null and void to the extent
permitted by law and deemed advisable by the Committee.
22.6 PERFORMANCE-BASED COMPENSATION. The Plan is intended to
give the Committee the authority, in its discretion, to grant Awards
that qualify as performance-based compensation under Code Section 162(m)(4)(C).
23. DEFERRAL ELECTIONS. The Committee may permit any Participant
receiving an Award to elect to defer his or her receipt of a payment of
cash or the delivery of Shares that would be otherwise due such individual by
virtue of the exercise, settlement, vesting or lapse of restrictions regarding
any Award made under the Plan. If any such election is permitted, the
Committee shall establish rules and procedures for such payment deferrals,
including the possible payment or crediting
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<PAGE> 46
of reasonable interest on such deferred amounts credited in cash and the
payment or crediting of dividend equivalents in respect of deferrals credited
in Shares.
24. MISCELLANEOUS.
24.1 EMPLOYMENT RIGHTS. Neither the Plan nor any action taken
hereunder shall be construed as giving any Employee the right to
participate under the Plan, and a grant of an Award under the Plan shall not be
construed as giving any recipient of the grant any right to be retained in the
employ of the Company.
24.2 NO TRUST OR FUND CREATED. Neither the Plan nor any grant
made hereunder shall create or be construed to create a trust or
separate fund of any kind or a fiduciary relationship between the Company and
any recipient of a grant of an Award or any other person. To the extent that
any person acquires a right to receive payments from the Company pursuant to a
grant under the Plan, such right shall be no greater than the right of any
unsecured general creditor of the Company. Nothing herein shall prevent or
prohibit the Company from establishing a trust or other arrangement for the
purpose of providing for the payment of the benefits payable under the Plan.
24.3 FEES AND COSTS. The Company shall pay all original issue
taxes on the exercise of any Award granted under the Plan and all other fees
and expenses necessarily incurred by the Company in connection therewith .
24.4 AWARDS TO FOREIGN NATIONALS. Without amending the Plan,
Awards may be granted to participants who are foreign nationals or who
are employed outside the United States or both, on such terms and conditions
different than those specified in the Plan as may, in the judgment of the
Committee, be necessary or desirable to further the purpose of the Plan.
24.5 OTHER PROVISIONS. As used in the Plan, and in Awards and
other documents prepared in implementation of the Plan, references to
the masculine pronoun shall be deemed to refer to the feminine or neuter, and
references in the singular or the plural shall refer to the plural or the
singular, as the identity of the person or persons or entity or entities being
referred to may require. The captions used in the Plan and in such Awards and
other documents prepared in implementation of the Plan are for convenience only
and shall not affect the meaning of any provision hereof or thereof.
25. EFFECTIVENESS OF THE PLAN. The Plan shall become effective when
approved by the Board. The Plan shall thereafter be submitted to the
Company's stockholders for approval and unless the Plan is approved by the
affirmative votes of the holders of shares having a majority of the voting
power of all shares represented at a meeting duly held in accordance with
Georgia law within twelve (12) months after being approved by the Board, the
Plan and all Awards made under it shall be void and of no force and effect.
To record the adoption of the Plan by the Board on August 25, 1994, the
Company has caused its authorized officers to affix the corporate name and seal
hereto.
SCIENTIFIC-ATLANTA, INC.
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By: ___________________
Name: _________________
Title: ________________
By: ___________________
Name: _________________
Title: ________________
[Seal]
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<PAGE> 48
The following is being filed to comply with Item 10 of Schedule 14A
SCIENTIFIC-ATLANTA, INC
SENIOR OFFICER ANNUAL INCENTIVE PLAN
As adopted by the Board of Directors on
June 22, 1994
and by the stockholders on
_____________, 1994
<PAGE> 49
As adopted June 22, 1994
SCIENTIFIC-ATLANTA, INC.
SENIOR OFFICER ANNUAL INCENTIVE PLAN
1. PURPOSE
The purpose of this Plan is to improve the return to the Company's
stockholders by providing incentives for the Chief Executive Officer (and any
other Plan Participants) of the Company for superior performance. Performance
Objectives, i.e. standards of performance, are set at such a level as to
require the Participants to excel in attaining them. To these ends, the Plan
provides a means of rewarding the Participants for contributing through their
individual performance to the objectives of the Company.
2. DEFINITIONS
Unless the context otherwise requires, the words which follow shall have
the following meaning:
(a) "Plan" - This Senior Officer Annual Incentive Plan.
(b) "Business Unit" - An organizational unit, i.e., business division or
group.
(c) "Board" - The Board of Directors of the Company.
(d) "Code" - The Internal Revenue Code of 1986, as amended from time to
time, and reference to any specific provisions of the Code shall
refer to the corresponding provisions of the Code as it may
hereafter be amended or
replaced.
(e) "Company" - Scientific-Atlanta, Inc.
(f) "Committee" - The Human Resources and Compensation Committee of the
Board of Directors or any other committee appointed by the Board
whose members meet the requirements for eligibility to serve set
forth in Section 3 of the Plan and which is vested by the Board with
responsibility for the administration of the Plan; provided
Scientific-Atlanta, Inc.
Senior Officer Annual Incentive Plan
<PAGE> 50
however, that only those members of the Human Resources and
Compensation Committee of the Board who participate in decisions
relative to Performance Objectives and payments under this plan
shall be deemed to be part of the "Committee" for purposes of this
Plan.
(g) "Exchange Act" - The Securities Exchange Act of 1934, as amended.
(h) "Plan Year" - A fiscal year of the Company.
(i) "Performance Objectives" - The specific targets and objectives
established by the Committee under any or all of the following
four categories: profit before taxes, return on net assets, revenue
growth and gross margin. Performance Objectives shall be determined
and measured in accordance with generally accepted accounting
principles as utilized by the Company in its reports filed under the
Exchange Act.
(j) "Participant" - A person selected in accordance with paragraph 4 of
the Plan to receive a cash bonus in accordance with this Plan.
(k) "Target" - Payment to be authorized by the Committee upon meeting
100% of Performance Objectives.
3. ADMINISTRATION AND INTERPRETATION OF THE PLAN
The Board shall appoint the Committee, which shall consist of not less
than two members of the Board. Unless the Board determines otherwise, the
Committee shall be comprised solely of "outside" directors within the meaning
of Section 162 (m)(4)(C)(i) of the Code.
The Committee shall have the power to, (i) approve eligible
Participants, (ii) approve payments under the Plan, (iii) interpret the Plan,
(iv) adopt, amend and rescind rules and regulations relating to the Plan, and
(v) make all other determinations and take all other actions necessary or
desirable for the Plan's administration.
The decision of the Committee on any question concerning the
interpretation and administration of the Plan shall be final and conclusive.
Subject to paragraph 7 hereof, nothing in the Plan shall give any employee, his
legal representative or assigns, any right to a bonus or otherwise to
participate in the Plan except as the Committee may determine after the
conclusion of a Plan Year.
Scientific-Atlanta, Inc.
Senior Officer Annual Incentive Plan
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<PAGE> 51
4. ELIGIBLE PARTICIPANTS
Participants will be the Chief Executive Officer and any other senior
officers who are designated and are approved by the Committee to receive a cash
bonus under the Plan; provided, however, that if a Change in Control (as
defined in paragraph 7) occurs prior to the time Participants are determined
for the Plan Year in which the Change in Control occurs, all persons who were
Participants in the prior Plan Year and who are active employees of the Company
as of the date of the Change in Control shall be Participants for such Plan
Year.
Except as the Committee may otherwise determine, Participants for any
Plan Year must serve as key officers of the Company and except as the Committee
may otherwise determine or as provided in Section 7, Participants for any Plan
Year must be active employees of the Company when the Committee meets and
approves cash bonuses after the end of the Plan Year.
Pro-rated bonuses may be awarded to persons who retire under a
retirement plan of the Company or become disabled during a Plan Year and to the
estates or beneficiaries of persons who die during a Plan Year.
5. DETERMINATION OF INCENTIVE COMPENSATION AWARDS
The Committee shall establish one or more specific Performance
Objectives for a Plan Year and such Performance Objectives shall be established
within 90 days of the beginning of the Plan Year. The Committee shall also
establish a schedule or schedules setting forth the amount to be paid based on
the extent to which the Performance Objectives are actually achieved as
determined by the Committee. The Committee may at any time adjust the
Performance Objectives and any schedules of payments related thereto or adjust
the way Performance Objectives are measured; provided, that this provision
shall not apply to any payment that is intended to qualify as performance-based
compensation under Code Section 162(m)(4)C) if and to the extent that it would
prevent the payment from so qualifying. The Committee shall have the right to
reduce or eliminate the compensation payable upon the attainment of a
Performance Objective but shall not have the discretion to increase a payment
upon the attainment of a Performance Objective.
Scientific-Atlanta, Inc.
Senior Officer Annual Incentive Plan
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<PAGE> 52
6. PAYMENT OF INCENTIVE COMPENSATION AWARDS
Except as provided in paragraph 7, bonuses awarded under this Plan will
be fully paid in cash within 90 days after the end of the Plan Year, or
deferred in whole or in part based on a written request for deferral submitted
by the Participant and approved by the Company in accordance with procedures
established by the Company.
Any amounts paid as incentive compensation under this Plan shall be
considered as compensation to the Participant for the purpose of the Company's
Retirement Plan and disability and life insurance programs unless and to the
extent that such compensation is expressly excluded by the provisions of the
Retirement Plan or the instruments establishing such programs, but such amounts
shall not be considered as compensation for purposes of any other incentive
plan or other benefits unless the written instrument establishing such other
plan or benefits expressly includes compensation paid under this Plan.
The maximum dollar value with respect to payments under this Plan to
any Participant in any single Plan Year shall be $600,000.
7. CHANGE IN CONTROL OF THE COMPANY
(a) Contrary Provisions. Notwithstanding anything contained in this
Plan to the contrary, the provisions of this Paragraph 7 shall
govern and supersede any inconsistent terms or provisions of this
Plan.
(b) Change in Control. For purposes of this Plan, a Change in Control
shall mean any of the following events:
(1) The acquisition in one or more transactions by any "Person"
(as the term person is used for purposes of Section
13(d) or 14(d) of the Exchange Act) of "Beneficial Ownership"
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of twenty percent (20%) or more of the combined
voting power of the Company's then outstanding voting
securities (the "Voting Securities"), provided, however, that
for purposes of this Section 7(b)(1), any Voting Securities
acquired directly from the Company by any Person shall be
excluded from the
Scientific-Atlanta, Inc.
Senior Officer Annual Incentive Plan
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<PAGE> 53
determination of such Person's Beneficial Ownership of
Voting Securities (but such Voting Securities shall be included
in the calculation of the total number of Voting Securities
then outstanding); or
(2) The individuals who are members of the Incumbent
Board (as defined below), cease for any reason to constitute at
least two-thirds of the Board. The "Incumbent Board" shall
include the individuals who as of August 20, 1990 were members
of the Board and any individual becoming a director subsequent
to August 20, 1990 whose election, or nomination for election
by the Company's stockholders, was approved by a vote of at
least two-thirds of the directors then comprising the Incumbent
Board; provided, however, that any individual who is not a
member of the Incumbent Board at the time he or she becomes a
member of the Board shall become a member of the Incumbent
Board upon the completion of two full years as a member of the
Board; provided, further, however, that notwithstanding the
foregoing, no individual shall be considered a member of the
Incumbent Board if such individual initially assumed office (i)
as a result of either an actual or threatened "election
contest" (within the meaning of Rule 14a-11 promulgated under
the Exchange Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the
Board (a "Proxy Contest"), or (ii) with the approval of the
other Board members, but by reason of any agreement intended to
avoid or settle a Proxy Contest; or
(3) Approval by stockholders of the Company of (i) a
merger or consolidation involving the Company if the
stockholders of the Company, immediately before such merger or
consolidation, do not own, directly or indirectly immediately
following such merger or consolidation, more than eighty
percent (80%) of the combined voting power of the outstanding
voting securities of the corporation resulting from such merger
or consolidation in substantially the same proportion as their
ownership of the Voting Securities immediately before such
merger or consolidation, or (ii) a complete liquidation or
dissolution of the
Scientific-Atlanta, Inc.
Senior Officer Annual Incentive Plan
Page 5
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Company or an agreement for the sale or other
disposition of all or substantially all of the assets of the
Company.
Notwithstanding the foregoing, a Change in Control
shall not be deemed to occur solely because twenty percent
(20%) or more of the then outstanding Voting Securities is
acquired by (i) a trustee or other fiduciary holding securities
under one or more employee benefit plans maintained by the
Company or any of its subsidiaries or (ii) any corporation
which, immediately prior to such acquisition, is owned directly
or indirectly by the stockholders of the Company in the same
proportion as their ownership of stock in the Company
immediately prior to such acquisition.
Moreover, notwithstanding the foregoing, a Change in
Control shall not be deemed to occur solely because any Person
(the "Subject Person") acquired Beneficial Ownership of more
than the permitted amount of the outstanding Voting Securities
as a result of the acquisition of Voting Securities by the
Company which, by reducing the number of Voting Securities
outstanding, increases the proportional number of shares
Beneficially Owned by the Subject Person, provided, that if a
Change in Control would occur (but for the operation of this
sentence) as a result of the acquisition of Voting Securities
by the Company, and after such share acquisition by the
Company, the Subject Person becomes the Beneficial Owner of any
additional Voting Securities which increases the Percentage of
the then outstanding Voting Securities Beneficially Owned by
the Subject Person, then a Change in Control shall occur.
Notwithstanding anything contained in this Plan to the
contrary, if a Participant's employment is terminated prior to
a Change in Control and the Participant reasonably demonstrates
that such termination (i) was at the request of a third party
who has indicated an intention or taken steps reasonably
calculated to effect a Change in Control and who effectuates a
Change in Control or (ii) otherwise occurred in connection with
or in anticipation of a Change in Control which actually
occurs, then for all purposes of this Plan, the date of a
Change in Control in
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respect of such Participant shall mean the date
immediately prior to the date of termination of such
Participant's employment.
(c) Payment Upon a Change in Control. Upon a Change in Control, the bonus
for Performance Objectives which have been met in any Plan Year ending
prior to the date of the Change in Control for which payment has not
previously been made shall be unconditionally payable in cash to each
Participant.
If a Change in Control occurs with approval of the Board granted prior
to any such Change in Control, cash bonuses for the Plan Year during
which the Change in Control occurs shall be unconditionally payable to
each Participant, such bonuses to be 50% of the Target for each such
Participant or such higher amount as may be approved by the Committee.
If a Change in Control occurs without approval of the Board granted
prior to any such Change in Control, cash bonuses for the Plan Year
during which the Change in Control occurs shall be unconditionally
payable to each Participant, such bonuses to be 100% of the Target for
each Participant; provided, however, that in any case, if a Change in
Control occurs before Targets shall have been established for a Plan
Year, the Targets for such Plan Year shall be no less favorable to the
Participants than the Targets for the prior Plan Year.
Unless the Committee directs an earlier payment, bonuses payable in
accordance with this paragraph 7(c) shall be paid in cash on or before
the earlier of the date which is five (5) days following the date of the
Change of Control or the date determined in accordance with Paragraph 6
above.
(d) Continuation of the Plan. For a period of two (2) Plan Years following
the Plan Year in which a Change of Control occurs, the Plan shall not be
terminated or amended in any way (including, but not limited to,
restricting or limiting the right to participate in the Plan of any
person who is a Participant on the day prior to the date of the Change of
Control), nor shall the manner in which the Plan is administered be
changed in a way that adversely affects the level of
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participation or reward opportunities of any participant; provided,
however, that the Plan shall be amended as necessary to make appropriate
adjustments for (i) any negative effect that the costs and expenses
incurred by the Company and its Subsidiaries in connection with the
Change in Control may have on the benefits payable under the Plan and
(ii) any changes to the Company and/or its Subsidiaries (including, but
not limited to, changes in corporate structure or capitalization,
acquisitions or dispositions and increased interest expense as a result
of the incurrence or assumption by the Company of acquisition
indebtedness) following the Change in Control so as to preserve the
reward opportunities and performance targets for comparable performance
under the Plan as in effect on the date immediately prior to the Change
in Control.
(e) Amendment or Termination.
(i) This paragraph 7 shall not be amended or terminated at any time
following a Change in Control.
(ii) Any amendment or termination of the Plan prior to a Change in
Control which (1) was at the request of a third party who has indicated
an intention or taken steps reasonably calculated to effect a Change in
Control or (2) otherwise arose in connection with or in anticipation of
a Change in Control, shall be null and void and shall have no effect
whatsoever.
(f) Trust Arrangement. All benefits under the Plan shall be paid by the
Company. The Plan shall be unfunded and the benefits hereunder shall be
paid only from the general assets of the Company; provided, however,
nothing herein shall prevent or prohibit the Company from establishing a
trust or other arrangement for the purpose of providing for the payment
of the benefits payable under the Plan.
8. NON-ASSIGNABILITY
No bonus awarded under this Plan nor any right or benefit under this Plan
shall be subject to anticipation, alienation, sale, assignment, pledge,
encumbrance or charge, and any attempt to anticipate, alienate, sell, assign,
pledge, encumber or
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charge the same shall be void and shall not be recognized or given effect by
the Company.
9. AMENDMENT OF THE PLAN
This Plan may be amended at any time and from time to time by the
Board. Not withstanding the previous sentence, no amendment to the Plan shall
be made without the approval of the stockholders of the Company which would
change the material terms of performance goals that were previously approved by
the Company's stockholders within the meaning of Proposed Treasury Regulation
Section 1.162.27(e)(4)(vi) or a successor provision, unless the Board
determines that such approval is not necessary to avoid loss of a deduction
under Section 162 (m) of the Code, such approval will not avoid such a loss of
deduction or such approval is not advisable.
10. NO RIGHT TO EMPLOYMENT
Nothing in this Plan or in any notice of award pursuant to this Plan
shall confer upon any person the right to continue in the employment of the
Company nor affect the Company's right to terminate the employment of any
person.
11. PERFORMANCE - BASED COMPENSATION
This Plan is intended to give the Committee the authority, in its
discretion, to make payments that qualify as performance-based compensation
under Code Section 162(m)(4)(C).
12. EFFECTIVENESS OF PLAN
This Plan shall become effective when approved by the Board. This Plan
shall thereafter be submitted to the Company's stockholders for approval and
unless this Plan is approved by the affirmative votes of the holders of shares
having a majority of the voting power of all shares represented at a meeting
duly held in accordance with Georgia law within twelve (12) months after being
approved by the Board, this Plan and all awards made under it shall be void and
of no force and effect.
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To record the adoption of this Plan by the Board on June 22, 1994, the
Company has caused its authorized officers to affix the corporate name and seal
hereto.
SCIENTIFIC-ATLANTA, INC.
By: /s/ Brian C. Koenig
--------------------------------
Vice President - Human Resources
Attest:
/s/ W. E. Eason, Jr.
--------------------
Secretary
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