<PAGE>
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 [_] Confidential, for Use of the
Commission Only (as permitted by
[X] Definitive Proxy Statement Rule 14a-6(e)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
SCIENTIFIC-ATLANTA, INC.
------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No Filing Fee Required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
--------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------------
(5) Total fee paid:
--------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
--------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
LOGO
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders of Scientific-Atlanta, Inc. (the
"Corporation") will be held on Wednesday, November 12, 1997, at 9:00 a.m.,
local time, at The Northeast Atlanta Hilton, 5993 Peachtree Industrial
Boulevard, Norcross, Georgia 30092, 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 amended Stock Plan for Non-Employee Directors;
3. A proposal to approve the grant of an option for shares of the
Corporation's Common Stock to an executive officer in connection with
his commencement of employment with the Corporation;
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 at any
adjournments thereof.
Only shareholders of record at the close of business on September 22, 1997,
shall be entitled to notice of and to vote at the meeting and any adjournments
thereof.
A proxy solicited by the Board of Directors, together with a Proxy Statement
and a copy of the Corporation's 1997 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
September 29, 1997
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>
SCIENTIFIC-ATLANTA, INC.
ONE TECHNOLOGY PARKWAY, SOUTH
NORCROSS, GEORGIA 30092
----------------
PROXY STATEMENT
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 12, 1997, and at any adjournments thereof
(the "Annual Meeting"). Shareholders of record as of the close of business on
September 22, 1997 (the "Record Date") are entitled to notice of and to vote
at the meeting. On the Record Date, the Corporation had 78,504,713 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 $7,000. 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 September 29, 1997. 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 proxy holders in
the accompanying proxy card (or their substitutes) will vote FOR the election
of the Board of Directors' nominees, FOR Proposals 2, 3 and 4, and in the
proxy holders' discretion with regard to all other matters incidental to the
conduct of the meeting or which may otherwise properly come before the
meeting. 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 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 exceptions of Proposal No. 2 regarding
approval of the Amended Stock Plan for Non-Employee Directors and Proposal No.
3 regarding approval of a grant of an option to an executive officer for which
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."
<PAGE>
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 (1)
- ------------------------------------ ----------------- ----------
<S> <C> <C>
FMR Corp. ......................................... 7,766,609(2) 10.02%
82 Devonshire Street
Boston, Massachusetts 02109
</TABLE>
- --------
(1) The percent of class was computed by the beneficial owner as of a date
immediately preceding the filing of its Schedule 13G with the Securities
and Exchange Commission.
(2) Based on a Schedule 13G, dated July 8, 1997, filed with the Securities and
Exchange Commission by FMR Corp. and related entities. Of such shares, FMR
Corp. has sole voting power over 758,331 shares and sole dispositive power
over 7,766,609 shares. Includes shares held as trustee for certain of the
Corporation's employee benefit plans.
The following table sets forth information as of June 27, 1997, regarding
ownership of the Corporation's Common Stock and Common Stock equivalents by
each director of the Corporation, by each executive officer named in the
Summary Compensation Table and by all directors and executive officers as a
group:
<TABLE>
<CAPTION>
(A) (B) (C) (D)
NO. OF SHARES NO. OF SHARES
NO. OF SHARES SUBJECT TO OPTIONS OF RESTRICTED DEFERRED
OWNED EXERCISABLE PRIOR STOCK NOT COMMON STOCK
NAME DIRECTLY(1) TO AUGUST 26, 1997 VESTED (2) EQUIVALENTS (3)
---- ------------- ------------------ ------------- ---------------
<S> <C> <C> <C> <C>
Marion H. Antonini...... 8,500 55,625 -- 7,750
William E. Kassling..... 13,000 55,625 -- --
Wilbur Branch King...... 17,324 35,001 -- --
Mylle Bell Mangum....... 7,298 27,500 -- --
Alonzo L. McDonald...... 9,000(4) 63,125 -- --
James F. McDonald....... 183,434 681,250 65,874 --
David J. McLaughlin..... 16,049 30,000 -- --
James V. Napier......... 17,518 170,001 -- 17,775
Sam Nunn................ 1,000 -- -- 665
Sidney Topol............ 37,202 10,625 -- --
John H. Levergood....... 8,139 81,250 29,014 --
Robert C. McIntyre...... 3,599 111,750 18,938 --
Harvey A. Wagner........ 12,278 78,750 18,160 --
Conrad J. Wredberg...... 506 47,500 36,940 --
All Directors and
Executive Officers as a
Group.................. 470,841 2,268,702 365,104 26,190
</TABLE>
- --------
The total shares beneficially owned by each individual director and
executive officer (columns A, B and C) constituted less than 1% of the
outstanding Common Stock at June 27, 1997, except that the shares beneficially
owned by James F. McDonald (columns A, B and C) constituted approximately 1.2%
of the outstanding Common Stock. The aggregate shares beneficially owned by
all directors and executive officers as a group (columns A, B and C)
represented approximately 4% of the outstanding Common Stock at June 27, 1997.
(1) Each person has sole voting and dispositive power with respect to the
shares shown. With respect to executive officers, the number of shares
directly owned includes shares held in the Corporation's Voluntary
Employee Retirement and Investment Plan (401(k) plan), with respect to
which such officers have voting and dispositive power.
2
<PAGE>
(2) This column sets forth the number of performance-based and time-based
restricted shares of Common Stock which were granted under the
Corporation's Long-Term Incentive Plan (the "LTIP") and which had not
vested as of June 27, 1997. Executive officers holding such restricted
stock have the right to vote the shares.
(3) This column sets forth the number of shares of the Corporation's Common
Stock used in determining the value of the Phantom Stock Sub-Account for a
particular director under the Deferred Compensation Plan for Non-Employee
Directors (the "Deferral Plan"). The number of shares designated above for
each non-employee director does not include the number of shares that will
be granted as a lump sum distribution to each non-employee director who
elected to discontinue participation in the Retirement Plan for Non-
Employee Directors, which shares will be deferred into an Award Sub-
Account under the Deferral Plan. The granting of such shares and their
deferral is contingent upon the shareholders' approval of the Amended
Stock Plan for Non-Employee Directors. See "Proposal No. 2--Proposal to
Approve the Amended Stock Plan for Non-Employee Directors."
Under the terms of the Deferral Plan, no shares are ever issued from the
Phantom Stock Sub-Account to directors, but shares are issued from the
Award Sub-Account at the end of the applicable deferral period, with such
shares being issued under the Stock Plan for Non-Employee Directors. Non-
employee directors who have hypothetical shares in the Phantom Stock Sub-
Account or the right to receive shares in the Award Sub-Account of the
Deferral Plan do not have voting or dispositive power with respect to such
shares.
(4) Of the 9,000 shares reported as directly owned by Mr. Alonzo L. McDonald,
all of such shares are held by the Alonzo McDonald Jr. Trust, for which
Mr. McDonald serves as the sole trustee, with his wife being the sole
beneficiary.
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 2000. 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 proxy holders 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.
NOMINEES FOR DIRECTOR
The following information has been furnished by the respective nominees for
election as directors for a term expiring in 2000.
<TABLE>
<CAPTION>
DIRECTOR
NAME PRINCIPAL OCCUPATION SINCE
---- -------------------- --------
<S> <C> <C>
David J. McLaughlin..... President and Chief Executive Officer,
Troy Biosciences, Inc. 1987
James V. Napier......... Chairman of the Board, Scientific-Atlanta, Inc. 1978
Sam Nunn................ Attorney at Law, Partner at King & Spalding 1997
</TABLE>
Mr. McLaughlin, 61, has been President and Chief Executive Officer of Troy
Biosciences, Inc., a biotechnology company, since July 1, 1996. From January
1, 1985 to June 30, 1996, he served as President of McLaughlin and Company,
Inc., a firm that provided consulting services related to human resource
issues. From
3
<PAGE>
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., Troy Biosciences, Inc., and
Evolve Software, 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 60
and is a director of Engelhard Corporation, Vulcan Materials Company, HBO &
Company, Intelligent Systems, L.P., Personnel Group of America, and
Westinghouse Air Brake Company.
Mr. Nunn, 59, has been a Partner at the law firm of King & Spalding since
January 3, 1997. King & Spalding represents the Corporation in certain legal
matters and is expected to represent the Corporation on a variety of legal
matters during the current fiscal year. Prior to joining King & Spalding, Mr.
Nunn served as a United States Senator from 1972 to 1997. Mr. Nunn serves as a
director for The Coca-Cola Company, General Electric Company, National Service
Industries, Inc., Texaco, Inc., and Total System Services, Inc.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR EACH OF THE
NOMINEES FOR DIRECTOR. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE
VOTED FOR EACH NOMINEE FOR DIRECTOR UNLESS THE VOTING SHAREHOLDER INDICATES HE
OR SHE HAS WITHHELD HIS OR HER AUTHORITY TO VOTE FOR ONE OR MORE OF THE
NOMINEES.
OTHER DIRECTORS
The following information has been furnished by the other directors, whose
terms of office will continue after the 1997 Annual Meeting.
<TABLE>
<CAPTION>
DIRECTOR
NAME PRINCIPAL OCCUPATION SINCE
---- -------------------- --------
<S> <C> <C>
Marion H. Antonini...... Chairman and Chief Executive Officer, Welbilt
Corporation 1990
William E. Kassling..... Chairman and Chief Executive Officer, Westinghouse
Air Brake Company 1990
Mylle Bell Mangum....... Senior Vice President, Expense Management and
Strategic Planning, Carlson Wagonlit Travel 1993
Wilbur Branch King...... Retired 1971
Alonzo L. McDonald...... Chairman and Chief Executive Officer, Avenir
Group, Inc. 1985
James F. McDonald....... President and Chief Executive Officer, Scientific-
Atlanta, Inc. 1993
</TABLE>
Mr. Antonini has been Chairman of the Board of Welbilt Corporation since
July 1990 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. Mr. Antonini, 67, is a director of Berisford
Ltd., Vulcan Materials Company and Engelhard Corporation. His term of office
as a director of the Corporation expires in 1999.
Mr. Kassling was a Group Vice President of American Standard, Inc. for more
than five years before becoming Chairman of the Board and Chief Executive
Officer of Westinghouse Air Brake Company in March 1990. Mr. Kassling is 53
and is a director of Dravo Corporation and Commercial Intertech. His term of
office as a director of the Corporation expires in 1999.
4
<PAGE>
Ms. Mangum has been Senior Vice President, Expense Management and Strategic
Planning of Carlson Wagonlit Travel, a travel and hospitality company, since
March 1997. From August 1992 to March 1997, Ms. Mangum was Executive Vice
President--Strategic Management of Holiday Inn Worldwide ("Holiday Inn"). She
was also a member of the Board of Directors and Executive Committee of Holiday
Inn during her tenure there. From 1985 until August 1992, Ms. Mangum was
Director, Corporate Planning and Development with BellSouth Corporation. Ms.
Mangum is 48 and is a director of Reynolds Metals. Her term of office as a
director of the Corporation expires in 1999.
Mr. King was a partner in the law firm of Kilpatrick & Cody (now Kilpatrick
& Stockton) in Atlanta, Georgia, from 1962 until December 1986, and was Of
Counsel to that firm until 1996. Kilpatrick & Stockton represents the
Corporation from time to time in certain legal matters. Mr. King is 68. His
term of office as a director of the Corporation expires in 1998.
Mr. Alonzo L. McDonald has been Chairman and Chief Executive Officer 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 served as Director of the White House
staff during the Carter administration and in several other key government
positions. Mr. McDonald is 69 and is a director of CAE Industries and LaFarge
Corporation. His term of office as a director of the Corporation expires in
1998.
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 Executive
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 57 and is a director of Burlington Resources, Inc. and Wachovia Bank of
Georgia. His term of office as a director of the Corporation expires in 1998.
After more than twenty-five years of service, Sidney Topol has elected to
retire from the Board of Directors. His term of office as a director of the
Corporation expires at the Annual Meeting. Mr. Topol 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.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors met five times during the 1997 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. 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 1997 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
once during the 1997 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 1997 fiscal year. The Audit
Committee consists of directors Alonzo L. McDonald, Antonini, Napier, Nunn and
Topol. Mr. Antonini is Chairman.
5
<PAGE>
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 four times
during the 1997 fiscal year. The members of the Committee are directors
Antonini, Mangum, McLaughlin, and King. Mr. McLaughlin is Chairman.
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 three times during the 1997 fiscal year. The members
of the Committee are directors Alonzo L. McDonald, Kassling, King, Napier and
Nunn. 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. Members of this Committee are directors Mangum, Kassling,
McLaughlin, and Topol. Mr. Kassling is Chairman. The Committee met twice
during the 1997 fiscal year.
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
-------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------ -------------------------- --------
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..................... 1997 $624,231 $547,400 $ -- $ -- 350,000 $ -- $ 85,872
President and Chief Executive Officer 1996 590,385 300,000 -- -- 125,000 -- 153,768
1995 522,115 429,600 -- -- 200,000 82,218 86,731
John H. Levergood..................... 1997 349,115 216,100 3,190 -- 15,000 -- 65,881
Senior Vice President and Member of 1996 332,192 76,000 2,654 -- 25,000 -- 62,823
Corporate Operating Committee (5) 1995 307,673 197,700 2,200 -- 40,000 216,630 20,124
Robert C. McIntyre.................... 1997 282,115 177,000 -- -- 18,000 -- 25,413
Senior Vice President and Member of 1996 266,154 60,800 -- -- 25,000 -- 24,860
Corporate Operating Committee (6) 1995 232,500 138,500 -- -- 91,000 109,802 16,035
Harvey A. Wagner...................... 1997 281,154 176,000 -- -- 20,000 -- 38,506
Senior Vice President - Finance, 1996 260,192 95,400 -- -- 25,000 -- 55,404
Chief Financial Officer and 1995 240,000 150,000 -- -- -- (7) 15,786 193,437
Treasurer
Conrad J. Wredberg.................... 1997 304,808 230,800 -- -- 20,000 -- 33,205
Senior Vice President and Chairman of 1996 259,231 59,700 -- 478,125(9) 60,000 -- 41,900
Corporate Operating Committee (8) 1995 48,077 30,000 -- -- 25,000 -- (10) 11,469
</TABLE>
- --------
(1) The amounts disclosed in this column represent preferential earnings on
deferred compensation.
6
<PAGE>
(2) The value of restricted stock grants which vest based upon criteria other
than performance-based criteria are set forth in this column. Restricted
shares granted to executive officers pursuant to the Corporation's LTIP,
which shares vest based upon the performance of the Corporation, are not
reflected in this column, but are included in the "Long-Term Incentive
Plan--Awards in 1997 Fiscal Year" chart below. On June 27, 1997, the
number and value of all outstanding grants of performance-based restricted
stock held by the named executive officers were as follows: Mr. McDonald,
65,874 shares/$1,457,462; Mr. Levergood, 29,014 shares/$641,935; Mr.
McIntyre, 18,938 shares/$419,003; Mr. Wagner, 18,160 shares/$401,790; and
Mr. Wredberg, 36,940 shares/$817,298. Dividends are paid by the
Corporation on restricted stock held by such executive officers.
(3) This column does not include any amounts for fiscal 1996 and 1997 because
no previously granted performance-based restricted stock awards vested as
a result of the Corporation's performance during such years. For fiscal
year 1995, the amounts disclosed in this column included cash payouts
under the Corporation's 1990 Long-Term Incentive Plan and the value of
restricted stock previously granted under the Corporation's LTIP (adopted
in 1994), which restricted stock vested based upon the Corporation's
performance during fiscal 1995. No further cash payouts are available for
future years under the Corporation's 1990 Long-Term Incentive Plan.
(4) For the 1997 fiscal year, this column includes $79,122, $59,179, $18,326,
$31,761, and $33,205 of life insurance premiums paid by the Corporation on
behalf of Messrs. McDonald, Levergood, McIntyre, Wagner and Wredberg,
respectively. All other amounts in fiscal year 1997 represent
contributions to the Corporation's 401(k) Plan.
(5) Mr. Levergood retired as an employee of the Corporation, effective as of
September 1, 1997. He continues as an officer of the Corporation, and he
will perform services for the Corporation as a consultant.
(6) Mr. McIntyre resigned as an officer and employee of the Corporation,
effective September 19, 1997, to become the Chief Operating Officer of
Avex, Inc.
(7) No options were granted to Mr. Wagner during the Corporation's 1995 fiscal
year. Mr. Wagner received a two-year grant of options when he commenced
his employment with the Corporation during the 1994 fiscal year.
(8) Mr. Wredberg joined the Corporation as a Vice President during fiscal
1995.
(9) In fiscal 1996, Mr. Wredberg was granted 25,000 shares of restricted
stock. These shares will vest on May 14, 1999, provided that Mr. Wredberg
is employed by the Corporation on that date. The amount shown represents
the 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 this
restricted stock.
(10) Mr. Wredberg did not receive any LTIP payouts in fiscal 1995, because he
joined the Corporation during that year.
7
<PAGE>
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 and under stock option agreements during the 1997 fiscal
year:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(1)
- -------------------------------------------------------------------- ----------------------------
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO EXERCISE
UNDERLYING EMPLOYEES OR BASE
OPTIONS IN FISCAL PRICE EXPIRATION
NAME GRANTED(#) YEAR ($/SH) DATE(2) 5%($) 10%($)
---- ---------- ---------- -------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
James F. McDonald....... 100,000 6.2% $14.125 08/21/06 $ 888,314 $ 2,251,161
150,000(3) 9.4% $17.875 10/06/06 $ 1,686,224 $ 4,273,222
100,000(3) 6.2% $17.875 11/12/06 $ 1,124,149 $ 2,848,815
John H. Levergood....... 15,000 1.0% $14.125 08/21/06 $ 133,247 $ 337,674
Robert C. McIntyre...... 18,000 1.1% $14.125 08/21/06 $ 159,896 $ 405,209
Harvey A. Wagner........ 20,000 1.2% $14.125 08/21/06 $ 177,663 $ 450,232
Conrad J. Wredberg...... 20,000 1.2% $14.125 08/21/06 $ 177,663 $ 450,232
</TABLE>
- --------
(1) The dollar amounts in these columns were 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 ten-year term. The
actual value of the options will vary in accordance with the market price
of the Corporation's Common Stock.
(2) All of these stock options (except the stock options granted to Mr.
McDonald for 150,000 shares and 100,000 shares, respectively, with
expiration dates of October 6, 2006 and November 12, 2006, respectively)
were awarded under the Corporation's 1992 Employee Stock Option Plan (the
"1992 Plan"). Options granted under the 1992 Plan 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 thirty days following a termination for other
reasons, except for cause, in which case such options expire immediately
upon the giving of the notice of such termination.
(3) The options granted to Mr. McDonald for 150,000 shares and 100,000 shares,
respectively, with expiration dates of October 6, 2006 and November 12,
2006, respectively, have provisions that provide for early exercise by Mr.
McDonald (after October 7, 1998, and November 13, 1998, respectively)
based upon the performance of the Corporation's Common Stock, with 50% of
the shares subject to each option being exercisable early if the closing
price of the Corporation's Common Stock is $27.00 per share or more for 20
consecutive business days and with 100% of the shares subject to such
options being exercisable if the share price is $35.00 per share or more
for 20 consecutive business days. Otherwise, such options become
exercisable after the expiration of four years and six months from the
date of grant, provided that Mr. McDonald is employed by the Corporation
on that date. If a Change of Control (as defined in these options) occurs,
the options become exercisable immediately. The options may be exercised
within a period of two years following a termination by reason of
retirement, within one year following a termination by reason of death or
disability, and within thirty days following a termination for other
reasons, except for cause, in which case such options expire immediately
upon the giving of the notice of such termination. The option for 150,000
shares was granted under the Corporation's Long-Term Incentive Plan, and
the option for 100,000 shares was granted under a Non-Qualified Stock
Option Agreement with Mr. McDonald, dated November 13, 1996.
8
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE FISCAL YEAR-END (#) AT FISCAL YEAR-END ($)
NAME EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE (1)
---- ------------ ------------ ------------------------- -----------------------------
<S> <C> <C> <C> <C>
James F. McDonald....... None -- 587,500/437,500 $2,689,844/$1,713,281
John H. Levergood....... None -- 61,250/ 33,750 $ 203,125/$ 98,125
Robert C. McIntyre...... None -- 97,000/ 48,750 $ 212,419/$ 131,406
Harvey A. Wagner........ None -- 67,500/ 27,500 $ 296,250/$ 126,250
Conrad J. Wredberg...... None -- 36,250/ 68,750 $ 48,594/$ 232,031
</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 1997 fiscal year and the option exercise prices.
LONG-TERM INCENTIVE AWARDS
The following table sets forth in the prescribed formats certain information
with respect to restricted stock awards granted under the Corporation's LTIP
during fiscal 1997.
LONG-TERM INCENTIVE PLAN--AWARDS IN 1997 FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
PERFORMANCE OR UNDER NON-STOCK
OTHER PERIOD PRICE-BASED PLANS
NUMBER OF UNTIL MATURATION ---------------------------------------
NAME SHARES (#) OR PAYOUT (1) THRESHOLD (#) TARGET (#)(2) MAXIMUM (#)
---- ---------- ---------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
James F. McDonald....... 21,020 10 years 2,102 -- 21,020
John H. Levergood....... 8,220 10 years 822 -- 8,220
Robert C. McIntyre...... 6,660 10 years 666 -- 6,660
Harvey A. Wagner........ 6,660 10 years 666 -- 6,660
Conrad J. Wredberg...... 7,010 10 years 701 -- 7,010
</TABLE>
- --------
(1) Vesting of these shares is based on 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 ten-year term
are forfeited.
(2) Vesting of the right 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, ten percent 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, as of June 27, 1997, credited
9
<PAGE>
for retirement benefits for the persons named in the Summary Compensation
Table are James F. McDonald, 3 11/12 years; John H. Levergood, 25 11/12 years;
Robert C. McIntyre, 5 1/2 years; Harvey A. Wagner, 3 years; and Conrad J.
Wredberg, 2 1/6 years.
<TABLE>
<CAPTION>
YEARS OF SERVICE (1)
AVERAGE ANNUAL ---------------------------------------
COMPENSATION 15 20 25 30 35
- -------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$125,000................................ $22,709 $29,723 $38,465 $39,340 $39,964
150,000................................ 27,251 36,311 46,990 48,058 48,821
175,000................................ 27,614 36,311 46,990 48,058 48,821
200,000................................ 27,614 36,311 46,990 48,058 48,821
225,000................................ 27,614 36,311 46,990 48,058 48,821
250,000................................ 27,614 36,311 46,990 48,058 48,821
500,000................................ 27,614 36,311 46,990 48,058 48,821
</TABLE>
- --------
(1) The Corporation also maintains a supplemental executive retirement plan
for its executive officers, including Messrs. McDonald, Wagner and
Wredberg. Provisions of the plan include a ten-year vesting requirement
and a normal retirement age of 65. Benefits are based upon up to 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 will receive supplemental 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. Due to Mr.
Levergood's retirement, effective as of September 1, 1997, he has begun
receiving his retirement and supplemental retirement benefits. The table
does not include the above-described supplemental benefits.
The Omnibus Budget Reconciliation Act of 1993 ("OBRA") changed the Internal
Revenue Code by placing an annual maximum limit of $150,000 on the
compensation which may be considered in determining a participant's
benefits. Previous to this change in the statute, the Internal Revenue Code
allowed a maximum limit of $235,840 (i.e., $200,000, indexed for a cost of
living adjustment). Effective July 1, 1994, the Corporation adopted a non-
qualified Restoration Retirement Plan ("Restoration Plan") to replace the
benefits to certain participants that had been eliminated by the changes
made to the Internal Revenue Code by OBRA. Thus, effective July 1, 1994,
participants' compensation, as defined in the Restoration Plan, in excess
of the newly prescribed limit and up to what the limit would have been had
OBRA not been enacted will be considered under the Restoration Plan.
Participants under the Corporation's Supplemental Executive Retirement Plan
("SERP") will continue to have all compensation, as defined in the SERP, in
excess of the maximum limit prescribed by the Internal Revenue Code
considered in determining their pension benefits. The above table does not
include any benefits under the Restoration Plan.
Agreements with Certain Persons. The Corporation has letter agreements with
Messrs. Wredberg and Wagner which provide for the continuation of salary and
certain benefits for a twelve-month period in the event of termination of
employment without cause. The Corporation also has agreements with Messrs.
McDonald, Wagner and Wredberg 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.
10
<PAGE>
DIRECTOR COMPENSATION
Annual Fees. Each director who is not an employee receives a $25,000 annual
cash 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 receives an additional annual retainer of $60,000 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 Deferral Plan. At the election of the participant, deferred
amounts are deposited into (a) an interest sub-account, which earns interest
at a rate set annually by the Human Resources and Compensation Committee; (b)
a phantom stock sub-account, which is deemed to represent the number of shares
of the Corporation's Common Stock which the amount deferred could purchase at
the average closing price of such stock for a 20-day period occurring during
the month in which the amount is deferred; or (c) a split-dollar insurance
sub-account, from which the premium is paid for life insurance insuring the
life of the deferring director, or, at the election of such director, the
lives of the deferring director and his or her spouse on a joint and survivor
basis.
Non-Employee Director Retirement Plan. The Retirement Plan for Non-Employee
Directors will be discontinued for new directors elected after January 1,
1997, subject to approval by the shareholders of the amended and restated
Stock Plan for Non-Employee Directors at the Annual Meeting (the "Amended
Stock Plan") (see "Proposal No. 2--Proposal to Approve the Amended Stock Plan
for Non-Employee Directors"). Also, under the Retirement Plan for Non-Employee
Directors, as amended by the Board subject to shareholder approval of the
Amended Stock Plan (the "Director Retirement Plan"), each director who was a
participant in the Director Retirement Plan as of January 1, 1997 (the
"Conversion Date") was required to elect, on or before September 21, 1997,
either (a) to remain in the Director Retirement Plan, or (b) to discontinue
participation in the Director Retirement Plan and receive in lieu thereof (1)
annual grants of 1,500 shares of the Corporation's Common Stock under the
Amended Stock Plan, and (2) a lump sum distribution in shares of the
Corporation's Common Stock having a value, as of the Conversion Date, equal to
the greater of either (i) the present value, actuarially determined by the
Corporation, as of the Conversion Date, of the retirement benefits of the
electing participant under the Director Retirement Plan, reduced by the
present value, actuarially determined by the Corporation as of the Conversion
Date, of the anticipated stream of annual grants to be made under clause (1)
above during the period commencing at the Annual Meeting and ending on the
electing participant's sixty-fifth birthday, or (ii) an amount equal to the
value (using the closing price of $15.00 per share on the Conversion Date) of
750 shares of the Corporation's Common Stock multiplied by the electing
participant's total years of service as a director, as of the Conversion Date.
All participants in the Director Retirement Plan have elected to discontinue
participation in that plan. If a participant had elected to remain in the
Retirement Plan and had retired on or after his or her sixty-fifth birthday,
he or she would have been entitled to receive for the remainder of his or her
life an annual retirement benefit equal to the annual cash retainer paid by
the Corporation to its directors for the last year that he or she was a
director plus the value, determined as of the date of grant, of the most
recent Stock Award (as defined in the Amended Stock Plan) made to such
director. A reduced benefit would have been provided for such participants who
retired after age fifty-five but prior to age sixty-five. The Director
Retirement Plan would also have provided for payments to remaining
participants who became totally and permanently disabled and for payments to
the spouse of a remaining participant who died.
Non-Employee Director Stock Option Plan. Under this option plan, an initial
option to purchase 20,000 shares of the Corporation's Common Stock is granted
to each non-employee director upon joining the Board. An option to purchase an
additional 5,000 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 grant date. 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 option plan are exercisable
only by a non-employee director, except in certain limited circumstances.
Non-Employee Director Stock Plan. This plan currently provides for the grant
of a stock award of 500 shares of the Corporation's Common Stock (a "Stock
Award") to each non-employee director on the date of each annual meeting of
the Corporation's shareholders. If the shareholders approve the Amended Stock
Plan at
11
<PAGE>
the Annual Meeting, the Amended Stock Plan will also provide for a retirement
award of 1,500 shares of the Corporation's Common Stock (a "Retirement
Award"), which shares are to be granted to those non-employee directors who
commenced service on the Board after January 1, 1997, and to the non-employee
directors who elected to discontinue participation in the Director Retirement
Plan. In addition, under the Amended Stock Plan each non-employee director may
elect to receive up to 100% of his or her quarterly compensation from the
Corporation in the form of shares of the Corporation's Common Stock (an
"Elective Grant"). Further, under the Amended Stock Plan (assuming the
shareholders approve the proposed Amended Stock Plan), non-employee directors
who elected to discontinue participation in the Director Retirement Plan will
receive a one-time grant of the number of shares of the Corporation's Common
Stock, determined as described under "Non-Employee Director Retirement Plan"
above. Receipt of shares awarded as a Stock Award or as an Elective Grant may
be deferred under the Deferral Plan. Pursuant to the terms of the Amended
Stock Plan (assuming that the shareholders approve the Amended Stock Plan),
each year non-employee directors must elect, as to their respective annual
Retirement Awards, either (a) to receive the 1,500 shares as restricted stock
which cannot be sold or otherwise transferred for two years, or (b) to defer
the 1,500 shares for at least two years under the Deferral Plan. Under the
terms of the Amended Stock Plan, as proposed for approval by the shareholders,
each non-employee director receiving a lump sum distribution, as described
above, is required to defer the receipt of such shares until the earlier of
the retirement, death or total disability of the non-employee director.
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-term 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-term 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 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.
12
<PAGE>
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 has been designed to qualify
as "performance-based" compensation under Internal Revenue Code (the "Code")
Section 162(m) ("Code Section 162(m)") and is currently being used only for
the Corporation's Chief Executive Officer. Payments under the plan are based
upon the achievement of annual goals. The award determination for Mr. McDonald
under the Senior Officer Annual Incentive Plan is discussed in the "Chief
Executive Officer Compensation" section of this report.
Annual Incentive Plan. Under the Annual Incentive Plan (the "AIP"), awards
are made based on company, region, function and/or business unit results and
assessments of individual performance. Quantitative and qualitative objectives
are weighted 60% and 40%, respectively, in setting "target" awards for
corporate staff and business services participants and 75% and 25%,
respectively, for region and business unit participants.
Quantitative objectives, consistent with annual business plans approved by
the Board, are used in determining the amount of the award governed by the
company, region, function and/or business unit performance. Awards under the
quantitative portion of the AIP are not made if the minimum thresholds are not
met. When determining whether minimum thresholds have been met, the Committee
may 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 "Chief
Executive Officer Compensation" section of this report. AIP awards for Messrs.
Levergood, McIntyre, Wagner and Wredberg were based on the quantitative
performance of the Corporation, as measured by profit before tax, gross
margin, working capital and revenue results versus plan, and an assessment of
their individual performance against personal qualitative objectives. In
fiscal 1997, all of these individuals shared six objectives in common,
focusing on various aspects of quality, in addition to their individual
qualitative objectives.
Senior Officer and 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."
Long-Term Incentive Plan. This plan permits the Committee to use one or more
long-term incentives to motivate excellent long-term performance. In fiscal
1997, performance-based restricted stock awards were granted to 22 key
executives, including Messrs. McDonald, Levergood, McIntyre, Wagner and
Wredberg. These awards will vest over a term of up to ten years, based on
improvement in the Corporation's weighted average return on equity over the
previous five-year period. The number of shares granted are shown in the
"Long-Term Incentive Plan--Awards in 1997 Fiscal Year" Table. Based on the
Corporation's performance over the currently applicable period, no previous
grants vested during fiscal year 1997.
Stock Option Plans. A larger group of executives, including the executives
named in the Summary Compensation Table, receive grants of stock options under
the provisions of the 1992 Stock Option Plan, the 1996 Employee Stock Option
Plan and individual stock option agreements. 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 1997 to Mr. McDonald and the other named executives are shown in the
"Summary Compensation Table" and in the "Option/SAR Grants in Last Fiscal
Year" Table. During fiscal 1997, options for a total of 1,603,000 shares were
granted to 500 optionees.
13
<PAGE>
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 seeks to maximize the use of the "performance-based"
exemption provided under Code Section 162(m). 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 more closely aligns the upside and downside returns 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. As of the end of fiscal
1997, officers' holdings averaged 3.3 times base salaries, and outside
director holdings averaged 10.3 times annual retainers (based on the closing
price of the Common Stock at the 1997 fiscal year end). When computing the
average for the officers, the 365,104 shares of restricted stock held by the
officers, which shares vest primarily based on performance-based criteria,
were included in the computations.
CHIEF EXECUTIVE OFFICER COMPENSATION
At the beginning of fiscal year 1997, Mr. McDonald's base salary was
increased by five percent to maintain a position near the median for Chief
Executive Officers of similarly-situated high technology companies. This
increase was also consistent with national trends in executive salaries.
During fiscal 1997, Mr. McDonald was granted an annual stock option of
100,000 shares. This was near the median of grants to Chief Executive Officers
by other comparable high technology companies. He also received two option
grants, totaling 250,000 shares, which vest early based on attainment of
performance criteria. The objective of the special grants was to position Mr.
McDonald more appropriately against competitive practices in the high-
technology industry, provide a direct incentive to increase Scientific-
Atlanta's stock price and to provide an additional incentive for Mr. McDonald
to remain with Scientific-Atlanta. The options for the 250,000 shares will
vest after four and one-half years from the date of grant but can be exercised
earlier (as soon as two years after grant) if the price appreciates, i.e. 50%
can be exercised if the price reaches $27 per share (an appreciation of
approximately 50% from the grant price) and 100% will be exercisable if the
price reaches $35 per share (approximately double the grant price). See
Footnote 3 to the "Option/SAR Grants in Last Fiscal Year" Table for more
details.
Under the Senior Officer Annual Incentive Plan, Mr. McDonald had an
opportunity to earn a maximum of $453,600 if the Corporation achieved 125% or
more of its targeted performance as measured by profits before tax, gross
margin, return on net assets and sales (revenue). The results for fiscal 1997
exceeded targeted levels, but did not reach the maximum. The Committee,
therefore, approved a payment of $245,000 according to the provisions of the
plan.
Mr. McDonald also had an opportunity to earn additional incentive pay under
the Annual Incentive Plan, based on his performance against qualitative
objectives. Based on excellent performance during fiscal 1997, the Committee
approved payment of $302,400. In reaching its decision, the Committee noted
very strong financial performance over the prior year; significant
improvements in product and process quality and customer satisfaction; a
strengthened organization to provide better focus on individual business
units, and several key new product initiatives and joint ventures and
acquisitions to strengthen Scientific-Atlanta's technological leadership in
the telecommunications equipment industry.
Mr. McDonald received a grant of 21,020 performance-based shares of
restricted stock under the Long-Term Incentive Plan. Based upon the
Corporation's 1993--1997 fiscal year Return on Equity performance, there was
no further vesting of any performance-based shares granted under the Long-Term
Incentive Plan.
14
<PAGE>
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 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
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. The graph assumes that
the value of investment in the Corporation's Common Stock and in each index was
$100 on June 30, 1992, and all dividends were reinvested.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
- --------------------- ------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
SCIENTIFIC-ATLANTA, INC. $100 $216 $229 $296 $210 $299
S&P 500 $100 $114 $117 $145 $179 $237
S&P HIGH TEDHNOLOGY INDEX $100 $118 $129 $202 $237 $370
</TABLE>
<PAGE>
PROPOSAL NO. 2
PROPOSAL TO APPROVE THE
AMENDED STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
At the Annual Meeting, there will be presented to the shareholders a
proposal to approve the Corporation's Stock Plan for Non-Employee Directors,
as amended by the Board of Directors on June 17, 1997, subject to the
shareholders' approval (the "Amended Stock Plan"; this plan, as it existed
prior to the proposed amended version, is referred to as the "Stock Plan").
The Board of Directors unanimously approved the Amended Stock Plan and
recommends that the Corporation's shareholders approve the Amended Stock Plan.
The primary purposes of the Amended Stock Plan continue to be to aid the
Corporation in attracting and retaining highly qualified non-employee
directors, to provide additional compensation as an incentive for non-employee
directors to contribute their best efforts to the Corporation's success, and
to emphasize and enhance the Corporation's policy of seeking to have non-
employee directors maintain a significant investment in the stock of the
Corporation and thus a strong commonality of interests with the shareholders.
A secondary purpose of the Amended Stock Plan is to replace the retirement
benefits previously provided by the Director Retirement Plan with an annual
stock retirement award. See "Other Changes to Director Compensation" below
which provides a description of the changes to the Director Retirement Plan
and the Deferral Plan that will be made if the Amended Stock Plan is approved
by the shareholders. If the shareholders approve the Amended Stock Plan at the
Annual Meeting, as soon as practicable after the Annual Meeting, the
Corporation will file a registration statement on Form S-8 registering
additional shares to be issued under the Amended Stock Plan.
ADMINISTRATION
The Amended Stock Plan will continue to be administered by the Governance
and Nominations Committee of the Corporation's Board of Directors or any other
committee of the Board which is vested by the Board with responsibility for
administering the Amended Stock Plan (the "Committee"). The Committee will
continue to have the power to (i) interpret the Amended Stock Plan, (ii)
promulgate rules and regulations relating to the Amended Stock Plan, and (iii)
make all other determinations and take all other actions necessary or
desirable for the Amended Stock Plan's administration.
ELIGIBILITY FOR PARTICIPATION
For the purposes of a Stock Award (which is an annual grant of 500 shares of
the Corporation's Common Stock), the term "Eligible Directors" means those
non-employee directors who served on the Board for the six months immediately
preceding the annual meeting at which a Stock Award is granted. For the
purposes of an Elective Grant (which is a grant of stock based on a non-
employee director's election to receive all or a portion of his or her
quarterly compensation from the Corporation in the form of shares of the
Corporation's Common Stock), the term "Eligible Directors" means all non-
employee directors of the Board. For the purposes of a Retirement Award (which
is an annual grant of 1,500 shares of the Corporation's Common Stock given in
lieu of retirement benefits) and for purposes of the Lump Sum Distribution
(which is a one-time grant of stock based upon the computation described under
the heading "Other Changes to Director Compensation," below), the term
"Eligible Directors" means all non-employee directors who were not members of
the Board prior to January 1, 1997, and all non-employee directors who were
members of the Board and participants in the Director Retirement Plan prior to
January 1, 1997, and elected to receive a Lump Sum Distribution. (Stock
Awards, Elective Grants, Retirement Awards and Lump Sum Distributions are
collectively referred to as "Awards.") Immediately after the Annual Meeting,
seven directors will participate in the Lump Sum Distributions, and eight
directors will be eligible to participate in Stock Awards, Elective Grants and
Retirement Awards. None of the eligible directors elected to remain in the
Director Retirement Plan.
16
<PAGE>
STOCK AWARDS
The provisions of the Stock Plan relating to Stock Awards have not been
amended in the Amended Stock Plan, except to extend the expiration of the
Stock Plan from the annual meeting held in 1999 to the annual meeting held in
2009. At each annual meeting of the shareholders of the Corporation through
(and including) the 2009 Annual Meeting of the Corporation's shareholders,
each Eligible Director will be granted a Stock Award for 500 shares of the
Corporation's Common Stock. Stock certificates evidencing such Stock Awards
(less any shares withheld at the Eligible Director's request for payment of
taxes, if any) will be issued and delivered as soon as practicable after the
relevant annual meeting of shareholders. Eligible Directors will not have any
rights as shareholders of the Corporation until the stock certificates
evidencing Stock Awards are issued. To the extent that dividends,
distributions or other rights have a record date subsequent to an annual
meeting of shareholders but prior to the issuance of stock certificates
relating to Stock Awards, appropriate adjustments to the number of shares
included in the Stock Award shall be made.
ELECTIVE GRANTS
The provisions of the Stock Plan relating to Elective Grants have not been
amended in the Amended Stock Plan, except to extend the expiration of the
Stock Plan to the annual meeting held in 2009. Each non-employee director may
elect to receive up to 100% of his or her quarterly compensation from the
Corporation in the form of shares of the Corporation's Common Stock rather
than in the form of cash. Elections to receive an Elective Grant must be made
in writing by the non-employee director and must be delivered to the Secretary
of the Corporation before the start of the fiscal quarter during which
services are to be rendered by the non-employee director giving rise to the
quarterly compensation. The Committee shall, prior to the receipt by a non-
employee director of shares under an Elective Grant, approve the issuance of
such shares by resolution; however, if the Committee fails to adopt such an
approving resolution, such shares cannot be sold or otherwise transferred by
such non-employee director prior to the date which is six (6) months after the
date of such issuance of shares.
The number of shares of the Corporation's Common Stock that will be granted
under each Elective Grant will be equal to (i) the amount of quarterly
compensation that the non-employee director has elected to receive in shares
(not more than 100% of such quarterly compensation) divided by (ii) the fair
market value per share of the Corporation's Common Stock as of the last
business day of the fiscal quarter, which fair market value shall be
determined by reference to the closing price of such Common Stock on the New
York Stock Exchange on the applicable date. No fractional shares will be
issued; they will be rounded to the nearest whole share. The Corporation will
issue stock certificates evidencing the Elective Grants (less any shares
withheld for taxes, if any) as soon as practicable after the determination of
the number of shares to be granted.
RETIREMENT AWARDS
At each annual meeting of the shareholders of the Corporation, commencing
with the 1997 Annual Meeting and continuing through (and including) the 2009
annual meeting of the Corporation's shareholders, each Eligible Director (for
purposes of Retirement Awards) will be granted a Retirement Award of 1,500
shares of the Corporation's Common Stock.
Each Eligible Director shall elect annually either (i) to defer his or her
right to receive such Retirement Award, under the Deferral Plan, for a minimum
period of two (2) years after the date of the grant thereof (a "Deferred
Retirement Award"), or (ii) to receive such Retirement Award as restricted
stock that cannot be sold, assigned or otherwise disposed of by the Eligible
Director for a period of two (2) years after the date of the grant thereof (a
"Restricted Retirement Award").
As soon as practicable after the expiration of (i) the deferral period
applicable to a Deferred Retirement Award, or (ii) the restriction period
applicable to a Restricted Retirement Award, as applicable, the Company shall
cause to be issued to the Eligible Director a stock certificate evidencing the
Deferred Retirement Award or the Restricted Retirement Award, as applicable,
less any shares withheld at the Eligible Director's request for payment of
taxes, if any.
17
<PAGE>
Eligible Directors shall not be deemed for any purpose to be, or have any
rights as, shareholders of the Corporation with respect to any Retirement
Award until the stock certificates are issued and then only from the date of
the issuance of such stock certificates. Appropriate adjustments shall be made
for dividends or distributions or other rights for which the record date is
after an annual meeting and prior to the issuance of such stock certificates.
During the two (2) year restriction period applicable to a Restricted
Retirement Award, Eligible Directors shall have all rights of a shareholder
with respect to the shares of Common Stock of the Corporation granted under
the Restricted Retirement Award, including the right to vote such shares and
to receive dividends and other distributions paid with respect to such shares,
but they shall not have the right to sell, exchange, transfer, pledge,
hypothecate or otherwise dispose of such Restricted Retirement Award, except
that such shares may be transferred upon the death of the Eligible Director to
such of his legal representatives, heirs and legatees as may be entitled
thereto by will or the laws of intestacy.
LUMP SUM DISTRIBUTIONS
As soon as practicable after the Annual Meeting, every Eligible Director
shall be granted a Lump Sum Distribution under the Amended Stock Plan. Each
Eligible Director shall elect to defer his or her right to receive such Lump
Sum Distribution, under the Deferral Plan, until not earlier than such
Eligible Director's retirement, death or total disability. Mr. Nunn and future
non-employee directors are not eligible to receive Lump Sum Distributions.
As soon as practicable after the expiration of the deferral period
applicable to such Lump Sum Distribution, the Company will issue to such
Eligible Director a stock certificate evidencing the Lump Sum Distribution,
less any shares withheld at the Eligible Director's request for payment of
taxes, if any.
Eligible Directors shall not be deemed for any purpose to be, or have any
rights as, shareholders of the Company with respect to any Lump Sum
Distribution until the stock certificates are issued and then only from the
date of the issuance of such stock certificates. Appropriate adjustments shall
be made for dividends or distributions or other rights for which the record
date is after the Annual Meeting and prior to the issuance of such stock
certificates.
RESTRICTIONS ON TRANSFERABILITY; DEFERRALS
Non-employee directors receiving Awards may not assign, pledge, hypothecate
or otherwise transfer the Awards or any right or interest in the Awards,
except that the beneficiaries or heirs of a non-employee director are entitled
to the shares underlying an Award if the director dies prior to the issuance
by the Corporation of the stock certificates evidencing the Award. Receipt of
Stock Awards and Elective Grants may be deferred under the Corporation's
Deferral Plan.
AMENDMENT OF AMENDED STOCK PLAN
The restrictions on the amendments that affect Awards have been revised and
extended to apply to Elective Grants and Retirement Awards, as such
restrictions previously applied to Stock Awards. As was previously the case,
the Amended Stock Plan may be amended at any time and from time to time by the
Committee with the approval of the Corporation's Board of Directors, but no
amendment to the Amended Stock Plan may be made without the approval of the
shareholders of the Corporation if such amendment would (i) change the
calculation of the Awards so as to increase the value of the Awards to the
non-employee directors, (ii) increase the frequency of the Awards, (iii)
materially increase in any other way the benefits to the non-employee
directors under the Amended Stock Plan, (iv) materially modify the portions of
the Amended Stock Plan defining the directors eligible to participate in the
Stock Plan, or (v) disqualify a non-employee director from being a "Non-
Employee Director" administrator (within the meaning of Rule 16b-3 or any
successor rule of the Securities and Exchange Commission) of any stock-based
plan of the Corporation. Notwithstanding the foregoing, in no case may the
Amended Stock Plan provisions pertaining to the amount or determination of a
Stock Award, an Elective Grant, a Retirement Award or the determination of
Eligible Directors be amended more than once every six months,
18
<PAGE>
other than to comport with changes in the Internal Revenue Code, the Employee
Retirement Income Security Act, or the rules thereunder.
EFFECTIVE DATE
The Amended Stock Plan will be effective as of November 13, 1997, provided
that the Amended Stock Plan is approved by the shareholders. If not so
approved by the shareholders, the Amended Stock Plan shall be of no force and
effect, but the Stock Plan for Non-Employee Directors, as adopted by the
shareholders on November 8, 1995, shall continue in effect.
CHANGE IN CAPITALIZATION
As was previously the case under the Stock Plan, in the event of a change in
the outstanding shares of the Corporation's Common Stock by reason of stock
dividends, stock splits, recapitalizations, mergers, consolidations,
reorganizations, or any other changes in corporate structure, the number
and/or the type of shares to be awarded under the Amended Stock Plan shall be
automatically adjusted as appropriate to prevent an unfavorable effect upon
the value of the Awards to be made under the Amended Stock Plan.
VALUE OF AWARDS
The chart below states the number of shares of Common Stock and estimated
value of such shares that each current non-employee director, and the non-
employee directors, as a group, will receive as Awards in the 1998 fiscal
year.
NEW PLAN BENEFITS
AMENDED STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
<TABLE>
<CAPTION>
DOLLAR NUMBER OF
POSITION VALUE($)(1) SHARES(2)
-------- ----------- ---------
<S> <C> <C>
Each Non-Employee Director........................... $ 44,250 2,000(3)
All Non-Employee Directors as a group................ $3,407,206(4) 153,998(4)
</TABLE>
- --------
(1) The dollar value is based on the closing price per share of the
Corporation's Common Stock as of June 27, 1997.
(2) This column lists the number of shares to be issued during the 1998 fiscal
year. The number of shares that Eligible Directors may elect to receive
under an Elective Grant in lieu of their quarterly compensation is not
determinable.
(3) All eligible directors elected to discontinue participation in the
Director Retirement Plan and, accordingly, will each receive an annual
grant of 2,000 shares, which includes the grant of a Retirement Award of
1,500 shares and the grant of a Stock Award of 500 shares. Since each non-
employee director's Lump Sum Distribution is different, the number of
shares related thereto are not included in this number.
(4) Of the seven non-employee directors eligible to elect whether to remain in
the Director Retirement Plan, all seven non-employee directors elected to
discontinue participation. Accordingly, the cumulative number of shares
that will be granted as Lump Sum Distributions and the cumulative value of
such shares are included in these numbers. The Lump Sum Distribution of
each non-employee director and the respective value, as of June 27, 1997,
follow: Marion H. Antonini, 31,181 shares, $689,880; William E. Kassling,
5,250 shares, $116,156; Wilbur Branch King, 29,328 shares, $648,882; Mylle
Bell Mangum, 3,000 shares, $66,375; Alonzo L. McDonald, 29,786 shares,
$659,015; David J. McLaughlin, 22,446 shares, $496,618; James V. Napier,
17,007 shares, $376,280.
AVAILABILITY OF AMENDED STOCK PLAN
Copies of the Amended Stock Plan are available upon request directed to
William E. Eason, Jr., Senior Vice President, Corporate Secretary and General
Counsel, Scientific-Atlanta, Inc., One Technology Parkway South, Norcross,
Georgia 30092.
19
<PAGE>
OTHER CHANGES TO DIRECTOR COMPENSATION
If the Amended Stock Plan is approved by the shareholders, the Corporation's
non-employee director compensation scheme will be revised as follows: The
Director Retirement Plan will be discontinued for directors elected after
January 1, 1997. Under the Director Retirement Plan, as amended, each director
who participated in the Director Retirement Plan as of January 1, 1997 (the
"Conversion Date") elected, on or before September 21, 1997, either (a) to
remain in the Director Retirement Plan, or (b) to discontinue participation in
the Director Retirement Plan and receive in lieu thereof (1) the annual
Retirement Awards described above, and (2) the Lump Sum Distribution described
above. Additionally, the Deferral Plan will be amended to allow for deferral
of the Lump Sum Distributions and Retirement Awards, as described above.
VOTE REQUIRED
Approval of the Amended Stock 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.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR PROPOSAL 2.
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.
PROPOSAL NO. 3
PROPOSAL TO APPROVE GRANT OF STOCK OPTION TO EXECUTIVE OFFICER
At the Annual Meeting, there will also be presented to the shareholders a
proposal to approve the Board of Director's grant of a non-qualified stock
option for 125,000 shares of the Corporation's Common Stock to an executive
officer, Larry L. Enterline, Senior Vice President, Worldwide Sales and
Service (the "Option"), in connection with Mr. Enterline's commencement of
employment with the Corporation. The Option was granted to Mr. Enterline by
the Board of Directors to induce Mr. Enterline to join the Corporation as an
executive officer, effective January 15, 1997. The Option does not qualify for
incentive stock option treatment under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), and the Option is not subject to the
requirements of the Employee Retirement Income Security Act of 1974, as
amended. The Option is evidenced by a written Non-Qualified Stock Option
Agreement between the Corporation and Mr. Enterline, signed by both parties
and dated January 15, 1997 (the "Option Agreement"). The Corporation filed a
registration statement on Form S-8 relating to the Option on March 11, 1997.
Since the Corporation currently does not anticipate issuing treasury shares in
the event the Option is exercised, the listing requirements of the New York
Stock Exchange require shareholder approval of the Option. Accordingly, the
Corporation is seeking the shareholders' approval of the Option. If the
shareholders do not approve the Option, the Corporation will re-evaluate how
shares will be made available for the Option, including the feasibility of
using treasury shares.
TERMS OF THE OPTION
The term of the Option commenced on January 15, 1997 (the "Date of Grant"),
the date on which Mr. Enterline commenced employment with the Corporation, and
will terminate and expire, to the extent not previously exercised and not
earlier terminated, on January 14, 2007.
The exercise price for the Option is $15 7/8 per share of Common Stock
(which exercise price was the closing price of the Common Stock on the date
that the Board approved the grant), unless adjusted as described below. Unless
terminated earlier, Mr. Enterline will have the right to exercise the Option
in the following percentages during the following periods:
(a) twenty-five percent (25%) of the total number of shares covered by the
Option immediately upon, and during the year following, the Date of
Grant;
20
<PAGE>
(b) fifty percent (50%) of the total number of shares covered by the Option
on, and during the year following, the first anniversary of the Date of
Grant;
(c) seventy-five percent (75%) of the total number of shares covered by the
Option on, and during the year following, the second anniversary of the
Date of Grant; and
(d) one hundred percent (100%) of the total number of shares covered by the
Option on the third anniversary of the Date of Grant and thereafter
prior to the expiration of the Option.
During the lifetime of Mr. Enterline, the Option will be exercisable only by
Mr. Enterline and will not be assignable or transferrable. In the event of Mr.
Enterline's death, the Option will not be transferable by Mr. Enterline other
than by will or the laws of descent and distribution. The Option may be
exercised within a period of two years following Mr. Enterline's termination
of employment with the Corporation by reason of retirement, within one year
following a termination by reason of death or disability, and within thirty
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 Option may not be exercised after the expiration of the ten-
year term or after the Option is otherwise cancelled.
METHOD OF PAYMENT
The Option may be exercised from time to time by Mr. Enterline, in whole or
in part, by delivering a written notice of exercise to the Corporate Secretary
of the Company. Such notice is irrevocable and must be accompanied by full
payment of the purchase price (i) in cash, (ii) by delivery of shares of
Common Stock of the Corporation, with the fair market value of such shares
determined as of the exercise date, or (iii) a combination of (i) and (ii).
In the event the Corporation determines that it is required to withhold
state or federal taxes as a result of the exercise of the Option, as a
condition to the exercise thereof, Mr. Enterline must make arrangements
satisfactory to the Corporate Secretary to enable the Corporation to satisfy
such withholding requirements. Payment of such withholding requirements may be
made (i) in cash, (ii) by delivery of shares registered in Mr. Enterline's
name, which shares have a fair market value at the time of exercise equal to
the amount to be withheld, (iii) by the Corporation withholding shares subject
to the Option, which shares have a fair market value at the time of exercise
equal to the amount to be withheld, or (iv) any combination of (i), (ii) and
(iii) above.
FEDERAL INCOME TAX CONSEQUENCES
There were no tax consequences to Mr. Enterline resulting from the grant of
the Option. Upon exercise of the Option, Mr. Enterline will recognize taxable
income in the amount by which the then fair market value of the shares of the
Corporation's Common Stock acquired upon exercise exceeds the 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
Mr. Enterline. Upon the subsequent disposition of the shares acquired upon
exercise, Mr. Enterline 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 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 the exercise of the Option), provided the
shares are held as a capital asset. Any capital gain or loss will be
characterized as long-term or short-term, depending on whether the holding
period for tax purposes exceeds one year.
The preceding paragraph is intended to be merely a summary of the most
important federal income tax consequences concerning the grant of the Option
and the disposition of the shares of Common Stock issued upon an exercise of
the Option in existence as of the date of this Proxy Statement.
21
<PAGE>
RECAPITALIZATIONS
In the event of any change in the outstanding shares of Common Stock by
reason of any stock dividend or split, recapitalization, merger,
consolidation, spinoff, reorganization, combination or exchange of shares, or
other similar corporate change, or other increase or decrease in such shares
without receipt or payment of consideration by the Corporation, the
Corporation will make such adjustments to the Option, to prevent dilution or
enlargement of the rights of Mr. Enterline, including any or all of the
following:
(a) adjustments in the aggregate number or kind of shares of Common Stock
which may be issued upon exercise of the Option; and
(b) adjustments in the purchase price of the Common Stock covered by the
Options.
No such adjustments, however, may change materially the value of benefits
available to Mr. Enterline under the Option.
CHANGE IN CONTROL
Upon a Change in Control (as defined in the Option Agreement) of the
Corporation, the Option will become immediately exercisable in full, without
regard to the years that have elapsed from the Date of Grant. If Mr.
Enterline's employment terminates following a Change in Control other than for
"cause" (as defined in the Option Agreement), the provisions of the Option
Agreement described above concerning cessation of employment shall apply,
except that as of and after the date of the Change in Control, the Board and
the Human Resources and Compensation Committee may not make any determination
or take any action in connection with Mr. Enterline's termination which would
cause the Option not be exercisable in full or to expire earlier than the
latest date allowable under the Option Agreement.
VALUE OF OPTION
NEW PLAN BENEFITS
NON-QUALIFIED STOCK OPTION AGREEMENT WITH LARRY L. ENTERLINE
<TABLE>
<CAPTION>
DOLLAR NUMBER OF SHARES
NAME AND POSITION VALUE($)(1) SUBJECT TO OPTION
----------------- ----------- -----------------
<S> <C> <C>
Larry L. Enterline, Senior Vice President......... $781,250 125,000
</TABLE>
- --------
(1) The amount in this column is calculated using the difference between the
closing market price of the Corporation's Common Stock at the end of the
Corporation's 1997 fiscal year and the Option exercise price of $15 7/8
per share.
AMENDMENT OF OPTION AGREEMENT
The Board of Directors has the authority to amend the Option Agreement at
any time upon ten days' prior written notice to Mr. Enterline, provided that
such amendment (i) does not adversely affect Mr. Enterline's rights under the
Option Agreement, (ii) is not made in connection with a Change in Control (as
defined in the Option Agreement) of the Corporation, or (iii) does not attempt
to amend or terminate the provisions of the Option Agreement relating to a
Change in Control of the Corporation.
AVAILABILITY OF THE OPTION AGREEMENT
Copies of the Option Agreement are available upon request directed to
William E. Eason, Jr., Senior Vice President, Corporate Secretary and General
Counsel, Scientific-Atlanta, Inc., One Technology Parkway South, Norcross,
Georgia 30092.
22
<PAGE>
VOTE REQUIRED
Approval of the Option requires the affirmative vote of a majority of the
shares of Common Stock present or represented and entitled to vote at the
Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR PROPOSAL NO.
3. 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.
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 26,
1998, 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 1997 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 NO. 4. PROXIES SOLICITED BY THE BOARD 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(A) BENEFICIAL OWNERSHIP REPORTING 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 written representations submitted by the
reporting persons, 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
Jack W. Simpson, Sr. and John E. Breyer inadvertently filed late their
respective Statements of Changes in Beneficial Ownership on Form 4 for the
month of June 1997.
23
<PAGE>
FORM 10K ANNUAL REPORT
A copy of the Corporation's Annual Report on Form 10K, including financial
statements and schedules, filed with the Securities and Exchange Commission
for the fiscal year ended June 27, 1997, is included in the Annual Report to
Shareholders which accompanies these proxy materials. Copies of any exhibit(s)
to the Form 10K 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.
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Proposals by shareholders for presentation at the 1998 Annual Meeting must
be received by the Corporation not later than June 2, 1998, 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
September 29, 1997
24
<PAGE>
SCIENTIFIC-ATLANTA, INC.
P R O X Y
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON NOVEMBER 12, 1997
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 on the reverse side at the Annual Meeting of Shareholders of
Scientific-Atlanta, Inc. to be held on November 12, 1997 at 9:00 a.m., local
time, at The Northeast Atlanta Hilton, 5993 Peachtree Industrial Boulevard,
Norcross, Georgia 30092, 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 DIRECTOR 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 INCIDENTAL 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.
(Continued and to be signed and dated on the reverse side.)
SCIENTIFIC-ATLANTA, INC.
P.O. BOX 11135
NEW YORK, NY 10203-0135
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
THE BOARD OF DIRECTORS FAVORS AN AFFIRMATIVE VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW AND FOR PROPOSALS 2, 3 AND 4.
1. ELECTION OF DIRECTORS FOR all nominees [_] WITHHOLD AUTHORITY to vote for [_] *EXCEPTIONS [_]
listed below all nominees listed below
NOMINEES: DAVID J. McLAUGHLIN, JAMES V. NAPIER AND SAM NUNN
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark the "Exceptions" box above and write that
nominee's name on the line provided below.)
*EXCEPTIONS
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2. Approval of the Amended Stock Plan for Non-Employee Directors. 3. Approval of the Grant of Stock Option
to Larry Enterline.
FOR [_] AGAINST [_] ABSTAIN [_]
FOR [_] AGAINST [_] ABSTAIN [_]
4. Ratification of selection of Arthur Andersen LLP as independent
auditors of the Corporation. Change of Address or
Comments Mark Here [_]
FOR [_] AGAINST [_] ABSTAIN [_]
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 should sign.
Dated: , 1997
--------------------------------
--------------------------------------------
SIGNATURE
--------------------------------------------
SIGNATURE (IF HELD JOINTLY)
VOTES MUST BE INDICATED
(X) IN BLACK OR BLUE INK. [X]
</TABLE>
SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
<PAGE>
The following documents labeled as Appendix 1 and Appendix 2 are being
filed to comply with Item 10 of Schedule 14A.
<PAGE>
Appendix 1
----------
SCIENTIFIC-ATLANTA, INC.
STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
As Amended, Effective November 12, 1997
1. PURPOSES
The purposes of this Plan are to aid the Company in attracting and retaining
highly qualified Non-employee Directors, to provide additional compensation as
an incentive for Non-employee Directors to contribute their best efforts to the
Company's success, and to emphasize and enhance the Company's policy of seeking
to have Non-employee Directors maintain a significant investment in the stock of
the Company and thus a strong commonality of interests with the shareholders.
2. DEFINITIONS
As used in this Plan:
(a) The term "Annual Meeting" means the annual meeting of shareholders
of the Company.
(b) The term "Award" means an Elective Grant, a Stock Award, a
Retirement Award, or a Lump Sum Distribution awarded under this Plan.
(c) The term "Board" means the Board of Directors of the Company.
(d) The term "Board Approval" means approval by a majority of the
directors present at a Board meeting at which a quorum is present.
(e) The term "Company" means Scientific-Atlanta, Inc., a Georgia
corporation.
(f) The term "Committee" shall mean the Governance and Nominations
Committee of the Board or any another committee comprised of directors of the
Board which is vested by the Board with responsibility to administer this Plan.
(g) The term "Elective Grant" shall mean the election by a Non-Employee
Director pursuant to Section 3(a) hereof to receive a portion of his or her
Quarterly Compensation in the form of Shares.
(h) For the purposes of a Stock Award, the term "Eligible Directors"
shall mean those Non-employee Directors who served on the Board for the six
months immediately preceding the Annual Meeting at which a Stock Award is
granted. For the purposes of an Elective Grant, the
<PAGE>
term "Eligible Directors" shall mean all Non-employee Directors of the Board.
For the purposes of a Retirement Award and for purposes of the Lump Sum
Distribution, the term "Eligible Directors" shall mean all Non-employee
Directors who were not members of the Board prior to January 1, 1997, and all
Non-employee Directors who were members of the Board and Participants in the
Retirement Plan for Non-employee Directors prior to January 1, 1997, and who
elected on or before September 21, 1997, pursuant to the terms of paragraph 3 of
the Retirement Plan for Non-employee Directors, as amended on June 17, 1997, to
receive a Lump Sum Distribution.
(i) The term "Fair Market Value Per Share" means the closing sale price
of a Share on the New York Stock Exchange on the date such value is determined
or, if there is no trade on such Exchange on that date, then the closing sale
price on the next preceding date on which there is trade of the Company's Common
Stock on such Exchange. In the event that the Company's Common Stock is not
listed on the New York Stock Exchange on the determination date, the Fair Market
Value shall be determined as stated above but with reference to trades on the
largest stock exchange or other public market on which the Company's Common
Stock is then traded.
(j) The term "Lump Sum Distribution" means an award to an Eligible
Director consisting of a number of Shares having an aggregate fair market
value, as of January 1, 1997, determined as provided in Section 2(i) above,
equal to the greater of either (i) the present value, actuarially determined, as
------
of January 1, 1997, of the retirement benefits of such Eligible Director under
the Retirement Plan for Non-employee Directors, as amended on June 17, 1997 (the
"Retirement Plan"), reduced by the present value, actuarially determined by the
----------
Company, as of January 1, 1997, of the stream of annual Retirement Awards
(granted under Section 5(a) hereof) through the electing participant's sixty-
fifth birthday, or (ii) an amount equal to the value of 750 shares of the
--
Company's Common Stock (at the closing price on January 1, 1997) multiplied by
-------------
the Eligible Director's total years of service as a director, as of January 1,
1997, all as determined in accordance with paragraph 3 of the Retirement Plan.
(k) The term "Non-employee Director" means any person who is elected to
the Board and who has not been an employee of the Company or any of its
subsidiaries at any time during the twelve (12) months preceding (i) any
election by such person under Section 3 hereof, (ii) the receipt of a Stock
Award by such person under Section 4 hereof, or (iii) the receipt of a
Retirement Award by such person under Section 5 hereof.
(l) The term "Plan" means this Scientific-Atlanta, Inc. Stock Plan for
Non-employee Directors, as amended from time to time.
(m) The term "Quarterly Compensation" means the sum of all meeting fees,
annual retainer fees, and Committee and Board Chairmanship fees for service as a
director earned by a Non-employee Director during a fiscal quarter. Compensation
paid to Non-employee Directors for their service to the Company in any other
capacity, shall be excluded from the calculation of Quarterly Compensation.
2
<PAGE>
(n) The term "Retirement Award" means an award consisting of 1,500 Shares
(subject to adjustment as herein provided) granted to an Eligible Director
pursuant to Section 5 hereof, which Shares shall be either deferred or
restricted for a period of at least two (2) years from the date of the grant, in
accordance with the terms of Section 5 hereof. Depending on the election made
by each Eligible Director under Section 5(a) hereof, each Retirement Award will
be either a Deferred Retirement Award or a Restricted Retirement Award (as such
terms are defined in Section 5(a) hereof).
(o) The term "Share" means a share of the Company's Common Stock, $.50
par value. Shares delivered to the Eligible Directors under this Plan may be
either authorized but previously unissued shares or previously issued shares
reacquired by the Company.
(p) The term "Shareholder Approval" means the affirmative vote of a
majority of the shares of Common Stock present or represented and entitled to
vote at a meeting of the shareholders of the Company at which a quorum is
present.
(q) The term "Stock Award" means an award consisting of 500 Shares
(subject to adjustment as herein provided) granted to an Eligible Director
pursuant to Section 4(a) hereof.
3. ELECTIVE GRANTS
(a) Each Non-employee Director may make an election to receive up to 100
percent (100%) of his or her Quarterly Compensation (in increments of 5%) in the
form of Shares pursuant to an Elective Grant made in accordance with this
Section 3(a). The election by the Non-employee Director to receive an Elective
Grant of Shares must be in writing and must be delivered to the Secretary of the
Company before the start of the fiscal quarter during which services are to be
rendered by the Non-employee Director giving rise to the Quarterly Compensation.
The election made by a Non-employee Director pursuant to this Section 3(a) shall
be in effect as to Quarterly Compensation payable for services rendered during
the fiscal quarter of the Company covered by the election. The Committee shall,
prior to the receipt by a Non-employee Director of shares under an Elective
Grant, approve the issuance of such shares by resolution; however, if the
Committee fails to adopt such an approving resolution, such shares may be issued
to the electing Non-employee Director, but such shares cannot be sold or
otherwise transferred by such Non-employee Director prior to the date which is
six (6) months after the date of such issuance of shares.
(b) The number of Shares to be granted to a Non-employee Director who
makes an Elective Grant shall equal (i) the amount of the Quarterly Compensation
earned during the Company's fiscal quarter subject to the Elective Grant,
divided by (ii) the Fair Market Value Per Share on the last day of such fiscal
quarter. In no event shall the Company be required to issue fractional Shares.
Any fractional Share will be rounded to the nearest whole Share.
3
<PAGE>
(c) As soon as practicable after each Non-employee Director's Elective
Grant of Shares is determined, the Company shall cause to be issued and
delivered to such Non-employee Director a stock certificate registered in the
name of the Non-employee Director evidencing his or her Elective Grant, less any
Shares withheld by the Company pursuant to Section 8 below.
(d) No right to an Elective Grant and no interest therein may be
assigned, pledged, hypothecated, or otherwise transferred by a Non-employee
Director except that, in the event of the death of a Non-employee Director prior
to the issuance of a stock certificate evidencing an Elective Grant, such right
to such Elective Grant may be transferred to the Non-employee Director's
designated beneficiary or, in the absence of such designation, by will or the
laws of descent and distribution.
4. STOCK AWARDS
(a) Beginning with the 1995 Annual Meeting and at the Annual Meeting
every year thereafter through and including the Annual Meeting held in 2009,
every Eligible Director shall be granted a Stock Award.
(b) Subject to the provisions of Section 8 hereof, as soon as
practicable after the applicable Annual Meeting, the Company shall cause to be
issued and delivered to each Eligible Director receiving a Stock Award a stock
certificate registered in the name of such Eligible Director evidencing the
Stock Award, less any Shares withheld by the Company pursuant to Section 8
below.
(c) Eligible Directors shall not be deemed for any purpose to be, or
have any rights as, shareholders of the Company with respect to any Stock Award
until the stock certificates are issued and then only from the date of the
issuance of such stock certificates. Appropriate adjustments shall be made for
dividends or distributions or other rights for which the record date is after an
Annual Meeting and prior to the issuance of such stock certificates.
(d) No right to a Stock Award and no interests therein may be assigned,
pledged, hypothecated, or otherwise transferred by an Eligible Director except
that, in the event of the death of a Non-employee Director prior to the issuance
of a stock certificate evidencing a Stock Award, such right to such Stock Award
may be transferred to the Non-employee Director's designated beneficiary or, in
the absence of such designation, by will or the laws of descent and
distribution.
5. RETIREMENT AWARDS
(a) Beginning with the 1997 Annual Meeting and at the Annual Meeting
every year thereafter through and including the Annual Meeting held 2009, every
Eligible Director shall be granted a Retirement Award. Each Eligible Director
shall elect annually either (i) to defer his or her right to receive such
Retirement Award, under the Deferred Compensation Plan for Non-employee
Directors, for a minimum period of two (2) years after the date of the grant
thereof (a "Deferred Retirement Award"), or (ii) to receive such Retirement
Award as restricted stock that
4
<PAGE>
cannot be sold, assigned or otherwise disposed of by the Eligible Director for a
period of two (2) years after the date of the grant thereof (a "Restricted
Retirement Award").
(b) Subject to the provisions of Section 8, as soon as practicable after
the expiration of (i) the deferral period under the Deferred Compensation Plan
for Non-employee Directors applicable to a Deferred Retirement Award, or (ii)
the restriction period under this Plan applicable to a Restricted Retirement
Award, as applicable, the Company shall cause to be issued to the pertinent
Eligible Director a stock certificate registered in the name of such Eligible
Director evidencing the Deferred Retirement Award or the Restricted Retirement
Award, as applicable.
(c) Eligible Directors shall not be deemed for any purpose to be, or
have any rights as, shareholders of the Company with respect to any Retirement
Award until the stock certificates are issued and then only from the date of the
issuance of such stock certificates. Appropriate adjustments shall be made for
dividends or distributions or other rights for which the record date is after an
Annual Meeting and prior to the issuance of such stock certificates.
(d) No right to a Retirement Award and no interests therein may be
assigned, pledged, hypothecated, or otherwise transferred by an Eligible
Director except that, in the event of the death of a Non-employee Director prior
to the issuance of a stock certificate evidencing a Retirement Award, such right
to such Retirement Award may be transferred to the Non-employee Director's
designated beneficiary or, in the absence of such designation, by will or the
laws of descent and distribution..
(e) During the two (2) year restriction period applicable to a Restricted
Retirement Award, Eligible Directors shall have all rights of a shareholder with
respect to the Shares granted under the Retirement Award, including the right to
vote such Shares and to receive dividends and other distributions paid with
respect to such Shares, but they shall not have the right to sell, exchange,
transfer, pledge, hypothecate or otherwise dispose of such Restricted Retirement
Award, except that such Shares may be transferred upon the death of the Eligible
Director to such of his legal representatives, heirs and legatees as may be
entitled thereto by will or the laws of intestacy.
6. LUMP SUM DISTRIBUTIONS
(a) As soon as practicable after the 1997 Annual Meeting, every Eligible
Director who has elected to receive a Lump Sum Distribution, in accordance with
paragraph 3 of the Retirement Plan for Non-employee Directors, shall be granted
a Lump Sum Distribution under this Plan. Each Eligible Director shall elect to
defer his or her right to receive such Lump Sum Distribution, under the Deferred
Compensation Plan for Non-employee Directors, until not earlier than such
Eligible Director's Retirement, Death or Total Disability (as such terms are
defined in that plan).
5
<PAGE>
(b) Subject to the provisions of Section 8, as soon as practicable after
the expiration of the deferral period under the Deferred Compensation Plan for
Non-employee Directors applicable to such Lump Sum Distribution for an Eligible
Director, the Company shall cause to be issued to such Eligible Director
receiving a Lump Sum Distribution a stock certificate registered in the name of
such Eligible Director evidencing the Lump Sum Distribution.
(c) Eligible Directors shall not be deemed for any purpose to be, or
have any rights as, shareholders of the Company with respect to any Lump Sum
Distribution until the stock certificates are issued and then only from the date
of the issuance of such stock certificates. Appropriate adjustments shall be
made for dividends or distributions or other rights for which the record date is
after an Annual Meeting and prior to the issuance of such stock certificates.
(d) No right to a Lump Sum Distribution and no interests therein may be
assigned, pledged, hypothecated, or otherwise transferred by an Eligible
Director except that, in the event of the death of a Non-employee Director prior
to the issuance of a stock certificate evidencing a Lump Sum Distribution, such
right to such Lump Sum Distribution may be transferred to the Non-employee
Director's designated beneficiary or, in the absence of such designation, by
will or the laws of descent and distribution..
7. ADJUSTMENT UPON CHANGES IN CAPITALIZATION
If a reorganization, recapitalization, stock split, stock dividend, combination
of shares, merger, consolidation, rights offering, or any other change in the
corporate structure of the Company or the Shares occurs, then the number and/or
kind of shares to be awarded under the Plan shall be automatically adjusted as
required in order to prevent an unfavorable effect upon the value of the Awards
to be made under this Plan.
8. ELECTION FOR TAX PURPOSES/TAX WITHHOLDING/DEFERRAL
(a) All Awards made pursuant to this Plan shall be subject to the
withholding of state and federal income taxes, FICA tax or other taxes to the
extent required by applicable law. The Company shall, before delivery of a
stock certificate evidencing an Award, require the recipient to make
arrangements satisfactory to the Company to satisfy such withholding
requirement, if any. An Eligible Director receiving an Award may satisfy such
withholding requirement by having the Company withhold Shares otherwise issuable
to the Eligible Director if such Director makes a written election to do so,
which election must be delivered to the Secretary of the Company. Each Eligible
Director receiving a Restricted Retirement Award shall have the right to make an
election, under the terms of Section 83(b) of the U.S. tax code and related
regulations, whereby such Eligible Director would treat such Restricted
Retirement Award as creating income on the date of the grant thereof, rather
than on the date upon which the restriction period expires.
(b) The right to receive any Shares under this Plan, at the election of
the Non-employee Director receiving an Award (without need for Committee
approval), may be deferred under the provisions of the Company's Deferred
Compensation Plan for Non-employee
6
<PAGE>
Directors. In the event of such a deferral, the Eligible Director will not have
any rights of ownership, such as voting, selling or receipt of dividends, until
the deferral period for such Award expires.
9. ADMINISTRATION
The Plan shall be administered by the Committee. The Committee shall have full
authority, consistent with the Plan, to interpret the Plan and to promulgate
such rules and regulations with respect to the Plan as it deems desirable for
the administration of the Plan. The Committee shall have authority to determine
all matters relating to the administration and granting of Awards. All
decisions, determinations and interpretations of the Committee shall be binding
upon all persons.
10. COMPLIANCE WITH APPLICABLE LEGAL REQUIREMENTS
The Plan, the Awards, and the obligation of the Company to deliver Shares under
the Plan shall be subject to all applicable laws, regulations, and the
requirements of the exchanges on which Shares may, at the time, be listed. In
the event that the Shares to be issued under this Plan are not registered under
the Securities Act of 1933 and/or any applicable state securities laws prior to
the delivery of such Shares, the Company may require, as a condition to the
issuance thereof, that each Eligible Director to whom such Shares are to be
issued represent and warrant in writing to the Company that the Shares are being
acquired by him or her for investment for his or her account and not for resale
or with any intent of participating directly or indirectly in any distribution
of such Shares and a legend to that effect may be placed on the stock
certificates representing such Shares.
11. AMENDMENTS
The Committee with Board Approval may amend this Plan or any provision thereof
from time to time for the purpose of satisfying the requirements of any changes
in applicable laws or regulations or for any other purpose which at the time may
be permitted by law, provided that no amendment, except with shareholder
Approval, shall: (i) change the calculation of the Awards so as to increase the
value of the award to the Non-employee Directors; (ii) increase the frequency of
the Awards, (iii) materially increase in any other way the benefits to the Non-
employee Directors, (iv) materially modify the definitions of Non-employee
Director or Eligible Directors as defined herein, or (v) disqualify a Non-
employee Director from being a "Non-Employee Director" administrator (within the
meaning of Rule 16b-3 or any successor rule of the Securities and Exchange
Commission) of any stock-based plan of the Company. Notwithstanding the
foregoing, in no case may the Plan provisions pertaining to the amount or
determination of a Stock Award, Elective Grant, Retirement Award, or the
determination of Eligible Directors be amended more than once every six months,
other than to comport with changes in the Internal Revenue Code, the Employee
Retirement Income Security Act, or the rules thereunder.
7
<PAGE>
12. DISCONTINUANCE
The Board may suspend or discontinue this Plan in whole or in part, but any such
suspension or discontinuance shall not affect Awards granted under this Plan
prior thereto.
13. GOVERNING LAW
This Plan is made in accordance with and shall be governed in all respects by
the laws of the State of Georgia.
14. EFFECTIVE DATE
This Plan was effective on August 24, 1995.
15. TERM
The term of this Plan shall be for the period commencing as of the date of Board
Approval and ending with the Annual Meeting held in 2009.
To record the adoption of the Plan by the Board on August 24, 1995, and by the
shareholders on November 8, 1995, and to record the amendment of the Plan by the
Board on November 13, 1996, and on June 17, 1997, with an effective date of
November 12, 1997, the date of Shareholder Approval thereof, the Company has
caused its authorized officers to execute this Plan and affix the corporate name
and seal hereto.
SCIENTIFIC-ATLANTA, INC.
By: /s/ Brian C. Koenig
------------------------------------------
Name: Brian C. Koenig
Title: Senior Vice President - Human Resources
By: /s/ William E. Eason, Jr.
------------------------------------------
Name: William E. Eason, Jr.
Title: Corporate Secretary
[Corporate Seal]
8
<PAGE>
Appendix 2
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NON-QUALIFIED STOCK OPTION AGREEMENT
This Option Agreement (the "Agreement") is made and entered into as of the
15th day of January, 1997, by and between Scientific-Atlanta, Inc., a Georgia
corporation (the "Company"), and Larry L. Enterline (the "Optionee").
R E C I T A L S:
WHEREAS, the Company desires to grant the Optionee an Option (as defined
below); and
WHEREAS, the parties hereto desire to set forth herein the terms and
conditions applicable to such Option;
NOW, THEREFORE, the parties hereto do hereby agree as follows:
1. Definitions. Each capitalized term used herein which is not otherwise
-----------
defined herein shall have the meaning ascribed to such term in Schedule 1
attached hereto.
2. Grant. The Company hereby grants to the Optionee an option (the
-----
"Option") to purchase from the Company 125,000 shares of the $0.50 par value
common stock of the Company ("Common Stock") at an exercise price of $15 - 7/8
per share, which exercise price is subject to adjustment as provided in
Paragraph 11 hereof. The Option is intended to be treated as a non-qualified
stock option for all purposes and is not intended to qualify as an incentive
stock option for purposes of the Code.
3. Term. The term of the Option shall commence on January 15, 1997, the
----
date on which Optionee commenced employment with the Company ("Date of Grant")
and shall terminate and expire, to the extent not previously exercised, on
January 14, 2007.
4. Time for Exercise. The Optionee shall have the right to exercise the
-----------------
Option in the following percentages, during the following periods:
(a) twenty-five percent (25%) of the total number of shares covered by the
Option immediately upon, and during the year following, the Date of
Grant;
(b) fifty percent (50%) of the total number of shares covered by the
Option on, and during the year following, the first anniversary of the
Date of Grant;
(c) seventy-five percent (75%) of the total number of shares covered by
the Option on, and during the year following, the second anniversary
of the Date of Grant;
<PAGE>
(d) one hundred percent (100%) of the total number of shares covered by
the Option on the third anniversary of the Date of Grant and
thereafter prior to the expiration of the Option.
5. Manner of Exercise of the Option. The Option may be exercised from
--------------------------------
time to time, in whole or in part, by delivering a written notice of exercise to
the Corporate Secretary of the Company. Such notice is irrevocable and must be
accompanied by full payment of the purchase price (i) in cash, (ii) by delivery
of shares of Common Stock at the Fair Market Value of such shares determined as
of the exercise date, or a combination of (i) and (ii).
6. Cessation of Employment; etc. After the Optionee ceases to be an
----------------------------
employee, his rights to exercise any unexercised Option then held by him shall
be determined as provided in this Paragraph 6. The Option may not be exercised
after the term set forth in Paragraph 3 expires or after the Option is otherwise
cancelled.
(a) Retirement. If the Optionee ceases to be an employee because of
----------
Retirement (and not on account of termination for "cause" (as
hereinafter defined)), the Optionee shall have the right to exercise
the Option immediately with respect to (i) the shares which he could
have purchased at the time of Retirement and (ii) any shares which
would have become available for purchase under the Option if the
Optionee's employment had continued for one (1) year after the date of
Retirement. To the extent unexercised, the Option shall expire two
(2) years after the date of Retirement or the date of expiration of
the term of the Option as set forth in Paragraph 3, whichever shall
occur first.
(b) Death. If the Human Resources and Compensation Committee (the
-----
"Committee") does not determine otherwise with respect to the Option,
upon the death of the Optionee, the Option shall be exercisable
immediately (by the executor or the administrator of the deceased
Optionee's estate or by a person who acquired the right to exercise
the option by bequest or inheritance or by reason of such death) with
respect to (i) the shares as to which the deceased Optionee had the
right to exercise the Option at the time of his death and (ii) any
shares which would have become available for purchase under the Option
if the Optionee's employment had continued for one (1) year after the
date of death. To the extent unexercised, the Option shall expire (i)
one (1) year after the date of such death, or (ii) in the event of
death following termination of employment by reason of Retirement as
described in Paragraph 6(a) immediately above, the expiration date of
the Option after Retirement, whichever occurs last. Notwithstanding
the foregoing, the Committee may, in a special case, permit a longer
period for exercise of an Option after the death of the Optionee, but
in no event shall such period extend beyond the date of expiration of
the Option as set forth in this Agreement.
(c) Disability. If the Optionee ceases active service as an employee by
----------
reason of Disability, he shall have the right to exercise the Option
at any time within one (1)
2
<PAGE>
year after such cessation of employment, but except as provided in
this Agreement, only to the extent that, at the date of such cessation
of employment, the Optionee's right to exercise such Option had
accrued pursuant to the terms of this Agreement and had not previously
been exercised.
(d) Termination for Cause. If the Optionee's employment is terminated for
---------------------
"cause" (as hereinafter defined), this Option shall expire immediately
upon the giving to him of the notice of such termination. "Cause,"
for purposes of this Paragraph 6(d), shall mean dishonest or
fraudulent conduct which would normally be considered as sufficient
basis for discharging an employee from a management and/or a
supervisory position, or negligence, inaction or misconduct which
constitutes failure by the Optionee to meet such Optionee's
obligations and perform such Optionee's duties of employment.
(e) Other Reasons. If the Optionee ceases to be an employee for any
-------------
reason other than those mentioned above in Subparagraphs (a), (b), (c)
or (d), the Optionee shall have the right to exercise the Option at
any time within thirty (30) days following such cessation, discharge
or termination, but, except as otherwise provided in this Agreement,
only to the extent that, at the date of cessation, discharge or
termination, the Optionee's right to exercise such Option had accrued
pursuant to the terms of this Agreement and had not previously been
exercised.
(f) Leave of Absence. Optionee's employment with the Company shall not be
----------------
considered as having been terminated while the Optionee is on military
or sick leave or other bona fide leave of absence (such as temporary
employment by the U.S. government) if the period of such leave does
not exceed ninety (90) days, or, if longer, so long as the Optionee's
right to re-employment with the Company is guaranteed either by
statute or by contract. Where the period of such leave exceeds ninety
(90) days and where the Optionee's right to re-employment is not
guaranteed either by statute or by contract, the Optionee's employment
will be deemed to have terminated on the ninety-first (91st) day of
such leave.
7. Exercise of Options upon a Change of Control of the Company. In the
-----------------------------------------------------------
event of a Change of Control of the Company, this Option, whether or not vested
at such time, shall automatically vest and be immediately exercisable in full,
without regard to the years which have elapsed or events which have occurred
since the Date of Grant.
8. Termination of Employment Following Change in Control. If the
-----------------------------------------------------
Optionee's employment terminates following a Change in Control other than for
"cause" (as defined in Paragraph 6(d)), the applicable provisions of Paragraph 6
of this Agreement shall apply, except that as of and after the date of the
Change in Control, neither the Committee nor the Board shall make any
determination or take any action in connection with the Optionee's termination
of employment which would cause the Option either (i) to not be exercisable in
full or (ii) to expire earlier than the latest date allowable under Paragraph 6
as applicable.
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<PAGE>
9. Amendment or Termination.
------------------------
(a) Paragraphs 7 and 8 of this Agreement shall not be amended or
terminated at any time.
(b) Any amendment or termination of this Agreement prior to a Change in
Control which (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, or (ii) otherwise arose in connection with or in
anticipation of a Change in Control, shall be null and void and shall
have no effect whatsoever.
(c) Except as provided in subparagraphs (a) and (b) above, the Board shall
have the authority and right to amend this Agreement at any time upon
ten (10) days' prior written notice to Optionee, provided that such
amendment does not adversely affect Optionee's rights under this
Agreement.
10. Rights of a Shareholder; Non-Transferability. No one shall have
--------------------------------------------
rights as a shareholder with respect to any shares covered by this Option until
the date of issuance of a stock certificate for such shares. Nothing in this
Option confers on Optionee any right to continue in the employ of the Company or
to continue to perform services for the Company or interferes in any way with
the right of the Company to terminate his services as an officer or other
employee at any time.
Unless the Committee passes a resolution granting Optionee the right to
transfer the Option or a portion of the Option to others, no Option shall be
transferable by the Optionee other than by will or the laws of descent and
distribution and may only be exercised during his lifetime by the Optionee, or
by a guardian or legal representative.
11. Recapitalizations. In the event of any change in the outstanding
-----------------
shares of Common Stock by reason of any stock dividend or split,
recapitalization, merger, consolidation, spin-off, reorganization, combination
or exchange of shares, or other similar corporate change, or other increase or
decrease in such shares without receipt or payment of consideration by the
Company, the Company will make such adjustments to the Option, to prevent
dilution or enlargement of the rights of Optionee, including any or all of the
following:
(a) adjustments in the aggregate number or kind of shares of Common Stock
which may be issued upon exercise of the Option;
(b) adjustments in the purchase price of the Common Stock covered by the
Options.
No such adjustments, however, may change materially the value of benefits
available to Optionee under the Option.
4
<PAGE>
12. Taxes; Withholding. In the event the Company determines that it is
------------------
required to withhold state or federal taxes as a result of the exercise of an
Option, as a condition to the exercise thereof, the Optionee must make
arrangements satisfactory to the Corporate Secretary to enable the Company to
satisfy such withholding requirements. Payment of such withholding requirements
may be made (i) in cash, (ii) by delivery of shares registered in the name of
Optionee, which shares have a Fair Market Value at the time of exercise equal to
the amount to be withheld, (iii) by the Company withholding shares subject to
the Option, which shares have a Fair Market Value at the time of exercise equal
to the amount to be withheld, or (iv) any combination of (i), (ii) and (iii)
above.
13. Securities Law Requirements.
---------------------------
(a) Securities Act Requirements. No Option granted pursuant to this
---------------------------
Agreement shall be exercisable in whole or in part, and the Company
shall not be obligated to sell any shares subject to any such Option,
if such exercise and sale would, in the opinion of the Corporate
Secretary, violate the Securities Act of 1933 (or other federal or
state statutes having similar requirements) as it may be in effect at
that time.
As a condition to the issuance of any shares upon exercise of an
Option under this Agreement, the Corporate Secretary may require the
Optionee to furnish a written representation that he is acquiring the
shares for investment and not with a view to distribution to the
public. Such representations shall be required in cases where, in the
opinion of the Corporate Secretary, they are necessary to enable the
Company to comply with the provisions of the Securities Act of 1933,
and any shareholder who gives such representation shall be released
from it at such a time as the shares to which it applies are
registered pursuant to the Securities Act of 1933.
(b) Listing and Regulatory Requirements. Each Option shall be subject to
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the further requirements that if at any time the Committee shall
determine in its discretion that the listing or qualification of the
shares of stock subject to such Option under any securities exchange
requirements or under any applicable law, or the consent or approval
of any governmental regulatory body, is necessary or desirable as a
condition of, or in connection with, the granting of such Option or
the issue of Shares thereunder, such Option may not be exercised in
whole or in part unless and until such listing, qualification, consent
or approval shall have been effected or obtained free of any
conditions not acceptable to the Committee.
14. Notices. Any notice, payment or communication required or permitted
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to be given by any provision of this Agreement shall be in writing and shall be
delivered personally or sent by certified mail, return receipt requested,
addressed as follows: if to the Company at One Technology Parkway South,
Norcross, Georgia 30092, Attention: Corporate Secretary, if to Optionee, at the
address set forth on the signature page hereto. Each party may, from time to
5
<PAGE>
time, by notice to the other party hereto, specify a new address for delivery of
notices to such party hereunder. Any such notice shall be deemed to be
delivered, given, and received for all purposes as of the date such notice is
received or properly mailed.
15. Binding Effect. Except as otherwise provided in this Agreement, every
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covenant, term, and provision of this Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs, legatees, legal
representatives, successors, transferees, and assigns.
16. Headings. Section and other headings contained in this Agreement are
--------
for reference purposes only and are not intended to describe, interpret, define
or limit the scope, event or intent of this Agreement or any provision hereof.
17. Severability. Every provision of this Agreement is intended to be
------------
severable. If any term or provision hereof is illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the validity or
legality of the remainder of this Agreement.
18. Governing Law. The laws of the state of Georgia shall govern the
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validity of this Agreement, the construction of its terms, and the
interpretation of the rights and duties of the parties hereto.
IN WITNESS WHEREOF, this Agreement is executed as of the 15th day of
January, 1997.
COMPANY:
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SCIENTIFIC-ATLANTA, INC.
By: /s/ Brian C. Koenig
-------------------
Its: Senior Vice President - Human
Resources
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
6
<PAGE>
OPTIONEE:
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/s/ Larry L. Enterline
----------------------
Larry L. Enterline
OPTIONEE'S ADDRESS:
1095 Secret Cove Drive
Sugar Hill, Georgia 30518
7
<PAGE>
SCHEDULE 1
TO
NON-QUALIFIED STOCK OPTION AGREEMENT
"BOARD" means the Board of Directors of the Company.
"CHANGE IN CONTROL" means 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
Securities Exchange Act of 1934, as amended (the "1934 Act")), of
"Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated
under the 1934 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
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Agreement, 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 (as hereinafter
defined), cease for any reason to constitute at least two-thirds of
the Board for purposes of this Agreement. The "Incumbent Board"
shall include the individuals who as of August 20, 1990 are 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
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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 1934 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
(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 Company
<PAGE>
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 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 Agreement to the contrary,
if a Change in Control takes place and the Optionee's employment is
terminated prior to the completed Change in Control and the Optionee
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 Agreement, the date of
a Change in Control in respect of such Optionee shall mean the date
immediately prior to the date of termination of such Optionee's
employment.
"CODE" means the Internal Revenue Code of 1986, as amended.
"DISABILITY" means the condition of an individual who is unable to engage
in any substantial gainful activity by reason of any physical or mental
impairment which is classified as a disability in the Company's Long Term
Disability Plan.
<PAGE>
"FAIR MARKET VALUE" means the value of one (1) share of Common Stock, and
shall be equal to the closing sale price as reported on the New York Stock
Exchange on the date of valuation or, if no sale occurred on that date, then the
mean between the closing bid and asked prices on such exchange on such date. If
the date of valuation is not a business day, the price on the last business day
preceding the date of valuation shall be utilized.
"RETIREMENT" shall mean the Optionee's voluntary termination of his
employment with the Company after he has either (i) attained age sixty (60) or
(ii) attained age fifty-five (55) and attained the tenth (10th) anniversary of
his seniority date.
