<PAGE>
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
SCIENTIFIC-ATLANTA, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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 OF SCIENTIFIC ATLANTA APPEARS HERE]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders of Scientific-Atlanta, Inc. (the
"Corporation") will be held on Wednesday, November 10, 1999, at 9:00 a.m.,
local time, at the Corporation's offices located at 5030 Sugarloaf Parkway,
Lawrenceville, Georgia 30042, 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 re-approve the Corporation's amended Long-Term
Incentive Plan;
3. A proposal to re-approve the Corporation's amended Senior Officer
Annual Incentive Plan;
4. A proposal to ratify the selection of Arthur Andersen LLP as
independent auditors of the Corporation for the current fiscal year;
and
5. Such other matters as may properly come before the meeting and at
any postponements or adjournments thereof.
Only shareholders of record at the close of business on September 22, 1999,
shall be entitled to notice of and to vote at the meeting and any postponements
or adjournments thereof.
A proxy solicited by the Board of Directors, together with a Proxy Statement
and a copy of the Corporation's 1999 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 27, 1999
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 10, 1999, and at any postponements or
adjournments thereof (the "Annual Meeting"). Shareholders of record as of the
close of business on September 22, 1999 (the "Record Date") are entitled to
notice of and to vote at the meeting. On the Record Date, the Corporation had
78,420,093 shares of Common Stock, par value $0.50 per share (the "Common
Stock"), outstanding and entitled to vote at the meeting, with each share
entitled to one vote.
Copies of solicitation materials will be furnished to brokerage houses and
other fiduciaries for forwarding to beneficial owners of shares of the
Corporation's Common Stock. The Corporation has engaged Morrow & Co., Inc. to
assist in the solicitation of proxies from brokers, banks and their nominees
which are shareholders of record, at a cost of approximately $8,000, plus
reasonable out-of-pocket expenses. 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 or about September 27,
1999. 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 exception of (a) Proposal No. 2 regarding
re-approval of the Corporation's amended Long-Term Incentive Plan and (b)
Proposal No. 3 regarding re-approval of the Corporation's amended Senior
Officer Annual Incentive Plan, 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."
1
<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>
Vanguard Windsor Funds - Windsor Fund 7,866,400(/2/) 10.5%(/2/)
Post Office Box 2600
Valley Forge, Pennsylvania 19482-2600
Wellington Management Company, LLP 8,415,800(/3/) 11.2%(/3/)
75 State 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 February 10, 1999, filed by Vanguard Windsor
Funds - Windsor Fund ("Vanguard"). Vanguard has sole voting power over all
7,866,400 shares, sole dispositive power over none of the shares, and
shared dispositive power over all 7,866,400 shares.
(3) Based on a Schedule 13G, dated December 31, 1998, filed by Wellington
Management Company, LLP ("Wellington"). Wellington does not have sole
voting power or sole dispositive power over any of the shares, but has
shared voting power over 481,400 shares and shared dispositive power over
8,415,800 shares. Also, Wellington's Schedule 13G reflects that Wellington
holds the reported shares in its capacity as an investment advisor and one
of the clients for whom Wellington holds shares is Vanguard Windsor Funds.
The following table sets forth, as of July 2, 1999, unless otherwise
indicated, information 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) (E)
--- --- --- --- ---
No. of Shares
No. of Shares Subject to Options No. of Shares Deferred
Owned Exercisable Prior of Restricted Deferred Common Stock
Name Directly(1) to September 2, 1999 Stock Not Vested Common Stock(2) Equivalents(3)
------------------------ ------------- -------------------- ---------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Marion H. Antonini...... 10,500 67,500 3,000(/4/) 31,681 12,404
David W. Dorman......... 500 5,000 -- 1,500 --
William E. Kassling..... 17,011 67,500 3,000(/4/) 5,250 --
Mylle Bell Mangum....... 8,305 45,000 -- 6,000 --
James F. McDonald....... 89,603 918,750 77,086(/5/) -- --
David J. McLaughlin..... 20,681 22,500 -- 25,946 --
James V. Napier......... 18,018 162,500 -- 20,507 21,180
Sam Nunn................ 4,516 11,250 -- 3,500 4,603
Conrad J. Wredberg...... 20,383 62,500 23,953(/5/) -- --
Dwight B. Duke.......... 14,021 14,500 18,204(/5/) -- --
H. Allen Ecker.......... 14,256 70,250 21,415(/5/) -- --
Larry L. Enterline...... 1,315 16,250 36,537(/5/) -- --
All Directors and
Executive
Officers as a Group.... 327,455 1,757,300 297,042(/4/)(/5/) 94,384 38,187
</TABLE>
2
<PAGE>
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 July 2, 1999, except that the shares beneficially
owned by James F. McDonald (columns A, B and C) constituted approximately 1.4%
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 3.1% of the outstanding Common Stock at July 2,
1999.
(1) Each person has sole voting and dispositive power with respect to the
shares shown in this column. With respect to executive officers, the
number of shares owned directly 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. On
August 18, 1999, some of the performance-based restricted shares
previously granted under the Corporation's Long-Term Incentive Plan (the
"LTIP") vested as a result of the Corporation's financial performance in
fiscal years 1994-1999. Although not included in the numbers of shares set
forth in this column, such vesting of restricted shares on August 18,
1999, resulted in Messrs. McDonald, Wredberg, Duke, Ecker, and Enterline
receiving, respectively, 7,769 shares, 2,035 shares, 1,284 shares, 2,229
shares, and 935 shares, net of shares withheld for taxes.
(2) In connection with the discontinuance of the Corporation's Retirement Plan
for Non-Employee Directors, all non-employee directors who were in office
prior to January 1, 1997, received a lump sum distribution of shares of
Common Stock, which these directors were obligated to defer, pursuant to
the Deferred Compensation Plan for Non-Employee Directors (the "Deferral
Plan"), until the respective non-employee director's retirement date or
later. Additionally, all non-employee directors receive 1,500 shares, as a
Retirement Award, on the date of each annual shareholders meeting, which
shares must, at each non-employee director's election, either be (i)
deferred under the Deferral Plan for at least two years, or (ii) received
as restricted stock which vests two years after the date of grant.
Deferred lump sum distributions and deferred Retirement Awards are set
forth in this column. Such deferred lump sum distributions and deferred
Retirement Awards earn hypothetical dividends which are placed in a
deferred interest sub-account. Directors with rights to such deferred
shares of Common Stock disclaim beneficial ownership of such shares
because they do not have either the right to vote the deferred shares or
the right to receive dividends on the deferred 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 Deferral Plan. Under the terms of the
Deferral Plan, no shares are ever issued from the Phantom Stock Sub-
Account to directors. Non-employee directors who have hypothetical shares
in the Phantom Stock Sub-Account do not have voting or dispositive power
with respect to such shares.
(4) As described in Note (2) above, each non-employee director receives an
annual Retirement Award of 1,500 shares, which must either be (i) deferred
for at least two years, or (ii) received as restricted stock which vests
two years after the date of grant. The specified shares are shares of
restricted stock received by the designated directors as Retirement
Awards. Directors holding such restricted stock have the right to vote the
shares and the right to receive dividends on the shares.
(5) This is the number of performance-based and time-based restricted shares
of Common Stock which were granted during or prior to fiscal year 1999
under the LTIP or under a separate arrangement and which had not vested as
of August 18, 1999, the date on which some of the performance-based
restricted shares vested as a result of the Corporation's financial
performance in fiscal 1999. See Note (1) above for more details. Executive
officers holding such restricted shares have the right to vote the shares
and the right to receive dividends on the shares.
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 2002. The nominees for director are: Marion H. Antonini; William E.
Kassling; and Mylle Bell Mangum. 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.
3
<PAGE>
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.
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NOMINEES FOR TERMS EXPIRING IN 2002
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[PHOTO OF MARION H. ANTONINI APPEARS HERE]
MARION H. ANTONINI Director since 1990
Age 69
Mr. Antonini has been a Principal in Kohlberg & Company, a
private merchant banking firm, since March 1, 1998. Prior to
joining Kohlberg & Company, Mr. Antonini was Chairman of the
Board of Welbilt Corporation from July 1990 to March 1998
and Chief Executive Officer of that company from September
1990 to March 1998. 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 is
a director of Vulcan Materials Company, Turbochef
Technologies, Inc., and Engelhard Corporation.
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[PHOTO OF WILLIAM E. KASSLING APPEARS HERE]
WILLIAM E. KASSLING Director since 1990
Age 55
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 a director of Aearo Company and Commercial Intertech.
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[PHOTO OF MYLLE BELL MANGUM APPEARS HERE]
MYLLE BELL MANGUM Director since 1993
Age 51
Ms. Mangum has been Chief Executive Officer of MMS
Incentives, LLC, a private equity company concentrating on
high-tech marketing solutions, since May 1999. From March
1997 to May 1999, Ms. Mangum served as Senior Vice
President, Expense Management and Strategic Planning of
Carlson Wagonlit Travel, a travel and hospitality company.
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 a director of Reynolds
Metals, Haverty Furniture, and Payless Shoe Source.
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4
<PAGE>
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DIRECTORS WHOSE TERMS WILL EXPIRE IN 2000
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[PHOTO OF DAVID J. MCLAUGHLIN APPEARS HERE]
DAVID J. MCLAUGHLIN Director since 1987
Age 63
Mr. McLaughlin has been President of Troy Biosciences
Incorporated, 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 management
consulting firm. From 1987 until 1990 he also served as
Managing Principal of Sibson & Company, Inc., consultants in
the field of human resources. He is a director of Smart &
Final, Inc. and Troy Biosciences Incorporated.
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[PHOTO OF JAMES V. NAPIER APPEARS HERE]
JAMES V. NAPIER Director since 1978
Age 62
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 1986 to 1992, 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 Chief Executive Officer of
Contel Corporation, a telecommunications company. Mr. Napier
is a director of Engelhard Corporation, Vulcan Materials
Company, McKesson HBOC, Inc., Intelligent Systems, Inc.,
Personnel Group of America, and Westinghouse Air Brake
Company.
- -------------------------------------------------------------------------------
[PHOTO OF SAM NUNN APPEARS HERE]
SAM NUNN Director since 1997
Age 61
Mr. Nunn 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.
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DIRECTORS WHOSE TERMS WILL EXPIRE IN 2001
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[PHOTO OF DAVID W. DORMAN APPEARS HERE]
DAVID W. DORMAN Director since 1998
Age 45
Mr. Dorman has held the position of Chief Executive Officer
of the AT&T/British Telecom Global Venture since April 1,
1999. Mr. Dorman served as Chairman, President and Chief
Executive Officer of PointCast, Inc. from November 1997
through March 1999. Prior to joining PointCast, Inc., Mr.
Dorman served as Chairman, President and Chief Executive
Officer of Pacific Bell from July 1994 to November 1997 and
served as President of Business Services for Sprint
Corporation from 1993 to 1994. Mr. Dorman is a director of
3Com Corporation, Science Applications International
Corporation and E-Tek Dynamics.
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5
<PAGE>
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[PHOTO OF JAMES F. MCDONALD APPEARS HERE]
JAMES F. McDONALD Director since 1993
Age 59
Mr. 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 a director of Burlington Resources,
Inc. and American Business Products, Inc.
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MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors met seven times during the 1999 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 75% or more of the aggregate of
the total number of meetings of the Board and the committees of which he or
she was a member during the portion of the 1999 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. The Executive Committee did not meet during
the 1999 fiscal year. Members of the Executive Committee are directors
Antonini, Kassling, McDonald, Napier and Nunn. 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 1999 fiscal year. The Audit
Committee consists of directors Antonini, Napier and Nunn. Mr. Antonini is
Chairman.
The Human Resources and Compensation Committee makes determinations as to
the compensation and benefits to be paid to the Corporation's officers and key
employees. The Human Resources and Compensation Committee met three times
during the 1999 fiscal year. The members of the Committee are directors
Dorman, Kassling, Mangum and McLaughlin. Mr. Kassling 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 twice during the 1999 fiscal year. The members of
the Committee are directors Antonini, Kassling, Napier and Nunn. Mr. Nunn 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 Dorman, Mangum,
and McLaughlin. Ms. Mangum is Chairman. The Committee met twice during the
1999 fiscal year.
6
<PAGE>
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
------------------------------- ---------------------------- --------
Other Annual Restricted Stock Securities LTIP All Other
Name and Fiscal Compen Award(s) Underlying Payouts Compen-
Principal Position Year Salary($) Bonus($) sation($)(1) ($)(2) Options(#) ($)(3) sation($)(4)
------------------------ ------ --------- -------- ------------ ---------------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James F. McDonald....... 1999 $704,615 $695,800 $ -- $ -- 150,000 $560,899 $90,565
President and 1998 666,346 564,600 -- -- 125,000 505,828 90,617
Chief Executive Officer 1997 624,231 547,400 -- -- 350,000 -- 85,872
Conrad J. Wredberg...... 1999 377,115 343,800 -- -- 35,000 146,822 41,042
Senior Vice President
and 1998 345,192 227,500 -- -- 30,000 104,215 50,587
Chief Operating Officer 1997 304,808 230,800 -- -- 20,000 -- 33,205
Dwight B. Duke.......... 1999 272,692 203,000 -- -- 25,000 92,504 19,810
Senior Vice President; 1998 240,538 146,500 -- -- 25,000 83,648 22,228
President, Transmission 1997 195,692 153,900 -- 127,000(/5/) 8,000 -- 20,547
Networks
H. Allen Ecker.......... 1999 303,923 207,000 4,569 -- 25,000 160,903 48,645
Senior Vice President; 1998 280,461 170,000 3,822 -- 25,000 147,155 49,865
President, Subscriber 1997 262,692 145,100 3,190 -- 12,000 -- 47,739
Networks
Larry L. Enterline(/6/). 1999 346,154 235,900 -- -- 35,000 67,466 25,717
Senior Vice President 1998 320,192 187,800 -- -- 30,000 35,293 27,949
1997 126,923 100,000 -- 396,875 125,000 -- 35,058
</TABLE>
(1) The amounts disclosed in this column represent preferential earnings on
deferred compensation.
(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 1999 Fiscal Year" chart below. On August 18, 1999, after
giving effect to the LTIP Payouts described in Note 3 below, the number
and value of all outstanding grants of performance-based restricted stock
held by the named executive officers (without including new grants made on
August 18, 1999, for fiscal year 2000) were as follows: Mr. McDonald,
77,086 shares/$3,594,135; Mr. Wredberg, 23,953 shares/$1,116,809; Mr.
Duke, 15,224 shares/$709,819; Dr. Ecker, 21,415 shares/$998,474; and Mr.
Enterline, 11,537 shares/$537,913. Dividends are paid by the Corporation
on restricted stock held by such executive officers, and the executives
have the right to vote these shares of restricted stock.
(3) This column does not include any amounts for fiscal 1997 because no
previously granted performance-based restricted stock awards vested as a
result of the Corporation's performance during fiscal years 1993 - 1997.
The amounts shown for fiscal 1998 represent the fair market value, as of
August 20, 1998, of the performance-based restricted stock awards that
vested as a result of the Corporation's performance during fiscal years
1994 - 1998. The amounts shown for fiscal 1999 represent the fair market
value, as of August 18, 1999, of the performance-based restricted stock
awards that vested as a result of the Corporation's performance during
fiscal years 1995 - 1999.
(4) For the 1999 fiscal year, this column includes $83,183; $34,771; $12,468;
$41,578; and $18,629 of life insurance premiums paid by the Corporation on
behalf of Messrs. McDonald, Wredberg, Duke, Ecker, and Enterline,
respectively. All other amounts in fiscal year 1999 represent
contributions to the Corporation's 401(k) Plan.
(5) In fiscal 1997, Mr. Duke was granted 8,000 shares of restricted stock. The
vesting schedule for these shares is 50% on July 1, 1999; 25% on July 1,
2000; and 25% on July 1, 2001, provided that Mr. Duke is employed
7
<PAGE>
by the Company on each vesting date. The amount shown represents the value
of the restricted stock award, calculated by multiplying the closing market
price of the Corporation's Common Stock on the effective date of the grant
by the number of shares awarded. Dividends are paid on this restricted
stock, and Mr. Duke has the right to vote these shares of restricted stock.
(6) Mr. Enterline re-joined the Corporation during fiscal 1997.
Stock Options
The following tables set forth certain information in the prescribed formats
with respect to options granted and exercised under the Corporation's various
stock option plans and under stock option agreements during the 1999 fiscal
year:
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed Annual
Rates
of Stock Price
Appreciation Option
Individual Grants Term(1)
----------------------------------------- -------------------
% of Total
Number of Options
Securities Granted to Exercise
Underlying Employees or Base
Options in Fiscal Price Expiration
Name Granted(#) Year ($/sh) Date(2) 5%($) 10%($)
------------------------ ---------- ---------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
James F. McDonald....... 150,000 7.9% $23.75 08/20/08 2,240,437 5,677,708
Conrad J. Wredberg...... 35,000 1.8% 23.75 08/20/08 522,769 1,324,798
Dwight B. Duke.......... 25,000 1.3% 23.75 08/20/08 373,406 946,285
H. Allen Ecker.......... 25,000 1.3% 23.75 08/20/08 373,406 946,285
Larry Enterline......... 35,000 1.8% 23.75 08/20/08 522,769 1,324,798
</TABLE>
(1) The dollar amounts in these columns were determined using assumed rates of
appreciation set by the Securities and Exchange Commission and are not
intended to forecast future appreciation, if any, in the market value of
the Corporation's Common Stock. Such amounts are based on the assumption
that the named persons hold the options for their full ten-year term. The
actual value of the options will vary in accordance with the market price
of the Corporation's Common Stock.
(2) All of these stock options were awarded under the Corporation's Long-Term
Incentive Plan (the "LTIP"). All of these options become exercisable at the
rate of 25% per year commencing on the date of grant, except that if a
change of control occurs (as defined in the LTIP), all options become
exercisable immediately. Options granted under the LTIP in fiscal 1999 may
be exercised within a period of two years following a termination by reason
of retirement, within one year following a termination by reason of death
or disability, and within thirty days following a termination for other
reasons, except for cause, in which case such options expire immediately
upon the giving of the notice of such termination.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options at In-the-Money Options
Acquired on Value Fiscal Year-End (#) at Fiscal Year-End ($)(1)
Exercise Realized ------------------------- -------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
------------------------ ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James F. McDonald....... 150,000 $2,682,413 825,000 325,000 $16,098,438 $5,893,750
Conrad J. Wredberg...... 72,500 1,238,438 41,250 46,250 707,891 750,391
Dwight B. Duke.......... 75,750 1,280,625 -- 33,250 -- 524,766
H. Allen Ecker.......... -- -- 56,750 34,250 966,234 559,203
Larry L. Enterline...... 117,500 1,826,625 -- 72,500 -- 1,343,750
</TABLE>
(1) The amounts in these columns are calculated using the difference between
the closing market price of the Corporation's Common Stock at the end of
the Corporation's 1999 fiscal year and the option exercise prices.
8
<PAGE>
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 1999.
Long-Term Incentive Plan - Awards in 1999 Fiscal Year
<TABLE>
<CAPTION>
Estimated Future Payouts
Performance or under Non-Stock
Number of Other Period Price-Based Plans
Shares until Maturation ---------------------------------------
Name (#) or Payout(1) Threshold (#) Target (#)(2) Maximum (#)
------------------------ --------- ---------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
James F. McDonald....... 21,410 10 years 2,141 -- 21,410
Conrad J. Wredberg...... 9,550 10 years 955 -- 9,550
Dwight B. Duke.......... 5,530 10 years 553 -- 5,530
H. Allen Ecker.......... 6,180 10 years 618 -- 6,180
Larry L. Enterline...... 7,040 10 years 704 -- 7,040
</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 July 2, 1999, credited for retirement
benefits for the persons named in the Summary Compensation Table are James F.
McDonald, 5 11/12 years; Conrad J. Wredberg, 4 1/6 years; Dwight B. Duke, 20
10/12 years; H. Allen Ecker, 22 2/3 years; and Larry L. Enterline, 2 5/12
years.
<TABLE>
<CAPTION>
Average Annual Compensation Years of Service(/1/)
--------------------------- ---------------------
15 20 25 30 35
-- -- -- -- --
<S> <C> <C> <C> <C> <C>
$125,000............................. $21,486 $25,566 $28,830 $31,278 $33,182
150,000............................. 25,784 30,680 34,596 37,533 39,818
175,000............................. 26,815 31,907 40,393 42,076 43,278
200,000............................. 26,815 31,907 42,304 44,066 45,325
225,000............................. 26,815 31,907 42,304 44,066 45,325
250,000............................. 26,815 31,907 42,304 44,066 45,325
500,000............................. 26,815 31,907 42,304 44,066 45,325
</TABLE>
(1) The Corporation also maintains a supplemental executive retirement plan
for its executive officers, including Messrs. McDonald, Wredberg, Duke,
Ecker and Enterline. 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
9
<PAGE>
pay with offsets for the Retirement Plan, Social Security benefits and any
retirement benefits payable from former employers.
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, Duke, Ecker, and Enterline 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, Wredberg, Duke, Ecker, and Enterline 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.
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 based on a 90-day average of the Moody's Long Term
Industrial Bond Rate; (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
the last 20 business days in the month prior to 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 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
composite closing 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 stock plan provides for the grant of
a stock award of 500 shares of the Corporation's Common Stock (a "Stock
Award") and the grant of a retirement award of 1,500 shares of the
Corporation's Common Stock (a "Retirement Award") to each non-employee
director on the date of each annual meeting of the Corporation's shareholders.
In addition, under this 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").
Receipt of shares awarded as a Stock Award, Retirement Award or as an Elective
Grant may be deferred under the Deferral Plan. Pursuant to the terms of this
10
<PAGE>
stock plan, each year non-employee directors must elect, as to his or her
annual Retirement Award, 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.
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.
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)"). Payments under the plan are based upon
the achievement of annual goals. The award determinations for Mr. McDonald and
Mr. Wredberg under the Senior Officer Annual Incentive Plan were determined
based on whether Mr. McDonald and Mr. Wredberg, respectively, satisfied the
quantitative objectives established by the Committee earlier in the fiscal
year. Mr. McDonald's award under this plan and the basis for such award are
discussed in the next section of this report. See "Proposal to Re-Approve
Senior Officer Annual Incentive Plan" below.
11
<PAGE>
Annual Incentive Plan. Under the Annual Incentive Plan (the "AIP"), awards
are made based on company, business unit and/or region results and assessments
of individual performance. Quantitative and qualitative objectives are
weighted 60% and 40%, respectively, in setting "target" awards for staff
participants and 75% and 25%, respectively, for 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, group and/or business unit performance. Awards under the quantitative
portion of the AIP are not made if the minimum thresholds are not met. The
Committee may also take into account non-recurring extraordinary circumstances
unrelated to the Corporation's financial performance.
The award for Mr. McDonald under the AIP is discussed in the next section of
this report. The quantitative awards under the AIP for Messrs. Duke, Enterline
and Ecker were based on the quantitative performance of the Corporation, as
measured by earnings per share, gross margin, revenue and working capital, and
the qualitative awards under the AIP for Messrs. Duke, Enterline, Ecker and
Wredberg were based on the Committee's assessment of each individual's
individual performance against personal 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
year 1999, performance-based restricted stock awards were granted to 19 key
executives, including Messrs. McDonald, Wredberg, Duke, Ecker and Enterline.
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 1999 Fiscal Year Table. The dollar value of shares that
vested based on the Corporation's fiscal year 1999 performance are shown in
the Summary Compensation Table. See "Proposal to Re-Approve Long-Term
Incentive Plan" below.
Stock Option Plan. A larger group of executives, including the executives
named in the Summary Compensation Table, receive grants of stock options under
the provisions of the Long-Term Incentive Plan and the provisions of the 1996
Employee Stock Option Plan (with only non-officers participating in this
plan). The objective of the grants is to align the interests of the executives
with the interests of the Corporation's shareholders by affording the
executives the opportunity of a potentially significant financial benefit if
their efforts result in stock price appreciation. The Committee takes into
account the performance of the individual recipient, the number of options
previously awarded to any individual participant and the Corporation's grant
levels compared to competitive practices, targeting near a median grant
posture. Grants made in fiscal 1999 to Mr. McDonald and the other named
executives are shown in the Summary Compensation Table and in the Option
Grants in Last Fiscal Year Table. During fiscal 1999, options for a total of
1,896,850 shares were granted to optionees.
Policy Relative to Code Section 162(m)
The Omnibus Budget Reconciliation Act of 1993 (OBRA) limited deductible
senior officer annual compensation to $1,000,000, unless the compensation
qualifies as "performance-based" compensation under Code Section 162(m). In
general, the Corporation will seek to maximize the use of the "performance-
based" exemption provided under Code Section 162(m). 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
12
<PAGE>
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 year 1999, officers' holdings averaged 5.6 times base salaries, and
outside director holdings averaged 26.9 times annual retainers (based on the
closing price of the Common Stock at the 1999 fiscal year end). These holdings
include restricted stock, whether performance-based or time-based, which has
not yet vested or been "earned out." For directors, the holdings also include
shares which have been deferred.
Chief Executive Officer Compensation
At the beginning of fiscal year 1999, Mr. McDonald's base salary was
increased to maintain a fully competitive position among Chief Executive
Officers of similarly-situated high technology companies. This increase of
five percent was based also on Mr. McDonald's excellent performance during the
previous year.
During fiscal year 1999, Mr. McDonald was granted a stock option of 150,000
shares. In combination with the grants of performance-based stock, discussed
later in this section, the option grant was designed to be fully competitive
with grants of long-term incentives to Chief Executive Officers by other
comparable high technology companies.
Under the Senior Officer Annual Incentive Plan, Mr. McDonald had an
opportunity to earn a maximum of $596,400 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 year
1999 approached targeted levels, but did not reach the maximum. The Committee,
therefore, approved a payment of $298,200 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. The Committee approved payment of $397,600 based on excellent
performance. In reaching its decision, the Committee noted strong Broadband
sales growth in North America, a successful digital video system rollout,
further quality improvements, strengthening of already excellent relations
with major customers and the financial community, and actions to further
develop organizational and individual competencies.
Mr. McDonald received a grant of 21,410 performance-based shares of
restricted stock under the Long-Term Incentive Plan. Based upon the
Corporation's 1999 fiscal year Return on Equity performance, Mr. McDonald's
right to receive 12,030 shares under prior awards vested.
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:
William E. Kassling, Chairman
David W. Dorman
David J. McLaughlin
Mylle Bell Mangum
13
<PAGE>
PERFORMANCE GRAPH
The following graph shows a comparison of total return to shareholders for
the Corporation, the Standard & Poor's Technology Sector Index, the Standard &
Poor's Communications Equipment 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, 1994, and all dividends were reinvested. The Corporation has decided
to compare itself to Standard & Poor's Communication Equipment Index rather
than Standard & Poor's Technology Sector Index because the Communications
Equipment Index is more closely related to the industry in which the
Corporation operates. The information related to the Technology Sector Index is
included to comply with the SEC's requirements.
[GRAPH APPEARS HERE]
1994 1995 1996 1997 1998 1999 9/14/99
---- ---- ---- ---- ---- ---- -------
S&P 500 $100 $125 $156 $208 $267 $329 $316
S&P COMMUNICATIONS
EQUIPMENT $100 $176 $248 $331 $457 $795 $758
S&P TECHNOLOGY
SECTOR $100 $159 $187 $293 $383 $638 $688
SCIENTIFIC-
ATLANTA, INC. $100 $129 $ 92 $131 $147 $229 $344
PROPOSAL NO. 2
PROPOSAL TO RE-APPROVE
LONG-TERM INCENTIVE PLAN
At the Annual Meeting, there will be presented to the shareholders a proposal
to re-approve the Corporation's Long-Term Incentive Plan (the "LTIP"). The
Board of Directors unanimously approved the LTIP in 1994 and re-approved it on
August 18, 1999, as amended. The shareholders of the Corporation previously
approved the LTIP on November 11, 1994. The Board of Directors recommends that
the shareholders approve this proposal to re-approve the LTIP, as amended. The
LTIP is being recommended to the shareholders for re-approval to comply with
Code Section 162(m), which requires re-approval of the LTIP every five (5)
years. See "Further Information Applicable to Proposal No. 2 and Proposal
No. 3." The LTIP has also been amended by the Board of Directors to revise the
performance objectives for certain awards.
The LTIP is intended to encourage officers and key employees of the
Corporation and its subsidiaries to acquire or increase their ownership of
Common Stock on reasonable terms, to provide compensation opportunities for
superior financial results and outstanding personal performance, to foster in
participants a strong incentive to put forth maximum effort for the continued
success and growth of the Corporation and its subsidiaries, and to assist in
attracting and retaining the best available individuals to the Corporation and
its
14
<PAGE>
subsidiaries. Stock options, stock appreciation rights ("SARs"), options
granted in tandem with SARs, restricted stock awards and performance awards
may be granted under the LTIP.
The Corporation has registered with the SEC, on Form S-8 Registration
Statements, 5,500,000 shares of Common Stock for issuance under the LTIP. If
this Proposal No. 2 is approved by the shareholders, the Board of Directors
may, at some time in the future, cause additional shares of Common Stock to be
registered on a Form S-8 Registration Statement to be filed with the SEC at
the Corporation's expense. Such additional shares would be registered for
issuance under the LTIP only if the number of shares previously registered is
inadequate for the Corporation's requirements, as limited by the terms
described below under the heading "Awards Subject to Plan." Re-approval of the
LTIP by the shareholders will not result in an increase in the number of
shares authorized for issuance under the LTIP.
Administration
The LTIP will continue to be administered by a committee (the "Committee")
appointed by the Corporation's Board of Directors, which Committee shall
consist of not less than two directors, each of whom is a "non-employee
director" as defined in Rule 16b-3 of the rules and regulations under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Unless the
Board determines otherwise, the Committee shall be comprised solely of
"outside directors" within the meaning of Section 162(m) of the Code. The
Human Resources and Compensation Committee has been designated as the
Committee under the Plan until otherwise determined by the Board of Directors.
Subject to the provisions of the LTIP, the Committee has full authority to
determine the employees to whom awards under the LTIP shall be granted, to
determine the nature and the amount of the grants and relevant conditions
thereof, and to interpret and determine any and all matters relating to the
administration of the LTIP and the granting of awards thereunder.
The Committee shall from time to time adopt policies and procedures
applicable to awards that govern the lapse or non-lapse of restrictions and
the rights of participants and beneficiaries in the event of death,
disability, termination of employment, or retirement or upon the occurrence of
any other event determined by the Committee to be appropriate. The Committee
shall have the authority to define disability and retirement and other terms
under the LTIP, and the Committee's policies and procedures may differ with
respect to awards granted at different times. Awards granted under the LTIP
are not transferable, except, in the event of a participant's death, to his
heirs or estate.
Stock Options and Stock Appreciation Rights
Stock options granted under the LTIP may be intended to qualify for
treatment as incentive stock options under Section 422 of the Code (so called
"incentive stock options"), or as options not intended to qualify for such
treatment (so called "non-qualified options"), or a combination of incentive
and non-qualified stock options. The option or exercise price per share of any
option shall not be less than the "fair market value" (as defined in the LTIP)
of the shares covered by such option on the option grant date. In the event an
incentive stock option is granted to an employee who, at the time such
incentive stock option is granted, owns more than ten percent of the total
combined voting power of all classes of stock of the Corporation or if
applicable, a subsidiary or a parent of the Corporation (a "Ten-Percent
Shareholder"), then the option price per share of such incentive stock option
shall not be less than 110 percent of the fair market value of the shares
covered by the option on the option grant date.
Options shall be exercisable for a term of not more than ten (10) years from
the date of grant and shall be subject to earlier termination as provided for
by the LTIP or the Committee. In the event an incentive stock option is
granted to an employee who, at the time of grant is a Ten-Percent Shareholder,
then such incentive stock option shall not be exercisable more than five (5)
years from the option grant date. In any calendar year, no employee may be
granted an incentive stock option to the extent that the aggregate fair market
value (such fair market value being determined as the date of grant of the
option in question) of the stock with respect to which the incentive stock
options first become exercisable by the employee during any calendar year
(under all plans of the Corporation) exceeds $100,000.
15
<PAGE>
In addition, SARs may be granted under the LTIP in tandem with options or
may be granted on a stand alone basis. The Corporation's obligation to any
participant exercising an SAR may be paid in cash or shares of Common Stock,
or partly in cash or shares, at the discretion of the Committee. SAR's granted
in tandem with incentive stock options are subject to additional limitations
under the LTIP.
Restricted Stock Awards
Restricted stock awards granted under the LTIP shall be subject to such
terms and conditions as the Committee may, in its discretion, determine.
Restricted stock awards may be subject to restrictions which lapse over time
with or without regard to performance objectives for a specific performance
period. Unless the Committee decides otherwise in its sole and absolute
discretion based upon the circumstances existing at the time of the grant of
any restricted stock award, restricted stock awards which are subject solely
to time-based restrictions shall vest over a period of not less than three (3)
years and restricted stock awards which are subject to restrictions based on
Performance Objectives shall vest over a period of not less than one (1) year.
Subject to the restrictions set forth in the LTIP and in the related award
agreement, the shares granted under a restricted stock award shall be issued
to the recipient and deposited into escrow, if applicable. In establishing the
performance objectives, the Committee shall also establish a schedule or
schedules setting forth the portion of the performance award which will be
earned or forfeited based on the degree of achievement of the performance
objectives actually achieved or exceeded as determined by the Committee.
Subject to the restrictions set forth in the LTIP and as set forth in the
related award agreement, participants who receive restricted stock awards
shall be shareholders with respect to all shares represented by such
certificate or certificates issued to them and shall have all the rights of a
shareholder with respect to such shares, including the right to vote such
shares and to receive dividends and other distributions paid with respect to
such shares. Until such time as the restrictions determined by the Committee
or otherwise set forth in the related award agreement have lapsed, the shares
awarded to a participant and held by the Corporation and the right to vote
such shares or receive dividends on such shares, may not be sold, exchanged,
transferred, pledged, hypothecated or otherwise disposed of; provided however,
that if so provided in the award agreement, such shares may be transferred
upon the death of the participant to such participant's legal representative
and heirs as may be entitled thereto by will or the laws of intestacy.
Performance Awards
Performance awards granted under the LTIP may consist of a right to receive
shares of Common Stock or units which may be paid in cash, shares of Common
Stock or a combination of cash and shares. Under the LTIP, the Committee is to
establish performance periods applicable to performance awards and the
Committee shall establish one or more specific performance objectives for a
performance period. Performance objectives are to be established prior to the
grant of any performance awards with respect to such period. In establishing
the performance objectives, the Committee shall also establish a schedule or
schedules setting forth the portion of the performance award which is to be
earned or forfeited based on the degree of achievement of the performance
objectives actually achieved or exceeded as determined by the Committee.
Performance awards may be granted alone, in addition to or in tandem with
other awards under the LTIP. The Committee may determine that a participant
forfeits such performance awards back to the Corporation upon termination of
employment for any reason or specified reasons. Until such time as the
performance objectives as determined by the Committee have been met and until
any restrictions upon the shares issued pursuant to any performance awards
have lapsed, performance awards and any rights thereto may not be sold,
exchanged, transferred, pledged, hypothecated or otherwise disposed of by any
participant.
Performance Objectives
Under the LTIP, performance objectives are the specific targets and
objectives established by the Committee under one or more, or a combination of
or ratio between, any key elements contained in or derived from the
Corporation's income statement, balance sheet and/or cash flow statement, or
the equivalent measure in a
16
<PAGE>
business unit or function of the company, including but not limited to sales
or revenue, bookings, gross margin, costs and expenses, working capital,
inventory, pre-tax and after-tax income, increase in cash, return on equity,
return on assets, return on capital, earnings per share, return on sales,
total shareholder return and net income. These targets and objectives may
represent performance vs. plan, performance vs. historical performance or
performance vs. a peer group of comparable companies established by the
Committee. Results against targets and objectives shall be determined and
measured in accordance with generally accepted accounting principles as
utilized by the Corporation in its reports filed under the Exchange Act. Prior
to the LTIP being amended in calendar 1999, the "performance objectives" were
defined as "one or more of the following four factors: earnings per share of
the Corporation's Common Stock, return on average shareholders' equity, return
on capital, and total shareholder returns of the Corporation compared to a
peer group of comparable companies established by the Committee." To the
extent awards are intended to qualify as performance-based compensation under
Code Section 162(m), then the specific performance objectives for such awards
shall be established in writing no later than ninety (90) days after the
commencement of the applicable performance period. The performance periods
established by the Committee for which performance objectives are established
are to be not less than one (1) and no more than ten (10) consecutive fiscal
years. The Committee may adjust performance objectives, adjust the way
performance objectives are measured, or shorten any performance period if it
determines that conditions or the occurrence of events warrants such actions;
provided, that the Committee's right to make such adjustments shall not apply
to any performance award that is intended to qualify as performance-based
compensation under Code Section 162(m) if and to the extent that it would
prevent the award from so qualifying.
Eligibility
Awards under the LTIP may be granted to such officers (including officers
who are members of the Board) and other key salaried employees of the
Corporation or any of its subsidiaries as the Committee shall determine. All
exempt employees are eligible to receive grants under the LTIP, but only
approximately 230 exempt employees currently hold awards granted under the
LTIP. Non-employee directors are not eligible to receive awards under the
LTIP.
Awards Subject to Plan
The maximum shares of Common Stock with respect to which awards may be
granted under the LTIP in each fiscal year during any part of which the LTIP
is effective shall be one and one-half percent of the number of shares of the
Corporation's Common Stock outstanding as of the first day of such fiscal
year; and commencing in the Corporation's 1995 fiscal year and each fiscal
year thereafter, subtracting from such maximum number of shares the number of
shares subject to options, if any, granted pursuant to the Corporation's 1992
Employee Stock Option Plan. The maximum number of shares available for such
awards that may be granted in any particular fiscal year may be increased by
"borrowing" from the next fiscal year an amount of up to one-half of one
percent of the number of shares of Common Stock outstanding as of the first
day of the fiscal year, provided that the number of shares of Common Stock
which would otherwise be available for awards in the next fiscal year shall be
decreased by the "borrowed" number of shares pursuant to this provision. Any
unused portion of the percentage limit for any year shall be carried forward
and shall be available for awards in succeeding years. Based upon the number
of shares of the Corporation's Common Stock outstanding as of the first day of
the 2000 fiscal year, awards for up to 1,160,206 shares of Common Stock are
eligible to be granted under the LTIP in the current fiscal year. As indicated
above, such number may be increased by (a) the amount of up to 386,735 shares
of Common Stock by "borrowing" from the amount that would be available for
grant in fiscal year 2001, provided that the number of shares of Common Stock
which would otherwise be available for awards in the 2001 fiscal year are
decreased by a like number; and (b) the number of shares of Common Stock that
are carried forward as a result of not being used in prior fiscal years.
In no event shall more than 4,000,000 shares of Common Stock be cumulatively
available for awards of incentive stock options under the LTIP. Moreover, the
maximum number of shares of Common Stock with respect to which options and
SARs payable in shares may be granted during any year to any employee shall
not exceed 1,000,000. Previously, the maximum number of shares for this
purpose was 400,000 shares. The maximum dollar value with respect to which
Awards (other than options and SARs payable in shares) that are
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<PAGE>
intended to qualify as performance-based compensation under Code Section
162(m) which may be paid to any Employee for any applicable performance period
shall be $10,000,000. Previously, the maximum dollar value for this purpose
was $4,000,000.
In the event of changes in the Corporation's outstanding shares by reason of
stock dividends, stock splits, recapitalizations, mergers, consolidations,
combinations, or exchanges of shares, reorganizations or liquidations or
similar events or in the event of extraordinary cash or non-cash dividends
being declared with respect to outstanding shares or other similar
transactions, the number and class of shares available for awards under the
LTIP in the aggregate, the number and class of shares subject to awards
theretofore granted, the number of SARs granted, applicable purchase prices,
applicable performance objectives for the performance periods not yet
completed and performance levels and any portion of the payments related
thereto, shall be equitably adjusted by the Committee.
The fair market value per share of Common Stock underlying an award granted
under the LTIP on any relevant date will be the composite closing price on the
New York Stock Exchange on such date. On September 16, 1999, the New York
Stock Exchange composite closing price of the Corporation's Common Stock was
$55.75 per share.
Plan Benefits
The benefits or amounts that will be received by the persons or groups named
in the table below are not determinable for the 2000 fiscal year and future
fiscal years. Accordingly, the table below sets forth the benefits and amounts
that were granted in fiscal 1999 to the named persons and groups.
Long-Term Incentive Plan
<TABLE>
<CAPTION>
Number of Restricted Number of Shares Subject
Name and Position(1) Dollar Value ($)(2) Shares(3) to Options
------------------------ ------------------- -------------------- ------------------------
<S> <C> <C> <C>
James F. McDonald....... $ 508,488 21,410 150,000
President and Chief
Executive Officer
Conrad J. Wredberg...... $ 226,813 9,550 35,000
Senior Vice President
and Chief Operating
Officer
Dwight B. Duke.......... $ 131,338 5,530 25,000
Senior Vice President;
President, Transmission
Network Systems
H. Allen Ecker.......... $ 146,775 6,180 25,000
Senior Vice President;
President, Subscriber
Networks
Larry L. Enterline...... $ 167,200 7,040 35,000
Senior Vice President
All Executive Officers,
as
a Group................ $2,500,400 105,280 402,000
All Employees, Other
than
Executive Officers, as
a
Group.................. $ 669,750 28,200 1,529,850
</TABLE>
(1) Non-employee directors are not eligible to receive awards under the LTIP.
As a result, the non-employee directors are omitted from the table.
(2) The amounts shown represent the dollar value of the restricted stock
granted during the 1999 fiscal year, calculated by multiplying the closing
price of the Corporation's Common Stock on the date that the
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<PAGE>
restricted shares were granted. Because such restricted shares may be
forfeited, the recipient may never realize any value from such restricted
shares. No value is included for the options granted in the 1999 fiscal
year.
(3) As of July 2, 1999, the maximum number of shares that may vest under the
restricted stock awards (including the shares shown in the above table) for
Messrs. McDonald, Wredberg, Duke, Ecker, Enterline, all current executive
officers as a group and all employees, other than the executive officers as
a group, is: 77,086; 23,953; 14,024; 21,415; 11,537; 326,180; and 182,420,
respectively. See the table captioned "Long-Term Incentive Plan - Awards in
the Last Fiscal Year."
Amendment of LTIP
The LTIP may be amended at any time and from time to time by the
Corporation's Board of Directors, provided that no amendment without the
approval of the Corporation's shareholders shall be made if shareholder
approval is required under Code Section 162(m) or Rule 16b-3. Notwithstanding
the previous sentence, no amendment to the LTIP shall be made without the
approval of the Corporation's shareholders which would change the material
terms of performance goals that were previously approved by the Corporation's
shareholders within the meaning of the treasury regulations issued under
Section 162(m), unless the Board of Directors determines that such approval is
not necessary to avoid loss of a deduction under Section 162(m), such approval
will not avoid such a loss of a deduction, or where such approval is not
advisable.
Change in Control
Upon a Change in Control (as defined in the LTIP) of the Corporation, (i) all
options and SARs then outstanding shall become immediately exercisable as of
the date of the Change in Control, whether or not then exercisable, (ii) all
restrictions and conditions of all restricted stock awards then outstanding
shall be deemed satisfied as of the date of the Change in Control, and (iii)
all performance awards shall be deemed to have been fully earned as of the date
of the Change in Control. Moreover, the Committee may at any time, and subject
to such terms and conditions as it may impose, (a) grant awards that become
exercisable only in the event of a Change in Control, (b) provide for awards to
be exercised automatically and only for cash in the event of a Change in
Control, and (c) provide in advance or at the time of a Change in Control for
cash to be paid in settlement of any award in the event of a Change in Control.
Federal Income Tax Consequences
The tax consequences of awards granted under the LTIP are complex. The
following is a summary only of the general tax principles applicable to awards
under the LTIP under federal law as in effect on the date of this proxy
statement.
Options. There are no tax consequences to the optionee upon the grant of an
option pursuant to the LTIP. There are no tax consequences to the optionee upon
exercise of an incentive stock option, except that the amount by which the fair
market value of the shares at the time of exercise exceeds the option exercise
price is a tax preference item possibly giving rise to alternative minimum tax.
If the shares of Common Stock acquired are not disposed of within two years
from the date the incentive stock option was granted and within one year after
the shares are transferred to the optionee, any gain realized upon the
subsequent disposition of the shares will be characterized as long-term capital
gain and any loss will be characterized as long-term capital loss. If all
requirements other than the above described holding period requirements are
met, a "disqualifying disposition" occurs and gain in an amount equal to the
lesser of (i) the fair market value of the shares on the date of exercise minus
the option exercise price or (ii) the amount realized on disposition minus the
option exercise price (except for certain "wash" sales, gifts or sales to
related persons), is taxed as ordinary income and the Corporation will be
entitled to a corresponding deduction in an amount equal to the optionee's
ordinary income at that time. The gain in excess of this amount, if any, will
be characterized as long-term capital gain if the optionee held the shares for
more than one year.
Other than incentive stock options, all options granted under the LTIP will
be taxed as non-qualified options. Upon the exercise of a non-qualified option,
the optionee will recognize taxable income in the amount by which
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<PAGE>
the then fair market value of the shares of Common Stock acquired exceeds the
option exercise price, with the Corporation being entitled to a deduction in
an equal amount. The amount of such taxable income will be characterized as
compensation income to the optionee. Upon the subsequent disposition of the
Common Stock, the optionee will recognize gain or loss, which will be
characterized as capital gain or loss in an amount equal to the difference
between the proceeds received upon disposition and his or her basis for the
shares (the basis being equal to the sum of the price paid for the stock and
the amount of income realized upon exercise of the option) provided the shares
are held as a capital asset. Any capital gain or loss to the optionee will be
characterized as long-term or short-term, depending upon whether his or her
holding period for tax purposes exceeds one year.
The taxable income recognizable upon the exercise of a non-qualified option
is subject to withholding for federal income tax purposes. Accordingly, the
Corporation generally must, as a condition to the exercise of a non-qualified
option, deduct from payments or shares otherwise due to the optionee the
amount of taxes required to be withheld by virtue of such exercise or require
that the optionee pay such withholding to the Corporation or make other
arrangements satisfactory to the Corporation regarding the payment of such
taxes.
Stock Appreciation Rights. The amount of any cash (or the fair market value
of any Common Stock) received by the holder of an SAR upon the exercise of
SARs under the LTIP will be subject to ordinary income tax in the year of
receipt and the Corporation will be entitled to a deduction for such amount.
Restricted Stock Awards. An employee who has been awarded restricted stock
will not recognize taxable income at the time of the award unless he elects
otherwise. If the recipient elects to be taxed at the time of the award, the
Corporation will be entitled to a corresponding deduction. At the time
restrictions applicable to the restricted stock award lapse, the employee will
recognize ordinary income and the Corporation will be entitled to a
corresponding deduction. The recipient's income and the Corporation's
deduction will be equal to the excess of the fair market value of such stock
at such time over the amount paid therefor. Dividends paid on the restricted
stock during the period the shares are held in escrow will generally be
ordinary compensation income to the recipient of the restricted stock and
deductible as such by the Corporation.
Performance Awards. An employee who has been awarded a performance award
will not recognize taxable income, and the Corporation will not be entitled to
a deduction at the time of the award. At the time the employee is entitled to
the performance award, the employee will recognize ordinary income equal to
the sum of the cash and fair market value of the shares of the Common Stock at
such time, and the Corporation will be entitled to a corresponding deduction.
To the extent performance awards are paid in shares of restricted Common
Stock, the Federal income tax consequences described above applicable to
restricted stock awards will apply.
Limitations on Deductions. The Corporation's deductions may be limited (and
employees receiving awards may be subject to an excise tax) to the extent that
benefits under the LTIP become payable as a result of a change in control of
the Corporation.
General Tax Law Considerations. The preceding paragraphs are intended to be
merely a summary of the most important Federal income tax consequences
concerning the grant of awards under the LTIP and the disposition of shares of
Common Stock issued thereunder in existence as of the date of this proxy
statement. Therefore, participants in the LTIP should review the current tax
treatment with their individual tax advisors at the time of the grant,
exercise or any other transaction relating to any award or underlying stock
issued under the LTIP.
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 RE-APPROVE
SENIOR OFFICER ANNUAL INCENTIVE PLAN
At the Annual Meeting, there will also be presented to the shareholders a
proposal to re-approve the Corporation's Senior Officer Annual Incentive Plan
(the "Incentive Plan"). The Board of Directors unanimously
20
<PAGE>
approved the Incentive Plan in June 1994 and in August 1999, as amended. The
shareholders of the Corporation approved the Incentive Plan on November 11,
1994. The Board of Directors recommends that the Corporation's shareholders
approve this proposal to re-approve the Incentive Plan, as amended. The
Incentive Plan is being recommended to the shareholders for re-approval to
comply with Code Section 162(m), which requires re-approval of the Incentive
Plan every five (5) years. See "Further Information Applicable to Proposal
No. 2 and Proposal No. 3."
The purpose of the Incentive Plan is to improve the return to the
Corporation's shareholders by providing incentives for the Corporation's Chief
Executive Officer and other plan participants for superior performance. Under
the Incentive Plan, performance objectives are set at such a level as to
require the participants to excel in attaining such objectives. In this
manner, the Incentive Plan provides a means of rewarding the participants who
are contributing through their individual performance to the objectives of the
Corporation.
Administration
The Incentive Plan is administered by a committee appointed by the
Corporation's Board of Directors, which committee shall consist of not less
than two directors (the "Incentive Plan Committee"). Unless the Board
determines otherwise, the Incentive Plan Committee shall be comprised solely
of "outside directors" within the meaning of Code Section 162(m). The
Incentive Plan Committee has the power to (i) approve eligible participants
under the plan, (ii) approve payments under the plan, (iii) interpret the
plan, (iv) adopt, amend and rescind rules and regulations relating to the
plan, and (v) make all other determinations and take all other actions
necessary or desirable for the Incentive Plan's administration. Decisions of
the Incentive Plan Committee regarding the interpretation and administration
of the Incentive Plan shall be final and conclusive. The Human Resources and
Compensation Committee has been designated as the Incentive Plan Committee
until otherwise determined by the Board of Directors.
Eligibility
Participants under the Incentive Plan shall be the Corporation's Chief
Executive Officer and any other senior officers who are designated and
approved by the Incentive Plan Committee to receive a cash bonus under the
Incentive Plan; provided, however, that if a Change in Control (as defined in
the Incentive Plan) occurs prior to the time participants are determined for
the particular fiscal year in which the Change in Control occurs, all persons
who were participants in the prior year and who are active employees of the
Corporation as of the date of such Change in Control shall be participants for
the fiscal year in which the Change in Control occurs. Except as the Incentive
Plan Committee may otherwise determine, participants for any fiscal year must
serve as key officers of the Corporation and, except as the Incentive Plan
Committee may otherwise determine or as otherwise provided in the Incentive
Plan, participants for any fiscal year must be active employees of the
Corporation when the Incentive Plan Committee meets and approves cash bonuses
after the end of the Corporation's fiscal year. The Corporation estimates that
approximately twelve (12) senior officers are currently eligible to receive
bonus awards under the Incentive Plan. Only Mr. James F. McDonald and Mr.
Conrad J. Wredberg participated in the Incentive Plan in the 1999 fiscal year.
Incentive Compensation Awards
Within ninety (90) days of the beginning of each fiscal year of the
Corporation, the Incentive Plan Committee is to establish one or more specific
performance objectives for such fiscal year. The Incentive Plan Committee is
also to establish a schedule or schedules setting forth the amount to be paid
based on the extent to which the performance objectives for the fiscal year
are actually achieved as determined by the Incentive Plan Committee.
Performance objectives are the specific targets and objectives established by
the Incentive Plan Committee under one or more, or a combination of or ratio
between, any key elements contained in or derived from the Corporation's
income statement, balance sheet and/or cash flow statement, or the equivalent
measure in a business unit or function of the company, including but not
limited to sales or revenue, bookings, gross margin, costs and expenses,
working capital, inventory, pre-tax and after-tax income, increase in cash,
return on equity, return on assets, return on capital, earnings per share,
return on sales, total shareholder return and net income. These targets and
objectives may represent performance vs. plan, performance vs. historical
performance or
21
<PAGE>
performance vs. a peer group of comparable companies established by the
Incentive Plan Committee. Results against targets and objectives shall be
determined and measured in accordance with generally accepted accounting
principles as utilized by the Corporation in its reports filed under the
Exchange Act. Prior to the amendment of the Incentive Plan by the Board in
calendar 1999, the performance objectives under the Incentive Plan were
established by the Incentive Plan Committee but were limited to any or all of
the following four categories: profit before taxes, return on net assets,
revenue growth and gross margin.
The Incentive Plan Committee may at any time adjust the performance
objectives and any schedules of payments related thereto or adjust the way the
performance objectives are measured; provided, that this provision shall not
apply to any payment that is intended to qualify as performance-based
compensation under Code Section 162(m) if and to the extent that it would
prevent the payment from so qualifying.
Bonuses Subject to Plan
Bonuses awarded under the Incentive Plan are to be paid in cash within
ninety (90) days after the end of the Corporation's fiscal year, or deferred
in whole or in part based upon a written request for deferral submitted by the
participant and approved by the Corporation. Amounts paid under the Incentive
Plan are considered as compensation to the participant for purposes of the
Corporation's Retirement Plan and disability and life insurance programs
unless and to the extent that such compensation is expressly excluded by the
provisions of the Retirement Plan or the instruments establishing such
programs. Bonuses shall not be considered as compensation for purposes of any
other incentive or other benefits unless the written instrument establishing
such other plan or benefits expressly includes compensation paid under the
Incentive Plan. The maximum dollar value with respect to payments under the
Incentive Plan to any participant in any single fiscal year is $1,000,000.
Prior to the Incentive Plan being amended in calendar 1999, the maximum was
$600,000.
Amendment of Incentive Plan
The Incentive Plan may be amended at any time and from time to time by the
Corporation's Board of Directors. No amendment to the Incentive Plan shall be
made without the approval of the shareholders of the Corporation which would
change the material terms of performance goals that were previously approved
by the Corporation's shareholders within the meaning of the regulations issued
under Code Section 162(m) or a successor provision, unless the Board of
Directors determines that such approval is not necessary to avoid loss of a
deduction under Code Section 162(m), such approval will not avoid such a loss
of deduction, or such approval is not advisable.
Change in Control
Upon a Change in Control (as defined in the Incentive Plan) of the
Corporation, the bonus for performance objectives which have been met in any
fiscal year ending prior to the date of the Change in Control for which
payment has not previously been made shall be unconditionally payable in cash
to each participant. If a Change in Control occurs with approval of the Board
of Directors granted prior to such Change in Control, cash bonuses for the
fiscal year during which the Change in Control occurs shall be unconditionally
payable to each participant, such bonuses to be the target for each such
participant or such higher amount as may be approved by the Incentive Plan
Committee. Prior to the Incentive Plan being amended in calendar 1999, the
minimum bonus in such situation was fifty percent (50%) of the target for each
participant.
If a Change in Control occurs without approval of the Corporation's Board of
Directors granted prior to such Change in Control, cash bonuses for the fiscal
year during which the Change in Control occurs shall be unconditionally
payable to each participant, such bonuses to be two (2) times the target for
each participant; provided, however, that in any case, if a Change in Control
occurs before targets have been established for a plan year, the targets for
such fiscal year in which the Change in Control occurs shall be no less
favorable to the participants than the targets for the prior fiscal year.
Prior to the Incentive Plan being amended in calendar 1999, the bonus in such
a situation was one hundred percent (100%) of the target rather than two (2)
times the target.
For a period of two (2) fiscal years following the fiscal year in which a
Change in Control occurs, the Incentive Plan shall not be terminated or
amended in any way (including, but not limited to, restricting or limiting
22
<PAGE>
the right to participate in the Incentive Plan of any person who is a
participant on the day prior to the date of the Change in Control), nor shall
the manner in which the Incentive Plan is administered be changed in a way
that adversely affects the level of participation or reward opportunities of
any participant; provided, however, that the Incentive Plan may be amended as
necessary to make appropriate adjustments for (i) any negative effect that the
costs and expenses incurred by the Corporation in connection with the Change
in Control may have on the benefits payable under the Incentive Plan, and (ii)
any changes to the Corporation (including, but not limited to, changes in
corporate structure or capitalization, acquisitions or dispositions and
increased interest expense as a result of the incurrence or assumption by the
Corporation of acquisition indebtedness) following the Change in Control so as
to preserve the reward opportunities and performance targets for comparable
performance under the Incentive Plan as in effect on the date immediately
prior to the Change in Control.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR PROPOSAL 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.
Plan Benefits
The benefits or amounts that will be received by the persons named in the
table below are not determinable for the 2000 fiscal year and future fiscal
years. Accordingly, the table below sets forth the benefits and amounts that
were received based on performance by the named persons and the Corporation in
fiscal 1999. The amount of benefits paid under the Incentive Plan relating to
the Corporation's performance and individual performance in the 1999 fiscal
year was $451,200.
Senior Officer Annual Incentive Plan
<TABLE>
<CAPTION>
Name and Position(1) Dollar Value ($) of Award(2)
-------------------- ----------------------------
<S> <C>
James F. McDonald
President and Chief Executive Officer...... $298,200
Conrad J. Wredberg
Senior Vice President and Chief Operating
Officer................................... $153,000
</TABLE>
(1) In fiscal 1999, Mr. McDonald and Mr. Wredberg were the only executive
officers selected by the Incentive Plan Committee to participate in the
Incentive Plan.
(2) The amounts in this column represent the bonuses paid under the Incentive
Plan based on the Corporation's performance in fiscal 1999. The amount of
benefits paid under the Incentive Plan relating to the Corporation's
performance in the 1999 fiscal year were $451,200.
FURTHER INFORMATION APPLICABLE TO
PROPOSAL NO. 2 AND PROPOSAL NO. 3
The awards for any participant determined on the basis of performance
objectives established under the LTIP and the Incentive Plan may be reduced or
eliminated upon the attainment of the performance objective, but the
respective administrative committees for such plans do not have the discretion
to increase a payment upon the attainment of a performance objective. Under
Section 162(m) the achievement of applicable performance goals and the actual
amounts payable to each participant under either the LTIP or the Incentive
Plan must be certified by the Committee or the Incentive Plan Committee,
respectively.
In 1994, when the LTIP and the Incentive Plan were first approved by the
shareholders, the Corporation retained the discretion to change the specific
performance target that it establishes under the LTIP and the Incentive Plan.
Because the Corporation retained and continues to retain such discretion to
change specific performance targets, shareholder re-approval of the LTIP and
the Incentive Plan is required this year (five (5) years after the initial
approval) and will be required at five-year intervals in the future under the
regulations issued under Section 162(m) for the payments under such plans to
be considered performance-based compensation. In light of the ambiguities in
Code Section 162(m) and uncertainties regarding its ultimate interpretation,
no assurances can be given that compensation paid under such plans will in
fact be deductible if it should, together with any other compensation to any
named executive officer, exceed $1,000,000.
23
<PAGE>
The specific benefits to be paid to participants under the LTIP and the
Incentive Plan are not determinable in advance because it is substantially
uncertain whether the minimum levels of performance necessary to achieve any
level of award under the plans will be realized. Moreover, the Committee and
the Incentive Plan Committee each has retained discretion to reduce the awards
to any participant under the LTIP and the Incentive Plan, respectively. The
amount of the benefits that will be paid under the Incentive Plan in the 2000
fiscal year are not determinable because it is substantially uncertain what
levels of performance will be realized by participants in the Incentive Plan.
The Corporation's Human Resources and Compensation Committee believes that the
specific numerical performance targets, thresholds and maximums constitute
confidential commercial or business information, the disclosure of which may
adversely affect the Corporation or mislead the public.
Availability of Plans
Copies of the LTIP and the Incentive Plan are available upon request
directed to William E. Eason, Jr., Senior Vice President and Secretary,
Scientific-Atlanta, Inc., One Technology Parkway, South, Norcross, Georgia
30092.
Vote Required
Approval of LTIP and the Incentive Plan requires the affirmative vote of a
majority of the shares of Common Stock present or represented and entitled to
vote at the Annual Meeting. For purposes of determining whether the requisite
approvals have been obtained, abstentions are included in the calculation for
the purpose of determining whether the matter has been approved and will be
treated as "no" votes.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR PROPOSAL 2
AND PROPOSAL 3. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED FOR
THESE PROPOSALS UNLESS A VOTE AGAINST THE PROPOSALS OR AN ABSTENTION IS
SPECIFICALLY INDICATED.
PROPOSAL NO. 4
SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected Arthur Andersen LLP to be the
independent auditors of the Corporation for the fiscal year ending June 30,
2000, 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 1999 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 OF DIRECTORS WILL BE VOTED FOR
THIS PROPOSAL UNLESS A VOTE AGAINST THE PROPOSAL OR AN ABSTENTION IS
SPECIFICALLY INDICATED.
OTHER MATTERS
The Board of Directors of the Corporation knows of no other matters which
are to be brought before the meeting. However, if any such other matters
should be presented for consideration and voting, it is the intention of the
persons named in the enclosed form of proxy to vote the proxy in accordance
with their best judgment.
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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.
FORM 10-K ANNUAL REPORT
A copy of the Corporation's Annual Report on Form 10-K, including financial
statements and schedules, filed with the Securities and Exchange Commission for
the fiscal year ended July 2, 1999, is included in the Annual Report to
Shareholders which accompanies these proxy materials. Copies of any exhibit(s)
to the Form 10-K will be furnished on request and upon the payment of the
Corporation's expenses in furnishing such exhibit(s). Any request for exhibits
should be in writing addressed to William E. Eason, Jr., Senior Vice President
and Secretary, Scientific-Atlanta, Inc., One Technology Parkway, South,
Norcross, Georgia 30092.
SHAREHOLDER PROPOSALS AND NOMINATIONS FOR 2000 ANNUAL MEETING
For a shareholder's proposal to be included in the Corporation's Proxy
Statement and form of proxy for the 2000 Annual Meeting of Shareholders, the
proposal must be submitted in writing to William E. Eason, Jr., Senior Vice
President and Secretary, Scientific-Atlanta, Inc., One Technology Parkway,
South, Norcross, Georgia 30092, by no later than May 31, 2000.
In accordance with the Corporation's By-Laws, shareholders who do not submit
a proposal for inclusion in the Proxy Statement, as described in the previous
paragraph, but who intend to present a proposal, nomination for director or
other business for consideration at the 2000 Annual Meeting, are required to
notify the Secretary of the Corporation of their proposal, nomination or other
business by no later than sixty (60) days (expected to be September 11, 2000)
and no earlier than ninety (90) days (expected to be August 12, 2000) prior to
the 2000 Annual Meeting. The Corporation's By-Laws contain detailed
requirements that the shareholder's notice must satisfy. If a shareholder does
not comply with the notice requirements, including the deadlines specified
above, the persons named as proxies in the form of proxy for the 2000 Annual
Meeting will use their discretion in voting the proxies on any such matters
raised at the 2000 Annual Meeting. Any shareholder notice and any request for a
copy of the Corporation's By-Laws 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 27, 1999
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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 10, 1999
The undersigned hereby appoints James V. Napier, James F. McDonald and William
E. Eason, Jr., and each of them, with full power of substitution, attorneys and
proxies of the undersigned, to represent the undersigned and to vote the Common
Stock as specified below at the Annual Meeting of Shareholders of Scientific-
Atlanta, Inc. to be held on November 10, 1999 at 9:00 a.m., local time, at the
Corporation's offices at 5030 Sugarloaf Parkway, Lawrenceville, GA 30042, and at
any postponement or 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
- -------------------------------------------------------------------------------
The Board of Directors favors an affirmative vote for the nominees for director
listed below and for proposals 2, 3 and 4.
<TABLE>
<S> <C> <C> <C>
1. ELECTION OF DIRECTORS FOR all nominees listed below [_] WITHHOLD AUTHORITY to vote for [_] *EXCEPTIONS [_]
all nominees listed below
</TABLE>
NOMINEES: MARION H. ANTONINI, WILLIAM E. KASSLING AND MYLLE BELL MANGUM
(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 __________________________________________________________
<TABLE>
<S> <C>
2. Re-approval of the amended Change of Address or
Long-Term Incentive Plan. 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.
3. Re-approval of the amended Senior
Officer Annual Incentive Plan. Dated:_____________________________________________, 1999
FOR [_] AGAINST [_] ABSTAIN [_]
___________________________________________________
4. Ratification of selection of Signature
Arthur Andersen LLP as independent
auditors of the Corporation. ___________________________________________________
Signature (if held jointly)
FOR [_] AGAINST [_] ABSTAIN [_]
Votes must be indicated (x) in black
or blue ink. [_]
</TABLE>
Sign, Date and Return the Proxy Card Promptly Using the Enclosed Envelope.
<PAGE>
Appendix A
LOGO
Scientific
Atlanta
LONG-TERM INCENTIVE PLAN
OF
SCIENTIFIC-ATLANTA, INC.
As adopted by the Board of Directors on
August 25, 1994,
by the stockholders on
November 11, 1994,
and as amended and restated by the Board
most recently on
August 18, 1999
<PAGE>
LONG-TERM INCENTIVE PLAN
OF
SCIENTIFIC-ATLANTA, INC.
1. PURPOSE OF THE PLAN. This Long-Term Incentive Plan of Scientific
Atlanta, Inc., as adopted on August 25, 1994, and as amended and restated most
recently on August 18, 1999, is intended to encourage officers and key employees
of the Company and its Subsidiaries to acquire or increase their ownership of
common stock of the Company on reasonable terms, to provide compensation
opportunities for superior financial results and outstanding personal
performance, to foster in participants a strong incentive to put forth maximum
effort for the continued success and growth of the Company and its Subsidiaries,
and to assist in attracting and retaining the best available individuals to the
Company and its Subsidiaries.
2. DEFINITIONS. When used herein, the following terms shall have the
meaning set forth below:
2.1 "Affiliate" means, with respect to any specified person or
entity, a person or entity that directly or indirectly, through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the person or entity specified.
2.2 "Award" means an SAR, an Option, an Option granted in tandem with
an SAR, a Restricted Stock Award, a Performance Share, a Performance Unit, a
Performance Award, or any or all of them.
2.3 "Award Letter" means a written letter in such form as may from
time to time be hereafter approved by the Committee, which Award Letter shall
set forth the terms and conditions of an Award under the Plan.
2.4 "Board" means the Board of Directors of the Company.
2.5 "Change in Control" shall mean the occurrence of any of the
following events:
(a) The acquisition in one or more transactions by any "Person"
(as the term person is used for purposes of Section 13(d) or 14(d) of
the Exchange Act of "Beneficial Ownership" (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of twenty percent (20%) or
more of the combined voting power of the Company's then outstanding
voting securities (the "Voting Securities"), provided, however, that
for purposes of this paragraph (a), the Voting Securities acquired
directly from the Company by any Person shall be excluded from the
determination of such Person's Beneficial Ownership of Voting
Securities (but such Voting Securities shall be included in the
calculation of the total number of Voting Securities then
outstanding); or
(b) The individuals who are members of the Incumbent Board cease
for any reason to constitute at least two-thirds of the Board; or
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(c) Approval by stockholders of the Company of (i) a merger or
consolidation involving the Company if the stockholders of the Company
immediately before such merger or consolidation do not own, directly
or indirectly, immediately following such merger or consolidation,
more than eighty percent (80%) of the combined voting power of the
outstanding voting securities of the corporation resulting from such
merger or consolidation in substantially the same proportion as their
ownership of the Voting Securities immediately before such merger or
consolidation, or (ii) a complete liquidation or dissolution of the
Company or an agreement for the sale or other disposition of all or
substantially all of the assets of the Company.
Notwithstanding anything in this Section 2.5 to the contrary, a Change in
Control shall not be deemed to occur solely because twenty percent (20%) or more
of the then outstanding Voting Securities is acquired by (i) a trustee or other
fiduciary holding securities under one or more employee benefit plans maintained
by the Company or any of its subsidiaries, or (ii) any corporation which,
immediately prior to such acquisition, is owned directly or indirectly by the
stockholders of the Company in the same proportion as their ownership of stock
in the Company immediately prior to such acquisition.
Moreover, notwithstanding anything in this Section 2.5 to the contrary, a
Change in Control shall not be deemed to occur solely because any Person (the
"Subject Person") acquired Beneficial Ownership of more than the permitted
amount of the outstanding Voting Securities as a result of the acquisition of
Voting Securities by the Company which, by reducing the number of Voting
Securities outstanding, increases the proportional number of shares Beneficially
Owned by the Subject Person, provided, that if a Change in Control would occur
(but for the operation of this sentence) as a result of the acquisition of
Voting Securities by the Company, and after such share acquisition by the
Company, the Subject Person becomes the Beneficial Owner of any additional
Voting Securities which increases the percentage of the then outstanding Voting
Securities Beneficially Owned by the Subject Person, then a Change in Control
shall occur.
2.6 "Code" means the Internal Revenue Code of 1986, as amended from
time to time, and reference to any specific provisions of the Code shall refer
to the corresponding provisions of the Code as it may hereafter be amended or
replaced.
2.7 "Committee" means the Human Resources and Compensation Committee
of the Board or any other committee appointed by the Board whose members meet
the requirements for eligibility to serve set forth in Section 4 of the Plan and
which is vested by the Board with responsibility for the administration of the
Plan; provided, however, that only those members of the committee of the Board
who participate in decisions relative to Awards under this Plan shall be deemed
to be part of the "Committee" for purposes of this Plan.
2.8 "Company" means Scientific-Atlanta, Inc.
2.9 "Employees" means officers (including officers who are members
of the Board) and other key salaried employees of the Company or any of its
Subsidiaries.
2.10 "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and reference to any specific provisions of the
Exchange Act shall refer to the corresponding provisions of the Exchange Act as
it may hereafter be amended or replaced.
2
<PAGE>
2.11 "Fair Market Value" means, with respect to the Shares, the
closing sale price of such Shares on the New York Stock Exchange Composite on
the date(s) in question, or, if the Shares shall not have been traded on any
such date(s), the closing sale price on the New York Stock Exchange Composite on
the first day prior thereto on which the Shares were so traded or if the Shares
are not traded on the New York Stock Exchange, such other amount as may be
determined by the Committee by any fair and reasonable means. Fair Market Value
determined by the Committee in good faith shall be final, binding and conclusive
on all parties.
2.12 "Incumbent Board" means the individuals who as of August 20,
1990 were members of the Board and any individual becoming a director subsequent
to August 20, 1990 whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least two-thirds of the directors
then comprising the Incumbent Board; provided, however, that any individual who
is not a member of the Incumbent Board at the time he or she becomes a member of
the Board shall become a member of the Incumbent Board upon the completion of
two full years as a member of the Board; provided, further, however, that
notwithstanding the foregoing, no individual shall be considered a member of the
Incumbent Board if such individual initially assumed office (i) as a result of
either an actual or threatened "election contest" (within the meaning of Rule
14a-11 promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board (a "Proxy Contest"), or (ii) with the approval of the other Board members,
but by reason of any agreement intended to avoid or settle a Proxy Contest.
2.13 "Incentive Stock Option" means an Option meeting the
requirements and containing the limitations and restrictions set forth in
Section 422 of the Code.
2.14 "Non-Qualified Stock Option" means an Option other than an
Incentive Stock Option.
2.15 "Option" means the right to purchase, at a price and for a term
fixed by the Committee in accordance with the Plan, and subject to such other
limitations and restrictions as the Plan and the Committee impose, the number of
Shares specified by the Committee. An Option may be either an Incentive Stock
Option or a Non-Qualified Stock Option.
2.16 "Parent" means any corporation, other than the employer
corporation, in an unbroken chain of corporations ending with the Company if
each of the corporations other than the employer corporation owns stock
possessing fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in the chain.
2.17 "Participant" means any Employee to whom a grant of an Award has
been made and is outstanding under the Plan.
2.18 "Performance Award" means Performance Units, Performance Shares
or either or both of them.
2.19 "Performance Objectives" means the specific targets and
objectives established by the Committee under one or more, or a combination of
or ratio between, any key elements contained in or derived from the Company's
income statement, balance sheet and/or cash flow statement, or the equivalent
measure in a business unit or function of the company, including but not limited
to sales or revenue, bookings, gross margin, costs and expenses, working
capital, inventory, pre-tax and after-tax income, increase in cash, return on
equity, return on assets, return on capital, earnings per share, return on
sales, total shareholder return and net income. These targets and objectives
may represent performance vs. plan, performance vs. historical performance or
performance vs. a peer group of comparable companies established by the
Committee. Results
3
<PAGE>
against targets and objectives shall be determined and measured in accordance
with generally accepted accounting principles as utilized by the Company in its
reports filed under the Exchange Act.
2.20 "Performance Period" means a period of time established by the
Committee for which Performance Objectives have been established, of not less
than one nor more than ten consecutive Company fiscal years.
2.21 "Performance Share" means a right, granted to a Participant
under Section 12 of the Plan, that may be paid out as a Share.
2.22 "Performance Unit" means a right, granted to a Participant under
Section 12 of the Plan, that may be paid entirely in cash, entirely in Shares,
or such combination of cash and Shares as the Committee in its sole discretion
shall determine.
2.23 "Plan" means this Long-Term Incentive Plan.
2.24 "Regulation T" means Part 220, Chapter II, Title 12 of the Code
of Federal Regulations, issued by the Board of Governors of the Federal Reserve
System pursuant to the Exchange Act, as amended from time to time, or any
successor regulation which may hereafter be adopted in lieu thereof.
2.25 "Restricted Stock Award" means the right to receive Shares, but
subject to forfeiture and/or other restrictions set forth in the related Award
Letter and the Plan. Restricted Stock Awards may be subject to restrictions
which lapse over time with or without regard to Performance Objectives as the
Committee in its sole discretion shall determine.
2.26 "Rule 16b-3" means Rule 16b-3 of the General Rules and
Regulations of the Exchange Act (or any successor rule or regulation).
2.27 "SAR" means a stock appreciation right, which is a right to
receive an amount in cash, or Shares, or a combination of cash and Shares, as
determined or approved by the Committee in its sole discretion, no greater than
the excess, if any, of (i) the Fair Market Value of a Share on the date the SAR
is exercised, over (ii) the SAR Base Price.
2.28 "SAR Base Price" means the Fair Market Value of a Share on the
date an SAR was granted, or if the SAR was granted in tandem with an Option
(whether or not the Option was granted on a different date than the SAR), in the
Committee's discretion, the option price of a Share subject to the Option.
2.29 "Securities Act" means the Securities Act of 1933, as amended
from time to time, and reference to any specific provisions of the Securities
Act shall refer to the corresponding provisions of the Securities Act as it may
hereafter be amended or replaced.
2.30 "Share" or "Shares" means a share or shares of the Company's
$0.50 par value common stock, any security of the Company issued in lieu of or
in substitution of such common stock or, if by reason of the adjustment
provisions contained herein any rights under an Award under the Plan pertain to
any other security, such other security.
2.31 "Subsidiary" or "Subsidiaries" means any corporation other than
the employer corporation in an unbroken chain of corporations beginning with the
employer corporation if each of the corporations other than the last corporation
in the unbroken chain owns stock possessing fifty percent(50%) or more of the
total combined voting power of all classes of stock in one of the
4
<PAGE>
other corporations in such chain.
2.32 "Successor" means the legal representative of the estate of a
deceased Employee or the person or persons who shall acquire the right to
exercise an Award by bequest or inheritance or by reason of the death of the
Employee.
2.33 "Ten-Percent Stockholder" means an individual who "owns" as
defined in Section 425 of the Code, stock possessing more than ten percent (10%)
of the total combined voting power of all classes of stock of: (i) the Company;
(ii) if applicable, a Subsidiary, or (iii) if applicable, the Parent.
2.34 "Term" means the period during which a particular Award may be
exercised.
3. STOCK SUBJECT TO THE PLAN.
3.1 MAXIMUM NUMBER OF SHARES TO BE AWARDED. The maximum number of
Shares in respect for which Awards may be granted under the Plan in each fiscal
year of the Company during any part of which the Plan is effective shall be one
and one-half percent (1-1/2%) of the number of Shares of the Company outstanding
as of the first day of such fiscal year; and commencing in the Company's 1995
fiscal year and in each fiscal year thereafter, subtracting from such maximum
number of Shares the number of Shares subject to options, if any, granted
pursuant to the Company's 1992 Employee Stock Option Plan. The maximum number
of Shares available for which Awards may be granted in any particular fiscal
year pursuant to the previous sentence may be increased by an amount of up to
one-half of one percent (.5%) of the number of Shares outstanding as of the
first day of such fiscal year, provided that the number of Shares which would
otherwise be available for Awards in the next fiscal year shall be decreased by
the increased number of Shares made available pursuant to this sentence. Such
Shares may be in whole or in part, as the Board shall from time to time
determine, authorized but unissued Shares, or issued Shares which shall have
been reacquired by the Company. Notwithstanding anything to the contrary
contained in this Section 3.1, in no event shall more than four million
(4,000,000) Shares be cumulatively available for Awards of Incentive Stock
Options under this Plan. The number of SARs payable in cash and the number of
units payable in cash under the Plan shall be counted when computing the total
number of Shares available for Awards under the Plan. Any unused portion of the
percentage limit for any year shall be carried forward and made available for
Awards in succeeding years.
3.2 CERTAIN LIMITATIONS. The maximum number of Shares with respect
to which Options and SARs payable in Shares which may be granted during any
fiscal year to any Employee shall not exceed 1,000,000. The maximum dollar
value with respect to which Awards (other than Options and SARs payable in
Shares) that are intended to qualify as performance-based compensation under
Code Section 162(m)(4)(C) which may be paid to any Employee for any particular
Performance Period shall be Ten Million Dollars ($10,000,000).
3.3 SHARES UNDERLYING EXPIRED, CANCELLED OR UNEXERCISED AWARDS. Any
Shares subject to issuance upon exercise of an Option or SAR, but which are not
issued because of a surrender, lapse, expiration or termination of any such
Option or SAR prior to issuance of the Shares, or any Shares subject to an SAR
paid in cash, shall once again be available for issuance in satisfaction of
Awards. Similarly, any Shares issued or issuable pursuant to a Restricted Stock
Award or Performance Award which are subsequently forfeited or not issued
pursuant to the terms of the grant shall once again be available for issuance in
satisfaction of Awards.
5
<PAGE>
4. ADMINISTRATION OF THE PLAN. The Board shall appoint the Committee,
which shall consist of not less than two (2) members of the Board, each of whom
is a "Non-Employee Director" as defined in Rule 16b-3. Unless the Board
determines otherwise, the Committee shall be comprised solely of "outside"
directors within the meaning of Section 162(m)(4)(C)(i) of the Code. Subject to
the provisions of the Plan, the Committee shall have full authority, in its
discretion, to determine the Employees to whom Awards shall be granted, the
number of Shares, units or SARs to be covered by each of the Awards, and the
terms (including restrictions) of any such Award; to amend or cancel Awards
(subject to Section 21 of the Plan); to accelerate the vesting of Awards; to
require the cancellation or surrender of any options, stock appreciation rights,
units or restricted stock awards (to the extent the restrictions have not yet
lapsed) previously granted under this Plan or any other plans of the Company as
a condition to the granting of an Award; to interpret the Plan; and to
prescribe, amend, and rescind rules and regulations relating to it, and
generally to interpret and determine any and all matters whatsoever relating to
the administration of the Plan and the granting of Awards hereunder. The Board
may, from time to time, appoint members to the Committee in substitution for or
in addition to members previously appointed and may fill vacancies, however
caused, in the Committee. The Committee shall make such rules and regulations
for the conduct of its business as it shall deem advisable. All determinations
and decisions by the Committee in the exercise of its powers shall be final,
binding and conclusive. No member of the Committee shall be liable, in the
absence of bad faith, for any act or omission with respect to his service on the
Committee.
5. EMPLOYEES TO WHOM AWARDS MAY BE GRANTED. Awards may be granted in
each year or portion thereof while the Plan is in effect to such of the
Employees as the Committee, in its discretion, shall determine. In determining
the Employees to whom Awards shall be granted, the amount of the Award, the
number of Shares to be granted or subject to purchase under such Awards and the
number of SARs to be granted, the Committee shall take into account the duties
of the respective Employees, their present and potential contributions to the
success of the Company and its Subsidiaries, and such other factors as the
Committee shall deem relevant in connection with accomplishing the purposes of
the Plan. No Award shall be granted to any member of the Committee so long as
his or her membership on the Committee continues or to any member of the Board
who is not also an Employee.
6. STOCK OPTIONS.
6.1 TYPES OF OPTIONS. Options granted under this Plan may be (i)
Incentive Stock Options, (ii) Non-Qualified Stock Options, or (iii) a
combination of the foregoing. The Award Letter shall designate whether an
Option is an Incentive Stock Option or a Non-Qualified Stock Option. Any Option
which is designated as a Non-Qualified Stock Option shall not be treated by the
Company or the Participant to whom the Option is granted as an Incentive Stock
Option for federal income tax purposes.
6.2 OPTION PRICE. The option price per Share of any Option granted
under the Plan shall not be less than the Fair Market Value of the Shares
covered by the Option on the date the Option is granted. Notwithstanding
anything herein to the contrary, in the event an Incentive Stock Option is
granted to an Employee who, at the time such Incentive Stock Option is granted,
is a Ten-Percent Stockholder, then the option price per Share of such Incentive
Stock Option shall not be less than one hundred ten percent (110%) of the Fair
Market Value of the Shares covered by the Incentive Stock Option on the date the
Incentive Stock Option is granted.
6.3 TERM OF OPTIONS. Options granted hereunder shall be exercisable
for a Term of not more than ten (10) years from the date of grant and shall be
subject to earlier termination as hereinafter provided. Each Award Letter
issued hereunder shall specify the Term of the Option,
6
<PAGE>
which Term shall be determined by the Committee in accordance with its
discretionary authority hereunder. Notwithstanding anything herein to the
contrary, in the event an Incentive Stock Option is granted to an Employee who,
at the time such Incentive Stock Option is granted, is a Ten-Percent
Stockholder, then such Incentive Stock Option shall not be exercisable more than
five (5) years from the date of grant and shall be subject to earlier
termination as hereinafter provided.
7. LIMIT ON FAIR MARKET VALUE OF INCENTIVE STOCK OPTIONS. In any calendar
year, no Employee may be granted an Incentive Stock Option hereunder to the
extent that the aggregate fair market value (such fair market value being
determined as of the date of grant of the Option in question) of the Shares with
respect to which Incentive Stock Options first become exercisable by the
Employee during any calendar year (under all such plans of the Employee's
employer corporation, its Parent, if any, and its Subsidiaries, if any) exceeds
the sum of One Hundred Thousand Dollars ($ 100,000). For purposes of the
preceding sentence, Options shall be taken into account in the order in which
they were granted. Any Option granted under the Plan which is intended to be an
Incentive Stock Option, but which exceeds the limitation set forth in this
Section 7, shall be a Non-Qualified Stock Option to the extent that a portion of
the Option exceeds this limitation.
8. STOCK APPRECIATION RIGHTS.
8.1 GRANT OF SAR. The Committee, in its discretion, may grant an
Employee an SAR in tandem with an Option or may grant an Employee an SAR on a
stand alone basis. The Committee, in its discretion, may grant an SAR in tandem
with an Option either at the time the Option is granted or at any time after the
Option is granted, so long as the grant of the SAR is made during the period in
which grants of SARs may be made under the Plan. The Committee, in its
discretion, may grant an SAR in tandem with an Option, which is exercisable
either in lieu of, or in addition to, exercise of the related Option.
8.2 LIMITATIONS ON EXERCISE. Each SAR granted in tandem with an
Option shall be exercisable to the extent, and only to the extent, the related
Option is exercisable and shall be for such Term as the Committee may determine
(which Term, which is not to exceed ten (10) years, may expire prior to the Term
of the related Option). Each SAR granted on a stand alone basis shall be
exercisable to the extent, and for such Term, as the Committee may determine.
The SARs shall be subject to such other terms and conditions as the Committee,
in its discretion, shall determine and which are not otherwise inconsistent with
the Plan. The terms and conditions may include Committee approval of the
exercise of the SAR, limitations on the time within which and the extent to
which such SAR shall be exercisable, and limitations, if any, on the amount of
appreciation in value which may be recognized with regard to such SAR. The
Company's obligation to any Participant exercising an SAR may be paid in cash or
Shares, or partly in cash or Shares, at the sole discretion of the Committee.
The Committee shall have at all times final control and authority over the form
of payment of any SAR. If, and to the extent that, Shares are issued in
satisfaction of amounts payable on exercise of an SAR, the Shares shall be
valued at their Fair Market Value on the date of exercise.
8.3 SARS IN TANDEM WITH INCENTIVE STOCK OPTIONS. With respect to
SARs granted in tandem with Incentive Stock Options, the following shall apply:
(a) No SAR shall be exercisable unless the Fair Market Value of
the Shares on the date of exercise exceeds the option price of the
related Incentive Stock Option.
(b) In no event shall any amounts paid pursuant to the SAR exceed
the difference between the Fair Market Value of the Shares on the date
of exercise and the option price of the related Incentive Stock
Option.
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(c) The SAR must expire no later than the last date the related
Incentive Stock Option can be exercised.
8.4 SURRENDER OF OPTION OR SAR GRANTED IN TANDEM. If the Award
Letter related to the grant of an SAR in tandem with an Option provides that the
SAR can only be exercised in lieu of the related Option, then, upon exercise of
such SAR, the related Option or portion thereof with respect to which such SAR
is exercised shall be deemed surrendered and shall not thereafter be exercisable
and, similarly, upon exercise of the Option, the related SAR or portion thereof
with respect to which such Option is exercised shall be deemed surrendered and
shall not thereafter be exercisable. If the Award Letter related to the grant of
an SAR in tandem with an Option provides that the SAR can be exercised in
addition to the related Option, then, upon exercise of such SAR, the related
Option or portion thereof with respect to which such SAR is exercised shall not
be deemed surrendered and shall continue to be exercisable and, similarly, upon
exercise of the Option, the related SAR or portion thereof with respect to which
such Option is exercised shall not be deemed surrendered and shall continue to
be exercisable.
9. EXERCISE OF RIGHTS UNDER OPTION OR SAR AWARDS.
9.1 NOTICE OF EXERCISE. An Employee entitled to exercise an Option
or SAR may do so by delivery of a written notice to that effect specifying the
number of Shares with respect to which the Option or SAR is being exercised and
any other information the Committee may prescribe. Except as provided in Section
9.2 below, the notice shall be accompanied by payment in full of the purchase
price of any Shares to be purchased, which payment may be made in cash or, in
Shares valued at Fair Market Value at the time of exercise or, a combination
thereof. No Shares shall be issued upon exercise of an Option until full payment
has been made therefor. All notices or requests provided for herein shall be
delivered to the Company as determined by the Committee.
9.2 CASHLESS EXERCISE PROCEDURES. The Committee, in its sole
discretion, may establish procedures at the time of each grant of an Option or
SAR whereby an Employee, subject to the requirements of Rule 16b-3, Regulation
T, federal income tax laws, and other federal, state and local tax and
securities laws, can exercise an Option or a portion thereof without making a
direct payment of the option price to the Company. If the Committee so elects to
establish a cashless exercise program, the Committee shall determine, in its
sole discretion, and from time to time, such administrative procedures and
policies as it deems appropriate and such procedures and policies shall be
binding on any Employee wishing to utilize the cashless exercise program.
10. RIGHTS OF OPTION AND SAR HOLDERS. The holder of an Option or SAR
shall not have any of the rights of a stockholder with respect to the Shares
subject to purchase or issuance under such Award, except to the extent that one
or more certificates for such Shares shall be delivered to the holder upon due
exercise of the Option or SAR.
11. RESTRICTED STOCK AWARDS. Restricted Stock Awards granted under the
Plan shall be subject to such terms and conditions as the Committee may, in its
discretion, determine. Restricted Stock Awards issued under the Plan shall be
evidenced by an Award Letter in such form as the Committee may from time to time
determine. Restricted Stock Awards may be subject to restrictions which lapse
over time with or without regard to Performance Objectives for a specific
Performance Period. Unless the Committee decides otherwise in its sole and
absolute discretion based upon the circumstances existing at the time of the
grant of any Restricted Stock Award, Restricted Stock Awards which are subject
solely to time-based restrictions shall vest over a period of not less than
three years and Restricted Stock Awards which are subject to restrictions based
on Performance Objectives shall vest over a period of not less than one year.
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<PAGE>
11.1 RECEIPT OF SHARES. Each Award Letter shall set forth the number
of Shares issuable under the Restricted Stock Award evidenced thereby. Subject
to the restrictions of Sections 11.2, 11.3 and 11.4 of the Plan and as set forth
in the related Award Letter, the number of Shares granted under a Restricted
Stock Award shall be issued to the recipient Employee thereof on the date of
grant of such Restricted Stock Award or as soon as may be practicable thereafter
and deposited into escrow, if applicable. If the Committee determines that a
Restricted Stock Award is intended to qualify as performance-based compensation
under Code Section 162(m)(4)(C), then such Restricted Stock Award shall be
subject to the attainment of Performance Objectives for a Performance Period.
Such specific Performance Objectives shall be established in writing no later
than ninety (90) days after the commencement of the Performance Period to which
the Performance Objectives relate, but in no event after twenty-five percent
(25%) of the Performance Period has elapsed. In establishing the Performance
Objective or Performance Objectives, the Committee shall also establish a
schedule or schedules setting forth the portion of the Award which will be
earned or forfeited based on the degree of achievement of the Performance
Objectives actually achieved or exceeded as determined by the Committee. The
Committee may at any time adjust the Performance Objectives and any schedules
and portions of payments related thereto, adjust the way Performance Objectives
are measured, or shorten any Performance Period if it determines that conditions
or the occurrence of events warrants such actions; provided, that this provision
shall not apply to any Restricted Stock Award that is intended to qualify as
performance-based compensation under Code Section 162(m)(4)(C) if and to the
extent that it would prevent the Award from so qualifying. The Committee shall
have the right to reduce or eliminate the Restricted Stock Award payable upon
the attainment of a Performance Objective, but shall not have the discretion to
increase an Award upon the attainment of a Performance Objective with respect to
a Participant whose compensation for the particular year is subject to the
limits on tax deductibility in Code Section 162(m).
11.2 RIGHTS OF RECIPIENT PARTICIPANTS. Shares received pursuant to
Restricted Stock Awards shall be duly issued or transferred to the Participant,
and a certificate or certificates for such Shares shall be issued in the
Participant's name. Subject to the restrictions in Section 11.3 of the Plan and
as set forth in the related Award Letter, the Participant shall thereupon be a
stockholder with respect to all the Shares represented by such certificate or
certificates and shall have all the rights of a stockholder with respect to such
Shares, including the right to vote such Shares and to receive dividends and
other distributions paid with respect to such Shares. As a condition to issuing
Shares, the Committee may require a Participant to execute an escrow agreement
and any other documents which the Committee may determine. In aid of such
restrictions, certificates for Shares awarded hereunder, together with a
suitably executed stock power signed by each recipient Participant, shall be
held by the Company in its control for the account of such Participant (i) until
the restrictions determined by the Committee, in its discretion, and as set
forth in the related Award Letter, lapse pursuant to the Plan or the Letter
Agreement, at which time a certificate for the appropriate number of Shares
(free of all restrictions imposed by the Plan or the Award Letter except those
established by the Committee at the time of grant of the Award) shall be
delivered to the Participant, or (ii) until such Shares are forfeited to the
Company and cancelled as provided by the Plan or the Award Letter.
11.3 NON-TRANSFERABILITY OF RESTRICTED STOCK AWARDS. Until such time
as the restrictions determined by the Committee or otherwise set forth in the
related Award Letter have lapsed, the Shares awarded to a Participant and held
by the Company pursuant to Section 11.2 of the Plan, and the right to vote such
Shares or receive dividends on such Shares, may not be sold, exchanged,
transferred, pledged, hypothecated or otherwise disposed of; provided, however,
that, if so provided in the Award Letter, such Shares may be transferred upon
the death of the Participant to such of his legal representatives, heirs and
legatees as may be entitled thereto by will or the laws of intestacy.
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<PAGE>
11.4 RESTRICTIONS. Shares received pursuant to Restricted Stock
Awards shall be subject to the terms and conditions as the Committee may
determine, including, without limitation, restrictions on the sale, assignment,
transfer or other disposition of such Shares and the requirement that the
Participant forfeit such Shares back to the Company upon termination of
employment for any reason or for specified reasons.
12. PERFORMANCE AWARDS.
12.1 PERFORMANCE PERIODS. The Committee shall establish Performance
Periods applicable to Performance Awards. There shall be no limitation on the
number of Performance Periods established by the Committee and more than one
Performance Period may encompass the same fiscal year.
12.2 PERFORMANCE OBJECTIVES. If the Committee determines that a
Performance Award is intended to qualify as performance-based compensation under
Code Section 162(m)(4)(C), then such Performance Award shall be subject to the
attainment of Performance Objectives for a Performance Period. Such specific
Performance Objectives shall be established in writing no later than ninety (90)
days after the commencement of the Performance Period to which the Performance
Objectives relate, but in no event after twenty-five percent (25%) of the
Performance Period has elapsed. In establishing the Performance Objective or
Performance Objectives, the Committee shall also establish a schedule or
schedules setting forth the portion of the Performance Award which will be
earned or forfeited based on the degree of achievement of the Performance
Objectives actually achieved or exceeded as determined by the Committee. The
Committee may at any time adjust the Performance Objectives and any schedules
and portions of payments related thereto, adjust the way Performance Objectives
are measured, or shorten any Performance Period if it determines that conditions
or the occurrence of events warrant such actions; provided, that this provision
shall not apply to any Performance Award that is intended to qualify as
performance-based compensation under Code Section 162(m)(4)(C) if and to the
extent that it would prevent the Award from so qualifying. The Committee shall
have the right to reduce or eliminate the compensation or Award payable upon the
attainment of a Performance Objective but shall not have the discretion to
increase an Award upon the attainment of a Performance Objective with respect to
a Participant whose compensation for the particular year is subject to the
limits on tax deductibility in Code Section 162(m).
12.3 GRANTS OF PERFORMANCE AWARDS. Performance Awards may be granted
under the Plan in such form and to such Employees as the Committee may from time
to time approve. Performance Awards may be granted alone, in addition to or in
tandem with other Awards under the Plan. Subject to the terms of the Plan, the
Committee shall determine the amount or number of Performance Awards to be
granted to a Participant and the Committee may impose different terms and
conditions on any particular Performance Award granted to any Participant. Each
grant of a Performance Award shall be evidenced by a written instrument stating
the number of Performance Shares or Performance Units granted, the Performance
Period, the Performance Objective or Performance Objectives, the proportion of
payments for performance between the minimum and full performance levels, if
any, restrictions applicable to Shares receivable in settlement, if any, and any
other terms, conditions, restrictions and rights with respect to such grant as
determined by the Committee. The Committee may determine that the Participant
forfeit such Performance Awards back to the Company upon termination of
employment for any reason or for specified reasons. The Committee may provide,
in its sole discretion, that during a Performance Period, a Participant shall be
paid cash amounts, with respect to each Performance Share or Performance Unit
held by such individual in the same manner, at the same time, and in the same
amount paid, as a dividend on any Share.
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<PAGE>
12.4 NON-TRANSFERABILITY OF PERFORMANCE AWARDS. Until such time as
the Performance Objectives as determined by the Committee have been met and
until any restrictions upon the Shares issued pursuant to any Performance Awards
have lapsed, Performance Awards and any rights related thereto may not be sold,
exchanged, transferred, pledged, hypothecated or otherwise disposed of by any
Participant.
12.5 PAYMENT OF AWARDS. As soon as practicable after the end of the
applicable Performance Period as determined by the Committee, the Committee
shall determine the extent to which the Performance Objectives have been met and
the extent to which Performance Awards are payable. Payment and settlement of a
Performance Award shall be as follows:
(a) In the case of Performance Shares, one or more stock
certificates representing the number of Shares payable shall be
delivered to the Participant, free of all restrictions except those
established by the Committee at the time of the grant of the
Performance Shares; and
(b) In the case of Performance Units, entirely in cash,
entirely in Shares, or in such combination of Shares and cash as the
Committee may determine, in its discretion, at any time prior to such
payment. If payment is to be made in the form of cash, the amount
payable for each Performance Unit earned shall be equal to the dollar
value of each Performance Unit (as determined by the Committee) times
the number of earned Performance Units.
13. AWARD TERMS AND CONDITIONS. Each Award Letter setting forth an Award
shall contain such other terms and conditions not inconsistent herewith as shall
be approved by the Board or by the Committee. The Committee shall from time to
time adopt policies and procedures applicable to Awards that will govern the
lapse or non-lapse of restrictions and the rights of Participants and
beneficiaries in the event of death, disability, termination of employment, or
retirement of Participants or upon the occurrence of any other event determined
by the Committee, in its sole discretion, to be appropriate. The Committee shall
have authority to define disability and retirement and other terms, and the
Committee's policies and procedures may differ with respect to Awards granted at
different times. A Participant's rights in the event of death, disability,
termination of employment, or retirement or such other events shall be set forth
in the Award Letter that evidences an Award to the Participant.
14. NONTRANSFERABILITY OF AWARDS. No Award under the Plan and no rights
and interests therein, including the right to any amounts or Shares payable, may
be assigned, pledged, hypothecated or otherwise transferred by a Participant
except to the extent so permitted under the terms of the Award Letter. During
the lifetime of a Participant, Options and SARs are exercisable only by, and
payments in settlement of Awards will be payable only to, the Participant or his
or her legal representative.
15. VESTING OF AWARDS. The Committee may, in its sole discretion, grant
Awards which vest over time and/or are based upon satisfaction of Performance
Objectives. The Committee may, in its discretion, modify or change any
Performance Objectives concerning any Award or accelerate the vesting of any
Award; provided that the Committee shall not modify or change any Performance
Objective or accelerate the vesting of any Award that is intended to qualify as
performance-based compensation under Code Section 162(m)(4)(C) if and to the
extent that such modification, change or acceleration would prevent the Award
from so qualifying.
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<PAGE>
16. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of changes
in all of the outstanding Shares by reason of stock dividends, stock splits,
recapitalizations, mergers, consolidations, combinations, or exchanges of
shares, separations, reorganizations or liquidations or similar events or in the
event of extraordinary cash or non-cash dividends being declared with respect to
outstanding Shares or other similar transactions, the number and class of Shares
available under the Plan in the aggregate, the number and class of Shares
subject to Awards theretofore granted, the number of SARs therefore granted,
applicable purchase prices, applicable Performance Objectives for the
Performance Periods not yet completed and performance levels and portion of
payments related thereto, and all other applicable provisions, shall, subject to
the provisions of the Plan, be equitably adjusted by the Committee. The
foregoing adjustment and the manner of application of the foregoing provisions
shall be determined by the Committee in its sole discretion. Any such adjustment
may provide for the elimination of any fractional Share which might otherwise
become subject to an Award.
17. CHANGE IN CONTROL.
17.1 EFFECT ON AWARDS. In the event of a Change in Control, then (i)
all Options, SARs and Options in tandem with SARs then outstanding shall become
fully exercisable as of the date of the Change in Control, whether or not then
exercisable, (ii) all restrictions and conditions of all Restricted Stock Awards
then outstanding shall be deemed satisfied as of the date of the Change in
Control, and (iii) all Performance Shares and Performance Units shall be deemed
to have been fully earned as of the date of the Change in Control. Moreover, the
Committee, in its sole discretion, may at any time, and subject to the terms and
conditions as it may impose: (a) grant Awards that become exercisable only in
the event of a Change in Control, (b) provide for Awards to be exercised
automatically and only for cash in the event of a Change in Control, and (c)
provide in advance or at the time of a Change in Control for cash to be paid in
settlement of any Award in the event of a Change in Control.
17.2 TERMINATION OF EMPLOYMENT. Notwithstanding anything contained
in this Plan to the contrary, in the event a Change in Control takes place and a
Participant's employment is terminated prior to the Change in Control and the
Participant reasonably demonstrates that such termination (i) was at the request
of a third party who has indicated an intention or taken steps reasonably
calculated to effect a Change in Control and who effectuates the Change in
Control or (ii) otherwise occurred in connection with or in anticipation of a
Change in Control which actually occurs, then for all purposes of this Plan, the
date of the Change in Control in respect of such Participant shall mean the date
immediately prior to the date of termination of such Participant's employment.
18. FORM OF AWARDS. Nothing contained in the Plan nor any resolution
adopted or to be adopted by the Board or the stockholders of the Company shall
constitute the granting of any Award. An Award shall be granted hereunder at
such date or dates as the Committee may determine, subject to the Plan. Whenever
the Committee determines to grant an Award, the Secretary or the President of
the Company, or such other person as the Committee appoints, shall send notice
thereof to the Employee, in such form as the Committee approves, stating the
number of Shares, units and SARs subject to the Award, its Term, and the other
provisions, restrictions and conditions thereof. The notice shall be accompanied
by a written Award Letter (and, in the case of a Restricted Stock Award, by a
blank stock power and/or escrow agreement for execution by the Employee) which
shall have been duly executed by or on behalf of the Company. If the surrender
of previously issued Awards is made a condition of the grant, the notice shall
set forth the pertinent details of such condition. Execution of an Award Letter
by the recipient in accordance with the provisions of the Plan shall be a
condition precedent to the exercise or settlement of any Award.
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<PAGE>
19. WITHHOLDING FOR TAXES.
19.1 COMPANY'S RIGHT TO PAYMENT FOR TAXES REQUIRED TO BE WITHHELD.
The Company shall, before any payment is made or a certificate for any Shares is
delivered or any Shares are credited to any brokerage account, deduct or
withhold from any payment under the Plan any Federal, state, local or other
taxes, including transfer taxes, required by law to be withheld or to require
the Participant or his beneficiary or estate, as the case may be, to pay any
amount, or the balance of any amount, required to be withheld. The Company may
elect to deduct such taxes from any amounts payable then or any time thereafter
in cash to the Employee and, in the Employee's sole discretion, the payment of
such taxes may be made from Shares previously held by such Employee. If the
Employee disposes of Shares acquired pursuant to an Incentive Stock Option in
any transaction considered to be a disqualifying transaction under Sections 421
and 422 of the Code, the Employee must give the Company written notice of such
transfer and the Company shall have the right to deduct any taxes required by
law to be withheld from any amounts otherwise payable to the Employee.
19.2 EMPLOYEE ELECTION TO WITHHOLD SHARES. An Employee, in his sole
discretion, may elect to satisfy his or her tax liability with respect to the
exercise, vesting or settlement of an Award, by having the Company withhold
Shares otherwise issuable upon the exercise, vesting or settlement of the Award.
20. TERMINATION OF PLAN. The Plan shall terminate ten (10) years from the
date hereof, and an Award shall not be granted under the Plan after that date
although the terms of any Awards may be amended at any date prior to the end of
its Term in accordance with the Plan. Any Awards outstanding at the time of
termination of the Plan shall continue in full force and effect according to the
terms and conditions of the Award and this Plan.
21. AMENDMENT OF THE PLAN. The Plan may be amended at any time and from
time to time by the Board, but no amendment without the approval of the
stockholders of the Company shall be made if stockholder approval under Section
422 of the Code or Rule 16b-3 would be required. Notwithstanding the previous
sentence, no amendment to the Plan shall be made without the approval of the
stockholders of the Company which would change the material terms of performance
goals that were previously approved by the Company's stockholders within the
meaning of Proposed Treasury Regulation Section 1.162-27(e)(4)(vi) or a
successor provision, unless the Board determines that such approval is not
necessary to avoid loss of a deduction under Section 162(m) of the Code, such
approval will not avoid such a loss of deduction or such approval is not
advisable. Notwithstanding the discretionary authority granted to the Committee
in Section 4 of the Plan, no amendment of the Plan or any Award granted under
the Plan shall impair any of the rights of any Participant, without his or her
consent, under any Award theretofore granted under the Plan.
22. GOVERNING LAW; REGULATIONS AND APPROVALS.
22.1 GOVERNING LAW. This Plan and the rights of all persons
claiming hereunder shall be construed and determined in accordance of the laws
of the State of Georgia without giving effect to the conflicts of laws
principles thereof, except to the extent that such laws are preempted by federal
law.
22.2 DELIVERY OF SHARES. The obligation of the Company to issue,
sell and deliver Shares with respect to any Awards granted under this Plan shall
be subject to all applicable laws, rules and regulations, including all
applicable federal and state securities laws, and the obtaining of all such
approvals by governmental agencies as may be deemed necessary or appropriate by
the Committee.
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<PAGE>
22.3 SECURITIES ACT REQUIREMENTS. No award shall be granted and no
certificates for Shares pursuant to the grant or exercise of an Award shall be
delivered pursuant to this Plan if the grant or delivery would, in the opinion
of counsel for the Company, violate the Securities Act or any other Federal or
state statutes having similar requirements as may be in effect at that time. As
a condition of the issuance of any Shares pursuant to the grant or exercise of
an Award under this Plan, the Committee may require the recipient to furnish a
written representation that he or she is acquiring the Shares for investment and
not with a view to distribution to the public. In the event that the disposition
of Shares acquired pursuant to the Plan is not covered by a then current
registration statement under the Securities Act, as amended, and is not
otherwise exempt from such registration, such Shares shall be restricted against
transfer to the extent required by the Securities Act and Rule 144 of the
Securities Act or the regulations hereunder.
22.4 LISTING AND REGULATORY REQUIREMENTS. Each Award is subject to
the further requirements that, if at any time the Committee shall determine, in
its discretion, that the listing, registration or qualification of the Shares
subject to the Award is required by any securities exchange or under any
applicable law or the rule of any regulatory body, or is necessary or desirable
as a condition of, or in connection with, the granting of such Award or the
issuance of Shares thereunder, such Award will not be granted or exercised and
the Shares may not be issued unless and until such listing, qualification,
consent or approval shall have been effected or obtained free of any conditions
not acceptable to the Committee.
22.5 SECTION 16. With respect to persons subject to Section 16 of
the Exchange Act, transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To
the extent any provision under the Plan or action by the Committee fails to so
comply, it shall be deemed null and void to the extent permitted by law and
deemed advisable by the Committee.
22.6 PERFORMANCE-BASED COMPENSATION. The Plan is intended to give
the Committee the authority, in its discretion, to grant Awards that qualify as
performance-based compensation under Code Section 162(m)(4)(C).
23. DEFERRAL ELECTIONS. The Committee may, pursuant to the terms of an
Award Letter, permit any Participant receiving an Award to elect to defer his
or her receipt of a payment of cash or the delivery of Shares that would be
otherwise due such individual by virtue of the exercise, settlement, vesting or
lapse of restrictions regarding any Award made under the Plan. If any such
election is permitted, the Committee shall establish rules and procedures for
such payment deferrals and include such rules and procedures in the Award
Letter, including the possible payment or crediting of reasonable interest on
such deferred amounts credited in cash and the payment or crediting of dividend
equivalents in respect of deferrals credited in Shares.
24. MISCELLANEOUS.
24.1 EMPLOYMENT RIGHTS. Neither the Plan nor any action taken
hereunder shall be construed as giving any Employee the right to participate
under the Plan, and a grant of an Award under the Plan shall not be construed as
giving any recipient of the grant any right to be retained in the employ of the
Company.
24.2 NO TRUST OR FUND CREATED. Neither the Plan nor any grant made
hereunder shall create or be construed to create a trust or separate fund of any
kind or a fiduciary relationship between the Company and any recipient of a
grant of an Award or any other person. To the extent that any person acquires a
right to receive payments from the Company pursuant to a grant under the Plan,
such right shall be no greater than the right of any unsecured general creditor
of the Company. Nothing herein shall prevent or prohibit the Company from
establishing a trust or
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other arrangement for the purpose of providing for the payment of the benefits
payable under the Plan.
24.3 FEES AND COSTS. The Company shall pay all original issue taxes
on the exercise of any Award granted under the Plan and all other fees and
expenses necessarily incurred by the Company in connection therewith.
24.4 AWARDS TO FOREIGN NATIONALS. Without amending the Plan, Awards
may be granted to participants who are foreign nationals or who are employed
outside the United States or both, on such terms and conditions different than
those specified in the Plan as may, in the judgment of the Committee, be
necessary or desirable to further the purpose of the Plan.
24.5 OTHER PROVISIONS. As used in the Plan, and in Awards and other
documents prepared in implementation of the Plan, references to the masculine
pronoun shall be deemed to refer to the feminine or neuter, and references in
the singular or the plural shall refer to the plural or the singular, as the
identity of the person or persons or entity or entities being referred to may
require. The captions used in the Plan and in such Awards and other documents
prepared in implementation of the Plan are for convenience only and shall not
affect the meaning of any provision hereof or thereof.
25. EFFECTIVENESS OF THE PLAN. The Plan shall become effective when
approved by the Board. The Plan shall thereafter be submitted to the Company's
stockholders for approval and unless the Plan is approved by the affirmative
votes of the holders of shares having a majority of the voting power of all
shares represented at a meeting duly held in accordance with Georgia law within
twelve (12) months after being approved by the Board, the Plan and all Awards
made under it shall be void and of no force and effect.
To record the adoption of the Plan (as amended and restated) by the Board
on August 18, 1999, the Company has caused its authorized officers to affix the
corporate name and seal hereto.
SCIENTIFIC-ATLANTA, INC.
By:/s/ Brian C. Koenig
-----------------------------------------------
Brian C. Koenig
Senior Vice President-Human Resources
By: /s/ William E. Eason, Jr.
----------------------------------------------
William E. Eason, Jr.
Senior Vice President, General Counsel and
Corporate Secretary
[Seal]
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Appendix B
SCIENTIFIC-ATLANTA, INC.
SENIOR OFFICER ANNUAL INCENTIVE PLAN
As adopted by the Board of Directors
on June 22, 1994
and by the Stockholders
on November 11, 1994
and most recently amended by the Board of Directors
on August 18, 1999
<PAGE>
SCIENTIFIC-ATLANTA, INC.
SENIOR OFFICER ANNUAL INCENTIVE PLAN
1. PURPOSE
The purpose of this Plan is to improve the return to the Company's stockholders
by providing incentive compensation to the Chief Executive Officer (and any
other Plan Participants) of the Company for superior performance. Performance
Objectives, i.e., standards of performance, are set at such a level as to
require the Participants to excel in order to attain them. To these ends, the
Plan provides a means of rewarding the Participants for contributing through
their individual performance to the objectives of the Company.
2. DEFINITIONS. When used herein, the following terms shall have the meaning
set forth below:
2.1 "Board" - The Board of Directors of the Company.
2.2 "Business Unit" - An organizational unit, i.e., business unit, region,
function, division, group or sector.
2.3 "Code" - The Internal Revenue Code of 1986, as amended from time to
time, and reference to any specific provisions of the Code shall refer
to the corresponding provisions of the Code as it may hereafter be
amended or replaced.
2.4 "Company" - Scientific-Atlanta, Inc. and its subsidiaries and
affiliates.
2.5 "Committee" - The Human Resources and Compensation Committee of the
Board of Directors or any other committee appointed by the Board whose
members meet the requirements for eligibility to serve set forth in
paragraph 3 of the Plan and which is vested by the Board with
responsibility for the administration of the Plan, provided, however,
that only those members of the Human Resources and Compensation
Committee of the Board who participate in decisions relative to
Performance Objectives and awards and payments under this Plan shall
be deemed to be part of the "Committee" for purposes of this Plan.
2.6 "Exchange Act" - The Securities Exchange Act of 1934, as amended.
2.7 "Participant" - A person selected in accordance with paragraph 4 of
the Plan to receive an incentive compensation award in accordance with
this Plan.
2.8 "Performance Objectives" - The specific targets and objectives
established by the Committee under one or more, or a combination of or
ratio between, any key elements contained in or derived from the
Company's income statement, balance sheet and/or cash flow statement,
or the equivalent measure in a business unit or function of the
company, including but not limited to sales or revenue, bookings,
gross margin, costs and expenses, working capital,
2
<PAGE>
inventory, pre-tax and after-tax income, increase in cash, return on
equity, return on assets, return on capital, earnings per share,
return on sales, total shareholder return and net income. These
targets and objectives may represent performance vs. plan,
performance vs. historical performance or performance vs. a peer
group of comparable companies established by the Committee. Results
against targets and objectives shall be determined and measured in
accordance with generally accepted accounting principles as utilized
by the Company in its reports filed under the Exchange Act.
2.9 "Plan" - This Senior Officer Annual Incentive Plan.
2.10 "Plan Year" - A fiscal year of the Company.
2.11 "Retire" - Voluntary termination of employment with the Company by a
Participant after the date on which: (i) the Participant has
completed five (5) years of Credited Service under the Retirement
Plan, and (ii) the sum of such Participant's age and years of
Credited Service equal sixty-five (65).
2.12 "Retirement Plan" - The Scientific-Atlanta, Inc. Retirement Plan and
Trust.
2.13 "Target" - Incentive compensation award, expressed as a percentage of
Participant's base salary, payable to a Participant upon meeting: (i)
one hundred percent (100%) of quantitative and qualitative objectives
and (ii) all other eligibility criteria under the Plan.
3. ADMINISTRATION AND INTERPRETATION OF THE PLAN. The Board shall appoint the
Committee, which shall consist of not less than two (2) members of the
Board. Unless the Board determines otherwise, the Committee shall be
comprised solely of "outside" directors within the meaning of Section
162(m)(4)(C)(i) of the Code. The Committee shall have the power to (i)
approve eligible Participants, (ii) approve awards and payments under the
Plan, (iii) interpret and construe the Plan, (iv) adopt, amend and rescind
rules and regulations relating to the Plan, and (v) make all other
determinations and take all other actions necessary or desirable for the
Plan's administration.
The decision of the Committee on any question concerning the interpretation
and administration of the Plan shall be final and conclusive. Subject to
paragraph 7 hereof, nothing in the Plan shall give any employee, his/her
legal representatives or assigns, any right to a payment or otherwise to
participate in the Plan, except as the Committee may determine after the
conclusion of a Plan Year.
4. ELIGIBLE PARTICIPANTS.
4.1 DESIGNATION AND APPROVAL. Participants will be the Chief Executive
Officer and any other senior officers who are designated and are
approved by the Committee to receive an incentive compensation award
under the Plan, provided, however, that if a Change in Control (as
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defined in paragraph 7) occurs prior to the time Participants are
determined for the Plan Year in which the Change in Control occurs,
all persons who were Participants in the prior Plan
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Year and who are active employees of the Company as of the date of the
Change in Control shall be Participants for such Plan Year.
4.2 REQUIREMENT OF ACTIVE EMPLOYMENT AS OF DATE WHICH COMMITTEE APPROVES
AWARDS. Except as the Committee may otherwise determine or as
provided in paragraph 7, in order to be eligible to earn and receive
an incentive compensation award under the Plan, a Participant for any
Plan Year must be an active employee of the Company on the date which
the Committee meets and approves incentive compensation awards under
this Plan after the end of the Plan Year. Accordingly, if a
Participant voluntarily terminates his/her employment or if the
Company involuntarily terminates a Participant's employment prior to
the date upon which the Committee meets after the end of the Plan Year
to approve incentive compensation awards for that Plan Year, the
Participant does not earn and is not eligible to receive an incentive
compensation award under the Plan.
4.3 PRORATED AWARDS. The Committee may decide to award a prorated award
to a Participant who is newly hired during the Plan Year. Prorated
awards may also be given to Participants who Retire during a Plan Year
and to the estates of Participants who die during a Plan Year.
5. DETERMINATION OF INCENTIVE COMPENSATION AWARDS.
5.1 TARGETS. Each Participant will have a Target established for him/her
by the Company for the Plan Year.
5.2 PERFORMANCE OBJECTIVES. The Committee shall establish one or more
specific Performance Objectives for a Plan Year, and such Performance
Objectives shall be established within ninety (90) days of the
beginning of the Plan Year. The Committee shall also establish a
schedule or schedules setting forth the amount to be paid based on the
extent to which the Performance Objectives are actually achieved as
determined by the Committee. The Committee may at any time adjust the
Performance Objectives and any schedules of payments related thereto
or adjust the way Performance Objectives are measured, provided that
this provision shall not apply to any payment that is intended to
qualify as performance-based compensation under Code Section
162(m)(4)(C), if and to the extent that it would prevent the payment
from so qualifying. The Committee shall have the right to reduce or
eliminate the compensation payable upon the attainment of a
Performance Objective but shall not have the discretion to increase a
payment upon the attainment of a Performance Objective.
6. PAYMENT OF INCENTIVE COMPENSATION AWARDS
6.1 TIME OF PAYMENT. Except as provided in paragraph 7, incentive
compensation awards under this Plan will be fully paid in cash within
ninety (90) days after the end of the Plan Year, or deferred in whole
or in part based on a written request for deferral submitted by the
Participant and approved by the Company in accordance with procedures
established by the Company.
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6.2 TREATMENT OF AWARD AS COMPENSATION. Any amounts paid as incentive
compensation under this Plan shall be considered as compensation to
the Participant for purposes of the Retirement Plan and disability and
life insurance programs, unless and to the extent that such
compensation is expressly excluded by the provisions of the Retirement
Plan or the instruments establishing such programs, but such amounts
shall not be considered as compensation for purposes of any other
incentive plan or other benefits unless the written instrument
establishing such other plan or benefits expressly includes
compensation paid under this Plan.
6.3 MAXIMUM AWARD. The maximum dollar value with respect to payments
under this Plan to any Participant in any single Plan Year shall be
$1,000,000.
7. CHANGE IN CONTROL OF THE COMPANY
7.1 CONTRARY PROVISIONS. Notwithstanding anything contained in the Plan
to the contrary, the provisions of this paragraph 7 shall govern and
supersede any inconsistent terms or provisions of the Plan.
7.2 CHANGE IN CONTROL. For purposes of the Plan, Change in Control shall
mean any of the following events:
7.2.1 The acquisition in one or more transactions by any "Person" (as
the term person is used for purposes of Section 13(d) or 14(d)
of the 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 paragraph 8(b)(1),
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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
7.2.2 The individuals who are members of the Incumbent Board (as
defined below) cease for any reason to constitute at least two-
thirds (2/3) of the Board. 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 (2/3) of the directors then comprising the Incumbent
Board; provided, however, that any individual who is not a
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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 (2) 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
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(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
7.2.3 Approval by stockholders of the Company of (i) a merger or
consolidation involving the Company if the stockholders of the
Company, immediately before such merger or consolidation, do
not own, directly or indirectly immediately following such
merger or consolidation, more than eighty percent (80%) of the
combined voting power of the outstanding voting securities of
the Company 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.
7.2.4 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 (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.
7.2.5 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, the a Change in Control shall occur.
7.2.6 Notwithstanding anything contained in this Plan to the
contrary, if a Participant's employment is terminated prior to
a Change in Control and the Participant reasonably demonstrates
that such termination (i) was at the request of a third party
who has indicated an intention or taken steps reasonably
calculated to effect a Change in Control 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
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purposes of this Plan, the date of a Change in Control in
respect of such Participant shall mean the date immediately
prior to the date of termination of such Participant's
employment.
7.3 PAYMENT UPON A CHANGE IN CONTROL. Upon a Change in Control, the
following incentive compensation awards shall be paid:
7.3.1 Upon a Change in Control, the incentive compensation award for
a Plan Year ending prior to the date of the Change in Control
for which payment has not previously been made shall be
unconditionally payable in cash to each Participant.
7.3.2 If a Change in Control occurs with approval of the Board
granted prior to any such Change in Control, incentive
compensation awards for the Plan Year during which the Change
in Control occurs shall be unconditionally payable to each
Participant, such awards to be the Target percentage of each
Participant's base salary or such higher percentage a may be
approved by the Committee.
7.3.3 If a Change in Control occurs without approval of the Board
granted prior to any such Change in Control, incentive
compensation awards for the Plan Year during which the Change
in Control occurs shall be unconditionally payable to each
Participant, such awards to be two (2) times the Target
percentage of each Participant's base salary; provided,
--------
however, that in any case, if a Change in Control occurs before
-------
Target percentages shall have been established for a Plan Year,
the Target percentages for such Plan Year shall be no less
favorable to the Participants than the Target percentages for
the prior Plan Year.
Unless the Committee directs an earlier payment, incentive
compensation awards payable in accordance with this paragraph 7.3
shall be paid in cash on or before the earlier of the date which is
five (5) days following the date of the Change of Control or the date
determined in accordance with paragraph 6 above.
7.4 CONTINUATION OF THE PLAN. For a period of two (2) Plan Years
following the Plan Year in which a Change of Control occurs, the Plan
shall not be terminated or amended in any way (including, but not
limited to, restricting or limiting the right to participate in the
Plan of any person who is a Participant on the day prior to the date
of the Change in Control), nor shall the manner in which the Plan is
administered be changed in a way that adversely affects the level of
participation or reward opportunities of any Participant; provided,
--------
however, that the Plan shall be amended as necessary to make
-------
appropriate adjustments for (i) any negative effect that the costs of
expenses incurred by the Company in connection with the Change in
Control may have on the benefits payable under the Plan and (ii) any
changes to the Company (including, but not limited to, changes in
corporate structure or capitalization, acquisitions or dispositions
and increased interest expense as a result of the incurrence or
assumption by the Company of acquisition indebtedness) following the
Change in Control so as to
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preserve the reward opportunities and performance targets for
comparable performance under the Plan as in effect on the date
immediately prior to the Change in Control.
7.5 NO AMENDMENT OR TERMINATION OF CHANGE IN CONTROL PROVISION. This
paragraph 7 shall not be amended or terminated at any time. Any
amendment or termination of the Plan 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.
7.6 TRUST ARRANGEMENT. All benefits under the Plan shall be paid by the
Company. The Plan shall be unfunded, and the benefits hereunder shall
be paid only from the general asset of the Company; provided, however,
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nothing herein shall prevent or prohibit the Company from establishing
a trust or other arrangement for the purpose of providing for the
payment of the benefits payable under the Plan.
8. NON-ASSIGNABILITY. No payment awarded under this Plan nor any right or
benefit under this Plan shall be subject to anticipation, alienation, sale,
assignment, pledge, encumbrance or charge, and any attempt to anticipate,
alienate, sell, assign, pledge, encumber or charge the same shall be void
and shall not be recognized or given effect by the Company.
9. AMENDMENT OF THE PLAN. This Plan may be amended at any time and from time
to time by the Board, provided that no amendment to the Plan which would
change the material terms of performance goals that were previously
approved by the Company's stockholders within the meaning of Proposed
Treasury Regulation Section 1.162.27(e)(4)(vi) or a successor provision
shall be made without the approval of the stockholders of the Company,
unless the Board determines that such approval: (i) is not necessary to
avoid loss of a deduction under Section 162(m) of the Code, (ii) will not
avoid such a loss of deduction or (iii) is not advisable.
10. NO RIGHT TO EMPLOYMENT. Nothing in this Plan or in any notice of award
pursuant to this Plan shall confer upon any person the right to continue in
the employment of the Company or affect the Company's right to terminate
the employment of any person.
11. PERFORMANCE-BASED COMPENSATION. This Plan is intended to give the
Committee the authority, in its discretion, to make payments that qualify
as performance-based compensation under Code Section 162(m)(4)(C).
12. GOVERNING LAW. This Plan and the rights of all persons claiming rights
under the Plan shall be governed by and interpreted in accordance with the
laws of the State of Georgia, excluding its provisions regarding conflicts
of laws.
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To record the adoption of this amended and restated Plan by the Board on August
18, 1999, the Company has caused its authorized officers to execute this Plan in
the space designated below.
SCIENTIFIC-ATLANTA, INC.
By: /s/ Brian C. Koenig
---------------------------------------
Brian C. Koenig
Senior Vice President - Human Resources
By: /s/ William E. Eason, Jr.
---------------------------------------
William E. Eason, Jr.
Senior Vice President, General
Counsel and Corporate Secretary
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