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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended July 2, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-5517
SCIENTIFIC-ATLANTA, INC.
(Exact name of Registrant as specified in its charter)
Georgia 58-0612397
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
One Technology Parkway, South 30092-2967
Norcross, Georgia (Zip Code)
(Address of principal executive
offices)
770-903-5000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common Stock, par value New York Stock Exchange
$0.50 per share
Preferred Stock Purchase Rights New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant at September 1, 1999, was approximately $4,061,250,360.
As of September 1, 1999, the Registrant had outstanding 78,165,390 shares of
common stock.
Documents Incorporated By Reference:
Specified portions of the Proxy Statement for the Registrant's 1999 Annual
Meeting of Shareholders are incorporated by reference to the extent indicated
in Part III of this Form 10-K.
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<PAGE>
PART I
Item 1. Business
General
Scientific-Atlanta, Inc. (the "Company") provides its customers with
the products and services for advanced communications networks which deliver
voice, data and video. The Company's products connect information generators
with information users via broadband terrestrial and satellite networks, and
include applications for the converging cable, telephone, and data networks.
The Company operates primarily in two reportable business segments:
Broadband and Satellite. The Broadband segment consists of subscriber and
transmission systems, and the Satellite segment consists of satellite network
and satellite television network systems.
The Company has evolved from a manufacturer of electronic test
equipment for antennas and electronics for the cable industry to a producer of
a wide variety of products for terrestrial and satellite communications
networks, including digital video, voice and data communications products. The
Broadband segment includes modulators, demodulators and signal processors for
video and audio receiving stations (often referred to as "headend" systems),
products for distributing communications signals by coaxial cable and fiber
optics from headend systems to subscribers and analog and digital set-top
terminals that enable television sets to receive all channels transmitted by
cable television system operators. Proprietary software used in the terminals,
as well as system manager software at the headend system or at the
transmission level, was developed by the Company and is updated from time to
time. The products in the Broadband segment also include receivers,
transmitters, distribution amplifiers, signal encoders and decoders,
controllers, optical amplifiers, source lasers, digital video compression and
transmission equipment and fiber optic distribution equipment.
The Company's analog set-tops include units which are addressable from
the headend system so as to permit control of channel authorizations,
including authorizations for pay-per-view events, impulse ordering and
automatic recording of billing information at the cable operator's central
facility, and menu-driven volume controllable units. Sales of analog set-tops
constituted approximately 24% of the Company's total sales for fiscal year
1999, and approximately 33% and 30% of such sales in each of fiscal years 1998
and 1997, respectively. Sales of digital set-tops constituted approximately
15% and 1% of the Company's total sales in 1999 and 1998, respectively, and
less than 1% of total sales in 1997. The Company's new Explorer(R) 2000
digital set-tops will enable subscribers to access new services to be
developed such as e-mail over television, video-on-demand, Web browsing,
Internet Protocol (IP) telephony, and various types of electronic commerce.
For Explorer 2000 digital set-tops to be enabled to provide the above-
described services, the set-tops must be utilized in an advanced, interactive,
two-way, digital cable network, which the Company sells.
Transmission products in the Broadband segment include RF (radio
frequency) amplifiers, line extenders, opto-electronic transmitters and
amplifiers, taps, and passives, which transmit signals via coaxial cable or
fiber optics from the cable operator to the end-user customer. These products
enable operators to transmit video and data over the same network, with a
reverse path for customers to communicate back to the operator. Sales of RF
distribution products constituted approximately 16% of the Company's total
sales for fiscal 1999, and approximately 18% and 19% of such sales in fiscal
years 1998 and 1997, respectively.
The Company designs, manufactures and sells digital video compression
communications products for use by television broadcasters and cable
operators. The Company's digital video compression products utilize the open
architecture MPEG-2 technology adopted by an international standards group, of
which the Company is a founding member. MPEG-2 digital equipment allows
headend, set-top and consumer electronics products and systems to operate
together across networks and in the home.
1
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The Company's Broadband products, both analog and digital, are being
utilized by the Company's traditional cable operator customers to upgrade
their networks to provide new services and by the telephone companies to build
new video, voice and data networks.
The products in the Satellite segment include tracking and telemetry
equipment, earth observation satellite ground stations, and intercept systems.
The Company produces telemetry instruments, radar platforms, special
receivers, special measurement devices and other equipment used to track
aircraft, missiles, satellites and other moving objects and to communicate
with and receive and record various measurements and other data from the
object. The Company's long experience with advanced satellite tracking
technologies has enabled it to offer a range of gateways, network management
centers, transceivers and services for the emerging low earth orbiting (LEO)
satellite communications markets.
The Company's satellite earth stations receive and transmit signals
for video, voice and data and are utilized in satellite-based telephone, data
and television distribution networks. Some of these earth stations are part of
national and international communications systems which communicate by means
of a satellite with earth stations in other countries or with other earth
stations in the same national network. Earth stations in these systems may be
connected with local telephone, television or other terrestrial communications
networks. The Company's earth stations, signal encoders and decoders, packet
switches and controllers are also used in private business networks for the
exchange of audio, video and data via satellite among various office,
manufacturing and sales facilities and for the delivery of television
programming to hotels, motels and apartment complexes. The Company's data
communications product offerings include private interactive data systems
using VSAT (very small aperture terminal) technology. These products, and
integrated systems and networks using these and other products, are sold to
cable television system operators, telephone companies, communications
carriers, communications network operators and multi-facility business
organizations which use communications satellites for intracompany
communications. These products are also sold to programmers and broadcasters
to transmit their programs to viewers.
See the Consolidated Financial Statements included in this Form 10-K
for information concerning the Company's total sales, profits and assets by
segment.
Services
The Company has consolidated most of its service functions into a
single service organization, with its goal being to ensure effective post-sale
service for customers using its products, whether such products are under
warranty or no longer under warranty. This service organization offers a
variety of maintenance and service contracts to customers using products
manufactured or sold by the Company, in addition to providing systems
integration, installation, and professional services. Through a partially-
owned subsidiary, Advanced Broadband System Services, Inc., the Company
provides a wide range of services to the cable television industry, including
turnkey installation services for customers such as Tele-Communications Inc.
("TCI").
Marketing and Sales
The Company's products are sold primarily through its own sales
personnel who work out of offices in metropolitan Atlanta and other
metropolitan areas in the United States. Certain products are also marketed in
the United States through independent sales representatives and independent
distributors. In addition to direct sales by the Company, sales in foreign
countries are made through wholly-owned subsidiaries and branch offices,
as well as through independent distributors and independent sales
representatives. Sales of both the Company's Broadband and Satellite products
are also made to independent system integrators, distributors and dealers who
resell the products to customers. The Company's management personnel are also
actively involved in marketing and sales activities.
International sales constituted 22% of the Company's total sales for
fiscal year 1999 and 32% and 37% of total sales in fiscal years 1998 and 1997,
respectively. Substantially all of these sales were export sales. See Note 7
of the Notes to Consolidated Financial Statements included in this Form 10-K.
2
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Sales of products to Time Warner, Inc. and its affiliates were 16% of
the Company's total sales in fiscal 1999 and were 11% of total sales in each
of fiscal 1998 and 1997. Sales of products to MediaOne and its affiliates were
14% of the Company's total sales in fiscal 1999, were 11% of total sales in
fiscal 1998 and were less than 10% of total sales in 1997. Sales to these two
customers were principally Broadband products. No other customer accounted for
10% or more of the Company's sales in any of the three years.
Backlog
The Company's backlog consists of unfilled customer orders believed to
be firm and long-term contracts which have not been completed. The Company's
backlog as of July 2, 1999 and June 26, 1998 was as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Broadband.......................................... $448,456,000 $395,307,000
Satellite.......................................... 80,862,000 90,467,000
Corporate and Other................................ 90,000 370,000
------------ ------------
Total............................................. $529,408,000 $486,144,000
============ ============
</TABLE>
The Company believes that approximately 90% of the backlog existing at
July 2, 1999, will be shipped within the succeeding fiscal year. With respect
to long-term contracts, the Company includes in its backlog only amounts
representing orders currently released for production. The amount contained in
backlog for any contract or order may not be the total amount of the contract
or order. The amount of the Company's backlog at any time does not reflect
expected revenues for any fiscal period.
Product Research and Development and Patents
The Company conducts an active research and development program to
strengthen and broaden its existing products and systems and to develop new
products and systems. The Company's development strategy is to identify
products and systems which are, or are expected to be, needed by a substantial
number of customers in the Company's markets and to allocate a greater share
of its research and development resources to areas with the highest potential
for future benefits to the Company. In addition, the Company develops specific
applications related to its present technology. Expenditures in fiscal 1999,
1998 and 1997 were principally for development of commercial digital cable
products and satellite network products. In fiscal 1999, 1998 and 1997, the
Company's research and development expenses were approximately $117.3 million,
$111.5 million and $114.3 million, respectively.
The Company holds patents with respect to certain of its products and
actively seeks to obtain patent protection for significant inventions and
developments. Patents are important to both segments.
Manufacturing
Manufacturing operations range from complete assembly of a particular
product by one individual or small group of individuals to semi-automated
assembly lines for volume production. Because many of the Company's products
include precision electronic components requiring close tolerances, the
Company maintains rigorous and exacting test and inspection procedures
designed to prevent production errors, and also constantly reviews its overall
production techniques to enhance productivity and reliability. The Company's
analog set-tops and taps and passives hardware for the cable television
industry are manufactured primarily by contract vendors with high-quality,
high-volume production facilities. In addition to such manufacturing by
contract vendors, the Company commenced its own manufacturing of high volume
products in fiscal year 1995 in its Juarez, Mexico facility. The Company
manufactures a variety of products in the Juarez facility, including its
digital set-tops and a portion of its advanced analog set-tops. Also, during
the second quarter of fiscal 1999, the Company transferred the RF amplifier
product line to the Juarez manufacturing facility from its Norcross, Georgia
manufacturing facility. During fiscal 1999, the Company also moved (i) its
cable headend manufacturing operation from its Vancouver, British Columbia
facility to its Norcross, Georgia manufacturing facility, and (ii) its
satellite services Network Operations Center (NOC) (including the related
research and development facility) from Melbourne, Florida to Norcross,
Georgia.
3
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Materials and Supplies
The materials and supplies purchased by the Company are standard
electronic components, such as integrated circuits, wire, circuit boards,
transistors, capacitors and resistors, all of which are produced by a number
of manufacturers. Matsushita Electronic Components Co., Ltd. and its
affiliates manufacture analog set-tops for the Company and are a primary
supplier of those set-tops. Cablevision Electronics Co., Ltd and Zinwell
Corporation, Taiwanese companies, are primary suppliers of taps for the
Company. The Company also purchases aluminum and steel, including castings and
semi-fabricated items, produced by a variety of sources. The Company's primary
supplier of die castings for its RF distribution products is Premiere Die
Casting, Inc. Additionally, Motorola, Inc., Broadcom Corporation and
STMicroelectronics are three of the Company's primary suppliers of a variety
of semi-conductor products, which are used as components in an array of the
Company's products, including its set-tops. The Company considers its sources
of supply to be adequate and is not dependent upon any single supplier, except
for Matsushita Electronic Components Co., Ltd. (and affiliates), Cablevision
Electronics Co., Ltd., Zinwell Corporation, Premiere Die Casting, Inc.,
Motorola, Inc., Broadcom Corporation and STMicroelectronics, for any
significant portion of the materials used in the products it manufactures or
for the products it sells. From time to time, the Company experiences
shortages of certain electronic components from its suppliers. These shortages
have not had, and are not expected to have, a material effect on the Company's
operations.
Employees
As of July 2, 1999, the Company employed approximately 6,502 regular
full-time and part-time employees and approximately 338 additional workers
employed through temporary employment agencies. The Company believes its
employee relations are satisfactory.
Competition
The businesses in which the Company is engaged are highly competitive.
In the Broadband segment, the Company competes with a small number of
equipment suppliers, most of which specialize in the production and sale of
equipment to cable television system operators. In the Satellite segment, the
Company competes with a large number of companies, most of which have
substantially greater resources and a larger number of products than the
Company. The Company believes that its ability to compete successfully results
from its marketing strategy, engineering skills, product features, product
performance, ability to provide post-purchase services, ability to provide
quality products at competitive prices and broad coverage by its sales
personnel.
Forward-Looking Information
This Form 10-K, the 1999 Annual Report, any Form 10-Q or any Form 8-K
of the Company or any written or verbal statements made by representatives of
the Company may include "forward-looking statements." Please see Exhibit 99 to
this Form 10-K for detailed information about the uncertainties and other
factors that may cause actual results to materially differ from the views
stated in such forward-looking statements.
4
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Item 2. Properties
The Company owns and uses in its operations offices and manufacturing
facilities in metropolitan Atlanta, Georgia; Naperville, Illinois and Juarez,
Mexico, which comprise six sites containing a total of approximately 672,000
square feet, of which approximately 250,000 square feet are located at the
Juarez manufacturing facility.
The Company also owns (i) approximately 130 acres of land in Gwinnett
County, Georgia, where antenna test ranges and a hub station used in providing
interactive data communications services are located, (ii) approximately 219
acres of land in Walton County, Georgia, held for possible future antenna test
range expansion, and (iii) approximately 282 acres of land in Gwinnett County,
Georgia, held for development of a consolidated office site for the Company.
The first phase of this consolidated office site, a 300,000 square foot
engineering and office facility, was completed in the third quarter of fiscal
1999 utilizing a long-term operating lease arrangement. The Company presently
leases two buildings in San Diego County, California, neither of which is
required for present operations, and both of which are under sublease to other
tenants.
Additional major manufacturing facilities containing an aggregate of
approximately 361,500 square feet are leased by the Company at the following
locations under leases expiring (including renewal options) from 2001 to 2015:
<TABLE>
<CAPTION>
Approximate
Location Square Footage
-------- --------------
<S> <C>
Norcross, Georgia 249,000
Sonderborg, Denmark 71,500
Vancouver, British Columbia 25,000
Toronto, Ontario 16,000
</TABLE>
The Company has consolidated the operations formerly conducted in
Vancouver to Norcross, Georgia and subleases a portion of this space to other
tenants. The Company also leases laboratory, office and warehouse space in
several buildings in the metropolitan areas of Atlanta, Georgia; Cupertino,
California; Phoenix, Arizona; El Paso, Texas; Sonderborg, Denmark; Toronto,
Ontario; Vancouver, British Columbia; Frankfurt, Germany; and Manchester,
United Kingdom, and the Company leases sales and service offices in 28
domestic and foreign cities.
Item 3. Legal Proceedings
The Company is not currently a party to any legal proceedings which
are expected to have a material adverse impact on the Company or its
operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's security holders
during the last quarter of its fiscal year ended July 2, 1999.
5
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Item 4A.Executive Officers of the Company
The following persons are the executive officers of the Company:
<TABLE>
<CAPTION>
Executive
Name Age Officer Since Present Office
---- --- ------------- --------------
<C> <C> <C> <S>
James F. McDonald 59 1993 President and Chief Executive
Officer
Conrad Wredberg, Jr. 58 1995 Senior Vice President and Chief
Operating Officer
J. Lawrence Bradner 48 1999 Senior Vice President; President,
Worldwide Services
Dwight B. Duke 47 1997 Senior Vice President; President,
Transmission Networks
William E. Eason, Jr. 56 1993 Senior Vice President, General
Counsel and Corporate Secretary
H. Allen Ecker 63 1979 Senior Vice President; President,
Subscriber Networks
Larry L. Enterline 46 1997 Senior Vice President
Wallace G. Haislip 50 1998 Senior Vice President, Chief
Financial Officer and Treasurer
Brian C. Koenig 52 1988 Senior Vice President, Human
Resources
John H. Levergood 65 1992 Senior Vice President
Robert C. McIntyre 49 1999 Senior Vice President and Chief
Technical Officer
Julian W. Eidson 59 1978 Vice President and Controller
Stephen K. Necessary 43 1998 Vice President, Marketing
</TABLE>
Each executive officer is elected annually and serves at the pleasure
of the Board of Directors.
Mr. Wredberg joined the Company in 1995 and was elected to the
position of Vice President in May 1995. In November 1995, Mr. Wredberg was
elected as a Senior Vice President of the Company, and in January 1997, Mr.
Wredberg was appointed Chairman of Corporate Operating Committee. In May 1999,
Mr. Wredberg was elected Chief Operating Officer of the Company. Mr. Wredberg
served as President of American Microsystem, Inc., a supplier of semi-
conductors, from 1985 until 1995.
Mr. Bradner joined the Company in August 1999. Mr. Bradner served as
Chairman and Chief Executive Officer of Syntellect, Inc. from March 1996 to
May 1999. Mr. Bradner was Chairman and Chief Executive Officer of Pinnacle
Investment Associates and its wholly-owned subsidiary, Telecorp Systems, Inc.,
from January 1991 to March 1996. Mr. Bradner was employed by the Company from
1977 to 1990, where he held various management positions and was elected Vice
President in 1987.
6
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Mr. Duke was elected Senior Vice President of the Company on April 27,
1998. From June 19, 1996 to April 27, 1998, he served as a Vice President of
the Company. Prior to June 19, 1996, Mr. Duke was employed by the Company in a
variety of management positions for more than five years.
Mr. Enterline was elected Senior Vice President, Worldwide Sales and
Services of the Company on February 23, 1997. From January 1996 through
January 1997, Mr. Enterline was a consultant in the telecommunications
industry, providing consulting services to companies such as the Company and
Compression Labs, Inc. From 1989 through January 1996, Mr. Enterline was
employed in a variety of management positions with the Company.
Mr. Haislip was elected to the position of Senior Vice President-
Finance, Chief Financial Officer and Treasurer on April 27, 1998. Prior to
April 27, 1998, Mr. Haislip was employed by the Company in a variety of
management positions for more than five years.
Mr. McIntyre was employed by the Company from 1991 through 1997. He
served as a Vice President of the Company from February 1995 through November
1995 and as a Senior Vice President of the Company from November 1995 through
September 1997. From September 1997 through November 1998, Mr. McIntyre served
as Chief Operating Officer and as Chief Executive Officer from July 1998 to
November 1998 of Avex, Inc. Mr. McIntyre re-joined the Company as an employee
in February 1999 and was elected Senior Vice President and Chief Technical
Officer in May 1999.
Mr. Necessary was elected to the position of Vice President, Marketing
on April 23, 1998. From October 1995 until April 1998, Mr. Necessary held a
variety of management positions in the Company. Prior to joining the Company,
Mr. Necessary worked with ANTEC Corp. from February 1991 to October 1995,
where his final position was President of the Products Group.
All other executive officers have been employed by the Company in the
same or similar capacities for more than five years. There are no family
relationships among the executive officers.
PART II
Item 5. Market for the Registrant's Common Stock and Related Matters
The Common Stock of the Company is traded on the New York Stock
Exchange (symbol SFA). The approximate number of holders of record of the
Company's Common Stock at September 1, 1999, was 6,179.
It has been the policy of the Company to retain a substantial portion
of its earnings to finance the expansion of its business. In 1976 the Company
commenced payment of quarterly cash dividends and intends to consider the
continued payment of dividends on a regular basis; however, the declaration of
dividends is discretionary with the Board of Directors, and there is no
assurance regarding the payment of future dividends by the Company. During
fiscal years 1998 and 1999, the Company paid a $.015 dividend per share each
quarter.
Information as to the high and low stock prices and dividends paid for
each quarter of fiscal years 1999 and 1998 is included in Note 6 of the Notes
to Financial Statements included in this Report.
Item 6. Selected Financial Data
Selected Financial Data is set forth on page 28 of this Report.
7
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Management's Discussion of Consolidated Statement of Financial
Position, of Consolidated Statement of Earnings and Comprehensive Income, and
of Consolidated Statement of Cash Flows are set forth on pages 13 and 14, 16
through 23, and 26 of this Report, respectively.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
For the information required for this Item 7A, see Note 1 of the Notes
to Consolidated Financial Statements included in this Form 10-K.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements of the Company and notes
thereto, the schedule containing certain supporting information and the report
of independent public accountants are set forth on pages 12 through 46 of this
Report. See Part IV, Item 14 for an index of the statements, notes and
schedule.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Pursuant to Instruction G(3) to Form 10-K, the information required in
Items 10-13 (except for the information set forth at the end of Part I in Item
4A with respect to Executive Officers of the Company) is incorporated by
reference from the Company's definitive proxy statement for the Company's 1999
Annual Meeting of Shareholders, which is expected to be filed pursuant to
Regulation 14A within 120 days after the end of the Company's 1999 fiscal
year.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this Report:
(1) The consolidated financial statements listed below are included on
pages 12 through 45 of this Report.
Report of Independent Public Accountants.
Consolidated Statement of Financial Position as of July 2, 1999 and
June 26, 1998.
Consolidated Statement of Earnings and Comprehensive Income for
each of the three years in the period ended July 2, 1999.
Consolidated Statement of Cash Flows for each of the three years in
the period ended July 2, 1999.
Notes to Consolidated Financial Statements.
(2) Financial Statement Schedule:
<TABLE>
<CAPTION>
Page
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<C> <S> <C>
Schedule II Valuation and Qualifying Accounts for Each of the
Three Years in the Period ended July 2, 1999. 46
</TABLE>
8
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All other Schedules called for under Regulation S-X are not
submitted because they are not applicable or not required or
because the required information is not material or is included in
the financial statements or notes thereto.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
(c) Exhibits:
(3) (a) The Composite Statement of Amended and Restated Articles of
Incorporation of the Company is incorporated by reference to the
Company's report on Form 10-K for the fiscal year ended June 27,
1997.
(b) The By-laws of the Company, as amended.
(4) The following instrument defining the rights of security holders
is incorporated by reference to the Company's Form 8-A
Registration Statement filed on April 7, 1997:
(a) Rights Agreement, dated as of February 23, 1997, between the
Company and The Bank of New York, as Rights Agent, which includes
as Exhibit A the Preferences and Rights of Series A Junior
Participating Preferred Stock and as Exhibit B the Form of Rights
Certificate.
(10) Material Contracts:
(a) The following material contracts are incorporated by reference to
the Company's report on Form 10-K for the fiscal year ended July
1, 1994:
(i) Form of Severance Protection Agreement between the
Company and Certain Officers and Key Employees.*
(b) The following material contract is incorporated by reference to
the Company's report on Form 10-K for the fiscal year ended June
30, 1995:
(i) Credit Agreement, dated May 11, 1995, by and between
the Company and NationsBank of Georgia, National
Association, for itself and as agent for other banks
participating in the credit facility.
(c) The following amendments to the Credit Agreement described in
item (b) above are incorporated by reference to the Company's
report on Form 10-K for its fiscal year ended June 28, 1996:
(i) First Amendment, dated as of December 29, 1995, to the
Credit Agreement.
(ii) Letter Amendment, dated as of April 5, 1996, to the
Credit Agreement.
(iii) Second Amendment, dated as of June 28, 1996, to the
Credit Agreement.
9
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(d) The following material contract is incorporated by reference to
the Company's Form S-8 Registration Statement, filed on December
27, 1996:
(i) Non-Qualified Stock Option Agreement between Scientific-
Atlanta, Inc. and James F. McDonald.*
(e) The following material contract is incorporated by reference to
the Company's Form S-8 Registration Statement, filed on March 11,
1997:
(i) Non-Qualified Stock Option Agreement between Scientific-
Atlanta, Inc. and Larry L. Enterline.*
(f) The following amendment to the Credit Agreement described in item
(b) above is incorporated by reference to the Company's report on
Form 10-Q for the fiscal quarter ended March 28, 1997:
(i) Third Amendment, dated as of January 27, 1997, to the
Credit Agreement.
(g) The following material contracts or amendments to material
contracts are incorporated by reference to the Company's report
on Form 10-K for the fiscal year ended June 27, 1997:
(i) Letter Amendment, dated as of April 23, 1997, to the
Credit Agreement described in item (b) above.
(ii) Credit and Investment Agreement, dated as of July 30,
1997, among the Company, Wachovia Capital Markets, Inc.,
Wachovia Bank, N.A., as agent, and the lenders
signatories thereto.
(iii) Lease Agreement, dated as of July 30, 1997, between
Wachovia Capital Markets, Inc. and the Company.
(iv) Acquisition, Agency, Indemnity and Support Agreement
between the Company and Wachovia Capital Markets, Inc.,
dated as of July 30, 1997.
(v) Ground Lease, dated as of July 30, 1997, between the
Company and Wachovia Capital Markets, Inc.
(vi) Scientific-Atlanta, Inc. 1981 Incentive Stock Option
Plan, as amended.*
(vii) Scientific-Atlanta, Inc. 1978 Non-Qualified Stock Option
Plan for Key Employees, as amended.*
(h) The following material contracts or amendments to material
contracts are incorporated by reference to the Company's report
on Form 10-K for the fiscal year ended June 26, 1998:
(i) Scientific-Atlanta, Inc. Stock Plan for Non-Employee
Directors, as amended and restated.*
(ii) Scientific-Atlanta, Inc. Restoration Retirement Plan, as
amended.*
(iii) Letter Amendment, dated as of April 24, 1998, to the
Credit Agreement described in item (b) above.
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(i) The following material contracts or amendments to material
contracts are incorporated by reference to the Company's report
on Form 10-Q for the fiscal quarter ended April 2, 1999:
(i) Form of First Amendment of Severance Protection Agreement
by and between Scientific-Atlanta, Inc. and Certain
Executives*
(ii) Scientific-Atlanta, Inc. Retirement Plan for Non-Employee
Directors*
(iii) Scientific-Atlanta, Inc. Annual Incentive Plan for Key
Employees as amended and restated*
(iv) 1985 Executive Deferred Compensation Plan of Scientific-
Atlanta, Inc., as amended and restated*
(v) Letter Amendment to Credit and Investment Agreement among
Scientific-Atlanta, Inc., Wachovia Bank, N.A. and Wachovia
Capital Markets, Inc.
(vi) Amendment to Credit and Investment Agreement among
Scientific-Atlanta, Inc., Wachovia Bank, N.A. and
Wachovia Capital Markets, Inc.
(vii) Second Amendment to Credit and Investment Agreement
among Scientific-Atlanta, Inc., Wachovia Bank, N.A. and
Wachovia Capital Markets, Inc.
(viii) Fourth Amendment to Credit Agreement between
Scientific-Atlanta, inc. and NationsBank, N.A. and
other lenders
(ix) First Amendment to Lease Agreement between Scientific-
Atlanta, Inc. and Wachovia Capital Markets, Inc.
(x) Second Amendment to Lease Agreement between Scientific-
Atlanta, Inc. and Wachovia Capital Markets, Inc.
(j) Executive Deferred Compensation Plan, as amended and restated.*
(k) Supplemental Executive Retirement Plan, as amended and restated.*
(l) Long-Term Incentive Plan of Scientific-Atlanta, Inc., as amended
and restated.*
(m) Scientific-Atlanta, Inc. Senior Officer Annual Incentive Plan, as
amended and restated.*
(n) Deferred Compensation Plan for Non-Employee Directors, as amended
and restated.*
(o) Non-Employee Directors Stock Option Plan, as amended and
restated.*
(p) Amended and Restated Credit Agreement, dated as of May 7, 1999,
by and among the Company and The Bank of New York and ABN Amro
Bank N.V. as co-agent and NationsBank, N.A. as administrative
agent for the participating lenders.
(q) Amendment No. 1 to the Amended and Restated Credit Agreement by
and among the Company and The Bank of New York and ABN Amro Bank
N.V. as co-agent and NationsBank, N.A. as administrative agent
for the participating lenders.
(23) Consent of Independent Public Accountants.
(27) Financial Data Schedule.
(99) Cautionary Statements.
- --------
* Indicates management contract or compensatory plan or arrangement.
11
<PAGE>
Report of Independent Public Accountants
To the Stockholders of Scientific-Atlanta, Inc.:
We have audited the accompanying consolidated statement of financial
position of Scientific-Atlanta, Inc. (a Georgia corporation) and subsidiaries
as of July 2, 1999, and June 26, 1998 and the related consolidated statements
of earnings and comprehensive income and cash flows for each of the three
years in the period ended July 2, 1999 appearing on pages 15, 25, and 27,
respectively. These financial statements and the schedule referred to below
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Scientific-
Atlanta, Inc. and subsidiaries as of July 2, 1999 and June 26, 1998 and the
results of their operations and their cash flows for each of the three years
in the period ended July 2, 1999 in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule listed in
Item 14(a)(2) of this Form 10-K is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
August 5, 1999
Report of Management
The management of Scientific-Atlanta, Inc. (the Company) has the
responsibility for preparing the accompanying financial statements and for
their integrity and objectivity. The statements, which include amounts that
are based on management's best estimates and judgments, have been prepared in
conformity with generally accepted accounting principles and are free of
material misstatement. Management also prepared the other information in the
Form 10-K and is responsible for its accuracy and consistency with the
financial statements.
The Company maintains a system of internal control over the preparation
of its published annual and interim financial statements. It should be
recognized that even an effective internal control system, no matter how well
designed, can provide only reasonable assurance with respect to the
preparation of reliable financial statements; further, because of changes in
conditions, internal control system effectiveness may vary over time.
Management assessed the Company's system of internal control in
relation to criteria for effective internal control over the preparation of
its published annual and interim financial statements. Based on its
assessment, it is management's opinion that its system of internal control as
of July 2, 1999, is effective in providing reasonable assurance that its
published annual and interim financial statements are free of material
misstatement.
As part of their audit of our financial statements, Arthur Andersen LLP
considered certain elements of our system of internal controls in determining
their audit procedures for the purpose of expressing an opinion on the
financial statements.
The audit committee of the board of directors is composed solely of
outside directors and is responsible for recommending to the board the
independent public accountants to be retained for the year, subject to
stockholder approval. The audit committee meets three times each year to
review with management the Company's system of internal accounting controls,
audit plans and results, accounting principles and practices, and the annual
financial statements.
[Signature of James F. McDonald [Signature of Wallace G. Haislip
appears here] appears here]
James F. McDonald Wallace G. Haislip
President and Chief Executive Senior Vice President - Finance,
Officer Chief Financial Officer and
Treasurer
12
<PAGE>
Management's Discussion of Consolidated Statement of Financial Position
The Company had stockholders' equity of $738.2 million and cash and cash
equivalents of $300.5 million at July 2, 1999. The current ratio was 3.1:1
at July 2, 1999 compared to 2.8:1 at June 26, 1998.
Marketable securities consist of investments in common stock and are reported
at market value. The decline in marketable securities in 1999 as compared
to 1998 is due to sales of a significant portion of the portfolio in 1999.
See Management's Discussion of Consolidated Statement of Earnings and
Comprehensive Income.
Receivables were $290.3 million at year-end, compared to $254.4 million at the
prior year-end. Average days sales outstanding were 81 in fiscal 1999, as
compared to 75 days in the prior year. The allowance for doubtful accounts
of $8.2 million decreased $1.9 million reflecting improved collections on
receivables from customers in the Asia Pacific region, which continues to
experience currency and other economic crises.
Inventory turnover was 4.9 times in 1999, compared to 4.3 in the prior year.
The improvement in inventory turnover was due to lower average inventory
balances in 1999 as compared to 1998 reflecting management's effort to
improve working capital by reducing inventory levels and higher sales
volume in 1999.
Current deferred income taxes increased $19.1 million in fiscal 1999 primarily
due to the elimination of deferred tax liabilities, which were included in
1998, as a result of gains realized on the sale of marketable securities
for book purposes which were deferred for tax purposes in 1998.
Other current assets of $11.8 million include license fees, prepaid taxes,
other than income taxes, land held for sale, prepaid software maintenance
fees and other miscellaneous prepaid expenses.
Net property, plant and equipment decreased $2.5 million in 1999 due primarily
to disposals related to the restructuring and consolidation of certain
satellite business units and worldwide manufacturing operations. Capital
additions of $51.4 million included expenditures for equipment and
expansion of manufacturing capacity, primarily in Juarez, Mexico.
Non-current marketable securities consist of investments in common stock and
are reported at market value. During fiscal 1999, the Company recorded an
unrealized gain of $12.4 million on these securities due to market value
appreciation which is included in accumulated other comprehensive income.
Other assets, which include license fees, investments, intellectual property,
capitalized software development costs, cash surrender value of company-
owned life insurance and various prepaid expenses, decreased $4.9 million
in 1999 due primarily to the amortization of license fees and other
intangible assets.
Total borrowings at year-end amounted to $0.8 million, $0.9 million lower than
the prior year. The borrowings consist primarily of financing for
equipment. Details of borrowings are shown in Note 8.
Accounts payable were $137.1 million at year-end, up from $103.6 million last
year. The increase reflects the higher inventory levels at the end of
fiscal 1999 as compared to the prior year. Days in accounts payable of 47
in fiscal 1999 was approximately the same as fiscal 1998.
Accrued liabilities of $125.0 million include accruals for restructuring and
consolidation of manufacturing operations, compensation, warranty and
service obligations, customer down-payments, royalties and taxes, excluding
income taxes. The decrease in the accruals is due primarily to charges to
provisions made in fiscal 1998 relating to the restructuring and the
consolidation of manufacturing operations and certain satellite business
units and other one-time charges. See Management's Discussion of
Consolidated Statement of Earnings and Notes 3 and 9 for additional
information.
13
<PAGE>
Management's Discussion of Consolidated Statement of Financial Position
(Continued)
Other liabilities of $55.9 million are comprised of deferred compensation,
retirement plans, postretirement benefit plans, postemployment benefits and
other miscellaneous accruals. See Note 10 for details.
Stockholders' equity was $738.2 million at the end of 1999, up $106.1 million
over the prior year. Net earnings of $102.3 million, $66.1 million from the
issuance of common stock pursuant to employee benefit plans and a $7.5
million increase in accumulated comprehensive income were partially offset
by the repurchase of 4,648,000 shares of the Company's stock for $65.2
million and dividend payments of $4.6 million. See Note 19 for details.
14
<PAGE>
Consolidated Statement of Financial Position
<TABLE>
<CAPTION>
In Thousands
-------------------
1999 1998
- -----------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 300,454 $175,392
Marketable securities 2,438 95,947
Receivables, less allowance for doubtful accounts of
$8,160,000 in 1999 and $10,052,000 in 1998 290,274 254,419
Inventories 189,354 159,545
Deferred income taxes 37,130 18,062
Other current assets 11,811 13,133
---------- --------
Total current assets 831,461 716,498
---------- --------
Property, plant, and equipment, at cost
Land and improvements 21,161 20,621
Buildings and improvements 31,802 37,316
Machinery and equipment 197,326 193,894
---------- --------
250,289 251,831
Less - accumulated depreciation and amortization 92,751 91,804
---------- --------
157,538 160,027
---------- --------
Cost in excess of net assets acquired 7,900 8,825
---------- --------
Non-current marketable securities 15,883 500
---------- --------
Other assets 49,492 54,373
---------- --------
Total Assets $1,062,274 $940,223
========== ========
- -----------------------------------------------------------------------------
</TABLE>
Liabilities and Stockholders' Equity
<TABLE>
<S> <C> <C>
Current liabilities
Current maturities of long-term debt $ 416 $ 726
Accounts payable 137,146 103,629
Accrued liabilities 125,038 139,011
Income taxes currently payable 5,211 15,302
---------- --------
Total current liabilities 267,811 258,668
---------- --------
Long-term debt, less current maturities 370 983
---------- --------
Other liabilities 55,927 48,495
---------- --------
Commitments and contingencies (Note 15)
Stockholders' equity
Preferred stock, authorized 50,000,000 shares; no
shares issued -- --
Common stock, $0.50 par value, authorized 350,000,000
shares, issued 79,616,712 shares in 1999 and
79,207,004 shares in 1998 39,808 39,604
Additional paid-in capital 226,390 195,446
Retained earnings 497,403 399,678
Accumulated other comprehensive income (loss), net of
taxes of $4,921,000 in 1999 and $(81,000) in 1998 7,379 (123)
---------- --------
770,980 634,605
Less - Treasury stock, at cost (2,269,646 shares in
1999 and 122,418 shares in 1998) 32,814 2,528
---------- --------
738,166 632,077
---------- --------
Total Liabilities and Stockholders' Equity $1,062,274 $940,223
========== ========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes.
15
<PAGE>
Management's Discussion of Consolidated Statement of Earnings and Comprehensive
Income
The Consolidated Statement of Earnings and Comprehensive Income summarizes the
Company's operating performance over the last three years, during which time
the Company has accelerated development of new products, particularly the
development, deployment, production and qualification of the Company's
interactive digital networks at customer sites in North America, and
continued its expansion into international markets.
Earnings from continuing operations were $102.3 million, or $1.30 per share as
compared to $80.8 million, or $1.02 per share in 1998. Earnings from
continuing operations in 1999 include gains of $41.6 million from the sale
of certain marketable securities and the adjustment of the Company's
investments in other marketable securities to market value. Excluding these
gains, earnings from continuing operations were $60.7 million, or $0.77 per
share.
The Company's 1998 results contain several significant and non-recurring
items. First, during the fourth quarter of 1998, the Company announced that
it would implement a restructuring and consolidation of worldwide
manufacturing operations to achieve reduced costs, improved efficiencies and
better customer service. The Company recorded $76.2 million of restructuring
and other one-time pre-tax charges in the fourth quarter of fiscal 1998.
These charges include the impairment of assets, such as excess inventory
related to the consolidation of manufacturing operations and the
discontinuance of certain product models, costs to relocate production and
the Network Operations Center (NOC), losses on contracts, costs to abandon
facilities, charges to establish an allowance for doubtful accounts
receivable from customers in the Asia Pacific region and environmental
issues. The Company charged $33.6 million to cost of sales, $5.9 million to
selling and administrative expenses, $23.4 million to restructuring expense
and $13.3 million to other expense. The Company also recorded a one-time
pre-tax gain of $94.0 million to adjust its investment in Broadcom
Corporation to market value. Net earnings excluding these one-time special
items were $68.5 million, or $0.87 per share.
Earnings from continuing operations in 1997 of $60.6 million, did not
include any significant non-recurring items.
Sales of $1.24 billion in 1999 increased 5 percent over the prior year. North
American sales grew $195.2 million, or 24 percent, year over year offsetting
weaknesses in markets outside of North America. Sales in markets outside
North America declined $133.2 million, or 36 percent, year over year.
Broadband segment sales of $1.05 billion in 1999 increased 18 percent over
the prior year with strong domestic growth in both the transmission and
subscriber businesses driven by the cable industry's accelerating moves into
Internet Protocol based digital interactive services. The growth in sales of
transmission products was driven by cable system rebuilds. The significant
increase in sales of digital products was the primary factor in the year-to-
year increase in the subscriber businesses. Satellite segment sales in 1999
were $192.4 million, down 28 percent from the prior year. The Satellite
segment relies significantly on international markets which continue to be
impacted by the weak economic conditions in Eastern Europe and the Asia
Pacific region.
During 1999, the Company continued the rollout of advanced two-way digital
cable systems which are real-time, interactive digital networks capable of
advanced services such as video-on-demand, e-mail and Web browsing, once
such services are available. The Company plans to double the production
capacity of its Explorer(R) 2000 digital set-tops in its Juarez facility
from one million units annually to two million. As anticipated and announced
previously, sales of analog set-tops declined in response to the
introduction of two-way digital technology. The Company expected a decline
in analog sales as cable operators establish the ideal mix of analog and
digital services in each cable system.
Sales of analog set-tops constituted 24 percent of the Company's total sales
in 1999, and approximately 33 percent and 30 percent of such sales in 1998
and 1997, respectively. Sales of digital set-tops constituted 15 percent and
1
16
<PAGE>
Management's Discussion of Consolidated Statement of Earnings and Comprehensive
Income (Continued)
percent of the Company's total sales in 1999 and 1998, respectively, and
less than 1 percent of total sales in 1997. Sales of radio frequency (RF)
products were approximately 16 percent of the Company's total sales in 1999,
and approximately 18 percent and 19 percent of such sales in 1998 and 1997,
respectively. International sales were 22 percent of total sales in 1999, as
compared to 32 percent and 37 percent of such sales in 1998 and 1997,
respectively.
Sales of $1.18 billion in 1998 increased slightly over the prior year.
Higher domestic sales volume of subscriber products, particularly advanced
analog set-tops, and of transmission products, were offset by significant
declines in sales to customers in the Asia Pacific and Europe regions. The
weak Asian economy continued to negatively impact bookings and sales. Europe
was impacted by a slow-down in demand in the U.K. In addition, a large
customer in Europe decided to re-evaluate its cable strategy, which had the
impact of halting orders. Sales in 1998 of satellite systems also declined
as compared to 1997.
Cost of sales as a percent of sales decreased 0.6 percentage points in 1999
from 1998. Cost of sales in 1998 included one-time charges of $33.6 million
previously discussed. Excluding these one-time charges, cost of sales as a
percent of sales increased 2.2 percentage points in 1999 over 1998.
Margins on digital set-tops, which were lower than the Company average, more
than offset gains from cost reductions from the transfer of RF production to
Juarez, Mexico from Norcross, Georgia, negotiated procurement savings and
economies of scale associated with increased manufacturing volumes. Although
the Company expects a higher mix of digital products in fiscal 2000 sales as
compared to fiscal 1999, the Company believes that cost of sales as a
percent of sales in fiscal 2000 will be approximately the same, or slightly
lower, as in fiscal 1999.
Cost of sales as a percent of sales increased 2.7 percentage points in 1998
from 1997. Excluding the one-time charges of $33.6 million in 1998, cost of
sales as a percent of sales decreased 0.1 percentage point from 1997.
The materials and supplies purchased by the Company are standard electronic
components, such as integrated circuits, wire, circuit boards, transistors,
capacitors and resistors, all of which are produced by a number of
manufacturers. Matsushita Electronic Components Co., Ltd. and its affiliates
manufacture analog set-tops for the Company and are a primary supplier of
those set-tops. Cablevision Electronics Co., Ltd. and Zinwell Corporation,
Tiawanese companies, are primary suppliers of taps for the Company. The
Company also purchases aluminum and steel, including castings and semi-
fabricated items, produced by a variety of sources. The Company's primary
supplier of die castings for its RF distribution products is Premiere Die
Casting, Inc. Additionally, Motorola, Inc., Broadcom Corporation and
STMicroelectronics are three of the Company's primary suppliers of a variety
of semi-conductor products, which are used as components in an array of the
Company's products, including its set-tops. The Company considers its
sources of supply to be adequate and is not dependent upon any single
supplier, except for Matsushita Electronic Components Co., Ltd. (and
affiliates), Cablevision Electronics Co., Ltd., Zinwell Corporation,
Premiere Die Casting, Inc., Motorola, Inc., Broadcom Corporation and
STMicroelectronics, for any significant portion of the materials used in the
products it manufactures or for the products it sells.
Certain material purchases are denominated in Japanese yen and, accordingly,
the purchase price in U.S. dollars is subject to change based on exchange
rate fluctuations. Currently, the Company has forward exchange contracts to
purchase yen to hedge a portion of its exposure on purchase commitments for
a period of twelve months. During fiscal 2000, the Company will relocate the
manufacture of certain analog set-tops from a supplier in Japan
17
<PAGE>
Management's Discussion of Consolidated Statement of Earnings and Comprehensive
Income (Continued)
to a supplier in Mexico. Purchases from the supplier in Mexico will be
denominated in U.S. dollars thereby reducing the Company's exposure to
exchange rate fluctuations in Japanese yen. See Note 1.
Sales and administrative expenses of $162.0 million in 1999 were $3.6 million
lower than 1998. Administrative expenses in 1998 included a one-time charge
of $5.9 million to establish an allowance for doubtful accounts receivable
from customers in the Asia Pacific region.
Sales and administrative expenses of $165.6 million in 1998 were $5.0
million higher than 1997. Excluding the one-time charge discussed above,
expenses were flat as compared to the prior year and remained at
approximately 14 percent of sales.
Research and development expenses were $117.3 million in 1999. Research and
development efforts in 1999 were focused on the development of applications
and enhancements to the Company's interactive broadband networks. Research
and development expenses were approximately 9 percent of sales in 1999 and
1998, down slightly from 10 percent of sales in 1997. The Company continues
to invest in research and development programs to support existing products.
Research and development expenses were $111.5 million in 1998. Research and
development efforts in 1998 were focused on the development of two-way,
real-time interactive digital networks and set-tops and related software and
the Prisma Digital(TM) Transport product and enhancements to the 8600X (TM)
set-tops to include features such as e-mail over television and Web
browsing.
Certain software development costs are capitalized when incurred and are
reported at the lower of unamortized cost or net realizable value.
Capitalization of software development costs begins upon the establishment
of technological feasibility. The establishment of technological feasibility
and the ongoing assessment of recoverability of capitalized software
development costs requires considerable judgment by management with respect
to certain external factors, including, but not limited to, anticipated
future revenues, estimated economic life and changes in software and
hardware technologies.
The Company capitalized $3.3 million, $2.2 million and $2.0 million of
software development costs in 1999, 1998 and 1997, respectively. During
1999, the Company recognized revenue on certain of these products and
amortized $0.6 million of these development costs to cost of sales. No such
revenue was recognized in 1998 or 1997. Capitalization ceases and
amortization begins when the products are available for general release to
customers.
The Company periodically allocates engineering resources from research and
development efforts for specific customer orders. The revenue from these
orders will be recognized in future periods and, accordingly, the related
costs have been capitalized as inventory. At July 2, 1999 and June 26, 1998,
the Company had capitalized $9.0 million and $11.2 million, respectively, of
such non-recurring engineering costs capitalized in inventory. During 1999
and 1998, the Company recognized revenue on certain of these orders and,
accordingly, charged $2.2 million and $1.3 million, respectively, to cost of
sales. No such revenue was recognized in 1997.
The Company periodically evaluates the strategic direction of the Company
including an assessment of the markets the Company serves and alternative
methods of generating revenues from its investments in research and
development programs, such as licensing of software and hardware technology.
In fiscal 1998, the Company discontinued its research and development
efforts related to cable telephony products and a stand alone two-way RF
modem because the markets for cable telephony products and two-way stand
alone modems had not developed as quickly as the Company previously
anticipated. A two-way
18
<PAGE>
Management's Discussion of Consolidated Statement of Earnings and Comprehensive
Income (Continued)
modem solution is currently included in one of the Company's digital set-top
product offerings. and a stand alone two-way RF modem because the markets
for cable telephony products and two-way stand alone modems had not
developed as quickly as the Company previously anticipated. A two-way modem
solution is currently included in one of the Company's digital set-top
product offerings.
Restructuring charges of $23.4 million were recorded in the fourth quarter of
fiscal 1998. The charges include $10.2 million and $3.2 million for fixed
assets to be abandoned and expenses related to the remaining contractual
liabilities for cancelled leases, respectively, as a result of the
consolidation of operations, $5.2 million for severance costs, and $4.8
million for the impairment of certain assets and other miscellaneous
expenses. As part of the restructuring, production of the RF amplifier was
transferred from Norcross, Georgia to the Company's high volume, low cost
manufacturing facility in Juarez, Mexico during the first half of 1999. The
Norcross manufacturing facility is focused on medium- to low-volume products
requiring close engineering support. The production of cable headend
equipment was consolidated in Norcross from Vancouver, British Columbia
during the second half of 1999. The Melbourne, Florida satellite services
NOC and research and development facility were also relocated to Norcross.
During 1998, the Company's European headquarters moved from London, England
to Frankfurt, Germany to better address market opportunities in continental
Europe. The Far East regional headquarters were transferred from Hong Kong
to Singapore. The Company's Satellite Networks and Communications and
Tracking Systems business units combined in 1999 to capitalize on the
combined resources provided by concentrated capabilities in networks,
research and development, marketing and sales, and customer program
management and services.
The Company has substantially completed its restructuring program. The
Company estimates that the transfer of production of the RF amplifier from
Norcross to Juarez resulted in significant improvements in the gross margins
of the RF business unit and will allow the business unit to remain on a
comparable cost structure with its competitors. The Company expects
additional improvements will be realized in 2000 but does not expect these
improvements to be as significant as those realized in 1999. The
consolidation of the production of cable headend equipment in Norcross
during the second half of 1999 resulted in minimal savings in 1999. However,
the Company expects the consolidation will result in an annual cost
reduction of approximately $1.0 million, primarily from the elimination of
overhead costs beginning in fiscal 2000. As a result of the consolidation
during the second half of 1999 of certain satellite operations discussed
previously, losses of the Satellite segment were reduced by over $12 million
in the second half of 1999 as compared to the first half of 1999. Reductions
in expenses from the other parts of the restructuring plan were not
individually significant. Approximately $1.6 million of the original $23.4
million restructuring charge will be incurred after July 2, 1999 for
expenses related to contractual obligations under cancelled leases.
Interest expense was $0.6 million, $0.5 million and $0.5 million in 1999, 1998
and 1997, respectively.
Interest income was $8.5 million, an increase of $2.6 million over the prior
year, due to higher average cash balances in fiscal 1999.
Other income of $62.3 million in 1999 included gains of $41.3 million and $16.6
million from the sale of the Company's investments in Broadcom Corporation
and Harmonic Inc., respectively, $6.2 million from the cancellation of a
contract under which the Company was obligated to supply equipment and $5.0
million from an investment in a partnership. In addition, during the second
quarter of fiscal 1999, the Company decided to dispose of a business unit,
Control Systems, which produces devices to monitor and manage utility
service usage, because the business unit did not fit with
19
<PAGE>
Management's Discussion of Consolidated Statement of Earnings and Comprehensive
Income (Continued)
the Company's core strategy. The Company recorded a charge of approximately
$6.0 million to adjust the carrying value of the assets to be sold to fair
value, less costs to sell, to adjust the estimated profitability on certain
contracts to allow the purchaser to achieve reasonable margins, to provide
for indemnification to the purchaser and to provide for other miscellaneous
expenses associated with the sale. There have been no charges to the reserve
through July 2, 1999. The Company completed the sale of Control Systems
during the first quarter of fiscal 2000.
Other income of $79.9 million in 1998 included a $93.8 million net gain from
the mark-to-market adjustment of marketable securities of which $94.0
million related to the Company's investment in Broadcom Corporation, a
$9.1 million gain from the sale of certain assets of the interdiction
business, a loss of $9.0 million from the discontinuance of research and
development efforts related to the Company's CoAxiom(R) telephony products,
$6.2 million for estimated losses on the resale of used equipment, $5.5
million for expenses and the potential settlement of environmental issues
and other miscellaneous items.
During fiscal 1998, the Company sold the inventory, manufacturing assets and
intellectual property of its interdiction business to Blonder Tongue
Laboratories, Inc. (Blonder Tongue) for $19.0 million in cash, Blonder
Tongue stock valued at $1.0 million and an option to acquire additional
shares of Blonder Tongue stock. The Company recorded a pre-tax gain of $9.1
million related to this sale.
During fiscal 1997, the Company, with consent of its product development
partner, Siemens, decided to decrease its research and development efforts
related to CoAxiom telephony products because the markets for these products
had not developed as quickly as the company previously anticipated. During
fiscal 1998, the Company decided to discontinue its efforts to develop
CoAxiom systems and recorded a pre-tax charge of approximately $9.0 million.
At July 2, 1999, the Company had a reserve of $0.5 million related to the
discontinuance of CoAxiom products and anticipates disposition of issues
related to this reserve, including the disposal of any remaining inventory
of CoAxiom products, during the first quarter of fiscal 2000. There are no
expected future cash requirements as a result of the discontinuance of
developments efforts related to CoAxiom systems.
During fiscal 1997, the Company decided to dispose of two business units,
microwave and mobile, because these businesses were not aligned with the
Company's core business strategies, and recorded a charge of $5.5 million to
adjust the carrying amount of the net assets held for sale to net realizable
value and to provide for estimated indemnifications to the purchaser,
severance, closing costs and other miscellaneous expenses related to the
sale. During the ordinary course of business, the Company encounters certain
risks and uncertainties related to the satisfactory performance under
contracts which it evaluates periodically and provides reserves, if
appropriate. Accordingly, the estimated loss on the sale of the microwave
and mobile businesses was computed on the basis that the Company would sell
the businesses at an amount that would allow the purchaser, with reasonable
assurance, to complete the contracts at a reasonable margin.
During fiscal 1998, the Company sold the majority of the net assets of the
microwave business unit for $8.1 million of cash. No gain or loss was
recognized on the transaction.
At July 2, 1999, the Company had a reserve of $3.3 million related to the
disposition of these two business units. Charges to the reserve consisted of
expenses related to contracts of the microwave business retained by the
Company, severance and other miscellaneous expenses. The Company anticipates
disposition of the remaining assets of the mobile business during the first
quarter of fiscal 2000. Resolution of the remaining issues related to the
reserve may require future cash outlays; however, the Company does not
believe these outlays will be significant.
20
<PAGE>
Management's Discussion of Consolidated Statement of Earnings and Comprehensive
Income (Continued)
Other income of $1.5 million in 1997 included a gain of $5.5 million from
the sale of land and a building in San Diego County, California not required
for current operations, a charge of $5.5 million related to the Company's
decision to dispose of two business units, microwave and mobile, because
these business units were not aligned with the Company's core business
strategies, and net gains from rental income and other miscellaneous items
offset.
The provision for income taxes was 30 percent of pre-tax earnings in 1999 and
1998 and 32 percent of pre-tax earnings in 1997. The lower effective income
tax rate in fiscal 1999 and 1998 as compared to fiscal 1997 is due to
benefits from the Company's foreign sales corporation (FSC) and a decrease
in foreign earnings taxed at a higher rate. Details of the provision for
income taxes are discussed in Note 11.
Gain on sale of discontinued operations of $3.4 million in 1997 is from the
discontinuance of the Company's defense-related business in San Diego,
California in September 1995. At July 2, 1999, the Company had a reserve of
$2.6 million related to contracts of the defense-related business from which
the Company has not been released. The Company anticipates resolving issues
related to these contracts by the end of calendar 1999. Details of the
discontinued operations are discussed in Note 5.
Earnings per share of $1.30 in 1999 compares with earnings per share of $1.02
in 1998 and $0.82 in 1997. Average diluted shares outstanding declined
slightly to 78.6 million in 1999 from 80.0 million in 1998 due primarily to
the repurchase of 4,648,000 shares of the Company's common stock in 1999.
Year 2000 The Company, like most other major companies, is currently addressing
a universal problem commonly referred to as "Year 2000 Compliance," which
relates to the ability of computer programs and systems to properly
recognize and process date sensitive information before and after January 1,
2000. The following discussion is based on information currently available
to the company.
The Company has analyzed and continues to analyze its internal information
technology ("IT") systems ("IT systems") to identify any computer programs
that are not Year 2000 compliant and implement any changes required to make
such systems Year 2000 compliant. The Company believes that its critical IT
systems currently are capable of functioning without substantial Year 2000
Compliance problems. Of the non-critical, but important, IT systems that are
not currently Year 2000 Compliant, the Company believes such IT systems will
be Year 2000 compliant in a time frame that will avoid any material adverse
effect on the Company. Also, the Company does not believe that the
expenditures related to replacing or upgrading any of its IT systems to make
them Year 2000 compliant will have a material adverse effect on the
financial condition of the Company. The Company has identified only two IT
systems (E-mail and electronic calendar) that must be replaced due to Year
2000 concerns, and the Company already had plans to replace these IT systems
with one system providing increased functionality. Installation of these new
systems has been substantially completed.
The Company has evaluated its critical equipment and critical systems that
contain embedded software, such as microcontrollers ("Non-IT systems"), and
the Company believes that all of its critical Non-IT systems are capable of
functioning without substantial Year 2000 Compliance problems. The Company
commenced testing of IT systems and Non-IT systems in the first calendar
quarter of 1999. To date, such testing has not revealed any significant Year
2000 issues.
Certain products currently sold by the Company contain computer programs
that perform date functions or date calculations. The Company has evaluated
its products and is continuing to evaluate its products, and, based on its
investigation to date, the Company believes that the products it currently
sells (except third party software included in the Company's digital network
control system) are Year 2000 compliant, provided that they are upgraded to
21
<PAGE>
Management's Discussion of Consolidated Statement of Earnings and Comprehensive
Income (Continued)
include all recommended and available engineering changes. However, the
Company's products are often used by its customers in systems that contain
third party products or products supplied by the Company in prior years.
Therefore, even though the Company's current products may be Year 2000
compliant, the failure of such third party products or historical company-
supplied products to be Year 2000 compliant, or to properly interface with
the Company's current products, may result in a system failure. Certain
products that the Company no longer offers for sale are not Year 2000
compliant, and the Company has no plans to upgrade them. However, the
Company does have a plan for helping its customers upgrade their System
Manager products and related components to System Release 4.6 (and higher
versions) software which is currently available for purchase. Such System
Release 4.6 (and higher versions) software is expected to remedy the Year
2000 problems of System Manager products historically sold by the Company
to its customers. Because some customers may be using obsolete versions of
the System Manager products, they may also need to purchase equipment to
solve their Year 2000 problems. Additionally, the Company is in the process
of installing Year 2000 compliant upgrades to certain third party software
included in the Company's digital network control system. A customer's
failure to upgrade its System Manager products and related equipment to
System Release 4.6 (or higher versions) software and related equipment or
to upgrade the third party software in the customer's digital network
control system may result in such customer having critical Year 2000
problems. Under certain limited circumstances, the Company may incur
expenses to help remedy such customer's critical Year 2000 failure.
The Company is investigating each of its significant vendors, suppliers,
financial service organizations, service providers and customers to confirm
that the Company's operations will not be materially adversely affected by
the failure of any such third party to have Year 2000 compliant computer
programs. Regardless of the responses that the Company receives from such
third parties, the Company is establishing contingency plans to reduce the
Company's exposure resulting from the non-compliance of third parties.
First, the Company plans to build inventories of critical and/or important
components prior to January 1, 2000, and thereby decrease the Company's
dependence on suppliers that are not Year 2000 compliant. Second, the
Company plans to send hard copies of "Schedules of Ordered Products and
Delivery Dates" to its major customers, commencing in the fourth calendar
quarter of 1999. Such Schedules should enable customers to accept ordered
products after January 1, 2000, even if their internal computer systems are
not operating properly.
The Company expects the costs related to remediating Year 2000 issues not
to be material. All of such expenditures are included in the budgets of the
various departments of the Company tasked with various aspects of the Year
2000 project. No IT projects have been deferred due to IT's Year 2000
efforts.
The Company has approached the Year 2000 project in phases. Phase I of the
project involved identification of all software used or sold by the
Company, identification of all significant vendors, and establishment of a
senior management committee (composed of the General Counsel, the Chief
Financial Officer and the Chief Operating Officer) to oversee the project.
Phase I was completed in the second calendar quarter of 1998. Phase II of
the project involves (a) evaluation of each significant vendor and
evaluation of major customers through letters and questionnaires
(b) communication with customers concerning any products currently or
recently sold by the Company that have Year 2000 issues, and (c) evaluating
the Company's most reasonably likely worst case Year 2000 scenarios and
contingency planning related thereto. Phase II was completed in the second
calendar quarter of 1999. Phase III involves testing of the Company's IT
systems and Non-IT systems to confirm Year 2000 compliance and/or discover
any overlooked Year 2000 problems. Phase III was completed in the second
calendar quarter
22
<PAGE>
Management's Discussion of Consolidated Statement of Earnings and Comprehensive
Income (Continued)
of 1999. Last, Phase IV involves implementation of the Company's
contingency plans. Several contingency plans are currently being
implemented and will continue to be implemented through the remainder of
calendar year 1999, and early 2000.
The Company does not currently believe that any of the foregoing will have
a material adverse effect on its financial condition or its results of
operations. However, the process of evaluating the Company's products and
third party products and systems is ongoing. Although not expected,
failures of critical suppliers, critical customers, critical IT systems,
critical Non-IT systems, or products sold by the Company (including any
delay in the deployment of software releases related to either the System
Manager upgrades or the upgrade of the third party software included in the
digital network control system) could have a material adverse effect on the
Company's financial condition or results of operations. As widely
publicized, Year 2000 Compliance has many issues and aspects, not all of
which the Company is able to accurately forecast or predict. There is no
way to assure that Year 2000 Compliance will not have adverse effects on
the Company, some of which could be material.
Many of the Company's statements related to Year 2000 are forward-looking
statements and actual results could differ materially from those
anticipated above. The Company is relying on the investigations and
statements of many employees, consultants and third parties in making the
above forward-looking statements and such investigations or statements may
not be accurate. Any of the above statements that are not statements about
historical facts are forward-looking statements. Such forward-looking
statements are based upon current expectations but involve risks and
uncertainties.
Investors are referred to the Cautionary Statements contained in Exhibit 99
to this Form 10-K for a description of the various risks and uncertainties
could cause the Company's actual results and experience to differ
materially from the anticipated results or other expectations expressed in
the Company's forward-looking statements. Such Exhibit 99 is hereby
incorporated by reference into Management's Discussion and Analysis of
Financial Condition and Results of Operations.
23
<PAGE>
[This Page Intentionally Left Blank]
24
<PAGE>
Consolidated Statement of Earnings and Comprehensive Income
<TABLE>
<CAPTION>
(In Thousands, Except Per Share Data) 1999 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $1,243,473 $1,181,404 $1,168,245
- ------------------------------------------------------------------------------
Costs and expenses
Cost of sales 888,162 850,738 809,081
Sales and administrative 162,017 165,639 160,613
Research and development 117,261 111,546 114,344
Restructuring -- 23,412 --
Interest expense 635 476 484
Interest income (8,526) (5,963) (3,943)
Other (income) expense, net (62,281) (79,863) (1,513)
- ------------------------------------------------------------------------------
Total costs and expenses 1,097,268 1,065,985 1,079,066
- ------------------------------------------------------------------------------
Earnings before income taxes and
discontinued operations 146,205 115,419 89,179
- ------------------------------------------------------------------------------
Provision for income taxes 43,862 34,626 28,537
- ------------------------------------------------------------------------------
Earnings before discontinued operations 102,343 80,793 60,642
- ------------------------------------------------------------------------------
Gain on sale of discontinued operations,
net of tax -- -- 3,400
- ------------------------------------------------------------------------------
Net earnings $ 102,343 $ 80,793 $ 64,042
- ------------------------------------------------------------------------------
Earnings per common share before
discontinued operations
- ------------------------------------------------------------------------------
Basic $ 1.33 $ 1.03 $ 0.78
Diluted $ 1.30 $ 1.02 $ 0.78
- ------------------------------------------------------------------------------
Weighted average number of common shares
outstanding
- ------------------------------------------------------------------------------
Basic 76,815 78,692 78,198
- ------------------------------------------------------------------------------
Diluted 78,565 80,003 78,383
- ------------------------------------------------------------------------------
Comprehensive Income:
Net earnings $ 102,343 $ 80,793 $ 64,042
- ------------------------------------------------------------------------------
Other comprehensive income (loss), net of
tax(1)
Foreign currency translation adjustments 72 (11) (556)
Unrealized gains on marketable securities 7,430 -- --
- ------------------------------------------------------------------------------
Comprehensive income $ 109,845 $ 80,782 $ 63,486
- ------------------------------------------------------------------------------
</TABLE>
(1) Assumed 40% tax rate.
See accompanying notes.
25
<PAGE>
Management's Discussion of Consolidated Statement of Cash Flows
The Statement of Cash Flows summarizes the main sources of the Company's cash
and its uses. These flows of cash provided or used are summarized by the
Company's operating activities, investing activities and financing
activities.
Cash and cash equivalents at the end of 1999 were $300.5 million, up $125.1
million from the end of 1998 due to improved earnings and proceeds from the
sale of marketable securities and the issuance of stock.
The Company has a $300 million senior credit facility available that
provides for unsecured borrowings up to $150 million which expires May 2000
and up to $150 million which expires May 2004. There were no outstanding
borrowings under this facility at July 2, 1999 or June 26, 1998. The Company
believes that funds generated from operations, existing cash balances and
its available senior credit facility will be sufficient to support growth
and planned expansion of manufacturing capacity.
Cash provided by operating activities was $46.2 million for 1999, compared to
$80.3 million for 1998. Cash provided by earnings and increases in accounts
payable were offset partially by increases in accounts receivable and
inventory levels as compared to the prior year. See Management's Discussion
of the Statement of Financial Position for details of this performance.
In 1998, cash provided by earnings and reductions in inventory levels were
offset partially by increases in accounts receivable as compared to the
prior year.
Cash provided by investing activities of $107.0 million consisted of proceeds
from the sale of marketable securities and other investments. Investing
activities of $51.4 million included expenditures for equipment and the
expansion of manufacturing capacity, primarily in Juarez, Mexico.
Cash used by investing activities of $14.8 million in 1998 included
expenditures for equipment, expansion of manufacturing capacity, primarily
in Juarez, Mexico, and other investing activities. Sources of cash included
proceeds from the sales of the interdiction and microwave businesses. See
Note 2 for additional discussion of investing activities.
Cash used by investing activities in 1997 included expenditures for
equipment, the expansion of manufacturing capacity, the acquisition of
Arcodan A/S and other investing activities. Sources of cash from investing
activities included proceeds from the sale of discontinued defense-related
businesses and the sale of land and a building not required for current
operations.
Cash used by financing activities of $28.1 million in 1999 included the
acquisition of 4,648,000 shares of the Company's stock for $65.2 million,
dividend payments of $4.6 million and payments on long-term debt of $0.9
million. The Company reissues these shares under the Company's stock option
plans, 401(k) plan, employee stock purchase plan and other stock-based
employee compensation arrangements. The issuance of stock pursuant to these
plans generated cash of $42.6 million.
Cash provided by financing activities was $2.8 million in 1998. Financing
activities included the repurchase of 500,000 shares of the Company's common
stock for $7.5 million, dividend payments of $4.7 million and net debt
payments of $0.9 million. The issuance of stock pursuant to stock option and
employee benefit plans generated cash of $16.0 million.
Financing activities in 1997 included dividend payments of $4.6 million, the
repurchase of 225,000 shares of the Company's common stock for $3.0 million
and net debt payments of $2.0 million. The issuance of stock pursuant to
stock option and employee benefit plans generated cash of $6.6 million.
----------------
Any statements in Management's Discussion and Analysis of Financial Condition
that are not statements about historical facts are forward-looking statements.
Such forward-looking statements are based upon current expectations but involve
risks and uncertainties. Investors are referred to the Cautionary Statements
contained in Exhibit 99 to this Form 10-K for a description of the various
risks and uncertainties that could cause the Company's actual results and
experience to differ materially from the anticipated results or other
expectations expressed in the Company's forward-looking statements. Such
Exhibit 99 is hereby incorporated by reference into Management's Discussion and
Analysis of Financial Condition and Results of Operations.
Prisma and 8600x are trademarks of Scientific-Atlanta, Inc. CoAxiom and
Explorer are registered trademarks of Scientific-Atlanta, Inc.
All other brands and trademarks are the marks of their respective owners.
26
<PAGE>
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
(In Thousands) 1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities:
- ---------------------
Net earnings from continuing operations $102,343 $ 80,793 $ 60,642
Adjustments to reconcile net earnings from
continuing operations to net cash provided by
operating activities:
(Gains) losses on marketable securities, net (59,465) (93,764) --
Depreciation and amortization 46,075 48,260 43,151
Compensation related to stock benefit plans 9,720 9,680 6,600
Provision for losses on accounts receivable (1,615) 6,231 391
(Gain) loss on sale of property, plant and
equipment 4,436 4,297 (4,965)
(Gain) on sale of business -- (6,356) --
Dividend income (4,952) -- --
(Earnings) losses of partnerships (1,071) 20 (393)
Changes in operating assets and liabilities:
Receivables (34,209) (27,748) 20,028
Inventories (29,809) 42,753 11,371
Deferred income taxes (19,068) 13,261 17,686
Accounts payable and accrued liabilities 25,185 3,124 (7,676)
Other assets (4,392) (14,228) (10,690)
Other liabilities 12,658 13,891 (10,144)
Net effect of exchange rate fluctuations 316 50 (899)
-------- -------- --------
Net cash provided by operating activities 46,152 80,264 125,102
-------- -------- --------
Investing Activities:
- ---------------------
Purchases of property, plant and equipment (51,352) (40,643) (53,076)
Acquisition of businesses, net of cash
acquired -- -- (11,237)
Proceeds from the sale of property, plant and
equipment 469 308 13,183
Proceeds from the sale of businesses -- 27,059 --
Proceeds from the sale of discontinued
operations -- -- 18,858
Increase in net assets of discontinued
operations -- -- (2,264)
Proceeds from the sale of investments 152,974 -- 500
Other investments 4,952 (1,564) (1,875)
-------- -------- --------
Net cash provided (used) by investing
activities 107,043 (14,840) (35,911)
-------- -------- --------
Financing Activities:
- ---------------------
Net short-term debt payments -- -- (1,600)
Principal payments on long-term debt (923) (943) (400)
Dividends paid (4,618) (4,723) (4,640)
Issuance of stock 42,636 16,002 6,635
Treasury shares acquired (65,228) (7,511) (2,973)
-------- -------- --------
Net cash provided (used) by financing
activities (28,133) 2,825 (2,978)
-------- -------- --------
Increase in cash and cash equivalents 125,062 68,249 86,213
Cash and cash equivalents at beginning of year 175,392 107,143 20,930
-------- -------- --------
Cash and cash equivalents at end of year $300,454 $175,392 $107,143
======== ======== ========
</TABLE>
See accompanying notes.
27
<PAGE>
Selected Financial Data
<TABLE>
<CAPTION>
(Dollars in Thousands,
Except Per Share Data) 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $1,243,473 $1,181,404 $1,168,245 $1,047,901 $1,118,057
- -------------------------------------------------------------------------------------
Cost of Sales 888,162 850,738 809,081 761,876 802,216
Sales and
Administrative Expense 162,017 165,639 160,613 138,362 140,082
Research and
Development Expense 117,261 111,546 114,344 95,299 82,378
Restructuring Expense -- 23,412 -- -- --
Purchased In-Process
Technology -- -- -- 14,583 --
Interest Expense 635 476 484 672 775
Interest Income (8,526) (5,963) (3,943) (1,818) (2,837)
Other (Income) Expense,
Net (62,281) (79,863) (1,513) 28,374 (1,566)
- -------------------------------------------------------------------------------------
Earnings Before Income
Taxes and Discontinued
Operations 146,205 115,419 89,179 10,553 97,009
- -------------------------------------------------------------------------------------
Provision for Income
Taxes 43,862 34,626 28,537 3,377 31,042
- -------------------------------------------------------------------------------------
Earnings Before
Discontinued Operations 102,343 80,793 60,642 7,176 65,967
- -------------------------------------------------------------------------------------
Earnings (Loss) from
Discontinued
Operations, Net of Tax -- -- 3,400 (13,210) (2,427)
- -------------------------------------------------------------------------------------
Net Earnings (Loss) $ 102,343 $ 80,793 $ 64,042 $ (6,034) $ 63,540
- -------------------------------------------------------------------------------------
Basic Earnings Per Share
before Discontinued
Operations $ 1.33 $ 1.03 $ 0.78 $ 0.09 $ 0.86
- -------------------------------------------------------------------------------------
Diluted Earnings Per
Share before
Discontinued Operations $ 1.30 $ 1.02 $ 0.78 $ 0.09 $ 0.86
- -------------------------------------------------------------------------------------
Diluted Earnings (Loss)
Per Share $ 1.30 $ 1.02 $ 0.82 $ (0.08) $ 0.83
- -------------------------------------------------------------------------------------
Cash Dividends Paid Per
Share $ 0.06 $ 0.06 $ 0.06 $ 0.06 $ 0.06
- -------------------------------------------------------------------------------------
Working Capital $ 563,650 $ 457,830 $ 347,340 $ 301,054 $ 339,665
- -------------------------------------------------------------------------------------
Total Assets $1,062,274 $ 940,223 $ 823,689 $ 763,026 $ 784,997
- -------------------------------------------------------------------------------------
Short-Term Debt and
Current Maturities $ 416 $ 726 $ 842 $ 1,600 $ 1,386
Long-Term Debt 370 983 1,810 400 773
Stockholders' Equity 738,166 632,077 532,724 463,356 473,922
- -------------------------------------------------------------------------------------
Total Capital Invested $ 738,952 $ 633,786 $ 535,376 $ 465,356 $ 476,081
- -------------------------------------------------------------------------------------
Gross Margin % to Sales 28.6% 28.0% 30.7% 27.3% 28.2%
- -------------------------------------------------------------------------------------
Return on Sales Before
Discontinued Operations 8.2% 6.8% 5.2% 0.7% 5.9%
- -------------------------------------------------------------------------------------
Return on Average
Stockholders' Equity 15.6% 13.9% 13.0% (1.3)% 14.7%
- -------------------------------------------------------------------------------------
Effective Tax Rate 30% 30% 32% 32% 32%
- -------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
1. Summary of Significant Accounting Policies
- --------------------------------------------------------------------------------
Business
The Company provides its customers with the products and services they need to
develop the advanced communications networks that deliver voice, data and
video. The Company's products connect information generators with information
users via broadband terrestrial and satellite networks, and include
applications for the converging cable, telephone, and data networks.
The Company operates primarily in two reportable business segments: Broadband
and Satellite. The Broadband segment consists of subscriber and transmission
systems and the Satellite segment consists of satellite network and satellite
television network systems.
The Company's products are sold primarily through its own sales personnel who
work out of offices in Norcross, Georgia and other metropolitan areas in the
United States. Certain products are also marketed in the United States through
independent sales representatives and distributors. In addition to direct sales
by the Company, sales in foreign countries are made through wholly-owned
subsidiaries and branch offices, as well as through independent distributors
and independent sales representatives.
The materials and supplies purchased by the Company are standard electronic
components, such as integrated circuits, wire, circuit boards, transistors,
capacitors and resistors, all of which are produced by a number of
manufacturers. Matsushita Electronic Components Co., Ltd. and its affiliates
manufacture analog set-tops for the Company and are a primary supplier of those
set-tops. Cablevision Electronics Co., Ltd. and Zinwell Corporation, Tiawanese
companies, are primary suppliers of taps for the Company. The Company also
purchases aluminum and steel, including castings and semi-fabricated items,
produced by a variety of sources. The Company's primary supplier of die
castings for its RF distribution products is Premiere Die Casting, Inc.
Additionally, Motorola, Inc., Broadcom Corporation and STMicroelectronics are
three of the Company's primary suppliers of a variety of semi-conductor
products, which are used as components in an array of the Company's products,
including its set-tops. The Company considers its sources of supply to be
adequate and is not dependent upon any single supplier, except for Matsushita
Electronic Components Co., Ltd. (and affiliates), Cablevision Electronics Co.,
Ltd., Zinwell Corporation, Premiere Die Casting, Inc., Motorola, Inc., Broadcom
Corporation and STMicroelectronics for any significant portion of the materials
used in the products it manufactures or for the products it sells. From time to
time, the Company experiences shortages of certain electronic components from
its suppliers. These shortages have not had, and are not expected to have, a
material effect on the Company's operations.
Fiscal Year-End
The Company's fiscal year ends on the Friday closest to June 30 of each year.
Fiscal year ends are as follows:
<TABLE>
<S> <C>
1999: July 2, 1999
1998: June 26, 1998
1997: June 27, 1997
</TABLE>
Fiscal 1999 includes fifty three weeks.
Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and all subsidiaries after elimination of all material intercompany
accounts and transactions.
Use of Estimates
The preparation of the accompanying consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates. The
estimates made by management primarily relate to receivable and inventory
reserves, estimated costs to complete long-term contracts and certain accrued
liabilities, principally relating to warranty and service provisions and
restructuring reserves, compensation, claims, litigation and taxes.
29
<PAGE>
Foreign Currency Translation
The financial statements of certain foreign operations are translated into U.S.
dollars at current exchange rates. Resulting translation adjustments are
accumulated as a component of accumulated other comprehensive income and
excluded from net earnings. Foreign currency transaction gains and losses are
included in cost of sales and other income.
Foreign Exchange Contracts
The Company enters into foreign exchange forward contracts to hedge certain
firm commitments and assets denominated in currencies other than the U.S.
dollar, primarily Japanese yen. These contracts are for periods consistent with
the exposure being hedged and generally have maturities of one year or less. To
qualify as a hedge, the item to be hedged must expose the Company to inventory
pricing or asset devaluation risk and the related contract must reduce that
exposure and be designated by the Company as a hedge. Gains and losses on
foreign exchange forward contracts, including cost of the contracts, are
deferred and recognized in income in the same period as the hedged
transactions. The Company's foreign exchange forward contracts do not
significantly subject the Company's results of operations to risk due to
exchange rate fluctuations because gains and losses on these contracts
generally offset losses and gains on the exposure being hedged. The Company
does not enter into any foreign exchange forward contracts for speculative
trading purposes. If a foreign exchange forward contract did not meet the
criteria for a hedge, the Company would recognize unrealized gains and losses
as they occur.
Firmly committed purchase exposure and related derivative contracts for fiscal
2000 are as follows:
<TABLE>
<CAPTION>
Japanese Canadian
Yen Dollar
--------- --------
<S> <C> <C>
Firmly committed purchased contracts 1,549,000 5,090
Notional amount of forward contracts 1,521,000 5,090
Average contract amount (Foreign currency/
United States dollar) 127.90 1.47
</TABLE>
The Company has no derivative exposure beyond fiscal 2000. During fiscal 2000,
the Company will relocate the manufacture of certain analog set-tops from a
supplier in Japan to a supplier in Mexico. Purchases from the supplier in
Mexico will be denominated in U.S. dollars thereby reducing the Company's
exposure to exchange rate fluctuations in Japanese yen.
Method of Recording Contract Profits
Revenues from progress-billed contracts are primarily recorded using the
percentage-of-completion method based on contract costs incurred to date.
Losses, if any, are recorded when determinable. Costs incurred and accrued
profits not billed on these contracts are included in receivables. Unbilled
receivables, which consist of retainage, were $13,051 at July 2, 1999 and
$9,138 at June 26, 1998. It is anticipated that substantially all such amounts
will be collected within one year.
Research and Development Expenditures
Certain software development costs are capitalized when incurred and are
reported at the lower of unamortized cost or net realizable value.
Capitalization of software development costs begins upon the establishment of
technological feasibility. The establishment of technological feasibility and
the ongoing assessment of recoverability of capitalized software development
costs require considerable judgment by management with respect to certain
external factors, including, but not limited to, anticipated future revenues,
estimated economic life and changes in software and hardware technologies.
The Company capitalized $3,268, $2,181 and $2,022 of software development costs
in 1999, 1998 and 1997, respectively. During 1999, the Company recognized
revenue on certain of these products and charged $603 to cost of sales. No such
revenue was recognized in 1998 or 1997. Capitalization will cease when the
products are available for general release to customers.
The Company periodically allocates engineering resources from research and
development efforts for specific customer orders. The revenue from these orders
will be recognized in future periods and, accordingly, the related costs have
been inventoried. At July 2, 1999 and June 26, 1998, the Company had $9,013 and
$11,188 of such non-recurring engineering costs capitalized in inventory.
During 1999 and 1998, the Company recognized revenue on certain of these orders
and, accordingly, charged
30
<PAGE>
$2,175 and $1,341 to cost of sales, respectively. No such revenue was
recognized in 1997.
Depreciation, Maintenance and Repairs
Depreciation is provided using principally the straight-line method over the
estimated useful lives of the assets. Maintenance and repairs are charged to
expense as incurred. Renewals and betterments are capitalized. The cost and
accumulated depreciation of property retired or otherwise disposed of are
removed from the respective accounts, and the gains or losses thereon are
included in the consolidated statement of earnings.
Warranty Costs
The Company accrues warranty costs at the time of sale. Expenses related to
unusual product warranty problems and product defects are recorded in the
period the problem is identified.
Earnings Per Share
Basic earnings per share were computed based on the weighted average number of
shares of common stock outstanding. Diluted earnings per share were computed
based on the weighted average number of diluted shares of common stock
outstanding.
Cash and Cash Equivalents
The Company considers all investments purchased with an original maturity of
three months or less to be cash equivalents.
Marketable Securities
Marketable securities consist of investments in common stock and are stated at
market value. All marketable securities in this balance sheet caption are
defined as trading securities under the provisions of Statement of Financial
Accounting Standards (SFAS) No. 115 and unrealized holding gains and losses are
reflected in earnings.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Cost includes materials, direct labor, and manufacturing overhead. Market is
defined principally as net realizable value. Inventories include purchased and
manufactured components in various stages of assembly as presented in the
following table:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Raw Materials and
Work-In-Process $ 129,911 $ 113,703
Finished Goods 59,443 45,842
--------- ---------
Total Inventory $ 189,354 $ 159,545
========= =========
</TABLE>
Long-Lived Assets
The Company records impairment losses on long-lived assets used in operations
when events and circumstances indicate that the assets might be impaired and
the undiscounted cash flows estimated to be generated by those assets are less
than the carrying amount of those assets.
Cost in Excess of Net Assets Acquired
Cost in excess of net assets acquired is being amortized on a straight-line
basis over seventeen years. Subsequent to acquisition, the Company continually
evaluates whether later events and circumstances have occurred that indicate
the remaining estimated useful life of goodwill might warrant revision or that
the remaining balance of goodwill may not be recoverable. When factors indicate
that goodwill should be evaluated for possible impairment, the Company uses an
estimate of the related business segment's undiscounted net income or other
methods of determining fair value, if more readily determinable, over the
remaining life of the goodwill in measuring whether the goodwill is
recoverable.
Non-Current Marketable Securities
Non-current marketable securities consist of investments in common stock and
are stated at market value. All non-current marketable securities are defined
as available for sale under the provisions of SFAS No. 115 and unrealized
holding gains and losses are included, net of taxes, in accumulated other
comprehensive income.
Comprehensive Income
During fiscal 1999, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes rules for the reporting of comprehensive
income and its components. Comprehensive income consists of net income,
unrealized gains on marketable securities defined as available for sale under
the provisions of SFAS No. 115, and foreign currency translation adjustments.
Prior year financial statements have
31
<PAGE>
been reclassified to conform to the SFAS No. 130 requirements.
Financial Presentation
Certain prior year amounts have been restated to conform to the current year
presentation.
2. Investments and Acquisitions
- --------------------------------------------------------------------------------
On February 28, 1997, the Company acquired 100 percent of the outstanding stock
of Arcodan A/S (Arcodan) for $15,000 in cash. Arcodan is a Danish manufacturer
of advanced analog and digital headend systems, opto-electronics and RF
distribution equipment. The acquisition was accounted for as a purchase and,
accordingly, the acquired assets and liabilities were recorded at their
estimated fair value at the date of acquisition. The purchase price has been
allocated to the assets acquired and liabilities assumed, including $5,781 to
cost in excess of net assets acquired.
3. Restructuring Charges
- --------------------------------------------------------------------------------
During 1998, the Company announced that it would implement a restructuring and
consolidation of worldwide manufacturing operations for reduced cost, improved
efficiency and better customer service. Production of the RF amplifier was
transferred from Norcross, Georgia to the Company's high volume, low cost
manufacturing facility in Juarez, Mexico during the first half of 1999. The
Norcross manufacturing facility is focused on medium- to low-volume products
requiring close engineering support. The production of cable headend equipment
was consolidated in Norcross from Vancouver, British Columbia during the second
half of 1999. The Melbourne, Florida satellite services Network Operations
Center (NOC) and research and development facility was relocated to Norcross.
During 1998, the Company's European headquarters moved from London, England to
Frankfurt, Germany to better address market opportunities in continental
Europe. The Far East regional headquarters were transferred from Hong Kong to
Singapore. The Company's Satellite Networks and Communications and Tracking
Systems business units combined in 1999 to capitalize on the combined resources
provided by concentrated capabilities in networks, research and development,
marketing and sales, and customer program management and services.
The Company recorded restructuring charges of $23,412 which included $10,217
and $3,200 for assets to be abandoned and expenses related to the remaining
contractual liabilities for cancelled leases, respectively, as a result of the
consolidation of operations, $5,173 for severance costs for approximately 500
employees primarily in manufacturing positions and $4,822 for the impairment of
certain assets and other miscellaneous expenses. As of July 2, 1999, benefits
paid and charged against the liability for severance totaled $6,360, and
approximately 560 employees have actually been terminated. As of July 2, 1999,
$5,235 has been charged against the liability for contractual liabilities for
cancelled leases and other miscellaneous costs, and $1,600 remains in the
liability which is expected to be utilized by 2002 for expenses related to
contractual liabilities for cancelled leases.
The following reconciles the beginning restructuring charge to the liability at
the end of fiscal 1998 and 1999:
<TABLE>
<CAPTION>
Contractual
Obligations
under
Fixed Cancelled
Assets Leases Severance Other Total
-------- ----------- --------- ------- --------
<S> <C> <C> <C> <C> <C>
Restructuring charge $ 10,217 3,200 5,173 4,822 $ 23,412
Charges to the reserve and
assets written off (10,217) -- (1,321) (2,197) (13,735)
-------- ------ ------- ------- --------
Balance at June 28, 1998 -- 3,200 3,852 2,625 9,677
Charges to the reserve -- (927) (5,039) (2,111) (8,077)
Reserve adjustments -- (673) 1,187 (514) --
-------- ------ ------- ------- --------
Balance at July 2, 1999 $ -- $1,600 $ -- $ -- $ 1,600
======== ====== ======= ======= ========
</TABLE>
32
<PAGE>
4. Other (Income) Expense
- --------------------------------------------------------------------------------
Other income of $62,281 in 1999 included gains of $41,329 and $16,646 from the
sale of the Company's investments in Broadcom Corporation (Broadcom) and
Harmonic Inc. (Harmonic), respectively, $6,250 from the cancellation of a
contract under which the Company was obligated to supply equipment and $4,952
from an investment in a partnership. In addition, during the second quarter of
fiscal 1999, the Company decided to dispose of a business unit, Control
Systems, which produces devices to monitor and manage utility service usage,
because the business unit did not fit with the Company's core strategy. The
Company recorded a charge of $6,225 to adjust the carrying value of the assets
to be sold to fair value, less costs to sell, to adjust the estimated
profitability on certain contracts to allow the purchaser to achieve reasonable
margins, to provide for indemnification to the purchaser and to provide for
other miscellaneous expenses associated with the sale. There have been no
charges to the reserve through July 2, 1999. The Company completed the sale of
Control Systems during the first quarter of fiscal 2000.
Other income of $79,863 in 1998 included a gain of $94,000 from the adjustment
of the Company's investment in Broadcom Corporation to market value, a gain of
$9,080 from the sale of certain assets of the interdiction business, a loss of
$9,000 from the discontinuance of research and development efforts related to
the Company's CoAxiom telephony products, a loss of $6,250 for estimated losses
on the resale of equipment the Company is contractually obligated to supply,
$5,500 for expenses and the potential settlement of environmental issues and
other miscellaneous items.
During 1998, the Company sold the inventory, manufacturing assets and
intellectual property of its interdiction business to Blonder Tongue
Laboratories, Inc. (Blonder Tongue) for $19,000 in cash, Blonder Tongue stock
valued at $1,000 and an option to acquire additional shares of Blonder Tongue
stock, and the Company recorded a pre-tax gain of $9,080.
During fiscal 1997 the Company decided to decrease its research and development
efforts related to CoAxiom telephony products because the markets for these
products had not developed as quickly as the Company previously anticipated.
During fiscal 1998, the Company decided to discontinue its efforts to develop
CoAxiom systems and recorded a pre-tax charge of approximately $9,000. The
charge included reserves for the disposal of inventory and fixed assets which
were associated with the development of CoAxiom systems, research and
development costs incurred during fiscal 1998 and other miscellaneous expenses.
At July 2, 1999, the Company had a reserve of $461 related to the
discontinuance of CoAxiom products and anticipates disposition of issues
associated with this reserve, including the disposal of any remaining inventory
of CoAxiom products, during the first quarter of fiscal 2000. Although the
Company discontinued development of CoAxiom telephony products, the Company
will continue to develop applications and technology for telephony on cable
using IP (Internet Protocol) telephony which will be used in the Company's
networks and Explorer 2000 digital interactive set-tops.
During fiscal 1997, the Company decided to dispose of two business units,
microwave and mobile, because these businesses were not aligned with the
Company's core business strategies. The Company recorded a charge of $5,526 to
adjust the carrying amount of the net assets held for sale to net realizable
value and to provide for estimated indemnifications to the purchaser,
severance, closing costs and other miscellaneous expenses related to the sale.
During the ordinary course of business, the Company encounters certain risks
and uncertainties related to the satisfactory performance under contracts which
it evaluates periodically and provides reserves, if appropriate. Accordingly,
the estimated loss on the sale of the microwave and mobile businesses was
computed on the basis that the Company would sell the businesses at an amount
that would allow the purchaser, with reasonable assurance, to complete the
contracts at a reasonable margin.
During 1998, the Company sold the majority of the net assets of the microwave
business unit for $8,059 of cash. No gain or loss was recognized on the
transaction.
At July 2, 1999, the Company had a reserve of $3,266 related to the disposition
of these two business units. Charges to the reserve consisted of
33
<PAGE>
expenses related to contracts of the microwave business retained by the
Company, severance and other miscellaneous expenses. The Company anticipates
disposition of the remaining assets of the mobile business during the first
quarter of fiscal 2000. Resolution of the remaining issues related to the
reserve may require future cash outlays; however, the Company does not believe
these outlays will be significant.
Other income of $1,513 in 1997 included a gain from the sale of land and a
building in San Diego County, California not required for current operations, a
charge of $5,526 related to the Company's previously discussed decision to
dispose of two business units, microwave and mobile, and net gains from rental
income and other miscellaneous items.
5. Discontinued Operations
- --------------------------------------------------------------------------------
During the quarter ended September 29, 1995, the Company decided to discontinue
its defense-related businesses in San Diego, California because these
businesses were not aligned with the Company's core business strategies. A one-
time charge of $12,172, net of a tax benefit of $5,728 for the estimated loss
on the sale of discontinued operations was recorded in the quarter ended
September 29, 1995.
On August 14, 1996, the Company completed the sale of its defense-related
businesses to Global Associates, Ltd. (Global) for cash of $13,274 and secured
and unsecured notes aggregating approximately $5,000. The net realizable value
of the assets of the defense-related businesses and settlement of issues
related to the pricing of the unexercised options with a prime contractor were
more favorable than the Company had anticipated when it decided to exit these
businesses; accordingly the Company recognized a pre-tax gain of $5,000 from
these transactions in the first quarter of 1997. Losses from the defense-
related businesses, while they were accounted for as discontinued operations of
$2,482, net of a tax benefit of $1,168, approximated the amount included in the
$12,172 one-time after-tax charge for the estimated loss on the sale of
discontinued operations.
Global defaulted under its promissory notes to the Company and under promissory
notes to Global's senior lenders and in January 1998, filed a voluntary
petition for a Chapter 11 reorganization in the Unites States Bankruptcy Court.
In August 1998, the Company settled with Global regarding the notes due the
Company and the preference period and non-preference period amounts owed to
Global by the Company and offset by the Company against Global's debt. The
bankruptcy court approved the settlement in August 1998. In August 1998, Smith
Industries acquired the assets of Global as part of the bankruptcy proceeding
and assumed the responsibility for certain of the contracts with the government
that had not been novated to Global. When the Company sold the assets of its
defense-related business to Global, it was unable to novate all the government
contracts to Global and, therefore, retained potential liability on the
government contracts which had not been completed or novated. In May 1999, in
connection with Global's reorganization plan and the bankruptcy court's
approval of such plan, Global rejected several contracts with the government,
which had not been assumed by Smith Industries. As a result of these actions,
the Company remains liable to the government for these contracts.
At July 2, 1999, the Company has a reserve of approximately $2,615 to cover
potential liability on the contracts rejected by Global. The Company is
currently assessing its remaining potential liability in light of the
bankruptcy settlement and anticipates resolving this issue by the end of
calendar year 1999.
34
<PAGE>
6. Quarterly Financial Data (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fiscal Quarters
------------------------------------------
1999 First Second Third Fourth
---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $257,478 $310,747 $320,019 $355,229
Gross margin 70,369 87,822 91,384 105,736
Gross margin % 27.3% 28.3% 28.6% 29.8%
Net earnings 14,994(1) 19,188(2) 20,814 47,347(3)
Earnings per share
Basic 0.19 0.25 0.27 0.62
Diluted 0.19 0.25 0.27 0.59
Stock prices
High 26.8750 22.8750 34.3750 39.3125
Low 17.6875 12.6875 22.5000 26.8750
Dividends paid
per share 0.015 0.015 0.015 0.015
</TABLE>
- --------
(1) Includes a gain of $12,600 from the adjustment of the Company's investment
in Broadcom to market value.
(2) Includes a gain of $14,263 from the adjustment of the Company's investment
in Broadcom to market value, a loss of $7,616 from the sale of one million
shares of the Company's investment in Broadcom, a gain of $4,375 from the
cancellation of a contract and a charge of $4,356 related to the
discontinuance of the Company's Control Systems business unit.
(3) Includes gains of $11,652 from the sale of 720,000 shares of the Company's
investment in Harmonic, $8,721 from the sale of the Company's remaining
investment in Broadcom and $3,466 from an investment in a partnership.
<TABLE>
<CAPTION>
Fiscal Quarters
----------------------------------------
1998 First Second Third Fourth
---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $294,501 $294,524 $288,714 $303,665
Gross margin 90,228 86,017 91,272 63,149(2)
Gross margin % 30.6% 29.2% 31.6% 20.8%(2)
Net earnings 16,485 14,832 17,137(1) 32.339(3)
Earnings per share
Basic 0.21 0.19 0.22 0.40
Diluted 0.21 0.19 0.22 0.40
Stock prices
High 23.8750 23.6250 20.6250 25.2500
Low 20.5000 16.5000 14.5625 18.1875
Dividends paid
per share 0.015 0.015 0.015 0.015
</TABLE>
- --------
(1) Includes a gain of $6,356 from the sale of certain assets of the
interdiction business and a charge of $6,300 from the discontinuance of
research and development efforts related to CoAxiom products.
(2) Includes charges of $33,591 for excess inventory related to the
consolidation of manufacturing operations, the combination of Satellite
Networks and Communications and Tracking Systems business units, the
discontinuance of certain models of products, estimated losses on a
contract and other miscellaneous charges related to the restructuring and
consolidation of worldwide manufacturing.
(3) Includes charges of $23,514 for the after-tax impact of the items discussed
in (2), and after-tax restructuring charges of $16,388, bad debt expense of
$4,126 related to receivables from customers in the Asia Pacific region,
provision for loss on the resale of used equipment of $4,375 and $4,200 for
environmental issues, and a one-time gain of $65,800 from the mark-to-
market adjustment of an investment.
7. Segment Information
- --------------------------------------------------------------------------------
The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," during the fourth quarter of 1999. SFAS No. 131
establishes standards for reporting information about operating segments in
annual financial statements and requires selected information about operating
segments in interim financial reports issued to shareholders. Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance.
The Company produces a wide variety of products for terrestrial and satellite
communications networks, including digital video, voice and data communications
and operates primarily in two reportable business segments: Broadband and
Satellite. The Broadband segment consists of subscriber and transmission
systems and the Satellite segment consists of satellite network and satellite
television network systems. The Broadband segment includes modulators,
demodulators and signal processors for video and audio receiving stations
(often referred to as "headend" systems), products for distributing
communications signals by coaxial cable and fiber optics from headend systems
to subscribers and analog and digital set-top terminals that enable television
sets to receive all channels transmitted by system operators. The products in
the
35
<PAGE>
Broadband segment also include receivers, transmitters, distribution
amplifiers, signal encoders and decoders, controllers, optical amplifiers,
source lasers, digital video compression and transmission equipment and fiber
optic distribution equipment. The products in the Satellite segment include
tracking and telemetry equipment, earth observation satellite ground stations,
and intercept systems. The satellite earth stations receive and transmit
signals for video, voice and data and are utilized in satellite-based
telephone, data and television distribution networks. The Satellite segment
also produces telemetry instruments, radar platforms, special receivers,
special measurement devices and other equipment used to track aircraft,
missiles, satellites and other moving objects and to communicate with and
receive and record various measurements and other data from the object.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies for internal management reporting
purposes. Certain items, such as restructuring charges and one-time gains and
losses, have not been allocated to the segments. The Company measures segment
performance based on earnings before taxes. Information on the segments and
reconciliations to consolidated amounts are as follows:
<TABLE>
<CAPTION>
Corporate
and
1999 Broadband Satellite Other(2) Total
- ---- ---------- --------- --------- ----------
<S> <C> <C> <C> <C>
Sales $1,049,410 $192,446 $ 1,617 $1,243,473
Earnings (loss) before
taxes 95,998 (21,853) 72,060(3) 146,205
Segment assets 505,805(1) 122,577(1) 433,892(4) 1,062,274
Depreciation and
amortization expense 31,378 6,260 8,437 46,075
Capital expenditures 33,096 10,252 8,004 51,352
<CAPTION>
1998
- ----
<S> <C> <C> <C> <C>
Sales $ 887,279 $268,336 $ 25,789 $1,181,404
Earnings before taxes 72,945 9,528 32,946(3) 115,419
Segment assets 425,059(1) 124,052(1) 391,112(4) 940,223
Depreciation and
amortization expense 32,660 5,901 9,699 48,260
Capital expenditures 25,701 10,037 4,905 40,643
<CAPTION>
1997
- ----
<S> <C> <C> <C> <C>
Sales $ 840,699 $288,464 $ 39,082 $1,168,245
Earnings (loss) before
taxes 89,387 18,415 (18,623)(3) 89,179
Segment assets 427,363(1) 153,256(1) 243,070 (4) 823,689
Depreciation and
amortization expense 35,149 6,150 1,852 43,151
Capital expenditures 30,625 10,786 11,665 53,076
</TABLE>
- --------
(1) Includes accounts receivable, inventory, property, plant and equipment and
intangible assets.
(2) Includes Corporate and business units which have been discontinued or
sold.
(3) Includes the gains and losses discussed in Note 4 "Other Income and
Expense" and restructuring and other one-time charges in 1998. In 1997,
earnings before taxes also includes losses of businesses which were
discontinued.
(4) Consists primarily of cash, marketable securities and deferred income
taxes.
Sales to Time Warner, Inc. and its affiliates were 16% of the Company's total
sales in fiscal 1999 and were 11% of total sales in each of fiscal 1998 and
1997. Sales to MediaOne and its affiliates were 14% of the Company's total
sales in fiscal 1999, were 11% of total sales in fiscal 1998 and were less
than 10% of total sales in 1997. No other customer accounted for 10% or more
of the Company's sales in any of the three years. Export sales accounted for
22 percent of total sales in 1999, 32 percent in 1998 and 37 percent in 1997.
Sales of analog set-tops constituted 24 percent of the Company's total sales
in 1999, and approximately 33 percent and 30 percent of such sales in 1998 and
1997, respectively. Sales of digital set-tops constituted 15 percent and 1
percent of the Company's total sales in 1999 and 1998, respectively, and were
less than 1 percent of total sales in 1997. Sales of RF products were
approximately 16 percent of the Company's total sales in 1999, and
approximately 18 percent and 19 percent of such sales in 1998 and 1997,
respectively.
Sales are attributed to geographic areas based upon the location to which the
product is shipped. Long-lived assets include property, plant and equipment,
cost in excess of net assets acquired, investments other than marketable
securities, and intellectual property.
<TABLE>
<CAPTION>
1999 U.S. Foreign Total
- ---- -------- ------- ----------
<S> <C> <C> <C>
Sales $964,911 278,562 $1,243,473
Long-lived assets $147,934 35,148 $ 183,082
<CAPTION>
1998
- ----
<S> <C> <C> <C>
Sales $804,761 376,643 $1,181,404
Long-lived assets $148,908 36,854 $ 185,762
<CAPTION>
1997
- ----
<S> <C> <C> <C>
Sales $738,011 430,234 $1,168,245
Long-lived assets $161,773 34,006 $ 195,769
</TABLE>
36
<PAGE>
Neither sales nor long-lived assets in any single country exceeded 10 percent
of total sales or total long-lived assets, respectively, in 1999, 1998 or 1997.
8. Indebtedness
- --------------------------------------------------------------------------------
At July 2, 1999, the Company had a $300,000 senior credit facility that
provides for unsecured
borrowings up to $150,000 which expires May 5, 2000, and up to $150,000 which
expires May 11, 2004. There were no borrowings outstanding under this facility
at July 2, 1999 or June 26, 1998. Interest on borrowings under this facility
are at varying rates and fluctuate based on market rates. Facility fees based
on the average daily aggregate amount of the facility commitments are payable
quarterly.
Long-term debt consisted of:
<TABLE>
<CAPTION>
1999 1998
---- ------
<S> <C> <C>
7.3% capitalized lease, payable in quarterly installments of $200
through 2001 $165 $ 800
Other debt at 7.4% - 7.9% in semi-annual installments ranging from
$14 to $69 through 2001 621 909
---- ------
786 1,709
Less-Current maturities 416 726
---- ------
$370 $ 983
==== ======
</TABLE>
Long-term debt at July 2, 1999 had scheduled maturities as follows: $416 - 2000
and $370 - 2001.
Total interest paid was $581, $407 and $430, in 1999, 1998 and 1997,
respectively.
9. Accrued Liabilities
- --------------------------------------------------------------------------------
Accrued liabilities consisted of:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Compensation $ 29,211 $ 25,490
Taxes, other than income taxes 13,474 13,810
Warranty and service 11,105 12,002
Customer down payments 6,943 3,460
Restructuring reserves 1,600 9,677
Other 62,705 74,572
--------- ---------
$ 125,038 $ 139,011
========= =========
</TABLE>
10. Other Liabilities
- --------------------------------------------------------------------------------
Other liabilities consisted of:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Retirement $ 34,419 $ 28,785
Compensation 12,911 11,486
Other 8,597 8,224
-------- --------
$ 55,927 $ 48,495
======== ========
</TABLE>
11. Income Taxes
- --------------------------------------------------------------------------------
The tax provision differs from the amount resulting from multiplying earnings
before income taxes by the statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory federal tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit 2.0 1.1 1.3
Tax contingencies (2.3) (0.4) 2.3
Research and development tax credit (3.7) (4.8) (7.2)
Export incentives (0.9) (1.2) (3.1)
Foreign earnings taxed at different rates 0.1 0.1 3.2
Other, net (0.2) 0.2 0.5
---- ---- ----
30.0% 30.0% 32.0%
==== ==== ====
</TABLE>
Income tax provision (benefit) includes the following:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- --------
<S> <C> <C> <C>
Current tax provision (benefit)
Federal $ 46,638 $ 7,306 $(10,420)
State 7,708 251 (544)
Foreign 5,107 18,783 17,559
-------- ------- --------
59,453 26,340 6,595
-------- ------- --------
Deferred tax provision (benefit)
Federal (14,094) 9,602 19,647
State (3,317) 1,709 2,277
Foreign 1,820 (3,025) 18
-------- ------- --------
(15,591) 8,286 21,942
-------- ------- --------
Total provision for income taxes $ 43,862 $34,626 $ 28,537
======== ======= ========
</TABLE>
37
<PAGE>
Total income taxes paid include settlement payments for federal, state and
foreign audit adjustments. The total income taxes paid were $54,178, $19,134
and $22,686 in 1999, 1998 and 1997, respectively. During 1997, the Company
completed an audit on its federal income tax returns for the years 1990 through
1993. The settlement payment from the audit did not have a significant impact
on the consolidated financial statements.
The tax effect of significant temporary differences representing deferred tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
1999 1998
------- --------
<S> <C> <C>
Current deferred tax assets Expenses not currently
deductible $21,008 $ 33,610
Inventory valuation 11,695 16,922
Warranty reserves 3,536 2,953
Receivables valuation 1,657 1,820
Other 209 263
------- --------
Current deferred tax assets 38,105 55,568
Current deferred tax liabilities Unrealized gain on
investments (975) (37,506)
------- --------
Net current deferred tax asset $37,130 $ 18,062
======= ========
Noncurrent deferred tax assets Postretirement and
postemployment benefits $16,429 $ 14,124
Expenses not currently deductible 2,461 3,352
------- --------
Noncurrent deferred tax assets 18,890 17,476
Noncurrent deferred tax liabilities
Depreciation and amortization (5,667) (1,922)
Accumulated comprehensive income items (4,920) 82
Capitalized software (2,615) (1,471)
------- --------
Net noncurrent deferred tax asset $ 5,688 $ 14,165
======= ========
</TABLE>
Valuation allowances for current deferred tax assets and noncurrent deferred
tax assets were not required in 1999 or 1998.
The net noncurrent deferred tax asset is included in Other Assets at July 2,
1999 and June 26, 1998.
In 1999, 1998 and 1997, earnings before income taxes included $17,242, $42,375
and $35,658 respectively, of earnings by the Company's foreign operations.
12. Retirement and Benefit Plans
- --------------------------------------------------------------------------------
In 1999, the Company adopted SFAS No. 132 "Employers' Disclosures about
Pensions and Other Post-retirement Benefits" which standardizes the disclosure
requirements for pensions and other post retirement benefits.
The Company has a defined benefit pension plan covering substantially all of
its domestic employees. The benefits are based upon the employees' years of
service, age and compensation.
The Company's funding policy is to contribute annually the amount expensed each
year consistent with the requirements of the federal law to the extent that
such costs are currently deductible.
The following table sets forth the plan's funded status and amounts recognized
in the Company's Consolidated Statement of Financial Position at year-end,
using March 31 as a measurement date for all actuarial calculations of asset
and liability values and significant actuarial assumptions:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Change in Benefit Obligation
Benefit obligation at beginning of year $83,836 $79,191
Service cost 6,941 6,172
Interest cost 5,671 5,739
Actuarial loss 3,995 2,365
Benefits paid (9,316) (9,631)
------- -------
Benefit obligation at end of year $91,127 $83,836
======= =======
Change in Plan Assets
Fair value of plan assets at beginning of year $94,102 $74,457
Actual return on plan assets 6,481 23,460
Company contribution (includes fourth quarter amount) -- 5,816
Benefits paid (9,316) (9,631)
------- -------
Fair value of plan at end of year $91,267 $94,102
======= =======
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
1999 1998
------- --------
<S> <C> <C>
Funded status $ (140) $(10,266)
Unrecognized net actuarial gain 6,481 11,313
Unrecognized transition obligation 5,059 5,715
Unrecognized prior service cost 248 282
------- --------
Accrued pension cost $11,648 $ 7,044
======= ========
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Weighted-Average Assumptions
Discount rate 7.25% 7.25% 7.75%
Expected return on plan assets 10.00% 10.00% 10.00%
Rate of compensation increase 5.00% 5.00% 5.00%
</TABLE>
Plan assets are invested in listed stocks, bonds and short term monetary
investments.
The Company's net pension expense was $4,604 in 1999, $4,233 in 1998 and $4,091
in 1997. The components of pension expense are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Service cost $6,941 $6,172 $6,105
Interest cost 5,671 5,739 5,330
Expected return on plan assets (7,318) (6,988) (6,654)
Amortization of transition net asset (656) (656) (656)
Amortization of prior service cost (34) (34) (34)
------ ------ ------
Pension expense $4,604 $4,233 $4,091
====== ====== ======
</TABLE>
The Company has unfunded defined benefit retirement plans for certain key
officers and non-employee directors. Accrued pension cost for these plans was
$12,580 at July 2, 1999 and $11,074 at June 26, 1998. Retirement expense for
these plans was $2,777, $2,649 and $2,193 in 1999, 1998 and 1997, respectively.
In addition to providing pension benefits, the Company has contributory plans
that provide certain health care and life insurance benefits to eligible
retired employees. The following table sets forth the plans' funded status and
amounts recognized in the Company's Consolidated Statement of Financial
Position at year-end, using March 31 as a measurement date for all actuarial
calculations of liability values:
<TABLE>
<CAPTION>
1999 1998
------ -------
<S> <C> <C>
Change in Benefit Obligation
Benefit obligation at beginning of year $8,184 $ 8,998
Service cost 45 46
Interest cost 570 663
Amendments 380 --
Actuarial gain (914) (701)
Benefits paid (778) (822)
------ -------
Benefit obligation at end of year $7,487 $ 8,184
====== =======
Change in Plan Assets
Fair value of plan assets at beginning of year $ 171 $ 249
Company contributions 804 744
Benefits paid (778) (822)
------ -------
Fair value of plan assets at end of year $ 197 $ 171
====== =======
Funded status $7,290 $ 8,013
Unrecognized net actuarial gain 2,810 1,989
Unrecognized prior service cost (380) --
------ -------
Accrued benefit cost $9,720 $10,002
====== =======
</TABLE>
39
<PAGE>
Significant actuarial assumptions are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Weighted-Average Assumptions
Discount rate 7.25% 7.25% 7.75%
Expected return on plan assets 10.00% 10.00% 10.00%
Rate of compensation increase 5.00% 5.00% 5.00%
</TABLE>
The assumed rate of future increase in health care cost was 7.9%, 8.5% and 9.1%
for 1999, 1998 and 1997, respectively and is expected to decrease to 6.0% for
each year by 2001. The components of postretirement benefit expense are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Service cost $ 45 $ 46 $ 45
Interest cost 570 663 704
Amortization of net actuarial gain (93) (51) (24)
---- ---- ----
Postretirement benefit expense $522 $658 $725
==== ==== ====
</TABLE>
A change in the assumed health care trend rate would have the following
effects:
<TABLE>
<CAPTION>
1% 1%
Increase Decrease
-------- --------
<S> <C> <C>
Effect on total of 1999 service and interest cost components $ 33 $ (30)
Effect on beginning of year 1999 postretirement benefit
obligation $458 $(405)
</TABLE>
13. Fair Value of Financial Instruments
- --------------------------------------------------------------------------------
The carrying amount of cash and cash equivalents approximates fair value
because of the short maturity of those instruments. The fair value of foreign
currency forward contracts is based on quoted market prices.
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
Carrying/ Carrying/
Contract Fair Contract Fair
Amount Value Amount Value
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents $300,454 $300,454 $175,392 $175,392
Marketable securities $ 2,438 $ 2,438 $ 95,947 $ 95,947
Non-current marketable securities $ 15,883 $ 15,883 $ -- $ --
Foreign currency forward contracts $ 9,229 $ 9,450 $ 335 $ 333
Sell Buy $ 25,063 $ 23,623 $ 46,318 $ 43,273
</TABLE>
14. Related Party Transactions
- --------------------------------------------------------------------------------
The Company had sales of $1,907, $2,289 and $3,591 to Scientific-Atlanta of
Shanghai, Ltd. (SASL) in 1999, 1998 and 1997. The Company purchased $5,664,
$4,043 and $2,496 of inventory from SASL in 1999, 1998 and 1997, respectively.
The Company had a net receivable from SASL of $51 at July 2, 1999 and $563 at
June 26, 1998. The Company had sales of $79 to Advanced Broadband System
Services, Inc. (ABSS) and purchased services of $16,311 from ABSS in 1999.
There were no such sales or purchases in 1998 or 1997. The Company had a net
receivable of $32 from ABSS at July 2, 1999. Related party transactions were at
prices and terms equivalent to those available to and transacted with unrelated
parties. SASL and ABSS are partially-owned subsidiaries of the Company.
40
<PAGE>
15. Commitments, Contingencies, and Other Matters
- --------------------------------------------------------------------------------
Rental expense under operating lease agreements for facilities and equipment
for 1999, 1998 and 1997 was $18,879, $23,262 and $17,462, respectively. The
Company pays taxes, insurance, and maintenance costs with respect to most
leased items. Remaining operating lease terms, including renewals, range up to
seven years. Future minimum payments at July 2, 1999, under operating leases
were $47,587. Payments under these leases for the next five years are as
follows: 2000 - $13,303; 2001- $10,194; 2002 - $8,178; 2003 - $6,319 and 2004 -
$5,067.
The Company has agreements with certain officers which include certain benefits
in the event of termination of the officers' employment as a result of a change
in control of the Company.
The Company is also committed under certain purchase agreements which are
intended to benefit future periods.
The Company is a party to various legal proceedings arising in the ordinary
course of business. In management's opinion, the outcome of these proceedings
will not have a material adverse effect on the Company's financial position or
results of operations.
16. Common Stock and Related Matters
- --------------------------------------------------------------------------------
The Company purchased 4,648,000 shares of its common stock at an aggregate cost
of $65,228 during fiscal 1999, 500,000 shares at an aggregate cost of $7,511
during fiscal 1998 and 225,000 shares at an aggregate cost of $2,973 during
fiscal 1997.
The Company has non-qualified and incentive stock option plans to provide key
employees and directors with an increased incentive to work for the success of
the Company. Generally, the option price for stock options is the market value
at the date of grant and thus, the plans are non-compensatory. The options
expire 10 years after the dates of their respective grants.
The Company accounts for the stock purchase and stock option plans under APB
Opinion No. 25, which requires compensation costs to be recognized only when
the option price differs from the market price at the grant date. SFAS No. 123
allows a company to follow APB Opinion No. 25 with the following additional
disclosure that shows what the Company's net income and earnings per share
would have been using the compensation model under SFAS No. 123:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C> <C>
Net income As reported $102,343 $80,793 $64,042
Pro forma $ 91,041 $71,947 $57,761
Earnings per
share:
Basic As reported $ 1.33 $ 1.03 $ 0.82
Pro forma $ 1.19 $ 0.91 $ 0.74
Diluted As reported $ 1.30 $ 1.02 $ 0.82
Pro forma $ 1.16 $ 0.90 $ 0.74
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to July 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1999, 1998 and 1997, respectively:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Risk free interest rate 5.31% 6.01% 6.35%
Expected term 5 years 5 years 5 years
Expected forfeiture rate 1% 1% 1%
Volatility 51% 45% 44%
Expected annual dividends $0.06 $0.06 $0.06
</TABLE>
41
<PAGE>
The following information pertains to options on the Company's common stock for
the years ended July 2, 1999 and June 26, 1998:
<TABLE>
<CAPTION>
Number of Weighted Average
1999 Shares Exercise Price
- ---- ---------- ----------------
<S> <C> <C>
Outstanding,
beginning of year 6,523,009 $17.763
Granted 1,931,850 $23.281
Cancelled (353,904) $21.682
Exercised (2,447,924) $16.788
----------
Outstanding,
end of year 5,653,031 $19.841
==========
<CAPTION>
Number of Weighted Average
1998 Shares Exercise Price
- ---- ---------- ----------------
<S> <C> <C>
Outstanding,
beginning of year 6,318,078 $15.469
Granted 1,895,525 $22.011
Cancelled (459,276) $19.761
Exercised (1,231,318) $12.019
----------
Outstanding,
end of year 6,523,009 $17.763
==========
</TABLE>
The following information pertains to options on the Company's common stock at
July 2, 1999:
<TABLE>
<CAPTION>
Options Outstanding
----------------------------------------------------------------
Weighted Weighted
Average Average
Range of Remaining Exercise
Exercise Prices Shares Life in Years Price
- --------------- --------- ------------- --------
<S> <C> <C> <C>
$ 3.250 - $10.000 435,499 2.0 $ 7.750
$11.333 - $16.938 1,033,831 8.2 $15.106
$17.188 - $23.750 4,116,401 8.7 $22.089
$25.438 - $36.813 67,300 9.6 $33.344
---------
5,653,031 7.1 $19.841
=========
</TABLE>
<TABLE>
<CAPTION>
Options Exercisable
----------------------------------------------------------
Weighted
Average
Range of Exercise
Exercise Prices Shares Price
- --------------- --------- --------
<S> <C> <C>
$ 3.250 - $10.000 435,499 $ 7.750
$11.333 - $16.938 798,186 $14.987
$17.188 - $23.750 2,324,806 $21.488
$25.438 - $36.813 16,825 $33.344
---------
3,575,316 $18.419
=========
</TABLE>
At July 2, 1999, an additional 422,887 shares were reserved under employee and
director stock option plans.
The Company has an employee stock purchase plan whereby the Company provides
certain purchase benefits for participating employees. At July 2, 1999, 946,815
shares were reserved for issuance to employees under the plan.
The Company has a 401(k) plan whereby the Company matches eligible employee
contributions in Company stock, subject to certain limitations. The Company's
expense to match contributions was $6,416, $6,450 and $6,075 in 1999, 1998 and
1997, respectively. At July 2, 1999, 2,658,395 shares were reserved for
issuance to employees under the plan.
The Company has a stock plan for non-employee directors which provides for 500
shares of common stock of the Company to be granted to each director annually,
which allows directors to elect to receive all or a portion of his or her
quarterly compensation from the Company in the form of shares of common stock
of the Company, and which also provides for a retirement award of 1,500 shares
of common stock of the Company annually. At July 2, 1999, 79,500 shares were
reserved for issuance to non-employee directors under the plan.
The Company issues restricted stock awards and non-qualified stock option
grants to certain officers and key employees under a long-term incentive plan.
Compensation expense for restricted stock awards was $3,304, $2,670 and $845,
in 1999, 1998 and 1997, respectively. At July 2, 1999, 2,727,664 shares were
reserved for issuance under this plan.
At July 2, 1999, a total of 6,835,261 shares of authorized stock were reserved
for the above purposes.
The Company adopted a Rights Plan effective upon expiration of its previous
Shareholder Rights Plan in April 1997, and pursuant to the Plan declared a
dividend of one Right for each outstanding share of common stock. For shares
issued after such dividend, a Right attaches to each share of common stock
issued. The Right is to purchase 1/1000th share of preferred stock at an
exercise price of $118. Separate Rights certificates will be distributed and
42
<PAGE>
the Rights will become exercisable if a person or group (i) acquires beneficial
ownership of 15 percent or more of the Company's common stock, (ii) makes a
tender offer to acquire 15 percent or more of the Company's common stock, or
(iii) is determined by the Board of Directors to be an "adverse person" as
defined by the Plan. If a person or a group becomes a 15 percent holder (other
than by offer for all shares approved by the Board of Directors) or is
determined by the Board of Directors to be an "adverse person", each Right will
entitle the holder thereof, other than the acquiring shareholder or adverse
person, to acquire, upon payment of the exercise price, common stock of the
Company having a value equal to twice the exercise price. If the Company
engages in a merger or other business combination in which the Company does not
survive, and which is not approved by the Board of Directors, each Right
entitles the holder to acquire common shares of the surviving company having a
market value equal to twice the exercise price. Following the occurrence of any
event described in either of the two preceding sentences, the Company is
required by the Rights Plan to reserve sufficient shares of its common stock to
permit the exercise in full of all outstanding Rights. At July 2, 1999 no
shares of common stock were reserved for this purpose. The Rights may be
redeemed by the Company at a price of $0.01 per Right at any time prior to 10
days after the announcement that a party acquired 15 percent or more of the
Company's common stock or prior to the date any person or group is determined
by the Board of Directors to be an "adverse person". The Rights have no voting
power and, until exercised, no dilutive effect on earnings per share. If not
previously redeemed, the Rights will expire on April 13, 2007.
In connection with adoption of the new Rights Plan, the Board of Directors
designated 350,000 shares of Series A Junior Participating Preferred Stock from
the Company's 50,000,000 authorized shares of preferred stock for issuance
under the Rights Plan. Upon issuance, each share of preferred stock is entitled
to a quarterly dividend equal to the greater of $0.01 or 1,000 times the per
share amount of all cash dividends, non-cash dividends, or other distributions,
other than dividends payable in common stock, declared on the Company's common
stock. At July 2, 1999, there were 77,347 shares of preferred stock reserved
for this purpose.
17. Earnings Per Share
- --------------------------------------------------------------------------------
In February 1997, the Financial Accounting Standards Board issued Statement 128
"Earnings Per Share" superseding Accounting Principles Board Opinion No. 15,
"Earnings Per Share". The Company adopted SFAS No. 128 in fiscal 1998. Earnings
per share computed under the provisions of SFAS No. 128 were approximately the
same as those computed under Opinion No. 15 for fiscal 1995 through 1997.
Basic and diluted earnings per share for the last three fiscal years are as
follows:
<TABLE>
<CAPTION>
Per Share
1999 Earnings Shares Amount
- ---- -------- ------ ---------
<S> <C> <C> <C>
Basic earnings per common share
Earnings from continuing operations available to
common stockholders $102,343 76,815 $ 1.33
Discontinued operations -- --
-------- ------ ------
Net earnings $102,343 76,815 $ 1.33
======== ====== ======
Diluted earnings per common share
Earnings from continuing operations available to
common stockholders $102,343 78,565 $ 1.30
Discontinued operations -- --
-------- ------ ------
Net earnings $102,343 78,565 $ 1.30
======== ====== ======
Effect of dilutive stock options $ -- 1,750 $(0.03)
======== ====== ======
<CAPTION>
Per Share
1998 Earnings Shares Amount
- ---- -------- ------ ---------
<S> <C> <C> <C>
Basic earnings per common share
Earnings from continuing operations available to
common stockholders $ 80,793 78,692 $ 1.03
Discontinued operations -- --
-------- ------ ------
Net earnings $ 80,793 78,692 $ 1.03
======== ====== ======
Diluted earnings per common share
Earnings from continuing operations available to
common stockholders $ 80,793 80,003 $ 1.02
Discontinued operations -- --
-------- ------ ------
Net earnings $ 80,793 80,003 $ 1.02
======== ====== ======
Effect of dilutive stock options $ -- 1,311 $(0.01)
======== ====== ======
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
Per Share
1997 Earnings Shares Amount
- ---- -------- ------ ---------
<S> <C> <C> <C>
Basic earnings per common share
Earnings from continuing operations available to
common stockholders $60,642 78,198 $0.78
Discontinued operations 3,400 0.04
------- ------ -----
Net earnings $64,042 78,198 $0.82
======= ====== =====
Diluted earnings per common share
Earnings from continuing operations available to
common stockholders $60,642 78,383 $0.78
Discontinued operations 3,400 0.04
------- ------ -----
Net earnings $64,042 78,383 $0.82
======= ====== =====
Effect of dilutive stock options $ -- 185 $ --
======= ====== =====
</TABLE>
The following information pertains to options to purchase shares of common
stock which were not included in the computation of diluted earnings per common
share because the option's exercise price was greater than the average market
price of the common shares and inclusion of the options in the earnings per
share calculation would have been anti-dilutive:
<TABLE>
<CAPTION>
1999 1998 1997
------ --------- ---------
<S> <C> <C> <C>
Number of options outstanding 39,050 2,123,795 2,670,770
Weighted average exercise price $36.55 $22.84 $20.91
</TABLE>
18. Derivative Instruments and Hedging Activities
- --------------------------------------------------------------------------------
In June 1998, the Financial Accounting Standards Board issued Statement 133
"Accounting for Derivative Instruments and Hedging Activities" which the
Company plans to adopt in fiscal 2001. Management is still assessing the impact
of the adoption of this statement. Currently, management does not believe the
adoption of this statement will have a material impact on the Company's results
of operations or financial condition.
44
<PAGE>
19. Consolidated Statement of Stockholders' Equity
<TABLE>
<CAPTION>
(In Thousands) 1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Preferred Stock
Shares authorized 50,000 50,000 50,000
Shares issued -- -- --
Common Stock ($0.50 par value)
Shares authorized 350,000 350,000 350,000
-------- -------- --------
Shares issued at beginning of year 79,207 77,995 77,256
Issuance of shares under employee benefit plans 264 1,095 612
Issuance of restricted shares 146 117 127
-------- -------- --------
Shares issued at end of year 79,617 79,207 77,995
======== ======== ========
Additional Paid-In Capital
Balance at beginning of year $195,446 $171,857 $163,143
Issuance of shares under employee benefit plans 11,431 14,042 7,137
Tax benefit from employees' stock plans 15,317 5,719 1,664
Issuance of restricted shares to employees 8,616 3,843 4,743
Unearned compensation -- restricted shares (4,420) (15) (4,830)
-------- -------- --------
Balance at end of year $226,390 $195,446 $171,857
======== ======== ========
Retained Earnings
Balance at beginning of year $399,678 $323,608 $264,206
Net earnings 102,343 80,793 64,042
Cash dividends ($0.06 per share) (4,618) (4,723) (4,640)
-------- -------- --------
Balance at end of year $497,403 $399,678 $323,608
======== ======== ========
Accumulated Other Comprehensive Income (Loss)
Balance at beginning of year $ (123) $ (112) $ 444
Foreign currency translation adjustments, net of
tax 72 (11) (556)
Unrealized gains on marketable securities, net
of tax 7,430 -- --
-------- -------- --------
Balance at end of year $ 7,379 $ (123) $ (112)
======== ======== ========
Treasury Stock
Balance at beginning of year $ 2,528 $ 1,627 $ 3,065
Treasury shares acquired 65,228 7,511 2,973
Issuance of shares under employee benefit plans (34,942) (6,610) (4,411)
-------- -------- --------
Balance at end of year $ 32,814 $ 2,528 $ 1,627
======== ======== ========
</TABLE>
45
<PAGE>
Scientific-Atlanta, Inc. and Subsidiaries
Schedule II -- Valuation and Qualifying Accounts
For Each Of The Three Years In The Period Ended July 2, 1999
(In Thousands)
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
------ ---------- --------------------------------- ---------- ----------
Additions
Balance at --------------------------------- Balance at
beginning Charged to Charged to end of
Description of period costs and expenses other accounts Deductions period
----------- ---------- ------------------ -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Deducted on the balance
sheet from asset to
which it applies:
July 2, 1999 --
Allowance for
doubtful accounts.... $10,052 $(1,615)(1) $-- $ (277)(4) $ 8,160
======= ======= ==== ======= =======
June 26, 1998 --
Allowance for
doubtful accounts.... $ 4,202 $ 6,231(2) $ 2(3) $ (383)(4) $10,052
======= ======= ==== ======= =======
June 27, 1997 --
Allowance for
doubtful accounts.... $ 3,826 $ 391 $186(3) $ (201)(4) $ 4,202
======= ======= ==== ======= =======
July 2, 1999(5) --
Restructuring
Reserves............. $ 9,677 $ $ $(8,077)(7) $ 1,600
======= ======= ==== ======= =======
June 26, 1998 --
Restructuring
Reserves............. $ -- $10,998(6) $-- $(1,321)(7) $ 9,677
======= ======= ==== ======= =======
</TABLE>
Notes:
(1) Includes the collection of $2,339 reserved in fiscal 1998 for receivables
from customers in the Asia Pacific region.
(2) Includes charges of $5,895 for receivables from customers in the Asia
Pacific region which is currently experiencing currency and other economic
crises.
(3) Represents recoveries on accounts previously written off and includes $186
acquired with the purchase of Arcodan A/S in fiscal 1997.
(4) Amounts represent uncollectible accounts written off.
(5) There were no restructuring charges in fiscal 1999 or fiscal 1997.
(6) The Company recorded a restructuring charge of $23,412 in 1998 which
included reserves of $10,998 and $12,414 for assets which were abandoned
and the impairment of certain assets.
(7) Utilization of restructuring reserves for expenses incurred under
obligations under cancelled leases, severance, and other miscellaneous
expenses related to the restructuring.
46
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Scientific-Atlanta, Inc.
(Registrant)
/s/ James F. McDonald September 15, 1999
- ------------------------------------- ------------------
James F. McDonald Date
President and Chief Executive
Officer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ James F. McDonald September 15, 1999
- ------------------------------------- ------------------
James F. McDonald Date
President and Chief Executive Officer
and Director
(Principal Executive Officer)
/s/ Wallace G. Haislip September 15, 1999
- ------------------------------------- ------------------
Wallace G. Haislip Date
Senior Vice President--Finance
Chief Financial Officer and Treasurer
(Principal Financial Officer)
/s/ Julian W. Eidson September 15, 1999
- ------------------------------------- ------------------
Julian W. Eidson Date
Vice President and Controller
(Principal Accounting Officer)
/s/ Marion H. Antonini September 15, 1999
- ------------------------------------- ------------------
Marion H. Antonini, Director Date
/s/ David W. Dorman September 15, 1999
- ------------------------------------- ------------------
David W. Dorman, Director Date
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
47
<PAGE>
/s/ William E. Kassling September 15, 1999
- ------------------------------------ ------------------
William E. Kassling, Director Date
/s/ Mylle Bell Mangum September 15, 1999
- ------------------------------------ ------------------
Mylle Bell Mangum, Director Date
/s/ David J. McLaughlin September 15, 1999
- ------------------------------------ ------------------
David J. McLaughlin Date
/s/ James V. Napier September 15, 1999
- ------------------------------------ ------------------
James V. Napier Date
/s/ Sam Nunn September 15, 1999
- ------------------------------------ ------------------
Sam Nunn, Director Date
48
<PAGE>
EXHIBIT INDEX
(3) (a) The Composite Statement of Amended and Restated Articles of
Incorporation of the Company is incorporated by reference to the
Company's report on Form 10-K for the fiscal year ended June 27,
1997.
(b) The By-laws of the Company, as amended.
(4) The following instrument defining the rights of security holders
is incorporated by reference to the Company's Form 8-A
Registration Statement filed on April 7, 1997:
(a) Rights Agreement, dated as of February 23, 1997, between the
Company and The Bank of New York, as Rights Agent, which includes
as Exhibit A the Preferences and Rights of Series A Junior
Participating Preferred Stock and as Exhibit B the Form of Rights
Certificate.
(10) Material Contracts:
(a) The following material contracts are incorporated by reference to
the Company's report on Form 10-K for the fiscal year ended July
1, 1994:
(i) Form of Severance Protection Agreement between the
Company and Certain Officers and Key Employees.*
(b) The following material contract is incorporated by reference to
the Company's report on Form 10-K for the fiscal year ended June
30, 1995:
(i) Credit Agreement, dated May 11, 1995, by and between
the Company and NationsBank of Georgia, National
Association, for itself and as agent for other banks
participating in the credit facility.
(c) The following amendments to the Credit Agreement described in
item (b) above are incorporated by reference to the Company's
report on Form 10-K for its fiscal year ended June 28, 1996:
(i) First Amendment, dated as of December 29, 1995, to the
Credit Agreement.
(ii) Letter Amendment, dated as of April 5, 1996, to the
Credit Agreement.
(iii) Second Amendment, dated as of June 28, 1996, to the
Credit Agreement.
1
<PAGE>
(d) The following material contract is incorporated by reference to
the Company's Form S-8 Registration Statement, filed on December
27, 1996:
(i) Non-Qualified Stock Option Agreement between Scientific-
Atlanta, Inc. and James F. McDonald.*
(e) The following material contract is incorporated by reference to
the Company's Form S-8 Registration Statement, filed on March 11,
1997:
(i) Non-Qualified Stock Option Agreement between Scientific-
Atlanta, Inc. and Larry L. Enterline.*
(f) The following amendment to the Credit Agreement described in item
(b) above is incorporated by reference to the Company's report on
Form 10-Q for the fiscal quarter ended March 28, 1997:
(i) Third Amendment, dated as of January 27, 1997, to the
Credit Agreement.
(g) The following material contracts or amendments to material
contracts are incorporated by reference to the Company's report
on Form 10-K for the fiscal year ended June 27, 1997:
(i) Letter Amendment, dated as of April 23, 1997, to the
Credit Agreement described in item (b) above.
(ii) Credit and Investment Agreement, dated as of July 30,
1997, among the Company, Wachovia Capital Markets, Inc.,
Wachovia Bank, N.A., as agent, and the lenders
signatories thereto.
(iii) Lease Agreement, dated as of July 30, 1997, between
Wachovia Capital Markets, Inc. and the Company.
(iv) Acquisition, Agency, Indemnity and Support Agreement
between the Company and Wachovia Capital Markets, Inc.,
dated as of July 30, 1997.
(v) Ground Lease, dated as of July 30, 1997, between the
Company and Wachovia Capital Markets, Inc.
(vi) Scientific-Atlanta, Inc. 1981 Incentive Stock Option
Plan, as amended.*
(vii) Scientific-Atlanta, Inc. 1978 Non-Qualified Stock Option
Plan for Key Employees, as amended.*
(h) The following material contracts or amendments to material
contracts are incorporated by reference to the Company's report
on Form 10-K for the fiscal year ended June 26, 1998:
(i) Scientific-Atlanta, Inc. Stock Plan for Non-Employee
Directors, as amended and restated.*
(ii) Scientific-Atlanta, Inc. Restoration Retirement Plan, as
amended.*
(iii) Letter Amendment, dated as of April 24, 1998, to the
Credit Agreement described in item (b) above.
2
<PAGE>
(i) The following material contracts or amendments to material
contracts are incorporated by reference to the Company's report
on Form 10-Q for the fiscal quarter ended April 2, 1999:
(i) Form of First Amendment of Severance Protection Agreement
by and between Scientific-Atlanta, Inc. and Certain
Executives*
(ii) Scientific-Atlanta, Inc. Retirement Plan for Non-Employee
Directors*
(iii) Scientific-Atlanta, Inc. Annual Incentive Plan for Key
Employees as amended and restated*
(iv) 1985 Executive Deferred Compensation Plan of Scientific-
Atlanta, Inc., as amended and restated*
(v) Letter Amendment to Credit and Investment Agreement among
Scientific-Atlanta, Inc., Wachovia Bank, N.A. and Wachovia
Capital Markets, Inc.
(vi) Amendment to Credit and Investment Agreement among
Scientific-Atlanta, Inc., Wachovia Bank, N.A. and
Wachovia Capital Markets, Inc.
(vii) Second Amendment to Credit and Investment Agreement
among Scientific-Atlanta, Inc., Wachovia Bank, N.A. and
Wachovia Capital Markets, Inc.
(viii) Fourth Amendment to Credit Agreement between
Scientific-Atlanta, inc. and NationsBank, N.A. and
other lenders
(ix) First Amendment to Lease Agreement between Scientific-
Atlanta, Inc. and Wachovia Capital Markets, Inc.
(x) Second Amendment to Lease Agreement between Scientific-
Atlanta, Inc. and Wachovia Capital Markets, Inc.
(j) Executive Deferred Compensation Plan, as amended and restated.*
(k) Supplemental Executive Retirement Plan, as amended and restated.*
(l) Long-Term Incentive Plan of Scientific-Atlanta, Inc., as amended
and restated.*
(m) Scientific-Atlanta, Inc. Senior Officer Annual Incentive Plan, as
amended and restated.*
(n) Deferred Compensation Plan for Non-Employee Directors, as amended
and restated.*
(o) Non-Employee Directors Stock Option Plan, as amended and
restated.*
(p) Amended and Restated Credit Agreement, dated as of May 7, 1999,
by and among the Company and The Bank of New York and ABN Amro
Bank N.V. as co-agent and NationsBank, N.A. as administrative
agent for the participating lenders.
(q) Amendment No. 1 to the Amended and Restated Credit Agreement by
and among the Company and The Bank of New York and ABN Amro Bank
N.V. as co-agent and NationsBank, N.A. as administrative agent
for the participating lenders.
(23) Consent of Independent Public Accountants.
(27) Financial Data Schedule.
(99) Cautionary Statements.
- --------
* Indicates management contract or compensatory plan or arrangement.
3
<PAGE>
EXHIBIT 3(b)
<PAGE>
BY-LAWS
OF
SCIENTIFIC-ATLANTA, INC.
(as amended May 12, 1999)
ARTICLE I
OFFICES
-------
Section 1. Registered Office. The registered office shall be in the state
-----------------
of Georgia, County of Gwinnett.
Section 2. Other Offices. The corporation may also have offices at such
-------------
other places both within and without the state of Georgia as the board of
directors may from time to time determine and the business of the corporation
may require or make desirable.
ARTICLE II
SHAREHOLDERS' MEETINGS
----------------------
Section 1. Annual Meetings. The annual meeting of the shareholders of the
---------------
corporation shall be held at such place and time in the United States as may be
determined by the board of directors, for the purpose of electing directors and
transacting such other business as may properly be brought before the meeting.
To be properly brought before the meeting, business must be either (a) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the board of directors, (b) otherwise properly brought before the
meeting by or at the direction of the board of directors, or (c) otherwise
properly brought before the meeting by a shareholder. In addition to any other
applicable requirements, for business to be properly brought before an annual
meeting by a shareholder, the shareholder must have given timely notice thereof
in writing to the Secretary of the corporation. To be timely, a shareholder's
notice must be delivered to or mailed and received at the principal executive
offices of the corporation, no earlier than 90 days and no later than 60 days
prior to the date of such meeting, regardless of any postponements, deferrals or
adjournments of such meeting to a later date; provided, however, that if less
than 70 days' notice or prior public disclosure of the date of the meeting is
given or made, notice by a holder of record must, to be timely, be so delivered
or received not later than the close of business on the tenth day following the
day on which such notice of the date of the meeting is mailed or the day on
which such public disclosure was made; provided that, in the case of an annual
meeting, notice by a holder of record, to be timely, must be so delivered or
received not later than the close of business 60 days prior to the anniversary
of the date of the previous year's annual meeting. A shareholder's notice to
the Secretary shall set forth as to each matter the shareholder proposes to
bring before the annual meeting (i) a brief description of the business desired
to be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (ii) the name and record address of the
<PAGE>
shareholder proposing such business, (iii) the class and number of securities of
the corporation which are beneficially owned by the shareholder, and (iv) any
material interest of the shareholder in such business.
Notwithstanding anything in the By-Laws to the contrary, no business shall
be conducted at the annual meeting except in accordance with the procedures set
forth in this Section 1, provided, however, that nothing in this Section 1 shall
-------- -------
be deemed to preclude discussion by any shareholder of any business properly
brought before the annual meeting.
The presiding officer at an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Section 1, and if
he should so determine, he shall so declare to the meeting and any such business
not properly brought before the meeting shall not be transacted.
Section 2. Special Meetings. (a) Special meetings of the shareholders
----------------
shall be held at the principal office of the corporation or at such other place
in the United States as may be designated in the notice of such meetings, and
shall be called by the chief executive officer or the secretary only when so
directed by the board of directors or when so requested in writing by the
holders of at least 75 percent of the issued and outstanding capital stock of
the corporation entitled to vote in an election of directors.
(b) Anything in these by-laws to the contrary notwithstanding, the
following procedures shall apply to the call of any special meeting of
shareholders, or a special meeting in lieu of the annual meeting of
shareholders, at the request of holders of the outstanding capital stock of
the corporation:
(i) Every written request for the call of a special meeting
shall bear the signature and date of signature of each
shareholder who signs the request and shall state the purpose or
purposes for which the meeting is to be called.
(ii) The record date for the determination of shareholders
entitled to request the corporation to call a special meeting
shall be the date which is 45 calendar days prior to the date
(the "Filing Date") that written requests complying with the
requirements of law and these by-laws signed by a sufficient
number of record holders to request a special meeting in
accordance with this Section 2 have been received by the
corporation (the "Minimum Request Condition").
(iii) Promptly after receipt of a written request or requests for
the call of a special meeting, the corporation shall engage
nationally recognized independent inspectors of election for the
purpose of determining the validity of the request or requests
and any revocations thereof. Within 15 calendar days of the
Filing Date, such independent inspectors shall deliver to the
corporation a written report stating whether the Minimum Request
2
<PAGE>
Condition has been satisfied. If such written report states that
the Minimum Request Condition has been satisfied, or if no report
is delivered by independent inspectors within 15 calendar days of
the Filing Date, the chief executive officer or the secretary of
the corporation shall call the special meeting by mailing notice
thereof not later than 45 calendar days after the Filing Date.
(iv) The date, time and place of the special meeting shall be
determined by the board of directors and shall be set forth in
the notice of meeting, which notice shall comply with the
provisions of Section 3 of this Article II.
(v) The record date for the determination of shareholders
entitled to notice of and to vote at the special meeting shall be
set by the board of directors in accordance with the provisions
of Section 4 of Article V of these by-laws.
Section 3. Notice of Meetings. Written notice of every meeting of
------------------
shareholders, stating the place, date and hour of the meeting, shall be given
personally or by mail to each shareholder of record entitled to vote at such
meeting not less than 10 nor more than 60 days before the date of the meeting.
If mailed, such notice shall be deemed to be delivered when deposited in the
United States mail with first class postage thereon prepaid (except as
hereinafter provided) addressed to the shareholder at his address as it appears
on the corporation's record of stockholders. The corporation may utilize a class
of mail other than first class if the notice of the meeting is mailed, with
adequate postage prepaid, not less than 30 days before the date of the meeting.
Attendance of a shareholder at a meeting of shareholders (1) waives objection to
lack of notice or defective notice of the meeting, unless the shareholder at the
beginning of the meeting objects to holding the meeting or transacting business
at the meeting, and (2) waives objection to consideration of a particular matter
at the meeting that is not within the purpose or purposes described in the
meeting notice, unless the shareholder objects to considering the matter when it
is presented. Notice need not be given to any shareholder who signs a waiver of
notice either before or after the meeting.
Section 4. Quorum. The holders of a majority of the stock issued and
------
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum for the transaction of business at all meetings
of the shareholders except as otherwise provided by statute, by the articles of
incorporation, or by these by-laws. If a quorum is not present or represented at
any meeting of the shareholders, the holders of a majority of the voting shares,
present in person or represented by proxy, may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present or represented. At such adjourned meeting at which a quorum
shall be present or represented, any business may be transacted which might have
been transacted at the meeting as originally notified. If the adjournment is for
more than 120 days, or if a new record date is fixed for the adjourned meeting,
a notice of the adjourned meeting shall be given to each shareholder of record
entitled to vote at the meeting.
3
<PAGE>
Section 5. Voting. When a quorum is present at any meeting, action on a
------
matter (other than the election of directors) is approved if the votes cast
favoring the action exceed the votes cast opposing the action, unless the
question is one upon which by express provision of law, of the articles of
incorporation or of these by-laws, a different vote is required, in which case
such express provision shall govern and control the decision of the question.
Except as otherwise required by the Articles of Incorporation, each shareholder
shall at every meeting of the shareholders be entitled to one vote in person or
by proxy for each share of the capital stock having voting power registered in
his name on the books of the corporation, but no proxy shall be voted or acted
upon after eleven months from its date, unless otherwise provided in the proxy.
Section 6. Consent of Shareholders. Any action required or permitted to
-----------------------
be taken at any meeting of the shareholders may be taken without a meeting if
all of the shareholders consent thereto in writing, setting forth the action so
taken, and such writing is delivered to the corporation for inclusion in the
minutes or filing with the corporate records. Such consent shall have the same
force and effect as a unanimous vote of shareholders.
Section 7. List of Shareholders. The corporation shall keep at its
--------------------
registered office or principal place of business, or at the office of its
transfer agent or registrar, a record of its shareholders, giving their names
and addresses and the number, class and series, if any, of the shares held by
each. The officer who has charge of the stock transfer books of the corporation
shall prepare and make, before every meeting of shareholders or any adjournment
thereof, a complete list of the shareholders entitled to vote at the meeting or
any adjournment thereof, arranged in alphabetical order, with the address of and
the number and class and series, if any, of shares held by each. The list shall
be produced and kept open at the time and place of the meeting and shall be
subject to inspection by any shareholder during the whole time of the meeting
for the purposes thereof. The said list may be the corporation's regular record
of shareholders if it is arranged in alphabetical order or contains an
alphabetical index.
ARTICLE III
DIRECTORS
---------
Section 1. Powers. Except as otherwise provided or authorized by law, the
------
property, affairs and business of the corporation shall be managed and directed
by its board of directors, which may exercise all powers of the corporation and
do all lawful acts and things which are not by law, by any legal agreement among
shareholders or by the articles of incorporation, directed or required to be
exercised or done by the shareholders.
Section 2. Meetings and Notice. The board of directors of the corporation
-------------------
may hold meetings, both regular and special, either within or without the state
of Georgia. Regular meetings of the board of directors may be held without
notice at such time and place as shall from time to time be determined by
resolution of the board. Special meetings of the board may be called by the
chairman of the board or the chief executive officer or by any three directors
on one day's oral, telegraphic or written notice duly given or served on each
director personally, or three days' notice deposited, first class postage
prepaid, in the United States mail. Such notice
4
<PAGE>
shall state a reasonable time, date and place of meeting, but the purpose need
not be stated therein. Notice need not be given to any director who signs a
waiver of notice either before or after the meeting. Attendance of a director at
a meeting shall constitute a waiver of notice of such meeting and waiver of all
objections to the place and time of the meeting, or the manner in which it has
been called or convened, except when the director states, at the beginning of
the meeting, any such objection or objections to the transaction of business.
Section 3. Quorum. At all meetings of the board a majority of directors
------
shall constitute a quorum for the transaction of business, and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the board, except as may be otherwise specifically provided
by law, by the articles of incorporation, or by these by-laws. If a quorum shall
not be present at any meeting of the board, a majority of the directors present
thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 4. Consent of Directors. Unless otherwise restricted by the
--------------------
articles of incorporation or these by-laws, any action required or permitted to
be taken at any meeting of the board of directors or of any committee thereof
may be taken without a meeting, if all members of the board or committee, as the
case may be, consent thereto in writing, setting forth the action so taken, and
the writing or writings are delivered to the corporation for inclusion in the
minutes of the proceedings of the board or committee or filing with the
corporate records. Such consent shall have the same force and effect as a
unanimous vote of the board.
Section 5. Committees. The board of directors may by resolution designate
----------
from among its members one or more committees, each committee to consist of one
or more directors. The board may designate one or more directors as alternate
members of any committee, who may replace any absent member at any meeting of
such committee. Any such committee, to the extent provided in the resolution,
shall have and may exercise all of the authority of the board of directors in
the management of the business and affairs of the corporation, except that it
shall have no authority to (1) approve or propose to shareholders action which
the Georgia Business Corporation Code requires to be approved by shareholders;
(2) fill vacancies on the board of directors or any of its committees; (3) amend
the articles of incorporation; (4) adopt, amend or repeal by-laws; or (5)
approve a plan of merger not requiring shareholder approval. Such committee or
committees shall have such name or names as may be determined from time to time
by resolution adopted by the board of directors. The provisions of Sections 2
and 3 of this Article III shall apply to committees and their members as well as
to the board of directors. Each committee shall keep regular minutes of its
meetings and report the same to the board of directors when required.
Section 6. Compensation of Directors. Directors shall be entitled to such
-------------------------
reasonable compensation for their services as directors or members of any
committee of the board as shall be fixed from time to time by resolution adopted
by the board, and shall also be entitled to reimbursement for any reasonable
expenses incurred in attending any meeting of the board or any such committee.
5
<PAGE>
Section 7. Nominations of Directors. Nominations of candidates for
------------------------
election at any meeting of the shareholders of the corporation as directors of
the corporation may be made (i) by, or at the direction of, the board of
directors or (ii) by any holder of record entitled to vote at such meeting in an
election of directors who complies with the notice procedures set forth in this
Section 7.
Nominations, other than those made by, or at the direction of, the board of
directors, shall be made pursuant to timely notice in writing to the secretary
of the corporation as set forth in this Section 7. To be timely, any such notice
must be delivered to, or mailed and received at, the principal executive offices
of the corporation not less than 60 days nor more than 90 days prior to the date
of such meeting, regardless of any postponements, deferrals or adjournments of
such meeting to a later date; provided, however, that if less than 70 days'
notice or prior public disclosure of the date of the meeting is given or made,
notice by a holder of record must, to be timely, be so delivered or received not
later than the close of business on the tenth day following the day on which
such notice of the date of the meeting is mailed or the day on which such public
disclosure was made; provided that, in the case of an annual meeting, notice by
a holder of record, to be timely, must be so delivered or received not later
than the close of business 60 days prior to the anniversary of the date of the
previous year's annual meeting. Such notice by a holder of record must set
forth (i) as to each person whom such holder proposes to nominate for election
as a director, all information relating to such person that would be required to
be disclosed, or otherwise required, pursuant to Sections 13 or 14 of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder (the "Exchange Act"), in connection with any acquisition
of shares and the solicitations of proxies with respect to nominees for election
of directors pursuant to the Exchange Act, regardless of whether such person is
subject to such provisions of such Exchange Act, and (ii) as to the holder of
record giving such notice, (a) the name and address, as they appear on the
records of the corporation, of such holder, together with the name and address
of any other shareholder of the corporation who is a record or beneficial owner
of securities of the corporation and who is known by such holder to be
supporting such nominee(s) and (b) the class and number of securities which are
beneficially owned and owned of record by such holder on the date of such
holder's notice and the class and number of securities of the corporation
beneficially owned and owned of record by any person known by such holder to be
supporting such nominee(s). At the request of the board of directors, any person
nominated by, or at the direction of, the board of directors for election as a
director shall furnish to the secretary of the corporation that information that
would be required to be set forth in any holder's notice of nomination
pertaining to such nominee. Ballots bearing the names of all the persons who
have been nominated for election as directors at any meeting of shareholders in
accordance with the procedures set forth in this Section 7 shall be provided for
use at such meeting.
The board of directors of the corporation may reject any nomination by a
holder of record not timely made in accordance with the procedures set forth in
this Section 7. If the board of directors determines that the information
provided in a holder's notice of nomination does not satisfy the informational
requirements of this Section 7 in any material respect, the secretary of the
corporation shall promptly notify such holder of the deficiency in such notice.
The holder shall have an opportunity to cure the deficiency by providing
additional information to the
6
<PAGE>
secretary within such period of time, not to exceed five days, from the date
such notice of deficiency is given to such holder, as the board of directors
shall determine. If the deficiency is not cured within such period, or if the
board of directors reasonably determines that the additional information
provided by such holder, together with previously provided information, does not
satisfy the requirements of this Section 7 in any material respect, then the
board of directors may reject such holder's nomination. The secretary of the
corporation shall notify in writing any holder making a nomination whether such
nomination has been made in accordance with the time and informational
requirements of this Section 7. Notwithstanding the procedures set forth herein,
if the board of directors does not make a determination as to the validity of
any nomination by a holder of record, the presiding officer at the meeting of
shareholders shall determine and declare at such meeting whether a nomination
was or was not made in accordance with the procedures set forth in this Section
7. If the presiding officer determines that a nomination was not made in
accordance with the procedures set forth in this Section 7, he shall so declare
at such meeting of shareholders and the defective nomination shall be
disregarded.
ARTICLE IV
OFFICERS
--------
Section 1. Number. The officers of the board of directors shall be chosen
------
by the board of directors and shall consist of a chairman of the board and, if
the board of directors desires, a vice chairman. The officers of the
corporation shall be chosen by the board of directors and shall consist of a
chief executive officer, a vice president, a secretary, and a treasurer. The
board of directors may also choose additional vice presidents, one or more
assistant secretaries and assistant treasurers. Any number of offices may be
held by the same person. The board of directors may appoint such other officers
and agents as it shall deem necessary who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the board of directors.
Section 2. Compensation. The salaries of all officers and agents of the
------------
corporation shall be fixed by the board of directors or a committee or officer
appointed by the board. As used herein the term "salaries" shall include any
bonus, incentive payments, or other plans or programs involving remuneration to
officers.
Section 3. Term of Office. Unless otherwise provided by resolution of the
--------------
board of directors, the officers of the board of directors and the principal
officers of the corporation shall be chosen annually by the board at the first
meeting of the board following the annual meeting of shareholders of the
corporation, or as soon thereafter as is conveniently possible. Subordinate
officers may be elected from time to time. Each officer shall serve until his
successor shall have been chosen and qualified, or until his death, resignation
or removal.
Section 4. Removal. Any officer may be removed from office at any time,
-------
with or without cause, by the board of directors whenever in its judgment the
best interest of the corporation will be served thereby.
7
<PAGE>
Section 5. Vacancies. Any vacancy in an office resulting from any cause
---------
may be filled by the board of directors.
Section 6. Powers and Duties. Except as hereinafter provided, the
-----------------
officers of the corporation shall each have such powers and duties as generally
pertain to their respective offices, as well as such powers and duties as from
time to time may be conferred by the board of directors. At the annual meeting
at which officers are elected, the board shall by resolution designate a chief
executive officer, who will be responsible to the board for the general
management of the company.
(a) Chairman of the Board. The chairman of the board shall preside at
---------------------
all meetings of the stockholders and directors, and shall see that all
orders and resolutions of the board are carried into effect. He shall have
such powers and perform all such other duties as the board may direct. The
chairman of the board of directors may delegate to any other officer of the
corporation the power to preside at any meeting of the shareholders.
(b) Vice Chairman of the Board. The vice chairman shall have such
--------------------------
duties, responsibilities and authority as the board of directors may
prescribe, subject to the limitations expressed or implied by these by-
laws. In the absence of the chairman or in the event of his inability or
incapacity to act, the vice chairman shall perform the duties and exercise
the powers of the chairman.
(c) President and Chief Executive Officer. The president and chief
-------------------------------------
executive officer shall be responsible for the operation and management of
the company and shall be responsible for the proper utilization and
security of the company's assets and resources. He shall execute bonds,
mortgages and other contracts requiring a seal, under the seal of the
corporation, within such limitations as the board by resolution may
establish. The president and chief executive officer may delegate his
powers to other officers and agents of the company; provided, however, that
such delegation shall be reported to the board of directors no less
frequently than once a year at the annual meeting, or at such other time as
a significant change is made to a previously reported delegation.
(d) Vice Presidents. The vice presidents shall have such duties,
---------------
responsibilities and authority as the chief executive officer shall
delegate, subject to any limitations imposed by the board and subject to
the limitations expressed or implied by these by-laws. The Board may
designate one or more vice presidents as senior vice president. In the
absence of the chief executive officer or in the event of his inability or
incapacity to act, the person designated as the Chairman of the Operating
Committee shall perform the duties of the chief executive officer and, when
so acting, shall have all the powers of and be subject to all the
restrictions upon the chief executive officer.
(e) Secretary. The secretary shall attend all meetings of the board
---------
of directors and all meetings of the shareholders and record all the
proceedings of the meetings of the
8
<PAGE>
corporation and of the board of directors in a book to be kept for that
purpose and shall perform like duties for the standing committees when
required. He shall give, or cause to be given, notice of all meetings of
the shareholders and special meetings of the board of directors, and shall
perform such other duties as may be prescribed by the board of directors or
chief executive officer, under whose supervision he shall be. He shall have
custody of the corporate seal of the corporation and he, or an assistant
secretary, shall have authority to affix the same to any instrument
requiring it and when so affixed, it may be attested by his signature or by
the signature of such assistant secretary. The board of directors may give
general authority to any other officer to affix the seal of the corporation
and to attest the affixing by his signature.
(f) Assistant Secretary. The assistant secretary, or if there be more
-------------------
than one, the assistant secretaries in the order determined by the board of
directors (or, if there be no such determination, then in the order of
their election), shall, in the absence of the secretary or in the event of
his inability or refusal to act, perform the duties and exercise the powers
of the secretary and shall perform such other duties and have such other
powers as the board of directors may from time to time prescribe.
(g) Treasurer. The treasurer shall, subject to the direction of a
---------
vice president designated by the chief executive officer, have general
custody of the corporate funds and securities and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
corporation and shall deposit all monies and other valuable effects in the
name and to the credit of the corporation in such depositories as may be
designated by the board of directors. The treasurer shall disburse the
funds of the corporation as may be ordered by the board of directors,
taking proper vouchers for such disbursements. If required by the board of
directors, the treasurer shall give the corporation a bond (which shall be
renewed every six years) in such sum and with such surety or sureties as
shall be satisfactory to the board of directors for the faithful
performance of the duties of the treasurer's office and for the restoration
to the corporation, in case of death, resignation, retirement, or removal
from office, of all books, papers, vouchers, money, and other property of
whatever kind in the possession or under control of the treasurer and
belonging to the corporation.
(h) Assistant Treasurer. The assistant treasurer, or if there shall
-------------------
be more than one, the assistant treasurers in the order determined by the
board of directors (or if there be no such determination, then in the order
of their election), shall, in the absence of the treasurer or in the event
of his inability or refusal to act, perform the duties and exercise the
powers of the treasurer and shall perform such other duties and have such
other powers as the board of directors may from time to time prescribe.
(i) Controller. The controller shall be the chief accounting officer
----------
of the corporation. Subject to the direction of a vice president designated
by the chief executive officer, the controller shall maintain adequate
records of all assets, liabilities, and transactions of the corporation in
the conduct of its business. The controller shall require reports from the
other officers and agents of the corporation who receive or disburse
9
<PAGE>
funds for its account, at such time and in such form as the controller may
deem advisable. The controller shall compile and maintain such accounting
and statistical records and data as may be required, and shall prepare and
submit to the executive officers, including the treasurer, and to the board
of directors such periodical and special financial statements as may be
called for by them. In conjunction with other officers and heads of
divisions, the controller shall initiate and enforce rules and regulations,
budgets, and other measures and procedures for the purpose of enhancing the
efficiency, economy, and profit with which the business of the corporation
is conducted. The controller shall see that adequate internal audits of the
financial records of the corporation are currently and accurately made.
Section 7. Staff and Operating Unit Officers. The chief executive
---------------------------------
officer may from time to time designate one or more "officers" for any function
or operating unit, but such persons shall not be officers of the corporation.
Any such appointee shall serve at the pleasure of the chief executive officer.
Section 8. Voting Securities of the Corporation. Unless otherwise ordered
------------------------------------
by the board of directors, the chief executive officer shall have full power and
authority on behalf of the corporation to attend and to act and vote at any
meetings of security holders of corporations in which the corporation may hold
securities, and at such meetings shall possess and may exercise any and all
rights and powers incident to the ownership of such securities which the
corporation might have possessed and exercised if it had been present. The chief
executive officer from time to time may delegate like powers upon any other
officer or agent of the corporation.
ARTICLE V
CERTIFICATES OF STOCK
---------------------
Section 1. Form of Certificate. Every holder of fully-paid stock in the
-------------------
corporation shall be entitled to have a certificate in such form as the board of
directors may from time to time prescribe.
Section 2. Lost Certificates. A new certificate may be issued in place of
-----------------
any certificate theretofore issued by the corporation and alleged to have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate of stock to be lost, stolen or destroyed. When
issuing such new certificate, the officer of the corporation responsible for
such issuance may, in his discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to advertise the same in such manner
as he shall require and/or to give the corporation a bond in such sum as he may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
10
<PAGE>
Section 3. Transfers.
---------
(a) Transfers of shares of the capital stock of the corporation shall
be made only on the books of the corporation by the registered holder
thereof, or by his duly authorized attorney, or with a transfer clerk or
transfer agent appointed as in Section 5 of this Article provided, and on
surrender of the certificate or certificates for such shares properly
endorsed and the payment of all taxes thereon.
(b) The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and for all other purposes, and
shall not be bound to recognize any equitable or other claim to or interest
in such share or shares on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise provided by
law.
(c) Shares of capital stock may be transferred by delivery of the
certificates therefor, accompanied either by an assignment in writing on
the back of the certificates or by separate written power of attorney to
sell, assign and transfer the same, signed by the record holder thereof, or
by his duly authorized attorney in fact, but no transfer shall affect the
right of the corporation to pay any dividend upon the stock to the holder
of record as the holder in fact thereof for all purposes, and no transfer
shall be valid, except between the parties thereto, until such transfer
shall have been made upon the books of the corporation as herein provided.
(d) The board may, from time to time, make such additional rules and
regulations as it may deem expedient, not inconsistent with these by-laws
or the articles of incorporation, concerning the issue, transfer, and
registration of certificates for shares of the capital stock of the
corporation.
Section 4. Record Date. In order that the corporation may determine the
-----------
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in advance, a record date,
which shall not be more than 70 days prior to the date on which the particular
action requiring such determination of shareholders is to be taken. If no record
date is fixed for the determination of shareholders entitled to notice of and to
vote at any meeting of shareholders, the record date shall be at the close of
business on the day next preceding the day on which the notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. If no record date is fixed for determining
shareholders entitled to take action without a meeting, the record date shall be
the date the first shareholder signs the consent. If no record date is fixed for
other purposes, the record date shall be at the close of business on the day on
which the board of directors adopts the resolution relating thereto. A
determination of shareholders of record entitled to notice of or to vote at a
meeting of shareholders shall apply to any adjournment of the meeting unless the
11
<PAGE>
board of directors shall fix a new record date for the adjourned meeting.
Section 5. Transfer Agent and Registrar. The board of directors may
----------------------------
appoint one or more transfer agents or one or more transfer clerks and one or
more registrars, and may require all certificates of stock to bear the signature
or signatures of any of them.
ARTICLE VI
GENERAL PROVISIONS
------------------
Section 1. Dividends. Dividends upon the capital stock of the
---------
corporation, subject to the provisions of the articles of incorporation, if any,
may be declared by the board of directors at any regular or special meeting,
pursuant to law. Dividends may be paid in cash, in property, or in shares of the
corporation's capital stock, subject to the provisions of the articles of
incorporation. Before payment of any dividend, there may be set aside out of any
funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
Section 2. Fiscal Year. The fiscal year of the corporation shall be fixed
-----------
by resolution of the board of directors.
Section 3. Seal. The corporate seal shall have inscribed thereon the name
----
of the corporation, the year of its organization and the words "Corporate Seal"
and "Georgia." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise. In the event it is inconvenient
to use such a seal at any time, the signature of the corporation followed by the
word "Seal" enclosed in parentheses shall be deemed the seal of the corporation.
Section 4. Annual Statements. Not later than four months after the close
-----------------
of each fiscal year, and in any case prior to the next annual meeting of
stockholders, the corporation shall prepare:
(1) A balance sheet showing in reasonable detail the financial
condition of the corporation as of the close of its fiscal year, and
(2) A profit and loss statement showing the results of its operations
during its fiscal year.
Upon written request the corporation promptly shall mail to any shareholder
of record a copy of the most recent such balance sheet and profit and loss
statement.
12
<PAGE>
Section 5. Fair Price to Shareholders; Business Combinations. All of the
-------------------------------------------------
requirements of Part 2 of Article 11 and all of the requirements of Part 3 of
Article 11 of the Georgia Business Corporation Code shall be applicable to the
corporation.
Section 6. Inspection of Records by Shareholders. A shareholder of the
-------------------------------------
corporation may not inspect or copy the records described in Section 14-2-
1602(c) of the Georgia Business Corporation Code, as it may be amended,
superseded or replaced, unless such shareholder owns more than two percent (2%)
of the shares of the company's common stock outstanding on the date of receipt
by the corporation of a request from such shareholder for said records.
ARTICLE VII
INDEMNIFICATION
---------------
Section 1. Definitions. As used in this Article, the term
-----------
(a) "change of control", for purposes of this Article VII, means (1)
an acquisition by a person of beneficial ownership of 20% or more of the
combined voting power of the corporation's then outstanding voting
securities, provided that any such securities acquired directly from the
corporation shall be excluded from the determination of such person's
beneficial ownership (but shall be included in calculating total
outstanding securities); or (2) the individuals who are members of the
incumbent board (as defined below) cease for any reason to constitute two-
thirds of the Board of Directors; or (3) approval by the shareholders of
the corporation of (i) a merger or consolidation involving the corporation
if the shareholders of the corporation, immediately before such merger or
consolidation, do not own, immediately following such merger or
consolidation, more than 80% of the combined voting power of the
outstanding voting securities of the corporation in substantially the same
proportion as their ownership of voting securities immediately before such
merger or consolidation or (ii) a complete liquidation or dissolution of
the corporation or an agreement for the sale or other disposition of all or
substantially all of the assets of the corporation.
Notwithstanding the foregoing, a change of 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 corporation or any of its subsidiaries or (ii) any
corporation which, immediately prior to such acquisition, is owned directly
or indirectly by the shareholders of this corporation in the same
proportion as their ownership of shares in this corporation immediately
prior to such acquisition.
Moreover, notwithstanding the foregoing, a change of 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 corporation which, by reducing the number of
13
<PAGE>
voting securities outstanding increases the proportional number of shares
beneficially owned by the Subject Person, provided, that if a change of
--------
control would occur (but for the operation of this sentence) as a result of
the acquisition of voting securities by the corporation, and after such
share acquisition by the corporation, 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 of control shall occur.
(b) "corporation" includes any domestic or foreign predecessor entity
of the corporation or a corporation in a merger or other transaction in
which the predecessor's existence ceased upon consummation of the
transaction.
(c) "director" means an individual who is or was a director of the
corporation or an individual who, while a director of the corporation, is
or was serving at the corporation's request as a director, officer,
partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan, or
other enterprise. A director is considered to be serving an employee
benefit plan at the corporation's request if his duties to the corporation
also impose duties on, or otherwise involve services by, him to the plan or
to participants in or beneficiaries of the plan. Director includes, unless
the context requires otherwise, the estate or personal representative of a
director.
(d) "expenses" include attorneys' fees.
(e) "incumbent board" includes the individuals who as of May 11, 1994
are members of the Board of Directors and any individual becoming a
director subsequent to May 11, 1994 whose election, or nomination for
election by the corporation's shareholders 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 of Directors
shall become a member of the incumbent board upon the completion of two
full years as a member of the Board of Directors; provided further,
-------- -------
however, that notwithstanding the foregoing, no individual shall be
-------
considered a member of the incumbent board if such individual initially
assumed office (1) as a result of either an actual 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 of Directors (a "Proxy Contest") or
(2) with the approval of the other members of the Board of Directors, but
by reason of any agreement intended to avoid or settle a Proxy Contest.
(f) "liability" means the obligation to pay a judgment, settlement,
penalty, fine (including an excise tax assessed with respect to an employee
benefit plan), or reasonable expenses incurred with respect to a
proceeding.
14
<PAGE>
(g) "party" includes an individual who was, is, or is threatened to
be made a named defendant or respondent in a proceeding.
(h) "proceeding" means any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or
investigative and whether formal or informal.
Section 2. Indemnification of Directors, Officers and Employees -
------------------------------------------------------
General.
- -------
(a) Subject to the terms and conditions of this Article VII, the
corporation shall indemnify an individual made a party to a proceeding
because he is or was a director or officer of the corporation against
liability incurred in connection with a proceeding to the fullest extent
permitted by the Georgia Business Corporation Code (the "GBCC"), as the
same now exists or may hereafter be amended (but only to the extent any
such amendment permits the corporation to provide broader indemnification
rights than the GBCC permitted the corporation to provide prior to such
amendment).
(b) The termination of a proceeding by judgment, order, settlement,
or conviction, or upon a plea of nolo contendere or its equivalent is not,
of itself, determinative that the director or officer did not meet the
standard of conduct set forth in the GBCC.
(c) To the extent that a director or officer has been successful, on
the merits or otherwise, in the defense of any proceeding to which he was a
party, or in defense of any claim, issue, or matter therein, because he is
or was a director or officer of the corporation, the corporation shall
indemnify the director or officer against reasonable expenses incurred by
him in connection therewith regardless of whether the director or officer
has met the standards set forth in the GBCC and without any action or
determination under Section 4 of this Article VII.
(d) Subject to the approval of the chief executive officer and the
general counsel for the corporation, the officers of the corporation may
indemnify an individual who is an employee of the corporation and who is
made a party to a proceeding because he is or was an employee of the
corporation against liability incurred in connection with a preceding to
the fullest extent permitted under the GBCC, as the same now exists or may
hereafter be amended (but only to the extent any such amendment permits the
corporation to provide broader indemnification rights than the GBCC
permitted the corporation to provide prior to such amendment).
Section 3. Advance for Expenses.
--------------------
(a) The corporation shall pay for or reimburse the reasonable
expenses incurred by a director or officer who is a party to a proceeding
in advance of final disposition of the proceeding if:
15
<PAGE>
(1) The director or officer furnishes the corporation a written
affirmation of his good faith belief that he has met the standard of
conduct set forth in the GBCC; and
(2) The director or officer furnishes the corporation a written
undertaking, executed personally or on his behalf, to repay any
advances if it is ultimately determined that he is not entitled to
indemnification under this Article
(b) The undertaking required by paragraph (2) of subsection (a) of
this Section 3 must be an unlimited general obligation of the director or
officer but need not be secured and may be accepted without reference to
financial ability to make repayment.
Section 4. Limitations on Indemnification.
------------------------------
(a) The corporation shall not indemnify a director under Section 2 of
this Article VII unless a determination has been made in the specific case
that indemnification of the director is permissible in the circumstances
because he has met the standard of conduct set forth in the GBCC.
(b) The corporation shall indemnify an officer under Section 2 of
this Article VII unless a determination has been made in the specific case
that indemnification of the officer is precluded in the circumstances
because he has failed to meet the standard of conduct set forth in the
GBCC.
(c) In either paragraph (a) or (b) above, such determination shall be
made within 60 days of the request for indemnification:
(i) By the Board of Directors by majority vote of a quorum
consisting of directors not at the time parties to the proceeding;
(ii) If a quorum cannot be obtained under paragraph (i) of this
subsection, by majority vote of a committee duly designated by the
Board of Directors (in which designation directors who are parties may
participate), consisting solely of two or more directors not at the
time parties to the proceeding;
(iii) By special legal counsel:
(A) Selected by the Board of Directors or its committee in
the manner prescribed in paragraph (i) or (ii) of this
subsection; or
(B) If a quorum of the Board of Directors cannot be
obtained under paragraph (i) of this subsection and a committee
cannot be designated under paragraph (ii) of this subsection,
selected by majority
16
<PAGE>
vote of the full Board of Directors (in which selection directors
who are parties may participate); or
(iv) By the shareholders, but the shares owned by or voted under
the control of the officers and directors who are at the time parties
to the proceeding may not be voted on the determination;
provided, however, that following a change of control of the corporation,
with respect to all matters thereafter arising out of acts, omissions or
events prior to the change of control of the corporation concerning the
rights of any person seeking indemnification under this Article VII, such
determination shall be made by special legal counsel selected by such
person and approved by the Board of Directors or its committee in the
manner described in Section 4(c)(iii) above (which approval shall not be
unreasonably withheld), which counsel has not otherwise performed services
(other than in connection with similar matters) within the five years
preceding its engagement to render such opinion for such person or for the
corporation or any affiliates (as such term is defined in Rule 405 under
the Securities Act of 1933, as amended) of the corporation (whether or not
they were affiliates when services were so performed) ("Independent
Counsel"). Unless such person has theretofore selected Independent Counsel
pursuant to this Section 4 and such Independent Counsel has been approved
by the corporation, legal counsel approved by a resolution or resolutions
of the Board of Directors of the corporation prior to a change of control
of the corporation shall be deemed to have been approved by the corporation
as required. Such Independent Counsel shall determine as promptly as
practicable whether and to what extent such person would be permitted to be
indemnified under applicable law and shall render its written opinion to
the corporation and such person to such effect. In making a determination
under this Section 4, the special legal counsel and Independent Counsel
referred to above shall determine that indemnification is permissible
unless clearly precluded by this Article VII or the applicable provisions
of the GBCC. The corporation agrees to pay the reasonable fees of the
Independent Counsel referred to above and to fully indemnify such
Independent Counsel against any and all expenses, claims, liabilities and
damages arising out of or relating to this Article or its engagement
pursuant hereto.
(d) Authorization of indemnification or an obligation to indemnify
and evaluation as to reasonableness of expenses shall be made as set forth
in paragraph (c) above.
(e) Indemnification under this Article VII in connection with a
proceeding by or in the right of the corporation shall be limited to
reasonable expenses incurred in connection with the proceeding.
Section 5. Enforceability. The provisions of this Article shall be
--------------
applicable to all proceedings commenced after its adoption, whether such arise
out of events, acts, omissions or circumstances which occurred or existed prior
or subsequent to such adoption, and shall continue as to a person who has ceased
to be a director or officer and shall inure to the benefit of the heirs,
17
<PAGE>
executors and administrators of such person. This Article shall be deemed to
grant each person who is entitled to indemnification hereunder rights against
the corporation to enforce the provisions of this Article, and any repeal or
other modification of this Article or any repeal or modification of the GBCC or
any other applicable law shall not limit any rights of indemnification then
existing or arising out of events, acts, omissions, circumstances occurring or
existing prior to such repeal or modification, including, without limitation,
the right to indemnification for proceedings commenced after such repeal or
modification to enforce this Article with regard to acts, omissions, events or
circumstances occurring or existing prior to such repeal or modification.
Section 6. Severability. If this Article or any portion hereof shall be
------------
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director or officer of the
corporation as to liabilities incurred in connection with any proceeding,
including an action by or in the right of the corporation, to the full extent
permitted by any applicable portion of this Article that shall not have been
invalidated and to the full extent permitted by applicable law.
Section 7. Statements to Shareholders. If the corporation indemnifies or
--------------------------
advances expenses to an officer or director under this Article VII in connection
with a proceeding by or in the right of the corporation, the corporation shall
report the indemnification or advance in writing to the shareholders with or
before the notice of the next shareholders' meeting.
18
<PAGE>
EXHIBIT 10(j)
<PAGE>
SCIENTIFIC-ATLANTA
EXECUTIVE DEFERRED COMPENSATION PLAN
AMENDED AND RESTATED AUGUST 18, 1999
Article I - Introduction
------------------------
1.1 Name of the Plan
----------------
This Plan shall be known as the Scientific-Atlanta Executive Deferred
Compensation Plan.
1.2 Purpose of Plan
---------------
The purpose of the Plan is to provide eligible executives of Scientific-
Atlanta, Inc., a Georgia corporation, and its subsidiaries the opportunity to
defer cash compensation payable to them for services to Scientific-Atlanta, Inc.
and its subsidiaries.
1.3 Date of Plan
------------
This Scientific-Atlanta Executive Deferred Compensation Plan was originally
made at Norcross, Georgia, on the 19th day of May, 1993, for the benefit of
certain employees of Scientific-Atlanta, Inc. and its subsidiaries.
Article II - Definitions
------------------------
For purposes of this Plan, the following words and phrases shall have the
meanings and applications set forth below:
2.1 Annual Incentive Plan Payment
-----------------------------
The short-term executive incentive payment, if any, earned by a Participant
in the year preceding a Plan Year and payable by the Employer to the Participant
in the Plan Year.
2.2 Beneficiary
-----------
A person or entity designated in accordance with the terms and conditions
of this Plan to receive benefits upon the death of a Participant.
2.3 Compensation Deferral Election
------------------------------
Each election made by a Participant to defer a portion of his or her
Compensation by executing and submitting an Election Form.
1
<PAGE>
2.4 Compensation
------------
The total of a Participant's Salary, Annual Incentive Plan Payment, Long-
Term Incentive Plan Payments, any other incentive payments approved by the Plan
Committee ("Other Incentive Compensation"), amounts to be received by the
Participant under the Executive Deferred Compensation Plan of Scientific-
Atlanta, Inc. originally adopted on December 1, 1985 ("1985 Plan Payments") and
any amounts to be received by the Participant under any Severance Protection
Agreement with, or Severance Protection Plan of, Scientific-Atlanta, Inc.
("Severance Payments"), which are payable to the Participant by the Employer
during a Plan Year. Compensation shall be calculated before reduction for taxes
or for compensation deferred pursuant to this Plan.
2.5 Deferred Benefit Account
------------------------
An account maintained pursuant to and in accordance with the terms and
conditions set forth in Article V hereof by or on behalf of the Employer for
each Compensation Deferral Election made by a Participant under this Plan.
2.6 Deferred Benefit Commencement Date
----------------------------------
The date irrevocably designated by a Participant with respect to each
Compensation Deferral Election as the date on which the payment of the Deferred
Benefits that accumulate as a result of such elections are to begin.
2.7 Deferred Benefits
-----------------
The amounts payable pursuant to this Plan to a Participant or to his or her
Beneficiary or estate following the Participant's termination of employment, the
Deferred Benefit Commencement Date, determination of Total Disability, or death.
2.8 Determination Date
------------------
The last day of each Plan Year.
2.9 Election Amount
---------------
The amount of Salary, Annual Incentive Plan Payment, Long-Term Incentive
Plan Payment, Other Incentive Compensation, 1985 Plan Payments or Severance
Payments to be deferred pursuant to a single Compensation Deferral Election.
2.10 Election Form
-------------
The form completed by a Participant in order to make one or more
Compensation Deferral Elections, as the same may be amended or revised as herein
permitted.
2
<PAGE>
2.11 Employer
--------
Scientific-Atlanta, Inc. or any of its majority owned subsidiaries.
2.12 Employment Termination Date
---------------------------
The date of a Participant's termination of employment, determination of
Total Disability, or death, whichever is applicable.
2.13 Long-Term Incentive Plan Payment
--------------------------------
The long-term performance payment, if any, earned by a Participant during
the performance period immediately preceding the Plan Year and payable by the
Employer to the Participant in the Plan Year.
2.14 Participant
-----------
An employee of the Employer who is eligible to participate in this Plan
according to the criteria adopted from time to time by the Plan Committee and
who elects to participate in this Plan.
2.15 Plan
----
This Scientific-Atlanta Executive Deferred Compensation Plan, as amended
from time to time.
2.16 Plan Committee
--------------
The Human Resources and Compensation Committee of the Board of Directors of
Scientific-Atlanta, Inc. or such other committee as shall be designated by the
Board of Directors from time to time.
2.17 Plan Interest Rate
------------------
An annual rate of interest equal to the average of Moody's Long Term
Industrial Bond Rate for the ninety (90) day period ending on the March 1st
preceding the commencement of each Plan Year (rounded to the next highest one-
half (1/2) percentage point), plus 1%, which shall be credited to a
Participant's Deferred Benefit Accounts during such Plan Year. Provided,
however, that with respect to any 1985 Plan Payments deferred under this Plan,
the Plan Interest Rate to be credited to each Deferred Benefit Account
established for any such deferral shall be 14% per annum.
3
<PAGE>
2.18 Plan Year
---------
The period beginning on the first day of July of each calendar year and
ending on and including the last day of June of the next calendar year.
2.19 Salary
------
The base salary, including any raises in salary, earned by a Participant in
connection with his or her employment with the Employer and payable to a
Participant by the Employer in a Plan Year.
2.20 Total Disability
----------------
A physical or mental condition which is expected to be totally and
permanently disabling as determined in accordance with the terms and conditions
of the long-term disability insurance plan currently or most recently maintained
by the Employer for the benefit of the Participant claiming to be totally
disabled.
Article III - Eligibility and Participation
-------------------------------------------
3.1 Eligibility
-----------
Employees who are eligible to participate in this Plan will be identified
by the Plan Committee according to criteria adopted from time to time by the
Plan Committee. Such identification shall be conclusive and binding upon all
persons.
3.2 Participation
-------------
The Plan Committee shall notify in writing each employee who becomes
eligible to participate in this Plan of his or her eligibility. Eligible
employees may participate in this Plan by submitting an Election Form in
accordance with Section 4.1 hereof. Such election to participate shall be
effective upon the receipt and acceptance by the Plan Committee of such Election
Form.
3.3 Additional Compensation
-----------------------
A Participant shall receive the Deferred Benefits provided for herein in
addition to any compensation or other benefits paid or provided to the
Participant by the Employer. In the event that a Participant's participation in
this Plan shall cause the Participant to receive a reduced benefit under any
pension plan maintained by the Employer for the benefit of the Participant, then
the Employer shall pay the Participant, at the same time and in the same manner
as would have been paid under such pension plan, the additional pension benefits
that the Participant would have received under such pension plan if the
Participant had not participated in this Plan, unless the Participant is
entitled to receive such additional pension benefits under some other plan
maintained by the Employer for the benefit of the Participant.
4
<PAGE>
Article IV - Compensation Deferral
----------------------------------
4.1 Compensation Deferral Election
------------------------------
A Participant shall make a Compensation Deferral Election by executing and
submitting to the Plan Committee an Election Form. The Election Form shall
specify the Election Amount, the Deferred Benefit Commencement Date, the manner
of payment of the Deferred Benefits attributable to the election, the
Beneficiary selected by the Participant to receive such Deferred Benefits in the
event of the Participant's death and any optional payment instructions for
involuntary termination of employment, disability and death. An election to
defer future Salary may be made either before or during the Plan Year, provided,
however, that any such election must be submitted to the Plan Committee at least
thirty (30) days prior to the applicable fiscal quarter and must apply to at
least the entire fiscal quarter. An election to defer all or a portion of the
payment of any Annual Incentive Plan Payment, a Long-Term Incentive Plan
Payment, Other Incentive Compensation, 1985 Plan Payments or Severance Payments
must be made at least ninety (90) days prior to the date the Participant is
entitled to receive such payment. A Participant may revise or change any
election or instruction contained in any Election Form, other than the Election
Amount, by submitting to the Plan Committee a revised Election Form at least
ninety (90) days prior to the effective date of such revision or change.
4.2 Election Amounts
----------------
Each Election Amount shall be selected as follows:
(a) With respect to Salary, a participant may defer a specified percentage
of the Salary which the Participant will earn and receive during the balance of
the Plan Year, provided, however, that no deferral election with respect to the
current Plan Year may be made after March 31. Percentage deferral must be an
increment of five percentage points. A Participant may elect to defer up to
100% of his/her Salary, provided that such deferral will be reduced by amounts
necessary to pay the Participant's portion of applicable taxes and other
deductions which the Participant may have authorized.
(b) With respect to an Annual Incentive Plan Payment, a Long-Term
Incentive Plan Payment, Other Incentive Compensation, 1985 Plan Payments or
Severance Payments, a Participant may defer either a specified percentage of the
entire payment or a specified percentage of the payment above a stated dollar
amount; provided, however, that any such percentage must be an increment of five
percentage points.
4.3 Reduction of Compensation
-------------------------
The Employer shall deduct Election Amounts deferred from a Participant's
Salary ratably over each remaining pay period in the Plan Year. The Employer
shall deduct Election Amounts deferred from an Annual Incentive Plan Payment, a
Long-Term Incentive Plan Payment, Other Incentive Compensation, 1985 Plan
Payments or Severance Payments at the time such payment is otherwise payable.
5
<PAGE>
4.4 Deferred Benefit Commencement Date
----------------------------------
Except as otherwise provided in Article VI hereof, a Participant may elect
to defer receipt of an Election Amount until the Deferred Benefit Commencement
Date selected by the Participant. The permissible Deferred Benefit Commencement
Dates are (i) a set date which is no earlier than July 1 of the calendar year
following the end of the Plan Year in which the Election Amount is deferred;
(ii) the Participant's Employment Termination Date, or (iii) a date which is
either the fifth or tenth anniversary of the Participant's Employment
Termination Date. The term "Retirement" used as a designation on any Election
Form for a Deferred Benefit Commencement Date shall mean the Participant's
Employment Termination Date.
4.5 Manner of Payment
-----------------
Except as otherwise provided in Article VI hereof, the Participant may
elect to receive payment of the Deferred Benefits attributable to a Compensation
Deferral Election pursuant to one of the following methods:
(a) Annual, semiannual or quarterly installments payable over a five, ten
or fifteen year period, and commencing on the respective Deferred Benefit
Commencement Date; or
(b) A single lump sum payment of the entire balance of the respective
Deferred Benefit Account, determined as of and payable on the Deferred Benefit
Commencement Date.
4.6 Designation of Beneficiaries
----------------------------
A Participant shall designate a Beneficiary with respect to each
Compensation Deferral Election and may change the Beneficiary designation with
respect to any Compensation Deferral Election at any time by submitting a
revised Beneficiary designation in writing reflecting the change to the Plan
Committee.
Article V - Deferred Benefit Accounts
-------------------------------------
5.1 Deferred Benefit Accounts
-------------------------
The Employer shall cause to be established and maintained a separate
Deferred Benefit Account with respect to each Compensation Deferral Election.
The Employer shall credit the Election Amount deferred pursuant to each such
election to the Participant's appropriate Deferred Benefit Account as of the
date deferred from the Participant's Compensation as provided in Section 4.3
hereof. The amount credited to a Participant's Deferred Benefit Account shall
equal the Election Amount deferred reduced by the amount, if any, that the
Employer may be required from time to time to withhold from such Election Amount
pursuant to any federal, state or local law.
5.2 Accrual of Interest
-------------------
6
<PAGE>
Except as otherwise provided by Section 6.2(b) hereof, interest shall
accrue, at the Plan Interest Rate in effect from time to time, on any amounts
credited to a Deferred Benefit Account from the date on which the amount is
credited until it is paid to the Participant, and shall be credited and
compounded weekly.
5.3 Determination of Account Balance
--------------------------------
As of each Determination Date, the current balance of a Participant's
Deferred Benefit Account shall equal (A) the sum of (i) the balance of such
Deferred Benefit Account as of the immediately preceding Determination Date,
(ii) any Compensation deferred by such Participant to such Deferred Benefit
Account since the previous Determination Date and (iii) the amount of interest
credited to such Deferred Benefit Account since the preceding Determination
Date, minus (B) any payments to or withdrawals by the Participant from the
Deferred Benefit Account since the previous Determination Date.
5.4 Statement of Accounts
---------------------
Within ninety (90) days after each Determination Date, the Plan Committee
shall submit to each Participant a statement in such form as the Plan Committee
shall deem desirable, setting forth a summary of the Compensation Deferral
Elections made and the current balances of the Deferred Benefit Accounts
maintained for the Participant as of the Determination Date.
Article VI - Payment of Deferred Benefits
-----------------------------------------
6.1 General
-------
Except as otherwise provided herein, Deferred Benefits in each Deferred
Benefit Account shall be payable to a Participant upon the Deferred Benefit
Commencement Date for such Account and pursuant to the manner of payment
selected by the Participant on the applicable Election Form or any permitted
modification thereof. If the Participant has elected to receive such Deferred
Benefits in installments, the amount payable in the first year of such
installments shall be an amount that will fully amortize the balance in the
Participant's Deferred Benefit Account determined as of the Deferred Benefit
Commencement Date over the five, ten, or fifteen year period, based on assumed
interest earnings at the Plan Interest Rate in effect for such first year.
Thereafter, the amount payable in each succeeding year shall be adjusted to an
amount that will fully amortize the remaining balance in such Deferred Benefit
Account over the remaining years in the aforesaid five, ten, or fifteen year
installment period based on the Plan Interest Rate for such succeeding year.
6.2 Termination of Employment
-------------------------
Deferred benefits shall be paid to a Participant upon his or her
termination of employment, as follows:
(a) Upon the involuntary termination of a Participant's employment by the
Employer,
7
<PAGE>
the amount in each Deferred Benefit Account shall be payable to the Participant
either (i) in the manner specified by the Participant in his or her Election
Form to apply in the event of his or her involuntary termination by the
Employer; or (ii) if no such specification is made, on the Deferred Benefit
Commencement Date that applies to such Deferred Benefit Account, pursuant to the
method requested by the Participant in his or her Election Form.
(b) Upon the voluntary termination of employment by a Participant prior to
attaining fifty-five years of age:
(1) the amounts in each of the Participant's Deferred Benefit
Accounts shall cease to earn interest and the balance of each Deferred
Benefit Account shall be determined as of the nearest pay date following
the Participant's Employment Termination Date determined in accordance with
Article V hereof; and
(2) the Employer shall pay the Participant the balance of each such
Deferred Benefit Account not according to the Participant's elections as
specified in his or her Election Forms but in a lump sum, to be paid within
sixty (60) days of the Participant's voluntary termination.
(c) Upon the voluntary termination of employment with the Employer by a
Participant who is fifty-five years or older the Employer will pay out to such
Participant all amounts in his or her Deferred Benefit Account in accordance
with the instructions in the applicable Election Form.
(d) Other provisions of this Plan to the contrary notwithstanding, in the
event that a Participant's employment with the Employer is terminated for any
reason, voluntarily or involuntarily, within two (2) years after a "Change in
Control" of Scientific-Atlanta, Inc., the Employer shall pay the Participant the
amounts in the Participant's Deferred Benefit Accounts according to the terms of
Section 6.2(a) hereof as if the Participant had been terminated involuntarily.
For purposes of this Plan, a "Change in Control" shall mean any of the following
events:
(1) The acquisition in one or more transactions by any "Person" (as
the term person is used for purposes of Section 13(d) or 14(d) of the
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 Section 6.2(d)(1), 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
(2) The individuals who are members of the Incumbent Board (as
defined below), cease for any reason to constitute at least two-thirds of
the Board. The
8
<PAGE>
"Incumbent Board" shall include the individuals who as of August 20, 1990
are members of the Board and any individual becoming a director subsequent
to August 20, 1990 whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least two-thirds of
the directors then comprising the Incumbent Board; provided, however, that
any individual who is not a member of the Incumbent Board at the time he or
she becomes a member of the Board shall become a member of the Incumbent
Board upon the completion of two full years as a member of the Board;
provided, further, however, that notwithstanding the foregoing, no
individual shall be considered a member of the Incumbent Board if such
individual initially assumed office (i) as a result of either an actual or
threatened "election contest" (within the meaning of Rule 14a-11
promulgated under the 1934 Act) or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Board (a
"Proxy Contest") or (ii) with the approval of the other Board members, but
by reason of any agreement intended to avoid or settle a Proxy Contest; or
(3) Approval by stockholders of the Company of (i) a merger or
consolidation involving the Company if the stockholders of the Company,
immediately before such merger or consolidation, do not own, directly or
indirectly, immediately following such merger or consolidation, more than
eighty percent (80%) of the combined voting power of the outstanding voting
securities of the corporation resulting from such merger or consolidation
in substantially the same proportion as their ownership of the Voting
Securities immediately before such merger or consolidation or (ii) a
complete liquidation or dissolution of the Company or an agreement for the
sale or other disposition of all or substantially all of the assets of the
Company.
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because twenty percent (20%) or more of the then outstanding Voting
Securities is acquired by (i) a trustee or other fiduciary holding securities
under one or more employee benefit plans maintained by the Company or any of its
subsidiaries or (ii) any corporation which, immediately prior to such
acquisition, is owned directly or indirectly by the stockholders of the Company
in the same proportion as their ownership of stock in the Company immediately
prior to such acquisition.
Moreover, notwithstanding the foregoing, a Change in Control shall not be
deemed to occur solely because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted amount of the outstanding Voting
Securities as a result of the acquisition of Voting Securities by the Company
which, by reducing the number of Voting Securities outstanding, increases the
proportional number of shares Beneficially Owned by the Subject Person,
provided, that if a Change in Control would occur (but for the operation of this
sentence) as a result of the acquisition of Voting Securities by the Company,
and after such share acquisition by the Company, the Subject Person becomes the
Beneficial Owner of any additional Voting Securities which increases the
percentage of the then outstanding Voting Securities Beneficially Owned by the
Subject Person, then a Change in Control shall be deemed to have occurred.
9
<PAGE>
(e) Other provisions of this Plan to the contrary notwithstanding, this
Plan may not be modified, amended or terminated within two (2) years after a
Change in Control.
6.3 Total Disability
----------------
Deferred Benefits shall be paid to a Participant upon his or her becoming
Totally Disabled, as follows:
(a) Upon the determination that a Participant is Totally Disabled.
(1) No further deferrals will be made from his or her Compensation:
and
(2) the Employer shall pay the Participant the balance in each of the
Participant's Deferred Benefit Accounts as if the Participant had been
terminated involuntarily, as set forth in Section 6.2(a), unless the
Participant has specified in his or her Election Form a different manner of
payment.
(b) For purposes of this Plan, once a Participant is determined to be
Totally Disabled, he or she will continue to be deemed Totally Disabled
irrespective of the Participant's ceasing to be considered Totally Disabled for
purposes of any other plan maintained by the Employer.
(c) In the event that a Totally Disabled Participant recovers and resumes
active employment with the Employer such Totally Disabled Participant may resume
participation in this Plan at the discretion of the Plan Committee; provided,
however, that in any event the Totally Disabled Participant shall continue to
receive payments of Deferred Benefits that are then being paid pursuant to the
terms of this Plan.
6.4 Death
-----
Deferred Benefits shall be paid upon the death of a Participant, as
follows:
(a) Upon the death of a Participant, the Employer shall pay the amounts in
each of the Participant's Deferred Benefit Accounts to the Beneficiary
designated by the Participant with respect to each Compensation Deferral
Election in each of his or her respective Election Forms, or, if the Participant
fails to so designate a Beneficiary, to his or her estate.
(b) If the Participant dies prior to his or her Employment Termination
Date, the Employer shall pay to each respective Beneficiary or to the
Participant's estate, as the case may be, the amounts in each of the
Participant's respective Deferred Benefit Accounts, in the same manner as for
the Participant who has been terminated involuntarily, as set forth in Section
6.2(a).
(c) If the Participant dies following his or her Employment Termination
Date but prior to his or her receiving the full payment of all Deferred Benefits
payable to him or her, the Employer shall pay to each of the respective
Beneficiaries or to the Participant's estate, as the
10
<PAGE>
case may be, the same Deferred Benefit in the same manner as it otherwise would
have paid to the Participant as if the Participant had not died, unless the
Participant has specified in his or her Election Form a different manner of
payment to a Beneficiary.
(d) Notwithstanding the other provisions of Section 6.4, a Beneficiary may
request a different payment schedule than what has been elected by the
Participant, if such change does not further defer the scheduled payout, by
submitting a request in writing to the Plan Committee. The granting of any such
request shall be within the discretion of the Plan Committee.
(e) If a Beneficiary who is receiving Deferred Benefits pursuant to this
Plan dies, the remainder of the Deferred Benefits to which such Beneficiary was
entitled at the time of his or her death shall continue to be payable to the
beneficiary or beneficiaries designated by such Beneficiary in writing to the
Plan Committee (or to the Beneficiary's estate or heirs if he or she fails to
designate a beneficiary or beneficiaries).
Article VII - Hardship Withdrawals
----------------------------------
7.1 Hardship Withdrawals. A participant may request a Hardship Withdrawal
---------------------
of all or a portion of his or her Deferred Benefits before the Deferred Benefit
Commencement Date, as follows:
(a) The request for withdrawal must be to meet an "unforeseeable
emergency."
(b) For purposes of this Article VII, an unforeseeable emergency is a
severe financial hardship to the Participant resulting from a sudden and
unexpected illness or accident of the Participant or a dependent of the
Participant, loss of Participant's property due to casualty, or other similar
extraordinary and unforeseeable circumstances arising as a result of events
beyond the control of the Participant. The circumstances that will constitute
an unforeseeable emergency will depend upon the facts of each case, but, in any
case, a hardship withdrawal may not be made to the extent that such hardship is
or may be relieved:
(1) Through reimbursement or compensation by insurance or otherwise,
(2) By liquidation of the participant's assets, to the extent the
liquidation of such assets would not itself cause severe financial
hardship, or
(3) By cessation of deferrals under the Plan.
(c) The request for a Hardship Withdrawal must be made in writing to the
Plan Committee and shall state the amount requested, the unforeseeable emergency
to which the amount will be applied and shall also affirm that no other assets
are reasonably available to meet the emergency.
11
<PAGE>
(d) The Plan Committee shall consider applicable regulatory standards in
assessing whether to grant a request for a Hardship Withdrawal.
Article VIII - Plan Administration
----------------------------------
8.1 Plan Committee
--------------
This Plan and all matters related to it shall be administered by the Plan
Committee. The Plan Committee shall have the authority to interpret the
provisions of this Plan and to resolve all questions arising in the
administration, interpretation and application of this Plan. Any such
determination by the Plan Committee shall be conclusive and binding on all
persons.
8.2 Claim Procedures
----------------
Any Participant or Beneficiary claiming a benefit, or requesting an
interpretation, any information, or a ruling under this Pan shall present the
request, in writing, to the Plan Committee, which shall respond in writing
within thirty (30) days from the date on which it receives the claim or request.
Article IX - Participant's Rights
---------------------------------
9.1 Ineligibility to Participate in Plan
------------------------------------
In the event that the Plan Committee determines that a Participant has
become ineligible to continue to participate in this Plan, the Plan Committee
may terminate Participant's participation in this Plan upon ten (10) days' prior
written notice to the Participant. In such event, the Participant will not be
entitled to make further Compensation Deferral Elections, but all current
Compensation Deferral Elections shall continue in effect. All Deferred Benefit
Accounts shall be payable as otherwise provided in Article VI hereof.
9.2 Termination of Plan
-------------------
Subject to the provisions of Section 6.2(e) of this Plan, the Board of
Directors of Scientific-Atlanta, Inc. may terminate this Plan at any time, and
termination of this Plan shall be effective upon ten (10) days' written notice
to all Participants in the Plan. Upon such termination of this Plan, the
Employer shall pay all active Participants their Deferred Benefits as provided
in Section 6.2(a) as if the employment of the Participant by the Company had
been involuntarily terminated. Upon termination of the Plan, amounts credited
to the Deferred Benefit Accounts of each Participant shall continue to earn
interest at the Plan Interest Rate until such amounts are paid to the
Participant.
9.3 Participant's Rights
--------------------
The right of a Participant or his or her Beneficiary or estate to receive
any benefits under this Plan shall be solely that of an unsecured creditor of
the Employer. Any asset acquired or
12
<PAGE>
held by the Employer or funds allocated by the Employer in connection with the
liabilities assumed by the Employer pursuant to this Plan shall not be deemed to
be held under any trust for the benefit of any Participant or of any of
Participant's Beneficiaries or to be security for the performance of the
Employer's obligations hereunder but shall be and remain a general asset of the
Employer. Provided, however, that nothing herein shall affect the rights of the
Participant with regard to this Plan under that certain Benefits Protection
Trust, between Scientific-Atlanta, Inc. and Wachovia Bank & Trust Co., N.A.,
dated February 13, 1991, as amended from time to time.
9.4 Spendthrift Provision
---------------------
Neither a Participant nor any person claiming through a Participant shall
have the right to commute, sell, assign, transfer, pledge, mortgage or otherwise
encumber, transfer, hypothecate or convey any Deferred Benefit payable hereunder
or any part thereof in advance of it actually having been received by a
Participant or other appropriate recipient under this Plan, and the right to
receive all such Deferred Benefits is expressly declared to be non-assignable
and non-transferable. Prior to the actual payment thereof, no part of the
Deferred Benefits payable hereunder shall be subject to seizure or sequestration
for the payment of any debts, judgments, alimony or separate maintenance owed by
a Participant or any person claiming through a Participant or be transferable by
operation of law in the event of a Participant's or any such other person's
bankruptcy or insolvency.
9.5 Plan Not An Employment Agreement
--------------------------------
This Plan shall not be deemed to constitute an employment agreement between
the Employer and any Participant, and no provision hereof shall restrict the
right of the Employer to
discharge a Participant as an employee of the Employer or the right of a
Participant to voluntarily terminate his or her employment with the Employer.
9.6 Cooperation
-----------
Each Participant will cooperate with the Employer by furnishing any and all
information reasonably requested by the Employer in order to facilitate the
payment of Deferred Benefits hereunder and by taking any such other actions as
the Employer or the Plan Committee may reasonably request.
9.7 Offset
------
If a Participant or his or her Beneficiary, as the case may be, shall be
indebted to the Employer at any time that Deferred Benefits are to be paid to a
Participant or his or her Beneficiary under this Plan, then the Employer may
reduce such Deferred Benefits by the amount of such indebtedness prior to the
payment of the Deferred Benefits.
13
<PAGE>
Article X - Miscellaneous
-------------------------
10.1 Amendments and Modifications
----------------------------
Subject to the provisions of Section 6.2(e) of this Plan, the Board of
Directors of Scientific-Atlanta, Inc. may amend this Plan in any respect at any
time, provided, however, that any amendment that does not involve a material
change in the nature of the Plan or a material increase in the cost of the Plan
may be adopted in writing, without approval of the Board of Directors, by the
Plan Committee.
10.2 Inurement
---------
This Plan shall be binding upon and shall inure to the benefit of the
Employer and each Participant hereto, and their respective beneficiaries, heirs,
executors, administrators, successors and assigns.
10.3 Governing Law
-------------
This Plan shall be interpreted and administered in accordance with the
Employee Retirement Income Security Act of 1974, as amended. To the extent that
state law is applicable, however, the laws of the State of Georgia shall apply.
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 execute
this Plan.
SCIENTIFIC-ATLANTA, INC.
By:___________________________________
Brian C. Koenig
Title: Senior Vice President -
Human Resources
By:___________________________________
William E. Eason, Jr.
Title: Senior Vice President,
General Counsel and Corporate Secretary
14
<PAGE>
EXHIBIT 10(k)
<PAGE>
SCIENTIFIC-ATLANTA, INC.
SUPPLEMENTAL EXECUTIVE
RETIREMENT PLAN
Amended and Restated on August 18, 1999
<PAGE>
SCIENTIFIC-ATLANTA, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
PREAMBLE
--------
This Scientific-Atlanta, Inc. Supplemental Executive Retirement Plan is
designed to provide supplemental retirement benefits to certain key executive
employees of Scientific-Atlanta, Inc. and its subsidiaries (the "Company").
This Plan is not intended to qualify under Section 401(a) of the Internal
Revenue Code, but is an unfunded plan maintained primarily for the purpose of
providing deferred compensation for a select group of management or highly
compensated employees. The Plan constitutes an unfunded, unsecured contractual
obligation of the Company to pay certain retirement benefits to Participants out
of the general assets of the Company.
ARTICLE I
DEFINITIONS
For purposes of this Plan, each term defined below, when capitalized, shall
have the meaning specified below:
1.1 "Accrue" shall mean the rate at which the benefits under this Plan are
credited to a Participant. Benefits which Accrue under this Plan do not Vest in
the employee except as provided in Section 3.3 and Articles VII and VIII hereof.
1.2 "Accrued Benefit" shall mean that percentage of a Participant's Final
Average Earnings which has Accrued pursuant to Section 3 hereof, as determined
from time to time. Accrued Benefits are not earned by or payable to a
Participant unless such Benefits have Vested as provided in Section 3.3 and
Articles VII and VIII hereof.
1.3 "Cause" shall have the meaning set forth in Section 1.17.
1.4 "Change in Control" shall have the meaning set forth in Section 8.4
hereof.
1.5 "Committee" shall mean the Human Resources and Compensation Committee
of the Board of Directors of Scientific-Atlanta, Inc.
1.6 "Company" shall mean Scientific-Atlanta, Inc. and any of its majority-
owned subsidiaries.
1
<PAGE>
1.7 "Compensation" shall mean a Participant's base salary and any bonus
payments received by the Participant pursuant to the Scientific-Atlanta, Inc.
Annual Incentive Plan and the Senior Officer Annual Incentive Plan.
Compensation shall include any amounts deferred under the Scientific-Atlanta,
Inc. Executive Deferred Compensation Plan. The year that such deferred amounts
will be included in compensation for purposes of this Plan will be the year in
which the amount would have been paid but for the deferral election.
1.8 "Continuous Service" shall mean the period of time during which a
Participant is continuously employed by the Company. A Participant shall be
credited with a month of Continuous Service if he or she is employed by the
Company on any day during a calendar month. In addition, if an employee is re-
employed by the Company after a break in service, the employee's prior service
shall be treated as Continuous Service if the break in service was less than
twelve (12) months or if service prior to the break was of a longer duration
than the break in service.
1.9 "Early Retirement Date" shall mean either (a) the first day of the
calendar month in which a Participant is at least fifty-five (55) years of age
and has completed ten (10) years of Continuous Service, or (b) the first day of
the calendar month in which the Participant is at least sixty (60) years of age,
regardless of years of service.
1.10 "Eligible Employee" shall have the meaning set forth in Section 2.1
1.11 "Final Average Earnings" shall mean the average annual Compensation
of a Participant for each of the three (3) calendar years in which such
Compensation was the highest during each of the ten (10) calendar years
preceding and including the calendar year in which the date of the Participant's
retirement, death or termination of employment occurs.
1.12 "Normal Retirement Date" shall mean the first day of the calendar
month in which a Participant is at least sixty-five (65) years of age and has
completed ten (10) years of Continuous Service.
1.13 "Participant" shall mean any Eligible Employee selected to
participate in the Plan pursuant to Section 2.2 hereof.
1.14 "Plan" shall mean the Scientific-Atlanta, Inc. Supplemental Executive
Retirement Plan, as it may be amended from time to time.
1.15 "Reduced Retirement Benefit" shall have the meaning set forth in
Section 4.2.
1.16 "Reduced Service Period" shall mean, in the case of a Participant who
is first employed by the Company after the first day of the month in which the
Participant attains forty-five (45) years of age, the period between the first
day of the calendar month during which the
2
<PAGE>
Participant's employment commences and the first day of the calendar month
during which the Participant would attain age sixty-five (65), provided,
--------
however, that if the Participant is fifty-fives of age or older at the date of
- -------
his employment, the Reduced Service Period shall mean the ten (10) year period
commencing on the first day of the calendar month during which the Participant's
employment commences.
1.17 "retire" or "retirement" shall include any voluntary termination of
the Participant's employment by the Participant or any involuntary termination
of the Participant's employment by the Company without "Cause." For purposes of
this Plan, a termination for "Cause" is a termination evidenced by a resolution
adopted in good faith by two-thirds (2/3) of the Board of Directors of the
Company that the Participant (i) has been convicted of a felony, or (ii) has
engaged in conduct which constitutes (A) willful neglect in carrying out his
duties to the Company or (B) willful misconduct, in either case which is
demonstrably and materially injurious to the Company, monetarily or otherwise;
provided, however, that no termination of the Participant's employment shall be
- -------- -------
for Cause as set forth in clause (ii) above until (x) there shall have been
delivered to the Participant a copy of the written notice setting forth that the
Participant was guilty of the conduct set forth in clause (ii) and specifying
the particulars thereof in detail, and (y) the Participant shall have been
provided an opportunity to be heard by the Board (with the assistance of the
Participant's counsel if the Participant so desires). No act, or failure to act,
on the Participant's part shall be considered "willful" unless he has acted, or
failed to act, with an absence of good faith and without a reasonable belief
that this action or failure to act was in the best interest of the Company.
Notwithstanding anything contained in this Plan to the contrary, no benefits
shall be paid under this Plan to any Participant when such Participant's
employment is terminated by the Company for Cause.
1.18 "Vest" shall mean that the benefits Accrued under this Plan for a
Participant are payable to the Participant at the times and in the amounts
provided for herein. Benefits under this Plan Vest only as provided in Section
3.3 and Articles VII and VIII hereof.
ARTICLE II
PARTICIPATION
2.1 Eligible Employees.
------------------
The class of eligible employees from which Participants may be
selected is limited to officers, both elected and appointed, and other key
executives of the Company ("Eligible Employees").
2.2 Selection of Participants.
-------------------------
From time to time, the Committee shall select from among the class of
Eligible Employees one or more individuals for admission to the Plan. The
Committee's determinations
3
<PAGE>
shall be made in its sole discretion and shall be conclusive and binding on all
persons. The Committee shall notify in writing each Participant of his or her
selection as a Participant.
ARTICLE III
BENEFIT ACCRUALS AND VESTING
3.1 General.
-------
Except as provided in Sections 3.2 and 4.2 hereof, benefits shall
Accrue under this Plan at an annual rate of three and one-half percent (3 1/2%)
of Final Average Earnings for each of the Participant's first ten (10) years (or
partial years computed on a monthly basis (expressed in decimal form)) of
Continuous Service and at an annual rate of one and one-half percent (1 1/2%)
of Final Average Earnings for each of the next ten (10) years (or partial years
computed on a monthly basis (expressed in decimal form)) of Continuous Service.
The maximum Accrued Benefit to which a Participant may be entitled under the
Plan shall be equal to fifty percent (50%) of the Participant's Final Average
Earnings.
3.2 Reduced Service Period.
----------------------
In the event a Participant is first employed by the Company after the
first day of the month in which the Participant attains the age of forty-five
(45) years, benefits shall Accrue under this Plan over the Participant's Reduced
Service Period as follows:
(a) For each full or partial year of Continuous Service during the
first half of the Reduced Service Period, benefits shall Accrue under this Plan
at an annual rate determined by dividing thirty-five percent (35%) of Final
Average Earnings by one-half (1/2) of the number of years (including any
partial year computed on a monthly basis (expressed in decimal form)) contained
in the Reduced Service Period; and
(b) For each full or partial year of Continuous Service during the
second half of the Reduced Service Period, benefits shall Accrue under this Plan
at an annual rate determined by dividing fifteen percent (15%) of Final Average
Earnings by one-half (1/2) of the number of years (including any partial year
computed on a monthly basis (expressed in decimal form)) contained in the
Reduced Service Period.
3.3 Vesting.
-------
A Participant shall Vest in his or her Accrued Benefit hereunder on
the earlier of the completion of ten (10) years of Continuous or the attainment
of age sixty (60), regardless of service, provided, however, that an Eligible
Employee who is selected by the Committee to be a Participant in the Plan on or
after August 1, 1999, and who has been re-employed after having a break in
service, shall not Vest in his or her Accrued Benefit if he or she either
voluntarily
4
<PAGE>
terminates employment or is involuntarily terminated for Cause within three (3)
years after being re-employed, unless such Participant has attained age sixty
(60) prior to voluntary termination. Notwithstanding the foregoing, nothing in
this Article 3.3 shall override or supercede the vesting provisions set forth in
Articles VII and VIII hereof. Also notwithstanding the foregoing, a Participant
who (a) terminates employment with the Company prior to completing ten (10)
years of Continuous Service and (b) has not vested in any of his or her Accrued
Benefit as a result of a Change in Control, shall be vested in an amount equal
to the benefit he or she would be entitled to receive if he or she had
participated in the Scientific-Atlanta, Inc. Restoration Retirement Plan during
the period he or she was a Participant in this Plan.
ARTICLE IV
RETIREMENT BENEFITS
4.1 Normal Retirement.
------------------
A Participant who retires from the Company on or after his or her
Normal Retirement Date shall be entitled to receive an annual retirement benefit
(the "Normal Retirement Benefit") for life, equal to the excess of:
(a) the Participant's Accrued Benefits determined under Sections
3.1 or 3.2 hereof; over
(b) the sum of:
(i) the annual retirement benefits payable to the Participant as a
life annuity pursuant to the defined benefit retirement plan of the Company (as
such plan might be amended, supplemented or superseded from time to time) which
is the actuarial equivalent (as defined in Section 5.3) of such Participant's
Pension Equity Account as defined in such plan;
(ii) the annual retirement benefits payable to the Participant
pursuant to any employer-funded defined benefit plan maintained by a prior
employer of the Participant, assuming that such benefits are payable in the form
of a single life annuity for the life of the Participant; and
(iii) the Participant's annual primary insurance amount under the
Federal Social Security Act as in effect on the Participant's Normal Retirement
Date or, if applicable, his date of death. In determining such amount under
Section 4.2 below for a Participant who severs from service prior to his Normal
Retirement Date, it shall be assumed that the Participant will continue to
receive, until his Normal Retirement Date, annual compensation (which would be
treated as wages for purposes of the Federal Social Security Act) at the same
rate which is in effect immediately prior to his termination of employment.
5
<PAGE>
4.2 Early Retirement.
----------------
(a) A Participant who retires from the Company on or after his or her
Early Retirement Date but prior to his or her Normal Retirement Date shall be
entitled to receive his or her Normal Retirement Benefit commencing on the date
of his or her retirement; provided, however, that such date of commencement may,
-------- -------
at the election of the Participant pursuant to Section 4.3 (or, if the
Participant has not made an election, at the election of the Committee), be
deferred to the date that the Participant attains age sixty (60). If the
Participant retires prior to age sixty (60) and begins to receive benefits under
this Plan prior to age sixty (60), such Participant shall be entitled to receive
only a Reduced Retirement Benefit (determined as hereinafter provided)
commencing at his or her date of retirement. "Reduced Retirement Benefit" shall
mean the amount equal to that percentage of the Participant's Normal Retirement
Benefit determined by subtracting from one hundred percent (100%) the aggregate
of 6.67% for each year (prorated over any partial year based on completed months
of service) between the Participant's retirement date and the date on which the
Participant would reach age sixty (60). If a Participant retires prior to age
sixty (60) but does not begin receiving benefits under this Plan until he or she
is at least age sixty (60), there shall be no reduction in the Participant's
Normal Retirement Benefit. For purposes of determining the amount of the Normal
Retirement Benefit or the Reduced Retirement Benefit, as the case may be, for a
Participant who retires after August 1, 1996, and prior to age sixty-five (65),
each of the offset amounts under paragraphs (i), (ii) and (iii) of Section
4.1(b) shall be calculated by: (i) determining the value of the projected amount
such Participant would receive if he or she began receiving the benefits
described in such paragraphs beginning on the earliest date such benefits become
payable and (ii) converting this amount to an actuarially equivalent (determined
in accordance with Section 5.3) single life annuity beginning on the date such
Participant begins receiving benefits under this Plan.
(b) If a Participant retires prior to his or her Early Retirement
Date, the Participant shall be entitled to receive any of his or her Normal
Retirement Benefit which is then Vested. Such Normal Retirement Benefit shall
be payable, at the election of the Participant pursuant to Section 4.3 (or, if
the Participant has not made an election, at the election of the Committee), as
follows: (1) beginning at the time the Participant becomes age fifty-five (55)
(or at Participant's current age if he is age fifty-five (55) or older), with a
Reduced Retirement Benefit determined as provided in subparagraph (a) above, or
(2) beginning at the time the Participant becomes age sixty (60), with no
reduction in the Normal Retirement Benefit, or (3) if Participant is under
fifty-five (55) years of age when he or she retires, as a single lump sum
payment at the time of retirement equal to the present value of his or her
Normal Retirement Benefit, determined using the actuarial equivalent, as defined
in Section 5.3.
4.3 Elections Related to Early Retirement.
-------------------------------------
For a Participant retiring after his Early Retirement Date but prior
to his Normal Retirement Date pursuant to Section 4.2(a), he may elect, by a
written election delivered to the Corporate Secretary of the Company at least
thirty (30) days prior to his retirement, whether he
6
<PAGE>
wishes to receive: (1) a Reduced Retirement Benefit which will begin being paid
immediately pursuant to the payment terms of Article V (not applicable if
Participant is age sixty (60) or older), or (2) a Normal Retirement Benefit that
will not begin being paid until age sixty (60) (or his current age if he is age
sixty (60) or older). For a Participant retiring prior to his Early Retirement
Date pursuant to Section 4.2(b), he may elect, by a written election delivered
to the Corporate Secretary of the Company at least thirty (30) days prior to his
retirement, whether he wishes to receive: (1) a Reduced Retirement Benefit which
will become payable, per the payment terms of Article V, at age fifty-five (55)
(or his current age if he is age fifty-five (55) or older), or (2) a Normal
Retirement Benefit which will become payable, per the payment terms of Article
V, at age sixty (60), or (3) if a Participant is under age fifty-five (55), the
actuarial equivalent, determined in accordance with Section 5.3, of his Normal
Retirement Benefit, paid as a lump sum payment. For each Participant electing
either option (1) or option (2) above, such Participant may elect an optional
form of payment under the terms of Section 5.4.
ARTICLE V
FORM OF PAYMENT
5.1 Normal Form of Payment.
----------------------
Unless an optional form of payment is elected by the Participant in
accordance with Section 5.4 (or by the Committee in accordance with Section 4.2
or Section 5.2 hereof), all retirement benefits payable pursuant to this Plan
will be paid in the form of a single life annuity, payable monthly, for the life
of the Participant. Except as otherwise provided in this Plan, the first
monthly payment shall be made on the first day of the calendar month following
the Participant's retirement date.
5.2 Other Forms of Payment.
----------------------
Each Participant may elect, pursuant to Section 5.4, to receive
payment of his retirement benefits via one of the following optional forms of
payment, rather than via the form of payment described in Section 5.1:
(a) A one hundred percent (100%) joint and survivor annuity, pursuant
to which an annuity is payable for the life of the Participant with a survivor's
annuity for the life of the Participant's spouse, which annuity is equal to one
hundred percent (100%) of the amount of the annuity payable during the joint
lives of the Participant and his or her spouse.
(b) A fifty percent (50%) joint and survivor annuity, pursuant to
which an annuity is payable for the life of the Participant with a survivor's
annuity for the life of the Participant's spouse, which annuity is equal to
fifty percent (50%) of the amount of the annuity payable during the joint lives
of the Participant and his or her spouse.
7
<PAGE>
(c) A ten (10) year certain installment payment, pursuant to which a
fixed monthly benefit is payable to the Participant for the lesser of ten (10)
years or the life of the Participant, with the continuation of the same benefit
to the Participant's designated beneficiary for any remaining portion of the ten
(10) year certain period if the Participant dies prior to the end of such
period.
(d) A five (5) year certain installment payment, pursuant to which a
fixed monthly benefit is payable to the Participant for the lesser of five (5)
years or the life of the Participant, with the continuation of the same benefit
to the Participant's designated beneficiary for any remaining portion of the
five (5) year certain period if the Participant dies prior to the end of such
period.
(e) A single lump sum payment.
If a Participant does not make a timely election to receive payment of
his retirement benefits via one of the optional forms of payment described in
Subsections (a) through (e) above, the Committee may elect one of the above-
described optional forms of payment for such Participant, but only with his
written consent.
5.3 Actuarial Equivalent.
--------------------
Any optional form of payment described in Section 5.2 shall be the
actuarial equivalent of the normal form of payment specified in Section 5.1
hereof. All determinations of actuarial equivalency will be based on the 1983
Unloaded Group Annuity Mortality Table weighted fifty percent (50%) male and an
interest rate of eight percent (8.0%). The lump sum amount will equal the
present value of future payments under this Plan, assuming payment of benefits
commenced immediately (or age fifty-five (55) for a Vested termination on or
before the Participant's 55th birthday).
5.4 Election of Form of Payment.
----------------------------
If a Participant does not make a written election to the contrary at
least thirty (30) days prior to his retirement, such Participant's retirement
benefits under this Plan shall be payable in the form of a single life annuity,
paid pursuant to the terms of Section 5.1, unless the Committee (with the
consent of such Participant) elects to pay the retirement benefits pursuant to
one of the other forms of payment set forth in Section 5.2. If a Participant
makes a written election at least thirty (30) days prior to his retirement, he
may elect one of the forms of payment described in Sections 5.2(a) through
5.2(e), and the Committee must comply with such payment election. Participant
may modify his election at any time by making another written election, provided
such written election is received by the Company's Corporate Secretary at least
thirty (30) days prior to his retirement. For a written election to be validly
made, Participant must deliver such a written election to the Corporate
Secretary of the Company and such election shall be deemed made on the date on
which the Corporate Secretary receives it.
8
<PAGE>
ARTICLE VI
SPOUSAL BENEFIT
In the event a Participant who is Vested shall die while actively employed,
or after his or her Early Retirement Date but prior to the commencement of
payment of retirement benefits, the Participant shall be deemed to have retired
for purposes of this Plan on the later of (i) the day immediately preceding his
or her death, or (ii) the first day of the first calendar month thereafter in
which the Participant would have attained age fifty-five (55), and the
Participant's surviving spouse, if any, shall be entitled to a benefit equal to
fifty percent (50%) of the retirement benefit the Participant would have
received if he or she had actually retired on such deemed retirement date. Such
benefit shall be payable in the form of a single life annuity for the life of
the surviving spouse.
ARTICLE VII
DISABILITY
In the event a Participant becomes disabled and is eligible for benefits
under the Scientific-Atlanta, Inc. Long Term Disability Plan, such Participant
shall continue to receive credit, for Vesting purposes only, toward the
Participant's years of Continuous Service during the period of such disability.
ARTICLE VIII
CHANGE IN CONTROL
8.1 Immediate Vesting and Continued Vesting.
---------------------------------------
In the event of a Change in Control of the Company, a Participant
shall be immediately Vested in his Accrued Benefits hereunder as of the date of
such Change in Control. Participant also shall be automatically vested in any
Accrued Benefits that are accrued after a Change in Control, regardless of the
terms of Section 3.3.
8.2 Termination Following Change in Control.
---------------------------------------
If a Participant's employment with the Company is terminated by the
Company or by the Participant following a Change in Control for any reason other
than Cause, the Participant shall receive retirement benefits in accordance with
the terms of Articles III, IV and V of this Plan.
9
<PAGE>
8.3 Continuation of the Plan
------------------------
For a period of two (2) years following a Change in Control, the Plan
shall not be terminated or amended in any way nor shall the manner in which the
Plan is administered be changed in a way that adversely affects the level of
retirement benefits received by a Participant under the Plan.
8.4 Definition of Change in Control.
-------------------------------
For purposes of this Plan, a Change in Control shall mean any of the
following events:
(a) The acquisition in one or more transactions by any "Person" (as
the term person is used for purposes of Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended (the "1934 Act")) of "Beneficial Ownership"
(within the meaning of Rule 13d-3 promulgated under the 1934 Act) of twenty
percent (20%) or more of the combined voting power of the Company's then
outstanding voting securities (the "Voting Securities"); provided, however, that
-------- -------
for purposes of this Section 8.4, the Voting Securities acquired directly from
the Company by any Person shall be excluded from the determination of such
Person's Beneficial Ownership of Voting Securities (but such Voting Securities
shall be included in the calculation of the total number of Voting Securities
then outstanding); or
(b) The individuals who are members of the Incumbent Board (as
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 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 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 (i) as a result of either an actual or threatened "election contest"
(within the meaning of Rule 14a-11 promulgated under the 1934 Act) or other
actual or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board (a "Proxy Contest") or (ii) with the approval of the
other Board members, but by reason of any agreement intended to avoid or settle
a Proxy Contest; or
(c) Approval by stockholders of the Company of (i) a merger or
consolidation involving the Company if the stockholders of the Company,
immediately before such merger or consolidation, do not own, directly or
indirectly, immediately following such merger or consolidation, more than eight
percent (80%) of the combined voting power of the outstanding
10
<PAGE>
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 the foregoing, a Change in Control shall not be deemed
to occur solely because twenty percent (20%) or more of the then outstanding
Voting Securities is acquired by (i) a trustee or other fiduciary holding
securities under one or more employee benefit plans maintained by the Company or
any of its subsidiaries or (ii) any corporation which, immediately prior to such
acquisition, is owned directly or indirectly by the stockholders of the Company
in the same proportion as their ownership of stock in the Company immediately
prior to such acquisition.
Moreover, notwithstanding the foregoing, a Change in Control shall not
be deemed to occur solely because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted amount of the outstanding Voting
Securities as a result of the acquisition of Voting Securities by the Company,
which acquisition, by reducing the number of Voting Securities outstanding,
increases the proportional number of shares Beneficially Owned by the Subject
Person, provided that if, after a Change in Control would occur (but for the
--------
operation of this sentence) as a result of such 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.
ARTICLE IX
PLAN ADMINISTRATION
9.1 Committee.
---------
This Plan and all matters related to it shall be administered by the
Committee. The Committee shall have the authority to interpret the provisions
of this Plan and to resolve all questions arising in the administration,
interpretation and application of this Plan. Any such determination by the
Committee shall be conclusive and binding on all persons.
9.2 Claim Procedures.
----------------
Any Participant claiming a benefit, or requesting an interpretation,
any information, or a ruling under this Plan, shall present the request, in
writing, to the Committee, which shall respond in writing within thirty (30)
days from the date on which it receives the claim or request.
11
<PAGE>
ARTICLE X
MISCELLANEOUS
10.1 Termination or Amendment of the Plan.
------------------------------------
Except as provided in Section 8.3 hereof, the Committee may, at any
time and from time to time, modify, amend, suspend or terminate the Plan in any
respect; provided, however, that any modification, amendment, suspension, or
-------- -------
termination of the Plan shall not reduce or otherwise adversely affect any
Participant's Vested rights under any terms, provisions or conditions of the
Plan on the date of any modification, amendment, suspension or termination,
without the consent of the Participant.
10.2 Non-Assignability.
-----------------
No benefit payable pursuant to this Plan, nor any other right 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.
10.3 No Right to Employment.
----------------------
Nothing in the Plan shall confer upon any Participant the right to
continue in the employment of the Company nor does participating in the Plan
obligate the Participant to continue in the employ of the Company.
10.4 Effective Date.
--------------
The Plan became effective on June 21, 1993, and Participants may be
designated at any time on and after that date.
10.5 Governing Law.
-------------
This Plan is made in accordance with and shall be governed in all
respects by the laws of the state of Georgia, to the extent not preempted by
federal law.
12
<PAGE>
The Company has caused the following officers to execute this Plan to
evidence that this Plan, as amended and restated by the Board on August 18,
1999, accurately reflects the Plan approved by the Board.
Scientific-Atlanta, Inc.
By:_________________________________
Brian C. Koenig
Senior Vice President-
Human Resources
By:_________________________________
William E. Eason, Jr.
Senior Vice President,
General Counsel &
Corporate Secretary
13
<PAGE>
EXHIBIT 10(l)
<PAGE>
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
1
<PAGE>
(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
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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.
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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,
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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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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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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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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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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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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.
13
<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
14
<PAGE>
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:_______________________________________________
Brian C. Koenig
Senior Vice President-Human Resources
By:_______________________________________________
William E. Eason, Jr.
Senior Vice President, General Counsel and
Corporate Secretary
[Seal]
15
<PAGE>
EXHIBIT 10(m)
<PAGE>
SCIENTIFIC-ATLANTA, INC.
SENIOR OFFICER ANNUAL INCENTIVE PLAN
As adopted by the Board of Directors
on June 22, 1994
and by the Stockholders
on October 3, 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
-------- -------
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
3
<PAGE>
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.
4
<PAGE>
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),
-------- -------
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
-------- -------
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
5
<PAGE>
(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
6
<PAGE>
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
7
<PAGE>
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,
-------- -------
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.
8
<PAGE>
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:______________________________________
Brian C. Koenig
Senior Vice President - Human Resources
By:______________________________________
William E. Eason, Jr.
Senior Vice President, General
Counsel and Corporate Secretary
9
<PAGE>
EXHIBIT 10(n)
<PAGE>
LOGO
Scientific DEFERRED COMPENSATION PLAN FOR
Atlanta NON-EMPLOYEE DIRECTORS OF SCIENTIFIC-ATLANTA, INC.
---------------------------------------------------
As Amended and Restated, Effective May 12, 1999
ARTICLE I - INTRODUCTION
- ------------------------
1.1 Name of the Plan
-----------------
This Plan shall be known as the Deferred Compensation Plan for Non-Employee
Directors of Scientific-Atlanta, Inc.
1.2 Purpose of Plan
---------------
The purpose of the Plan is to provide non-employee directors of Scientific-
Atlanta, Inc. ("the Company") the opportunity to defer receipt of cash
compensation and compensation in the form of stock payable to them for services
to the Company as directors.
1.3 Restatement of Plan
-------------------
This document amends and restates the Plan effective as of February 6,
1999. All deferral elections made before or after February 6, 1999, shall be
governed by the terms of the Plan as amended and restated herein.
ARTICLE II - DEFINITIONS
- ------------------------
For purposes of this Plan the following words and phrases shall have the
meanings and applications set forth below:
2.1 Plan
----
This Deferred Compensation Plan for Non-Employee Directors of Scientific-
Atlanta, Inc., as amended from time to time.
2.2 Participant
-----------
A non-employee member of the Board of Directors of the Company who elects
to participate in this Plan.
1
<PAGE>
EXHIBIT 10(o)
<PAGE>
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
(AS AMENDED AND RESTATED ON MAY 12, 1999)
1. PURPOSE. The purposes of the ("Plan") are to advance the interests of
Scientific-Atlanta, Inc. ("Company") and its shareholders by (i)
encouraging increased share ownership by members of the Board of Directors
("Board") of the Company who are not employees of the Company or any of its
subsidiaries, (ii) enhancing the Company's ability to attract and retain
the services of experienced, able and knowledgeable persons to serve as
directors, and (iii) providing additional incentive for directors to
contribute their best efforts to the Company's success.
2. ADMINISTRATION. The Plan shall be administered by the Board. the Board
shall have full authority, consistent with the Plan, to interpret the Plan,
to promulgate such rules and regulations with respect to the Plan as it
deems desirable and to make all other determinations necessary or desirable
for the administration of the Plan. All decisions, determinations and
interpretations of the Board shall be binding upon all persons.
3. SHARES TO BE ISSUED. Shares of the Company's common stock ("Common
Stock") delivered on the exercise of stock options ("Options") granted
under the Plan may be authorized, but previously unissued, shares or
previously issued shares reacquired by the Company.
4. GRANTING OF OPTIONS.
(a) Eligible Directors. "Eligible Directors" are all members of the Board
------------------
who are not employees of the Company.
(b) Initial Grant. Each Non-Employee Director will receive an initial
-------------
grant of 20,000 shares upon approval by the Board of this Plan or upon
his or her initial appointment or election to the Board.
(c) Automatic Grants. An Option to purchase 5,000 shares of Common Stock
----------------
shall be granted at the annual meeting of the Board held on the date
of the Annual Meeting of Shareholders beginning in 1995 and at each
succeeding Board meeting held on that date, provided the Non-Employee
Director continues in office after the Board meeting date on which the
Option is granted.
(d) Option Agreement. Each Option shall be evident by a written
----------------
instrument which shall state the terms and conditions of the grant,
not inconsistent with the Plan, as the Board in its sole discretion
shall determine and approve.
(e) Option Price. The purchase price for each share of Common Stock
------------
subject to an Option shall be fair market value of the Common Stock on
the date the Option is granted. For this purpose, as well as other
purposes under the Plan, fair market value shall be deemed to be the
closing selling price of a share of Common Stock as reported on the
New York Stock Exchange Composite on the date on which the Option is
granted or, if there is no trade on such Exchange on that date, then
on the next preceding date on which there was a trade of Common Stock
on such Exchange. (In the event the Company's Common Stock is not
listed on the New York Stock Exchange on the date of
1
<PAGE>
an Option grant, the fair market value shall be determined as stated
above but with reference to trades on the largest stock exchange on
which the Common Stock is then traded.)
(f) Nontransferability. An Option shall be nonassignable and
------------------
nontransferable other than by will or the laws of descent
distribution. An Option shall be exercisable during the Eligible
Director's lifetime only by him or, in the event of his incompetence,
by a duly appointed guardian.
5. OPTION EXERCISES.
(a) Exercise Timing. Except as provided in Sections 5(c) and 6 below, each
---------------
Option shall become exercisable for twenty-five percent (25%) of the
shares of Common Stock covered by the Option after the expiration of
one (1) year following the date of grant and for an additional twenty-
five percent (25%) of the shares after the expiration of each of the
succeeding three (3) years following the date of grant.
(b) Method of Exercise. Options may be exercised by delivery of written
------------------
notice of exercise to the Secretary of the Company, accompanied by the
full purchase price of the shares being purchased. The price shall be
paid at the time of exercise (i) in cash, (ii) by the transfer to the
Company of shares of the Company's Common Stock acquired by the option
holder prior to the exercise of the Option, or (iii) by any
combination of cash or such shares of the Company's Common Stock. Each
such share so transferred in full or part payment of the option price
shall be deemed to have a value equal to the closing price of a share
of the Common Stock of the Company, as traded on the New York Stock
Exchange (or the largest stock exchange on which it is then traded),
on the date of transfer to the Company, or if there is no trade on
such Exchange on that date, on the nearest date preceding the date of
transfer on which a trade on such Exchange was made, and each such
share at the time of such transfer shall be free and clear of any and
all claims, pledges, liens and encumbrances, or any restrictions which
would in any manner restrict the transfer of such shares to the
Company in full or part payment of the Option price.
(c) Effect of Change of Control. In the event of "Change of Control" of
---------------------------
the Company, all Options held by Eligible Directors on the date of
Change of Control shall be immediately exercisable in full,
irrespective of the amount of time that has elapsed from the date of
grant. "Change of Control" means a change of twenty-five percent (25%)
or more of the membership of the Board (excluding membership changes
resulting from normal retirement of directors) within a twenty-four
(24) month period following the acquisition of beneficial ownership by
any person or entity, or group of persons or entities and their
affiliates acting in concert, of twenty percent (20%) or more of the
voting securities of the Company. "Affiliates" and "beneficial
ownership" shall be defined in accordance with Rules 12b-2 and 13d-3
of the Securities and Exchange Commission, as the same may from time
to time be amended.
6. EXPIRATION OF OPTIONS. Except as herinafter provided, all Options shall
---------------------
expire on the earlier of (i) the last day of the tenth (10th) year after
the date of grant or (ii) the date that an Eligible Director ceases to be a
member of the Board; provided, however, that to the extent any unexpired
Options are otherwise exercisable on the date that an Eligible Director
ceases to be a
2
<PAGE>
member of the Board for any reason other than Cause (as defined below),
death, Early Retirement (as defined below) or Mandatory Retirement (as
defined below)), such Options shall remain exercisable for one (1) year
following the last day of the Eligible Director's Board membership and
shall expire if not exercised within said one (1) year period. If Board
membership ceases on account of death or Mandatory Retirement, all
unexpired Options held by the Eligible Director on the last day of Board
membership, whether exercisable or not exercisable, shall be immediately
exercisable and remain exercisable for three (3) years following the last
day of the Eligible Director's Board membership and shall expire at the end
of such three (3) year period if not exercised within said three (3) year
period. If Board membership ceases on account of Early Retirement, all
unexpired Options held by the Eligible Director on the last day of Board
membership, which are then exercisable or would have become exercisable had
the Director continued as a member of the Board for one (1) additional
year, whether exercisable or not exercisable, shall be immediately
exercisable and remain exercisable for one (1) year following the last day
of the Eligible Director's Board membership and shall expire if not
exercised within said one (1) year period. To the extent any otherwise
unexpired Options are not exercisable in accordance with the immediately
preceding sentence, they shall expire as of the effective date of such
Eligible Director's Early Retirement. All Options held by an Eligible
Director whose membership on the Board ends after the occurence of Cause
shall expire immediately on his or her last day of Board membership.
"Cause," for the purposes of this Section 6, means any act or omission for
which indemnification of the Director is prohibit by the Georgia Business
Corporation Code (Sections 14-2-171 of the Code until July 1, 1989 and
Section 14-2-856, as amended, on and after July 1, 1989). "Mandatory
Retirement," for the purposes of this Section 6, means an Eligible
Director's ineligibility to be re-elected to the Board due to the terms of
the retirement policy adopted by the Board (as amended from time to time)
provided such ineligibility occurs after at least thirty-six (36)
consecutive months of service on the Board. "Early Retirement," for the
purposes of this Section 6, means an Eligible Director's voluntary
resignation from the Board after at least thirty-six (36) consecutive
months of service on the Board.
7. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. If a reorganization,
recapitalization, stock split, stock dividend, combination of shares,
merger, consolidation, rights offering, or any other change in the
corporate structure or shares of Common Stock of the Company occurs, the
number and kind of shares authorized by this Plan, and the number, Option
price and kind of shares covered by the Options granted hereunder, shall be
automatically adjusted as required in order to prevent an unfavorable
effect upon the value of the shares covered by then outstanding Options and
shares covered by Options subsequently granted.
8. TAX WITHHOLDING. Any exercise of an Option pursuant to the Plan shall be
subject to withholding of state and federal income taxes, FICA tax or other
taxes to the extent required by applicable law.
9. LAWS AND REGULATIONS. The Plan, the grant and exercise of Options, and the
obligation of the Company to sell or deliver shares of Common Stock under
the Plan shall be subject to all applicable laws, regulations and rules. In
the event that the shares of Common Stock to be issued under this Plan are
not registered under the Securities Act of 1933 and any applicable state
securities laws prior to the delivery of such shares, the Company may
require, as a condition to the issuance thereof, that the persons to whom
such shares are to be issued represent and warrant in writing to the
Company that the shares are being acquired by him or her for investment for
his or her own account and not with a view to, for resale in connection
with, or
3
<PAGE>
with an intent of participating directly or indirectly in, any distribution
of such shares within the meaning of that Act, and a legend to that effect
may be placed on the certificates representing such shares.
10. TERMINATION AND AMENDMENT OF THE PLAN. The Board may at any time terminate
the Plan or may at any time or times amend the Plan or amend any
outstanding Options for the purpose of satisfying the requirements of any
changes in applicable laws or regulations or for any other purpose which at
the time may be permitted by law, provided that:
(i) no amendment of any outstanding Option shall contain terms or
conditions inconsistent with the provisions contained in the Plan at
the time the respective Option was granted, as determined by the
Board; and
(ii) except as provided in Section 7, no such amendment shall, without the
approval of the shareholders of the Company: (a) increase the number
of shares of Common Stock for which each Option may be granted under
the Plan; (b) increase the frequency of Option grants; (c) reduce the
price at which Options may be granted or exercised below the price
provided for in Section 4(e); (d) extend the period during which any
outstanding Option may be exercised; (e) materially increase in any
other way the benefits accruing to Eligible Directors; (f) expand Plan
eligibility beyond Eligible Directors as defined herein, or (g)
disqualify an Eligible Director from being a "disinterested"
administrator, within the meaning of Rule 16b-3 (or any successor
rule) of the Securities and Exchange Commission, of any stock option
plan or other stock-based plan of the Company.
11. EFFECTIVE DATE. The plan shall become effective on the date of approval by
the Board; provided, however, that the Plan shall be submitted to the
shareholders of the Company for approval, and if not approved by the
shareholders within one (1) year from the date of approval by the Board,
the Plan shall be of no force and effect. Options granted under the Plan
before approval of the Plan by the shareholders shall be granted subject to
such approval and shall not be exercisable before such approval.
To record the adoption of the Plan (as amended and restated) by the Board as of
May 12, 1999, the Company has caused it authorized officers to execute this Plan
in the space below.
SCIENTIFIC-ATLANTA, INC.
By:_______________________________
Name: Brian C. Koenig
Title: Senior Vice President - Human
Resources
By:________________________________
Name: William E. Eason, Jr.
Title: Senior Vice President,
General Counsel
and Corporate Secretary
[Corporate Seal]
4
<PAGE>
EXHIBIT 10(p)
<PAGE>
================================================================================
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of May 7, 1999
by and among
SCIENTIFIC-ATLANTA, INC.,
AS BORROWER
THE FINANCIAL INSTITUTIONS PARTY HERETO
AND THEIR ASSIGNEES UNDER SECTION 12.6.(D),
AS LENDERS,
THE BANK OF NEW YORK
AND
ABN AMRO BANK N.V., ACTING THROUGH ITS ATLANTA AGENCY,
AS CO-AGENTS,
AND
NATIONSBANK, N.A.,
AS ADMINISTRATIVE AGENT
================================================================================
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT (this "Amendment and
Restatement") dated as of May 7, 1999 by and among SCIENTIFIC-ATLANTA, INC., a
corporation organized under the laws of the State of Georgia (the "Borrower"),
each of the financial institutions initially a signatory hereto together with
their assignees pursuant to Section 12.6.(d), THE BANK OF NEW YORK and ABN AMRO
BANK N.V., acting through its Atlanta Agency, as Co-Agents and NationsBank,
N.A., formerly known as NationsBank of Georgia, National Association, as
Administrative Agent (the "Agent").
WHEREAS, pursuant to the terms of that certain Credit Agreement dated as of
May 11, 1995 (as amended and in effect immediately prior to the date hereof, the
"Existing Credit Agreement") by and among the Borrower, the Lenders party
thereto, the Co-Agents and the Agent, the Lenders, among other things, made
available to the Borrower a revolving credit facility in the amount of
$300,000,000; and
WHEREAS, the Borrower, the Lenders and the Agent desire to amend and
restate the terms of the Existing Credit Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the parties
hereto agree to amend and restate the terms of the Existing Credit Agreement as
follows:
Section 1. Amendment and Restatement. The Existing Credit Agreement is
-------------------------
hereby restated in its entirety, with the terms thereof being identical to the
terms of the Existing Credit Agreement, except as amended below:
(a) The Existing Credit Agreement is hereby amended by deleting the
definitions of the terms "Applicable Facility Fee", "Applicable Margin",
"Facility B Termination Date", "Lending Office", "NationsBank" and "Termination
Date" from Section 1.1 thereof and substituting in place thereof the following
definitions:
"Applicable Facility Fee" means at the time of determination thereof,
-----------------------
the percentage rate set forth below for the Facility A Commitments or
Facility B Commitments, as the case may be, corresponding to the
Consolidated Funded Debt/EBITDA Ratio of the Borrower in effect at such
time:
<PAGE>
<TABLE>
<CAPTION>
Consolidated Funded Applicable Facility Fee Applicable Facility Fee
Debt/EBITDA Ratio for Facility A Commitments for Facility B Commitments
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Less than or equal to 1.00 to 1.00 0.100% 0.080%
- -------------------------------------------------------------------------------------------------------
Greater than 1.00 to 1.00 but less than
or equal to 1.50 to 1.00 0.150% 0.100%
- -------------------------------------------------------------------------------------------------------
Greater than 1.50 to 1.00 but less than
or equal to 2.25 to 1.00 0.180% 0.130%
- -------------------------------------------------------------------------------------------------------
Greater than 2.25 to 1.00 0.225% 0.175%
- -------------------------------------------------------------------------------------------------------
</TABLE>
The Applicable Facility Fee shall be determined by the Agent on a quarterly
basis commencing with the fiscal quarter ending on July 2, 1999 based on
the Consolidated Funded Debt/EBITDA Ratio as set forth in the compliance
certificate required to be delivered by the Borrower pursuant to Section
8.3. Any adjustment to the Applicable Facility Fee shall be effective as
of the date of determination thereof by the Agent. Notwithstanding the
foregoing, prior to the date on which the Agent first determines the
Applicable Facility Fee as set forth above, the Applicable Facility Fee
with respect to the Facility A Commitments shall equal 0.100% and the
Applicable Facility Fee with respect to the Facility B Commitments shall
equal 0.080%. Thereafter, the Applicable Facility Fee shall be adjusted
from time to time as set forth above.
"Applicable Margin" means at the time of determination thereof, the
-----------------
percentage rate set forth below corresponding to the Consolidated Funded
Debt/EBITDA Ratio in effect at such time:
-2-
<PAGE>
<TABLE>
<CAPTION>
Consolidated Funded Applicable Margin for Applicable Margin for
Debt/EBITDA Ratio Facility A Loans Facility B Loans
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Less than or equal to 1.00 to 1.00 0.200% 0.220%
- ---------------------------------------------------------------------------------------------------
Greater than 1.00 to 1.00 but less than
or equal to 1.50 to 1.00 0.250% 0.300%
- ---------------------------------------------------------------------------------------------------
Greater than 1.50 to 1.00 but less than
or equal to 2.25 to 1.00 0.320% 0.370%
- ---------------------------------------------------------------------------------------------------
Greater than 2.25 to 1.00 0.400% 0.450%
- ---------------------------------------------------------------------------------------------------
</TABLE>
The Applicable Margin shall be determined by the Agent on a quarterly basis
commencing with the fiscal quarter ending on July 2, 1999 based on the
Consolidated Funded Debt/EBITDA Ratio as set forth in the compliance
certificate required to be delivered by the Borrower pursuant to Section
8.3. Any adjustment to the Applicable Margin shall be effective (a) as of
the first day of any Interest Period beginning on or after the
determination thereof for purposes of the calculation of interest under
Section 2.4.(a)(ii) with respect to any LIBOR Loan and (b) as of the date
of determination thereof for purposes of calculation of the letter of
credit fee under Section 3.6.(b)(i). Notwithstanding the foregoing, prior
to the date on which the Agent first determines the Applicable Margin as
set forth above, the Applicable Margin for Facility A Loans shall equal
0.200% and the Applicable Margin for Facility B Loans shall equal 0.220%.
Thereafter, the Applicable Margin shall be adjusted from time to time as
set forth above.
"Facility B Termination Date" means May 5, 2000, or such later date to
---------------------------
which such date may be extended under Section 2.12.
"Lending Office" means, for each Lender and for each Type of Loan, the
--------------
office of each Lender specified for such Lender on Annex I or such other
office of such Lender (or an affiliate of such Lender) as such Lender may
from time to time specify to the Agent and the Borrower by written notice
in accordance with the terms hereof as the office by which its Loans of
such Type are to be made and maintained.
"NationsBank" means NationsBank, N.A., together with its successors
-----------
and assigns.
"Termination Date" means May 11, 2004.
----------------
-3-
<PAGE>
(b) Section 1.1 of the Existing Credit Agreement is hereby amended by
adding the definition of the following term thereto in appropriate alphabetical
order:
"NMS" means NationsBanc Montgomery Securities LLC.
---
(c) Section 6.1 of the Existing Credit Agreement is hereby amended by adding
to the end of such section the following subsection (u):
(u) Year 2000 Compliance.
--------------------
(i) The Borrower has (x) initiated a review and assessment of all
material areas within its U.S. Subsidiaries' and each other Loan Party's
business and operations (including those affected by material suppliers and
vendors) that could reasonably be expected to be adversely affected by the
failure to become "Year 2000 Compliant" (meaning, that computer hardware
-------------------
and software applications, imbedded microchips and other systems will be
able to recognize and perform properly date-sensitive functions involving
certain dates prior to and any date within two years after December 31,
1999), and (y) developed plans and time lines for becoming Year 2000
Compliant for its operations and its U.S. Subsidiaries and each other Loan
Party on a timely basis.
(ii) The Borrower reasonably believes that the Borrower, its
Subsidiaries and each other Loan Party will become Year 2000 Compliant on a
timely basis, except to the extent that a failure to do so is not
reasonably expected to have a Material Adverse Effect.
(iii) None of the suppliers or vendors of the Borrower, its
Subsidiaries or any other Loan Party whose failure to be or become Year
2000 Compliant on a timely basis could reasonably be expected to have a
Material Adverse Effect, has indicated to the Borrower that such supplier
or vendor will not be or will not become Year 2000 Compliant on a timely
basis.
For purposes of this Section 6.1(u), "U.S. Subsidiaries" shall mean
any Subsidiary of the Borrower organized under the laws of the United
States of America, any state or territory thereof or the District of
Columbia.
(d) Section 8.4 of the Existing Credit Agreement is hereby amended by
replacing the "." at the end of subsection (g) with a ";" and adding to the end
of such section the following subsection (h):
(h) The determination by the Borrower that any computer application
which is material to the operations of the Borrower, any Subsidiary or any
other Loan Party, or the receipt of notice by the Borrower, any Subsidiary
or any other Loan Party that any material vendors or suppliers to any of
them, will not, on a
-4-
<PAGE>
timely basis, be able to perform properly date-sensitive functions for all
dates before and after January 1, 2000, except to the extent such failure
is not reasonably expected to have a Material Adverse Effect.
(e) The Existing Credit Agreement is hereby amended by deleting the first
sentence of Section 12.2. in its entirety and substituting in its place the
following:
"The Borrower will pay all present and future expenses of both the
Agent and NMS in connection with the syndication, negotiation, preparation,
execution, delivery and administration (including out-of-pocket costs and
expenses incurred in connection with the assignment of Commitments pursuant
to Section 12.6.(d)) of this Agreement, the Notes and each of the other
Loan Documents, whenever the same shall be executed and delivered,
including the reasonable fees and disbursements of each special and local
counsel retained by the Agent or NMS."
(f) Section 12.6 of the Existing Credit Agreement is hereby amended by
deleting subsection (d) in its entirety and substituting in its place the
following:
(d) Any Lender may with the prior written consent of the Agent and
unless a Default or an Event of Default has occurred and is continuing, the
Borrower (which consent, in each case, shall not be unreasonably withheld)
assign to one or more banks or other financial institutions (each an
"Assignee") all or a portion of its Commitments and its other rights,
obligations and rights and obligations under this Agreement and the Notes;
provided, however, (i) no such consent by the Borrower or the Agent shall
-------- -------
be required in the case of any assignment to another Lender or any
affiliate of such Lender or another Lender; (ii) any partial assignment
shall be in an aggregate amount of Commitments at least equal to
$25,000,000, except for partial assignments from any Lender to another
Lender which may be in an aggregate amount of at least $5,000,000; (iii)
any partial assignment must be of proportionate amounts of the transferor
Lender's Facility A Commitment and Facility B Commitment; (iv) any Lender
assigning all of its Commitments must also assign all of its Bid Rate Loans
to the Assignee; (v) any assignment by a Lender of any of its Facility A
Commitment and its Facility B Commitment must be to the same Assignee and
(vi) each such assignment shall be effected by means of an Assignment and
Acceptance Agreement. Upon execution and delivery of such instrument and
payment by such Assignee to such transferor Lender of an amount equal to
the purchase price agreed between such transferor Lender and such Assignee,
such Assignee shall be deemed to be a Lender party to this Agreement as of
the effective date of the Assignment and Acceptance Agreement and shall
have all the rights and obligations of a Lender with the Commitments as set
forth in such Assignment and Acceptance Agreement, and the transferor
Lender shall relinquish its rights and be released from its obligations
hereunder to a corresponding extent, and no further consent or action by
any party shall be required. Upon the consummation of any assignment
pursuant to this subsection (d), the transferor Lender, the Agent
-5-
<PAGE>
and the Borrower shall make appropriate arrangements so that new Notes are
issued to the Assignee and such transferor Lender, as appropriate. If the
Assignee is not incorporated under the laws of the United States of America
or a state thereof, it shall deliver to the Borrower and the Agent
certification as to exemption from deduction or withholding of taxes in
accordance with Section 3.12. In connection with any such assignment
(including any assignment by one Lender to another Lender, but excluding
any assignment by the Agent in its capacity as a Lender), the transferor
Lender shall pay to the Agent an administrative fee for processing such
assignment in the amount of $3,000.
(g) The Existing Credit Agreement is hereby amended by deleting Section 12.8
in its entirety and substituting in its place the following:
Section 12.8. Confidentiality.
---------------
Except as otherwise provided by Applicable Law, the Agent, each
Co-Agent, each Participant and each Lender shall utilize all non-public
information obtained pursuant to the requirements of this Agreement which
has been identified as confidential or proprietary by the Borrower in
accordance with its customary procedure for handling confidential
information of this nature and in accordance with safe and sound banking
practices but in any event may make disclosure (subject to the terms of any
nondisclosure agreement executed pursuant to the next sentence but except
as may be required under Applicable Law): (a) to any other Lender, any of
their respective affiliates (provided they shall agree to keep such
information confidential in accordance with the terms of this Section) or
any officer, director, employee, agent, or advisor of any Lender or
affiliate of any Lender; (b) as reasonably required by any bona fide
---------
transferee or participant in connection with the contemplated transfer of
any Commitments or participations therein as permitted hereunder (provided
they shall agree to keep such information confidential in accordance with
the terms of this Section); (c) as required by any Governmental Authority
or representative thereof or pursuant to legal process; (d) to the Agent's,
such Co-Agent's or such Lender's independent auditors and other
professional advisors (provided they shall be notified of the confidential
nature of the information and agree to maintain it in confidence);and (e)
after the happening and during the continuance of an Event of Default, to
any other Person, in connection with the exercise by the Agent, the Co-
Agents or the Lenders of rights hereunder or under any of the other Loan
Documents. Prior to disclosure to the Agent, any Lender, or any of their
officers, agents, legal counsel or accountants, by the Borrower or any of
its Subsidiaries of any of the Borrower's or such Subsidiary's proprietary
information, the Agent and each Lender agrees to execute and deliver, and
to cause any such officer, agent, legal counsel or accountant to whom such
proprietary information is to be disclosed to execute and deliver, a non-
disclosure agreement substantially in the form of Exhibit L.
-6-
<PAGE>
(h) The Existing Credit Agreement is hereby amended by deleting Annex I
thereto in its entirety and substituting in its place Annex I hereto.
Section 2. Acknowledgment of Lenders' Commitments; Adjustment of
-----------------------------------------------------
Outstandings. The parties hereto agree that after giving effect to the
- ------------
transactions contemplated by this Amendment and Restatement, the amount of each
Lender's respective Facility A Commitment and Facility B Commitment is as set
forth on Annex I attached hereto. The Borrower and the Lenders agree that as of
the date on which all of the conditions precedent contained in Section 4 are
satisfied (the "Effective Date"), all Syndicated Loans outstanding under the
Existing Credit Agreement (after giving effect to any principal repayments being
made by the Borrower on the Effective Date) shall be allocated among the Lenders
in accordance with their respective Commitment Percentages (determined in
accordance with the aggregate amount of their respective Facility A Commitments
and Facility B Commitments as set forth on Annex I attached hereto), and each
Lender agrees to make such payments to the other Lenders and any Person who
ceased to be a "Lender" under the Existing Credit Agreement upon the Effective
Date in such amounts as are necessary to effect such allocation. All such
payments shall be made to Agent for the account of the Person to be paid and
shall be made on a net basis.
Section 3. Conditions Precedent. The effectiveness of this Amendment and
--------------------
Restatement is subject to receipt by the Agent of each of the following; each in
form and substance satisfactory to the Agent:
(a) Counterparts of this Amendment and Restatement executed by each of
parties hereto;
(b) The closing fee referred to in Section 4 below;
(c) Notes executed by the Borrower, payable to each Lender and complying
with the terms of Section 2.10 (a) and (b) of the Existing Credit Agreement as
amended and restated by this Amendment and Restatement;
(d) The articles of incorporation of the Borrower certified as of a recent
date by the Secretary of State of the State of Georgia;
(e) A Certificate of Existence issued as of a recent date by the Secretary
of State of the State of Georgia with respect to the Borrower;
(f) A certificate of incumbency signed by the Secretary or Assistant
Secretary of the Borrower with respect to each of the officers of the Borrower
authorized to execute and deliver this Amendment and Restatement;
(g) Certified copies (certified by the Secretary or Assistant Secretary of
the Borrower) of the bylaws of the Borrower and of all corporate or other
necessary action taken by the Borrower to authorize the execution, delivery and
performance of this Amendment and Restatement; and
-7-
<PAGE>
(h) Such other documents, agreements and instruments as Agent may
reasonably request.
Section 4. Closing Fee. In consideration of the Lenders' amending of the
-----------
Credit Agreement as provided herein, the Borrower agrees to pay to the Agent for
the account of the Lenders a closing fee equal to twelve one-hundredths of one
percent (0.12%) of the aggregate amount of the Facility A Commitments.
Section 5. Representations. The Borrower represents and warrants to the
---------------
Agent and the Lenders that:
(a) Authorization. The Borrower has the right and power, and has taken all
-------------
necessary action to authorize it, to execute and deliver this Amendment and
Restatement and to perform its obligations under the Existing Credit Agreement
as amended and restated by this Amendment and Restatement, in accordance with
its terms. This Amendment and Restatement has been duly executed and delivered
by a duly authorized officer of the Borrower and the Existing Credit Agreement
as amended and restated by this Amendment and Restatement, is a legal, valid and
binding obligation of the Borrower enforceable against the Borrower in
accordance with its terms.
(b) Compliance with Laws, etc. The execution and delivery by the Borrower
-------------------------
of this Amendment and Restatement and the performance by the Borrower of the
Existing Credit Agreement as amended and restated by this Amendment and
Restatement, in accordance with its terms, do not and will not, by the passage
of time, the giving of notice or otherwise: (i) require any Governmental
Approval or violate any Applicable Law relating to the Borrower or any other
Loan Party; (ii) conflict with, result in a breach of or constitute a default
under the articles of incorporation or the bylaws of the Borrower or the
organizational documents of any other Loan Party; (iii) conflict with, result in
a breach of or constitute a default under any indenture, agreement or other
instrument to which the Borrower or any other Loan Party is a party or by which
it or any of its properties may be bound, which conflict, breach or default
would have a Material Adverse Effect; or (iv) result in or require the creation
or imposition of any Lien upon or with respect to any property now owned or
hereafter acquired by the Borrower or any other Loan Party other than in favor
of the Agent for the benefit of the Lenders.
(c) No Default. No Default or Event of Default has occurred and is
----------
continuing as of the date hereof nor will exist immediately after giving effect
to this Amendment and Restatement.
Section 6. Reaffirmation of Representations and Warranties. The Borrower
-----------------------------------------------
hereby represents that the representations and warranties made or deemed made by
the Borrower in the Loan Documents to which it is a party (except those set
forth in clauses (f), (i), (j), (n) and (s) of Section 6.1 of the Existing
Credit Agreement) are true and correct on and as of the date hereof with the
same force and effect as if made on and as of the date hereof except to the
extent that such representations and warranties expressly relate solely to an
earlier date (in which case such
-8-
<PAGE>
representations and warranties shall have been true and accurate on and as of
such earlier date) and except for changes in factual circumstances specifically
and expressly permitted under the Existing Credit Agreement as amended and
restated by this Amendment and Restatement.
Section 7. Amendment of Certain Representations and Warranties. No later
---------------------------------------------------
than June 24, 1999, the Existing Credit Agreement as amended and restated by
this Amendment and Restatement (the "Restated Credit Agreement") shall be
amended by the Borrower and the Requisite Lenders (i) to amend the
representations and warranties contained in clauses (f), (i), (j), (n) and (s)
of Section 6.1 of the Restated Credit Agreement in a manner satisfactory to such
parties; and (ii) pursuant to which, the Borrower shall make the representations
and warranties contained in such clauses as amended. If such parties shall fail
to enter into such amendment by June 24, 1999, the Requisite Lenders shall have
the right to terminate the Commitments at any time after such date, such right
being exercisable by giving written notice to the Borrower of such termination.
Section 8. Certain References. Each reference to the "Credit Agreement"
------------------
in any of the Loan Documents shall be deemed to be a reference to the Credit
Agreement as amended and restated by this Amendment and Restatement.
Section 9. Benefits. This Amendment and Restatement shall be binding
--------
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns.
Section 10. GOVERNING LAW. THIS AMENDMENT AND RESTATEMENT SHALL BE
-------------
GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF GEORGIA.
Section 11. Expenses. The Borrower shall reimburse the Agent upon demand
--------
for all costs and expenses (including attorneys' fees) incurred by the Agent in
connection with the preparation, negotiation and execution of this Amendment and
Restatement and the other agreements and documents executed and delivered in
connection herewith.
Section 12. Effect. The amendment and restatement effected hereby shall
------
be deemed to have prospective application only.
Section 13. Counterparts. This Amendment and Restatement may be executed
------------
in any number of counterparts, each of which shall be deemed to be an original
and shall be binding upon all parties, their successors and assigns.
Section 14. Definitions. All capitalized terms not otherwise defined
-----------
herein are used herein with the respective definitions given them in the
Existing Credit Agreement.
SECTION 15. NO NOVATION. THE PARTIES HERETO HAVE ENTERED INTO THIS
-----------
AGREEMENT AND THE OTHER DOCUMENTS AND INSTRUMENTS EXECUTED IN CONNECTION
HEREWITH SOLELY TO AMEND AND RESTATE THE TERMS OF, AND THE OBLIGATIONS OWING
UNDER AND IN CONNECTION WITH, THE
-9-
<PAGE>
EXISTING CREDIT AGREEMENT. THE PARTIES DO NOT INTEND THIS AGREEMENT NOR THE
TRANSACTIONS CONTEMPLATED HEREBY TO BE, AND THIS AGREEMENT AND THE TRANSACTION
CONTEMPLATED HEREBY SHALL NOT BE DEEMED OR CONSTRUED TO BE, A NOVATION OF ANY OF
THE OBLIGATIONS OWING BY THE BORROWER, ITS SUBSIDIARIES OR ANY OTHER LOAN PARTY
UNDER OR IN CONNECTION WITH THE EXISTING CREDIT AGREEMENT OR ANY OTHER CREDIT
DOCUMENT.
[Signatures on Following Pages]
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Credit Agreement to be executed by their authorized officers all as of
the day and year first above written.
SCIENTIFIC-ATLANTA, INC.
By: /s/ Wallace G. Haislip
-------------------------------------
Name: Wallace G. Haislip
------------------------------
Title: Senior Vice President Finance,
------------------------------
CFO & Treasurer
------------------------------
NATIONSBANK, N.A., individually and as
Administrative Agent
By: /s/ Pamela S. Kurtzman
-------------------------------------
Name: Pamela S. Kurtzman
------------------------------
Title: Vice President
------------------------------
THE BANK OF NEW YORK, individually and
as Co-Agent
By: /s/ Robert Santoriello
-------------------------------------
Name: Robert Santoriello
------------------------------
Title: Assistant Vice President
------------------------------
ABN AMRO BANK N.V., acting through its
Atlanta Agency, individually and as
Co-Agent
By: /s/ Steven L. Hipsman
-------------------------------------
Name: Steven L. Hipsman
------------------------------
Title: Vice President
------------------------------
By: /s/ Steven B. Farley
-------------------------------------
Name: Steven B. Farley
------------------------------
Title: Vice President
------------------------------
[Signatures Continued on Next Page]
-11-
<PAGE>
[Signature Page to Amended and Restated Credit Agreement dated as of
May 7, 1999 with Scientific-Atlanta, Inc.]
AUSTRALIA AND NEW ZEALAND
BANKING GROUP LIMITED
By: /s/ Peter N. Gray
----------------------------
Name: Peter N. Gray
---------------------
Title: Vice President
---------------------
WACHOVIA BANK, N.A.
By: /s/ Karen H. McClain
----------------------------
Name: Karen H. McClain
---------------------
Title: Senior Vice President
---------------------
THE BANK OF TOKYO-MITSUBISHI
LIMITED
By: /s/ G. England
----------------------------
Name: G. England
---------------------
Title: VP and Manager
---------------------
FIRST UNION NATIONAL BANK
By: /s/ Mayla M. Thom
----------------------------
Name: Mayla M. Thom
---------------------
Title: Vice President
---------------------
-12-
<PAGE>
ANNEX I
-------
LIST OF LENDERS, COMMITMENT AMOUNTS AND LENDING OFFICES
-------------------------------------------------------
NationsBank, N.A.
Lending Office (all Types of Loans): Initial Facility A Commitment Amount:
- -------------- ------------------------------------
901 Main Street, 64th Floor $42,500,000
Dallas, Texas 75202
Initial Facility B Commitment Amount:
------------------------------------
$42,500,000
Wiring Instructions:
To: NationsBank, N.A.
Attention: Corporate Credit Support
ABA #111000012
Reference: Scientific-Atlanta, Inc.
Account: 1292000883
The Bank of New York
Lending Office (all Types of Loans): Initial Facility A Commitment Amount:
- -------------- ------------------------------------
1 Wall Street $27,500,000
New York, New York 10286
Attention: Ronald Reedy Initial Facility B Commitment Amount:
Telecopier: (212) 635-6434 ------------------------------------
Telephone: (212) 635-6724 $27,500,000
Wiring Instructions:
To: The Bank of New York
1 Wall Street (22N)
New York, New York 10286
ABA #021000018
Account No.: GLA 111-556
Attention: Lorna O. Alleyne, AVP
I-1
<PAGE>
ABN AMRO Bank N.V., acting through its
Atlanta Agency
Lending Office (all Types of Loans): Initial Facility A Commitment Amount:
- -------------- ------------------------------------
Suite 1200, One Ravinia Drive $25,000,000
Atlanta, Georgia 30346
Attention: Michael Garrett Initial Facility B Commitment Amount:
Telecopier: (770) 395-9188 ------------------------------------
Telephone: (770)399-7375 $25,000,000
Wiring Instructions:
To: Federal Reserve Bank, NY, NY
Favor of: ABN*AMRO Bank N.V.
ABA #0260-09580
Account: 650-001-1789-41
Reference: Scientific Atlanta
Australia and New Zealand Banking Group
Limited
Lending Office (all Types of Loans): Initial Facility A Commitment Amount:
- -------------- ------------------------------------
1177 Avenue of the Americas $12,500,000
New York, New York 10036
Attention: Orlando Diaz Initial Facility B Commitment Amount:
Telecopier: (212) 801-9131 ------------------------------------
Telephone: (212) 801-9740 $12,500,000
Wiring Instructions:
To: HSBC Financial Institutions
For: Australia and New Zealand Banking
Group Ltd.
ABA #021-001-088
Account: 000107484
Attention: Ms. Tessie Amante
I-2
<PAGE>
Wachovia Bank, N.A.
Lending Office (all Types of Loans): Initial Facility A Commitment Amount:
- -------------- ------------------------------------
191 Peachtree Street, 29th Floor $17,500,000
Atlanta, Georgia 30303
Attention: Karen H. McClain Initial Facility B Commitment Amount:
Telecopier: (404) 332-5016 ------------------------------------
Telephone: (404) 332-6555 $17,500,000
Wiring Instructions:
To: Wachovia Bank, N.A.
191 Peachtree Street
Atlanta, Georgia 30303
ABA #061-000-010
Account: 18-171-498
Attention (Interest & Fees on Loans): Adrienne Durham or Karen McClain
Attention (Documentary Letter of Credit Fees): Marilyn Hare
Attention: (Standby Letter of Credit Fees): Rhonda Sulier
The Bank of Tokyo-Mitsubishi Limited
Lending Office (all Types of Loans): Initial Facility A Commitment Amount:
- -------------- -------------------------------------
133 Peachtree Street, NE, #4970 $12,500,000
Atlanta, Georgia 30303-1808
Attention: Gary England Initial Facility B Commitment Amount:
Telecopier: (404) 577-1155 ------------------------------------
Telephone: (404) 222-4205 $12,500,000
Wiring Instructions:
To: Bank of Tokyo-Mitsubishi, Ltd. N.Y. Br.
1251 Avenue of the Americas
New York, New York 10020-1104
ABA #0260-0963-2
Account 97770191
Attention: Loan Operations Dept.
I-3
<PAGE>
First Union National Bank
Lending Office (all Types of Loans): Initial Facility A Commitment Amount:
- -------------- -------------------------------------
999 Peachtree Street GA9084 $12,500,000
Atlanta, Georgia 30309
Attention: Daniel Evans Initial Facility B Commitment Amount:
Mail Code: GA9030 -------------------------------------
Telecopier: (404) 827-7199
Telephone: (404) 225-4037 $12,500,000
Wiring Instructions:
To: First Union National Bank
214 N. Hogan Street, 9th Floor
Jacksonville, Florida
ABA #063000021
Account: 1459162008
Attention: Commercial Loans
I-4
<PAGE>
EXHIBIT 10(q)
<PAGE>
AMENDMENT NO. 1 TO THE
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDMENT NO. 1 ("Amendment") TO THE AMENDED AND RESTATED CREDIT AGREEMENT
(the "Amended Credit Agreement") is entered into as of June 22, 1999, by and
among SCIENTIFIC-ATLANTA, INC., a corporation organized under the laws of the
state of Georgia (the "Borrower"), each of the financial institutions initially
a signatory to the Amended Credit Agreement together with their assignees
pursuant to Section 12.6(d) of the Amended Credit Agreement (collectively, the
"Lenders"), THE BANK OF NEW YORK and ABN AMRO BANK N.V., acting through its
Atlanta Agency, as Co-Agents and NationsBank, N.A., formerly known as
NationsBank of Georgia, National Association, as Administrative Agent (the
"Agent"). Capitalized terms used but not defined herein shall have the meanings
given such terms in the Amended Credit Agreement.
WHEREAS, the parties desire to amend the Amended Credit Agreement to address
changes in certain representations and warranties of the Borrower which were
required as a result of the events that have elapsed since the Existing Credit
Agreement (as such term is defined in the Amended Credit Agreement) was
executed;
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged by the parties hereto, the parties hereby amend
the Amended Credit Agreement as follows:
Section 1. Section 6.1 of the Amended Credit Agreement is hereby amended
by revising subsections (i), (j), (n) and (s) of such Section 6.1 to read in
their entirety as set forth below:
(i) Litigation. Except as set forth on Schedule 6.1(i), (a) there are no
----------
actions, suits or proceedings pending (nor, to the knowledge of the
Borrower, are there any actions, suits or proceedings threatened) against
or in any other way relating adversely to or affecting the Borrower, any
Subsidiary or any other Loan Party or any of its respective property in any
court or before any arbitrator of any kind or before or by any governmental
body which, if adversely determined, could have a Material Adverse Effect,
and (b) there are no strikes, slow downs, work stoppages or walkouts or
other labor disputes in progress or threatened relating to the Borrower,
any Subsidiary or any other Loan Party which could have a Material Adverse
Effect.
(j) Taxes. Except as set forth on Schedule 6.1(j), all federal, state and
-----
other tax returns of the Borrower, each Subsidiary and each other Loan
Party required by Applicable Law to be filed have been duly filed, and all
federal, state and other taxes, assessments and other governmental charges
or levies upon the Borrower, any Subsidiary and each Loan Party and its
properties, income, profits and assets which are due and payable have been
paid, except any such nonpayment which is at the time permitted under
Section 7.6. Except as set forth on Schedule 6.1(j), as of June 15, 1999,
none of the United States income tax returns of the Borrower, its
Subsidiaries or any other Loan Party are under audit. All charges,
accruals and reserves on the books of the Borrower, each Subsidiary and
each other Loan Party in respect of any taxes or other governmental charges
are in accordance with GAAP.
(n) Environmental Laws. The Borrower, its Subsidiaries and each other
------------------
Loan Party has obtained all Governmental Approvals which are required under
Environmental Laws and is in compliance with all terms and conditions of
such Governmental Approvals for those Governmental Approvals, the failure
to obtain or the failure with which to comply, could have a Material
Adverse Effect. Each of the Borrower, its Subsidiaries and each other Loan
Party is also
<PAGE>
in material compliance with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules,
and timetables contained in the Environmental Laws. Except for matters
disclosed in Schedule 6.1(n) or matters which would not have a Material
Adverse Effect, the Borrower is not aware of, and has not received notice
of, any past, present, or future events, conditions, circumstances,
activities, practices, incidents, actions, or plans which, with respect to
the Borrower, its Subsidiaries and each other Loan Party, may interfere
with or prevent compliance or continued compliance with Environmental Laws,
or may give rise to any common-law or legal liability, or otherwise form
the basis of any claim, action, demand, suit, proceeding, hearing, study,
or investigation, based on or related to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling or
the emission, discharge, release or threatened release into the environment
of any Hazardous Material, and there is no civil, criminal, or
administrative action, suit, demand, claim, hearing, notice, or demand
letter, notice or violation, investigation, or proceeding pending or, to
the Borrower's knowledge, threatened, against the Borrower, its
Subsidiaries and each other Loan Party relating in any way to Environmental
Laws an adverse determination in respect of which would have a Material
Adverse Effect.
(s) Intellectual Property. Each of the Borrower, its Subsidiaries and
---------------------
the other Loan Parties owns, is licensed to use or otherwise has the legal
right to use, all patents, trademarks, trade names, copyrights, technology,
licenses, franchises, trade secrets, know-how and processes used in or
necessary for the conduct of its business as currently conducted that are
material to the condition (financial or other), business or operations of
such Person (collectively called "Intellectual Property"). Each of the
Borrower, its Subsidiaries and the other Loan Parties has taken such steps
as it has deemed necessary or appropriate to protect and preserve its
rights in the Intellectual Property. Except as disclosed in Schedule
6.1(s), no material claim (which remains unsettled) has been asserted by
any Person with respect to the use by the Borrower or any of its
Subsidiaries of any Intellectual Property, or challenging or questioning
the validity or effectiveness of any Intellectual Property, which claim if
true could have a Material Adverse Effect. Except as disclosed in such
Schedule 6.1(s), to the Borrower's knowledge, the use of such Intellectual
Property by the Borrower, its Subsidiaries and the other Loan Parties, does
not infringe on the rights of any Person, except for such claims and
infringements as do not, in the aggregate, give rise to any liabilities on
the part of the Borrower and it Subsidiaries that could reasonably be
expected to have a Material Adverse Effect.
Section 2. The Amended Credit Agreement is hereby amended by adding
the following Section 8.8 at the end of Article 8:
Section 8.8 Supplements to Schedules.
------------------------
The Borrower shall be allowed to supplement in writing and deliver to
the Agent revisions of the Schedules annexed to this Agreement to the
extent necessary to disclose new or changed facts or circumstances
after the date of the Amended Credit Agreement; provided, however,
that (i) such subsequent disclosures shall not constitute a cure or
waiver of any Default or Event of Default resulting from the matters
so disclosed; and (ii) the Borrower may not request that the Lenders
make any Loans or issue any new Letter of Credit until three (3)
Business Days after the date of delivery of any such subsequent
disclosure to the Agent. Further, the Requisite Lenders, in their
reasonable discretion and as a result of such subsequent disclosure,
may decide not to make additional Loans or issue new Letters of Credit
hereunder if the Borrower is notified, within thirty (30) days of the
Lenders' receipt of such subsequent disclosure, of such decision.
Upon any such
<PAGE>
notification to the Borrower, the Lenders shall not be obligated to
make additional Loans or issue new Letters of Credit hereunder.
Section 3. Schedule 6.1(f) to the Amended Credit Agreement, which was
originally attached to the Existing Credit Agreement, is hereby replaced in its
entirety with the Schedule 6.1(f) attached to this Amendment.
Section 4. Schedule 6.1(i) to the Amended Credit Agreement, which was
originally attached to the Existing Credit Agreement, is hereby replaced in its
entirety with the Schedule 6.1(i) attached to this Amendment.
Section 5. Schedule 6.1(j) to the Amended Credit Agreement, which was
originally attached to the Existing Credit Agreement, is hereby replaced in its
entirety with the Schedule 6.1(j) attached to this Amendment.
Section 6. Schedule 6.1(n) attached to this Amendment is hereby added to
the Amended Credit Agreement as a schedule thereto.
Section 7. Schedule 6.1(s) to the Amended Credit Agreement, which was
originally attached to the Existing Credit Agreement, is hereby replaced in its
entirety with the Schedule 6.1(s) attached to this Amendment.
Section 8. Representations of Borrower. The Borrower represents and
---------------------------
warrants to the Agent and the Lenders that:
(a) Authorization. The Borrower has the right and power, and has
-------------
taken all necessary action to authorize it, to execute and deliver this
Amendment and to perform its obligations under the Amended Credit Agreement
as amended by this Amendment, in accordance with its terms. This Amendment
has been duly executed and delivered by a duly authorized officer of the
Borrower and the Amended Credit Agreement as amended by this Amendment, is
a legal, valid and binding obligation of the Borrower enforceable against
the Borrower in accordance with its terms.
(b) Compliance with Laws, etc. The execution and delivery by the
-------------------------
Borrower of this Amendment and the performance by the Borrower of the
Amended Credit Agreement as amended by this Amendment, in accordance with
its terms, do not and will not, by the passage of time, the giving of
notice or otherwise: (i) require any Governmental Approval or violate any
Applicable Law relating to the Borrower or any other Loan Party; (ii)
conflict with, result in a breach of or constitute a default under the
articles of incorporation or the bylaws of the Borrower or the
organizational documents of any other Loan Party; (iii) conflict with,
result in a breach of or constitute a default under any indenture,
agreement or other instrument to which the Borrower or any other Loan Party
is a party or by which it or any of its properties may be bound, which
conflict, breach or default would have a Material Adverse Effect; or (iv)
result in or require the creation or imposition of any Lien upon or with
respect to any property now owned or hereafter acquired by the Borrower or
any other Loan Party other than in favor of the Agent for the benefit of
the Lenders.
Section 9. Reaffirmation of Representations and Warranties. The Borrower
-----------------------------------------------
hereby represents that the representations and warranties, as amended by this
Amendment, made or deemed made by the Borrower in the Loan Documents to which it
is a party are true and correct on and as of the date hereof with the same force
and effect as if made on and as of the date hereof except to the extent that
such
<PAGE>
representations and warranties expressly relate solely to an earlier date (in
which case such representations and warranties shall have been true and accurate
on and as of such earlier date) and except for changes in factual circumstances
specifically and expressly permitted under the Amended Credit Agreement.
Section 10. Certain References. Each reference to the Credit Agreement or
------------------
the Amended Credit Agreement in any of the Loan Documents shall be deemed to be
a reference to the Amended Credit Agreement as amended by this Agreement.
Section 11. Benefits. This Amendment shall be binding upon and shall
--------
inure to the benefit of the parties hereto and their respective successors and
assigns.
Section 12. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
-------------
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA.
Section 13. Effect. Except as expressly herein amended, the terms and
------
conditions of the Amended Credit Agreement shall remain in full force and
effect.
Section 14. Effectiveness of Amendment. This Amendment shall not be
--------------------------
effective until its execution and delivery by all of the parties hereto
whereupon it shall be deemed effective as of the date first written above.
Section 15. Counterparts. This Amendment may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original and shall be
binding upon all parties, their successors and assigns.
Section 16. Definitions. All capitalized terms not otherwise defined
-----------
herein are used herein with the respective definitions given them in the Amended
Credit Agreement or incorporated into the Amended Credit Agreement from the
Existing Credit Agreement.
[Signatures on Next Page]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized officers all as of the day and year first
above written.
SCIENTIFIC-ATLANTA, INC.
By: /s/ Wallace G. Haislip
------------------------------
Name: Wallace G. Haislip
----------------------------
Title: Sr. V.P. CFO
---------------------------
NATIONSBANK, N.A., individually and as
Administrative Agent
By: /s/ Pamela S. Kurtzman
------------------------------
Name: Pamela S. Kurtzman
----------------------------
Title: Vice President
---------------------------
THE BANK OF NEW YORK, individually and
as Co-Agent
By: /s/ Robert Santoriello
------------------------------
Name: Robert Santoriello
----------------------------
Title: Assistant Vice President
---------------------------
ABN AMRO BANK N.V., acting through its
Atlanta Agency, individually and as Co-Agent
By: /s/ Steven L. Hipsman
------------------------------
Name: Steven L. Hipsman
----------------------------
Title: Vice President
---------------------------
By: /s/ Larry K. Kelley
------------------------------
Name: Larry K. Kelley
----------------------------
Title: Group Vice President
---------------------------
[Signatures Continued on Next Page]
<PAGE>
[Signature Page to Amendment No. 1 to the Amended and Restated
Credit Agreement with Scientific-Atlanta, Inc.]
AUSTRALIA AND NEW ZEALAND
BANKING GROUP LIMITED
By: /s/ Peter N. Gray
-------------------------------
Name: Peter N. Gray
-----------------------------
Title: Vice President
----------------------------
WACHOVIA BANK, N.A.
By: /s/ Karen H. McClain
------------------------------
Name: Karen H. McClain
----------------------------
Title: Senior Vice President
---------------------------
THE BANK OF TOKYO-MITSUBISHI
LIMITED
By: /s/ G. England
------------------------------
Name: G. England
----------------------------
Title: VP and Manager
---------------------------
FIRST UNION NATIONAL BANK
By: /s/ Irene M. Barton
------------------------------
Name: Irene M. Barton
----------------------------
Title: Vice President
---------------------------
<PAGE>
Schedule 6.1(f)
Borrower has a lease with Wachovia Capital Markets, Inc. pursuant to which
Borrower leases two buildings it recently built using funds borrowed from
Wachovia Capital Markets, Inc. Borrower does not believe such lease is a Lien
under the Amended Credit Agreement.
<PAGE>
Schedule 6.1(i)
Gemstar Development Corporation and several of its affiliated companies,
including Starsight Telecast, Inc. (collectively, "Gemstar"), have instituted
litigation against Borrower in more than one jurisdiction alleging that Borrower
has infringed Gemstar's patents and that Borrower has breached a settlement
agreement with Gemstar. Borrower does not believe that these lawsuits,
individually or collectively, will have a Material Adverse Effect on Borrower.
Also, see Schedule 6.1(n).
<PAGE>
Section 6.1(j)
Borrower is delinquent in filing an informational return in India for its
liaison office.
The IRS is auditing (a) Borrower's original returns for fiscal years 1995,
1996 and 1997, and (b) Borrower's amended returns for fiscal years 1990, 1991,
1992, 1993, 1994, 1995 and 1996.
Borrower is awaiting a final assessment notice from the state of California
relating to a previously pending audit by the state of California.
<PAGE>
Schedule 6.1(n)
Crymes Landfill - Borrower is participating in a group with other potentially
- ---------------
responsible parties who transmitted waste to the Crymes Landfill in Gwinnett
County. Borrower does not believe that any liability (including expenses)
related to the Crymes Landfill cleanup will have a Material Adverse Effect on
the Borrower.
<PAGE>
Schedule 6.1(s)
See Schedule 6.1(i).
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report appearing on page 12 of this Form 10-K, into the Company's
previously filed registration statements as listed below.
1. Registration Statements on Form S-8 covering the Scientific-Atlanta,
Inc. 1978 Non-Qualified Stock Option Plan for Key Employees, as amended
(File Nos. 2-72029, 33-5623, 33-20858, and 33-36926);
2. Registration Statement on Form S-8 covering the Scientific-Atlanta,
Inc. 1981 Incentive Stock Option Plan (File No. 33-781);
3. Registration Statement on Form S-8 covering the Scientific-Atlanta,
Inc. Non-Employee Directors Stock Option Plan (File No. 33- 35313);
4. Registration Statement on Form S-8 covering the Scientific-Atlanta,
Inc. Voluntary Employee Retirement and Investment Plan (File Nos. 33-
69827 and 333-64971);
5. Registration Statement on Form S-8 covering the Scientific-Atlanta,
Inc. 1992 Employee Stock Option Plan (File No. 33-69218);
6. Registration Statement on Form S-8 covering the Scientific-Atlanta,
Inc. 1993 Restricted Stock Awards (File No. 33-52135);
7. Registration Statement on Form S-8 covering the Long-Term Incentive
Plan of Scientific-Atlanta, Inc. (File Nos. 33-56449 and 333-67931);
8. Registration Statement on Form S-8 covering the Scientific-Atlanta,
Inc. Stock Plan for Non-Employee Directors (File Nos. 33-64065 and 333-
40217);
9. Registration Statement on Form S-8 covering the 1996 Employee Stock
Option Plan (File Nos. 333-18893 and 333-67471);
10. Registration Statement on Form S-8 covering the Non-Qualified Stock
Option Agreement with Employee (File No. 333-18891);
11. Registration Statement on Form S-8 covering the Non-Qualified Stock
Option Agreement with Employee (File No. 333-23083); and
12. Registration Statement on Form S-8 covering the 1998 Employee Stock
Purchase Plan (File No. 333-62883).
Arthur Andersen LLP
Atlanta, Georgia
September 24, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE YEAR ENDED JULY 2, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-02-1999
<PERIOD-START> JUN-27-1998
<PERIOD-END> JUL-02-1999
<CASH> 300,454
<SECURITIES> 2,438
<RECEIVABLES> 298,434
<ALLOWANCES> 8,160
<INVENTORY> 189,354
<CURRENT-ASSETS> 831,461
<PP&E> 250,289
<DEPRECIATION> 92,751
<TOTAL-ASSETS> 1,062,274
<CURRENT-LIABILITIES> 267,811
<BONDS> 370
0
0
<COMMON> 39,808
<OTHER-SE> 698,358
<TOTAL-LIABILITY-AND-EQUITY> 1,062,274
<SALES> 1,243,473
<TOTAL-REVENUES> 1,243,473
<CGS> 888,162
<TOTAL-COSTS> 888,162
<OTHER-EXPENSES> 117,261
<LOSS-PROVISION> (1,615)
<INTEREST-EXPENSE> 635
<INCOME-PRETAX> 146,205
<INCOME-TAX> 43,862
<INCOME-CONTINUING> 102,343
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 102,343
<EPS-BASIC> 1.33
<EPS-DILUTED> 1.30
</TABLE>
<PAGE>
EXHIBIT 99
CAUTIONARY STATEMENTS
From time to time, the Company may publish, verbally or in written
form, forward-looking statements relating to such matters as anticipated
financial performance, business prospects, technological developments, new
products, research and development activities and similar matters. In fact,
this Form 10-K (or any other periodic reporting documents required by the 1934
Act) may contain forward-looking statements reflecting the current views of
the Company concerning potential future events or developments. The Private
Securities Litigation Reform Act of 1995 (the "Act") provides a "safe harbor"
for forward-looking statements. These Cautionary Statements are being made
pursuant to the provisions of the Act and with the intention of obtaining the
benefits of the "safe harbor" provisions of the Act. In order to comply with
the terms of the "safe harbor," the Company cautions investors that any
forward-looking statements made by the Company are not guarantees of future
performance and that a variety of factors could cause the Company's actual
results and experience to differ materially from the anticipated results or
other expectations expressed in the Company's forward-looking statements. The
risks and uncertainties which may affect the operations, performance,
development and results of the Company's business include, but are not limited
to, the following: uncertainties relating to the development and ownership of
intellectual property; uncertainties relating to the ability of the Company
and other companies to enforce their intellectual property rights;
uncertainties relating to economic conditions (including, but not limited to,
the continued weak economic conditions in the Asia Pacific region and the
Latin America region); uncertainties relating to government and regulatory
policies; uncertainties relating to customer plans and commitments; the
Company's dependence on the cable television industry and cable television
spending; signal security; the pricing and availability of equipment,
materials and inventories; technological developments; performance issues with
key suppliers and subcontractors; governmental export and import policies;
global trade policies; worldwide political stability and economic growth;
regulatory uncertainties; delays in development and / or deployment of new
products, including digital set-top products and the applications to be used
on such digital set-top products; delays in testing of new products; rapid
technology changes; the highly competitive environment in which the Company
operates; the entry of new, well-capitalized competitors into the Company's
markets as both competitors and customers; reliance on software programs used
by the Company or its suppliers containing problems related to computations
that must be made in 1999, 2000 and beyond ("Year 2000 Problems"); Year 2000
Problems that may exist in products currently or historically sold to
customers of the Company; delays in providing upgrades to customers to prevent
Year 2000 Problems in products sold by the Company; uncertainties in the
financial markets relating to the Company's capital structure and cost of
capital; and uncertainties inherent in international operations and foreign
currency fluctuations. The words "believe," "expect," "anticipate," "project,"
"plan" and similar expressions identify forward-looking statements. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date the statement was made.
